Good day, ladies and gentlemen, welcome to Xcel Energy’s year-end 2020 Earnings Conference Call. Today’s conference is being recorded. [Operator Instructions] Questions will 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 would like to turn the conference over to Paul Johnson, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Xcel Energy’s 2020 Year-end 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 will review our 2020 results and share recent business and regulatory developments. Slides that accompany today’s call are available on our website. As a reminder, some of the comments 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 and electric and natural gas margins. Information on the comparable GAAP measures and reconciliations are included in the earnings release. I’m going to go off script for a second, which sizes a little bit dangerous. But in December, utility and I recommended Ben Fowke as utility executive of the year for his environmental leadership. Ben was the architect of our steel for fuel strategy Xcel. He is also the one that drove us to be the first utility to clear that we have an objective of 100% carbon-free by 2050. This is a well-deserved and overdue award. With that, I will turn it over to Ben.

Anyway, okay, all right. So I’m not going to go off script, and I’m going to thank everybody, and welcome you to our call. Last year was certainly a challenging year, but our employees came through delivering on our financial and operational objectives while mitigating the impacts of COVID and helping our communities. Overall, 2020 was truly a stellar year. We executed on our business continuity plans as we kept employees and customers safe, while providing reliable customer service. We are helping to jump-start the economy through our capital investment programs, which create jobs and investment in our communities. And we stepped up our commitment to charitable giving to support those in need including donating a gain of almost $20 million from our sale of the Mankato facility. We had a long and impressive list of accomplishments in 2020. Let me share a few of them. We delivered EPS of $2.79 in 2020, which is the 16th consecutive year of meeting or exceeding our earnings guidance. We raised our annual dividend by $0.10 per share, which is the 17th straight year we have increased our dividend, and we achieved a total shareholder return of just over 7.8%, which was the second highest TSR for our peer group. Our O&M declined almost 1% as we took actions to mitigate the impacts of COVID. The Minnesota Commission approved our wind repowering proposal and I have requested to acquire another wind farm. And finally, we resolved multiple rate cases during the pandemic. Now turning to our investment plans. The Minnesota Commission recently approved our 650-megawatt wind repowering proposal with $750 million of rate base investment. The wind portfolio is projected to provide customer savings of more than $160 million over the life of the assets. It will create jobs, jump-start the economy and…

Thanks, Ben, and good morning, everyone. We had another strong year, booking $2.79 per share for 2020 compared with $2.64 per share last year. The most significant earnings drivers for the year include the following: higher electric margins increased earnings by $0.32 per share, primarily driven by rivers and rate outcomes; higher AFUDC increased earnings by $0.08 per share due to large projects under construction. Including our wind generation; lower O&M expenses increased earnings by $0.02 per share, driven by our cost management efforts; and finally, a lower effective tax rate increased earnings by $0.22 per share. As a reminder, production tax credits lowered the ETR. However, PTCs are flowed back to customers through lower electric margin are largely earnings neutral. Offsetting these positive drivers were increased depreciation and interest expense, which reduced earnings by $0.36 per share, reflecting our capital investment program. Other taxes, primarily property taxes, reduced earnings by $0.06 per share. And finally, other items combined to reduce earnings by $0.07 per share. Turning to sales. As expected, COVID had an adverse impact as weather in leaf adjusted electric sales declined by about 3%. For 2021, we don’t anticipate a full shutdown of the economy like we experienced last spring. Instead, we expect a small recovery of lingering impacts throughout the year. As a result, we anticipate modest weather-adjusted sales growth of approximately 1% off of depressed 2020 sales levels. As a reminder, we have a sales true-up mechanism for all-electric classes in Minnesota and decoupling could be electric residential and non-demand small C&I classes in Colorado. This covers about 45% of our total retail electric sales. Shifting to expenses. We showed strong cost to management by reducing O&M nearly 1% to mitigate the adverse COVID impacts. We expect O&M expenses to be relatively flat in 2021,…

Thank you. [Operator Instructions] We will take our first question from Jeremy Tonet, JPMorgan. Please go ahead.

Hi good morning. Just wanted to start off with what you could say about what type of capital opportunities are you seeing associated with the Colorado IRP. And I was just wondering if you could frame the magnitude of what incremental spend might look like versus your current plan?

