Good afternoon, and thank you for joining NorthWestern Corporation's financial results webcast for the year ending December 31, 2020. My name is Travis Meyer. I'm the Director of Corporate Finance and Investor Relations for NorthWestern Energy. Joining us on the call today to walk you through the results are Bob Rowe, President and Chief Executive Officer; and Brian Bird, Chief Financial Officer. As most of you are aware, on Tuesday, this week announced several key leadership changes. So we also have incoming CFO, Crystal Lail, currently the Vice President and Chief Accounting Officer for NorthWestern, joining the fun today. Crystal has been with NorthWestern for over 18 years and has played a huge role in shaping the company into the great organization it is today. Brian is handing out some big shoes to fill, but those of us who know Crystal have no doubt she'll bust the toes out of those loafers. Just to be clear, that was a testament to our abnormal talent, not her very normal shoe size. [Operator Instructions]. With that, I'll turn over to the formalities. NorthWestern's results have been released, and the release is available on our website at northwesternenergy.com. We also released our 10-K premarket this morning. Please note that this company's press release, this presentation, comments by presenters and responses to your questions may contain forward-looking statements. As such, I will direct you to the disclosures contained within our SEC filings and the safe harbor provisions included on the second slide of this presentation. Please also note, this presentation includes non-GAAP financial measures. Please see the non-GAAP disclosures, definitions and reconciliations included in the materials. This webcast is being recorded. The archived replay of today's webcast will be available for 1 year beginning at 6:00 p.m. Eastern today and can be found on our website at northwesternenergy.com under the Our Company, Investor Relations, Presentations and Webcast link. With that, I'll hand the presentation over to NorthWestern CEO, Bob Rowe.

Thank you very much, Travis. Well, everyone, thank you for joining us. Wherever you are, I hope it's a lot warmer than it is in South Dakota or Montana, where the temperatures have been well below 0, and we're pretty well locked into a multi-day cold period, but it's February. So what do you expect? I do want to start by thanking and congratulating both Brian and Crystal. Brian and I have been working together -- in fact, he gave me this factoid, the executive co-morbidity index. If you add up his tenure and my tenure, we are at a total of 30 years. The industry average for the CFO and CEO is closer to 8. So Crystal and I will be starting over and resetting the clock. As you already know, Brian is a tremendous leader of the company. Several of you know Crystal, and she will do a great job. Brian is moving into a new position that we haven't previously had, and it's an important position. I would think about both these changes as well as some others as an indication of a healthy company that does good succession planning and looks out long term as to its people, just as we do to our infrastructure. So this is a change that the entire Executive team and the Board is really very enthusiastic about. Crystal, my advice to you, following up on Travis' comment, is when Brian hands you that pair of Keds, handle them delicately and wash them before you even think about putting them on. With that, let me turn to the highlights. Net income for 2020 was $155.2 million. It's almost $47 million or 23% less as compared to the same period in 2019. Diluted EPS was $3.06, and that's $0.92 or 23% worse…

Thanks, Bob. I wish it wasn't a COVID year for my victory lap. But with that, Bob talked about the financial outcomes in 2020, and net income was down on a GAAP basis, down $46.9 million or approximately 23%. You can look to that approximately $47 million negative variance all in the gross margin line. Up at the top of Page 4, you see gross margins down about $47 million or 5%. And when you think below on the P&L, we did a nice job in terms of managing expenses. As a matter of fact, operating expenses are down, and that, combined with favorable AFUDC in the other income line were offset pretty much entirely by increased interest expense and a lower tax benefit in 2020. So we had a lot to do to overcome a difficult gross margin year. And on Page 5, we speak to that gross margin down to $47 million, as I mentioned, about 5%. That was pretty consistent, down 5%, both for electric and gas. And as we described to the bottom of that page, it was really -- I break it down and really into 5 buckets, if you will. Electric and gas were certainly impacted by unfavorable weather. And then secondly, I'd say COVID impacted that. Those 2, of course, were partly offset by customer growth. We also had a poor outcome. Our disallowance on our PCCAM, that's approximately $9 million. The first 2 I talked about were approximately $22 million in total. Below that, I really love together the 3 things. We had a -- we did have a QF gain in 2020, but it was lower than the prior year. We did have -- in 2019, we had a decent supply cost recovery primarily as a result of dealing with the…

