Thank you, Sarah. Good afternoon, and thank you for joining NorthWestern Corporation's financial results conference call and webcast for the quarter ending June 30, 2020.

NorthWestern's results have been released, and the release is available on our website at northwesternenergy.com. We also released our 10-Q pre-market this morning.

Joining us on the call today are Bob Rowe, President and Chief Executive Officer; Brian Bird, Chief Financial Officer, and we have several other members of management team in the room with us to address your questions if needed. Before I turn the call over for us to begin, please note that the Company's press release, this presentation, comments made by presenters and responses to your question may contain forward-looking statements and non-GAAP financial information.

As such, I will remind you of our Safe Harbor language. During the course of this presentation, there will be forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements often address our expected future business and financial performance and often contain words such as expects, anticipates, intends, plans, believes, seeks or will. The information in the presentation is based upon our current expectations.

Our actual future business and financial performance may differ materially and adversely from our expectations expressed in any forward-looking statements. We undertake no obligation to revise or publicly update our forward-looking statements or this presentation for any reason.

Although our expectations and beliefs are based upon reasonable assumptions, actual results may differ materially. The factors that may affect our results are listed in certain of our press releases and disclosed in the Company's Form 10-K and 10-Q, along with other public filings with the SEC.

Today's presentation also includes non-GAAP financial measures. Please refer to the definitions and reconciliations of these measures that are included in our webcast materials.

Following the presentation, we'll open the phone lines to allow those who are dialed into the teleconference to ask questions. The archived replay of today's webcast will be available for one year beginning at 6:00 p.m.

Eastern Time today and can be found at our website at northwesternenergy.com under the Our Company, Investor Relations, Presentations and Webcast link. With that, I'll hand it over to our President and CEO, Bob Rowe.

Thank you, Travis. Good afternoon everyone and thank you very much for joining.

Travis included a total on the cover of the deck from the Grand Canyon of the Yellow Stone. He did that because yesterday we were in the park meeting with FERC management.

We serve there on a contract basis. It’s a privilege obviously to serve the nation’s oldest and number one national park.

The park and the gateway communities in Montana are crowded. What’s exciting about serving the park is, we do it on a contract basis we design our service to meet the customers’ expectations in terms of affordability, environmental sensitivity and sustainability and reliability and at their location where we have the opportunity to try some of the exciting new distributed technologies that we are looking at.

So it’s a small, but important part of who we are and the area we serve. Second quarter highlights.

Net income for the second quarter decreased $26.2 million, compared to the same period last year. This was driven primarily by an income tax benefit received in 2019, by lower gross margin due to impacts of COVID-19 as we’ve discussed last quarter and then by higher depreciation expenses.

These are offset impart by a decrease in operating general administrative and by some customer growth. Diluted EPS decreased $0.51 as compared to the same period last year.

Diluted non-GAAP EPS decreased $0.08 per share after adjusting for income tax benefits noted in the normal weather. The Board declared a quarterly dividend of $0.60 per share payable September 30 to shareholders of record as of September 15th.

I will get a chance to come back and talk about customer engagement and employee health and safety as part of our COVID response in the Q&A. But we continue to be doing very, very well on both of those fronts.

And with that, I’ll turn it over to Brian

Thanks, Bob. On Page 4 of the presentation is the summary financial results for the second quarter.

As Bob pointed out, our net income is down $26.2 million. As I look at this slide, there are really three themes jump out, gross margin is down $6.7 million on a year-over-year basis.

All of that negative variance could be reflected by two 2019 favorable impacts. The second thing I am – the theme I point out is, the reduction in OG&A expenses that we had during the quarter more than offset the increases in property tax, depreciation and interest expense.

And the third theme is the $21.5 million negative variance in income taxes is all attributed to the 2019 favorable impact, of course on a year-over-year basis. So, taking those things in consideration, we feel we actually had a very good quarter in line with our expectations from a COVID perspective.

And with that, I will turn you to the following page on gross margin. Gross margin was off $6.7 million or about 3% as I pointed out.

All of that really attributed to our electric business. You look at the primary drivers of the $8.2 million of change in gross margin actually impacts net income, the very first two items Montana electric supply cost recovery, that item is after some favorable legislation we received.