Hey Jeremy good morning. So Jeremy, so two parts to that is really the Colorado transmission expansion plan. And if you have heard about us talk before about transmission. We see a lot of opportunities to really - this is needed to enable our energy transition, right? We need to enable several gigawatts of renewables. And if you think about that, it is enabling low-cost universal scale solar and wind to bring it to our load centers in Denver. So what you will see out of that, and I can’t give you specifics in terms of the overall capital investment. We will file that in the next month or so. But significant investment opportunity on the transmission side. It is really a transmission backbone to deliver that for our customers as part of the ERP. On the Colorado resource plan, I think more detail would come on that. But look at our Minnesota resource plan is a good proxy, where we have several gigawatts of renewables in our preferred plant through 2030. So it will look and feel a lot like that. We are looking at what we are doing with our coal plants and adding a lot of renewables to help us achieve that 80% plan. So we are excited about it, excited by that transparency into the back half of this decade and more details to come.

That is helpful. Was just wondering if you might be able to comment on how the PPA bio opportunity set has evolved over the past year or so during the pandemic. And do you expect any market changes going forward here?

No, I think it has evolved a little bit. You see, we just announced 1 year generic, we will provide more details and officially announce that in the next month or so as we file it. We are excited to continue to execute on it. We delivered the Mower PPA buyout this year with the commission in this one. We continue to have conversations with our counterparties. I think there is another opportunity if you see potential tax credit extensions in Washington that you get some further repowering opportunities, but it is something that we continually look at and work on other counterparties. There is another good data point to watch is that our IRPs often drives RFPs, where we can have PPAs bid into us, PPA buyout opportunities. So that is a really good opportunity longer term. So what we are excited about it. We have delivered - if you look, we have delivered on our PPA buyout opportunity, we are counting this one that we just announced. It is over $500 million of PPA buyouts, and that is excluding Mankato. So we have delivered Mower, Longroad, this new one KEPCO and [indiscernible] Belmont. So a good long-term opportunity as we continue to look at harvesting it.

Yes. And I think just whether it is PPAs, whether it is transmission spend, whether it is renewables, you should feel very confident that we have got a long runway of capital investment, and that is what we are really excited about it. And of course, we have been focused on renewables that actually save customers money too, so that gives clean energy transition can be driven by economics, which, of course, then sets up the electrification of other sectors like transport. So I think we have got great organic growth in front of us, Jeremy.

Got it. That is very helpful. And 1 last one, if I could sneak in here. Just wondering, what do you guys see as the risk and opportunities with the potential acceleration of Minnesota’s carbon-free electricity goal to 2040 here? And also thinking about on a national level, Biden has set up plans for 2035 there, just wondering if you had any thoughts you could share?

Well, I mean, first of all, pretty pleased that Xcel and our whole industry now is really on volume board, achieving net zero goals. And for us, we think we can do zero carbon, not net zero, but zero carbon by 2050, with an important interim goal of 80% by 2030. But if you heard me talk before, I will tell you that, that last 20% is going to take technologies to become commercially viable because, Jeremy, I think it is incredibly important that this transition is based on economics. So that you do have the opportunities to electrify other sectors with economics and buying. You get a lot of bipartisan support when economics can drive the decisions. So could we go faster than our goal of 2050? Well, it is possible. but I think that would mean that those technologies that we refer to, whether it is the next-generation nuclear, whether it is the development of hydrogen. Whether it is carbon capture working economically, whether it is long-term storage. They have to come into the money much sooner than I think they will. But you have heard me say before, I never bet against technology. So more to come on that.

Got it. I appreciate the thoughts in there. That is it for me. Thanks.

We will take our next question from Julien Dumoulin-Smith with Bank of America. Please go ahead.

Hey good morning team. Thanks for the time. So I just wanted to follow-up on Colorado and latest thought process on timing for rate case there. In conjunction with the question, just curious about the shift in your 2021 guide on O&M. Is that driven in part by a thought process on Colorado rate case timing? I also noticed that there is a little bit of a shift in the lighter revenues there as well. So if you could speak to the 2021 shift on O&M as well as the latest on Colorado and timing here as well, if you don’t mind.