I picture, Brian, dropping the mic right there. Brian, it's been great working with you as CFO over these last 12.5 years or so, and I'm looking forward very much to working with you as COO. Just to show you how seriously Brian is taking his new role, he's now driving a large pickup truck appropriate to his new position. And as you get to know Crystal, you will find out that she is much more inclined towards jeeps and classic pickup trucks than she is towards those exotic German sports cars that most CFOs drive. I think the last quarter, I talked about how much we were all looking forward to 2021 in terms of the opportunities ahead of us. I would say that speaking for myself, but I think really for the whole Executive team and the Board, we are more enthusiastic, optimistic about our ability to do good work for our customers than has been the case in quite some time. And that is reflected, among other things, in the amount of capital work that we have planned for this year. We told you in our last call that our total capital forecast 5 years is $2.1 billion. And as Brian mentioned, we expect to finance this with a combination of cash from operations, first mortgage bonds, equity issuances through a 3-year, as Brian said, ATM program. Financing, obviously, subject to change, depending on capital expenditures, regulatory outcomes, internal cash generation and other factors. The plan that we depict does include significant and important generation projects in South Dakota. As we've talked about there, we were really able to move from filing our plan to consulting with the commission to making the investments very efficiently. And we have a project underway at Aberdeen and even further along…

Thank you, Bob. [Operator Instructions]. We'll take our first question from Andrew Levi.

So I have a couple of things. Firstly, I just have to say, it's Friday and a long weekend, and it's 4 10. So you guys remind me of Hawaiian Electric if that's a joke between -- portfolio management.

We don't get Monday off, shame on us.

Okay. But maybe you want to rethink things at. But I know it's like around your Board meeting and all that stuff. So anyway, that's my complaint. As far -- I guess, I had nothing to do anyway about the schemes. So as far as you guys are concerned, just a couple of things I've been thinking about. Just first, on a very high level, just looking at COVID and your guidance, how much have you kind of put into your '21 guidance as a -- I don't know if I want to call a dip, but kind of negative effects of COVID?

Ongoing COVID, yes. Brian, you're ready for that one?

Yes. I would just say this, Andy, is we kind of backed off our thoughts for the first half of the year expect to receive COVID linger to really through the first 2 quarters. The first quarter certainly is a big quarter for second -- our lightest quarter, typically. So -- and we do expect by the summertime, things are going to be in a much better spot. So that's our expectations.

No, I understand that, but I'm just saying like financially. I guess how much of a...

Financially, that's how we're looking at margin. That's how we're looking at expenses.

But is it like $10 million? I'm just trying to figure out like if you were in a more normalized environment, let's say, 12 months from now, what would we be adding back?

Maybe one thing would be helpful, Andy, is we did give quite a bit of detail, if you will, for quarters two through four this year in terms of how it impacted our P&L. And if there's an expectation, we're going to see some of that impact us for the -- certainly, for the first half of this year. That's how I think about it. And then obviously, if COVID's not here and think about organic growth on top of that, that's how things should start unwinding, if you will, out of COVID.

Okay. And then on the IRP process, where you talk about potentially $200-plus million that you feel very comfortable with. So I get that part. Can you just talk about like the part that is kind of unknown at this point and if there is the possibility for more than that stated CapEx?

