Good day, and welcome to the Xcel Energy Second Quarter 2020 Earnings Conference Call. Questions will only be taken from institutional investors. Reporters can contact media relations with inquiries, and individual investors and others can reach out to Investor Relations. At this time, I turn the conference over to Paul Johnson, Vice President of Investor Relations. Please go ahead, sir.

Good morning, and welcome to Xcel Energy's 2020 second quarter earnings conference call. Joining me today are Ben Fowke, Chairman and Chief Executive Officer; Bob Frenzel, President and Chief Operating Officer; Brian Van Abel, Executive Vice President and Chief Financial Officer; and Amanda Rome, Executive Vice President and General Counsel. This morning, we'll review our second quarter results, share recent business and regulatory developments and discuss how we're managing through uncertainty around COVID. The slides that accompany today's call are available on our website. As a reminder, some of the comments we make during today's call may contain forward-looking information. Significant factors that could cause results to differ from those anticipated are described in our earnings release and our SEC filings. Today, we will discuss certain metrics that are non-GAAP measures, including ongoing earnings, electric and natural gas margins. Information on comparable GAAP measures and reconciliations are included in our earnings release. Now, I'll turn the call over to Ben Fowke.

Well, thanks, Paul and good morning everyone. We had a strong quarter, booking earnings of $0.54 per share for the second quarter of 2020, compared with $0.46 per share last year. Our year-to-date earnings are on track with our financial plan, and we are mitigating the impact of COVID-19. As a result, we are reaffirming our 2020 guidance. We continue to help our customers and protect our employees during the pandemic. We're stepping up our charitable giving to help our communities. Our business continuity plans have been executed extremely well. We're keeping employees safe, while providing reliable service to our customers. And we're helping to restart the economy through our capital investment programs that create jobs in our communities. Earlier this year, the Minnesota Commission opened a relief and recovery docket and invited utilities in the state to submit potential projects that would create jobs and help jump-start the economy. In June, we filed a plan that proposes $3 billion of capital investment. This includes approximately $1.8 billion of incremental capex for wind repowering, a 460-megawatt solar facility, expanded EV infrastructure and about $1.2 billion of accelerated transmission, distribution and natural gas investments. We recently announced a solicitation for repowering of wind projects that are either owned by Xcel Energy or under PPAs. We estimate 800 megawatts to 1,000 megawatts of potential repowering projects and expect to make a commission recommendation by year-end. We are also proposing options to mitigate customer bills. Overall, feedback has been very positive, and we look forward to working through the process with the commission. Now, as you might have heard, the US Treasury recently announced a one-year extension of the Safe Harbor for renewable projects. Wind projects that began construction in 2016 now have until the end of 2021 to complete construction and receive PTCs at the 100% level. While we were confident that our projects would qualify for a 100% PTC level regardless of this change, the extension assures us benefit for our customers should any projects slip into 2021. Importantly, this change also presents the opportunity to move Dakota Range from the originally planned 80% PTC level to a 100% PTC level. While this will not impact earnings, it will significantly reduce costs, which is a great outcome for our customers. Advancing our strategic priority of leading the clean energy transition, we and our co-owners recently announced the early retirement of the second coal unit at Craig. While we only have a small ownership stake in Craig, we are proud to help drive the early retirement of another coal unit. We're also making significant strides to improve ESG transparency and disclosure. We recently issued our TCFD report and risk assessment, which describes the resilience of our climate strategy using different scenarios. The addition of this report enhances our disclosures and results in a full TCFD compliance for Xcel Energy. Another strategic priority is to keep our customer bills low. As a result, it was very satisfying to see that SPS's electric rates in Texas and New Mexico were the lowest in the country for 2019 as recently reported by S&P Global. Providing strong customer service and reliability and an attractive price is a hallmark of Xcel Energy, and we're very proud of this recognition. We're also excited that after 10 years, we've reached a settlement agreement with Boulder that will result in a new franchise agreement and also a partnership to explore grid site options to meet our carbon goals. The approval process for the settlement will include a vote by City Council in August, a ballot referendum and vote by the people at Boulder in November. If approved, the franchise will go into effect in January of 2021. Finally, I was recently elected Chairman of EEI. It will be an honor to lead the industry in such an important and challenging time, and I intend to focus on three areas. My first priority is the industry's ongoing COVID-19 response related to the workforce, customers and recovery from the pandemic. Second, I intend to focus on clean energy innovation. I'm asking EEI to develop federal and state policy proposals that will bring dispatchable zero carbon technologies into the marketplace to enable the industry to meet our long-term carbon goals. Finally, I've asked EEI to focus on what our industry can do to promote racial justice and increasing our commitment to advance diversity and inclusion. Like our country, our entire industry has been shaken by the death of George Floyd. Mr. Floyd died only a few miles from our corporate headquarters, and Minneapolis was the first city to experience widespread protest and rioting. I think, as a society, we have a lot of work to do. We need to look hard at ourselves, our unconscious biases and our business practices. I asked some hard questions about how we can improve our diversity. I'm confident that Xcel Energy can play a leadership role in driving positive change for our country and our communities. So with that, let me turn the call over to Brian who will provide more detail on our financial results and our outlook. Brian?

