Good day, and welcome to the Xcel Energy Second Quarter 2019 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions]. At this time, I'd 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 2019 Second Quarter Earnings Release Conference Call. Joining me today are Ben Fowke, Chairman, President and Chief Executive Officer; and Bob Frenzel, Executive Vice President and Chief Financial Officer. In addition, we have other members of the management team available to answer your questions. This morning, we will review our 2019 second quarter results and update you on 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 conference 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 filings with the SEC. On today's call, we will discuss certain metrics that are non-GAAP measures, including ongoing earnings, electric margin and natural gas margin. Information on comparable GAAP measures and reconciliations are included in the earnings release. With that, I'll turn the call over to Ben.

Well, thank you, Paul, and good morning. Today, we reported second quarter earnings of $0.46 per share compared to $0.52 per share last year. Our year-to-date earnings are on track, and we are well positioned to deliver earnings at or above the midpoint of our 2019 guidance range. Bob will walk you through the favorable timing differences in the second half of the year in a few minutes, but we are very confident that we will deliver on our financial objectives as we have in the past. So let me start with some quick highlights from the quarter. In July, we filed our Upper Midwest resource plan, which runs through 2034. Our preferred plan, which is supported by a partial settlement with various environmental and labor groups, includes the following key points: the early retirement of coal plants, starting with King in 2028, followed by Sherco 3 in 2030. By the end of 2030, we will have completely exited coal in the Upper Midwest. The plan also calls for an extension of the life of the Monticello nuclear plant from 2030 to 2040. It includes the acquisition of Mankato combined cycle natural gas facility and the construction of a combined cycle natural gas plant at Sherco site. The plant adds an additional 4,000 megawatts of solar and 1,200 megawatts of wind to replacement. Finally, we will also add 1,700 megawatts of firm peaking capacity post the 2030 time frame. Our preferred plan would result in an 80% carbon reduction by 2030 and puts NSP on a path to be 100% carbon-free by 2050. We are excited by the opportunity to create a cleaner sustainable energy future for our customers. We also continue to make strong progress on our steel-for-fuel strategy. In June, our 478-megawatt Hale Wind farm went into service in Texas. The project was completed on time and under budget. Our customers will see substantial savings over its life. All of our other wind projects are in various stages of permitting and construction, and we expect they will be completed between 2019 and 2021. These projects highlight the excellent planning, construction and project management skills of our employees. The legislative sessions are now completed in our states, and there were some important laws that were passed. In Texas, 3 bills passed: a bill that provides the right of first refusal on new transmission projects; a bill that provides right of recovery for new generation; and a bill that provides right of recovery for AMI investment. These bills point to a more constructive regulatory environment in Texas. In Colorado, legislation passed that classified our plans to achieve 100% carbon-free electricity by 2050 and an 80% carbon reduction by 2030. In addition, the bill provides for voluntary securitization as an option and targets utility ownership of 50% of all generation. Also in Colorado, a bill passed that allows us to own EV infrastructure. Finally, in New Mexico, the Energy Transition Act was passed. This rule targets a 50% renewable portfolio standard by 2030 and 100% carbon-free electricity by 2045. We are well positioned to meet the 2030 milestone. We are proud to be leading the clean energy transition, and the bills I discussed are consistent with our carbon-reduction objectives and reflect our strong alignment with policymakers in our states. Finally, I'm proud to announce that Xcel Energy has been named to the 2019 Military Times Best for Vest Employers ranking. This is the 6th straight year we've received this honor. In 2013, we set a goal to have 10% of new hires to be veterans, and the company has reached that goal every year. Xcel Energy currently employs more than 1,000 veterans, nearly 10% of our workforce. It's an honor to have these men and women in our workforce. Our veterans bring strong leadership, teamwork and experience to their job; their dedication and passion for service deliver value for our customers every day. So now I'll turn it over to Bob Frenzel, who's a Navy vet, to provide you more detail on the quarterly results and regulatory plans. Bob?