We were able to treat our PCAM slightly different and we had a favorable adjustment in 2019 associated with that, that’s $4.4 million. And then, this year our QF gain was $3.3 million less than the QF gain we had in 2019.

Those two items together are 8. – excuse me – 7.7 of the full 8.2 change in gross margin.

I guess, the other item that would get fully to the 8.2 is lower electric transmission and really is a result on a year-over-year impact. So the closure of Units 1and 2 at Colstrip.

So, all in all, again, big impact associated with the 2019 favorable items impacting the $8.2 million. Below that, we do show changes in gross margins, that’s offset elsewhere within the P&L for a net decrease in gross margin of $6.7 million.

Also on Page 5, to the far right, we do have a red box speaking to COVID. You notice I didn’t say anything about electric or gas retail volumes.

The reason being is, they were essentially flat. They were flat, our customer growth and favorable weather were effectively offset to a great extent by a $3 million to $4 million negative impact on revenues associated with COVID.

As expected, commercial and industrial volumes were down and residential volumes partially offset that, again from a margin perspective, relatively flat. Moving forward on weather, it is a colder quarter for us and as expected didn’t have much of a weather impact.

We had a $500,000 favorable pre-tax benefit when compared to normal and a $800,000 pre-tax benefit compared to Q2 of 2019. If you look at the map of the bottom left side of Page 6, in April, we did have colder temperatures that helped our heating in our Montana gas business.

In June, we had warmer weather in South Dakota which helped the South Dakota Electric business. Those two things are the primary drivers for our favorable weather during the quarter.

Moving on to operating expenses on Page 7. They are down $2.6 million or nearly 2% on a year-over-year basis.

The biggest driver of course is OG&A expenses and I’ll speak to that in a minute. Property taxes are up slightly as a result of increased valuation in – for our Montana property taxes.

And depreciation expenses was up $3.8 million, of that $3.8 million increase, $2.3 million is associated with a 2019 favorable impact associated with the settlement of our rate case where we booked an incremental benefit, the depreciation expense part of that rate case settlement. Jumping to the items that impacting OG&A is, the three biggest of the $9.7 million decrease in OG&A of items impacting net income was a reduction in employee benefits.

We had lower medical. We had lower incentive costs.

Note there we are also highlighting those costs reduced that had an impact or increased had an impact associated with COVID and I’ll speak to that in a minute. So, employee benefits decreased to $3.7 million.

We had $2.6 million of lower generation maintenance at DDGS in some of our South Dakota generation facilities. We had lower labor costs, some associated with how we changed work around COVID, some attributed to allocation of more labor to capital.

We had lower hazard trees and anticipated having lower hazard trees based upon the good progress we made in 2019 in that regard. And then, lower travel and training, about $1.2 million to be expected with what’s going on with COVID.

Those benefits were partially offset by a $3.1 million increase in uncollectable accounts during the quarter and we had some other impacts as well totaling $9.7 million of items that impacted net income. Below that, of course, there are some items changes in OG&A that are offset elsewhere in the P&L for a net decrease of $9.1 million in OG&A for the quarter.

To the far right, again, we show the COVID related impacts, $3.1 million increased in uncollectable accounts offset by $2.8 million of lower COVID related expenses and think of lower medical, lower labor and travel and training for that $2.8 million. We’ll give you a full P&L on COVID here later in the presentation.

Moving forward just, operating income at the top of the page up $4 million on a quarter-over-quarter basis. Moving down to pre-tax, down about $4.7 million, primarily that change is driven by an increase in interest expense.

Almost all of that attributed to COVID and the need to have incremental borrowings to improve our liquidity during the quarter. Below pre-tax income, a $21.5 million increase in income taxes, again, almost all of that really attributed to the $23 million favorable item in 2019 that was taken.

That leads us to – again the $26 million decrease on a quarter-over-quarter basis in net income. And we are going to stop there for a second and just point out and you take into consideration this $7.7 million of negative impact this year on margin associated with the 2019 favorable impact items.

