Jul 24, 2012
Operator
Please stand by. We’re about to begin.
Good day, ladies and gentlemen, and welcome to today’s NorthWestern Energy’s Second Quarter 2012 Financial Results Call. As a reminder, today’s call is being recorded.
At this time, for opening remarks and introduction, it is my pleasure to turn the call over to Mr. Dan Rausch.
Please go ahead, sir.
Daniel Rausch
Thank you. Good afternoon and welcome to the NorthWestern Corporation’s financial results conference call and webcast for the quarter ended June 30, 2012.
NorthWestern's results have been released and that release is available on our website at www.northwesternenergy.com. We also filed our 10-Q after the market closed yesterday.
Daniel Rausch
Joining us on the call today are Bob Rowe, the President and CEO; Brian Bird, Chief Financial Officer; Kendall Kliewer, Controller; and Heather Grahame, General Counsel.
Daniel Rausch
This presentation contains forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and speak only as of this date.
Our actual results may differ materially and adversely from those expressed in our forward-looking statements as a result of various factors and uncertainties, including those listed in our Annual Report on Form 10-K, our recent and forthcoming 10-Qs, recent 8-Ks and other filings with the SEC. We undertake no obligation to revise or publicly update our forward-looking statements for any reason.
Following our presentation, those of you joining by teleconference will be able to ask questions. A replay of today’s call will be available beginning at 5
00 Eastern Time today, through August 23, 2012. To access that replay, dial (888) 203-1112 and then access code 3759413.
A replay of today’s webcast will also be available on our website for about the next month.
Following our presentation, those of you joining by teleconference will be able to ask questions. A replay of today’s call will be available beginning at 5
I will now turn over to President and CEO, Bob Rowe.
Robert Rowe
Thank you, Dan. We are joining you all this afternoon from our Billings, Montana division office and Billings is one of the most dynamic areas in our service territory.
We’ve completed our 2 days of board meetings, an employee meeting this morning and then a great community meeting last night. Good conversations with community leaders and some of our important customers here.
Robert Rowe
Our earnings in the second quarter of 2012 were $0.31 a share and that was right in line with our expectations. We continue to focus on investments to serve our customers while working with our employees to control costs and this has allowed us to maintain our financial results despite an unseasonably mild spring in our service territory.
During the quarter, we continued construction on the Spion Kop Wind Project in Montana.
Robert Rowe
Also in the area of electric supply, we continued construction on the 60 megawatt peaking facility in Aberdeen, South Dakota, which we expect to achieve commercial operation before the 2013 summer season. To help us fund our growth projects, we have issued $23 million from our equity dribble program and we also priced $90 million of first mortgage bonds at 4.15% and $60 million of first mortgage bonds at 4.30%.
We plan to issue the bonds later during the third quarter of '12.
Robert Rowe
On the operations side, we are happy to report that the Dave Gates Generating Station is back up and running as intended and we’ll talk about that more later. And last but not least, yesterday the Board of Directors declared a common stock dividend of $0.37 per share payable on September 30 to common shareholders of record as of September 14, 2012.
Robert Rowe
And now our Chief Financial Officer, Brian Bird, will discuss our second quarter '12 financial results in much more detail. Brian?
Brian Bird
Thanks, Bob. As Bob said, we reported net income of $11.4 million or $0.31 per fully diluted share for the quarter ended June 30, 2012 compared with consolidated net income of $11 million or $0.30 per fully diluted share for the quarter ended June 30, 2011.
So for the most part, we were flat year-over-year.
Brian Bird
However, our pre-tax earnings improved by $3.5 million compared with the quarter ended June 30, 2011. Our income tax for 3 months ended June 30, 2012 was $2.6 million as compared with the income tax benefit of $0.5 million in the same period of 2011.
The $3.1 million increase in income tax expense is primarily due to the absence of a benefit during the second quarter of 2011, which released $1.6 million of state net operating loss or NOLs carryforward reserves and also $1.3 million attributable to higher taxable income in 2012.
Brian Bird
Digging a bit in the details, our gross margin increased by $6.8 million during the quarter ending 2012 compared to the same period of 2011. The primary drivers were an increase in demand-side management lost revenues recovered in our supply tracker.
And on those, demand-side management lost revenues are -- as our company sponsored energy saving measures, these are primarily more efficient residential and commercial lighting. These measures are implemented.
We are allowed recovery of DSM or demand-side management lost revenues.
