Well, good morning, everyone, and welcome to the Annual Shareholders Meeting of Northwestern Energy, and welcome to our wonderful general office here in Butte, America. I'm Bob Rowe, President and CEO 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, but 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?
So 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, Doctor. He Lynn Draper, announced that he will not be seeking reelection to the Board at the end of his annual term and that's effective today. Lynn has served as the Chair of the Board for over 14 remarkable years and has in that capacity overseeing all of our work in the Board, the executive level, as Ricky said, an extraordinary tone for the Board and really for the entire company. Lynn is a respected leader, longtime leader in the energy and utility community and 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 Lynn's service over these past years. Doctor. Draper, we cannot thank you enough. I'm honored to introduce the 7 other members of the Board, all of whom are independent in every sense. We have a remarkable Board and they are 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 Addock. Steve has been Chair of the Board's Audit Committee since 2004 and has been nominated by the Board to replace Doctor. Draper as the Chair of the Board. Mr.
Addict is the again the candidate to take over and continue to build on Lynn's accomplishment. He has a long history of engagement and understanding of the company and of the employees and 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. And 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 Wilkinson, Barker, Neuer LLP and Tony is a former member of the Federal Energy Regulatory Commission.
So it 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 Horstfall is the Co Founder and Chief Executive Officer of Max Letix 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, who is the President of Ide Energy and 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.
And 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 Committee, Governance and Innovation Committee, and Julie is President of NET Communications LLC and is the former Chairwoman of the Florida Public Service Commission. Now 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. So again, if you would please stand as I introduce you Brian Bird, Vice President and Chief Financial Officer Mike Cashel, Vice President of Transmission Heather Graham, General Counsel and Vice President, also responsible for Regulatory Affairs and Federal Governmental Affairs John Hines, Vice President of Supply and also responsible for Montana Governmental Affairs Crystal Lael, Vice President and Controller Kurt Pohl, Vice President of Distribution Bobby Schropel, Vice President of Customer Care, Communications and Human Resources. In addition, representing Deloitte and Touche LLP, the company's registered independent public accounting firm, Harjutie Dockendorf and Alex Elleryn.
And 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. And it's now my pleasure to introduce Doctor. Draper, the outgoing Chair of our Board to conduct the business portion of the meeting.
When it comes forward, I'll remind you that the independent Board Chair is unique really in United States corporate governance, but we consider it to be a very important aspect of our own corporate governance. Lynn?
Thanks, Bob, and good morning. It's great to be here. Before I start the formal meeting, let me 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 United States. I've had a long year in the utility business and I can tell you that these 14 years have been just a delightful conclusion to my utility career.
So thank you for all that you have done. Let me sort of give our roadmap of what's going to happen this morning. I know many of you are not veterans of attending annual shareholders meeting. So, here's the plot. The meeting will proceed in 4 more or less distinct parts.
There will be a relatively formal business section, at which time people will be asked to cast their votes on the various proposals. Then we'll pause the business portion of the meeting and Bob will come back up and give a presentation on the state of the company. The 3rd 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. And then I will return by the time the votes have been counted.
I will give you a report on the results of the election and that will basically conclude the meeting. So, 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.
And at this time, let me ask the Corporate Secretary for his report.
Thank you, Chair Draper. I have with me the following 4 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 27, 2017 number 3, a list of the registered holders of common stock of the company as of February 26, 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 7, 2018. The list of registered stockholders will be available during this meeting, and 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 49,406,000 778 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 for 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 7, 2018 to each stockholder of record as of February 26, 2018. In the interest of time, I would entertain a motion to waive the reading of the notice of annual stockholders meeting.
It has been moved. Is there a 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 20, 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. But again, in the interest of time, I would entertain a motion to waive the reading of those minutes. So moved. It's been moved.
Is there a second? Yes. Moved and seconded. All in favor, please say aye. Aye.
Opposed? Thanks very much. The motion is carried. We can now turn to the business for today's annual meeting. Our business today is to act on 3 proposals that were brought before our stockholders in the proxy statement.
These proposals are as follows. Proposal number 1, the election of 8 members to serve on the Board of Directors for a 1 year term. Nominees are Steven P. Attic, Anthony T. Clark, Dana J.
Dykals, J. N. 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 8 nominees. Proposal number 2 is the ratification of Deloitte and 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 and Touche as Northwestern's registered independent public accounting firm. Proposal number 3, 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: Resolve that the compensation paid to the company's named executive officers has 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 1 through 3 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, 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 1, as Tim said, by raising your hand. Anybody else need a ballot? Okay. I will now close the polls with respect to proposals 1 through 3.
Excuse me, Chair Draper, we still have a couple of shareholders finishing their ballots.
