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NorthWestern Corporation (NYSE:NWE)

Q3 2010 Earnings Call Transcript

October 28, 2010 4:00 pm ET

Executives

Dan Rausch – IR

Bob Rowe – President and CEO

Brian Bird – VP, CFO and Treasurer

Analysts

Paul Ridzon – KeyBanc

Ryan Rosenthal – Sidoti & Company

Brian Russo – Ladenburg Thalmann

Chris Ellinghaus – Wellington Shields

Jonathan Reeder – Wells Fargo

Lori Johnson – Pacific Life

Michael Bates – D.A. Davidson

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the NorthWestern Corporation third quarter 2010 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host Mr. Dan Rausch. Please go ahead.

Dan Rausch

Good afternoon and welcome to the NorthWestern Corporation's September 30, 2010 quarter end financial results conference call and webcast. NorthWestern's results have been released and that release is available on our website at www.northwesternenergy.com. In addition, we have also filed our 10-Q.

Joining us today on the call are Bob Rowe, President and CEO, Brian Bird, Chief Financial Officer, Dave Gates, Vice President of Wholesale Operations, Heather Grahame, General Counsel and Kendall Kliewer, Controller.

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 in our Annual Report on Form 10-K, recent and forthcoming 10-Qs, recent Form 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 this presentation, those who are joining us by teleconference will be able to ask questions. A replay of today's call will be available beginning at 5:00 pm Eastern Time today, through November 28. To access the replay, dial 800-475-6701 and then access code 174792. The numbers again are 800-475-6701 and then the code 174792. A replay of today's webcast will also be available on our website.

And with that I'll turn it over to President and CEO, Bob Rowe.

Bob Rowe

Thank you, Dan, I will start by summarizing some recent highlights. We are very happy with our results for the third quarter, our income before income tax has improved by approximately $9 million compared with 2009 and due recall that the third quarter of 2009 included a $12.4 million benefit related to a tax accounting method change for repair cost deductions for 2008 and the first three quarters of 2009.

Thus our net income decreased from the third quarter of 2009 this year. In September we reached a stipulation with the Montana Consumer Council or in MCC, in our general rate case in Montana. If the stipulation is approved by that commission, that would result in an overall increase in our electric rates. We also completed the purchase of a majority interest in the Battle Creek Natural Gas Field in Montana for $11.4 million. And finally we announced our fourth quarter dividend of $0.34 per share which is consistent with last quarter, payable on December 30 2010 for shareholders of record on December 15th.

Now I will turn it over Brian Bird to discuss our third quarter financial results in more detail right, Brian?

Brian Bird

Thanks Bob. We reported diluted EPS of $0.40 a share during the third quarter of 2010 compared to $0.52 a share in the third quarter of 2009. So our earnings decreased $0.12 per diluted share on a year-over-year basis and that was due primarily to the absence of a $12.4 million tax benefit we experienced in the third quarter of 2009. On our pre-tax income basis we actually increased $9 million from the third quarter of 2009.

So let me give you a quick overview of the largest drivers to our per-tax income. First, electric volumes contributing about $2.7 million additional gross margin in the same quarter of 2009 due primarily to warmer weather in South Dakota. We recognized approximately $1.6 million in revenues related to the Montana general rate case, consistent with the terms of the proposed stipulation which is still subject to approval by the MPSC.

Our Montana transmission capacity revenues improved during the third quarter of 2010 by about $1.3 million over the third of 2009 and allowance for funds used during construction AFUDC, benefited our earnings by about $2.4 million primarily related to the Mill Creek Generating Station between decreasing interest expenses and adding to other income.

As you can tell from our press release and our 10-Q filing, there are other increases and decreases in earnings year-over-year, but these were the most significant drivers. So let me turn our discussion over to the 2010 earnings outlook.

We are re-affirming our fully diluted earnings per share for 2010 in the range of $1.95 to $2.10 per fully diluted share. Major assumptions include, but are not limited to the following expectations. Our guidance excludes approximately $0.06 a share for the 2010 effect of the rate increase proposed by the stipulation which is pending approval by the MPSC.