What I would say is that in the current RFP, we're actively involved right now in finalizing what we'll take forward to the commission, and we're comfortable that we will have a project as part of that, that will take us over the $200 million threshold. That takes down a part of our customers' exposure to the market, but we didn't include it in this deck. But as you recall, we are -- our customers in Montana are over 45% exposed to the regional market. So we expect that there will be a subsequent RFP. We haven't made decisions about timing, but this is real stuff. This isn't just a policy debate. And I'll say just a little bit about how the system is operating today. Fortunately, we own gas transmission and storage as well as electric transmission and generation. And our folks are doing a fantastic job coordinating with one another but we are on the market, and we don't want to be on the market nearly as much as we are. It's a price risk, and it's even a supply risk. And this is something that can happen in Montana, pretty much any time of the winter, but it can also happen in August. So we're very pleased to be moving ahead with the RFP right now, but we do expect we're going to be going out relatively soon over the next several years with a subsequent RFP to continue to take down our customers' exposure to a market that you just really do not want to be in.

Okay. I understand. So the way I had read it was that you had a lease to -- whether it's a project or two projects, whatever it may be through the RFP, but there were still like unknown relative to this RFP, but you're really talking about future RFPs where there could be continued upside. So I get that.

Yes, we believe there's well -- there has to be upside in the current, but again, the future RFP is going to be very important, too.

I understand. And then, I guess, I don't know if I want to say whether this RFP or future RFPs, what are you guys thinking as far as like solar/storage as an opportunity and whether that makes sense within your service territory as a way to get some of the shortfall?

Yes. They have a rule. And one of the reasons that the RFP was structured as it was 5 hour, 10 hour, 20 hour was so that resources of different kinds could participate, and in fact, that has occurred. A great place, if you want to dig a little bit deeper into how these things behave on our system, is a filing our supply planner has made with the Montana Commission in December. And there's a really robust discussion of different kinds of resources and their effective load-carrying capacity, or ELCC, contributions of resources and -- but actually, it's one of the best things I read last year. So there is a place, but you've got to be, I think, practical about what that place is. And remember, on our Montana system right now, we are pushing -- we're not quite there, but we're pushing 70% carbon-free. And we've got about 450 megawatts of wind on our system right now. And unfortunately, today, when we need it most desperately, the production is negligible. So it's a long answer, but I think that's the best way to think about it. And I really would encourage you to take a look at the this December supply supplement?

Bob, Bob, I'd like to just add one thing, too. I think, obviously, we wanted to participate in this RFP for build that's going to take place in the 2022-2023 time period. There'll be, as Bob pointed out earlier in the call, another RFP maybe late this year, early next year, and that would be for builds in the '24-'25 time period. And we'd like to think we're going to have an opportunity to participate in that as well. So I just want to make sure that people understand there's really going to be 2 of these coming.

And just one more comment there. If you look at, again, at the 5-year capital forecast and think about how any kind of future project might be layered in there, I think that's quite positive as well.

Okay. And then this question's for Brian. I should have said at the beginning, congratulations, Brian.

Thanks, Andy.

Very proud of you. You're almost there. You're almost in the Executive suite. We're actually here in the Executive suite, but the CEO office. You're almost there. So let's see. As far as the financing plan, it's very straightforward, okay? So I understand it. The one thing I just don't really understand, though, is why are you doing an ATM versus just issuing. Because look, you give us your shares outstanding. So it looks like you need about 75 million of equity this year, give or take, right, which is like 1.3 million shares why not like just issue it to us? Because your stock trades traded 271,000 shares today. And in general, and that was all on the close really by like 3:00, and it traded like 160,000 shares. It's going to take you like all year, I'm exaggerating, to do it. But like whether it's me or some other people like me, we could easily take down your shares at a small discount, and then you wouldn't have this affecting the performance of the stock because, truly, I believe it can because the stock unfortunately trades so thinly, as do a lot of utilities at the current moment because of the way the market is.

