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NorthWestern Corporation (NYSE:NWE)

Merger and Acquisition Call

September 27, 2013 08:30 AM ET

Executives

Travis Meyer - IR

Bob Rowe - President and CEO

John Hines - VP and Head of Energy Supply

Brian Bird - CFO

Analysts

Paul Patterson - Glenrock Associates

Paul Ridzon - KeyBanc

Brian Russo - Ladenburg Thalmann

Chris Ellinghaus - Williams Capital

Jonathan Reeder - Wells Fargo

Tyler Gentry - OneAmerica

Paul Ridzon - KeyBanc

Operator

Good day and welcome to the NorthWestern Corporation conference call and webinar. Today’s conference is being recorded. At this time, I would like to turn the conference over to Travis Meyer. Please go ahead sir.

Travis Meyer

Good morning and welcome to NorthWestern Corporation’s conference call to discuss the proposed acquisition of PPL Montana's hydro facilities. Thanks for joining us on such a short notice. A copy of the presentation and accompanying press release are available on our website at www.northwesternenergy.com. You will find the link to this morning’s slide presentation under our company investor relations presentations and webcast.

If you join the call early and do not currently see the cover slide of the presentation, refresh the browser window and the presentation should appear. We have a full agenda today and at the end we will open up the call for Q&A.

But before I turn the call over for us to begin, please note that the company’s press release, comments by presenters, and responses to your questions contain certain forward-looking statements. As such, I need to remind you of a Safe Harbor language.

During the course of this presentation, there will be forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements often address our expected future business and financial performance, and often contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” or “will.”

The information in this presentation is based upon our current expectations as of the date hereof unless otherwise noted. Our actual future business and financial performance may differ materially and adversely from the expectations expressed in any forward-looking statements. We undertake no obligation to revise or publicly update our forward-looking statements or this presentation for any reason. Although our expectations and beliefs are based on reasonable assumptions, actual results may differ materially. The factors that may affect our results are listed in certain of our press releases and disclosed in the Company’s public filings with the SEC.

Joining us on the call today are Bob Rowe, President and CEO; Brian Bird, Vice President and Chief Financial Officer and John Hines, Vice President and Head of Energy Supply. At this time I will turn the call over to Bob to discuss this transaction.

Bob Rowe

Thank you, good morning everybody. Obviously, this is an exciting event for us. If you have the slide deck in front of you we will be speaking to that so you can have a better visual picture of what we are doing.

I will kick it off, John Hines will be speaking to the supply issue and then of course Brian will be covering the financial issues. To start with some of the transaction highlights, this is really a unique opportunity for a company like NorthWestern and is in a real way transformative. We are acquiring 11 baseload hydro-facilities of 633 megawatts plus a storage reservoir and this is a purchase of course from PPL Montana, very much consistent with our vision of providing safe and reliable energy service for our customers for generations to come.

If you think about hydro, it’s the oldest way of generating electricity but it’s also probably the perfect fuel going into the 21st century so with adequate care and maintenance continuing as the facilities have been operated. These will, in fact have asset lives for generations and generations.

Purchase price of 900 million, subject to customary kinds of closing adjustments. The acquisition we intend to operate is fully regulated facilities. The transaction is subject to approval by the Montana Commission to include the assets in rate base and on a regulated return.

Brian will come back and give you a lot more detail about the financing plan but we do have a fully committed bridge loan facility with Credit Suisse and Bank of America Merrill Lynch, permanent financing will be a combination of debt and equity and we believe this is very consistent with a solid investment grade credit profile and again Brian will come back and discuss that.

In terms of timings, we expect closing in the second half of 2014, subject to regulatory approvals at the Federal level. That will be by the Federal Energy Regulatory Commission, the license transfers of course and Hart-Scott-Rodino review by the Department of Justice. No shareholder review was required on our side and then very importantly the Montana Public Service Commission will be reviewing this transaction. It will be an important filing on our part. We expect to make a filing within three months which will trigger a nine months process of the commission. We hope to be in for a notice informational meeting in front of the commission within the next several weeks and are eager to provide them as much information is possible as well as all of our other stakeholders.

