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NorthWestern Corporation (NASDAQ:NWE)
Q2 2021 Earnings Call
Jul 28, 2021, 2:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

Good afternoon and thank you for joining NorthWestern Corporation's Financial Results Webcast for the Second Quarter of 2021. My name is Travis Meyer. I am the Director of Corporate Finance and Investor Relations Officer for NorthWestern. Joining us today to walk you through the results and to provide an overall update are Bob Rowe, our Chief Executive Officer; Brian Bird, President and Chief Operating Officer; Crystal Lail, Vice President and Chief Financial Officer. We also have other members of the management team on the line with us to address questions as appropriate. [Operator Instructions]

NorthWestern's results have been released and the release is available on our website at northwesternenergy.com. We also released our 10-Q pre-market this morning. Please note that the company's press release, this presentation, comments by presenters and responses to your questions may contain forward-looking statements. As such I will direct you to our disclosures contained in our SEC filings and the Safe Harbor provisions included on the second slide of this presentation. Please also note this presentation includes non-GAAP financial measures. Please see the non-GAAP disclosures, definitions and reconciliations also included in this presentation today. The webcast is being recorded. The archived replay of today's webcast will be available for one year beginning at 6:00 p.m. Eastern today and can be found on our website at northwesternenergy.com under the Our Company, Investor Relations, Presentations and Webcast link.

With that, I will hand the presentation over to NorthWestern's CEO, Bob Rowe.

Robert C. Rowe -- Chief Executive Officer

Thank you, Travis. I have just finished a very good Board meeting. This was our first Board meeting together in a year and a half, also the first meeting chaired by our new Board Chair, Dana Dykhouse, CEO of First Premier Bank. We have gotten a lot of work done in the system. So far this year, I am sure we'll come back and talk about some of that. Yesterday, we hit a new peak in our Montana balancing authority of over 1,909 megawatts. The balancing authority, of course, includes load in addition to our retail load. But what was significant was that, that required over 1,000 megawatts of import. So that was a hot day in July, where our system was heavily dependent on imports. We have seen the same pattern in February, with very cold temperatures. So, it's just a reminder of the importance of our infrastructure, but also again, our critical exposure to the regional capacity market and the importance of our plans to address that.

And to summary, net income for the second quarter increased $15.7 million as compared to the same period last year. Diluted EPS increased $0.29 as compared to the same period last year. After adjusting for weather differences and a non-cash liability, non-GAAP adjusted earnings per share increased $0.14 as compared to the same period last year. The Board declared a quarterly dividend of $0.62 per share payable on September 30 to shareholders of record as of September 15. In April, we entered into an equity distribution agreement having an aggregate gross sales price of up to $200 million. During the three months ending June 30, we issued 879,309 shares of common stock at an average price of $64.91 for net proceeds of $56.3 million.

In June, after 2.5 years of very hard work, we joined the Western Energy Imbalance market and this real time within our energy market will provide our Montana customers with economically efficient energy to resolve imbalances and variations and load in generations was a tremendous lift, made even more challenging by COVID. And we heard from CAISO, the market administrator that it was one of the smoothest entries that they have seen and again, a lot of credit to our leadership and the people doing the work and we look forward to realizing those benefits for our customers going forward.

With that, I'll turn it over to Crystal Lail.

Crystal D. Lail -- Vice President And Chief Financial Officer

Thank you, Bob. And as Bob mentioned, it is rather nice to sit in a room with my colleagues again and do meetings in-person and begin to feel like we are resuming back to normal in some regards. With that, I will take you to slide four with the P&L, as Bob mentioned, net income of $37.2 million as compared with $21.5 million last year in Q2 or a $15.7 million increase or 73%. Really a solid quarter in line with our expectations on a GAAP basis and driven by really improved gross margin offset by a bit of higher operating cost. With regard to gross margin on slide five, gross margin of $230.3 million as compared with $208.3 million of the prior period, an increase of $22 million or 10.6%. When you look at the amount of that gross margin change that falls to the bottom line that's approximately $20.2 million, and I'll touch on multiple pieces of that here. First, with regard to the transmission piece of that, there is really two parts in that $9.1 million increase. That includes the release of a deferral of interim rates on our transmission rates related to the ultimate resolution through a compliance filing with the MPSC. I will remind you all that our wholesale rates ultimately become a credit and our Montana rates retail side. So that was the ultimate resolution of that release here in the second quarter and certainly contained some prior period amounts to that.

The remainder of that increase of electric transmission is really driven by conditions in the market in second quarter here with both the combination of higher loads and rates, with warm and dry weather both the south and west of us. The second piece here is the electric QF liability adjustment. This is something we typically adjust every year in Q2 and can be a bit noisy. I'll speak to this in a couple of parts too, as we did pull a piece out of this as a non-GAAP adjustment. The pieces that you are typically used to hearing about one, we adjust for output and pricing that was a little bit favorable this year. The offset to that is there is a contract in which there is price escalation on an annual basis that was unfavorable. The net-net of those two pieces is approximately $2.6 million of unfavorable impact, which offset the non-GAAP portion that we pulled out of $8.7 million, which was revision to an estimate based off clarification of contract terms and as we don't expect that to recur, that's reflected as a non-GAAP item.