It excludes the release of the valuation allowance against certain state NOL carry forwards and any 2010 bonus depreciation benefit. The guidance includes the tax benefit associated with the IRS approval on the tax accounting method to deduct repairs expense. I'd also point out our fully diluted average shares outstanding of 36.5 million and always the assumption normal weather in the company's electric and natural gas service territories for the fourth quarter of 2010.

Now let's move on to the balance sheet, we have total liquidity of approximately $147 million with cash of about $7 million and $140 million available from our corporate revolver. Total debt at September 30, 2010 was slightly over 1 billion compared with $987 million at December 30, 2009.

The company has a long term debt-to-total capitalization ratio of approximately 56% at September 30, 2010 and cash provided by operating activities totaled $188 million for the nine months ended September 30, 2010 as compared with a $129 million during the nine months ended September 30, 2009. This increase is primarily related to a decrease in contributions to our qualified pension plans of $64.4 million in 2010 as compared with the same period in 2009.

Cash used in investing activities increased by approximately $63 million as compared with the nine-months ended September 30, 2009, due primarily to increase property plan and equipment additions related to the Mill Creek Generating Station project and Battle Creek Field acquisition.

Cash used in financing activities totaled approximately $8 million during the nine months ended 30, 2010 as compared with $19 million during the same period in 2009. And during the first nine months of 2010, the company paid dividends of $36.1 million. With that let me now turn it back over to Bob.

Bob Rowe

Thank you Brian, I will start by saying that we just completed a successful board meeting in Helena, Montana which some other things mean that I got to speak to my own Dad. In addition to the Board's formal business, we had a great meeting last night of very large group of community leaders from state and local private sector and had several opportunities for good meetings with employees, both last night and this morning.

I will start by giving you a brief update on the Montana rate case. As you know in October 2009, we filed a request with the Montana PSC for an annual electric transmission and distribution revenue increase of $15.5 million and an annual natural gas transmission storage distribution revenue increase of $2 million. In September we and the Montana Consumer Council filed a joint stipulation and settlement agreement regarding the revenue requirements issues in the case.

Specific terms included an increase in base electric rates of $7.7 million, a decrease in base natural gas rates of about $1 million. Stipulation very importantly is transparent as the key terms, the key terms were laid out and reached after all testimony was submitted and discovery was concluded. Stipulation as an authorized overall rate of return of 7.92% with an authorized rate of return on equity of 10.25, cost of long-term debt of 5.76% and a capital structure of 52% debt and 48% equity.

A hearing was held on the complete rate case including the revenue requirement stipulation and other matters in September, we expect the commission to issue a final order sometime during the fourth quarter. We did recognize $1.6 million in revenues during the third quarter and that was consistent with the proposed situation. As you know we did receive an interim rate increase in July of this year.

We had differed recognition on the associated revenues under the interim until the third quarter when we arrived at the stipulation with the Consumer Council. For now to Mill Creek Generating Station, as you know we kicked off construction at Mill Creek in October 2009 to 158 megawatt natural gas fired facility, regulating facility estimated to cost approximately $202 million.

Constructions progressed on time, on budget. In May of 2009, the commission issued an order granting approval to construct the facility, pre-approval decisions as we have been referring to it and an authorizing return on equity of 10.25 and a preliminary cost of debt of 6.5% with a 50-50 capital structure.

In addition, the commission specifically determined that the $81 million associated with the turbines was prudent with the remainder of the project cost to be submitted to the commission for review and approval once construction of the facility is complete. Construction began in June 2009 and is on schedule to be online January 1, 2011.

In fact they can report that as of today the units are synchronized with the system, so we are moving ahead very well. As of September 30, we capitalized approximately $161.3 million in construction work in progress related to the project. We filed a request for interim rates with the Commission in October based on the estimated construction cost. We submitted an interim rate request based on costs in the original pre-approval filing that updates for certain known and measurable changes.

As a result, this interim addition of the Mill Creek plant is expected to add $4.12 per month to the total bill of a typical residential customer using 750 kilowatt hours per month. The rate of return for the facility has been adjusted downwards to 8.16% from the earlier 8.63% and this is a result of the commission ordering the 10.25 return on equity for Mill Creek as opposed to NorthWestern's 2008 proposal of 10.75.