Just a word on the negotiations with PPL. We had a good, rigorous negotiations, great close attention to detail obviously received although ultimately achieved the result but made a lot of sense for PPL as the seller and for us as the buyer. We will come back and talk a little bit more about the facilities but PPL has been a very fine operator and steward of those facilities for the decade plus that they have on them.

We are serious about our core values as the utility; it’s why we get up and go to work every day. In our vision statement you’ve heard me referred to this before is to deliver safe, reliable and innovative energy solutions that create value for our customers, communities, employees and investors, and this transaction really goes around the basis in terms of all four of those stakeholder groups.

Starting with customers, we are making, obviously a market based purchase assets that really near the bottom of the commodity cycle, again providing multiple generations of customers with long term rate stability for this component of our portfolio, we do anticipate that approximately, subject to commission approval, again very importantly at approximately 5% increase in total bills initially but followed by some real stability in this element of the bill going forward.

As John will describe it’s a match of load and generation capabilities, increases fuel diversity and is very much consistent with our focus on being at regulated business. These facilities are located throughout our service territory and we have got a strong environmental program in place and will be just continuing to build on our commitment to our communities, to the environment. We will be bringing over at least 70 employees from the PPL hydro operations in Montana. We’ve got great depth in our existing operations.

The number of people now with NorthWestern really grew up in hydro operations, reporting up to John Hines. He has had dusty roads who head our due diligence team, he was head of hydro operations at Montana Power Company, another key player actually was at one point the head of hydro operations for PPL and now works for us in distributions. So we've got a nice combination of acquired employees from PPL and our own employees at NorthWestern Energy, and are very comfortable with our ability to operate these assets.

Now, from an industrial perspective, our intent again is to include these in regulated rate base. We expect the transaction approved to be accretive in the first full year of operations. And very importantly we expect to maintain or even enhance our credit strength. So as I said again, this really rounds the basis in terms of those four key stakeholder groups.

To give you an overview part of the facilities that we are acquiring. If you are looking at the slide deck, you got a map of our various existing facilities. As you know we own a partial interest in Colstrip in the Eastern part of the State, also recently brought on the Spion Kop wind facility in the Central part of the State where you can’t really see is the -- that these hydro facilities we’re acquiring are really embedded in our Montana service territory. They were designed and built as part of an integrated transmission and distribution system. So it’s just a nice fit.

The facilities are depicted over in the left, shown after PPL, again at the bottom for the capital investment they have made over the course of their operation. With that I will turn it over at this point to John Hines the Vice President for Supply, to go into a little bit more detail about from an operational perspective, and how does it really does enhance our existing Montana portfolio.

John Hines

Good morning everyone. This is a fairly basic slide and I would just like to point you to a couple of key pieces. In the first top left chart there, a couple of takeaways. It is that these facilities are located throughout the State of Montana. So there’s very good geographical diversity here and also note that within the geographical diversity there is multiple generators at these facilities. So we’ve created a very strong operational diversity that way.

The second takeaway on that slide is, if you would look at the FERC license expiration dates, all of those are far out into the future. The closest one is 2025 and then we are looking at 2035 and 2040 which gives us a great degree of operational comfort and certainty.

There’s this slide in the top right there. It gives you a visual understanding of the locations of these facilities. Remember the State of Montana is approximately 600 miles across east to west degrees scope of scale. The chart in the bottom left there gives us a high degree of comfort as to how these facilities have been maintained during the PPL’s tenure. We are quite pleased with the investments, that from a capital perspective that PPL has been making. And our due diligence team is pleased to report that these facilities are in very good operational stage at this time.

In the bottom right, the visual here and the takeaway is that, we believe we are strategically positioning our portfolio to meet the challenges of the 21st century. We believe that in 2016, with the transition of Kerr to the expected transition of Kerr to the tribes, we will have over 50% of our portfolio being delivered through either hydro generation or wind; either under contract right now or currently operating. So we are quite pleased that we will be able to respond to different risk that may likely to occur in the future.

