NorthWestern Corporation (NWE) on Q2 2021 Results - Earnings Call Transcript
Travis Meyer: Good afternoon and thank you for joining NorthWestern Corporation’s Financial Results Webcast for the Second Quarter of 2021. My name is Travis Meyer. I am the Director of Corporate Finance and Investor Relations Officer for NorthWestern. Joining us today to walk you through the results and to provide an overall update are Bob Rowe, our Chief Executive Officer; Brian Bird, President and Chief Operating Officer; Crystal Lail, Vice President and Chief Financial Officer. We also have other members of the management team on the line with us to address questions as appropriate.
Bob Rowe: Thank you, Travis. I have just finished a very good Board meeting. This was our first Board meeting together in a year and a half, also the first meeting chaired by our new Board Chair, Dana Dykhouse, CEO of First Premier Bank. We have gotten a lot of work done in the system. So far this year, I am sure we’ll come back and talk about some of that. Yesterday, we hit a new peak in our Montana balancing authority of over 1,909 megawatts. The balancing authority, of course, includes load in addition to our retail load. But what was significant was that, that required over 1,000 megawatts of import. So that was a hot day in July, where our system was heavily dependent on imports. We have seen the same pattern in February, with very cold temperatures. So, it’s just a reminder of the importance of our infrastructure, but also again, our critical exposure to the regional capacity market and the importance of our plans to address that. And to summary, net income for the second quarter increased $15.7 million as compared to the same period last year. Diluted EPS increased $0.29 as compared to the same period last year. After adjusting for weather differences and a non-cash liability, non-GAAP adjusted earnings per share increased $0.14 as compared to the same period last year. The Board declared a quarterly dividend of $0.62 per share payable on September 30 to shareholders of record as of September 15. In April, we entered into an equity distribution agreement having an aggregate gross sales price of up to $200 million. During the 3 months ending June 30, we issued 879,309 shares of common stock at an average price of $64.91 for net proceeds of $56.3 million. In June, after 2.5 years of very hard work, we joined the Western Energy Imbalance market and this real time within our energy market will provide our Montana customers with economically efficient energy to resolve imbalances and variations and load in generations was a tremendous lift, made even more challenging by COVID. And we heard from CAISO, the market administrator that it was one of the smoothest entries that they have seen and again, a lot of credit to our leadership and the people doing the work and we look forward to realizing those benefits for our customers going forward.
Crystal Lail: Thank you, Bob. And as Bob mentioned, it is rather nice to sit in a room with my colleagues again and do meetings in-person and begin to feel like we are resuming back to normal in some regards. With that, I will take you to Slide 4 with the P&L, as Bob mentioned, net income of $37.2 million as compared with $21.5 million last year in Q2 or a $15.7 million increase or 73%. Really a solid quarter in line with our expectations on a GAAP basis and driven by really improved gross margin offset by a bit of higher operating cost. With regard to gross margin on Slide 5, gross margin of $230.3 million as compared with $208.3 million of the prior period, an increase of $22 million or 10.6%. When you look at the amount of that gross margin change that falls to the bottom line that’s approximately $20.2 million, and I’ll touch on multiple pieces of that here. First, with regard to the transmission piece of that, there is really two parts in that $9.1 million increase. That includes the release of a deferral of interim rates on our transmission rates related to the ultimate resolution through a compliance filing with the MPSC. I will remind you all that our wholesale rates ultimately become a credit and our Montana rates retail side. So that was the ultimate resolution of that release here in the second quarter and certainly contained some prior period amounts to that. The remainder of that increase of electric transmission is really driven by conditions in the market in second quarter here with both the combination of higher loads and rates, with warm and dry weather both the south and west of us. The second piece here is the electric QF liability adjustment. This is something we typically adjust every year in Q2 and can be a bit noisy. I’ll speak to this in a couple of parts too, as we did pull a piece out of this as a non-GAAP adjustment. The pieces that you are typically used to hearing about one, we adjust for output and pricing that was a little bit favorable this year. The offset to that is there is a contract in which there is price escalation on an annual basis that was unfavorable. The net-net of those two pieces is approximately $2.6 million of unfavorable impact, which offset the non-GAAP portion that we pulled out of $8.7 million, which was revision to an estimate based off clarification of contract terms and as we don’t expect that to recur, that’s reflected as a non-GAAP item. And as usual, there is a page in the exhibit that will give you more information on that and a clear breakout that I probably just covered verbally for you. But again, $6.1 million on a GAAP basis contribution to margin for the quarter, that I can see on is electric retail volumes and we did experience overall warmer spring weather, and certainly a piece of that is driven by customer growth of the overall 5.6. With that, or residential usage and impact was about flat and commercial was an improvement over prior year. As we think about second quarter of last year, certainly the lowest usage and most COVID impact that we saw comparatively, so certainly a rebound from that. And as we think about the ultimate trends there and the trends on a used per customer basis, we continue to see what would be higher residential loads than normal, but not quite as high as they were in Q2 of 2020. We also continue to see lower commercial and industrial usage, but again, those are better than last year. So, a bit of a move in the trend, but the trend continues to be there of a bit of a shift in use per customer. And I will speak to that a little bit more as we get into guidance for the rest of the year later.