The reduction of long term debt costs – also the reduction of long-term debt costs from 6.5% in the original pre-approval filing to our new actual long-term debt cost of 6.07%. Also concerning Mill Creek, on October 15, the FERC issued an order authorizing us to put our final tariffs in place as of January 1, 2011 subject to refund and that's of the case we are hearing. So, these rates are expected to be effectively beginning January 1, 2011 and would replace the current contracted cost that we are paying for ancillary services.

Now I will turn to the transmission side of the business, the three transmission projects we have proposed are of course an upgrade to the existing 500-kV Colstrip Transmission System, the Montana Collector System and third, the Mountain States Transmission Intertie or MSTI.

As we mentioned at the end of the second quarter, we have extended our open season process related to the collector system and MSTI. And the reason is for the extension to be summarized first in MSTI siding delays, we had anticipated having a draft EIS and a preferred route by this time due to the court challenge to the siding process, there have been delays in the agencies. We are leasing the draft EIS and to provide indicative tariffs to perspective customers, we need to know the cost of the facility and that is heavily dependent on knowing a well defined route.

Second off course, general economic conditions and the slowdown and tightening of credit have combined to make it more difficult for generation developers to make long-term commitments. And that's again something we need to have in order to keep the projects risks manageable. Third factor, market confusion and is particularly associated with the California market and really making it difficult for generators to understand the terms of access to that large market.

And then fourth, the uncertainty around potential federal legislation whether or not for example to make the Federal RPS, so this additional certainty has caused some hesitation by potential shippers and for all of these reasons we have extended the informational portion of the open season until we've all achieved the necessary clarity on these and other issues that will allow potential shippers to make the needed commitment.

During that time we continue to work very closely with other parties around the Western United States, again, to support appropriate development of the market and necessary transmission. In the mean time, we are moving forward with the Colstrip upgrade project and design and siding of what we call the North Electric line and the completion of the MSTI siding process, so that the process, so such so that we are, we will ready to start construction when we anticipate having long-term contract in place.

A quick update on the Colstrip 500 kV upgrade, current areas of focus are the Colstrip transmission agreement and the Montana Intertie agreement along with various technical studies. The transmission customers very much like to see the Montana Intertie roles into the Bonneville Power Authority or BPA transmission network during BPA's rate case which starts this year and will conclude in 2011.

We are making progress with the other Colstrip transmission owners and anticipate filing, necessary amendments to the existing agreements later this year. It is also anticipated that the remaining study will be completed by the end of the year. Our capital cost for the project is estimated to be about $38 million, the total project cost of around $125 million and as I have said previously we would take the pro rata share in any of Colstrip partners who might decline to participate in the upgrade.

So commencement of construction is top plan for 2011 or as soon of the study can be complete. Now on the upgrade of the system would be completed sometime in the 2013 timeframe. In addition I would like to discuss some of our supply needs in the next few years.

First offering to the challenges of emissions reductions that maybe required in South Dakota, again something we discussed on the last call. The clean air visibility rule was issued by the EPA in September of 2005 to require certain electric generating units to achieve emissions reductions from designated sources that are deemed to contribute to visibility impairment in class or in quality areas. We have a 23.4% interest in Big Stone and Big Stone has a 454 megawatt coal-fired power plant located in Northeastern South Dakota.

The estimated capital expenditures for the best available retrofit technology, BART based on the Department of Environmental and Natural Resources proposal are now in the range of $500 million to $550 million for Big Stone. With AFUDC and overheads, our share would be in the range of $130 million to $150 million and these numbers have increased from the initial estimate, but should still be considered as preliminary.

The project engineer, Sargent & Lundy will continue to refine the estimates as additional generating is completed. Any potential improvements or any improvements need to be installed and operated as expeditiously as practical, but no later than five years from the EPA's approval of the South Dakota regional heavy stage implementation plan and that is expected no later than January 15 of 2011.

If the admission reduction technology is required, we will see to recover these costs through the rate making process and the South Dakota Public Utilities Commission has allowed recovery on a timely basis of the costs of previous environmental improvement.

Given the high cost of the emissions reduction equipment, that we are reviewing alternatives in order to ensure the most appropriate solution is identified. Similarly, in our South Dakota service territory, the owners of coal plant, Neal Unit No 4 in Northwest Iowa are investigating installing a scrubber in the 2013 to 2015 timeframe and the overall project stock would be similar to the Big Stone scrubber. Preliminary cost estimates are being developed now. The permitting request for proposal process are in the early stages of development.