Robert Rowe

Just another highlight we do still have a significant component of coal in the Montana portfolio and that’s our interest at a coal strip for very modern coal plat 91% availability, so again it’s a good diversified portfolio for our Montana operations and helps us meet number of risks. Many of you are familiar with our overall profile of own generation and comparisons to our peers if you’re looking at the deck the pro forma generation profile 44% own resources even with adversely 100% own resources in our South Dakota operation. Lower left again right now Montana is 31% owned resources in terms of the customers that we have the obligation to serve and that will increase to 63% after transaction and this is excluding the Kerr Dam property that we will expect will revert in federated tribes sometime after September 15 so an important transformation overall portfolio.

One of the exciting things about this transaction while hydro properties are so compelling is the extraordinary match between our owned assets and our customers demand at light load hours. I am going to turn it back over to John now to talk about what the implications are for our portfolio as a result of this transaction and how our supply team is thinking about meeting customer demand going forward.

John Hines

As Bob noted it’s not often that you are able to find what we've defined as opportunistic generation resources that so closely match what our existing and future needs are and that is one of the pieces that made us particularly excited about this transaction. You will note that in the first expected year of the transaction post-closing that we are showing a long position in both the heavy load light load hours. we believe that will be quite easy to manage either through market sales some of which we have already factored into our financial modeling that we will be presenting to the public service commission. Any of those sales will be recovered and sent back to customers to lower their overall rates.

But we will also be able to manage our existing generation fleet in a way to minimize any sort of issues associated with that. But as the asset is transferred to the tribe and what we are expecting to be September 2015 we see some additional need in heavy load hours we are looking at around 125 to 130 megawatts of additional need in 2018 form a heavy load perspective and we are basically flat on an average light load hour of approximately 65 megawatts long. So just to reemphasize that point this was a very great fit for our portfolio and it is going to be quite easily managed upfront and I will be looking at some additional ways to meet that supply in the long term. We have continued to undertake our sighting analysis that many of you are aware of for our natural gas plant where we are expecting to have something online in 2018.

We obviously are going to take a step back we still have that in the planning phase we still expect the sighting study to be completed by the end of this year. We will also focus on in the short term on integrating this generation into our existing fleet. We will also focus on looking at opportunities to further optimize the facility. As you know PPL undertook a significant [indiscernible] over a $250 million upgrade at Rainbow to get additional arm generation at a past facility. We will be looking at similar types of opportunities as well as looking at ways to optimize our existing system and that we will also be continuing to see what is the best way to meet that 125-130 megawatt heavy load need in by 2018.

Robert Rowe

Thanks, John. The next slide gives you a before and after shot of the company profile both first by state and then second by electric versus gas. What I want to emphasize here is that this is a significant transaction in our Montana operation and essentially changing out purchase power for own generation but the key point is that we -- our focus is being a regulated utility focused on the investments and service to benefit our customers. We've talked before in great detail about our distribution level projects or transmission projects the focus continues to be just sharply in those areas as it is in supply because each element needs to be completely functioning and supported in order to provide the levels of service that we want. So this a transaction that moves us forward as a utility serving all of our customers gas and electric, Montana, South Dakota and Nebraska in all aspects of utility service. Now I'll turn over to Brian to discuss finance and strategy, just by way of introduction I'll say it's a tremendous amount for the company and for our financial team that we're going to position where we can undertake a transaction of this size relative to the size of the company and do it in a way where again we believe this will be accretive in the first full year and very much consistent with good strong credit rate, so that's a tremendous amount of our entire financial operation.

Brian Bird

Thanks Bob I think from a financing strategy I would just start to note that this transaction like other transactions we have done in the past in terms of how we finance the organization would be laid out in a very conservative low risk perspective. These assets would become fully regulated by the MPSC of course assuming approval, and as part of our NorthWestern rate base upon closing.

We will have in place a fully committed bridge financing from both Credit Suisse and Bank of America, from a full $900 million purchase price. And in conjunction with syndicating the bridge facility NorthWestern may also seek to extend its 300 million revolver to a 2018 final maturity. And as we have had in the past, we will on a going forward basis maintain ample liquidity to run our business.

Regarding a permanent financing our expectation is we would close right into a permanent financing, the bridge is at facility there as an insurance policy in case the markets are available. But again to close directly into a permanent financing we funded with approximately 50% to 55% long term debt, with the reminder to be funded through a combination of new equity issuance and cash flow from operations.