And as usual, there is a page in the exhibit that will give you more information on that and a clear breakout that I probably just covered verbally for you. But again, $6.1 million on a GAAP basis contribution to margin for the quarter, that I can see on is electric retail volumes and we did experience overall warmer spring weather, and certainly a piece of that is driven by customer growth of the overall five. six. With that, or residential usage and impact was about flat and commercial was an improvement over prior year. As we think about second quarter of last year, certainly the lowest usage and most COVID impact that we saw comparatively, so certainly a rebound from that. And as we think about the ultimate trends there and the trends on a used per customer basis, we continue to see what would be higher residential loads than normal, but not quite as high as they were in Q2 of 2020. We also continue to see lower commercial and industrial usage, but again, those are better than last year.

So, a bit of a move in the trend, but the trend continues to be there of a bit of a shift in use per customer. And I will speak to that a little bit more as we get into guidance for the rest of the year later. With that, I will turn to weather on slide six. Weather, you will see that April and May were a little bit cooler, made up for with warmer weather in June. I will highlight a couple of things. One, second quarter is always a bit of a shoulder quarter for us. Secondly, you will see some pretty big percentages on the cooling degree days of 153% warmer and 66% warmer, the thing I would point you to is that the relatively small amount of ultimate cooling degree days there. So, the ultimate impact of that and mostly again, June was a favorable weather impact of $2 million as we think about it compared to normal and $1.5 million as compared to the same period in Q2 of 2020. And again, I will address that a little bit more when we talk our GAAP to non-GAAP adjustment.

Slide seven gets into operating expenses. Operating, general, administrative expenses were $77.1 million in the quarter as compared with $71.7 million in the prior period or an increase of $5.4 million or 7.5%. With that, again, the amount that falls to the bottom line is approximately $3.2 million of that variance. There is a couple of things driving that: one, an increase of about $2 million related to generation maintenance at our electric facilities; in addition, about $1 million related to employee benefits, that's primarily driven by an increase in medical costs; and then also an $0.9 million increase related to implementation of technology and the associated maintenance cost with that as well. The thing I would note of those increases a bit of an offset is our uncollectible accounts. We are certainly seeing the ultimate collections from our customers come back in that regard and that offset those increases by approximately $2.8 million. The other thing that I would note here is that we do expect headwinds in the back half of the year driving toward a more sustainable and normal amount of costs on an ongoing basis.

From a property tax perspective, we are about flat to the prior year, an $0.3 million increase and then depreciation a $2 million increase driven primarily on plant additions. With that, slide eight, operating income of $59.1 million as compared with $44.8 million in the prior period or $14.3 million, 31.9% increase, again, driven primarily at the gross margin line. Interest expense and other income are immediately below that, those both show a favorable net adjustment, there was a decrease in interest expense and increase in other income. Both of those are driven by the debt and equity portions of AFUDC for a favorable impact on those, quarter-over-quarter. From an income tax perspective, I would highlight that we have income tax expense in the current period as compared to the benefit in the prior year or prior period that's driven primarily by higher pre-tax income, partially offset by higher flow-through deductions.

From a cash flow basis, you will see on slide nine, our cash flows for the six months ended 2021 compared to 2020, you will see a decrease of $114.7 million. Most of that decrease occurred in Q1 and we talked about that then. But I will reiterate a couple of things, an $82.8 million increase in market purchases of supply. Again, most of that was experienced in Q1 that we do continue to see higher overall market prices of electricity out there, but most of that was a Q1 impact. And then in addition, as we have talked about, we had a refund to our FERC customers of approximately $20.5 million and that has impacted cash flows as well during the period. slide 10, I will walk you through and just remind you of what we just discussed from a non-GAAP adjustment perspective, one weather impact, you will see the $2 million we discussed as compared to normal with an $0.5 million in the prior period, so, net-net over the period $1.5 million.

In addition, we talked about our QF liability adjustment and that we pulled out the piece of that, that we don't expect to recur, which is a clarification of contract terms of approximately $8.7 million favorable adjustment there. With that reducing GAAP net income to $29.2 million for the quarter or $0.56 as compared with $21.1 million in the prior quarter or $0.42 on a non-GAAP basis. slide 11 provides our earnings guidance for the year. And as I have mentioned, the quarter for us was in line with our expectations. One of the things that we had talked about before when we have announced '21 earnings guidance is that we had a bit wider range of $0.20, which was $3.40 to $3.60, with the quarter here in our performance so far, halfway through the year, we have narrowed that in a bit to a $0.15 range of $3.43 to $3.58. We have also updated a couple of assumptions that I would mention as key to how we think about the back half of the year. And there is still a lot of years left to go.