Well, I appreciate your view, Andy. I would tell you this, we've had great success with ATM in the past. And in fact, we have quite a bit of build, as you know, both from the generation side in South Dakota and our current plan in terms of capital needs. I would tell you this, that the ATM, like I said, served us well. We're bullish on our share price that it's going to be going up over this time period. There's another reason we like what we're doing here. But I'd also tell you nothing precludes us from doing anything else. If something better comes along, it makes sense for us to issue shares. We could possibly do that as well. But right now, the plan is to -- over a three year period is to raise that $200 million to meet our current needs.

And just to understand, through your ATM, I mean, I guess from what you're saying is if someone wanted to come and make a bid, I guess, for no better way to put it, I don't know that's not the right term, if you take down a block -- a small block of your stock, I guess that is -- that could be part of the ATM as well.

I'm just saying we have flexibility to either use the ATM or something else, if something else better comes along.

[Operator Instructions]. We'll take the next question from Michael Weinstein at Credit Suisse.

So to follow up on Andy's questions, in terms of what you're thinking about rate cases in Montana going forward, considering 2020 as a test year, I guess, if you were going to do it this year? And 2020 is a funny year, right? So I don't know if that's really -- yes, I'm just wondering what your timing is looking like. I think, normally, you provide an update in April, right? But...

Yes. And I can confidently say that we eventually will file a rate case in Montana. This year, I think our focus will -- it will be an "all hands on deck" focus will be on the preapproval filing associated with the supply plan implementation.

Right. So that would be the primary focus of this year will be the preapproval. That's going to take most of the year?

I think realistically, they're -- once they determine the filing to be sufficient, they're on basically a 9-month shot clock.

Right. And then I wanted to see about the -- about the transmission rates, do you have the ability -- let me see here, not the transmission, but the disallowance on Colstrip. Is that final at this point, I mean, the $9.4 million? I mean, I guess it's been a couple of years in the making.

It is final. Yes.

Yes. And is there a reason why Montana is just a final analysis just thought that you didn't deserve recovery of that? I mean, it sounded like -- the explanation you provided sounded pretty reasonable. It's not your fault.

We certainly thought so. And Crystal was one of the key witnesses in that proceeding. There were basically two questions. One had to do with whether the outage associated with taking the plant down partially for environmental compliance was in some way imprudent when we went to the market to procure replacement power; and then, secondly, the timing of elimination of the deadband under a statute that was passed. We were very concerned, disappointed and strongly disagreed with what the commission decided. And -- but it is now a past period, and we're not appealing. We are, on the other hand, really focused on working with the new commissioners, the new tariff, the commission to continue to improve things.

In fact, on that subject, the new commission makeup of it looks like there might be some chance or some room for improvement in terms of regulatory treatment going forward. Do you have any comment on what kind of -- I guess what the new priorities might look like going forward? In the past, there's always been sort of this legislative focus on making sure cold jobs are maintained in the state. Is that -- has any of that changed going forward, do you think?

What I would -- first, a comment about the commission. We -- obviously, you've got a fantastic relationship with the South Dakota Commission that translated into being able to invest to serve our customers there very efficiently in Montana, and we want to have the same kind of relationship with the commissioners with the staff and then, ultimately, of course, with the consumer council as well. Most of the commission's decisions that we're concerned about are driven by advocacy from the consumer council. I'm impressed by the new -- the 2 new commissioners, very impressed, and believe that there are going to be strong additions to the commissioners who are returning. Chairman Brown is a lawyer. He's got a graduate degree in tax. He's spending a lot of time, my impression is, on really managing the commission and the process, and that's something that's extremely important to him. At the same time, our legal and regulatory folks are reciprocating, working with their counterparts at the commission. That's all very positive. We've had a number of good informational meetings. Even in COVID land, had a very substantive overview of the company with the 2 new commissioners going back to December. We had, in January, we had, I think, an excellent presentation by our supply leaders to the full commission really focusing on the peak deficit, the exposure to the regional market and what we hope to bring out of the RFP. They were very, very engaged. They understand the concerns and are, I think, committed to addressing them in a couple of weeks. We've got an overview of our financial operations. And the 2 areas where I think state commissioners really need to focus to be successful in their jobs as far as I'm concerned are operations and finance. So I understand how their decisions affect our ability to do our job. So very encouraged by all of that. The other thing I would say on a larger scale in Montana is that for the first time in many, many years, there's a political alignment between the governor, the legislature and the commission. Governor Gianforte, he is a very successful entrepreneur. He founded right now -- technology is ultimately sold back to Oracle. Oracle has continued to invest in Montana. And I've made the point, he would not have been able to create so much wealth and value in Montana if that company had been subject to the kind of challenges that we've been subject to at time. He is committed to investment in the state's essential infrastructure. He certainly is committed to maintaining the viability at Colstrip as a key asset for its useful life. In the legislature, the Republican majority has actually increased. They work very closely with the governor. And then at the commission, we talked about, I think, very strong additions that the two new commissioners will be for the commission is important to work.