Brian Bird
During the second quarter of 2012, we recognized approximately $6.6 million of DSM lost revenues as compared with approximately $2.1 million during the second quarter of 2011. The 2012 amount includes $3.3 million in DSM lost revenues for the July 2010 through June 2011 tracker period, which we recognized as revenue when we received MPSC approval in April of 2012.
Brian Bird
In addition to the demand-side management lost revenues, we also had an increase in Montana property tax tracker revenues as a result of plant additions and higher assessed property valuations, and also an increase in transmission capacity revenues related to higher demand to transmit energy for others. These items were offset by a decrease in natural gas volumes driven by warmer spring weather, which reduced our natural gas revenues.
Brian Bird
On the expense side, operating and general administrative expenses decreased by $2.4 million during the quarter ending 2012, compared with the first quarter of 2011 -- second quarter 2011, excuse me. This was primarily driven by a lower bad debt expenses, timing-related proactive line maintenance as compared with the same period of 2011 and lower plant operating costs at Colstrip Unit 4.
Brian Bird
Property and other taxes increased by $5.3 million compared with the same period of 2011, due to higher assessed property valuation and plant additions. The higher assessed property valuations are primarily due to lower capitalization rates used by the Montana Department of Revenue.
Brian Bird
Depreciation expense increased by $1.3 million over 2011 as a result of increasing the investment in our business. Interest expense, for the second quarter of 2012 declined by about $700,000 compared with the second quarter of 2011, due primarily to lower interest rates on debt outstanding and higher capitalization of AFUDC.
Brian Bird
Income tax increased by $3.1 million for the quarter ended 2012 with an effective tax rate of 18.3% for the quarter, compared to a negative 4.9% tax return in Q2 2011. As I said earlier, the income tax reduction was primarily due to -- during the second quarter of 2011, we released $1.6 million in state net operating loss carryforward reserves, and we didn’t have that benefit in 2012.
In addition to that, we also had higher taxable income. As a result, we expect overall tax rate for the full year of 2012 to be between 16% and 18%.
Brian Bird
To sum up the quarter, there were primarily 3 drivers. First, we recorded more lost revenues related to our demand-side management programs than we did during the second quarter last year.
Secondly, we had lower operating, general and administrative costs than we did in the second quarter of 2011. And third, those favorable variances were offset by warmer spring weather affecting all of our service territories.
Both the negative impact of the warmer weather and the favorable effect in the lost revenue recovery catch-up decision are items we would reverse from our non-GAAP earnings calculation for the second quarter.
Brian Bird
Our fully diluted EPS in the first quarter of 2012 was $0.31 per share. After adding back what we calculate to be $0.05 per share for the $3.2 million effective warmer than normal spring weather and then deducting $0.05 a share for the $3.3 million positive effect on income from the catch up of the DSM revenues from prior tracker period of July 2010 to June 2011, we get back to calculate a non-GAAP fully diluted EPS for the second quarter of 2012 to be right back at $0.31 per share.
Brian Bird
Now I’ll talk about earnings outlook for 2012. For the full year of 2012, we are reaffirming our fully diluted earnings per share to be in the range of $2.35 to $2.50 per fully diluted share.
Our primary assumptions included in the 2012 guidance are consolidated income tax rate of approximately 16% to 18% pretax income; secondly, the DGGS outage costs are fully recovered; third, that we have no impairment on the $23.5 million in preliminary survey and investigative costs related to our proposed MSTI transmission project; fourth, that no scheduled maintenance at Colstrip Unit 4, Neal and Big Stone Plants occur; fifth, fully diluted average shares outstanding of $37.1 million; and last, we expect normal weather in the company’s electric and natural gas service territories for the remainder of 2012.
Brian Bird
So now let’s move to the balance sheet. As of June 30, 2012, cash and cash equivalents were $8.1 million compared with $5.9 million at December 30, 2011.
And the company had $162 million available from its revolving credit facility at June 30, 2012 and total debt at June 30, 2012 was approximately $1 billion. The company has a long-term debt to total capitalization ratio of 53.5% at June 30, 2012.
Brian Bird
And during the second quarter, we registered with the Securities and Exchange Commission for the sale of up to 100 million of our common stock and entered into an Equity Distribution Agreement with UBS Securities. Under this agreement, we sold 687,285 shares at an average price of $35.40 during the second quarter.
Our current plan is to issue up to 50 million during 2012 or approximately 25 million more for the remainder of the year to support our growth projects.