Hey Julien, it is Bob. And thanks for the question. With regard to the case, I will cover that, and I will turn it back over to Brian to talk a little bit about your question on the O&M. So in Colorado, obviously, we have been talking about a case there. We filed two writers in the summer of last year. Obviously, we watch what happened with the [Ages] (Ph) writers. We are still prosecuting the wildfire writer. But there is a number of other factors that go into evaluation of our case in Colorado, and we are continuing to watch those. Obviously, the pace of economic recovery in Colorado is very important. We are seeing very strong growth there. But as Brian indicated, our sales forecast still expects a slow recovery with some lingering impacts. So sales is a key driver, and obviously our efforts around O&M and efficiency that we can gain in that business will probably dictate when and how we file a case in Colorado. It is likely in the second half outcome at the earliest. And it is largely associated with capital investments in the distribution business and enabling technologies for us to continue to deliver a great customer experience out there. So more to come from us, but it is probably at least a second half decision for us.

Good morning Julien. On your O&M question, first, just let me say, really proud of the employees and the work that was done in 2020. Just a great effort in terms of the mitigation work that everyone did in this company. About 2021, well it is a combination of things. One is we are continuing to drive sustainable cost transformation. And two, our 2020 actuals came in a little bit higher than we thought in Q3 due to a couple of discrete items, but expect us to continue to drive O&M transformation. Now what you don’t see in our flat guidance is we are adding about $50 million of wind O&M in 2021. So we are offsetting that to keep our overall O&M flat with our cost transformation effort. So excited about what we accomplished in 2020, and what we expect to accomplish in 2021 and beyond.

Excellent. Bob, coming back to you real quickly, if I can. In terms of - when you said that the - to quote a number of other factors here that go into it. I think if I’m hearing right, perhaps the most decisive one is obviously the sales and economic growth, are there other material drivers that will come into it? It sounds like you are waiting to see the trajectory of this post-COVID year on sales. But I don’t want to sort of mischaracterize that.

Look, we still have our wildfire rider proposal in front of the ALJ right now. We went to hearings a week or two ago and felt like we made a really good show in there. I mean this is a significant investment to mitigate a big state policy desire in terms of mitigating wildfires. So we would ask for a rider. The interveners came back proposing deferrals and we are differing on lengths and return profiles of those. So our, obviously, arguing a decent outcome in the wildfire writer is one of the factors that would go into our decision-making, but certainly not exclusive.

Julien, probably like Bob said, it is sales, it is O&M, and then it would be regulatory decisions. All of that would factor into a maybe a kind of review and determine whether or not we need to file or not.

Right. Yes, understood. And if you got the deferral that would that be adequate? It sounds like there is more than just a binary decision on the wildfire here?

Think you would have to just look at how - the devil is always in the details on those things. So that, along with the other drivers that I mentioned sales and O&M would be all the factors that we look down.

Appreciate it. All right guys. Thank you very much. All the best.

Thank you too.

Thanks Julien.

We will take our next question from Insoo Kim with Goldman Sachs. Please go ahead.

Thank you. Good morning. Brian, on the five year CapEx plan, can you just, I guess, go through which of the items are in the base plan versus the incremental? I know the proposed wind repowering and the one PPA buyout is - would be incremental amount of the base, but are investments in the hair between coal plant conversion and the investments with wildfire protection, all of those are - is that embedded in the baseline, or would that be incremental?

Yes. No. those are the ones that you mentioned are basically in the base plan. It is a relatively small investment in the current and the conversion of Harrington from coal to natural gas. We have our wildfire investments in our base plan. You are right, clear that we have the solar opportunity and the PPA buyout opportunity in the incremental plan and hope and expect to get visibility into those by the end of this year. So we can provide color and hopefully at a rate base growth trajectory of nearly 7% if we execute on those.

Got it. And Ben just going back to Jeremy’s question on President Biden’s plans to achieve the carbon pollution free power sector in the year 2035. And setting to the side for a moment the probability hacking the federal or state policies to achieve that, do you think when you look at your fleet, the undepreciated value of your remaining coal plants or other fossil fuel units. How do you see that? Do you see that as potentially achievable given the current regulatory and price framework for renewable or what items do you think you are going to need on both ends to achieve that?

Well, the accelerated depreciation is certainly a factor. But as I said with the prior question, it is far more a question of are the technologies ready and economically viable. Because getting to 80% is not easy, but we know we can do it with existing technology, and I know I can do it in a way that preserves affordability and reliability. But just to move completely away from fossil would require an incredible emergence and acceleration of technologies that I think are still ways away. So I mean, again, if technology can emerge, but 2035 is like tomorrow in utility land as far as technologies go. So I think there is going to be an element of pragmatism that gets baked into those goals. And I have always said, we will move as fast as the speed of technology and that is what we will do. But honestly, I think it is a very much of a stretch goal-based upon the way I see the horizon in front of us. With that said, I mean, there is a lot of good things that come with that goal. We support 100% carbon free. So we are aligned with that. I think under the Biden administration, you will see an acceleration of EVs and an acceleration of transmission build. I think you will see an acceleration of the R&D and the technologies that we need to achieve those goals, whether it is 2035, 2040 or 2050. And I think that is the key to me. And if we can all pull together on that and develop the right frameworks, invest in R&D, have the right tax policies. I think we are going to do amazing things. And nobody would have thought that we would be where we are today as an industry and certainly not at Xcel Energy just five years ago. So I’m excited about what the future possibilities hold.

