Earnings Call Transcript - NWE Q1 2020

Operator, Operator

Good day, and welcome to the NorthWestern Corporation's Financial Results Conference Call and Webcast. Today's event is being recorded, and at this time, I would like to turn the conference over to NorthWestern's Investor Relations Officer, Travis Meyer. Please go ahead, sir.

Travis Meyer, Investor Relations Officer

Thank you, Anne. Good afternoon, and thank you for joining NorthWestern Corporation's financial results conference call and webcast for the quarter ending March 31, 2020. NorthWestern's results have been released, and the release is available on our website at northwesternenergy.com. We also released our 10-Q pre-market this morning. Today on the call, we have joining us Bob Rowe, President and Chief Executive Officer; we have Brian Bird, Chief Financial Officer, and other members of the management team on the call with us today to address your questions, if needed. Before I turn the call over, however, for us to begin, please note that the company's press release, this presentation, comments made by presenters and responses to your questions may contain forward-looking statements and non-GAAP financial information. As such, I will remind you of our safe harbor language. During the course of this presentation, there will be forward-looking statements within the meaning of the Safe Harbor act provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements often address our expected future business and financial performance and will contain words such as expects, anticipates, intends, plans, believes, seeks, or will. The information in this presentation is based upon our current expectations. Our actual future business and financial performance may differ materially and adversely from our expectations expressed in any forward-looking statements. We undertake no obligation to revise or publicly update our forward-looking statements or in this presentation for any reason. Although our expectations and beliefs are based upon 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 Form 10-K and 10-Q, along with other public filings with the SEC. Today's presentation also contains non-GAAP financial measures, please refer to the definitions and reconciliations of these measures that are included in our webcast materials. Following our presentation, we'll open the phone lines to allow those who are dialed into the teleconference to ask questions. The archived replay of today's webcast will be available for one year beginning at 6:00 p.m. Eastern Time today and can be found at our website, again northwesternenergy.com under the Our Company, Investor Relations, Presentations and Webcast link. With that, I'll hand it over to Bob Rowe, our CEO.

Robert Rowe, CEO

Thank you, Travis, and thank you all for joining us this afternoon. I'll touch on a few significant events, and just a couple of comments about our COVID response, and then turn it over to Brian to go into detail on financial results. First, net income for the quarter decreased by $22.1 million, that's 30% compared to the same period last year. Diluted EPS decreased by $0.44 or 31% compared to the same period. After adjusting for weather, non-GAAP adjusted EPS decreased by $0.17 or 14% as compared to last year. The Board declared a quarterly dividend of $0.60 per share payable on June 30 to shareholders of record as of June 15. Due to the anticipated impacts from COVID-19 related disruptions across our territory, combined with the first-quarter results below our expectations, we are lowering 2020 EPS guidance, which had been $3.45 to $3.60 per share, now lowering to $3.30 to $3.45. So effectively, the old floor becomes the ceiling. Despite the short-term setback, our long-term business prospects remain strong. We were able to promptly address any liquidity concerns as a result of COVID. We are continuing with our capital programs unchanged, and we have no change to our targeted 6% to 9% TSR. Just a few highlights going into a situation like this, it's a real test of the underlying strength of our company. On Page 4, we highlight some of our history. Many of you know there are three things I would simply speak to: we have maintained an exceptional safety record before and going into the COVID period, we have achieved the highest levels of customer satisfaction and high levels of service quality by our measurements, and we will continue to execute on our capital plan for the year. In terms of our COVID-19 response, we, like many companies, have business continuity plans and a crisis action structure. We drill, we train, we plan, we prepare. COVID-19 is different in that it affects our entire service territory, indeed the entire planet, not just a location on our system. The scope is different in terms of duration obviously, and it is different in terms of complexity. Our plans, even though not necessarily for an identical situation, were effective. We began monitoring the situation early. We formally activated the crisis action team on March 11th. That structure has continued to evolve as necessary and has been very effective. Some basic steps that we took, first of all, everyone who can work remotely is working remotely. That's freed up space in our facilities for people who have to be onsite to social distance. We've established our backup electric transmission and gas transmission control centers, and we have all of our field employees working in pods, paying attention to supply chain, bad debt, and all of the metrics that you would expect. The work is getting done. From a customer perspective, the only change has really been on service that involves direct interactions in person with a customer, such as pilot lights. We're communicating externally about what our people are doing and about the need to maintain distance and give them a wave. We've had no lost time incidents during this period, and with fingers crossed, so far, we have had no employees who have contracted the virus. We have had several tests and are taking all precautions. So that's good news. One other thing I would highlight just as an example is, even though our customer service representatives are, for the most part, now working from home as well, the level of service that we've been able to maintain here is just exceptional. I expect you may want to talk more about COVID during the discussion. So with that, I will turn it over to Brian to walk through our financial situation. Brian?