Oh, okay. The polls aren't closed yet. Okay. Now, I will close the polls. While the Inspector of Elections is tabulating the ballots, I will call Bob Rowe back to the podium and he will give an update on the state of the company.
Thank you. And I'll move through this hopefully reasonably expeditiously. Warning about forward looking statements of course. Here's a picture of our great service territory. We serve natural gas in Nebraska, electricity and natural gas is 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 Lynn's leadership we have worked very hard to be over the last few 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, and that's all investment back in our service territory, not in other unrelated businesses, other parts of the world. Rigorous financial goals and metrics on our targets announced are debt to total capitalization of between 15% 55 percent with liquidity of over $100,000,000 targeted 6% to 9% long term total shareholder return, that's growth plus dividend yield and targeted dividend payout in the 60% to 70% range. We're particularly proud and I'll come back and talk about our best practices approach to corporate governance and indeed the independent board chair is an important attribute of that. We talked about the eighty-twenty 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're 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. That is the foundation of our diverse Montana portfolio and 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're 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 radio lines into remote and mountainous areas. So it's quite an accomplishment. And as important as anything is our low leak rate ensuring that our natural gas system is safe for our customers. We're privileged to be a part of, to contribute to, to serve a marvelous part of the country and it's a part of the country that typically doesn't experience the rapid boom all of my bust cycles. And as a result of that, we've experienced growth in customers overall above the national average.
And this is a part of the country where unemployment rates have tended to be below the national average, particularly through the recession. And again, we're proud to be part of this great area. This slide depicts the CAGRs, the compound annual growth rates for a couple of key metrics. And over the decade, 2008 to 2017, the GAAP EPS has increased by a CAGR of 7.3 percent, non GAAP EPS by 6.8 percent and the dividend by 5.3. So 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 is tended between the 9.3% percent 11% band over the past 6 years. Total shareholder return over a 10 year period has led our peer group, but we recognize on the 1, 3 5 year periods, we have lagged significantly due to regulatory concerns. Continuing with the financial overview, you see the depiction of the relationship between rate base and earnings per share. And we've this reflects our ongoing investment in providing our customers safe, adequate, reliable and affordable service. And 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 on unfortunately on negative watch Fitch and Moody's stable at S and P. You also see our liquidity, debt to capital ratio and debt maturity. And 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 2 of the 3 agencies because of concerns.
This is something that from a customer perspective is significant as well because we've been able to achieve the 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 right and our ability to retain net operating losses at the federal and state levels on the pardon me, 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 that's one near Helena in Lewis and Clark County. And as we've discussed, a dedicated diverse board. And here is our executive committee also out along the Missouri River.
Mentioned corporate governance earlier. There are a number of reports to that, a number of components to that, an engaged Board, Board that's been trained through the NACD process, the independent Board share, best practices approach to all of our disclosures. That's something that's recognized by our by the National Ratings Agencies, by the Stock Exchange, by Corporate Secretary. Tim has been to so many awards ceremonies for best proxy statement that he's had to actually buy rather than rent a tuxedo I believe. And 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, focused on worksite health. And 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% to 9%. However, regulatory concerns do continue to press on this.
A couple of things we're proud of, in particular, over the last year, we had 2 years ago, we had our best ever safety record. Last year, we had an extremely strong safety record as well. So we're able to sustain that most important commitment. I mentioned our customer satisfaction scores strong and moving up our recognition and for our multiple recognitions for corporate governance. And just recently, we were recognized for the gender diversity of our Board of Directors by the group 20 by 20, indicating for 20% women on boards of directors of publicly traded companies by 2020.
3 of our 8 independent directors currently are female, but Lynn's retirement that will be obviously 3 of 7. Also proud of our environmental stewardship. I hope you had a chance to get a copy of our environmental report that was just published several months ago. Looking forward, have some regulatory challenges. First, we filed in all 3 of our jurisdictions cases to flow through the changes in federal tax law to serve our customers.
Our goal was to be neutral, not harm, 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.
And that's guiding the majority of about 1 point $6,000,000,000 of investment in our system over the next 5 years, working just as hard to ensure the safety and adequacy of our natural gas transmission and distribution systems. Our
supply plans in both South Dakota
and Montana. We expect those to be 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 assure them long term stably priced gas service. And then finally, we do remindful 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 5 years, heavily focused on transmission and distribution, including basic initiatives, but also including investments in grid modernization in both the electric and the natural gas sides.
We're always very clear that this does not that this only includes known initiatives at this time as new opportunities present themselves. We obviously would evaluate those under our perfect risk appetite statement. And beyond that, at this point, we believe these 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, Lynn, as a leader, as a mentor to me, to all of us and personally as a friend, you have truly been extraordinary. And that concludes my presentation.