Yes. I guess it's just striking to me that the write-off, you have to write off purchase power cost for an outage at Colstrip that, that would be a perfect illustration of why reliance on the western market for purchases is a problem. It's sort of inconsistent, I guess, with the view, the prevailing view that has been in the state about ownership of generation at the utility. And I'm just wondering if that is -- if that's changing going forward.

I would say that, if anything, there is a greater appreciation of the value of owned generation as part of the portfolio. And we don't -- for perspective, we own less of our generation than do many companies, particularly in the nonorganized market. And we talked about how vastly more exposed we are to the regional market at peak than any of our peers. And again, looking out the window, it's beautiful, but it is snowing and it is below zero. And I would be much, much more comfortable if we had control of more of our own resources to serve our customers.

Makes sense. Congratulations, Brian and Crystal.

Thanks, Mike.

We'll take our next call from Jonathan Reeder of Wells Fargo.

Can you hear me now?

Yes. Sure can, Jonathan.

You were kind of almost getting into it, I thought, with the last color there, Bob. But what are your thoughts on some of the bills that have been introduced in Montana this year? I think there's one that we get rid of the preapproval process, while another would expedite the time that the MPSC has to authorize preapproval. Where do you think those head this year? And how does that impact the current RFP and the future RFP plans?

Yes. Very directly, I think that the bills, quite honestly, the bill sponsored by the majority are much more likely to go forward than the bill sponsored by the minority. And the bill clarifying the current preapproval process is much more likely to go forward. I believe actually the bill eliminating preapproval either has been or soon will be tabled, which is appropriate. And a number of other bills we're paying attention to are ones, for example, that were passed in previous legislation -- previous legislators and then unfortunately, were vetoed. And in fact, the preapproval bill, the preapproval repeal bill has already been tabled, and we feel very good about that. So it's -- I think there's an opportunity to do some things in this legislative session that will allow us to better serve our customers. And that's very important.

That's interesting to make the comment about ones that have passed but then or vetoed. Are there any that fall in that bucket that we should be particularly aware of? I'm trying to think back to past legislative sessions what they might have been...

Two that come to mind immediately. One of the legislature prohibited subsidies in that metering. It didn't prohibit the metering. It's simply prohibited cross subsidies from one group of customers to another. And unfortunately, the previous governor vetoed that bill. I'm certainly hoping that there will be progress to make net metering a fair and sustainable program, something that we can support and, in fact, make available to our customers without harming other customers. The second bill that was approved in the previous session and vetoed was the community renewable energy portfolio standard. And that we had found to be really unworkable. The challenge is projects to qualify as preps has to be both below a certain size and not -- and meet the cost threshold to serve our customers. It's very, very difficult to meet both thresholds. So it's been a big distraction for us. We have managed to get most of the way to our -- requirement, but we certainly believe that modifying or eliminating that requirement would be a substantial step forward.

Okay. And then the only other question I had was on the Montana decoupling pilot that goes into effect in mid-'21. Remind us, will we see the true-up to normal flow through the P&L in the second half of 2021? Or does it not occur until the end of the 12-month period?