As Bob has noted we expect this acquisition to be earnings accretive in the first full and cash flow accretive to the business. And we think that this transaction we'll not only maintain our credit ratings but we hope to enhance those, in fact increased in order ship of our assets, will improve our cash flow profile and it also reduces our reliance on PPAs, which have an impact on our credit ratings. So again we believe it will support a solid investment grade profile.

If I can move your attention to the next page in terms of our compelling value proposition. We evaluated long term prospects of these assets and employed a number of valuation methodologies including discounted cash flows analysis, compares to this transaction with other utility properties that currently trade and recent power and utility deals have transact. Our focus has always been on value to customers, as well as to shareholders.

All our valuation analysis were taken in context to our strategic alternatives and for us buying liable proven clean generation was a better value and risk proposition versus other alternatives including new construction. In fact you will note in the appendix to this deck that this alternative and a $60 levelized price basis, has a levelized cost less than all other new build alternatives.

On an implied multiple perspective regardless if you look at it, at 1,982 per KW with the current trends -- with the current transaction or 1,422 basis without per transaction, these transactions have performed well versus other comparables. In matter of fact if the mass goes up, it's actually 1,422 with the current transaction 1,982 without.

And either way those transactions compare very nicely with other transactions that have recently been announced. In fact most recently we have seen transactions that have traded over $2,000 per KW. So we have talked about; this is going to be earnings accretive certainly in line with an acquisition of this size. This earnings accretion supports our commitment to dividend growth and we expect to be at a targeted payout of 60% to 70% on an ongoing basis. And we talked about how we expect this is going to improve our business, risk and credit profile.

And lastly from a substantial increase in scale obviously as we pointed out going from about $2 billion rate base to $3 billion net increase in scale should improve our access to the capital markets for the benefit of customers and shareholders. And obviously increase our cash flow for us to improve the investment and maintain the investment that we have throughout our business.

And with that I'll pass it back over to Bob for some closing comments.

Bob Rowe

Thank you Brian and Trav, just in closing these assets were purchased from Montana Power by PPL in 1999, three years later NorthWestern acquired the transmission and distribution operations and always had a commitment to the utility operation. So this is a huge step forward entirely consistent with what we have been describing to you as our vision and entirely consistent what we have been describing to our customers, other stake holders. This is an historic transaction for NorthWestern, and I believe for our customers as well, we have been talking to policy makers, community leaders and others yesterday, lots of good questions, very strong interest in this and I think really some great support as well. We talked a lot of about the value of teamwork and this is a transaction where truly every part of the Company has contributed. Our executive team and all the folks who report up to them worked around the week and sometime around the clock to achieve what we think is very rigors and well researched in terms of due diligence and ultimately very-very valuable transaction for our investors and most fundamentally for our customers.

So with that thank you for joining us this morning and we will open to questions.

Question-and-Answer Session

Operator

Thank you. The question and answer session will be conducted electronically. (Operator instructions). We'll first go to Paul Patterson, Glenrock Associates.

Paul Patterson - Glenrock Associates

Good morning guys. Just on that last comment you made regarding the reaction in locally, could you -- if I heard it correctly it was positive is that correct, among the regulators and the people you spoke to, there official there, is that correct?

Bob Rowe

Yes and again very good question, this is extremely visible transaction. The whole history of supply deregulation and divestiture in the Montana power gaze, it’s a big-big chapter in the history of state of Montana and it’s something that ordinary citizens focus on, it's certainly something that we are very aware of too.

In terms of the Public Service Commission, as I said they have a very strong, a very important role to play here. They are very careful always not to prejudge and anything that will come before them, so they’re asking I think appropriate questions and we expect them to be every engaged. Because this is so significant we do hope we’ll be able to have a publically noticed informational meeting in front of the commission in the next several weeks. Also, we do intend to go out and have a good community meeting in the affected parts of the service territory as well.

Paul Patterson - Glenrock Associates

And then with respect to the equity, I apologize for not may be listening to it closely enough. It sounds like you’re planning 55% debt and then the remainder to be equity and cash flow, is that correct?

Unidentified Company Representative

Yes correct, it’s a range of 50% to 55% long term debt with the remainder of combination of equity and cash flow from operations.