We'll now open the floor for questions. And 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. And 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.
But referring to Tufan to me, of course. So if you would like to be recognized, please do raise your hand and Emily will bring you the microphone.
Climate change is not to be taken into consideration in any of those valuations. 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 what it is important for us. It's in consideration the external at both the company and the state of Montana, the customers who experience both directly in terms of damages, the weather and it was in terms of impact the customers
Well, why don't we let Bob answer it. I think it is a totally appropriate question and one that's important to us. So Bob, why don't you start on it and then we'll see if other people need to win it.
Sure. I'll refer that I'll speak to it initially, refer probably to John Heinz from a supply perspective, from a disclosure perspective, possibly to Crystal Ale. First, in terms of our overall portfolio, I hope you had a chance to pick up a copy of our environmental stewardship report. And would you 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. So that is a baseline. In terms of our supply portfolio, we the hydro system fundamentally changed really every aspect of our portfolio. In terms of your question, 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 United States.
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. So 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 And we believe those are 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. And in doing the modeling, we actually do runs that factor in carbon. So we are certainly aware of that. But again, our statutory responsibility, long term, least cost, least risk.
Now 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. So it's a very high level answer. John, do you want to add to that?
Hi. My name is John Hynes, and I'm Vice President of Supply and Hunts. The only thing I'd add to Bob's comments is that there is 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. And 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. And to give you an example, we've looked at the coldest days on our system and looked at the production that was coming from our all of our portfolio, so wind, solar, gas.
And 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. But our thermal resources were generating at about 100%, so 9% versus 100%. And 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. So we are moving toward a more carbon free portfolio over time.
But 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. So we are regulated by the commission, and we have to abide by their decisions.
Crystal Lael is our Controller. She's you asked specifically about disclosure. She is 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. So I'll speak to it in 2 regards. 1, when we put out our disclosures to shareholders and customers and all the stakeholders, as you look through those, they're fairly dense. So it might be a little difficult to get through technical accounting language to see where we discuss climate change.
So I'll hit a couple of key points. One is we think about our results. And so you mentioned the wildfires last summer, which were significant to the state of Montana. But I think as we all know, they can 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 to that.
One of the other key disclosures that you'll see from our investors wanting to know about is the effects of climate change. So we talk as a management team, and I would tell you, spent a lot of time actually discussing how we talk about the impacts to our system, where we see our business going in the future. And so I would be happy to share those specific segments of language pulled out of our reports so you could see them rather than trying to dig for them yourself. But we do talk about the physical risks of climate change in 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 MC 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. It's been very well received. But we try to do something that was accessible to customers and communities as well. So we are 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.
And Travis and Tim are both very active in that. So you can expect to see more of that. Any other questions? Good. Thank you for starting the good discussion.
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. And my question to you and what my big concern is, 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. And 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 5 years, I'm hoping to see carbon tax, things that are going to, I mean, with changes of administration maybe, but carbon tax and things like that. And also, other things like smart grids and kind of things like storage that are going to improve drastically.
So my concern is being locked into 30, 40 years of natural gas and the rate payers having to pay that when I don't think that's a good decision?
Again, thanks for the question. And probably 2 people to respond to that are again Bob.
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. And we 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. So what's the identified need? John described that. We are the only utility in the Western United States and this is the 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 and 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 modeled we, the royalty, our supply folks, modeled a whole range of scenarios including actually in that plan carbon was reflected. And then what did we do? We issued an RFP administered by a third party to identify any resources, all source RFP to identify any resources that would help take the first very small bite out of that identified need. And that's 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. So, 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 radio lines we have in rural application 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 few 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.
So, over the last 2 years, we've had a focus on basic investment. Actually that investment from a fire chief 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. Over the next 2 years, we've got a lot of that basic work done. You're going to be seeing this year the rollout of ADMS, Advanced Distribution Management System increasingly increasing our ability to control the system electronically and then ultimately an AMI automated metering system and that is going to has the potential to really change the relationship between us and our customers. Great idea.
Why didn't you do that 10 years ago? Well, the answer is being sequential, being thoughtful, going out, acquiring the spectrum we needed for our system to communicate, but 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. So 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. But 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?
Yes, 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 the major hydro system, but also 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 2 20 megawatts of coal strip 4. We have around 200 megawatts of gas. So 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. To your kind of your underlying question point as far as whether we're trying to throw all of our eggs into one basket basically making throw on technology now. That was one of the unfortunate things that came out of the $215,000,000 plan that it was mischaracterized.
