Good morning, everyone, and welcome to the annual shareholders' meeting of NorthWestern Energy. Welcome to our wonderful general office here in Butte, America. I'm Bob Rowe, President and Chief Executive Officer, and I'm the only non-independent member of the Board of Directors. Thank you all for being here today, and welcome to those listening via the webcast. We hold almost all of our quarterly meetings and our annual meetings around our service territory. That's something fairly unique among Boards of Directors. It's a big commitment by this Board, as a result, our Board members have been out getting to know community leaders, customers, and particularly, our employees. Everyone here in person should have signed in at the registration desk. If you did not sign in, please do so right now.
If you don't have a copy of the agenda for the meeting, please raise your hand and we'll get one right to you. Everybody have a copy of the agenda? Great. Before I introduce the members of the Board, I'd like to take just a moment to honor a very dear friend and colleague of all of ours, Dr. E. Linn Draper, announced that he will not be seeking re-election to the Board at the end of his annual term, and that's effective today. Linn has served as the Chair of the Board for over 14 remarkable years, has, in that capacity, overseen all of our work on the Board, the executive level, has really set an extraordinary tone for the Board and really for the entire company.
Linn is a respected leader, longtime leader in the energy and the utility community, he's provided our Board great experience, oversight, and particularly wisdom as we've grown and transformed the company over the years. His experience, his knowledge, and his guidance are going to be greatly missed, and particularly his friendship. We're grateful to have had Linn's service over these past years, Dr. Linn Draper, we cannot thank you enough. I'm honored to introduce the seven other members of the Board, all of whom are independent in every sense. We have a remarkable Board, they're also all recognized as governance fellows by the National Association of Corporate Directors. Again, that's a unique commitment that they have made individually. First, Steve Adik.
Steve has been Chair of the Board's Audit Committee since 2004, has been nominated by the Board to replace Dr. Linn Draper as the Chair of the Board. Mr. Adik is, again, the candidate to take over and continue to build on Linn's accomplishment. He has a long history of engagement and understanding of the company and of the employees, has a commitment to get out in the field with our employees. Again, to understand our service territory, understand the challenges, and the great work that our employees do. Steve, again, we thank you for taking on this important obligation. We are in very good hands indeed. Tony Clark. Tony is a Senior Advisor at Wilkinson Barker Knauer LLP, Tony is a former member of the Federal Energy Regulatory Commission, brings great regulatory insight to the Board.
Dana Dykhouse is chair of the board's Human Resources Committee. Dana is the chief executive officer of First PREMIER Bank, which is headquartered in Sioux Falls, South Dakota. Jan Horsfall is the co-founder and chief executive officer of Maxletics Corporation, a sports technology and media company in Colorado Springs, Colorado. If you have the chance to ask Jan about the changes he's had on the lives of some of our Olympians just over the last year, that's really quite a remarkable story. Britt Ide is the president of Ide Energy & Strategy, and the executive director of the Yellowstone Club Community Foundation, and Britt resides in Big Sky, Montana. Linda Sullivan is the executive vice president and chief financial officer of American Water Works Company, which is the largest publicly traded U.S. water and wastewater utility in the United States.
Our final board member, Julia Johnson, unfortunately, is not able to be with us today. In her 14 years on the board, we believe this is the first meeting that she's had to miss. She is chair of the board's Governance and Innovation Committee, and Julia is president of Net Communications, LLC, and is the former chairwoman of the Florida Public Service Commission. It's my pleasure to introduce the members of NorthWestern's executive team, with who I am truly privileged to work, and by whom both our investors and our customers are extremely well-served. Again, if you would please stand as I introduce you. Brian Bird, vice president and chief financial officer. Mike Cashell, vice president of transmission. Heather Grahame, general counsel and vice president, also responsible for regulatory affairs and federal governmental affairs. John Hines, vice president of supply, also responsible for Montana governmental affairs.
Crystal Lail, vice president and controller. Kurt Pohl, vice president of distribution. Bobbi Schroeppel, vice president of customer care, communications, and human resources. In addition, representing Deloitte & Touche LLP, the company's registered independent public accounting firm, are Judy Dockendorf and Alex Ellerling. Now I'd like to recognize our corporate secretary and inspector of election. Seated at the table on my right is our corporate secretary, Tim Olson. With him is Travis Meyer, our director of corporate finance and investor relations officer, who is serving as the inspector of the election for today's meeting. It's now my pleasure to introduce Dr. Draper, the outgoing chair of our board, to conduct the business portion of the meeting. Linn, come forward.
I'll remind you that the independent board chair is unique, really, in U.S. corporate governance, but we consider it to be a very important aspect of our own corporate governance. Linn?