Thanks, Ben, and good morning, everyone. We recorded second quarter earnings or $0.46 per share compared with $0.52 per share in 2018. The 2019 results reflect $0.05 of adverse weather impact on the quarterly comparison. The most significant earnings driver for the quarter include higher electric and natural gas margins, which increased earnings by $0.09 per share, including various regulatory outcomes and writers to recover our capital investments, which was partially offset by $0.05 per share of unfavorable weather. In addition, our lower effective tax rate increased earnings by $0.03 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 tax reform impacts, both of which are largely earnings neutral. Offsetting these positive drivers were increased depreciation, interest and other taxes, reflecting our capital investment program, which reduced earnings by $0.12 per share. And higher O&M expenses decreased earnings by $0.01 per share. Turning to sales. Our year-to-date weather-adjusted electric sales increased by 0.4%, reflecting continued strong customer growth, partially offset by lower use per customer. Year-to-date weather-adjusted natural gas sales increased 3% as a result of strong customer growth and higher use per customer. For 2019, we anticipate slightly favorable consolidated electric sales, which reflects some of the favorable year-to-date sales and some discrete known declines in large customer usage and expectations of lower use per customer in the residential sector. For natural gas, we've increased our 2019 sales guidance to 2% to 3% growth to reflect strong year-to-date performance. Turning to O&M. Our quarterly expenses increased by $8 million, reflecting storm costs, natural gas pipeline maintenance and increased IT spend to modernize our business systems that support our strategy to enhance the customer experience. Our year-to-date O&M expenses are above last year largely due to expense timing but also due to higher-than-expected storm costs in 2019. We expect lower plant outage in nuclear operation cost in the second half of 2019. And as a reminder, we increased our O&M spending in the second half of 2018 due to the impact of hot weather as well as incurring costs for environmental remediation and business efficiency improvements. Accordingly, we reiterate our guidance that full year 2019 O&M expenses will be approximately 2% lower than 2018's levels. Next, let me provide a quick regulatory update. In May of 2019, PSCo filed an unopposed settlement agreement in its Colorado steam rate case. The settlement reflects a rate increase of $6.6 million, an equity ratio of 56%, an ROE of 9.67% for AFUDC purposes and utilization of TCJA benefits. New tax rates would occur in 2 steps: in 2019 and October of 2020. The administrative law judge has recommended approval of the settlement, which is pending at Colorado commission decision. In May of 2019, PSCo also filed an electric rate case in Colorado, seeking an increase of $158 million or 5.7% based on historic test year with a capital reach forward for 2019 capital expenditures, an equity ratio of 56.46% and an ROE of 10.35%. The request reflects capital investment for our advanced group initiative and changes in depreciation rates, both of which were previously approved by the commission. PSCo's requested rate is effective in January of 2020. We also reached a settlement in Wisconsin, which will maintain current electric rates through 2021 and result in a modest natural gas rate decrease. The settlement is pending a commission decision. In July 2019, SPS filed an electric rate case in New Mexico, seeking an increase of $51 million based on historic test year with a capital reach forward, an ROE of 10.35% and an equity ratio of 54.8%. The request largely reflects capital investment for the Hale Wind project as well as other capital invested to support strong growth in the region. We anticipate rates going into effect in the second half of 2020. In addition, we are planning to file an electric rate case in Texas in August to recover our investment in the Hale Wind project as well as other SPS capital projects. Both the Texas and New Mexico commissions previously granted a Certificate of Need and recovery mechanisms for the Hale Wind farm. Next, I want to give a quick update on our PPA buyout efforts. During the quarter, we reached a partial settlement with various environmental and labor groups that support the Mankato combined cycle acquisition. Last week, the Department of Commerce and the Office of the Attorney General filed comments recommending against the acquisition, however, their recommendations included alternate customer protection mechanisms if the commission approves the acquisition. We believe we've demonstrated the economics of ownership were still compelling despite the disagreements on modeling highlighted by the comments. We anticipate hearings and a commission decision in September. We are cautiously optimistic the commission will approve the acquisition based on the anticipated customer savings and the long-term value to the state that our ownership of the facility would create. Additionally, we are actively working across our 4 operating companies to identify other customer beneficial asset acquisition opportunities and will work proactively with our stakeholders to identify the cost, the environmental and the labor benefits of these transactions, and we will share these developments as they progress. With that, I'll wrap up. We had a solid second quarter and are right on our budget for first half earnings. Weather and O&M were slightly unfavorable to our budget, but sales and margin were slightly favorable to offset. In the second half of the year, we expect year-over-year favorability in O&M, margin and sales. In addition, depreciation and amortization expense will moderate due to the timing of lower levels of prepaid pension amortization in Colorado. As a result, we're very confident in our ability to deliver earnings at or above the midpoint of our guidance range. In summary, we've filed our preferred plan in the Minnesota resource planning proceeding, which will continue our clean energy transition and if approved, will allow us to reduce carbon emissions by more than 80% by 2030. We completed the Hale Wind farm on time and under budget. We reached constructive rate settlements in Wisconsin and our steam case in Colorado. Constructive legislation was passed in Colorado, Texas and New Mexico, and we are well positioned to deliver on our 2019 earnings guidance and our long-term objectives of 5% to 7% earnings and dividend growth. This concludes our prepared remarks. Operator, we'll now take questions.

[Operator Instructions]. Our first question will come from Julien Dumoulin-Smith with Bank of America.