Brian Bird
As Bob mentioned earlier, we priced $90 million of First Mortgage Bonds at 4.15% and $60 million of First Mortgage Bonds at 4.3% and plan to issue the bonds in the third quarter of this year. As we have consistently stated, we plan to stay within our 50% to 55% debt-to-total capital ratio.
Brian Bird
And with that, let me now turn it back over to Bob, and by the way, Bob, Happy Birthday.
Robert Rowe
Thank you. And I'm hoping everyone on the call will sing afterwards, you're talking.
And again, thank you for joining us this afternoon. As we previously mentioned that during our first quarter call, the Montana Public Service Commission has approved the Spion Kop project to be included in rate base in serving our customers.
This is an $86 million, a wind project which will provide 25-year levelized cost to customers at approximately $54 a megawatt hour. And it’s under construction with an expected completion date to be included in our rate base in October of this year.
As of June 30, we've capitalized about $4 million in costs associated with the project.
Robert Rowe
Concerning natural gas reserves, we've filed with the Montana Commission to place our Battle Creek property into rates and we expect the commission will process that filing by the end of this year. Because that asset is already being recovered through a tracker, there would be no increase in rates should the PSC decide to allow Battle Creek into rates that are requested, 10% ROE and 52% debt-to-total capital ratio.
Robert Rowe
In the meantime, we plan to continue to explore investments in proven natural gas reserves for inclusion in rate base and dedicate it to serve our customers. While we did not previously anticipate any general rate filings in 2012, we do continue to evaluate each of our utility costs of the service which will in turn determine the schedule for such filings.
Robert Rowe
Now I’ll provide you an update on some of our strategic initiatives as we continue to invest and grow our business. First, in our distribution system, over the past several quarters, we have been discussing with you our implementation of our distribution system infrastructure plan or DSIP.
During the second quarter, our capital expenditures for DSIP were approximately $8 million. In addition, we are projecting approximately $72 million in incremental DSIP expenses and about $253 million of DSIP capital expenses over a 5-year time span beginning in 2013.
Based on our current forecast along with the Montana Commission’s approval of the accounting order that allowed us to track expenses, we do believe that DSIP-related expenses and capital expenditures will be recovered in base rates through annual or biennial general rate cases.
Robert Rowe
Moving on to our base load electric supply in Montana. As most of you know, we obtained the significant portion of our electric supply from power purchase agreements that will expire by the end of 2014.
Over time where it makes economic sense, we would like to transition much of the power purchase agreement supply into rate base supply again dedicated to serve our customers and providing a reasonable and stable rates over the long term to our customers. And accordingly, we’re evaluating opportunities to either buy or build electric supply over the next several years.
As we stated in our biennial integrated resource plan filed with the Montana Commission late last year, we plan to analyze the viability of building a base load natural gas plant in Montana to serve our electric customers.
Robert Rowe
Now I’ll address supply investments for our South Dakota service territory. On October 14, 2011, we had a groundbreaking for our peaking facility that we will own in its entirety near Aberdeen, South Dakota of about 60 megawatts and that would replace a power purchase agreement that expires on December 30 of this year.
And this facility will provide peaking reserve margin necessary to comply with our capacity reserve requirements. With respect to the peaker, we have incurred capital expenditures of about $25 million year-to-date.
We expect additional capital expenditures of about $30 million during this year and we expect to achieve commercial operation before next year’s summer season.
Robert Rowe
As we’ve been discussing for some time now, we do need to address and are addressing emission reductions requirements at the Big Stone power plant in Northeast South Dakota and at the Neal plant in Northwest Iowa. We have no significant second quarter updates to provide other than to say that both emission reductions projects are proceeding very much as planned.
We continue to expect our portion of the CapEx to be about $125 million for Big Stone and about $25 million for Neal. And we expect both projects to be completed around 2015.
Robert Rowe
We plan to file a 2013 electric rate case with the South Dakota Commission with a 2012 test year and would include costs associated with both of these emission reduction projects that have been incurred up to that point. And in addition as part of that rate filing, we, at this point, would propose to file environmental riders from 2013 to the end of the installation of the equipment on both of these projects.
Turning to the transmission side of the business in Montana. You are, for the most part, familiar with the 3 transmission projects that we have proposed
the upgrade to our existing 500 kV Colstrip Transmission System, the Mountain States Transmission Intertie and the Montana Collector System.