Thanks, Bob, good morning. It's great to be here. Before I start the formal meeting, let me just digress for a moment and say a word of thanks to the employees, the customers, the shareholders, and my fellow board members for 14 great years. I really have had a terrific time with NorthWestern Energy and will greatly miss the association that I've had with this company in this part of the U.S. I've had a long career in the utility business, I can tell you that these 14 years have been just a delightful conclusion to my utility career. Thank you for all that you have done. Let me sort of give a roadmap of what's going to happen this morning. I know many of you are not veterans of attending annual shareholders meetings, here's the plot.
The meeting will proceed in four more or less distinct parts. There'll be a relatively formal business section, at which time people will be asked to cast their votes on the various proposals. We'll pause the business portion of the meeting, Bob will come back up and give a presentation on the state of the company. The third piece of the meeting is perhaps the most important. It's the opportunity for you as shareholders to ask questions and make comments about your views on how the company is going. I will return by the time the votes have been counted. I will give you a report on the results of the election, that will basically conclude the meeting. At this time, let me call the meeting of the NorthWestern Corporation to order.
In order to conduct an orderly meeting, we ask that participants follow the rules of conduct that are printed on the back of the agenda. As stated in the rules, stockholders should not address the meeting until recognized. There will be a formal question and answer period, at which time you can make your questions and comments known. At this time, let me ask the corporate secretary for his report.
Thank you, Chair Draper. I have with me the following four items: an oath of inspector for the inspector of elections serving at this meeting, a copy of the minutes of the last annual meeting of stockholders, which was held on April 27th, 2017. Number 3, a list of the registered holders of common stock of the company as of February 26th, 2018, which was the record date for this meeting. A copy of this list of stockholders has been on file and available for inspection by stockholders for 10 days prior to this meeting. Finally, number 4, an affidavit of distribution for the proxy materials. This affidavit indicates that the initial proxy materials were mailed to stockholders commencing March 7th, 2018. The list of registered stockholders will be available during this meeting, each of these four items will be made a part of the records of this meeting.
In accordance with the company's bylaws, to establish a quorum for this annual meeting, we need at least the holders of a majority of the shares of our common stock that are entitled to vote on the record date to be present at this meeting, either in person or represented by proxy. On the record date, we had 49,406,778 shares of common stock entitled to vote at this annual meeting. We need more than 50% of those shares to be present, again, either in person or represented by proxy, at this meeting to establish a quorum. Today, there are at least 46,565,183 shares, or more than 94% of our outstanding common stock, that are represented in person or by proxy at this annual meeting. Accordingly, more than 50% is present, and we have established a quorum.
Thank you, Mr. Secretary. Pursuant to the foregoing report of the corporate secretary, I hereby declare that a quorum is present at this annual meeting and that we may proceed with the business portion of the meeting. A copy of the printed notice of annual shareholders meeting to stockholders, stating the time, place, and purpose of the annual meeting, was mailed on or about March 7th, 2018, to each stockholder of record as of February 26th, 2018. In the interest of time, I would entertain a motion to waive the reading of the notice of annual stockholders meeting.
Moved.
It has been moved. Is there a second?
Second.
Moved and second. All those in favor, please say, "Aye.
Aye.
Opposed? Thanks very much. The motion is carried. The next agenda item is the reading of the minutes of the last stockholders meeting, which was held April 20th, 2017. As Mr. Olson noted, a copy of those minutes is available for inspection at the secretary's table. Those minutes could be publicly read to you at this annual meeting. Again, in the interest of time, I would entertain a motion to waive the reading of those minutes.
Moved.
It's been moved. Is there a second?
Second.
Moved and seconded. All in favor, please say, "Aye." Opposed? Thanks very much. The motion is carried.
Aye.
We can now turn to the business for today's annual meeting. Our business today is to act on three proposals that were brought before our stockholders in the proxy statement. These proposals are as follows. Proposal number one, the election of eight members to serve on the board of directors for a one-year term. Nominees are Stephen P. Adik, Anthony T. Clark, Dana J. Dykhouse, Jan R. Horsfall, Britt E. Ide, Julia L. Johnson, Robert C. Rowe, Linda G. Sullivan. The board of directors has recommended a vote for the election of these eight nominees. Proposal number two is the ratification of Deloitte & Touche LLP as the registered independent public accounting firm of the company for the year ending December 31, 2018.
Although action by the stockholders is not required by law, the board has determined that it is desirable to request the approval of our selection of an independent public accounting firm by you, the stockholders. The board of directors has recommended a vote for the ratification of Deloitte & Touche as NorthWestern's registered independent public accounting firm. Proposal number three, hold an advisory vote to approve named executive officer compensation. The resolution concerning the approval of compensation paid to the company's named executive officers was set forth in the proxy statement for this meeting. The resolution reads as follows. Resolved, that the compensation paid to the company's named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables, and any related material disclosed in this proxy statement, is hereby approved.