But one of the things is we are continuing to see the pattern, as I mentioned earlier from a usage perspective of commercial industrial volumes being off from what we would consider normal and residential offsetting that a bit, we do expect that to continue in the back half of the year. The other thing that I mentioned is, again, while we have had a strong first half of the year, we do expect operating costs in the back part of the year to increase and those would reflect a more sustainable level. So, we expect those pressures in the back part of the year as well. The other thing I certainly would highlight is that we have updated the diluted shares outstanding of approximately 51.8 million to 52 million. To increase that, it was previously 51.5 million to 51.8 million. The other thing that we've noted is that increased share counts update the reflection that we expect to issue the full $200 million of equity that we had indicated a need for previously that does adjust that timing sooner than we had initially indicated.

The thing I would comment on that is that in response to certainly the need to support the growth that we are experiencing from a company's basis and also certainly to support and maintain our credit ratings. I would also remind you that we are on track for the $450 million of capex spend in '22. That compares to approximately $400 million in '20-I should say '21, I think I got me wrong $450 million in '21. I am getting your head already as compared to $400 million in 2020. And in 2020, we did expect to do equity and ended up not doing that. And then that compares to more of a $300 million number from before that. So the thing I would indicate in the sense of the amount of equity we expect to do this year is again, in support of our credit ratings, but also the amount of growth we have in front of us as a company. And with that....

Robert C. Rowe -- Chief Executive Officer

Thank you. I will point out that the year is the only number you have got wrong since you have been the CFO. So, Crystal and Travis and all finance department continue to do just great, great work. Touching lightly on some of the regulatory matters, we don't expect to file a general rate case in any of our three jurisdictions this year, which is still 2021, but we have made several other important regulatory filings in our Montana jurisdiction. In April, we filed a request to delay implementing our fixed cost recovery mechanism pilot, that's the Montana version of decoupling for another year until at least July of 2022 due to the continued uncertainties created by COVID. And on June 29, the Montana Commission did grant that delay. We have not seen a written order. We are of course eager to see that. We appreciate the workload of the Commission. So that was very much a positive.

Also in April, we filed a request to prove an increase to the forward costs used in developing rates for the recovery of our electric power costs in Montana through the power cost and credit adjustment mechanism, our friend, PCCAM that would be approximately $17 million. And this is really intended to better align the base costs in the PCCAM with the costs that our supply team is facing in the market and incurred on behalf of our customers. On June 29, the Commission did approve implementing interim rates reflecting the $17 million increase that because the interim is of course subject to refund. There again a written order is pending. In May, we filed a request to approve acquiring electric capacity resources that are critically important to address our customers' exposure at peak to the regional power market. This was based on the 2020 RFP that we've been discussing with you for quite some time. Brian will come back and discuss that in much more detail. And then, we have finally been able to fully wrap up the FERC rate case that was the parallel to follow on to our last Montana General Electric rate case.

And we are pleased to have reached a settlement refunds there and have implemented the new rate structure, which we think will be a benefit all around. So, Crystal is doing a great job in her new role. Meanwhile, Brian has transitioned. He has replaced the consonant with a vowel in his title. I will setup the capital plan just briefly and then turn it over to Brian to go into some of the details. We always share this slide with you and we do have a robust capital plan looking out four, five years into the future. As Crystal mentioned, we are on track to meet our capital plans for this year and it involves over $2 billion of total investment over the five -year period, financed with a combination of cash flows from operations, with mortgage bonds and equity issuances. During the second quarter, as you know, we did initiate the $200 million ATM program. And we expect to issue the remainder of that this year in order to support our current capital program and protect our credit ratings.

Capital investment in response to the Montana RFP and the supply resource investments would be incremental to these amounts and then of course, finance plans are subject to change depending on capex regulatory outcomes, internal cash generation and then market conditions. The South Dakota resource investment is well underway about $100 million that is included in the 2021 through '23 periods. And we expect that this level of capital should result in annualized rate base growth of 4% to 5%. And again, the project do not include the investments necessary to support the rural generating station if approved by the Commission, that should be an additional $250 million excluding AFUDC spread primarily over 2022 to 2023. So in his new role as COO, Brian has been spending a lot of time in the field across all 3 states making the rest of us very jealous and doing a great job working with our executive team and management in the operations area to really enhance the already high level of cooperation there.