Take the $2.3 million favorable item associated with depreciation in 2019, that’s $10 million on a pre-tax basis, after-tax just round numbers, $7 million after-tax associated with that. Obviously, $23 million of after-tax benefit in 2019, that’s a $30 million swing on an after-tax basis.

And so, for the quarter, just removing those 2019, all of the 2019 items I discussed, we would had $4 million favorable on a year-over-year basis. Add to that, we will show the P&L in a minute.

Approximately, $3 million of an after-tax detriment that we received in 2020 associated with COVID, if you back that out, we would have net – be an up $7 million for the quarter. So, obviously, from a headline perspective it didn’t look like a great quarter.

But from our perspective, we feel good knowing what we know with that in COVID and where are we going forward. Moving to Page 9 on income taxes.

I talked about $21.5 million increase, again associated with the recognition of an unrecognized tax benefit in 2019, partially offset by lower pretax income and slightly better flow-through repairs on a year-to-date and on a quarterly basis. Balance sheet, not much to talk about on Page 10.

We did had an increase in PP&E with a $100 million increase in short-term debt by $100 million is probably the biggest changes since the end of the year 2019 and you can see on a debt-to-capital perspective to bottom of the page, very little change around 52% debt-to-cap. On cash flow, on Page 11, cash from operations is approximately $75 million better on a year-over-year basis.

Really three things drove that improvement in collections on supply cost this year. In 2019, we were giving refunds to customers associated with TCJA.

We are also giving some transmission interconnection refunds in 2019. Those three items were partially offset by lower net income this year to again approximately $75 million improvement there.

Thinking of our adjusted non-GAAP earnings on Page 12, we see at the bottom on the page, diluted EPS of $0.43 on a GAAP basis really taking out a penny for favorable weather this quarter as to $0.42. That compared to a non-GAAP number of $0.50 last year.

We did - in that case, we had unfavorable weather of a penny and added back the tax benefit and that was received in 2019. So again, $0.08 detriment on a year-over-year basis.

The main thing I’d point also on this page is, pretax income on a non-GAAP to non-GAAP basis is down slightly from our GAAP, primarily as a result of the $800,000 swing in favorable weather. And then – but I also say the net income improved significantly when you remove the tax benefit, now net income there is shown as $4 million less.

And again, equates to $0.08 on an EPS basis. Moving forward, Page 13, diluted earnings per share reaffirming our previously revised earnings guidance at $3.30 to $3.45 per diluted share.

We do know our assumptions. Obviously, one of the big assumptions we have in remaining years is our expectations on COVID and not only an impact on or margins, but also the ability to recover collectibles, uncollectable account expense from commissions where we made filings, obviously normal weather and a share count of 50.9 million and a tax range of minus 5% to 0%.

Lastly, on this page, I’d point out, we do have a - continue to have our 6% to 9% total return as a long-term look from our perspective. And of course, that’s going to be derived through a combination of earnings growth and dividend yield.

Moving on to just the change in our bridge associated with the revised guidance and thinking through COVID. We can save $1.48 for the first two quarters of the year and we’ll need $1.82 to $1.97 to achieve the $3.30 to $3.45 range that we discussed.

That means we’ll need an improvement on a year-over-year basis of $0.13 to $0.29 and where will that benefit primarily come from. It’s going to continue to come from OG&A expense and it’s going to come from tax timing.

And one thing I’d point out is, we had $0.14 improvement on OG&A expense in the second quarter alone and so, we do expect if COVID continues, we’ll have a relatively easy time achieving that $0.08 to $0.11 if not better in that regard. So, and we are going to work extremely hard to stay on top of that.

We also know that we have a tax timing swing. Those two things again will help us achieve our earnings guidance in Q3 and Q4.

What really changed in the forecast, since the second quarter, we did get our final property tax assessment. We have an increase in property taxes in certainly in the latter half of the year, but we increased the gross margin for a property tax recovery associated with that for the second half of the year.

Those are the two primary changes since the last time we made this adjustment. Moving on to the next page on Page 15, real quickly just point out that, from our perspective decline in gross margin, $3 million to $4 million, in line with our expectations.

At the top of the page, the far right, we do show what our forecast plus the Q2 and how things actually played out, a little bit better in industrial and commercial, a little bit worse on residential and all in all, pretty much where we expected. We do show as we - maintaining our expectations for Q3 and Q4.