The board of directors has recommended a vote for adoption of the resolution, approving on an advisory basis the compensation of the company's named executive officers as described in the proxy statement for this meeting. Ladies and gentlemen, I will now open the polls for voting. I'll ask the Inspector of Elections to open the polls for proposals one through three and to count the votes. If anyone would like to vote in person at this meeting, please raise your hand. We'll take your proxy or completed ballot to the Inspector of Elections at this time. There's some over here.
Excuse me, Chair Draper. We do have ballots at the table here. If you would like to vote in person and don't have a completed proxy with you may come up to the table and complete the ballot to cast your votes.
If you previously voted your proxy and don't wish to change your vote, you don't need to do anything. If you need a ballot, you can obtain one, as Ken said, by raising your hand. Anybody else need a ballot? Okay, I will now close the polls with respect to proposals one through three.
Excuse me, Chair Draper. We still have a couple of shareholders finishing their ballots.
Oh, okay. I thought everyone did it. Yep. The polls aren't closed yet. Better? Okay, now I'll close the polls. While the Inspector of Elections is tabulating the ballots, I'll call Bob Rowe back to the podium. He will give an update on the state of the company.
Thank you. Thank you. I'll move through this hopefully reasonably expeditiously. A warning about forward-looking statements, of course. Here is a picture of our great service territory. We serve natural gas in Nebraska, electricity and natural gas as a vertically integrated company in South Dakota, electricity and natural gas in Montana. In addition, in Montana, our electric and gas transmission assets are really key resources for the entire state, far beyond our own retail customers. This is a snapshot of who, under Linn's leadership, we have worked very hard to be over the last two years. A pure utility focused on the utility business, solid foundation, strong earnings and cash flow to earn and retain the support of our debt and equity investors who make our investment in our service territory possible.
Realistic future growth prospects. That is all investment back in our service territory, not in other unrelated businesses, other parts of the world. Rigorous financial goals and metrics. Our targets announced are debt to total capitalization of between 15%-55%, with liquidity of over $100 million. Targeted 6%-9% long-term total shareholder return. That is growth plus dividend yield, targeted dividend payout in the 60%-70% range. We are particularly proud. I will come back and talk about our best practices approach to corporate governance. Indeed, the independent board chair is an important attribute of that. We talked about the 80/20 rule. As a rule of thumb, we are 80% Montana, 20% Nebraska and South Dakota. 80% electric, 20% natural gas, 80% residential, 20% industrial and other. We are particularly proud of our low carbon diverse supply portfolio.
On a company-wide basis, the energy delivered, not nameplate, but energy delivered is nearly 60% carbon free. In Montana, an historic event was the acquisition and dedication of the distributed run of the river hydro system to serve our Montana customers at prices based on cost out of the foundation of our diverse Montana portfolio. That brings with it important stewardship responsibilities to our entire service territory, including stewardship responsibilities for the rivers that so many of us treasure throughout the year. In terms of our utility performance, we are as proud as anything of our strong customer satisfaction records across the service territory, strong and improving. Our high-quality reliability on the electric side, which can be particularly challenging in the Montana part of our operation, where we have many radial lines into remote and mountainous areas. It is quite an accomplishment.
As important as anything is our low leak rate, ensuring that our natural gas system is safe for our customers. We are privileged to be a part of, to contribute to serve a marvelous part of the country. It is a part of the country that typically does not experience the rapid boom or bust cycles. As a result of that, we have experienced growth in customers overall above the national average. This is a part of the country where unemployment rates have tended to be below the national average, particularly through the recession. Again, we are proud to be part of this great area. This slide depicts the CAGRs, the compound annual growth rates, for a couple of key metrics. Over the decade, 2008-2017, the GAAP EPS has increased by a CAGR of 7.3%, non-GAAP EPS by 6.8%, and the dividend by 5.3%.
We are a stable long-term investment. That's appropriate for a utility that has the service obligations that we have. Continuing with financial results, you see a return on average equity has tended between the 9.3% and 11% band over the past six years. Total shareholder return over a 10-year period has led our peer group. We recognize on the one, three and five-year periods, we have lagged, and that's significantly due to regulatory concerns. Continuing with the financial overview, you see the depiction of the relationship between rate base and earnings per share. This reflects our ongoing investment in providing our customers safe, adequate, reliable, and affordable service. We've managed to make substantial investments in our system while also controlling the cost impact to our customers. Here are our credit ratings. You see we're unfortunately on negative watch at Fitch and Moody's. Stable at S&P.