And also I take partly the blame, we probably didn't write it clearly enough that we were going to go out and buy $1,300,000,000 of natural gas facilities and infrastructure. What we're trying to do is we have SWAB's negative capacity margin. We have around 500 megawatts of need right now going forward. And 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 to 150 megawatts, so basically 15% to 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.
And we went out through a competitive solicitation and it was an all source competitive solicitation. So whether it was a battery, whether there wasn't any coal built into it, but storage was bit into it, Solar wind projects were bit into it. Unfortunately, we had to terminate that competitive solicitation because of regulatory concerns. But 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 2, how much they went up and down. And so it's natural to have some kind of a hedge, so to insulate customers from those kind of volatile price swings, which translate directly into bills. But we will not, I guarantee you, make a throw for one type of technology 100% of meeting that need going forward. We'll take 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.
But 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 solicitation. In other words, anybody can bid in those types of projects, and we'll evaluate them under the statutes
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. And 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 we finally we had one of our board members had to be the adult and cut us off at about 9 o'clock was a good discussion too.
Yes, sir. If you could just remind us of your name again, please.
Yes, it's John Woodland. 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 2 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. I mentioned, first of all, yes, we have very good efficiency programs. Those ought to be something we're excited about from a business perspective, got to 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, no, no. Are you a co op member or a Northwestern customer?
I happen to be a co op.
You pay a very high monthly fixed charge. Am I right?
I know that my bills are about half what my neighbor's accounts bill.
And 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 and that's policy set by the Co op Board. As a regulated utility, our customers pay a very, very low monthly charge and they're paying for fixed costs through volumetric rates. That's the basic rub. And so when you say you pay a low rate, probably thinking of that volumetric rate, but you pay a pretty high monthly charge.
And you pay lower taxes too, quite a lot. One strategy is just to move off of volumetric rates altogether and 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 and 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. And that's just a basic sensible thing. If you happen to be a Northwestern costs about the same to serve you in the winter, the summer and the shoulder seasons. Cost about the same to serve you in the winter, in the summer, in the shoulder seasons, but the way that's paid for is through volumetric rates. So decoupling is one mechanism to break that link.
Beyond that, you need some confidence that you're going to get your direct cost for efficiency programs recovered and you ought to earn some kind of a return similar to what you'd earn on other assets. Those are pretty 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 fork hard to get it back. 2nd biggest tragedy was losing those basic policies.
Despite that, we continue to operate good efficiency programs and are really interested actually in working with customers be served the way they want to be served. That would be my goal. John or actually Bobby. Anyone else? 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 and their own homes. They have surplus and they want to exchange it with Western. 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?
Okay. 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 and contrast that with, John, what are you paying right now for solar and wind? Yes, we're looking at and real time contracts, we're looking at around $25 a megawatt hour through competitive solicitations. So to Bob's point, we're under statute, we're paying those customers 4 times what we'd be paying anybody else and that's inequitable, we believe, for the remaining customer base. And we can put those things on parity, including the payment of the fixed costs. We are fully supportive of net metering or solar installations.
But we do not believe it's a good practice for some customers to be subsidized by other customers.
This is 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 to $120 a megawatt hour on the one hand and you're not helping to pay for the infrastructure that serves everyone. Again, 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, and I'm very sincere about that. We all are. But 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 switch 2 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, Lindsey.
Thanks, Bob, and thank you for all your questions. Those were plainly thoughtful questions and I hope the discussion was helpful to you. May I have the report of the secretary for the vote of proposals 1 through 3?
Thank you, Chair Draper. The Inspector of Election 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 8 nominees for Director for a 1 year term, each nominee received at least 44,000,000 234,000 616 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 and Touche as the company's registered independent public accounting firm for 2018, the results are as follows. The votes for the proposal were 46,312,000 699 votes or 99.46 percent of the total shares represented by proxy or in person at this meeting. The votes against were 134,155 or 1 half of 1 percent and the votes abstaining were 18,633 or less than 0.1%. Finally, for the 3rd proposal, the advisory vote on executive compensation, the results are as follows. The votes for the proposal were 44,000,000 311,895 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 percent, and the votes abstaining were 46,013 votes or 1 10th of 1 percent.
Thank you, Mr. Olson for the results of the election. As a result of the Secretary's announcement of the results, I declare that Steven P. Attic, Anthony T. Clark, Dana J.
Dykhouse, Jan R. Horstfall, Britt E. Ide, Julia L. Johnson, Robert C. Rowe and Linda G.
Sullivan have been elected. The selection of Deloitte and Touche is 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. There is no further business to be conducted at this meeting, so I would entertain a motion to adjourn.
So 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 Addick as the next Chair of this corporation.