Brian Bird, CFO

Thanks, Bob. On Page 6 from the summary financial results perspective, as Bob pointed out, our net income of $50.7 million is down $22.1 million or 30%. For the first quarter, it's certainly a disappointing quarter. At a high level, when you look at gross margin down $24.5 million and compare that to income before taxes around $25.5 million. The story for the quarter was a very disappointing margin on a year-over-year basis. In fact, improvement in operating expenses were effectively offset by slightly higher other expenses, and so net-net, it was margin as a whole. Moving on to margin on Slide 7, again down $24.5 million on a year-over-year basis. And again, $15 million of that is associated with electric and $9 million associated with gas. But the actual decrease in gross margin as a whole, associated with volumes: electric down $8.7 million, gas down $8.4 million. I will mention here whether that the change on a year-over-year basis was $18 million associated with weather, so obviously that's a big part of those two line items. The other major contributor to the $22.2 million change in gross margin and impacts net income are other miscellaneous non-recurring items, which are primarily items associated with tracker adjustments. We had favorable adjustments in 2019 and unfavorable ones in 2020 for that particular item. But those three things: electric volumes, gas volumes, and the non-recurring items make up the substantial change there. We did see Oasis revenues up, primarily associated with closure of Units 1 and 2 at Colstrip, and gas production continues to come down, but that was offset by our rate increase impacting retail rates in Montana. We also have items that impact gross margin that offset elsewhere in the net income totaling a $2.3 million decrease for a total, again, $24.5 million total decrease in gross margin. Moving on to weather on Page 8, as you can see at the top of the page, we experienced substantially warmer weather. Obviously in our largest jurisdiction, 23% warmer versus 19% and even 5% warmer versus our historic averages. If you see the maps at the bottom of the page, we can see in 2019 it was extremely cold in February and March, and we were actually quite a bit warmer in February of this year. So a pretty big swing on a year-over-year basis. And that warm first quarter contributed approximately $4 million of pre-tax gross margin detriment as compared to normal and $18 million pre-tax detriment as compared to the first quarter of 2019. Regarding operating expenses, they were down $2.7 million. Of those that actually impact OG&A, we had increases in generation cost, we had some RFP costs, but also some higher costs, and some of our operating facilities, and other miscellaneous expenses. So slight change there, $1.8 million. We also had some changes in OG&A that are offset elsewhere in net income. That’s a decrease of $3.9 million for a net decrease of $2.1 million in operating, general and administrative expenses. We also saw a slight decrease in property taxes and a slight decrease in depreciation and depletion for the quarter. If I move forward to operating to net income - operating income itself was down $21.8 million, a 22% interest expense increase was up slightly due to higher borrowings. The other expense increased by $3.1 million, which is primarily the offsets I just spoke to in OG&A, and that brought us down to pre-tax income, which I mentioned earlier, down $25.5 million. The benefit we saw in income taxes - excuse me, the $3.4 million decrease in income taxes is primarily due to lower pretax income, partially offset by a lower amortization of EDIT and other flow-through items. Speaking of income tax items on Page 11 and in a reconciliation, you can see our income calculated at the statutory rate, down by $5.3 million that offset by the EDIT I mentioned, the flow-through items down below, gets us to the $3.4 million decrease in income tax expenses. And even for the quarter, though we had a decrease in income taxes, one thing I should point out, because of our poor first quarter and as a percentage of our total pretax for the year, we actually will book lower tax credits during the quarter. And so that benefit would have been much bigger if, in fact, we had a similar proportion of our total pretax income this quarter versus 2019, which had a very strong quarter and a higher proportion of the total. We do expect to get some better tax outcomes