You also see our liquidity, debt to capital ratio, and debt maturity. This is indicative of a company that's making, again, long-term decisions to serve our customers, maximizing cost-effective use of debt in relation to capital in order to fund our investments in serving our customers. Here you see that we worked very hard over the last decade to improve our credit ratings, but again, are on negative watch now from two of the three agencies because of concerns. This is something that, from a customer perspective, is significant as well, because we've been able to achieve a total cost of capital delivered to our customers over the last few years well below many of our peers.
Components of free cash flow on the left, net operating losses on the right. Here is our board of directors standing up below one of our hydro facilities, this one near Helena in Lewis and Clark County. As we discussed, a dedicated river sport. Here is our executive committee, also out along the Missouri River. I mentioned corporate governance earlier. There are a number of reports to that, a number of components to that. An engaged board, a board that's been trained through the NACD process, the independent board chair, best practices approach to all of our disclosures. That's something that's recognized by the national ratings agencies, by the stock exchange, by corporate secretaries.
Tim has been to so many award ceremonies for best proxy statement that he's had to actually buy rather than rent a tuxedo, I believe. That says, again, something about that sustained commitment. As proud as we are of that, we're also very proud of the role that we play in our community. We've been recognized in South Dakota for our support of the National Guard and Reserve, our community works programs, our key contributors in all of the communities that we serve, focus on worksite health. Again, in terms of proxy statement disclosure about executive compensation, we've adopted conservative policies, and we disclose those very transparently. Diluted earnings per share as we continue to make investments in our communities and in serving our customers. We've targeted a long-term total shareholder return of 6%-9%. However, regulatory concerns do continue to press on this.
A couple of things we're proud of in particular over the last year. Two years ago, we had our best ever safety record. Last year, we had an extremely strong safety record as well. We're able to sustain that most important commitment. I mentioned our customer satisfaction scores, strong and moving up. Multiple recognitions for corporate governance. Just recently, we were recognized for the gender diversity of our board of directors by the group 20 by 20, advocating for 20% women on boards of directors of publicly traded companies by 2020. Three of our eight independent directors currently are female. With Linn's retirement, that will be obviously three of seven. Also proud of our environmental stewardship. I hope you had a chance to pick up a copy of our environmental report that was just published several months ago. Looking forward, have some regulatory challenges.
First, we filed in all three of our jurisdictions, cases to flow through the changes in federal tax law to serve our customers. Our goal is to be neutral, not harmed, but neutral at the end of those proceedings. Secondly, in Montana, working on a power cost adjustment mechanism to track and recover the costs that we have on an annual basis for purchasing inputs to power supply. Our ongoing investment in transmission and distribution is key. We successfully concluded in Montana the distribution system infrastructure project last year. We had great guidance from a South Dakota infrastructure stakeholder group, and a similar group in Montana. That's guiding the majority of about $1.6 billion of investment in our system over the next five years, working just as hard to ensure the safety and adequacy of our natural gas transmission and distribution systems.
This year, we will be updating through the leadership of our supply group, our supply plans in both South Dakota and Montana. We expect those to be filed by the end of the year. Continue to look for opportunities to acquire proven natural gas production dedicated to serve our customers in Montana and to serve them long-term stably priced gas service. Finally, we do-- we're mindful of our responsibilities, both to our customers and our shareholders, and we do take our cost control obligations very seriously. This is a highlight, again, of our capital plans over the next five years, heavily focused on transmission and distribution, including basic initiatives, but also including investments in grid modernization on both the electric and the natural gas sides. We're always very clear that this only includes known initiatives at this time.
As new opportunities present themselves, we obviously would evaluate those under our corporate risk appetite statement. Beyond that, at this point, these are initiatives that, based on what we know now, we'll be able to fund with existing equity, but we will continue to evaluate the need for stock issuances either to pursue other opportunities to serve our customers or if we need to in terms of preserving our financial integrity and metrics. Finally, most importantly, thanks once again, Linn, as a leader, as a mentor to me, to all of us, and personally as a friend. You have truly been extraordinary. That concludes my presentation. I open the floor for questions. Just to remind us all, this is a formal business meeting. After being recognized, please identify yourself and your status as a stockholder, state your point or ask your question.
As stated in the rules of conduct, please limit your remarks to corporate business and make them no longer than 3 minutes. Questions should be directed to the chairman, and he can then refer them to the appropriate person. He can refer any couple to me, of course. If you would like to be recognized, please do raise your hand, and Emily will bring you the microphone. Up here.