Capital expenditures are currently estimated to be approximately $220 million, we are only an 8.6% owner of 55 megawatts of this 655 megawatt facility, so our capital portion is likely to be around $20 million for this project. Also in South Dakota concerning electric supply we have mentioned previously that we are doing preliminary engineering work for peaking facility to be located near Aberdeen, would be about 60 megawatts and is anticipated to be service in 2012.

Related to Montana electric supply, last month we entered into two five-year contracts derived from a competitive solicitation for on peak hour at a price below $50 a megawatt hour. We secured two 25 megawatt five-year franchise of heavy load hour supply agreements with delivery beginning in July 2012 and we are pleased to lock in this level of pricing for our customers until 2017.

Moving to renewable supply. For electric supply at Montana, we have request for information to add up to 75 megawatts of renewable power and we are looking for cost effective renewable energy to help us meet customer demand and diversify our resource portfolio to include more renewables.

We preferred to purchase the project to up right, but they are certainly looking at other options as well as including equity interest at long-term power purchase agreements and we are actively negotiating with a short list of suppliers.

Now, we anticipate renewal projects to total, approximately 50 to 75 megawatts and come online in late 2011 or 2012. New developments concerning natural gas reserves, we recently purchase the majority interest in producing wells and a gathering system call Battle Creek Field. Net proven developed producing reserves purchased are estimated to be 7.6 billion cubic feet Bcf, with annual net production attributable to the purchase, currently of approximately 0.5 Bcf, now it would be about 2.5% of our current annual consumption in Montana.

I feel that in our existing, is in our service territory, it's in Havre, Montana. And it's connected to our existing natural gas system. Acquiring this well defined established producing field is consistent with our low-risk profile by staying away from the exploration side of the business. This field currently serves our natural gas customers under what it is – would have been a soon to expire our purchase agreement.

Under the terms of the agreement, NorthWestern paid the seller $11.4 million cash with a majority interest in the Battle Creek Field assets and that includes the gathering system. In 2011 or during the next general natural gas rate case, we plan to prepare a filing with the Montana Commission seeking approval to add our interest in the Battle Creek Field and the gathering system into our regulated rate base.

In the interim, the cost of the natural gas produced including a return on our investment will be included in our natural gas supply tracker and in completion of the filing with the Montana Commission. Concerning our core distribution business, we've been investing in CapEx in excess of current depreciation each year since 2002. We've planned to invest about $124 million in the core distribution and transmission business in 2010 and that's up from $109 million in 2009.

We are among other things investing in more automation, outage prevention and monitoring it throughout our system. We are also part of a regional working group that will be evaluating various smart grid applications over the next several years in order to better understand how we, our cannon should ultimately deploy this technology in a cost effective way to the customers in our service territory. As we watched smart grid development around the country, I think we are ever more convinced that we are taking a sound and prudent approach to smart grid and new technology.

We plan to test the operational efficiencies and customer service enhancements that maybe gained by the installation of technology to enhance communication between the utility and the meter. We are focusing our work in relatively urban area in Helena world part of our distribution network as well.

So, in summary, we are happy with our results for the first nine months, our financial results for the year are on target. We look forward to completing the Montana rate case by the end of the year as I assured to you. We have completed a purchase of the majority interest in the Battle Creek Field again for $11.4 million.

Our Mill Creek project is nearing completion of the construction phase and additional generation investment opportunities are in development. And finally, we announced our fourth quarter dividend at $0.34 per share.

With that, I'd now like to open the call and look forward to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question is from Paul Ridzon from KeyBanc. Please go ahead.

Paul Ridzon – KeyBanc

Good afternoon. How are you?

Bob Rowe

Hey, Paul.

Paul Ridzon – KeyBanc

So, you are going to have new Montana rates January 1, Mill Creek gets in rates January 1 and then Battle Creek will – once you probably next gas case, so that should maybe later '11, is that the right way you think about it?

Bob Rowe

No. You are right on the first two, starting on November 1, Battle Creek will be flowing through the tracker and our return on that investment will be part of that cost flowing to the tracker.

Paul Ridzon – KeyBanc

Okay, so that’s November of…

Bob Rowe

This year.

Brian Bird

This year.