from a credit perspective in the coming quarters. Lastly, I’d point out from an NOL perspective, we expect them to be available in 2021 and with alternative AMT credits and production tax credits available into 2023 to reduce cash taxes. Our effective tax rate is expected to reach 10% by 2023. Regarding the balance sheet, not much to report there. A little change in cash-on-hand is associated with COVID during the quarter, but the ratio of debt to cap has improved slightly over the last quarter. Moving on to cash flow on Page 13, we did see a $47 million improvement in cash flow. Really think of it, three things: we had a better collection of supply costs from our tracker. In this first quarter versus last year 2019, we're giving TCJA credits to our customers. Lastly, those two benefits were offset by the lower net income for the quarter. Moving forward to adjusted non-GAAP earnings, we did hear on both the first quarter of 2019 and 2020, the only adjustments that impacted net income were weather. Starting at the bottom, on the left side of the page, you see diluted EPS of $1 adding back $0.06 to get to $1.06 compared to the far right at the bottom $1.44 reducing that for favorable weather by $0.21 to get to $1.23. That $1.06 versus $1.23 is a $0.17 detriment, or down nearly 14%. If you think about both the unfavorable weather up at the top of the page in revenues this quarter, and you can see the far right the favorable weather in 2019, we mentioned earlier, there is an $18 million change in a year-over-year basis. Lastly, as I walk down through the P&L itself, gross margin is down $6.5 million after you adjust for weather. So from that perspective I mentioned, the non-recurring items are a big portion of that. The second thing I'd point out is operating expenses, though flat, still on an adjusted basis, are up slightly, interest expense is up slightly, getting to the pre-tax detriment of $7.5 million on a year-over-year basis. The last point I want to make on the tax reconciliation shows we have an unfavorable on a year-over-year basis on non-GAAP adjustments, and we can see, if you look to the far right in the income tax line, there's a tax expense. But when you back out the favorable weather, you actually get yourself into a favorable tax position on a non-GAAP adjusted '19 for income taxes in contrast to what happened here. This quarter we had favorable income taxes and then offset to a degree by the adjustment for the unfavorable weather and net-net income tax became a negative variance as a result on a year-over-year comparison of $1.1 million. Total again is an $8.6 million detriment from a net income perspective comparing the non-GAAP numbers year-over-year. Moving on to Slide 15, just real quickly on liquidity. With the goal of the uncertainty of COVID, we wanted to increase our normal liquidity minimum threshold of $100 million, up to $200 million, and the best way to do that was to actually enter into a 364-day term loan, which we were able to do. We also recently priced $115 million in first mortgage bonds. We accelerated that offering, which we expect later in the year into the early part of the year. Those funds will come in May, and so we feel very good from a liquidity perspective. One thing on the equity perspective is we’ve mentioned recently that we expect to do equity either late 2020 or early 2021, where we sit today, as we anticipate that the equity issuance is going to roll into early 2021 at this point in time. Moving forward, diluted earnings per share. Bob pointed out earlier that we reduced our range from $3.45 to $3.60 down to $3.30 to $3.45. The primary measures there are associated with COVID, of course, and a poor first quarter. Regarding COVID, from our perspective, we expected a very difficult second quarter due to business closures and social distancing in place, a very tough second quarter, easing significantly in the third quarter, and nearly fully recovered in the fourth quarter. We also adjusted our tax rate to a negative from previously a negative 2% to positive 3%, now down to a negative 5% to 0%. Lastly, as Bob pointed out, continued investment, I think about a long-term 6% to 9% total return, TSR, if you will, mentioned earlier in previous calls. As we continue to invest over $400 million, we expect to be in the midpoint of that range. If you think about 2019 as your base going forward, we still see 6% to 9% as our long-term total shareholder return range.