So as a result of that, we are poised to continue investing in and delivering our customers the highest possible level of service. So, off to you. Thanks Bob. As Bob mentioned, on the capital slide, we had a tremendous amount of investment in all areas of the operation and extremely busy in terms of this higher level of capital spend and we anticipate with Laurel coming online ultimately enabled to make that investment to continue these high levels of capital investment. On slide 14, speaking to the generation portfolio in Montana, remember back in May, we made our filing associated with to acquire electric capacity through resources identified in our January 2020 RFP. And from that, two of those entranced, if you will, the Laurel generation station and the esVolta energy storage contract we included in that filing, Laurel being the 175 megawatt RICE units, located in Laurel, Montana, which we intend to invest $250 million and is expected to be in commercial operation in late 2023, early 2024. And then the 50 megawatt battery facility from esVolta to be located near Billings, and entering that through a 20-year agreement to fill the 5-hour duration tier identified in the RFP. Not included in that filing, but should be included in our PCCAM is the Powerex transaction, a five -year power purchase agreement for 100 megawatts of capacity and energy projects, originating predominantly from hydro resources. Earlier this week, the MPSC concluded that the application met the minimum filing requirements and that starts the shot clock for 270 days, receipt of inadequate application. So we hope certainly near the end of this year we will have an outcome and hopefully if we can get going on the project at that point in time. Moving over to South Dakota, our project and here on the Bob Glanzer Generating Station is going along extremely well and we expect to have it online by the end of this year. In addition, we plan to move forward with Aberdeen and as Bob mentioned, the South Dakota Capital is included in our capital plans, but we expect to have the Aberdeen unit also online by the end of 2023, much like the Laurel Generating Station. Moving on to slide 15, we really took the first half of this year to go after those things from an ESG perspective that we haven't had appropriately disclosed. And we worked extremely hard to tie that to the release of a brand new webpage that we expect to have coming online within days. And once that happens, it will be much, much easier for investors and those folks from an ESG, who raid us to actually find information, updated information, the total company effort to capture this information and record it. And as a result, we are going to be able to provide new reporting, new reporting from an SAS B perspective, from a TCFD, we will an AGA ESG Methane Reporting Template, all of those are being new, will have updated our EEI ESG Carbon Reporting Template. And we are just going to have a plethora of sustainability statistics updated and expanded. And we are really excited really for two reasons. The webpage is going to look great. And you are going to see a very, very large focus on ESG. And from our perspective, it's going to be very easy for the folks that raid us from an ESG perspective to capture that information and from our perspective, better depict our scores on a going forward basis. And with that, I will pass it back to Bob. Great. Thank you, Crystal. Thank you, Brian. We are ready for questions.

Questions and Answers:

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

Thanks Bob. [Operator Instructions]

Robert C. Rowe -- Chief Executive Officer

Be sure to press the icon that has all the fingers pointing up.

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

Thank you for the reminder, Bob. Okay, we will take our first question from Ryan Greenwald of BofA Securities. Ryan, your line should be open. Please proceed.

Ryan Greenwald -- BofA Securities -- Analyst

Good afternoon, everyone.

Robert C. Rowe -- Chief Executive Officer

Hey, Ryan.

Ryan Greenwald -- BofA Securities -- Analyst

Thank you for taking my questions. So maybe first, how should we think about the puts and takes through the rest of the year here relative to the prior walk that you guys had previously included in the slide deck? You have this additional equity, but can you talk a bit about any other moving pieces here and what factors might be keeping the midpoint unchanged?

Robert C. Rowe -- Chief Executive Officer

Crystal?

Crystal D. Lail -- Vice President And Chief Financial Officer

Sure. Ryan, I think a couple of things. One, the first half of the year is in line with our expectations for where we expect to be performing. The other thing we updated a bit is we do expect a bit of headwinds in the back part of the year with continued load trends, as I alluded to, from a customer usage perspective of seeing lower commercial and industrial usage, while admittedly better than the prior year, still not back to what we would call normal, but in part by improved residential usage, but again, not quite as good as it was last year. So, that's certainly a piece of it. The other headwinds I alluded to is on the operating side. And I think we have provided that walk as to where we expect operating expenses to be from a full year basis. And again, 2020 wasn't normal, 2021 we are moving back toward what I think is a more sustainable level of ONG. And I certainly expect an increase in the back half of the year there. While we don't give quarterly guidance, they are certainly not as what I would call it even spread across quarters there.

Ryan Greenwald -- BofA Securities -- Analyst

Got it. And then was the transmission deferral expect anticipated?

Crystal D. Lail -- Vice President And Chief Financial Officer

Yes.

Ryan Greenwald -- BofA Securities -- Analyst

And then maybe just lastly on equity, how should we think about this in terms of ongoing from here outside of the additional generation into '22, does this kind of limit the equity needs in '22?

Crystal D. Lail -- Vice President And Chief Financial Officer

I would say two things, obviously, we are investing a lot of capex in the business and we have a good problem to have there in the sense the amount of growth in front of us. The other thing I would say, just as you think about '22, we have updated where we expect to be from a '21 basis as we get closer to '22. Obviously, we will update you on our plans there, but certainly, always expect to be mindful of our credit ratings along with the growth in front of us.

Ryan Greenwald -- BofA Securities -- Analyst

Got it. And maybe just one more if I may. In terms of financing the generation, any initial thoughts in terms of an ATM or equity block or how you are ultimately thinking about that?

Crystal D. Lail -- Vice President And Chief Financial Officer

Okay. You are ahead of us on technical execution there. I think your comment has been will be roughly 50:50. And as we get closer to that, obviously proceeding with the approval docket, we will have more to come on that.

Ryan Greenwald -- BofA Securities -- Analyst

Fair enough. Appreciate the time.