Thanks, Ben, and good morning everyone. We had a strong quarter, booking $0.54 per share for the second quarter of 2020, compared with $0.46 per share last year. The most significant earnings drivers for the quarter include the following: lower O&M expenses primarily driven by our cost management efforts increased earnings by $0.05 per share; higher electric margins increased earnings by $0.02 per share, which reflects riders and rate increases that offset the negative $0.07 per share impact from declining sales largely due to COVID-19; higher AFUDC equity increased earnings by $0.03 per share; and finally, our lower effective tax rate increased earnings by $0.07 per share. However, the majority of the lower ETR is due to an increase in production tax credits, which flow back to customers through electric margin and is largely earnings neutral. Offsetting these positive drivers were increased depreciation and interest expense, reflecting our capital investment program and other items, which combined reduced earnings by $0.09 per share. Next, I want to discuss the status of COVID-19 impacts and mitigation efforts. As expected, COVID-19 had a major impact on second quarter sales. Our second quarter weather-adjusted electric sales declined by 7.1%. However, these impacts are better than projected in our base case scenario, which is embedded in our guidance assumptions. On a weather-adjusted basis, April retail electric sales declined 9.6%. May showed improvement as retail electric sales declined 6.7%, and June showed further improvement as retail electric sales declined 4.7%. This monthly trend reflects the economic shutdown that started in mid-March and the gradual opening up of the economy in May and June. As a reminder, we have a sales true-up mechanism for all electric classes in Minnesota and decoupling for the electric residential and non-demand small C&I classes in Colorado. This covers about 45% of our total retail electric sales. Since second quarter sales came in better than projected in our base case scenario, we have additional cushion should economic or lapses occur the recovery faltered. Conversely, if sales continue to come in better than expected, we will adjust our contingency plans accordingly. We're also closely monitoring bad debt expense and working with customers on payment plans. While it is difficult to project where we'll land, bad debt expense increased approximately $25 million in the 2008-2009 time period as a reference point. Our commissions in Minnesota, Wisconsin, Texas, New Mexico and Michigan have issued orders to defer pandemic-related expenses. We also reached a settlement in Colorado with the Staff and OCC that would allow us to defer COVID-19-related bad debt expense, pending a commission decision. Finally, our filings in North Dakota and South Dakota remain under commission review. We've also made strong progress in our efforts to reduce O&M cost to mitigate the impacts of COVID-19. Based on our contingency plans, we expect annual O&M expenses will decline 4% to 5% in 2020, which should offset COVID-19 impacts in the base case scenario. We're also prepared to implement additional contingency plans if the impacts exceed our base case scenario. And as we've discussed in the first quarter, there are limitations to what we can offset. We remain focused on providing strong customer service and reliability, and we will not make short-term decisions that have a negative long-term impact on our customers or shareholders. The last COVID-19 topic I want to cover is liquidity. We finished our planned debt issuances for the year, and we were able to access the capital markets on strong terms and issued bonds at record low coupons. We also closed on the sale of the Mankato Energy Center, which provided approximately $650 million of cash proceeds after carving out the gain for charitable contributions. As a result, we now have available liquidity of approximately $4.5 billion. And finally, we issued an equity forward last year, which we expect to settle later this year, bringing our total liquidity through approximately $5.2 billion. Next, let me provide a quick regulatory update. In New Mexico, the Commission approved our constructive settlement that reflects a rate increase of $31 million, a ROE of 9.45%, an equity ratio of 54.8%, and accelerated depreciation of the Tolk coal plant to reflect an earlier retirement. In Texas, we reached a constructive unopposed blackbox settlement, which reflects an electric rate increase of $88 million, a ROE of 9.45% and an equity ratio of 54.6% for AFUDC purposes, and acceleration of the depreciation life of the Tolk coal plant. We anticipate a commission decision in the third quarter. And in July, we also reached a constructive settlement in our Colorado natural gas rate case, which reflects net rate increase of $77 million, a ROE of 9.2%, an equity ratio of 55.6% and a historic test year as an adjustment for the Tungsten to Black Hawk project. We anticipate a commission decision later this year. On our last call, we discussed our preference to avoid rate cases if possible, especially in light of COVID-19. So we recently filed for rider recovery of our wildfire and advanced grid investments in Colorado, another filing of comprehensive rate case. The riders will cover 2021 through 2025 and provide regulatory flexibility. And as part of our Minnesota relief and recovery filing, we express our interest in seeking an alternative path to avoid a rate case filing this year. We think this would be a constructive outcome for all parties. We've had initial discussions, and we'll keep you posted. With that, I'll wrap up. We are effectively mitigating COVID-19 impacts. We continue to provide reliable energy service to our customers, while ensuring the safety and well-being of our employees and communities. We reached constructive settlements in our Texas and Colorado rate cases. We avoided an electric rate case in Colorado by filing for wildfire and advanced grid riders. We filed our relief and recovery proposal in Minnesota, which will create jobs, help rejuvenate our local economies and result in significant customer benefits. We announced an earlier retirement of another coal plant and achieved TCFD full compliance. We reached a settlement with Boulder that should end municipalization efforts. We are reaffirming our 2020 guidance range of $2.73 to $2.83 per share based on our solid year-to-date results and progress on contingency plans. Finally, we remain committed to delivering long-term earnings and dividend growth within our 5% to 7% objective range. This concludes our prepared remarks. Operator, we will now take questions.