Bob Rowe: Thank you. I will point out that the year is the only number you have got wrong since you have been the CFO. So, Crystal and Travis and all finance department continue to do just great, great work. Touching lightly on some of the regulatory matters, we don’t expect to file a general rate case in any of our three jurisdictions this year, which is still 2021, but we have made several other important regulatory filings in our Montana jurisdiction. In April, we filed a request to delay implementing our fixed cost recovery mechanism pilot, that’s the Montana version of decoupling for another year until at least July of 2022 due to the continued uncertainties created by COVID. And on June 29, the Montana Commission did grant that delay. We have not seen a written order. We are of course eager to see that. We appreciate the workload of the Commission. So that was very much a positive. Also in April, we filed a request to prove an increase to the forward costs used in developing rates for the recovery of our electric power costs in Montana through the power cost and credit adjustment mechanism, our friend, PCCAM that would be approximately $17 million. And this is really intended to better align the base costs in the PCCAM with the costs that our supply team is facing in the market and incurred on behalf of our customers. On June 29, the Commission did approve implementing interim rates reflecting the $17 million increase that because the interim is of course subject to refund. There again a written order is pending. In May, we filed a request to approve acquiring electric capacity resources that are critically important to address our customers’ exposure at peak to the regional power market. This was based on the 2020 RFP that we’ve been discussing with you for quite some time. Brian will come back and discuss that in much more detail.
Brian Bird: Thanks Bob. As Bob mentioned, on the capital slide, we had a tremendous amount of investment in all areas of the operation and extremely busy in terms of this higher level of capital spend and we anticipate with Laurel coming online ultimately enabled to make that investment to continue these high levels of capital investment. On Slide 14, speaking to the generation portfolio in Montana, remember back in May, we made our filing associated with to acquire electric capacity through resources identified in our January 2020 RFP. And from that, two of those entranced, if you will, the Laurel generation station and the esVolta energy storage contract we included in that filing, Laurel being the 175 megawatt RICE units, located in Laurel, Montana, which we intend to invest $250 million and is expected to be in commercial operation in late 2023, early 2024. And then the 50 megawatt battery facility from esVolta to be located near Billings, and entering that through a 20-year agreement to fill the 5-hour duration tier identified in the RFP. Not included in that filing, but should be included in our PCCAM is the Powerex transaction, a 5-year power purchase agreement for 100 megawatts of capacity and energy projects, originating predominantly from hydro resources. Earlier this week, the MPSC concluded that the application met the minimum filing requirements and that starts the shot clock for 270 days, receipt of inadequate application. So we hope certainly near the end of this year we will have an outcome and hopefully if we can get going on the project at that point in time. Moving over to South Dakota, our project and here on the Bob Glanzer Generating Station is going along extremely well and we expect to have it online by the end of this year. In addition, we plan to move forward with Aberdeen and as Bob mentioned, the South Dakota Capital is included in our capital plans, but we expect to have the Aberdeen unit also online by the end of 2023, much like the Laurel Generating Station. Moving on to Slide 15, we really took the first half of this year to go after those things from an ESG perspective that we haven’t had appropriately disclosed. And we worked extremely hard to tie that to the release of a brand new webpage that we expect to have coming online within days. And once that happens, it will be much, much easier for investors and those folks from an ESG, who raid us to actually find information, updated information, the total company effort to capture this information and record it. And as a result, we are going to be able to provide new reporting, new reporting from an SAS B perspective, from a TCFD, we will an AGA ESG Methane Reporting Template, all of those are being new, will have updated our EEI ESG Carbon Reporting Template. And we are just going to have a plethora of sustainability statistics updated and expanded. And we are really excited really for two reasons. The webpage is going to look great. And you are going to see a very, very large focus on ESG. And from our perspective, it’s going to be very easy for the folks that raid us from an ESG perspective to capture that information and from our perspective, better depict our scores on a going forward basis. And with that, I will pass it back to Bob.