Robert Rowe, CEO

Moving on to Slide 17, hope this was a good depiction of the changes in the guidance. Obviously, we want to answer investors' questions, particularly as we reduced guidance here. The difference in the middle columns there between initial guidance and our revised is a $0.15, as you can see. I wanted to give you the flavor of what the changes were, obviously a very difficult first quarter. You see a $0.09 negative impact from a gross margin perspective and a $0.06 income tax expense, and that's why it took so much time walking through that with you earlier, so you could see that item. Of that $0.06, I expect all of that to be reversed from a timing perspective. I do expect some of that $0.09 to be a timing matter as well. So think of the first quarter as about $0.17, as it's shown there. But with the timing changes, I expect to see, out of our $0.15 change, half of that is really associated with the first quarter and the other half is really associated with COVID effects for the last three quarters of the year. Speaking of those changes, you can see the ranges there. From a gross margin perspective, you can assume essentially flat, minus $0.03 to positive $0.03, and obviously COVID is in there, but we also have some timing and some growth expected in there. So plan that the midpoint of that of course is flat. We do increase our expense control during the year as a result of COVID, and we are seeing reduced expenses; you can imagine those items and I'll speak to in a moment, things that we're not doing from a business perspective. Lastly, the timing associated with tax is the biggest changes. If you look to the far right, we explain the changes at a very high level. You can see a $0.27 reduction in margin is a pretty substantial change. But if you can see how we clawed back $0.27, if you will, subtract $0.08 of incremental OG&A recovery, subtract $0.02 of depreciation improvement, and subtract another $0.02 of net improvement in income taxes, and you get to a $0.15 change in your guidance as a whole. Hopefully, that's helpful. I'm sure there will be more questions. The last thing I'd say on this page is the cost controls that we put in place - $0.15 is really associated - that guidance is in part due to the first quarter, remainder due to COVID through 2020, for the remainder of 2020. Moving on to the margin expectations as a whole. In the bottom of the page, we mention the updated gross margin guidance for Q2 to Q4. We try to explain in a more granular form the thing I laid out at a high level on the initial guidance page. We anticipate down three to two plus three for that period. One of the things we would point out is the impact of COVID on our forecast is going to offset most, if not all, of our forecasted organic growth we expected in 2020. At the upper left, we have kind of our 80-20 rule from a customer count perspective. I think residential customers make up 80% of both our electric and gas business, which is true. But on a revenue perspective, that changes. You can see at the upper part of the chart, just to the right of the customers, from a revenue perspective for electric, residential is slightly less than 50%, and then for gas, it's slightly more. So on a combined basis, think kind of the contribution from residential and commercial about 50-50. You can see very little impact from industrial on the electric side and nearly none on the gas side. Laying that as a precursor, just to understand the business a bit better. Upper right is just our overall concept of what we had - impact we thought we would have on loads. It's a forecast, folks. COVID is very difficult to comprehend. But talking to our energy supply folks and thinking how this would play out, we anticipated about a 3 to 1 ratio impact from a volumetric perspective on our business. Commercial accounts would go down at a rate of down 3.3 - down to three to our increase of one in residential. In essence, for Q2, expect commercial to be down about 12%, residential up 4%, and you can see that ratio stays pretty solid through Q3 and Q4, and you can see the substantial recovery. I should point out at a high level again, Q2 is the quarter that gives the least amount of contribution to net income. But in fairness, Q1 and Q2 combined are about 50% of our contribution. So, a difficult first quarter and a difficult second quarter will be difficult to overcome in the last two quarters of the year. But with expense control and expected recovery in the third quarter and fourth quarter, we expect to offset a portion of the first quarter that we talked about earlier. A little more granular detail by both electric and gas is shown down below in the far right. We show the 2020 estimate of COVID versus pre-COVID. You can see the impact on residential and commercial there, same thing from the gas side. We wanted to give you a lot of information. We wanted to show there's a lot of rigor to our thought process here. I think everyone knows no one has a crystal ball in terms of how this plays out, but we wanted to work really hard to give investors a look into how we're thinking about this. The easy answer would have been just to drop guidance altogether. It was our belief the best thing to do is to try to think of how this is going to impact our business and come out with a result from there. The last thing I'd say on this page, regarding decoupling, first and foremost, it is only impacting our Montana Electric-only business, and by the way, it's not even in effect until July of this year. Due to the recovery that we expect in the third and fourth quarter, we didn't expect decoupling to have too much of an impact on the changes here as a whole. Lastly, I'd remind folks in Montana, the decoupling is primarily associated with our residential