Paul Ridzon – KeyBanc

Okay. Okay. Thank you.

Bob Rowe

Thank you.

Operator

And our next question is from Ryan Rosenthal from Sidoti & Company. Please go ahead.

Ryan Rosenthal – Sidoti & Company

Good afternoon, everybody.

Bob Rowe

Hey, Ryan.

Ryan Rosenthal – Sidoti & Company

My first question is regarding the South Dakota Peaking facility and was curious where you are in the regulatory process and what steps we should look forward in order to be in place by 2012?

Bob Rowe

Sure. There isn't a pre-approval process in South Dakota. So that will be more of the traditional approach. What we do intend to do over the next several months is that meet formally with the South Dakota Commission to go over many of our plans in detail but there isn't an analog to the pre-approval process we used in Montana from Mill Creek.

Ryan Rosenthal – Sidoti & Company

Okay. And then if I understand correctly, you essentially built the facility ahead of a filing and then request that the expenditure is added to your rate base afterwards?

Bob Rowe

Essentially, yes.

Ryan Rosenthal – Sidoti & Company

Okay. And then concerning the gas reserves and if any purchase done, 2.5% of your annualized capacity needs for Montana. Can you discuss the opportunity to purchase at this small reserves and the timing that we should think of there as well?

Bob Rowe

Okay. This was a relatively small acquisition, but does a number of things for us. First, it gets us back into rate based natural gas, gives us some hands on experience, will give us an opportunity to take this particular resource through the regulatory process and get greater clarity around any regulatory issues and expectations. We continue to actively look at the gas market and exploring for example other incremental purchases of generally similar size. We had initially been fairly broad in what we are looking for, but we’re really focused in – on gas properties that are in or adjacent to our existing facilities and that have reasonably long asset lives.

Ryan Rosenthal – Sidoti & Company

Okay. And considering the rate case will be necessary to add it into rates, would you likely wait to make any larger produces until that's decided or is there potentially you could – you see something attractive purchase that more quickly?

Bob Rowe

Never say never, of course, but our focus really is on taking this acquisition and again potentially other small acquisitions through the regulatory process, get a degree of comfort there and then continue to look out. But again the commission and the policy makers in Montana have been very supportive of moving back towards vertical integration on the natural gas side as well.

Ryan Rosenthal – Sidoti & Company

Okay. Great and then just one final question concerning the renewable generation, any opportunity to potentially purchase some of those facilities and add them to your rate base as well. Could you provide us a little more insight for us into your discussions with the commission and kind of the feeling that you have currently on the potential at those rate base first thing versus PPA agreements?

Bob Rowe

Sure. Well, again at a high level, the commission and for that matter again, our policy maker have supported moving overtime towards the stability that owned rate base resources provide and there is a strong policy direction in favor of a diverse portfolio of resources. What we are focused on in the next year is a series or several relatively small projects and then doing the analysis that would support additional larger projects going forward.

Ryan Rosenthal – Sidoti & Company

Great. Thank you for your time, Bob.

Operator

Next, we have Brian Russo from Ladenburg Thalmann. Please go ahead.

Brian Russo – Ladenburg Thalmann

Hi. Good afternoon.

Bob Rowe

Hey, Brian.

Brian Russo – Ladenburg Thalmann

Just on – just to clarify on the South Dakota peaker plant, it's to replace a contract with Mid-Am, that's expiring, correct?

Bob Rowe

Essentially yes.

Brian Russo – Ladenburg Thalmann

So I mean, is there kind of like a deadline as to when this plan needs to be up and running to fill in the void for that contract exploration?

Bob Rowe

Yeah. Midyear in 2013.

Brian Russo – Ladenburg Thalmann

Okay. Mid '13, so it – so there's enough kind of time to develop this project, if you're comfortable with South Dakota regulation and on approving this and having it commercially available in mid '13?

Bob Rowe

Well said.

Brian Russo – Ladenburg Thalmann

Okay. And you can get AFUDC on that, right?

Bob Rowe

Yes.

Brian Russo – Ladenburg Thalmann

Okay. Thank you very much.

Bob Rowe

Thank you.

Operator

(Operator Instructions). Our next question is from Chris Ellinghaus from Wellington Shields. Please go ahead.