Thank you. We will take our first question from Jeremy Tonet with JPMorgan.

Just wanted to touch base, I guess, on your retail sales expectations at this point. Didn't know if you had any data from July, if you could provide us any more color. It seems so far in the second quarter, you guys are trended somewhere between the base case and the mild case. I'm just wondering if you could give us any feeling, I guess, from what you can see so far how the third quarter might be shaping up initially between those two scenarios?

Yeah, happy to. But as you know, we don't have AMI. So we have some visibility into July information, particularly we have some sample customers. And what we're seeing on the C&I side is we're seeing a slight improvement, as we look at some of the specific data that we have. We've seen some improvement in the oil and gas slowdown in SPS, something we're watching closely. If you look at the results down there, the kind of bottomed out in May, and we've seen improvement relative still below about 5% from where it was pre-COVID levels, but good to see the C&I improvement there. We're also watching our Colorado C&I. If you look at our earnings release and our presentation, you can see that the C&I sales from May to June didn't improve as much as they did from April to May, so that's something we're focusing on in Q3, but we are seeing positive trends there. In the residential, I think we're still continuing to see that strength that we saw in 2Q. So overall, positive trends going into Q3, but if you look at our base scenario, we did have significant improvement in the depths from Q2 to Q3. So some, we are watching closely.

Got it. That's very helpful. Thanks. And just with regards to the Minnesota relief and recovery proposal, I'm just wondering if you might be able to share any more as far as any early feedback that you might have received so far or just kind of expectations going forward at this point.

Hey, Jeremy, it's Bob. Thanks for the question. Coincidentally, we actually had a Minnesota planning meeting yesterday with the department and the commission to talk through the Relief and Recovery Act. We think this is a really interesting example of coordination between investor-owned utilities and the political community to try and solve some of the problems that are affecting our communities from the pandemic. I think the commentary yesterday was kicked off by the Lieutenant Governor with a positive tone. I feel like we had some positive tone from some of the commissioners with a special interest to an expeditious resolution and timeline. So we'll know more as we work through the rest of the summer in terms of timeline, but I think yesterday's planning meeting felt fairly positive.

Yeah. It's encouraging. That's great. Thanks. And if I could just sneak in a last one here, it seems like your guide, D&A interest and AFUDC equity, all kind of changed a little bit there. I was wondering if you could help us with some of the drivers.