customers. In fact, less than 10% of our commercial customers are going to - we're going to see a benefit from decoupling through the commercial side. So much, much more of an impact on the residential side of our business. Moving onto Slide 19, COVID, from an expense standpoint. We note at the bottom, we anticipate $0.20 and $0.23 of EPS improvement compared to the prior year on a non-GAAP basis. This includes $0.09 of incremental cost controls compared to our initial earnings guidance. And by the way, this assumes regulatory recovery for increased bad debt expense in our jurisdictions. And on that point - and I'd argue that's approximately $0.05 of our thought process here. Why would we expect to have regulatory recovery of increased bad debt expense? We've had discussions with our two largest jurisdictions, Montana and South Dakota. We're also working with the other utilities in those jurisdictions about making filings. We've had favorable discussions with the staff at both Montana and South Dakota, and feel confident that we'll get an outcome from recovery in that regard. But that is built-in into our guidance. Okay. Just to reiterate, on Slide 20, you've seen this before, three points I would make. First, we do include the South Dakota generation investment at $80 million. Second, as we've talked about, we are successfully executing against this year's capital plan. We've been managing the supply chain and paying attention to things like that. The work is getting done. And third, we do expect in the half year's capital investment at least at this level. As you know, as we work through the planning cycle, we identify the projects that are most important to serve our customers. We consider the current level of capital to be sustainable over the coming years. Looking forward, we've talked a little bit about regulatory matters already. We're very pleased with the settlement we were able to reach in the electric rate case in Montana. Decoupling or the infrastructure support mechanism is one of the issues on reconsideration. We expect a decision from the Montana Commission sometime in the coming weeks. Like other regulatory bodies around the country, they are meeting through alternate means, and that has been something of a challenge for many. As Brian said, decoupling is something we believe very strongly has long-term value. We don't think of it as a very significant tool to address the COVID-related concern this year. Meanwhile, the parallel FERC transmission rate case is moving ahead. As most of you know, that has been in settlement discussions for quite some time. The settlement discussions are now being handled electronically, as well, rather than in person. But they are proceeding. The South Dakota plan, as I've already highlighted, we moved to implementation. We expect the plant to be online by late 2021 in Montana. We have the competitive solicitation for 280 megawatts outstanding. We still believe the schedule for that can be met. We did add a couple of months to the bid closing date in the RFP, just in recognition of the current COVID situation. Meanwhile, and just fundamentally, foundationally, our ongoing work in the transmission and distribution system to continue to modernize, address reliability, capacity, functionality is moving forward. Despite COVID and everything else, we are moving ahead with plans to join the EIM, and I have assigned adequate resources to that, based on our experience out of South Dakota and Southwest Power Pool. We look forward to good outcomes for our customers in the company as we move into the Western imbalance market. As you know, we had agreed with Puget Sound Energy to acquire their interest in Colstrip Unit 4. It was an attractive resource for our customers, even if a transitional resource, and it would have deferred, but not eliminated, the need to acquire assets to address our customers' capacity exposure. A very important part of that was the purchase power agreement back to Puget with a very good price structure, and very significantly, Puget agreeing to retain future closure, for example, pension obligations. We were not the only ones who thought we had negotiated a very, very good deal. As most of you are aware, Talen has now exercised their right of first refusal on both the purchase and sale agreement for the asset, and the parallel purchase power agreement back. The unfortunate part is that customers are losing some significant value. On the other hand, Talen's action does affirm that we negotiated a very good deal for our customers and also indicates Talen's longer-term interest. Talen had also asserted a ROFR against our transmission purchase. Our view is that there is no ROFR available. I think Talen at least acknowledges our position. We are in the process of re-filing or filing an amendment to our application reflecting the ROFR. In addition, the commission had initially adopted an order filing - finding that our initial application under the Montana pre-approval statute was deficient in certain ways. We were extremely concerned that the commission, without necessarily intending to do so, had broadened the docket substantially beyond the corners of the filing. The Montana pre-approval statute is quite specific about the contents of a filing. Various requirements imposed upon the outlook and then does set a deadline, beginning with the date the application was deemed complete. The commission did, just several days ago, grant our motion for reconsideration, and has adopted a procedural schedule that would move towards a hearing this fall. We expect the written order will also include strong language about appropriate and inappropriate use of the discovery process, trying to keep the case focused appropriately. With that, we look forward to your questions.