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

Thanks, Ryan. We will take our next call from the line of Jonathan Reeder at Wells Fargo. Jonathan, your line is open.

Jonathan Reeder -- Wells Fargo -- Analyst

Hey, good afternoon. Can you guys hear me OK?

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

Yes. We sure can.

Jonathan Reeder -- Wells Fargo -- Analyst

Great. So maybe just piggybacking off of Brian a little bit regarding the decision to now issue all $200 million in '21, was this decision at all influenced by some of the positive drivers, in particular, the transmission strength, not the deferral portion, but just the strength in general partly driven by the hot weather out West and maybe the thought that you could opportunistically strengthen your credit metrics a little more now without adversely impacting your ability to hit guidance?

Crystal D. Lail -- Vice President And Chief Financial Officer

I guess, so Jonathan, I would answer your question in a couple of parts. One, the sense of the additional equity, as we had talked about coming out of Q1, we are on a negative outlook from Moody's perspective. So we are mindful of where we are going for a credit rating perspective. The other key factor certainly is the amount of capex and investment in the system at this point. So, those are the bigger pieces of it. And then obviously from a guidance perspective, I think we have talked to a bit of what we had from-our performance through the first half of the year is in line with our expectations.

Jonathan Reeder -- Wells Fargo -- Analyst

Okay. And then regarding that PCCAM base request, do you have what your final base that you are going to be supporting. I know the interim was based on like $156 million, but the plan was to kind of update a final request off of forward power prices as of the end of June I think. Do you know what that updated number is, just trying to get a sense?

Crystal D. Lail -- Vice President And Chief Financial Officer

Yes. I think the final number is $165 million.

Jonathan Reeder -- Wells Fargo -- Analyst

$165 million. Okay, great. Thanks so much for taking my questions. Appreciate it.

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

Thanks, Jonathan. We will take our next call from the line of Brian Russo at Sidoti. Brian, your line should be open.

Brian Russo -- Sidoti -- Analyst

Yes. Hi, good afternoon.

Robert C. Rowe -- Chief Executive Officer

Hi, Brian.

Brian Russo -- Sidoti -- Analyst

Hey, so just could you elaborate on the dynamics of the transmission margins outside of the interim rate? You mentioned hot and dry weather in the south and west of you, I would imagine that's continued into July? Does your guidance capture the transmission revenue potential upside above normal in July?

Crystal D. Lail -- Vice President And Chief Financial Officer

I guess a couple of things I would say about that is obviously the conditions related that drive that there is long-term firm transmission, there is the short-term market. And that short-term market is more of what's driven and day-to-day that can be different. So certainly, we had-we have moved into a formula rate environment. So, we have captured that in our expectation for the remainder of the year. But the thing I would just highlight at a high level perspective is we have continued to highlight where we have margin headwinds, there maybe puts and takes in there. But from a guidance perspective and being narrowing in that range, we expect that I get the performance through the first half of the year and we are expecting to be the back half of the year, obviously, transmission is good news, if that continues.

Brian Russo -- Sidoti -- Analyst

Great. So I mean, in essence, third-parties are utilizing your transmission to wheel power to the west where demand is needed?

Crystal D. Lail -- Vice President And Chief Financial Officer

Yes.

Brian Russo -- Sidoti -- Analyst

Okay.

Crystal D. Lail -- Vice President And Chief Financial Officer

That's all.

Brian Russo -- Sidoti -- Analyst

And then Brian, you mentioned earlier that you are hopeful to have a Montana pre-approval decision by the end of the year. But I think the clock is 270 days plus another 90, which would be a total of one year. And I am just curious why the expectations for the end of the year and why don't you think the commission would take the full amount of time?

Brian B. Bird -- President And Chief Operating Officer

Well, in fairness, you are absolutely right. If you did the math, I am focused on 270. The extra 90 days, of course, puts us a full year and I was eternal optimist, Brian. There is always an opportunity, they could be done by the end of the year. But you're right, if you actually do the shot clock in 270, you're going be around the end of the first quarter.

Brian Russo -- Sidoti -- Analyst

Got it. And then on the second RFP that you alluded to, in the press release during 2022, I would imagine you want to wait for this pre-approval process to be over. But in terms of the size or components of the next RFP, would it be similar to the one that was just concluded?

Brian B. Bird -- President And Chief Operating Officer

I think the best thing to say at this point in time, like you said, you are absolutely right, let's get Laurel approved and move forward and I think we'll assess at that point in time, our needs, and we will size accordingly.

Brian Russo -- Sidoti -- Analyst

Okay, great. And then just lastly, on the balance sheet, you have the 50% to 55% debt to cap and even with the equity issuance and the solid first half of 2021. The debt to cap is still at 53% or so, I mean, are you targeting just the midpoint through the end of the year and going forward or you are targeting the lower end or the higher end?

Crystal D. Lail -- Vice President And Chief Financial Officer

I think I will stick to my 50% to 55% range in that regard, Brian, but also just say that obviously we are focused on the FFO metrics that we would need to be out from a credit ratings perspective.