Paul Patterson - Glenrock Associates

And the amount that would be equity, would that be pretty much common or you guys thinking of doing preferreds or…

Bob Rowe

We are going to keep this pretty straightforward. It’s going to just be straight comment.

Operator

Okay, our next question from Paul Ridzon, KeyBanc.

Paul Ridzon - KeyBanc

Can you -- I am a little unclear what’s happening with Kerr and will there be in flow of cash or you just giving up the assets?

Brian Bird

In the contract and obviously we have an opportunity to the purchase and sale agreement, there still needs to be determination between the Tribe that has an option to buy this asset in 2015 and PPL with the prices. We valued from our perspective asset at $30 million net stipulating the contract. There is a price that’s agreed to that more than that we will pay that difference to PPL. There is a price that’s paid less than that. PPL will pay us the difference. So from our perspective, we valued Kerr at $30 million.

Bob Rowe

We are neutral coming out of that transition. John, you might want to speak to kind of the relationships that we’ve established with the Tribes.

John Hines

Yes, we have good relationship with the Tribe. We have had discussion late last night in fact as far as us operating these facility as you will know right downstream from the Kerr facility as Thompson Falls generation resource that we will own into the future. We will be working with them to try to get additional optimization there. The one thing I will notice as Brian said, this is an option for the Tribe to exercise. If they choose not to make option or strike that option, we will continue to own and operate that facility until the Tribe decides to make that decision. We will make a least payment to them, but we will be getting additional 194 megawatts of capacity.

Paul Ridzon - KeyBanc

If they were to exercise their option at September 15, 2013, would you rate base go down 30 million or would you rate and base continue to be 900 million assuming this is approved by the Montana Commission?

Bob Rowe

The expectation is that the rate base would come down, the assets no longer available for our customers.

Paul Ridzon - KeyBanc

But it’s only going to come down by 30 million that’s if you’ve kind of hedged out any risk there?

Brian Bird

That’s correct.

Paul Ridzon - KeyBanc

And then given that you’re going from PPAs to owned assets I mean I would imagine that's credit accretive. How should we think about the implications of -- or how are you thinking about capital structure and maybe some credit headroom there to take it more to 55 and 50 on the debt side?

Bob Rowe

Well, I think we’re still going to continue to evaluate that Paul on a going forward basis. All I'd say at this point in time is we’re going to stay within our range 50% to 55% debt to cap. And as you know that’s seasonal at year ends as we have procured gas going into heating season we get up close to that 55%. At this time we’re more in the middle of that range but that’s our expectation on a going forward basis.

Paul Ridzon - KeyBanc

Am I thinking about that right that this would be credit accretive just given…

Bob Rowe

I see it as credit accretive Paul obviously and we hope to hear from the rating agencies soon on their perspective. But I expect that’s how they’ll look at it.

Paul Ridzon - KeyBanc

And when is your next IRP do?

John Hines

December 2015, obviously we’re working hard to modify -- '13 I’m sorry. I’m getting ahead of myself. We’re making some fundamental changes in our resource stack as you asked that question we have been planning with absent this acquisition but we’re pleased to make the changes at this time.

Bob Rowe

Couple additional comments just in terms of resource planning, we’ve obviously talked exclusively about looking at opportunistic transactions as part of our plan. This is in a sense an opportunistic transaction but it’s an opportunistic transaction involving what we consider to be the absolute ideal resource. In terms of the discussion of possible impact on credit ratings of the agencies obviously are going to be looking very, very closely at the regulatory process, how this is viewed by the commission and outcomes there. So that will be extremely important I think.

Paul Ridzon - KeyBanc

And then lastly does this change in anyway the way you’re thinking about incremental natural gas resource?

Unidentified Company Representative

Not at all. John…

Operator

Thank you. We’ll take our next question from Brian Russo, Ladenburg Thalmann.

Brian Russo - Ladenburg Thalmann

Hi, good morning. Maybe can you just elaborate a little bit on the regulatory approval process in terms of procedural schedule and certain milestones that we should look for following your filing?

Unidentified Company Representative

Sure, we’ll be visiting with the commission staff about procedural issues. But our hardworking regulatory team has already put together the outline of a filing we consider this to be an exceptionally important filing to get right out of the gate. Once filing goes in there will be a notice and opportunity to intervene procedural schedule will be established go through discovery and commission will have an opportunity to raise any particular issues if once to address. And again we certainly would like to see a decision by mid-year.