Operator, Operator

Thank you. And we'll take our first question from Julien Dumoulin-Smith with Bank of America.

Ryan Greenwald, Analyst

Good afternoon, guys. Actually, Ryan Greenwald on for Julien. Thank you for taking my questions.

Robert Rowe, CEO

So the DH rule is in effect?

Ryan Greenwald, Analyst

So maybe if you can just kick off with your expectations around rate cases, timing, and tax year implications, given the meaningful cost cuts that are being implemented?

Robert Rowe, CEO

We do look at rate cases every spring when we consider whether a rate case is appropriate. And this year, we do not anticipate making any filings.

Ryan Greenwald, Analyst

Are you able to help frame kind of expectations for next year, given the cost cuts that are kind of being implemented right now?

Robert Rowe, CEO

Expectations in terms of rate case filings in 2021?

Ryan Greenwald, Analyst

Right.

Robert Rowe, CEO

No, I think it's too early for that.

Ryan Greenwald, Analyst

Fair enough. And then on the decoupling, understand that it's not really designed for the current prices. But in terms of action by the commission there, is July implementation kind of your base case still for expectations?

Robert Rowe, CEO

We're less concerned about a date for implementation and more concerned that the commission does move ahead with decoupling again. It's really designed as an infrastructure support mechanism, and the commission issued a very good order. We hope it stands by that order. Very importantly, as part of that order, the commission recognized that there is no basis for an ROE adjustment when decoupling is adopted. We're concerned about the substance and about a clear order. Much less concerned about a starting date.

Brian Bird, CFO

Hey, Bob? And just for everybody on the phone, it's difficult because Bob and I used to look across the table at each other and say who was going to take answering the question or not. So just one thing on rate case. I agree with everything Bob said. I just want to add something though on South Dakota. We have talked about South Dakota in the past because of the structure of investing capital this year, investing capital in 2021, the thought process of having a 2020 test year, and there are measurable capital. So, those plans have not changed, as we sit here today.

Robert Rowe, CEO

Fair enough. Brian and I have not been in the same room since early March, late February.

Ryan Greenwald, Analyst

Fair enough. And then I guess just looking at the margin assumptions, are you able to give any color on your transmission revenue expectation? And I guess any color you could provide on that $1.2 million headwind in terms of what might have been COVID related there for the quarter?

Brian Bird, CFO

Yes. I saw some thoughts about transmission impacted by COVID. We're not seeing that. Certainly, we hadn't seen it in the first quarter. The two things I'd say about the transmission side of our business. The OASIS impact that we've seen on transmission was really driven by the closure of Unit 1 and Unit 2. So that was already in effect pre-COVID. The other impact we did have in the first quarter is we had a large industrial customer of ours, who was having some troubles, and stopped production in January. They are now back up and running, and certainly still running during the COVID time period. Another good thing about industrial for us, and about Montana for sure, and we don't have a ton of industrial here in South Dakota. It's all commercial, but not a ton of industrial. So the nice thing though in the state of Montana, most of our industrial customers are industries deemed important to continue in production. So we haven't seen a lot of fall-off as of late there.

Ryan Greenwald, Analyst

Fair enough. And then just lastly, real quick on the rate case stuff. So I understand your commentary around South Dakota. But in terms of Montana, how should we kind of think about the interrelationship between significant O&M cuts and then the tax year for that next rate case?

Brian Bird, CFO

I'm going to give Bob's statement earlier. On Montana, we're going to have to wait and see where we are in the spring of 2021 to see what we're going to do there.

Ryan Greenwald, Analyst

Fair enough. Appreciate the time, guys.

Brian Bird, CFO

Thanks, Ryan.

Shar Pourreza, Analyst

Hey, good morning, guys, or good afternoon, actually. Just a couple of quick questions here. Your outlook assumes business closures in the second quarter with some sort of a mean reversion for business activity in the fourth quarter. If the outcome is sort of more protracted or the recovery assumptions that you guys have in the slides are lagging by maybe one or two more quarters, do you guys have additional levers above the $0.09 in O&M you found to stay on track? Do you have additional levers, I guess, beyond the $0.09?

Brian Bird, CFO

I'll grab that one. I would tell you this. What we did, Shar, is we looked at kind of the worst-case scenario. We essentially said what if, in fact, we were in this situation in the second quarter for a full year? Our guidance would go down another $0.15 associated with that. So that it gives you an idea of the magnitude swing if, in fact, we were locked down for all of 2020. We don't have enough levers, if you will, to go that far. To give you some thought on our thinking in terms of how we did lay it out, I think in fairness - and I don't want to downplay the national impacts of COVID right now, but the total number of cases in our two service territories in Montana and South Dakota combined is 468 cases. Matter of fact, Montana is talking about opening up here in early May and a staged approach. We assume effectively locked down into and through all of the second quarter and in our assumptions. So, and then recoveries. I think - and again, things can change, we're certainly well aware of that. If we're not careful they can change. The company is certainly regardless of how quickly things are going to open up in our various states, we're going to continue to do what we have been doing to protect our employees and customers as best as we can. But from our perspective, we feel pretty good about the assumptions and continue to watch this day-to-day.