Chris Ellinghaus – Wellington Shields

Hey, guys. Congratulations on a nice quarter.

Bob Rowe

Thank you.

Brian Bird

Thanks, Chris.

Bob Rowe

From a tough critic.

Chris Ellinghaus – Wellington Shields

Yeah, I am a tough critic. It looks like you had about $2 million of pre-tax insurance recoveries in the quarter, is that right?

Bob Rowe

Yeah. We did indeed, it was a settlement actually from a grieve issue occurred during the quarter

Chris Ellinghaus – Wellington Shields

Okay. Were there any other unusual items in the quarter, I didn't see much?

Bob Rowe

No, not that I would deem as unusual, Chris.

Chris Ellinghaus – Wellington Shields

Okay. Can you just talk about your – what you see as headwinds in the fourth quarter. You have already made by my calculation 214 in the last 12 months and what kind of things are in the fourth quarter that might lead us to more like your guidance range.

Bob Rowe

Brian, is grabbing for the microphone here.

Brian Bird

Hey Chris, on that score, you may have been watching October. It's been a very mild October. You know our assumptions for the quarter is normal weather, but we already know to an extent that October is going to be pretty mild. We haven't determined what the financial impact of that is yet. But just a bit of caution, if you were looking at the quarter, we see October's results based upon weather as a headwind.

Chris Ellinghaus – Wellington Shields

Okay. And then last year was actually a pretty decent quarter for weather, if I recall correctly?

Brian Bird

Yeah. Somewhat.

Chris Ellinghaus – Wellington Shields

Okay. And – but you should have some benefit for some absence of some serious maintenance outage last year in the fourth quarter and also probably a nice step down related to the repairs deduction as sort of offsetting issues?

Brian Bird

That's correct. If you are looking at a quarter-over-quarter basis, you know, our guidance though is based upon our view for the year. I have done a comparison on a year-over-year basis.

Chris Ellinghaus – Wellington Shields

Okay. And lastly as far as excluding from the guidance, I think you said $0.06 related to the Montana case. How are you calculating that $0.06 differentially you are excluding?

Brian Bird

I believe that is the third quarter component, that's the third quarter component only. It's third and fourth quarters, $1.6 million for the third quarter and then in the queue, we said we get somewhere around $2 million that we expect in the fourth quarter. So it's the two of those combined and then to abide by the shares outstanding.

Chris Ellinghaus – Wellington Shields

Okay. Okay. Thanks a lot. See you later.

Operator

And your next question is from Jonathan Reeder with Wells Fargo. Please go ahead.

Jonathan Reeder – Wells Fargo

Good afternoon, gentlemen. One line kind of jumped out of me in the release in the liquidity section. You talk about an increase in deposits received for transmission interconnection request. Can you kind of expand upon that?

Bob Rowe

Okay. Sure we received some deposits for transmission reservations looking at Montano westbound from a couple of parties and those have to be booked properly. But there's some larger players in Montano that are taking some actions.

Jonathan Reeder – Wells Fargo

Is that wind development that you are referring to?

Bob Rowe

It's renewable development. Yes.

Jonathan Reeder – Wells Fargo

Okay. So, I mean, realistically we could say that bodes well for the collector project as well as potential MSTI?

Bob Rowe

Certainly, adding some deposits is a positive step. It's a long ways from having a solid project that it is certainly positive.

Jonathan Reeder – Wells Fargo

Right. And then you are kind of talking about the four, I guess headwinds on getting the commitments for MSTI, what kind of timeframe are we looking at getting clarity, do you think your end is realistic? I mean, will the mid-term elections clear up some of the logjam, I guess, in California. What sort of timing should we be looking at?

Bob Rowe

I think probably the key gating factor will be the traditional action around citing in Montana. And again we really need clarity there in order to get certainty around a route that will allow us to come in with a cost estimate. So I think that's probably what I would focus on as much as anything at this point.

Jonathan Reeder – Wells Fargo

Okay. And when does the citing supposed to be wrapped up?

Bob Rowe

Well, in Montana, there is a district court decision. It is likely that that will go to the state Supreme Court. In Montana, there is lot of heavy backlog at the state Supreme Court and appeals are directly risen in intermediate appellate court but still that pushes a decision out, sometime unless there is during the interim some kind of a collateral resolution through negotiations or otherwise.