This is Alex Morgan, calling in for Julien. And congratulations on the results and being able to maintain the year-end guidance and maybe on the upper end of the range. I had a few quick questions. And the first one, I was wondering if you could provide any more regulatory environment color specifically around New Mexico and Colorado. In New Mexico, I know that PNM, for example, is potentially struggling around whether securitization will apply to its future plans. I was wondering if we should interpret that as the commission looking at different rate cases with a fine-tooth comb. And then in Colorado as well, I was just hoping for a little more color over there.

Color in Colorado around securitization?

Just in terms of the regulatory environment and the pending rate cases in both.

Well, let's start with Colorado. I mean I think -- we continue to think we have a constructive environment. We're very much aligned with the policymakers in the state. If you look at what we're filing in that rate case, it's really capital oriented. And as Bob mentioned, most of the capital that we're talking about has already been approved. So I think it continues to be very constructive, and it helps when you're keeping your bills -- total bills very flat. In fact, in Colorado, they're less today than they were 4, 5 years ago. So I think we're in very good position in Colorado. Moving to New Mexico. First of all, SPS, with the overall growth in both Texas and New Mexico, is just really stunning, and it's creating a lot of opportunities for us. And as I mentioned, really pleased with some of the bills that were passed in Texas that support a better regulatory environment. We are aligned in New Mexico. Now securitization for us in New Mexico is not a very big deal. So I can't give you much more color on that. But I do like the -- I actually think the new administration and some of the changes in the commission are very positive for New Mexico and positive for SPS overall.

One other thing to point out Alex, we did reach a very constructive settlement with the New Mexico commission, which allowed for an ROE of just over 9.5% and an equity ratio of 54% earlier in the first quarter. And that was, I think, a good set of data points for the commission.

That's very helpful. One quick question on the updates around PPAs rolling off. Is there a date by which these need to be announced to take advantage of tax benefits? Or is this something that we'll see just rolling into the 2020s, whether or not the PTC can be triggered? If there's any wind the PPAs rolling off that you might take in-house.

Alex, I don't think there's any deadlines on any of the PPA buyout strategies that we've discussed. And while some of them may be triggered by repowering of various from wind farms, I would say that's the only trigger for an opportunity for us to potentially buy in one of these assets that we already contract for the benefit of our customers.

And last quick question. On Mankato, in terms of the time line of the commission decision, when are you thinking about that?

Well, I think the commission is scheduled -- or will most likely take it up in September -- probably in the middle of September. And so we'll have our answer then.

And next, we will hear from Travis Miller with Morningstar.

Texas, you made some comments there about the positive regulatory environment developments there, especially on the transmission side. Would you anticipate potentially putting more capital to work in that state now?

No. Well, I mean, it's growing pretty significantly, and there's a lot of capital that needs to be put into keep up with that growth. And there was wider mechanisms that we have both for the meter investment, the right of first refusal and of course, of the writer for new gen are very supportive of putting more capital to work at SPS.

And Travis, this is Bob, we're working through our long-term financial planning process and capital planning process, and we expect to be back with guidance in the third quarter.

Okay. So if I recall correctly, it rolls off pretty quickly in Texas, at least after the wind farms, right? So that could possibly come up in the 2021-type range?

Yes. I would say that the wind farms are certainly a large and discrete investment, but our run rate capital in SPS is positive driven by increased load and increased customer growth there.

Got it. Yes. And then very high level, if we look back over the last 10 years, you guys have been right at the forefront of smaller deals. Gas plus renewables offsetting coal, I think, in the coal retirements. As you look forward kind of in the next 10 years, once coal essentially comes out of texture for you, guys, are we in an environment where it's gas versus renewables, or the that solar or wind, but is that the offset? Is that the competition assuming very flat or little growth on the demand side?

Well, I think -- thank you, Travis, for that. I mean first of all, let's get to that 80% milestone, which is a big milestone by 2030. I mentioned, we will be completely out of coal in the Midwest. Still have some coal after that on our system, so there'd be more transitioning. I think gas and renewables and the extension of niche will make all the sense on how we continue on that path to 100% carbon-free electricity by 2050. I don't think they really compete with each other. They're going to -- they'll support each other at that point. Of course, we'll also be looking at the role batteries can play on our grid, the role batteries can play with storage. I think it'll be even more important to have demand response-type programs. And of course, we're very excited about EVs and what that might mean to our system and the interactions -- new interactions that can create with our customers.

Okay. And do you still see a role for gas in a 100%-type carbon-free environment? How would that -- how do you see that vision?

Yes. Very good question. I mean by 2050, unless those plants are burning renewable gas, which is certainly a possibility, you wouldn't want them on the grid. But that is a number of decades away. And I think it's incredibly important that you take early action. And so I think gas is how we move away from coal, how we maintain reliability, how we maintain affordability. We get to that 80% mark, and as I've said before, we're going to need to work on those technologies to get that last bit of carbon off of our system. There's a lot of different things it could be. But for now, we need to take early action, and gas is the avenue to get us there.