Robert Rowe, CEO

I think the key to add is just that we monitor the situation truly week-to-week and in some cases day-to-day and are able to make adjustments. 500 cases or so in our immediate service territory is obviously 500 too many and precautions everyone is taking are appropriate but at this point the projections that Brian ran through are pretty consistent with facts on the ground. That's good change and we'll be prepared to adjust.

Shar Pourreza, Analyst

Got it. We're three weeks into the second quarter. How does the load picture compare to your assumptions moving forward? Is April a good indicator of how you are forecasting for the second, third, and fourth quarters?

Brian Bird, CFO

Bob, we probably both can respond to this. What are we seeing thus far? Shar, another way to answer your question. We don't have very information on a customer-by-customer basis. We don't have the AMI in Montana. What we do have though is we're responsible for well control balancing in the State of Montana and obviously our largest part of our business. What we're seeing there thus far in April is loads are down about 2%, but in fairness, it's been a pretty decent weather month, so the thought process internally is that probably equates to more like a 4% drop in loads as a whole. That's what we have thus far. It's not a perfect match for our business, but relatively, from a volumetric perspective, it's the best we have.

Robert Rowe, CEO

In addition to just loads in the aggregate, obviously we're paying attention to the payment situation. We start with a very low level of late pay, non-pay like other utilities we waived pure termination and collection. We've got a program started just this week to reach out to those customers but from that load base, we are seeing an unusual trend up this year obviously associated with COVID just in payment issue. So we need to work with customers there and we hope that again our regulator as well will support us in doing that.

Shar Pourreza, Analyst

Just on the CapEx obviously was reiterated, but it does decelerate through the trajectory and the message has always generally been that you can backfill. Does COVID related slowdowns impact this conservative band and more importantly, can you speak on the flexibility of the growth capital program assuming that macroeconomic backdrop is a little bit more projected? Are there any spending programs that could become secondary in nature?

Robert Rowe, CEO

Because our capital program is not at this point dependent on a small number of headline projects, it's really driven by what are the needs in the system. There is some flexibility in bringing programs forward and back but I wouldn't think of it so much as backfilling a hole. It's just doing the work that's appropriate to do in the system and doing that in a sequence that makes sense. This year in distribution, there were resources available to really focus on line subsegments using data engineering GAAP analysis to go in and address reliability issues, be proactive in terms of fire management, things like that. That's an example of a program that can be moved up depending on available resources.

Brian Bird, CFO

Yes, we've been working together for a long time, Bob. I would say this: as far as I can recall, we've always invested more in the actual year of that fifth-year forecast than we actually have shown five years prior if that makes sense. We do tend to fill that in and we're better at forecasting our current year budget from a capital perspective than we are in our fifth year. We tend to fill that in, Shar, so I'd say that first. Second, I'd say obviously, we like to be successful in Montana generation. We're able to do that. We will fill it in likely and then some. The hope is to be at $400 million of investment throughout this whole time period and again, that gives us comfort being in the midpoint of our 6% to 9% all shareholder return. I do think we'll fill that in, but until we have identified the projects and have done a significant amount of work in terms of laying them out, we're not going to just roll projects in there to make it add up to $400 million.

Shar Pourreza, Analyst

Got it. Just one last question if I may. The rate case, just the part that was under reconsideration was the decoupling pilot. That outcome shifted from the first quarter and then now you're expecting sometime in the second quarter. Obviously, you highlighted some of that could have been related to COVID. Is there any potential this can go into further slippage? The program, I think, is supposed to go into effect in the beginning of July. Just get a little bit of a sense on timing if there is a potential it slips further.

Robert Rowe, CEO

The order I certainly expect in the next few weeks. The commission has figured out how to run its business remotely. In terms of a start date for the program as I mentioned, I'm not as concerned about whether that's this July or next January. What I am eager to see is a strong order from the commission affirming decoupling is important and affirming its original decision.

Shar Pourreza, Analyst

Terrific guys. Thank you so much.

Brian Bird, CFO

Robert, I'm not sure, but it may actually be on the work session next week.

Robert Rowe, CEO

Yes, it is. Whether they act next week or decide to take action at some point in the future, but there is a work session scheduled on decoupling, so I think we can comfortably say there'll be a final outcome next week or soon thereafter.