Turning to the transmission side of the business in Montana. You are, for the most part, familiar with the 3 transmission projects that we have proposed
I’ll start with the upgrade -- proposed upgrade to the Colstrip 500 kV. In 2011, the Bonneville Power Administration or BPA issued a statement proposing 2 transmission line upgrades, one in Washington State and the other the Colstrip upgrade projects in Montana.
BPA began its public comment period on its upgrade to the 500 kV system in Montana, which they have named the Montana to Washington upgrade. The Colstrip 500 kV and the BPA Montana to Washington upgrade are complementary projects, as they are both required for the success -- one is required for the success of the other.
Turning to the transmission side of the business in Montana. You are, for the most part, familiar with the 3 transmission projects that we have proposed
The Colstrip Transmission owners made their compliance filing on March 28 of this year with the Federal Energy Regulatory Commission. The next major contract to be modified is the Montana Intertie Agreement between the Colstrip Transmission owners and the Bonneville Power Administration.
The upgrade to the system could be completed by the end of 2016. However, the timing will need to be coordinated with BPA’s portion of the upgrade further west and, of course, is dependent on customer requests for transmission service.
Turning to the transmission side of the business in Montana. You are, for the most part, familiar with the 3 transmission projects that we have proposed
Next, with respect to the Mountain States Transmission Intertie or MSTI and the Collector Systems, we have several items we’d like to highlight related to MSTI and Collector. First, as we said last quarter, in January of this year, we signed a memorandum of understanding with the BPA, whereby BPA has indicated a potential interest in significant capacity on the MSTI line as an alternative source for serving its Idaho load.
BPA is analyzing 3 options that have been identified for more detailed analysis that could meet their potential -- could potentially meet their needs. MSTI is one of those 3 options that BPA is considering.
We understand that BPA is hoping to complete its study results by the end of July, and BPA will then make a decision this fall on the alternative or on the alternatives that meet their needs.
Turning to the transmission side of the business in Montana. You are, for the most part, familiar with the 3 transmission projects that we have proposed
And then moving to the second matter to update you on concerning MSTI, on May 30 of this year, the Idaho Bureau of Land Management issued a decision which led to a June letter from BLM requiring additional MSTI route alternatives be developed and studied in detail to avoid core sage grouse habitat. This ruling is expected to delay the EIS timeline that we’ve described on previous earnings calls as most likely being the end of the third quarter by a minimum of 6 to 9 months.
However, very importantly, the BLM and the Montana DEQ, the Department of Environmental Quality, have not provided us with a fully updated schedule at this time. This delay in the timeline will result in increased costs and delay the anticipated construction timeline, again, potentially significantly.
Turning to the transmission side of the business in Montana. You are, for the most part, familiar with the 3 transmission projects that we have proposed
In addition, this will likely impact the ability of MSTI to be available for potential market participants and does provide further uncertainty for market participants relying on production tax credits as a part of their own development strategies. Due to the uncertainty surrounding the projects, we are evaluating our alternatives closely.
Through June of this year, we’ve capitalized approximately $23.5 million of preliminary survey and investigative costs associated with the MSTI project. And based on these developments, we currently estimate that the project could now be completed, at the earliest, in late 2018.
Turning to the transmission side of the business in Montana. You are, for the most part, familiar with the 3 transmission projects that we have proposed
Due to the lack of clarity around the key market participants and the permitting issues I just described, we have indefinitely extended the Open Season process for MSTI. And due to the continued market uncertainty and permitting issues now related to the sage grouse subject causing a delay in the EIS timeline, we’re currently evaluating our decision to continue pursuing MSTI.
If we determine that an agreement with BPA is unlikely or can’t be completed on a timely basis, we may abandon the project. If we abandon our efforts to pursue MSTI, we may have to write-off all or a portion of these costs, which could have a material adverse effect on our results of operations.
Turning to the transmission side of the business in Montana. You are, for the most part, familiar with the 3 transmission projects that we have proposed
Now I’ll provide you a quick update on the operation of the Dave Gates Generating Station. As you may recall, we reported that DGGS was shut down on January 31 of this year after problems were discovered in the power turbines of 2 of the 3 generation units.
There are 2 power turbines per unit. And as of June 30, we are pleased to report that 5 of the total of 6 turbines have in fact been returned to service.
And this is through a combination of our own turbines after servicing by Pratt & Whitney and other turbines on loan from Pratt & Whitney. So now the DGGS is operating and providing the regulating services intended.
We expect the turbine repair costs will be covered under the manufacturer’s warranty.