And our next question will come from Paul Patterson with Glenrock Associates.

So in Colorado, there has been some discussion about some wind contractors who have been basically not signing on to the contracts, that have been basically backing out of their deal with you guys because the price has been too low. I was just wondering if you could elaborate a little bit on that and what you're seeing in terms of having to recontract and sort of what we'll start seeing in the economics out there.

Paul, are you talking about wind? Or are you talking about solar?

I thought it was wind. I thought it was renewal contracts...

Well, we had -- well, what I'm familiar with, and I asked David Eves to help out if I'm missing something. But we have some solar contracts, one of which was going to support our deal with the EVRAZ steel mill. That particular vendor pulled out due to the economics and the change of ownership. The good news is we've gone out with bids and have received very attractive replacement bids. So I think things remain on track in Colorado, both for the CEP plan as well as our unique deal to keep EVRAZ right there on Colorado and expanding. David, did I miss anything? Okay.

Okay. So what I'm reading here about some wind contractors backing out that, that is the -- that, that article is inaccurate, I guess, is that correct? I can follow up with you guys afterwards. I just saw the -- okay, we can talk about it afterwards.

So let's follow up on it. If I'm missing something, we can look at it. But we've had, in the past, remember, we have stepped into some wind developer contracts that were -- they couldn't make it happen, and we came in and taken over the project and made it happen for the benefit of our customers. I think that probably points to a strong reason why you continue to want to have a mix of PPAs and utility ownership because we've demonstrated we can bring things to the table. But -- and when you do a big solicitation, you're going to have some bids that can't cut the mustard in the end, and you just keep moving to the next bit or you step in and take it over yourself. But I don't see this as anything but business as usual.

Okay. And you don't see any change, okay. So it sounds like because, yes, there might be some people dropping out, but for most part, you haven't seen any change in the economics or anything significant in terms of renewable development and the outlook for the CEP or anything. Is that a good way to summarize that?

That's absolutely right, Paul.

Okay. Great. And then also just picking up on the storage discussion that you mentioned, I know that you have 235 megawatts, I believe you do, under the CEP. And this is wondering in general, we're seeing a lot of discussion, different developers talking about combined renewables with a battery coming in quite cheap in different RFPs. I'm just wondering, since you guys are sort of big on this stuff, what you're seeing and how you see the economics of that developing sort of beat this -- or cheaper than a peaker, that kind of thing. What are you guys seeing practically on the ground? What was your outlook there?

So great question, and we are seeing some very attractive bids, and you mentioned the 275-megawatt battery project. That's associated with the solar asset, and it's associated with the solar asset, Paul, because you want -- because that allows for the 30% ITC to be recognized. And I did put it on parity with peakers. I think batteries will continue to fall on price just like I think renewables will continue to fall on price and over time overcome the roll-off of the tax benefits. And yes, storage can be the new peakers but only to a certain degree of penetration and saturation. I mean because, as you know, we need to plan for much more than a 4-hour, even an 8-hour event. So I think the initial tranches of batteries are very viable and you planning basis, you give them equal weight as you would with a traditional CT peaker. But the more penetration you have in batteries, the more you shave off of that very peak load, you start to lose some of the planning value of batteries. And not to get too technical on you, but we're aware of that. Of course, batteries will have other roles on the grid, including supporting the grid reliability, and we're looking at those alternatives. And all of that will be baked into our plans as we move forward. But you cannot replace all peaking needs with batteries. That's very clear.

Paul, one thing I'd add on to Ben's comments is we did do a broad solicitation for the Colorado Energy Plan. We published the results of that solicitation with averages, and we published the solar-only and a solar-plus storage average. I don't have the numbers at my fingertips. But if you want more details on what we saw about 18 months ago on the solicitation, we can share that with you. Obviously, the markets move for both solar and for storage assets, and we continue to see price declines in both of those asset classes. But I think that those midpoints will highlight to you how competitive some of that stuff is becoming over time.

And with no further questions in the queue, I'd like to turn the call back over to Bob Frenzel for any additional or closing remarks.

Thanks for participating in our second quarter earnings call this morning. We look forward to seeing people on the road in the third quarter. We have quite a queue for conferences and road shows that we highlight in our investor materials. Lastly, and before we depart, I'd like to introduce our new Director of Investor Relations, Emily Ahachich. She joins us from our internal corporate strategy group. She will be working with Paul and Darin going forward. So please feel free to reach out to anybody in the Investor Relations if you have any questions or calls. Thank you.

Thank you.

And once again, that does conclude our call for today. Thank you for your participation. You may now disconnect.