Brian Russo -- Sidoti -- Analyst

Okay, got it. Thank you.

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

Okay. We will take our next call from the line of Andrew Levi at HITE Hedge Capital. Andy, your line is open.

Andrew Levi -- HITE Hedge Capital -- Analyst

Can you hear me?

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

Sure, can. Can you hear us? Andy?

Andrew Levi -- HITE Hedge Capital -- Analyst

Can you hear me now?

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

Yes, we can, Andy.

Andrew Levi -- HITE Hedge Capital -- Analyst

Yes, yes. Okay, so hello, everybody.

Crystal D. Lail -- Vice President And Chief Financial Officer

Hi, Andy.

Andrew Levi -- HITE Hedge Capital -- Analyst

[Indecipherable] presentation. Couple of questions. So, the first one is just on load specifically commercial and my guess to a lesser degree industrial, but again, we've only had a couple of samples this quarter from the company's reported results on the earlier side. So we have seen quite a recovery in commercial loads in other parts of the country. So, could you kind of just talk about that? And why, again, I understand that you said they have recovered, but it seems going slower than others, because some are at like pre-pandemic levels. And how much incremental low would it take together get to like pre-pandemic levels on the commercial and industrial side?

Crystal D. Lail -- Vice President And Chief Financial Officer

Yes. I think the thing I would just highlight there, Andy, is a couple of things. One, we did see improvement in commercial loads, certainly as you look at compared to the prior period, but not back to what we would term normal. So, I think if you look at the detail we have in either the appendix of the investor deck or in our materials, you would see that we are continuing to trend under what would be if you think back to 2019 levels, what would be a more normal amount of commercial loads there. So, certainly some improvement and I guess I will give a little-I start to say, I won't give commentary, but I don't think it's obviously the prior year was shutdown related. This year, I think if I had to weigh in, it's more workforce issue related and other factors in the economy, so different drivers. But again, we are seeing some improvement there, but not back to what we would call normal.

On the residential side, so again, you haven't heard from probably many utilities, but we continue to see strong residential usage, but not as strong as prior year. So, the thing that I think is indicative of that is that you kind of see flat residential revenues, even though we had a warmer quarter in certain ways. So, I would think about it that way. And we are continuing to monitor, as I mentioned, from a guidance perspective, with the back half of the year, there is still quite a bit of uncertainty there as to where those trends move out.

Robert C. Rowe -- Chief Executive Officer

So, just the color I would add to that is just the three economies we serve are among the very strongest in the country. And just as Crystal said, we don't know everything that's going on, but very clearly, one of the challenges is a severe workforce constraint. And I know that's occurring in other parts of the country too. We have a number of communities we serve where the employment rate is actually slightly-unemployment rate rather is actually slightly negative. So, that is a constraint on businesses getting back to full operation.

Crystal D. Lail -- Vice President And Chief Financial Officer

But we certainly saw improved commercial usage, right. And so it's-well, it's not back to what we would call normal, it's considerably better than it was last year.

Andrew Levi -- HITE Hedge Capital -- Analyst

So, if you kind of had to net it all out longer term. So if you got back to a more commercial, like some investors have said too, more like pre-pandemic load. And residential properties can always be a little bit stronger than what it was pre-pandemic. Did that mean kind of like a neutral earnings outlook just relative to that, would there be looking at the base now upside, but you got to add back to a more normal situation?

Crystal D. Lail -- Vice President And Chief Financial Officer

I guess I would answer it this way as we will see where and I hate the term the new normal, but we will see where the new normal is. But ultimately, the other thing I would remind you of is we have solid customer growth in our service territory. And just from a customer account perspective are seeing good indicators there, solid economies. So all those things are certainly something I would look to as favorable indicators.

Andrew Levi -- HITE Hedge Capital -- Analyst

Okay. So then kind of transitioning through like the customer growth and also what you mentioned on your press release, I guess, you are saying by-I forget it, I think it's 2025 maybe it's little bit longer, the 700 plus megawatts that's needed incremental capacity. And I am assuming the $250 million of capex that project that's addressing some of those 700, right if I am not mistaken. But on top of that, that leaves 500 plus of megawatts needed, what type of customer growth are you seeing in that and I guess is there an upside to about 700 megawatt shortage? At the same time, if you kind of had the perfect world, because you have got to kind of address what's best for the customer, what's best for your balance, what you can do? How many megawatts if you will be able to run over not the same that you want to do and how many megawatts do you think you could reasonably do yourself if we were to fulfill that?

Robert C. Rowe -- Chief Executive Officer

Yes. Andy, I will take that. I think I'm just going go back to what I said earlier from-on a longer term basis we are continuing to address our capacity needs. And there is still a lot of moving parts that we see in Montana and around us from a resource perspective. And so we will give more clarity around that in our upcoming our RFP and then ultimately in our RFP that follows.