Thank you, sir. John Hoover, I'm a stockholder from the western part of Montana who's had the opportunity to deal with the wildfires this summer. At your meeting last week, discussed and looked at future power generation and made very clear that climate change is not being taken into consideration in any of those evaluations. I think those are going to be serious costs which we're going to have to face, and I wonder how you justify not taking that into consideration. I wonder why the reported report takes into consideration the externalities at both the company and the state of Montana and the customers will experience both directly in terms of damage and infrastructure as extreme weather and fire conditions get worse and in terms of the impact to customers pay in a state that's increasingly affected by climate change.
I would direct that question to whoever you think best should answer.
Why don't we let Bob answer it? I think it is a totally appropriate question and one that's important to us. Bob, why don't you start on it, and then we'll see if other people need to amend it. Sure. I'll speak to it initially, refer probably to John Hines from a supply perspective, from a disclosure perspective, possibly to Crystal Lail. First, in terms of our overall portfolio, I hope you had a chance to pick up a copy of our environmental stewardship report. Let me make the general comment that stewardship in all aspects is incredibly important to us. I mentioned our stewardship of the Montana River system. It extends really to all of our facilities. That is a baseline. In terms of our supply portfolio, the hydro system fundamentally changed really every aspect of our portfolio.
In terms of your question, we changed our portfolio from a carbon perspective. Among utilities that don't have nuclear, and we do not, we are among the lowest carbon intensity in the U.S. The hydro system is not a static system. We have the opportunity to continue adding to that system, continuing adding generation at existing plants. In addition to that, we actually have more wind on our system and coming onto our system than coal, and soon we'll have more even than hydro. Wind and hydro combined will very, very soon meet more than the average load on our system. What our supply planning process has identified is our customers' need, our core need is for dispatchable sustained peak. We need resources that meet that peak. We believe that's an environmentally responsible approach.
Our statutory responsibility in Montana is to identify a portfolio of resources that is long-term, least cost, least risk. In doing the modeling, we actually do runs that factor in carbon. We are certainly aware of that. Again, our statutory responsibility, long-term, least cost, least risk. I think there are opportunities to work with the environmental community, certainly around the hydro acquisition, certainly around policies to support utility energy efficiency programs, for example. We could have used some support as we were trying to put in place and defend existing policies that supported our very good cost-effective efficiency program. It's a very high-level answer. John, do you want to add to that? John.
Hi, my name's John Hines, and I'm Vice President of Supply. The only thing I'd add to Bob's comments is that there's one other factor that we're required to take into account when we're looking at planning for resources in the future, and that's a reliable power supply. The problem with a lot of the wind and solar resources that we have in our system, so we actually have actual operational data, is that it's not always available when our system most needs it. To give you an example, we've looked at the coldest days on our system and looked at the production that was coming from all of our portfolio, so wind, solar, gas. We had a very low production number on those coldest days, basically less than 9% of the capability of our wind and solar. Back then, it was almost exclusively wind.
Our thermal resources were generating at about 100%, so 9% versus 100%. We would not have been able to meet our customers' needs on those very cold days without having some of the thermal generation operating at full capacity. We are moving toward a more carbon-free portfolio over time. Fundamentally, we still need to be able to have some sort of reliance on some type of technology that we can turn on and off when needed. The other factor is that we used to include carbon explicitly in our planning, and the Public Service Commission, a few dockets ago, told us that we were no longer allowed to justify resource decisions by using the carbon factor in it. We are regulated by the Commission, and we have to abide by their decisions.
Crystal Lail is our controller. You asked specifically about disclosure. She's responsible for disclosures as a publicly traded company, disclosures to the Securities and Exchange Commission.
Sure. You mentioned briefly audit report and any impacts of climate change. I'll speak to it in two regards. One, when we put out our disclosures to shareholders and customers and all the stakeholders, as you look through those, they're fairly dense, it might be a little difficult to get through the technical accounting language to see where we discuss climate change. I'll hit a couple of key points. One, as we think about our results, you mentioned the wildfires last summer, which were significant to the state of Montana, but I think, as we all know, didn't get a lot of coverage nationally. We would speak to that in the context of how it affects our system and any financial statement implications of that.
One of the other key disclosures that you'll see from our investors wanting to know about is the effects of climate change. We talk as a management team, and I would tell you, spend a lot of time actually discussing how we talk about the impacts to our system, where we see our business going in the future. I would be happy to share those specific segments of language pulled out of our report so you could see them rather than trying to dig for them yourself. We do talk about the physical risks of climate change to our system, what we see for our business in the future, and how that might affect our results from an ongoing perspective.
I would say we go above and beyond what is required of us from a publicly traded company and the kind of technical disclosures we put in our reports. The environmental report that was mentioned earlier also, I think, puts in probably easier, more straightforward language, our approach to environmental considerations and that we do consider that to be a significant part of us as both delivering to our shareholders who consider that important, but also as important parts of the community.