Yeah, certainly. When you put them altogether bottom line, it impacts pretty immaterial for the year. Puts and takes, depreciation changes are coming out of our rate cases. We had some depreciation rate changes that were implemented. Obviously, interest expense, we set a record low coupons in Minnesota. We issued a 30-year bond at 2.6%, which is the lowest 30-year first mortgage bond for utilities, so really good results there out of the team. And then, on the other pieces of rider revenue, right, just a little bit of delays in the implementation of wind farms, but net-net, pretty immaterial impact when you take them all together.

Next, we will go to Julien Dumoulin-Smith with Bank of America.

Hey, team. Good morning. Hey, thanks for the time guys. So let me take the other side of what Jeremy was just talking about. Let's talk about cost reductions, and let's talk about that in the context of your progress year-to-date and what this means going forward in the future years, right? I hear you guys talking about staying out in Colorado, for instance, leveraging riders a little bit more, but give us a little bit of context and where you are against the plan given the 4% to 5% articulated and then, what that means for sustainability and prospects to stay out in these states?

Let me turn it over to Brian to provide you with details on the drilling. However, I want to express how proud I am of the entire Xcel team for stepping up to address the challenges posed by COVID-19 while continuing to deliver important products. We've approached this in various ways, but what has impressed me the most is the innovation and creativity in leveraging technology to enhance our business. I am optimistic that while there is still work to be done, these efforts will generate significant momentum as we move into 2021. Now, I’ll hand it over to Brian for more information.

Thank you, Brian. Good morning, Julien. From a run rate perspective, we've implemented contingency plans since the end of March, as we deemed necessary. Over the first nine months, we are just over $50 million ahead of 2019, indicating we are performing slightly better than our projections for Q2. This positions us well for the remainder of the year. If sales exceed expectations, we can modify our contingency plans accordingly. Ben articulated it well; the team has excelled in formulating and executing plans this year, while we are also focusing on what can be sustained in 2021 and beyond. Regarding regulatory flexibility and rate case sales, we are integrating insights gained over the past few months due to COVID-19 into our sales forecasts for 2021. Thus, we are considering both aspects. The team will concentrate on operational and maintenance sustainability in Q3, providing further guidance and clarity during that time.

Got it. But net-net, fairly confident that consistently earn at authorized levels to the extent to which that you're successful staying out in these cases inclusive of, for instance, the Colorado?

Yeah. I think that's a fair assumption. You broke up a little bit. I think you said you would expect another authorized levels with the regulatory proceedings, just to make sure I heard you correctly.

Yeah.

Where exactly are you, Julien?

We will talk about that later.

We have enjoyed your notes from the road, Julien.

So in Colorado, what are your prospects for stimulus here as you consider potentially mirroring your efforts in Minnesota?

Hey, Julien, it's Bob. If you're in Colorado, the weather has been nice. We've experienced a warm summer, and our weather-adjusted sales have been strong in Colorado. Regarding relief and recovery, what we've done in Minnesota is quite unique nationally, but we're open to collaboration in other areas. I want to acknowledge the leadership and partnership from the administration, the commission, and the department in Minnesota regarding the R&R plan and encouraging the utilities in the state to support our communities and customers. We are eager to seek similar partnerships elsewhere. If the pandemic persists or if there's a resurgence, we may find additional opportunities in other jurisdictions, and we aren't ruling that out.

Great. Best of luck. Thanks guys. Nice travel.

Stay safe wherever you are.

And next, we'll go to Travis Miller with Morningstar.

I wonder if you could talk a little bit more when you said in Minnesota, the alternative path, what that might look like in one of the full three-year rate cycle filings?

Yes, Travis. As outlined in our relief and recovery plan, one alternative path involves considering a potential stay out for 2021. In 2020, we successfully reached a constructive stay out agreement with the involved parties, which was approved by the commission. This arrangement focused on key elements such as the sales true-up and the deferral of the annuity amortization. We have now started initial discussions about this in our relief and recovery plan, and I believe there is another opportunity here. We will certainly explore the possibility of reaching a constructive settlement that benefits both our customers and us.

Okay. What do you include potentially something like a rate base true-up, something like that as well or are there other mechanisms that we keep you that allowed or slightly below the allowed ROE?