Turning to the transmission side of the business in Montana. You are, for the most part, familiar with the 3 transmission projects that we have proposed
Between February and April, we acquired regulation service from third parties, which resulted in incremental costs of approximately $1.4 million as compared to fully operating service from DGGS. As of May 1, we have not incurred any additional costs associated with third-party regulation service contracts.
We believe the incremental contracted costs for regulation service should be recovered through our normal course of business. However, there can be no assurance that the commission, of course, or FERC would allow us full recovery of such costs.
Turning to the transmission side of the business in Montana. You are, for the most part, familiar with the 3 transmission projects that we have proposed
So in summary, despite the significantly mild spring weather, we reached our expected earnings for the quarter. During the quarter, we were able to return the DGGS to full service.
We continue the construction of the Spion Kop Wind Project in Montana. We continue construction of the 60 megawatt peaking facility in Aberdeen and have invested about $12 million in that plant during the first quarter.
And we continue to make progress with the Montana Commission moving towards placing our interest in the Battle Creek Natural Gas Field production and gathering system into our regulated natural gas rates in Montana.
Turning to the transmission side of the business in Montana. You are, for the most part, familiar with the 3 transmission projects that we have proposed
And with that, I would now like to conclude our prepared remarks and open it up for your questions. Thank you.
Operator
[Operator Instructions] And we’ll hear first from Paul Ridzon with KeyBanc Capital Markets.
Paul Ridzon
I had a quick question on the ins and outs on the property taxes. You had a $0.04 benefit from a tracker and then you had a $0.09 to the bad [ph] and just kind of wonder kind of how to think about these 2 and how are they going to interact through the rest of the year?
Brian Bird
Yes. As property taxes go up, you’d expect that in our property tax tracker, and that show up in our revenue and ultimately our margin, it also goes up.
And remember, we’re able to collect $0.60 on every property tax dollar and that can be -- flows through the tracker. And so that’s pretty equivalent in terms of that change there.
And there can be some ins and outs don’t make exactly for that particular quarter right at 60%, but those are the primary drivers for both margin and property tax expense.
Paul Ridzon
So that there -- the $0.09 and the $0.04 are roughly equivalent period impacts?
Brian Bird
Roughly for the second quarter, yes.
Paul Ridzon
A little bit of delay, I would imagine.
Operator
And we will take our next question from Brian Russo with Ladenburg Thalmann.
Brian Russo
Just -- I’m not sure if I missed this. But when are you going to decide on whether you’ll abandon the MSTI project after the BPA makes a decision?
Robert Rowe
Sure. We can’t control exactly when BPA does make a decision, but that would be the next key step.
We hope for a decision by fall, and at that point, BPA could decide on one of the several options or could decide to keep several options in play. If BPA decides to move ahead with MSTI, that would be sufficient to insure the project’s viability.
If BPA decides to pursue an option other than MSTI, then we would have to evaluate the project in terms of the significant ongoing monthly expenditures coupled with the delay and the effect that, that delay would have on the market for the project. So this is something where, again as you know having followed the company, we try to be very, very transparent about for a number of years and we’ll continue to do so.
Brian Russo
Okay. And the Battle Creek Reserve acquisition, I believe the MCC testified that the acquisition was prudent about a month ago.
So are all we waiting for now is a commission decision? Will they hold a hearing or are we just looking for the filing?
Robert Rowe
No, we’d certainly expect that the commission will look at the matter closely and we would expect a hearing.
Brian Russo
Okay. And that will likely conclude by the end of the year?
Robert Rowe
We hope so, yes.
Brian Russo
Okay. And I think you mentioned earlier that your total equity needs for this year is $50 million.
Can you give us a sense, given your current capital budget of projects that are defined, approved and that you’re spending on, are you going to need additional equity above that $50 million to manage the 50% to 55% targeted debt to cap?
Brian Bird
No. Our expectation for 2012 is up to a total of $50 million or approximately $25 million more than what we’ve done to date.
That’s our current expectation.
Brian Russo
Okay. So, no insight whether you’re going to need all $100 million to satisfy -- to support the capital budget as is?
Brian Bird
Again for 2012, our expectation is that in order to meet our targets from a total debt to cap perspective, we’d only need $50 million in total for 2012.
Brian Russo
Okay, understood. And the South Dakota peaker, if it comes online in mid '13, will you be earning a return of it on that when it becomes commercially available?
Robert Rowe
There isn’t a preapproval process in South Dakota, but we would expect that it would be included in our next rate case and subsequently would earn a return there.