The last thing I would add is our environmental stewardship report was prepared in part to provide our investors the information they need, has been very well received. We tried to do something that was accessible to customers and communities as well. We're proud of the report for being accessible, but we're much more proud of the work reflected in the report. The other thing I would say is that we're participating with other electric utilities, in this case, in a template for what's called ESG, Environmental, Societal, and Governance Reporting. Travis and Tim are both very active in that. You can expect to see more of that. Any other questions? Good. Thank you for starting good discussion. Oh, anyone? Good. If you could identify yourself and your question.
Yes. I'm Marta Mings, and I'm also a shareholder from Missoula. I hear all of your concerns, and I've read about them before. My question to you and what my big concern is that the procurement plan, some of the things in it is about something that would lock us into new natural gas generators for 30, 40 years. If that's decided upon, as well as more natural gas pipelines and everything that feeds that, I'm concerned that times are changing so quickly and that in the next five years, I'm hoping to see carbon tax, things that are going to, with changes of administration maybe, but carbon tax and things like that. Also other things like smart grids and kind of things like storage that are going to improve drastically.
My concern is being locked into 30, 40 years of natural gas and the ratepayers having to pay that when I don't think that's a good decision.
Again, thanks for the question, and probably two people to respond to that are again Bob and John.
First, I agree with most of what you say. I would take exception to your use of the word ratepayer. We don't got no ratepayers. We have customers. That's very important to me. I will say maybe more directly than I should, that the 2015 supply plan was, I have to believe, knowingly misrepresented. That plan, and you'll see actually more of this in the next plan, was intended to be an incremental approach to address identified need. What's the identified need? John described that. We are the only utility in the Western United States, and this is a legacy of the Montana tragedy of deregulation. We're the only utility in the Western United States that has a negative reserve margin. That's a scary place to be for all of the reasons that John described. We have to take incremental steps to address that deficit.
We have to identify incremental resources to meet our customers' needs, regardless of the conditions. Why do I say the plan was misrepresented? We had identified a need. We, the royal we, our supply folks, had modeled a whole range of scenarios, including actually, in that plan, carbon was reflected. What did we do? We issued an RFP, administered by a third party, to identify any resources. It was an all source RFP to identify any resources that would help take the first very small bite out of that identified need. That RFP was open to traditional resources, open to non-traditional storage alternatives, open to combinations of resources, open to hydro resources, really any resource that could meet that need. It was an incremental approach, specifically intended not to lock us or our customers into one unitary set of resources.
That's from a supply perspective. Beyond that, we're also in the distribution system, actively engaged in pilots trying to understand the role of new technology, both controls technology and storage, at a distribution level. We have a pilot up and running in Bozeman. We're working with a community group right now in Missoula with the schools, on a pilot. We have another pilot in a rural application. I talked about those long radial lines we have in rural applications to help improve reliability, doing similar things in South Dakota. You also mentioned smart grid. I talked about the substantial investment we have in the next two years driven by the transmission and distribution system. We've taken what I like to call a speed of value approach to our technology deployment. This is an increasingly technology-driven company in ways that are not really visible to our customers.
Over the last two years, we've had a focus on basic investment. Actually, that investment from a fire chief's perspective, has included an awful lot of work around line clearance, for example, which I think has been a benefit to customers and a benefit from a public safety perspective. For the next two years, we've got a lot of that basic work done. You're going to be seeing this year, the rollout of ADMS, this advanced distribution management system, increasing our ability to control the system electronically, and then ultimately, at AMI, automated metering system. That has the potential to really change the relationship between us and our customers. Great idea. Why didn't you do that 10 years ago? The answer is, being sequential, being thoughtful, going out, acquiring the spectrum we needed for our system to communicate.
Also you got to eat your peas before you have desserts. We were focusing on the basic needs in the system, and Montana Power had deployed a previous generation metering system across Montana, that was still really quite functional. We've been doing a lot of planning around both ADMS and AMI. We will have the control systems in place. We're going to be deploying AMI first in South Dakota and Nebraska, learning from that, and then deploying in Montana as well. The opportunities are huge. Costs have come down, functionality has improved, and we have learned a tremendous amount from things that other companies have done well, and from things that other companies have done really, really badly. John?
Yeah. Everything that Bob said, I think set the framework. Let me just give you-
I thought you were going to say everything I said was wrong.
Not if I'm still here. Just to give you a few numbers that maybe help you put what Bob was saying in perspective. First of all, we have over 300 megawatts in our portfolio of hydro, both major hydro system, but also some smaller hydro. We're going to have potentially up to 500 megawatts of wind by the end of this year. We'll have a small amount of solar. We have 220 megawatts of Colstrip 4. We have around 200 megawatts of gas. You can see from just the numerical averaging, we have more than 50%, we're actually over 60%, of wind, hydro, and solar in our portfolio right now.