Jonathan Reeder – Wells Fargo

So, when would it be that the supreme court even hear on it. I mean are – to me that sounds like a long process but I am not familiar with it.

Bob Rowe

It would be realistically sometime next year.

Jonathan Reeder – Wells Fargo

Okay. All right. Thank you.

Operator

Our next question is from Lori Johnson [ph] from Pacific Life [ph]. Please go ahead.

Lori Johnson – Pacific Life

Hi, thanks. I just wanted to ask about the Big Stone coal fire plant and your – of the environmental costs there. Is there a chance that – maybe what's the order there, it sounds like costs are going up, is there a chance that you wouldn't be allowed to recover the costs or not a given, but is it fairly likely that you accept you incur them or is there a point where you say, it's just too much. Again I'm trying to get a sense of how risky that investment is for you?

Bob Rowe

I guess there are probably two parts to your question, one part is cost recovery and the second part is, are we considering other alternatives. Is that correct?

Lori Johnson – Pacific Life

Yeah, yeah.

Bob Rowe

Yeah, there is a fairly clear cost recovery mechanism about Dakota commission, obviously the size of this kind of an investment is significant, is bigger than the process as been used for previously, but there is a clear path. Secondly, we and the joint owners certainly will be considering a range of alternatives. This is a necessary resource and again, we have not discussed with the other owners specific alternatives, but in a broad sense, if you look what other parties are considering that would be remediation, re-powering or some kind of an alternative facility.

And at this point, we are really focusing on the cost and strategies for compliance but as we get more clarity on those costs that is easier too also do a comparison with alternatives.

Lori Johnson – Pacific Life

Okay. Thanks. And then just maybe overall in your larger region, I know wholesale is not huge for you but maybe to think that it would effect at all. Do you anticipate other coal facilities having to close down because the cost of remediation is just too high?

Brian Bird

We don't have.

Lori Johnson – Pacific Life

I know, not Europe last but...

Bob Rowe

I take the question not to be to our facility

Lori Johnson – Pacific Life

Right.

Bob Rowe

Others in the area, we don't have any basis to speculate, but there is certainly analysts who are writing about that possibility in the Midwest generally in (inaudible) but what others who were writing about and thinking about the area have to say, I don't think we have anything more to add.

Lori Johnson – Pacific Life

Okay. Thanks

Operator

(Operator Instructions) Our next question is from James Bellessa from D.A. Davidson. Please go ahead.

Michael Bates – D.A. Davidson

Hey guys, you’ve actually got Michael Bates [ph] filling in for Jim today. Couple of questions for you. We were curious about why the decision was made to exclude the interim rate release boost from your guidance?

Brian Bird

Michael, it' Brian. The reason, we did that is just from a comparison – apples-to-apples comparison from the beginning when we provided that guidance, we made it very clear at that point in time. We had no idea of an outcome on a rate case. And so we excluded guidance from that and just for comparison purposes to that guidance, we haven't excluded it. And also I’d that there hasn't been a decision, where our booking interim rates until we have a final decision on that, we felt this prudent to exclude that.

Michael Bates – D.A. Davidson

Okay. Fair enough. One other kind of nitpicky kind of question is in your guidance you have the assumption here that you will have average shares of 36.5 million for the full year, you have been at 36.2 for the first nine months and to get at 36.5 for the full year, I have to assume that your share count goes up by like a 0.5 million shares in the fourth quarter?

Brian Bird

I think Michael we want to make sure we need to be clear, one of us is speaking basic and one is speaking fully diluted in terms of that analysis, I think is the difference.

Michael Bates – D.A. Davidson

All right. That could be it. Thanks guys

Operator

And we have no further questions at this time.

Bob Rowe

Good. Well, thank you all very much. We expect we will see a number of you next week and visit with the rest of you next quarter.

Dan Rausch

Right now, we're done with our remarks. So you can give the replay instructions.

Operator

Thank you. Ladies and gentlemen, this conference will be available for replay after 5 p.m. today through midnight on November 28, 2010. You may access the AT&T executive replay system at any time by dialing 1800-475-6701 and entering the access code 174792. International participants dial 320-365-3844. Those numbers again are 1800-475-6701 and 320-365-3844, access code 174792. That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.

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