Brian Russo
So it will earn a return at the time it goes in service, meaning you’re not going to experience a regulatory lag with net plant expenses before that’s recovered in rates?
Robert Rowe
Well, there would be lag until we get a rate case outcome, yes.
Brian Russo
When would you expect the rate case outcome?
Robert Rowe
We’ll be filing, again, sometime next year. The South Dakota Commission tends to be pretty efficient in processing cases, but it would be premature to estimate a date at this point.
Operator
Our next question comes from Chris Ellinghaus with Williams Capital.
Christopher Ellinghaus
Can you give us any feeling for how DSM will be recorded in the future?
Brian Bird
Yes, Chris. I think what I’d say that you noticed that there is an adjustment that we recorded in 2012, $3.3 million of that was associated with the 2010 to 2011 tracker.
And then, we did record a portion of the 2011 to 2012 tracker in this year. So on a going-forward basis, I think relative to the $6.6 million that we recorded in the second quarter, our expectation is that we would record at least that amount and expectation is that if we continue to see increased demand-side management revenues go up, it could be higher than that, but it’s too early to tell.
And also I would point out, as we noted in our disclosure that there has been a study that’s been conducted on that and we will evaluate, based upon that study, our needs in terms of our thoughts, if you will, in terms of revenues on a going-forward basis, based upon that study.
Christopher Ellinghaus
And the time of year, the timing, you expect this to continue to be sort of a second quarter kind of event?
Brian Bird
Yes, I would say we’d expect -- if there's any -- based upon that study, we could have some additional thoughts by the end of this year even. But our expectation is you’d expect to see this every second quarter on each and every year going forward.
Christopher Ellinghaus
Okay. As far as gas reserve, gas assets go, I’m a little perplexed at why the commission has been so slow on this one, particularly since you have a very ripe opportunity with gas prices being where they are to do something for customers here.
Can you give us a little feeling for what’s taking the commission so long and are they aware that this is a pretty good environment for you to be doing things, but you need an answer?
Robert Rowe
I have no criticisms on the commission’s handling in this matter at all. They have 9 months within which to make a decision.
It is a matter of first impression. But again to your point, I think they understand, the Consumer Counsel understands and we obviously agree that this is a great time to be in the market acquiring long-term resources.
Obviously, there’s a relatively slight downside risk that prices could hedge down a little bit compared to a tremendous opportunity on the upside to protect our customers from where prices could go. And I think we -- there’s actually in this case, pretty good alignment between all of our views.
And we do continue to actively look for attractive investments.
Christopher Ellinghaus
Okay. Is -- Bob, is MSTI -- the decision to be made there -- is BPA the big trigger on what they decide?
Robert Rowe
BPA is a critical gating factor. And again, if BPA decides to go with MSTI, depending on how specific they are in their decision that could well be enough for the project to move ahead.
If BPA elects another alternative or doesn’t take a clear action, then we will have to reevaluate the project in terms of the ongoing costs and uncertainties and the idea that the goalpost, as we’ve -- as you know, we’ve continued to make tremendous amount of progress on multiple fronts with MSTI that the goalpost seems to keep receding.
Christopher Ellinghaus
Right. Can you give us a little bit of flavor for what’s going on with the collector system right now?
Robert Rowe
Sure. The collector really depends on MSTI.
What we’ve talked about before is that we had an awful lot of activity with Large Generator Interconnection Agreements in our transmission department. And to some extent these LGIAs are building increments of a collector system, but in terms of a true collector -- a full collector system, that would depend on MSTI and would depend on a much further development of resources in Montana.
Christopher Ellinghaus
Right. And isn’t that a little bit of a chicken and the egg problem in terms of generators and the transmission too?
Robert Rowe
It won’t surprise you to hear I’ve used that analogy myself, yes. And that’s a classic challenge within the non-organized western market.
However, there isn’t a mechanism to allocate these projects and to provide all the market participants some certainty. That’s just simply the market that we work in.
Whenever -- and probably most of you have heard me do this, whenever we talk about our transmission projects for export, I have to come back and emphasize that the core of what our transmission department does is build, maintain and operate truly extensive natural gas and electric transmission systems that serve our acquired [ph] customers. And we continue to focus on investments in safety and reliability of our gas and electric transmission systems.
In fact over the next several days, our Transmission Vice President, Mike Cashell, and I are meeting with one of our major customers who has some significant transmission needs here in our Montana service territory.
Christopher Ellinghaus
Okay, one last question. In terms of the base load options for Montana which is in 2014, is coming up pretty soon at this rate.