Andrew Levi -- HITE Hedge Capital -- Analyst

Okay, that's fair. And when will that RFP-I am sorry, I missed, when will that be signed?

Robert C. Rowe -- Chief Executive Officer

Yes. RFP is in sometime in 2022, as Brian mentioned earlier, expectation that you would basically had an outcome on Laurel, that's probably at the earliest then with the mid-2022.

Andrew Levi -- HITE Hedge Capital -- Analyst

Right. Okay, got it. And then my last question is just around the equity, ATM verse-I mean, you saw a lot of equity that you need to do. I mean, I guess a lot relative to how many shares you have outstanding, but as far as people like us putting up capital it's really not a lot of capital, a lot of equity to dedicate to you guys. So, the ATM, you did about $56 million in the second quarter, I guess it could kind of be sad to say in the third and fourth quarter ultimately we don't get that $200 million, but why not come to us and just kind of get it done. Even if it's at the end of the year, there is kind of dribbling it out. And I have asked this question before, I am under the belief especially since there is-there are lot less hedge fund money around, there is plenty of long-only money around. But the volumes are much lower than they traditionally have been. So I think it affects your equity a little bit more during the ATM. So again, has anything changed in that thought pattern? And obviously, I've asked you this question before.

Robert C. Rowe -- Chief Executive Officer

Crystal will give you the CFO answer. What I will say is it sounds like you are very enthusiastic about supporting NorthWestern Energy stock and we appreciate that very much.

Crystal D. Lail -- Vice President And Chief Financial Officer

With Bob caught there, I would say, the key piece here is we wanted to set your expectations, so the amount of equity as to the rest of the year with regard to the technical execution, we will worry about that as we close out the year.

Andrew Levi -- HITE Hedge Capital -- Analyst

Right. Okay, thanks for taking it up.

Robert C. Rowe -- Chief Executive Officer

Thank you.

Crystal D. Lail -- Vice President And Chief Financial Officer

Thanks, Andy.

Andrew Levi -- HITE Hedge Capital -- Analyst

Have a good one. Goodbye.

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

Okay. We will take our next call from Matt Davis at Coann Capital. Matt, your line is open. Matt, if you are not unmuted, you'll need to unmute your line.

Matt Davis -- Coann Capital -- Analyst

Hey, guys. Can you hear me?

Robert C. Rowe -- Chief Executive Officer

Sure, we can.

Crystal D. Lail -- Vice President And Chief Financial Officer

We can.

Matt Davis -- Coann Capital -- Analyst

Okay, thanks. Sorry about that. Good afternoon. Just a quick question, maybe I am missing something. But I just wanted to go back to the load commentary before with the improvement that you are seeing in margin. When I look at slide 21, it looks like the volumes, megawatt hours were actually down period on period for the electric segment. Can you just reconcile that if I am missing something and how that circles with your commentary on the $5.6 million of upside year-on-year?

Crystal D. Lail -- Vice President And Chief Financial Officer

Getting to that page, so give me just a second here. So, I think from a commentary perspective, you will see that residential is roughly flat, right. So, that's a key piece of it there. The other piece that I would say is that commercial, you see certainly an improvement from the prior period. And then the offsetting headwind there is the industrial loads are off a little bit. And again, the key piece there between the megawatt hours and what you would see in our revenues is also a piece of what falls to the bottom line. And so the trend wise, I think we are highlighting the right pieces for you, but from a margin perspective, the ultimate impact there, there is certainly retail volume improvement between those.

Matt Davis -- Coann Capital -- Analyst

Okay, thank you.

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

Thanks, Matt. We will take our next question from the line that ends in 0231. The line should be open. Remember star six to unmute your line. That is line 02...

Sophie Karp -- KeyBanc -- Analyst

Hello.

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

Yes.

Sophie Karp -- KeyBanc -- Analyst

Can you guys hear me?

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

We can now. Yes.

Sophie Karp -- KeyBanc -- Analyst

Alright, this is Sophie Karp, KeyBanc. Thank you for taking my questions.

Robert C. Rowe -- Chief Executive Officer

Hey, Sophie.

Sophie Karp -- KeyBanc -- Analyst

Hey. Just wondering on transmission, there is lot of conversations happening in the West, right now about transmission planning, especially as it relates to California load, but others as well. Is there-as you think about your IoT next year or even beyond that, is there a room for you to maybe add transmission into that thinking process? Thank you.

Robert C. Rowe -- Chief Executive Officer

What I would say and I will hand it off to Brian is we are and have always been very deeply involved in all of the Western discussions around transmission. Most of those are relatively informal, because this is not an organized market. Many of the most structured discussions around transmission come in the context of regional resource adequacy work being led by the Northwest power pool. And as we look at how we are going to meet our Montana retail customers' needs, we are very aware of the constraints on our transmission system in terms of being able to import power, which is why it's one of the reasons it's so important to have generation in our balancing authority. More generally, we have hadn't been pretty active transmission investment program now for the last, certainly for the last decade, within our service territory, that's transmission to serve our customers. Beyond that, as transmission projects, rise or fall in the West, that is certainly something that we want to stay close to and consistently have. Brian?