To your underlying question point as far as whether we're trying to throw all of our eggs into one basket, basically making the throw on technology now, that was one of the unfortunate things that came out of the 2015 plan that it was mischaracterized. Also, I take partly the blame. We probably didn't write it clearly enough that we were going to go out and buy $1.3 billion of natural gas facilities and infrastructure. What we're trying to do is we have Bob's negative capacity margin. We have around 500 megawatts of need right now going forward. We can fulfill that in a lot of different ways.
What our last plan said was we're going to take small little bit of that, 50-150 megawatts, so basically 15%-20%, and go out and see what the market would provide us as far as some kind of physical assets to help meet our capacity needs. We went out through a competitive solicitation, and it was an all-source competitive solicitation. Whether it was a battery, there wasn't any coal built into it, but storage was bid into it. Solar wind projects were bid into it. Unfortunately, we had to terminate that competitive solicitation because of regulatory concerns. I expect the same sort of conclusions to be coming out of this next plan. It's going to be very clear we have a huge need that we need to fill.
Relying just on market purchases is incredibly risky and most likely very costly for customers at some point in time, because as we all know, markets go up and down, and we've seen that even in Montana over the last decade or two, how much they went up and down. It's natural to have some kind of a hedge, both to insulate customers from those kind of volatile price swings which translate directly into bills. We will not, I guarantee you, make a throw for one type of technology, 100% of meeting that need going forward. We'll have some recommendations that will be an incremental approach, recognizing that technology will and continues to change over time, and we'll be able to take advantage of that over time.
At the same time, we have a responsibility to try to start insulating our customers from the market, and we'll be doing that through competitive solicitations. In other words, anybody can bid in those types of projects, and we'll evaluate them under the statutes and rules that we have to abide by, and we'll choose those resources. Again, very good question. To folks in Missoula, I always point out you've got Montana's absolute best renewable resource flowing right through town, and that's the amazing river. That's true in so many communities in Montana. Any other questions? Last night, we had the Leadership NorthWestern class asking questions of the board, and finally one of our board members had to be the adult and cut us off at about nine o'clock. It was a good discussion, too. Yes, sir. If you could just remind us of your name again, please.
Yes. John Hoover. John used an interesting word just a moment ago about insulating. That's something I've done. I haven't run my heat once in the last two weeks. Southwest-facing glass and lots of insulation. Has NorthWestern Energy looked at assisting their customers to a much greater extent on cutting the peak demand by eliminating the need to use extra power, particularly in those cold periods of time?
That's another opportunity for us to work together. First of all, yes, we have very good efficiency programs. Those ought to be something we're excited about from a business perspective. That'd be something we're excited about from a risk management perspective. In Montana, there are actually regulatory risks associated with those programs. Very disappointed that, for the most part, the environmental community did not participate when the one mechanism we had in Montana that supported those programs was eliminated. That had business consequences. What do we need to support utility-based programs? You need something like decoupling. Right now.
Say what that is.
No, you say what that is. No. Are you a co-op member or a NorthWestern customer?
I happen to be a co-op member.
You pay a very high monthly fixed charge. Am I right?
I know that my bills are about half what my neighbor-
Yeah
in town's bill who gets power from NorthWestern Energy.
Yeah. What is your monthly fixed charge? Depending on the co-op, it's probably in the 20s. The reason you're paying that high monthly charge is they're covering more of their fixed costs through fixed charges. As a regulated utility, that's policy set by the co-op board. As a regulated utility, our customers pay a very low monthly charge, they're paying for fixed costs through volumetric rates. That's the basic rub. When you say you pay a low rate, probably thinking of that volumetric rate, you pay a pretty high monthly charge.
My total bill is about half.
Good. You pay lower taxes, too. Quite a lot. One strategy is just to move off of volumetric rates altogether, there are companies that are moving in that direction. Co-ops have generally moved off of volumetric rates or are in the process. If you can't do that, one strategy is called decoupling, that's something that's been advocated by Natural Resources Defense Council for decades. It's something we've supported. decoupling attempts to, without changing what the bills look like, to break the link between utility profit and how much those meters are turning. That's just a basic, sensible thing. If you happen to be a NorthWestern customer, 81%, roughly, of the costs, including the costs for John's electric supply system, are fixed. Costs about the same to serve you in the winter, in the summer, in the shoulder seasons.