For Minnesota, the two main components are similar to the settlement we reached this year, which includes the sales true-up and the deferral of some amortizations. We have riders that allow us to recover a significant portion of our renewable investments, such as the long-term renewable rider, along with our transmission cost rider covering other investments. These rider mechanisms assist in recouping the investments we're making for our customers.

Okay. Got it. And then, just confirming that you guys are still on track for that five-year 7% rate base growth and the $22 billion capex. Any changes for those numbers?

I would say Travis, this is Ben. Yes, we are on track, and we're aiming for the upper half. We will provide an update on this in the third quarter along with our five-year capital forecast, but I believe you will be satisfied with our projections.

Okay. And then just real quick, does that include the $3 billion in Minnesota or would that be incremental?

First of all, $1.8 billion is incremental; the other is an acceleration, but that's not necessary for us. So that would be incremental.

Next, we will go to Steve Fleishman with Wolfe Research.

Hi, good morning. So just good to hear your voice Ben and have fun being the Chair of EEI. So on the Minnesota kind of recovery investment, has the commission give some indication on the basis of the decisions they are going to make in terms of like, is it based on the amount of jobs created versus the rate impact or just how are they going to make that decision?

Well, I think they will take a number of factors into consideration. But I think as you know our steel for fuel strategy accomplishes capital investment, job growth and helps with rate. So, to the extent we can emphasize that, I think the better will be. There will be a solicitation, and we'll bring those projects in. We are anticipating that we will have a very good price point for the solar that we're planning. And Brian and Bob, I don't know if you want to add anything else.

Yes, Steve, I think it's still a little bit early innings. But I think the comfort level with the investment, the economic development, the job creation, that portfolio coupled with the relief opportunities as Brian mentioned on rates and stay-out mechanisms, I think is a big package. We haven't got a full timeline out of them. We had a big planning meeting yesterday, which was favorable with some positive comments from the commission and even the administration. And so we're comfortable and confident where we sit. We don't have a lot of details other than that to share with you right now.

All right. Do you have any sense of the rate impact of the $3 billion? Or you're kind of waiting to see your bidding and all that?

I think we still need to run through the solicitation process on the renewable portions, for sure, which will run through August and into September before we make some decisions. But we're pretty confident that we know the impacts of the things we would put forward. And we know a little bit of what other people would do as well. So we're pretty comfortable with the cost side of that.

Steve, we wouldn't propose our wind repowering if it didn't have a positive net present value for the consumer. The key question is whether that will counterbalance the increase in some of the distribution and transmission spending we mentioned, and I believe it likely will, but as Bob pointed out, we will analyze those figures.

Yes, Steve, just some further color on the repowering. We had the long road repowering approved and we have now or should be upfront the commission hopefully in Q3 and those show the front end customer savings and you got the repowering which is now really good in this environment. And so we're working through similar analysis on our currently owned wind farms that we think would be good candidates for that.

And next, we'll go to Sophie Karp with KeyBanc.

Hi, good morning. Congrats on the quarter and thank you for taking my question.

Thank you, Sophie.

I’d like to follow up on the rate strategy this year and the related questions. Given the COVID situation, if the pandemic continues to have lasting economic effects, could we see a shift in overall strategy? Specifically, might you consider moving away from periodic case filings to a more permanent approach that focuses on alternative mechanisms and potentially shift from being primarily a rate case filer to managing outflows over a longer period? That's my question. Thank you.

Sophie, it's, Bob. Good to hear your voice. You were a little broke up there, but let me try and address the question, which I think is, how do you think strategically about rate cases in the context of the pandemic in longer term as sort of my takeaway. And you know, we have a lot of rider mechanisms in our various states and we're making billions of dollars of investments on behalf of our customers and infrastructure around clean energy transition and grid modernization and we also have to keep the utility financially healthy. So that's the backdrop that we work with. We are obviously working with our regulators right now on mechanisms by which we would need to file rate cases and we're actively engaged in conversations with stakeholders in Minnesota and Colorado. I think you saw us settle our gas case and then file a couple of riders, which we think would allow us to stay out of our electric case in Colorado and that's a bit of the strategy. If we continue to invest in areas that have real-time rider recovery, you've seen us execute on decoupling in sales true-up mechanisms in our businesses and that's helpful as well. And so strategically, I think we're in the right places. We're always going to look for mechanisms by which we can mitigate our cost structure, keep our bills low for our customers, while we keep to invest in the infrastructure that we need to. So we'll continue to be creative, probably with our commitment and the goal would be to not go into rate cases, if we could avoid them, but we have to keep the utility financially healthy and so we balance all of that.