And we show that, at a high level in the upper-right and in a more detailed basis for both our Electric and Gas business. They are directly below it Moving forward to expenses on Page 16.

Again, expenses came in line with our expectations during the second quarter. And we do show at the upper-right of full P&L associated with that.

And you take into consideration the $3 million to $4 million reduction in gross margin I talked about earlier and you think about expenses, think about a net increase in operating expenses of $300,000 and then add $700,000 of interest expense. So $1 million impact on COVID on the expense side.

That gives us a pretax detriment of $4 million to $5 million and an after-tax of $3 million to $3.7 million associated with COVID or $0.06 to $0.07. One other thing I should point out on this page, we mentioned in our press release capital spending, we still anticipated approximately $400 million, we are seeing very little impacts in the supply chain.

Very little impacts on staffing levels. We are getting our work done.

We’ve actually spent more capital year-to-date this year than we had all of last year. So we are on great track, keep moving forward there.

And with that, I’ll hand it back over to Bob.

Thank you, Brian. Actually, just to reinforce Brian’s discussion for the last three minutes in terms of margin and expense, recall, that we cannot relatively early at the end of the first quarter and certainly relatively early in the new COVID world and the ability to come in really quite closely to where we expected to be at that time with so many unknowns on expense and awful lot turning into the capital forecast, the health learning of course over on the left, we are comfortable with – about $1.8 billion of total capital over the next five years.

Financing with a combination of cash from operations with NOLs available into 2021. First mortgage bonds and equity issuances and based on what we know now, what we expect now any additional equity would be this year or early next year and it would be really focused on maintaining current credit ratings.

That said, significant capital beyond what’s identified in the latter to the right put us at those capital projections.

And very importantly of course, this does not include investment necessary to identify the generation capacity challenges in Montana and we are unique in being – our customers are unique and that on a good way and being exposed to the market 46% at peak out of Montana. So, this is an important investment program to continue to share by customers in the growth in our territory and we are very comfortable with all those control and everywhere else this year.

We’ve been able to execute and we are comfortable and we will continue to be able to execute. Looking forward, obviously, always a lot of activity on the regulatory front.

The Montana Commission approved the fixed cost recovery mechanism or decoupling. We talked about this last quarter, of course and think that very, very important over the long-term, it’s effective – most of the effective July 1.

As we discussed last quarter, we did requested that the implementation date we deferred until July 1 of next year for COVID-related concerns definition agreed with that, that have made sense - delayed the implementation by a year, but didn’t request instruct that we are providing – kind of a shadow accounting for the Commission to really understand what the impacts of the FCRM would have been if it have been implemented July of this year. In June of course, we obviously been ordered from the FERC accepting our Montana transmission filing guiding interim rates, setting a procedural schedule and ultimately even appointing and administering the law judge settlement negotiations continue to be ongoing despite the challenges of COVID obviously are being - not meeting in person.

And then we would expect a compliance filing with the Montana Commission when an early FERC rate case does conclude. As you know, concerning our post with application Talen did assert, it’s right at first refusal.

So we are in the process of modifying that application to reflect a 92.5 megawatt acquisition from Puget Sound Energy and then the corresponding purchase power agreement to sell power back to Puget Sound Energy within that proceeds then propose to be satisfy to cover eventual closing costs for our current ownership goals. So, that’s a compelling proposition from a customer perspective and also from our net company and from an environmental perspective.

On the South Dakota front, we are underway, again despite the COVID challenges this 60 megawatts flexible value with $80 million of flexible capacity located in Iran. This site will be activated here within a matter of days.

And that should be online by late 2021. Just identical, we’ve filed now a new South Dakota higher feed in the last couple of weeks.

Very great feedback from both the staff and in the Commission and received word from the Commission Chair that our 57 page summary document of the best plan we had ever seen. So we really appreciate that and that plan is consistent with the plan that we are currently implementing really focused on removing our fleet being able to provide our customers reliability to get the full benefits and participate in the Southwest power pool.

In Montana of course, we issued an all source solicitation for up to 280 megawatts of flexible capacity. That went out in February.