What’s your thinking there? And included in that, have you had many discussions with PPL about the buy option?
Robert Rowe
In terms of actually buying their facilities?
Christopher Ellinghaus
Yes.
Robert Rowe
I wouldn’t comment on any specific possible transaction. But again we evaluate -- continue to evaluate a range of options including buying facilities, building facilities and then the extent to which we would remain on the market.
And as you know, we’ve had an awful lot of activity on the supply side, both in South Dakota and in Montana. And I have to say that our supply and generation operation does a tremendous job with project managements.
We got a lot of good things going on in that area too.
Operator
Our next question comes from Michael Klein with Sidoti & Company.
Michael Klein
Did I hear you correctly that Spion Kop is expected to go into rates in October or is that just when you expect to transfer control?
Robert Rowe
No. In that case, we did get advance approval from the Montana Commission.
Michael Klein
Okay. So as soon as you take control of it, it’s going to rates?
Robert Rowe
Yes.
Michael Klein
And in just general trends, I know commercial and industrial is -- it’s small part of your business. But what’s that outlook looking like?
Can you give some color just about the local economy and expectations for the rest of the year there?
Robert Rowe
Generally, relatively flat. And again, there are areas within our service territory where there is some significant activity.
I’ve mentioned we are in Billings, Montana today and we’re seeing an awful lot of activity in Billings, much of that associated with development in the Bakken to the North. So there certainly are individual firms across the service territory that are growing.
And most of the larger communities we serve are really quite healthy, but in terms of the kind of much more dynamic growth that we would have been seeing a number of years ago, overall things are relatively flat.
Michael Klein
And have your expectations for just overall load growth -- has there been any change in that over the past 6 to 9 months or so or does it still remain what it was?
Robert Rowe
There really haven’t been -- and what we’ve seen that’s been the most disruptive certainly over that period of time has been the weather.
Operator
Our next question comes from Jonathan Reeder with Wells Fargo.
Jonathan Reeder
Bob, did I hear you correctly regarding the collector system’s viability that if you guys abandon MSTI, is that project essentially dead?
Robert Rowe
We’re -- the collector has been a project that has been more segment-by-segment. So we have, again, built what are effectively collector segments in response to Large Generation Interconnection Agreement requests.
So as the LGIAs come in, we build parts of the line. But on the kind of large scale that a collector system would normally be conceived, you -- to build collector, you require MSTI.
If MSTI is built, that would be in response to demand of some sort and depending on what that demand looks like that would support the collector.
Jonathan Reeder
So the full build out of the collector isn’t really possible obviously because you can’t get the power essentially out of the region? Is that how to look at it?
Robert Rowe
In terms of access to the Southwest, yes. In terms of access to the Pacific Northwest, the key would be the upgrade to the 500 -- to the Colstrip 500 kV.
And we do expect to see -- have seen in fact LGIA requests to support moving power into the Pacific Northwest.
Jonathan Reeder
And then can you just talk a little bit on the future natural gas acquisition? What’s kind of the timing and magnitude of potential future deals there?
Robert Rowe
We actively examine the market, don’t have anything to announce today certainly, but we are out in the market. The -- a goal might be to get -- well, I should say Montana Power had about 50% of its own natural gas needs met by its own supply and it would be probably up to a figure of around $200 million or so over time.
The market we’re looking at is one that will obviously where the ability to do a transaction depends on properties being for sale that match up with not just price, but with the characteristics that we’re looking for in terms of proven reserves with reasonably long asset lives.
Jonathan Reeder
Okay. So $200 million is still kind of the upper end of the range where you’re seeing current prices and everything?
Robert Rowe
I think that’s fair, yes.
Jonathan Reeder
And then do you interpret, I guess, the NCC’s testimony as a green light to pursue more deals given the commentary of a low natural gas price environment?
Robert Rowe
We’ve had very positive discussions with the Consumer Counsel around this area and they do recognize the value of continuing to acquire gas, again, at appropriate prices.
Jonathan Reeder
And then did you mention when you’d be filing the next Montana rate case, and if not, are you thinking about a 2013 filing as well, kind of like South Dakota?
Robert Rowe
Yes. We’re evaluating for basically all 5 jurisdictions, gas and electric Montana, gas and electric South Dakota, gas Nebraska and do that on an annual basis.
And clearly we’re, as I’ve discussed, because of the environmental compliance expenses, are looking at an electric filing in South Dakota next year.