Yes. Building on what Bob said, whether it's through traditional rate cases, rider expansions, or a combination of both, our goal is to meet our clean energy targets, ensure reliability, and enhance customer experience while keeping total bills below the rate of inflation. That’s our objective, and we are currently on track to achieve it. The key is to make these investments while maintaining affordability for our customers.

Thank you. And then a follow-up if I may, on the O&M. So you entered this year guiding for O&M growth year-over-year and then the COVID situation you had to flip that and basically find cost cuts right to offset the impact and it seems like it's going well. Could you give us some sense of the shape of that throughout the year? Are you kind of even into it now and plan to ramp up in the second half or are you pretty much trying a run rate at this point and we should expect a steady kind of O&M trajectory throughout the year? How should we think about this?

Hey, Sophie, this is Brian. I think the way you said it, you assume a steady run rate pretty ratably over the quarter. So I think you're thinking about it right, we continue to see that run rate.

Next, we'll go to Paul Patterson with Glenrock Associates.

I have a couple of quick follow-up questions. When you mentioned in Minnesota about the capital expenditures potentially going to third parties or contracts, can you clarify how much of the total amount is affected by that?

The $1.8 billion incremental represents our spending. Paul mentioned that when we conduct a solicitation, we’ll include our own wind projects that we own as part of our bids. We will also invite independent entities to submit their bids, which can be structured as build, own, transfer contracts, leading to our ownership, or as expansions of power purchase agreements. We will evaluate all these proposals. Ultimately, our additional capital expenditure will stem from ownership in wind projects, whether they are our own or through build, own, transfer arrangements, along with the solar facility we are discussing at our coal plant in Becker, Minnesota, and advancements in electric vehicle infrastructure. This addresses the incremental aspects, and we will also consider the acceleration of the $1.2 billion for grid investments.

Paul, we won't know what other parties will develop until we go through the process, which will be closer to the end of August.

Okay. When we discuss incremental, I want to clarify that it doesn't mean bringing something from the future. It simply refers to something that wouldn't occur otherwise, and it doesn't alter your capital expenditure outlook. In other words, you are not moving anything from the future to the present. The term "accelerated" indicates that it wouldn’t have happened at all without this incremental approach. Is that how you should understand it?

Yes, that's the way to think about it, Paul.

Okay. I think I understand. And then with respect to the CPI goal, is that still 2%?

Yes, I mean I think it extends a little bit by jurisdiction. Is that...

Yes. That's roughly at the Xcel level, a good way to think about it.

Okay. I'm curious if, moving forward, there’s a chance to expand this initiative if the economy weakens. Is there any conversation about possibly considering this as a good idea for jobs or economic stimulus that could lead to something larger?

I think I'll let the team weigh in on this Paul, but I think it's probably would come from other jurisdictions.

And next, we'll go to Insoo Kim with Goldman Sachs.

Thank you. I just have one quick question. In your guidance for the year-end base case assumption, what type of assumption are you making on deferral treatment of COVID-related costs?

Around yes, bad debt deferrals. Hey Insoo, this is Brian. As we discussed in Q1, we expect to receive constructive treatment regarding the regulatory deferrals. In terms of our bad debt expense, we anticipate an increase of about $25 million and reflect on the situations from 2008 and 2009, which align with what we've observed over the past three months. This thinking remains fairly consistent as we move forward. Currently, we have about 95% of our businesses under our six deferral orders, with two still under review in the Dakotas. We believe we have reached a constructive position with these deferral orders and will continue to assess them throughout the year.

Got it. So the majority of what has occurred in terms of the approvals was somewhat incorporated into making that guidance then.

Yes, that's correct.

That concludes today's question-and-answer session. I will now turn the call back over to Brian Van Abel for any additional or closing remarks.

Yes. Thank you all for participating in our earnings call this morning. Please contact our Investor Relations team with any follow-up questions. Have a good day.

And that does conclude today's conference. We thank you for your participation. You may now disconnect.