We are using a third-party administrator. We are, of course, participating with – ourselves and looking forward to seeing the outcome of that.

The projects of course, at this point are identity blind in terms of who is sponsoring the project. So, that’s about all we can say there, again, other than we have participated in the project and look forward to seeing the results.

We are also on track to join the Western Energy imbalance market in April of 2021 and this could certainly provide benefits for our Montana customers and much more efficient utilization of both supply and transmission assets. But as we talked about you have to bring your own toys to the sandbox.

We need resources in order to participate. Worth noting there that last week, the Montana Commission had great discussion of regional resource adequacy.

Frank Afranji, who was the President of the Northwest Power Pool was the lead presenter describing the immediate concerns of the entire region has in terms of being able to meet our customers’ needs.

So, with that, I look forward to questions.

Hey. Good afternoon.

This is actually [Indiscernible] on for Shar. Thanks for taking the question.

Hey, Cody.

Hey, so, you guys got it down to – weather and the expected impact of COVID-19 and you’ve had another somewhat challenging quarter with the virus. Obviously, so in the approval to defer on collectible costs and your commission.

I was wondering if you are still confident in the midpoint of guidance are you tracking more towards the lower-end of the range?

Yes, I would like to – we don’t ever try to give anybody where we are in the range. I would just say this, we feel good about where we sit today.

Obviously, we need to get recovery from the commission that’s an important part of our range if you will as whole. But actually Q2 came really in line with our expectations.

We do expect that things are going to improve over time and Q3 and Q4 from a COVID-related perspective that was in our guidance range initially. But we also expected to kind of pull off the gas a little bit on OG&A savings in the second half of the year either and if in fact things continue to stay difficult with the COVID on the margins side, we will be that much attune to it on the OG&A expense.

And so, we feel very confident in our earnings guidance as we sit here today.

Got it. Thank you.

And stuck in – can you give us any more thought on outsizing the current Montana RFP given Talen outside the sulfur? I know it somewhat relies on the internal valuation, but just wondering your updated thoughts there.

That’s certainly is something that we will take a look at for exactly the reason that you said. It depends on seeing what comes in.

But as I mentioned, we have a pretty big hole to fill on the half of our customers and same – I think we don’t do that. So that certainly is a possibility.

All right. Thanks.

That’s all I have. Stay safe.

Thanks, Cody.

Hi. Good afternoon guys.

Hi, Mike.

You said that the OG&A expense of – cuts of $0.08 to $0.11 you are expecting in the second half of the year. That depends on what – what does that depend on exactly?

I think you mentioned COVID continuing and COVID expense cuts continuing or I think the travel ..

What we did is – I am sorry Mike. As we thought about Q3 and Q4, we expected things to over time slow the version to near normal by the end of the year, right.

And so, if we had expectation on OG&A cuts for the full year, we would be backing off that a little bit as well. So, you noticed that quite early, we had $0.14 of improvement on a year-over-year basis on the OG&A line just in the second quarter alone.

And obviously, the range for Q3 and Q4 is less than that. And so, if in fact, my point was, if in fact we don’t see the margin improvement in which we do expect that we will get that.

That we will need to do more on the OG&A side, but feel confident that we could.

Got you. And also, could you characterize what the opportunity maybe in South Dakota in terms of – versus the current CapEx plan?

It’s probably early to say too much beyond the fact that there are additional opportunities and in the context of our South Dakota operation if there is a significance.

Bob, I would share that, we had historically shown our South Dakota what we were going to do over time and initially if you think back, there is a number of units spread across South Dakota than we talked about this 60 megawatts in Huron and possibly something at Aberdeen and South Dakota. And so, I think at that point of time, we talked about our total opportunity of 90 megawatts and being at 60 today it would be an incremental 30 and hope we will get after that sooner, rather than later.

Okay. Fair enough.

And regarding the equity issuance, what’s the thinking on how the timing might come out? I know you said later this year or maybe early 2021.

Is it more likely to be a 2021 timeframe? Or is there some reason why you are not be earlier than that?

Mike, I think at this way, I think it’s a 2021 item. We’ll continue the dialogues with the rating agencies, it’s for some reasons concerns are raised there.