Got it. Thank you so much for the color.

Got it.

We will take our next question from Stephen Byrd with Morgan Stanley. Please go ahead.

Hey good morning. Hope you all are doing well. Just following up on - you can sense the theme on the questions here on federal policy, but I wanted to maybe get a little more specific. We may see further legislation that would both extend tax credits for wind and solar, potentially create a new tax credit for storage. And I’m just curious, if you saw that kind of, let’s say, that there is a longer-term extension, could that be material enough for you all to want to both kind of relook at your Minnesota resource plan, could that have a pretty big impact on how you think about your resource mix in Colorado. Like how impactful could longer-term extensions for wind and solar and kind of the new tax rate for storage be as you think about your resource mix in the future?

Well, first of all, I think it is overall, it would be a positive. And I think there is also a discussion about tax credits for nuclear as well, which I am fully supportive of in transmission, all of those things are going to enable us to go, I think, even faster because of the affordability equation to it. Obviously, at some point, you do saturate the big grid with renewables regardless of cost. But if renewables continue to fall in price, Stephen, what that would allow you to do is put more renewables on your system, even if you have an increase in curtailments because the economics would pencil out better. So that is probably a long-winded answer to your question. But hopefully, that gives you some insights to it.

And Steve, I would just add that depending on how - certainly the devil is in the details, but depending on how long that PTC extension is for wind, you start to see more repowering opportunities come up as the wind farms exit their original 10-year PTC life. And so that is what you saw with the couple of wind farms that we got approved recently in the Minnesota commission. So I think that could present itself more opportunities if you have a longer-term extension.

That is a good point. Maybe just following up a little bit on this. So let’s dream here, and let’s say that there is going to be longer-term extension of these tax credits and new store, tax credit, maybe transmission, nuclear. Is that enough to sort of trigger a kind of formal review on your part in terms of the mix that you have sort of established or is it less formal? And it would just - you continue to evolve your thinking over time, but it wouldn’t necessarily sort of trigger a reassessment of your broader plans?

Well I mean, I think it just puts our IRP processes and our proposals that much more deeply and money for our customers. And it makes the economics that much more compelling. Again, I think we can do more, accelerate some of the renewables that we have put into our system within operational limitations. But, Stephen, I mean, if you have got - our electricity because of those things becomes even more affordable, think about the opportunities to accelerate EV and other electrification of other sectors. I mean that would be a tremendous benefit.

That is a fair point. Maybe just on EV’s last question for me, I promise, just if we did...

Stephen, can’t hear you. Stephen, you both can’t hear you. Stephen, did you go on mute by accident? That is one of the most popular terms in 2020, by the way. The other one is, could you go on mute? And the other one is I forgot my mask. We will move on to next question.

We will take our next question from Sophie Karp with KeyBanc. Please go ahead.

Congrats on the good year in this challenging environment for sure. Maybe to continue with the EV topic, right? What are the opportunities in the EV advancement, I guess, for you, aside from participating in the changing infrastructure. Have you done some modeling maybe along the lines of if penetration, household versus to levels, this maybe some upgrading into the distribution system. Do you know which areas or which state maybe have more need for that? Like how should we think about that? Because that is what really - topic has been on my mind a lot.

Hey, Sophie, it is Bob. Maybe I will start this, and then I will kick it over to Brian potentially. You are a little bit muffled, but I think you are asking about what’s the investment opportunity if we have a significant penetration of electric vehicles. I think our forecast right now for the next five years has $0.5 billion in electric vehicle. And that includes charging stations and the distribution infrastructure that you mentioned to enable that. And over the decade, that number is closer to $1.5 billion to $2 billion. Similarly, that is all encapsulating into the distribution system. I think the one area that we could probably still sharpen our pen on a little bit is the impacts of fleet and heavy-duty vehicles and how that would impact us. Those are very discrete and high loads in certain feeders on our system. We probably aren’t as sophisticated. We would like to be right now on exactly when and where that would happen because it is largely in the hands of the owners of those vehicles. So it is possible there is some incremental upside there. Our distribution feeders are I wouldn’t say wildly underutilized at this point. And so potential capital expansion opportunities on fleet and heavy-duty vehicles is probably where any of the upside might come.