The way that's paid for is through volumetric rates. Decoupling is one mechanism to break that link. Beyond that, you need some confidence that you're going to get your direct costs for efficiency programs recovered, you ought to earn some kind of a return similar to what you'd earn on other assets. Those are three traditional elements. We actually had those in place in Montana before we went through supply deregulation. Biggest tragedy of supply deregulation, in my opinion, losing the hydro system. We had to work hard to get it back. Second biggest tragedy was losing those basic policies. Despite that, we continue to operate good efficiency programs.
Are really interested, actually, in working with customers to be served the way they want to be served. That would be my goal. John or actually, Bob? Anyone else? Yes, sir.
Yes, I'm Tim Spangler from Superior. I just have a question. There's a lot of people that are investing in their own solar in their own homes. They have surplus, and they want to exchange it with NorthWestern, but a lot of these people don't feel like they're getting a fair rate, and I want to know what NorthWestern is doing to encourage net metering in this state.
I agree. They're not getting a fair rate. Right now, they're getting between $110-$120 a megawatt hour. That is by far the most expensive resource that we have to acquire. Contrast that with John, what are you paying right now for solar and wind?
Yeah, in real-time contracts, we're looking at around $25 a megawatt hour through competitive solicitations. To Bob's point, under statute, we're paying those customers four times what we'd be paying anybody else, and that's inequitable, we believe, for the remaining customer base. When we can put those things on parity, including the payment of the fixed costs, we are fully supportive of net metering or solar installations. We do not believe it's a good practice for some customers to be subsidized by other customers.
That's, again, a break in a system that's driven by volumetric prices. If you're a customer of ours, again, just as we discussed, you're paying for that infrastructure, primarily transmission and distribution infrastructure that costs the same no matter how much you use it by spinning the meters. Under net metering in Montana, this actually was a result of deregulation as well, interestingly enough. You're being paid the equivalent of $110-$120 a megawatt hour on the one hand, and you're not helping to pay for the infrastructure that serves everyone. Where I want to get to is a system where any customer, first of all, you can go entirely off the grid. That is completely your right. Secondly, where we can work with customers to serve them the way they want to be served. I'm very sincere about that. We all are.
I want to do that in a way that's sustainable and that's equitable for participants and non-participants alike. That's where we need to get to. I respect that there's a point of disagreement. One thing, actually, we did in the last legislative session was two important things came out. A bill to study costs and benefits, kind of a value of solar study. The other one, though, was a bill to basically preserve the current net metering arrangement, which is, I think any economist would say, a subsidy to preserve that current net metering arrangement for current net metering customers. Going forward, for net metering to flourish and grow and for the investments that we talked about in the system to be viable, a broken system has to be fixed. Thank you. Anyone else? I'll turn the meeting over to you again. Thank you, Linn.
Thanks, Bob. Thank you for all your questions. Those were plainly thoughtful questions. I hope the discussion was helpful to you. May I have the report of the secretary for the vote of proposals one through three?
Thank you, Chair Draper. The Inspector of Election has certified the results for the proposals presented at this meeting. Those results include the proxy votes delivered this morning before the meeting by our outside voting and tabulation agent. Those results also included the proxy votes delivered at this meeting and the votes cast at this meeting by stockholders. For the first proposal to elect the eight nominees for director for a one-year term, each nominee received at least 44,234,616 votes for election, or at least 98.87% of the total shares represented by proxy or in person at this meeting. For the second proposal to ratify Deloitte & Touche as the company's registered independent public accounting firm for 2018, the results are as follows. The votes for the proposal were 46,312,699 votes, or 99.46% of the total shares represented by proxy or in person at this meeting.
The votes against were 134,155, or one half of 1%, and the votes abstaining were 18,633, or less than one tenth of 1%. Finally, for the third proposal, the advisory vote on executive compensation, the results are as follows. The votes for the proposal were 44,311,895, or just over 99% of the total shares represented by proxy or in person at this meeting. The votes against were 381,679, or 0.85%, and the votes abstaining were 46,013 votes, or one tenth of 1%.
Thank you, Mr. Olson, for the results of the election. As a result of the secretary's announcement of the results, I declare that Stephen P. Adik, Anthony T. Clark, Dana J. Dykhouse, Jan R. Horsfall, Britt E. Ide, Julia L. Johnson, Robert C. Rowe, and Linda G. Sullivan have been elected. The selection of Deloitte & Touche as the company's independent public accounting firm for 2018 has been ratified, and the compensation of the committee's named executive officers, as set forth in the proxy statement for this meeting, has been approved on an advisory basis. I would entertain a motion to adjourn.
Moved.
All those in favor, please say aye.
Aye.
Opposed. The meeting is adjourned, and on behalf of the board and management of the company, I thank you for your support and your attendance. I thank you again for the support that you've given me over the years and the support I know that you will give Steve Adik as the next chair of this corporation