Brian B. Bird -- President And Chief Operating Officer

Yes. Bob, I think you said spot on, I would add is we are very concerned about both electric and gas transmission constraints. And obviously, there is an opportunity for us to invest in increasing transmission on gas or electric. We are more than happy to do that, to actually access ourselves to markets outside of Montana. And we would gladly do that. In the meantime, we are also going to be focusing on what we can do within Montana, from both electric and gas perspective to make sure we have supply and able to meet our needs within Montana. And I think that's an opportunity now to protect our customers to deliver to them on a daily basis every day, particularly during peaks, but also for us a great opportunity for investment as well.

Sophie Karp -- KeyBanc -- Analyst

Thank you.

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

Thanks Sophie. And it looks like Jonathan Reeder from Wells Fargo has a follow-up question. Jonathan, your line should be open again.

Jonathan Reeder -- Wells Fargo -- Analyst

Hey, I just figured I would ask the obligatory inflation question what you guys are seeing, on that front, any pressures and your ability to combat them?

Crystal D. Lail -- Vice President And Chief Financial Officer

I will take my first crack at it. And then I know Brian will have something to add and maybe Bob too. But I think for him a couple of regards. One as you think about our capex plan here, in 2021, I think I am in-a lot of those costs are already baked in where I would expect you would consider inflation is more in the out years of '22, '23. If the trends continue, whether they are short-term trend or a long-term trend, time will tell. But if so then certainly your cost per to do the same work, we would certainly expect that to ultimately impact us and customer build.

Brian B. Bird -- President And Chief Operating Officer

And all I would add is that inflation is certainly a concern going forward. Obviously, we have to increase operating costs, potentially, and obviously capital investment, and also tell you that we are running into supply-some supply chain issues. We have done a really nice job of managing that thus far. We are having great success to share. And we wanted to actually expand our implementation of AMI in Montana, it was going so well. But due to supply chain concerns there, we are going to have to kind of keep to our original schedule. So otherwise, things are going pretty well. But we are keeping our eyes out for concerns around inflation concerns around supply chain.

Jonathan Reeder -- Wells Fargo -- Analyst

Got it. And then the other one just kind of wildfire activity, I know there has been some in Montana. Anything that we should be aware of that's kind of impacting all our concern, and maybe just remind us how, I guess any incremental costs associated with either wildfire mitigation or I guess, binding them or whatever that recovery process works?

Robert C. Rowe -- Chief Executive Officer

What I would say is we have been very active planning for wildfires and other events for a number of years. We participate in a lot of good regional analysis, but have developed our own strategy in terms, it includes everything from hazard, tree clearance, those are danger trees outside the right of way down to really sophisticated analytical program to identify the line segments that need particular investment because of the nature of the program. That's a capital item, not an expense item. We could talk to you about it for two hours that we did. Just a couple of weeks ago, have a great two hour meeting with the Montana Commission, giving them a good presentation of what our fire team within asset management is doing. We also spent good time at the Board of Directors this meeting talking about the program. The Montana Commission did give us support specifically for hazard trees in the last general rate case. And I think we are seeing the benefits of all that work during this very dry year. There is always more that we can do just in maintenance of the system. But the foresight of our distribution and transmission folks is really paying off well.

Brian B. Bird -- President And Chief Operating Officer

Yes. I would just add. I mean, Bob mentioned earlier today that we had a peak load as of yesterday, and obviously there are fires in Montana, you are reading about in the paper. They impact our system, we manage around and we continue to provide that service with very little interruption to our customers. And it just speaks to the quality of our operations at this company. I think the other thing I would say is we get reminded-I get reminded at least by the T&D folks, this company, we have been dealing with forest fires over 100 years we have been in operation.

Jonathan Reeder -- Wells Fargo -- Analyst

Great. Thanks.

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

Thanks, Jonathan. With that it looks like your queue is exhausted. Before I hand it back to Bob though, I would invite everybody over to the pool party at Andy's house. So, I like the phone over there. Bob?

Robert C. Rowe -- Chief Executive Officer

You left me speechless and it's really hard to do, but it's a great visual image. I wish we were all at Andy's pool. So, enjoy the rest of your summer. I very much look forward to seeing you in person over the rest of the year. Take care, everybody.

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

Thank you.

Duration: 52 minutes

Call participants:

Travis Meyer -- Director Of Corporate Finance And Investor Relations Officer

Robert C. Rowe -- Chief Executive Officer

Crystal D. Lail -- Vice President And Chief Financial Officer

Brian B. Bird -- President And Chief Operating Officer

Ryan Greenwald -- BofA Securities -- Analyst

Jonathan Reeder -- Wells Fargo -- Analyst

Brian Russo -- Sidoti -- Analyst

Andrew Levi -- HITE Hedge Capital -- Analyst

Matt Davis -- Coann Capital -- Analyst

Sophie Karp -- KeyBanc -- Analyst

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