Brian Russo - Ladenburg Thalmann

And as the way works in the past I believe does that throughout that procedural schedule you could have an opportunity to say settle with the BOCC ahead of a final NPSC decision, is that accurate?

Unidentified Company Representative

Yes, the Montana consumer council has an independent role some say it’s the consumer abdicate as part of the commission here it’s actually an independent constitutional agency and they are always we always welcome discussions, there are always opportunities to resettlement but it’s way too early in the game to anticipate what any of that might look like.

Brian Russo - Ladenburg Thalmann

Okay, and the pro forma network position at Montana Tower, are you comfortable with that network position and the reliance on PPAs could we see further supply integration, maybe some key compliance to flows that heavy load short position?

John Hines

Yes, there is numerous opportunities for us look at different ways of closing that gap. We certainly are wanting to continue to move toward an own generation fleet because of the price stability that brings long term for our customers but we’ll be doing that when it make sense for both shareholders and customers. As I noted earlier our first step though will be to look and see what kind of optimizations we can gain from integrating this generation fleet into our existing fleet.

Brian Russo - Ladenburg Thalmann

Okay, so earlier you mentioned the siding process for the CCGT which was previously considered kind of the base case in your IRP. Is that going to continue or are you going stop that and wait and evaluate all options?

John Hines

No, we’re going to continue with the siding piece. We think that that is information we'll need in order to evaluate the different alternatives and we still expect for that to be completed probably by year end.

Brian Russo - Ladenburg Thalmann

Okay. And then lastly, how do you manage the volatility of hydro conditions in the Northwest when you think about the megawatt hours that there could be generated et cetera and fuel pass-through et cetera.

John Hines

From an operational perspective this generation fleet is actually I think more simple than what you see throughout the Pacific Northwest, I mean there will be year-to-year generational swings but those have been managed from an operational perspective even marketing perspective by PPO and we expect to do it in a similar fashion. We will know with fairly good certainty going in to the demand season what our output will be, these are primarily run of the river facilities and so you’re not going to see the swing in generation that you’ll see in other facilities.

Bob Rowe

But couple of things to add to that, first if you turn back to the facilities overview in the far right column, you’ve got the capacity factors for each. John’s point is key, this system doesn’t really operate like for example the larger Columbia systems might. The other thing is that traditional utility has experienced with balancing loads and resources with our system transactions if along you’re crediting to customers, if you short year in the market and really achieve an overall balance that way.

But as John said, we’ll be planning around this very nice set of resources that we now have that I think is going to be very attractive for customers and for the company. Before taking the next question I’d like to go back, started to ask about our thinking around the gas portfolio and that continues to be very important to us. Again, the provided customers that long term price stability. John, can you say a bit about this.

John Hines

Yes. I think everyone on the call is aware. We have - we’re about to closing to what was previously known as our own properties by Dave and we were calling - we’re expecting those to close within the next month of two. We are also continuing to evaluate additional alternatives, we’re also acquiring small increments within the existing fields that we have acquired and we are still moving toward our goal of approximately 50% of our core gas needs which is around 10 bcf per year and in addition we’ll be looking at acquiring natural gas to meet both our Dave Gates generation facility requirements as well as our base in natural gas plant that’s located in Butte, Montana. So that’s somewhere between 3 -- probably around 3 to 4 megawatts of additional filling cubic feet of gas for meeting those two plants needs.

Brian Russo - Ladenburg Thalmann

And just one follow up on the hydro conditions. Could we assume there will be a full pass-through whether you’re probably below what you expected to generate based on variability and not necessarily the asymmetric recovery mechanisms that some of the other Northwest.

Bob Rowe

We certainly think that’s the appropriate approach and is consistent with the regulatory bargain. Sometimes the other ways that this is done and I think it's an exception field, it is little bit more like heads I win, tails you lose.

Operator

(Operator Instructions). We’ll next go to Chris Ellinghaus, Williams Capital.

Chris Ellinghaus - Williams Capital

Is there an opportunity to purchase the option for Kerr from the Tribes?