We could do something sooner than that. But right now, we are planning that as a 2021 item.

Okay. Great.

Thank you very much.

Hey. Can you hear me?

Yes.

Excellent. Hey, thank you.

So, first off, let me start with the numbers here, as we think about the back half of the year, what’s driving the $0.11 to $0.17 gross margin uptick in your expectations? And I want to recognize, I know you talk through some of the gross margin dynamics already, but perhaps at a high level, what’s driving that uptick in the back half here?

And then, can you maybe secondarily and I know you alluded this a little bit already, what other levers you have to go to the extent you wish that things don’t materialize COVID – except for COVID or otherwise?

Yes, I think if you focus on Page 14 in terms of the bridge, one of the biggest reasons for the increase in gross margin in the second half of the year is, our property taxes are going up and we get recovery of 75% of that, 70% of that. So that’s the biggest driver from a margin perspective.

But we are – from our perspective, we are seeing – we’ll expect to see better irrigation. We are going to obviously have customer growth and I mentioned earlier that we expected some – in the first quarter we mentioned some unbilled timing associated in the second half of the year.

So, again – but, in looking just at this page, you can see that the primary benefit, $0.09 of that gross margin is associated with property tax. So, you really need $0.02 to $0.08 of the remainder and we feel very good about that.

And I think, to your question Julie on levers, I think I would just focus on the comment about the $0.14 in Q2. We did better from an expense standpoint and we do show backing off, I just think that we continue to stay on top of expenses because of COVID, we can do better than we show there if in fact we need to.

Awesome. Thank you.

On the RFP in Montana, I know you’ve alluded this – [Technical Difficulty] than in terms of determining the wind is there. Any data points that we should look to in the back half here?

I would say no.

Okay. Alright.

Fair enough. That’s – I’ll leave it there guys.

Thank you.

Hey, Bob, one thing I think we shared in last call is, if in fact, the one thing we did say is if we’ve ever found that we are not participating or we are not in the final rounds, we are going to let you know that as soon as we can. And if there is some information incrementally that can be shared, we will share it.

Sorry guys. I forgot to unmute.

How are you guys?

Hey, Chris.

I am not sure if this is for you, Bob or not, but what is it that gives you confidence in incremental third to fourth quarter improvement? Are you not believers of the possibilities of the flu season being more aggressive than what we are going to see in the second and third quarter relative to what it was like, in say March or April?

What is your sort of general view of the COVID outlook for the fourth quarter?

First of all, I would say, is this is a company we take COVID extremely, extremely seriously and adopted measures to keep our employees safe and healthy as possible well before the states took action. And we expect that those measures are going to continue in place certainly well into the fall.

That said, we also know a great, great deal more about safe practices. We know that wearing masks, social distancing are extremely effective, are key on the frontline.

The states we serve have three of the lowest unemployment rates in the nation. Nebraska, the lowest, Montana the sixth lowest and South Dakota, the 11th lowest.

In South Dakota, what’s notable is there was never a government order to shutdown and actually the virus reproduction rate in South Dakota despite that is really quite, quite low. If the virus certainly continues, we take it as seriously as possible.

We supported the actions that states has taken around masks, states and communities and businesses have taken around masks. But we see consistent with that, a tremendous amount of activity coming back in our service territory.

On a daily basis for example, we are all very multiple examples of people from out of state buying property, site and things for at or above the sale price or in some cases before it’s even non-American. So, an awful lot of activity in our service territory.

We want all that to be faced, but it certainly is as encouraging to see. That doesn’t in anyway minimize the real hardship being faced by the folks who are still out of work to needing to work with them.

But on balance, what we see is a region that is coming back and arguably, we are all beyond the end of this year could end up being much, much stronger as people look around and ask for where they want to be.

Hey, Bob, and just a last two quick things on top of that. Two data points.

Bob talked about activity being up. We have new connections are up in five of our largest six cities in Montana.

People are buying homes in our service territory. So, I wouldn’t have guessed that.

Second thing I’d point out, in our two states, our two largest states, Montana and South Dakota the total number of COVID cases in those two states combined, is about approximately 2200. And so, our parts of this country and other service territory doing extremely well relative to the rest of the country.