Jonathan Reeder
But Montana, you haven’t come to the conclusion yet?
Robert Rowe
We haven’t made that decision yet.
Jonathan Reeder
And then, just last question, Brian, for the guidance range, you’re talking about Q2, your view of ongoing EPS staying right at $0.31 when you net the 2 items. Does your guidance range reflect normal weather for the first half of the year or is it the actually observed weather?
Brian Bird
Yes, it’s -- from our perspective on guidance, we’re talking about -- in the disclaimer, if you were talking about on a going-forward basis, the assumption of normal weather. I think you’ve seen what we’ve talked about today and for the first quarter, weather has impacted our business.
And we do exclude that, if you will, from the guidance that we share.
Jonathan Reeder
So the $235 million to $250 million would be adding back the adverse first half weather?
Brian Bird
That’s correct.
Operator
[Operator Instructions] We’ll hear next from James Bellessa with D.A. Davidson.
Michael Bates
It’s actually Mike here with Jim. I wanted to ask a couple that I didn’t hear an answer to yet.
It’s my understanding that in South Dakota, when you want to place the Aberdeen plant into rate base, you’ll be able to make a request for interim rates. Is there a rule of thumb in that state that would give us an idea of how or what size that interim rate increase could be?
Robert Rowe
No. And we haven’t had that -- there hasn’t been enough activity in South Dakota to really answer that.
Again, our expectation is we’ll be having discussions with the commission staff and come up with an approach to the filing that makes sense for the commission and for us.
Michael Bates
Okay. And then one last one is, with this potential write-down from MSTI, assuming that the stars don’t align, would any portion of that amount that you’ve accumulated so far be recoverable or would the full weight of that be borne by shareholders?
Robert Rowe
To be very clear, we have not made a decision one way or the other concerning a write-down. And where we can make that decision then we would have to look at options to mitigate that cost.
So we -- what we have done at this point is tried to be as transparent as possible about the challenges we’re facing, the decisions that may be ahead of us, but those decisions have not been taken. And very importantly, as we’ve been clear all along, this, whatever decisions we make, there will be no impact on our Montana retail customers.
Operator
We’ll take another question from Paul Ridzon with KeyBanc Capital Markets.
Paul Ridzon
How many megawatts are rolling off in '14 of PPAs?
Robert Rowe
Right around 200 at peak.
Paul Ridzon
So is that kind of what you look to backfill with as far as any capacity additions?
Robert Rowe
Potentially, although an actual decision is likely to have more elements to it than that, and again certainly possible to enter into bridge contracts, for example. So it’s not at all a binary choice between market and a known resource.
Paul Ridzon
And given the way things are unfolding on the Battle Creek front, if the commission were to act and issue a positive order, I would imagine you’ve been kicking tires, you think you could be in a position to do something really quickly?
Robert Rowe
That depends on what’s available in the market, but you’re right, we have been certainly out on the car lots on Sunday afternoon kicking tires, yes.
Paul Ridzon
Okay. Happy birthday, Bob.
Operator
And we’ll move on to Jonathan Reeder with Wells Fargo.
Jonathan Reeder
I thought I withdrew the question but happy birthday, Bob. And I guess just a follow-up, quickly to that last one, I guess, did you indicate prior that you’re waiting for the Montana Public Service Commission to rule on Battle Creek before doing any other deals or did you say you would actually strike a deal if you found one that was the right size and the right price?
Robert Rowe
No, we’re not waiting for a commission decision. And as I said, we are actively out on the lots kicking the tires.
Operator
We’ll hear now from Brian Russo with Ladenburg Thalmann.
Brian Russo
Thanks for the follow-up. I’m just curious and I may have missed this, but what was the year-to-date impact of weather that’s being excluded from your guidance?
Brian Bird
Yes, I think it’s -- again this is versus normal weather, we said $0.05 for this quarter. And if you remember in the first quarter, it was, and again first quarter being a pretty heavy month for us, particularly for gas loads, we forecasted about $0.09 in the first quarter, milder versus normal.
Brian Russo
Okay, so just to be clear, the guidance range excludes $0.14 of weather -- of negative weather impact.
Brian Bird
Correct.
Operator
There appear to be no further questions or comments at this time.
Robert Rowe
Okay, well, thank you very much. The one key number that we didn’t disclose in our filing or on this call is how old I am and that’s how it will remain, but thank you all for joining us and talk to you all next quarter, if not before.
Operator
Thank you. Ladies and gentlemen, that will conclude today’s presentation.