Bob Rowe

There maybe but it’s our understanding that this point in time that the Tribe is looking forward to the opportunity to owning this facilities and operating them into the future.

Chris Ellinghaus - Williams Capital

Can we assume that you’re expecting to make your regulatory filings towards the end of this year?

Bob Rowe

Yes.

Chris Ellinghaus - Williams Capital

Okay and given the nine months statutory review in Montana, this is more than likely going to be very popular in this state for multiple reasons. Is it reasonable to expect that this may not take the full nine months in Montana to go through the approval process?

Bob Rowe

We will work with the commission staff to come up with a schedule that makes the more sense. Obviously, we would be delighted to move it through more quickly and that could allow us to take a more orderly approach to the financing but -- so there are a lot of benefits all around if it does move more quickly. But this is important and we give respect to commissions need to fully understand the transaction.

Chris Ellinghaus - Williams Capital

Is it possible that the commission in Montana might request or require, whatever that the IRP be accelerated to reflect the hydro acquisition and is that something that you could execute.

Bob Rowe

Mike, we haven't had any discussion like that so that point hasn't been raised. I would have a concern about workload and if the immediate work focus needs to be doing a good and thorough job in the case, beyond that I'll ask John to speak how his resources are being allocated.

John Hines

I just would say that I agree with you Bob, that at this point in time we anticipate filing the resource procurement plan and mid-December which is going to be about the same time that we expect this filing of this with this asset acquisition to be made as well.

Operator

We'll take our next question from Jonathon Reeder, Wells Fargo.

Jonathan Reeder - Wells Fargo

Good morning gentlemen, most of my questions have been answered but you mentioned that you're still going to be short about a 125 to 130 megawatts and you'll going through the signing process still on the gas plant, but would you be interested if PPL elects to divest the rest of its coal strip ownership, or is that an asset you're no longer interested in adding to the coal portfolio.

Bob Rowe

Our focus has consistently really been on the hydros for the reasons that we've talked. They're embedded directly into our system, they match up perfectly with our light load requirements, provide real fuel diversity and help us manage environmental risk and then very importantly we don't serve supply to the industrial customers and we are not interested in being a merchant and a larger - a much larger acquisition would put us in a very long position as opposed to the kind of off system transaction that help us manage our resources to serve our customers.

Operator

We'll take our next question from Tyler Gentry, OneAmerica.

Tyler Gentry - OneAmerica

Hi, just a quick point of clarification. There's some existing lease back that on the PPL asset, it looks like you guys are not assuming that it's going to be paid off.

Bob Rowe

That's correct, PPL as they've noted in their press release plans to close on that transaction long before we close on this transaction and we will not remain the sale lease back in any form or fashion.

Operator

And we do have one follow up question from Paul Ridzon, KeyBanc .

Paul Ridzon - KeyBanc

John, on your follow up comments on natural gas reserves did you just basically indicate three or four incremental bcf than what you previously communicated to the street.

John Hines

We're looking at, we see a strong rationale for providing core gas to not only just our core customers but also to provide some additional gas for our generation fleet, we see that three to four is probably our total amount, we'll be working with stakeholders to determine what they and us feel is a good component of that, so I'd say three to four is probably the ceiling and we're likely to be somewhat a little bit under that.

Paul Ridzon - KeyBanc

So it's 10 plus three to four?

John Hines

The ceiling, yes.

Paul Ridzon - KeyBanc

But the three-four is not embedded in 10, I just want to make sure I'm clear about this.

John Hines

You're correct.

Operator

And at this time there are no further questions, gentlemen I'll turn the conference back to you for any additional or closing remarks.

Bob Rowe

Great, well I have a question for our Investor Relations Director, Travis, this has been hereto a good discussion and so detailed, do we have a native quarterly call in October.

Travis Meyer

I'm guessing people might be interested in the numbers.

Bob Rowe

Seriously thank you very much for your interest in and support for the company over, in some cases, a very long time, we're obviously very happier around the table in Butte Montana, very early this morning and we are looking forward to talking to all of you in late October and many of you at the EI financial conference coming up, have a great day, thank you.

Operator

And that does conclude today's conference, thank you all for your participation.

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Source: NorthWestern Corporation Acquisition of PPL Montana's Baseload Hydro Assets (Transcript)
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