Yes, do we expect COVID to be top in the third and fourth quarter? It should be.

But our expectations are we will be able to manage through that if in fact it is through what we’ve been doing thus far in cost control.

Okay. As far as your offsets to the bad debt expense, did the labor and the medical costs, are you starting to see behaviors change a little bit where that benefits being easing off more of late?

That sort of as now sort of what we have seen through the second quarter and what I have seen into July, I’d say, no. I’d say it’s pretty consistent.

Okay. And should if those behaviors stay similar, would you expect that to continue into the later part of the year as well if the economy is, so – economy is improving locally would not there would be more customer contact and/or more utilization of medical services that would change that direction a little bit?

Chris, I think that’s a possibility. We commonly are using the words levers here.

Again, if in fact, we see COVID being more sustained through this time period, we are going to – we are probably going to continue to see medical costs staying low. We are going to probably see our labor costs staying lower as a result to lower than we are projecting.

Okay.

We are glad to be show deep in the near that those kinds of changes are really going to be on the margin.

Okay. Thanks for the color guys.

Appreciate it.

Hi, good afternoon.

Hey, Brian.

Hey. With the shadow accounting that you are required to do that the way FCRM in your slide, any thoughts on what the avoided impact was of not implementing the FCRM on July 1st?

No, no. No thoughts there.

Okay. And in terms of the deferral accounting and the procedural schedule, what’s next that we should be looking for or what filing testament whatever?

Two items. First in South Dakota looking for a staff recommendation and in Montana, looking to see whether or not parties file a testimony and that could be either consumer counsel or large customer group.

Comments or testimony, we didn’t filed that we do on July 31.

Okay, July 31st. Got it.

And you mentioned a short list in the Montana RFP. When might that be expected?

The analysis of going on now, we’ll start to see more information about projects. And again, I would really focus on the first quarter, Brian’s qualification to that is a good one if then if we are in the running, we’ll let you know.

Okay. So, if you are in the running, you will let us know.

My guess is the way that we can get that as well.

There is a double negative there, even there. But yes.

Got it. So, just, if you don’t mind, just a clarification, what was the bad debt or uncollectables as of June 30th?

And what might we expect throughout the year to ultimately seek recovery of X dollars amount. Just trying to get a sense of what the magnitude of that could possibly be?

Brian?

Yes. I mentioned the increase is $3 million for the quarter.

I know what’s in rates is approximately $2 million. And so, we need to continue anything above what’s in rates during the year.

That’s what we are going to have to have be put in the reg asset for the year. So, we’ll see how things play out for Q3 and Q4 and as long as we still have a moratorium on disconnects for non-payment, we expect to have that bad debt continue to increase.

Okay. And just remind me, was this an individual NorthWestern filing with the Commission for COVID recovery?

Or is this likely seen in other states where it’s more of a generic filing where various in state pure utilities all file for the same type of structure and recovery?

It’s really yes to both. In South Dakota, there is a filing by NorthWestern in the [Indiscernible] Within that filing, various companies are requesting different kinds of relief.

We are not requesting a make-whole we are requesting an accounting order for bad debt. In Montana, it’s a standalone filing addressing bad debts and also pension contributions.

There is a parallel filing by MDU as well the broader on the COVID side.

Hey, Bob the – go ahead, go ahead. Well, I did Bob – hey, Brian, I do want to point out my fact checkers here pointed something out to me.

What’s in rates is actually $1.1 million. So, the increase thus far in the second quarter is $2 million.

I think I said that wrong.

Okay. And what percentage of our dollar amount of the O&M and SG&A savings this year are sustainable?

Obviously, travel, et cetera is – that should revert back to the norm going forward. But any idea of what level of cost cuts can be sustainable into 2021 and beyond?

Bob, I’ll grab that.

Well, that there – why don’t I set up the question and then later I’ll leave it to you. Certainly, their expenses that are going to change.

There will be more travel, there will be more medical expenses. But will travel look like it did before?

Probably not. So there is certainly some element that will be carried forward, but remember, when you benchmark us against any of our peers or even against larger companies on the expense per customer, expense per employee, again in that Montana property taxes, we are already just about as willing as anyone out there.