I think too, Sophie, there is a virtuous circle here. The more EV penetration we get, particularly we encourage customers to charge-off peak, the more all customers benefit. And so that tends to give us that tailwind of keeping our product affordable, which makes more electrification, more easy, everything else more possible. So that element of it is super exciting. You look way down the road, and there is a lot of folks. I think EV penetration could be an extension of the grid, if you will, in the use of those batteries. And I was kind of encouraged by the CEO of Ford when he spoke to us at an industry event that he saw that future too because in the past, I have been told that the car manufacturers are a little worried about using batteries in that matter. Now we are ways away from that. But I mean, when you look down a road, you can certainly see a future that incorporates EVs into the grid.

Got it, got it. This is very helpful. And then just on the power supply side, as the renewable targeting goals become more aggressive and possibly, we will see more build out if, as you mentioned, we will have additional ITC or the fiscal incentives. Is there a some area, where maybe you see kind of throwing in their potential coal retirement in Colorado. Is there a scenario where in some of these jurisdictions Colorado specifically or meeting so that you would see a shortage of base load power or like some dispatchable capacity, if you will, like what they have seen maybe in some other regions in that area right now or do you feel that you have adequate supplies to tie you over to the point where you can have dispatchability?

I mean, Sophie, let me just make sure I got - heard your question because it is a little muffled. Could you ask if do you see a situation where because of EV penetration and other things that we might have a shortage of expansion generation? Is that your question?

Yes, not as much because of EVs, but due to higher maybe wind penetration and coal retirements emerging.

Well, I mean, that is what the IRP processes are all about. I mean we do take a long-term view. That is why I do think the vertically integrated regulated model really works because we can plan for those kinds of contingencies and make sure that we do have adequate reserves and adequate backup. The point that we have to get across is to hit important interim goals. We do lead in the upper Midwest of reserve and the fleet, that is going very well, by the way. And we are going to need a little more of a gas back up, not necessarily using more gas, but having it ready when some of the renewable resources might not be there. All-in-all, it still pencils out to be cost beneficial for our customers. But those are the kinds of things we have to discuss in those resource planning processes so that we have a plan, to your point, that provides some economic benefits, the environmental benefits and, of course, maintains reliability.

Thank you so much. I will jump back into the queue.

Thank you Sophie.

We will take our final question from Paul Patterson with Glenrock Associates. Please go ahead.

So I wanted to just really quickly. I noticed that microgrids, you guys have a microgrid project, I think, you filed for something, I think, in December in Wisconsin. I was just wondering, what are you seeing or are you seeing any trend in that in any other service territories or - I realize it is a pilot, and I think it is only around $170-something million. But just sort of wondering if there is anything more you are seeing on that end in the service territories.

Paul, it is Bob. Look, we filed first some, we call them community resiliency initiatives in Colorado. And worked those through the process with the commission, and we have now got approval, and we are going to start to build out those initiatives. Haven’t seen a lot of pull in micro grids in the rest of the service territories, but obviously something that we are willing to explore with our customers through the process, but it is been pretty quiet other than Colorado.

I think microgrids have a role in utilities future. They don’t come without a price tag. So the resiliency element of it, those become important things. And what we are always willing to do is figure out how we can incorporate that into our total distribution planning process. And I think you will see more of that in the future. But it is not about cost, obviously.

So just to sort of follow-up on that because I guess it varies from territory to territory. I guess within your service territories, I guess the economics simply aren’t there in terms of arbitrage and stuff in terms of offsetting those costs. Is that how you sort of see it in terms of it being wide spend?

Yes, I think that is fair. I think they work primarily, again, in extra resiliency and extra reliabilities in order.

Got it. Okay. Thanks so much.

Thank you Paul.

Ladies and gentlemen, this concludes today’s question-and-answer session. For closing remarks, I would like to turn the conference over to Brian Van Abel.

Yes. Thank you all for participating in our earnings call this morning. For any questions, just please contact our Investor Relations team, and have a great day. Thank you all.

Ladies and gentlemen, this concludes today’s conference. We appreciate your participation. You may now disconnect.