I'm going to put Crystal Lail on the spot to answer the first question in her new role. She was close to that.

Thanks, Jon, throwing one my way. Yes, the FCRM, we expect at this point still to implement that pilot beginning in July, and we will report that. You'll see it in our earnings on a quarterly basis.

We will take our next call from the line of Ryan Greenwald at Bank of America.

Can you hear me?

We sure can.

Congratulations to both Brian and Crystal.

Thank you, sir.

So assuming you guys are successful with some of the generation projects in Montana and you guys get the preapproval, how would you kind of frame equity needs on the dollar of additional spend from here?

Brian?

Yes. I'll grab that one. I think I would just assume for practical purposes, it's a 50-50 capital structure associated with that.

Got you. And then just -- maybe just lastly, given the discrepancies in valuation across the space and where you guys are currently trading, how are you kind of framing consideration for anything strategic from here?

That was an artful way to put the question. What I would say is we are really focused on the opportunities right in front of us. Brian, do you want to take that one this time?

I'll grab this one, Bob. I think from my perspective, we certainly think we are undervalued. We're certainly not three turns worse than our peer average, as some people have us today. And I think our the best thing we can do is increase the value of our company, and that creates strategic opportunities down the road, and we'd be better positioned either way in a stronger position. And right now, our share price, certainly relative to our peers, isn't where it should be.

And again, going back to focusing on what's in front of us, if we're able to invest and if the financial community is more comfortable with Montana, ultimately, that's good for the company and very good for the customers.

It appears as though Andy Levi decided this was more fun than skiing after all and looks like he raised his hand again. Andy, do you have another question?

No, just on the last question, like the strategic question, like, just like very logically, like looking at where your stock price is, where your P/E ratio is, I mean there's nothing you can do. I mean you could. You could do like some like crazy dilutive deal. But I mean, I guess I would view you as something that somebody would be kind of looking at. I understand you guys aren't looking to do that and you want to get your value. But there's really -- based on your stock price, there's really nothing strategically you can do. Is there?

And I would answer that by saying, where are you going skiing this weekend?

Okay, that's fine.

Yes. Andy, great commentary, but we're just going to take that as no question. So I appreciate your opinion.

I will tell you as soon as worth here, I'm going to go out and play in that.

Well, you start look, if you look at kind of the latest 13-F, I want your stock price to do well, but absolutely. And I think it's super, super cheap here, but I don't want people to think that you guys are out shopping for something.

All right. With that, it looks like we've exhausted our Friday afternoon queue. And so I will hand it over to Bob and/or Brian to close out the call.

Just to finish the way we started, it's been fantastic to work with Brian as CFO for many, many years. He's going to do a great job as COO. All of the operational needs are looking forward to working with him in that capacity. And Crystal, based on her career, is stepping into her new role just about as well prepared as can be. So thank you for spending your Friday with us before what is for everyone other than us a three day weekend. And as I said, I'm going to go outside and play in the snow. Have a good weekend.

Bob, if I could, I'd like to say just a couple of things.

Absolutely. My gosh. Yes.

Well, first of all, likewise, Bob, I know our combined 30 years actually continues just with different roles. And so I enjoy -- continue to enjoy our relationship and look forward to adding on to those years. I'm also excited for Crystal. I started this job 17 years ago in my early 40s, and that's where Crystal sits. I expect similar great things from her, probably even better than certainly my performance over that time period. And lastly, I I'd like to thank Travis. Everybody knows Travis Meyer. He does a fantastic job. And you may not know Tory Payne, who works with Tory. The two of them make a fantastic team and I think one of the best IR department is in this space. And so I want to thank those guys for their help as well. So -- and thank all of you who support the company. Really appreciate not only the support of the company, but support that you've given me as CFO. So thank you very much.

Thanks, again, for joining us. And with that, that brings us webcast to a close. You may now disconnect.