Bob, that was great. I only had to add that, you spot on is that, this budget season is a little bit different in a sense is that we have to think about COVID and there are things that are different than that we would want to capture those benefits and we are focused on that here right after this earnings call effectively that something we have to be focused on thinking about how this is going to impact 2021 when we can do to take advantage of COVID help us going forward.

Okay. Great.

Thanks guys.

Hey, good afternoon gentlemen. How is everyone doing?

Good. Thanks.

Good. Good.

Just kind of piggy backing on the last topic. If for some reason Montana, South Dakota don’t grant your request to pro accounting, do you still estimate that it’s going to be like a $0.05 EPS hit for the full year if you are already at $2 million thus far?

Yes. We are still effecting $0.05.

So, I think, some of that is we do expect and we hope to expect to have reinstated ability to disconnect customers before we get into the heating season. And so, we are going to make – we are having discussions around that in South Dakota very soon, in Montana, little bit later.

But it’s something I think it’s important task at handle, but that should help offset some of these obviously, increases we’ve seen thus far in the second quarter to kind of slow that rate if you will.

Okay, great. And then, Bob, in your comments, regarding being comfortable with the point, $400 million of CapEx annually going forward.

Did you say that would be before adding any potential Montana generation additions or like, in other words, Montana generation would be incremental to that $400 million per year?

Yes. The capital ladder is built up with projects that are identified and that we are confident about sort of as always, the out years will increase as our specific capital plans to serve our customers become more known.

Okay. Thanks for clarifying that.

And then the last one, just kind of curious what your thoughts are on that MPSC’s comments filed in late June regarding your Montana Electric Supplies brand and how if at all that impacts beyond going generation RFP and whether you did a selection criteria?

To my mind, the key thing was that the commission acknowledges the exposure that our customers’ face and take it seriously. So, we thought that that the comment on balance.

And very, very positive and probably deferred in – might have been the case just a couple of years ago. And again, the conversations that the commission had with – for the end of NorthWest Power pool, just last week did indicate a real appreciation for the situation that customers in Montana face.

Okay. So, their concerns express around, I guess, maybe the inputs or assumptions you guys are making there and here is the reciting around that.

That doesn’t overly concern you given the overarching being that they recognize a short and everything like – just kind of seem like that the thought that I guess, it had to be natural gas to fulfill the person potential to other types of resources to maybe meet the need effectively as well.

The way I look at the plan is the key is the plan identified a need. Subsequently then there were a whole range of scenarios using different resource combinations and those scenarios were just that that when we made the decision not to identify a specific preferred resource in the plan, and then, commit to the path to let essentially all resources compete.

That’s a very different direction. Now, couple of comments that are interesting.

First of all, the analyses underlying the South Dakota and Montana plan, it’s the same model. It’s the same kind of work.

The environments in the two states are in many ways quite different, obviously, but the same kind of analysis in what we’ve received back in South Dakota was real support for the plan. I would certainly think that our plan grew in Montana over time will continue to address and you’ll find the Montana plan to speak to the concerns if there are questions that were raised by the consultants to the commission which is really the source for many of the comments.

It’s a significant process plan to plan, but again the RFP is structured in three tiers of opportunities for projects to bid in at 20 hours, 10 hours and 5 hours. We should see some real diversity and the viability – cost-effective viability if there is technology that is going to be proven in what’s submitted.

Okay. Great.

Thanks for that clarity.

Jonathan, I wanted add just a clarification, I think on the capital plan. The capital plan we are showing on Page 17 is our capital plan for the year.

Obviously, as we go through the process and go through our budgeting process, in the outer years, they typically tend to be a bit higher than we had originally planned. So, if there is an expectation as Bob points out, that we are going to be close to 400.

I think we should be guaranteeing anybody that there will be 400 out there as outer years. I would say this though, if in fact, we are doing any Montana generation, we are likely to be at, at least 400 if not likely higher.

If that’s helpful clarification.

No, it is. Thank you.

Okay. Well, thank you for joining us.

Thank you for the very good questions and discussion. Look forward to visiting with you probably online over the coming months and online and in person maybe by the end of the year.

Take care everybody.