Bob Rowe: Great. Thank you, Crystal. Thank you, Brian. We are ready for questions.
A - Travis Meyer: Thanks Bob.
Bob Rowe: Be sure to press the icon that has all the fingers pointing up.
Travis Meyer: Thank you for the reminder, Bob. Okay, we will take our first question from Ryan Greenwald of BofA Securities. Ryan, your line should be open. Please proceed.
Ryan Greenwald: Good afternoon, everyone.
Bob Rowe: Hey, Ryan.
Ryan Greenwald: Thank you for taking my questions. So maybe first, how should we think about the puts and takes through the rest of the year here relative to the prior walk that you guys had previously included in the slide deck? You have this additional equity, but can you talk a bit about any other moving pieces here and what factors might be keeping the midpoint unchanged?
Bob Rowe: Crystal?
Crystal Lail: Sure. Ryan, I think a couple of things. One, the first half of the year is in line with our expectations for where we expect to be performing. The other thing we updated a bit is we do expect a bit of headwinds in the back part of the year with continued load trends, as I alluded to, from a customer usage perspective of seeing lower commercial and industrial usage, while admittedly better than the prior year, still not back to what we would call normal, but in part by improved residential usage, but again, not quite as good as it was last year. So, that’s certainly a piece of it. The other headwinds I alluded to is on the operating side. And I think we have provided that walk as to where we expect operating expenses to be from a full year basis. And again, 2020 wasn’t normal, 2021 we are moving back toward what I think is a more sustainable level of ONG. And I certainly expect an increase in the back half of the year there. While we don’t give quarterly guidance, they are certainly not as what I would call it even spread across quarters there.
Ryan Greenwald: Got it. And then was the transmission deferral expect anticipated?
Crystal Lail: Yes.
Ryan Greenwald: And then maybe just lastly on equity, how should we think about this in terms of ongoing from here outside of the additional generation into ‘22, does this kind of limit the equity needs in ‘22?
Crystal Lail: I would say two things, obviously, we are investing a lot of CapEx in the business and we have a good problem to have there in the sense the amount of growth in front of us. The other thing I would say, just as you think about ‘22, we have updated where we expect to be from a ‘21 basis as we get closer to ‘22. Obviously, we will update you on our plans there, but certainly, always expect to be mindful of our credit ratings along with the growth in front of us.
Ryan Greenwald: Got it. And maybe just one more if I may. In terms of financing the generation, any initial thoughts in terms of an ATM or equity block or how you are ultimately thinking about that?
Crystal Lail: Okay. You are ahead of us on technical execution there. I think your comment has been will be roughly 50:50. And as we get closer to that, obviously proceeding with the approval docket, we will have more to come on that.
Ryan Greenwald: Fair enough. Appreciate the time.
Travis Meyer: Thanks, Ryan. We will take our next call from the line of Jonathan Reeder at Wells Fargo. Jonathan, your line is open.
Jonathan Reeder: Hey, good afternoon. Can you guys hear me okay?
Travis Meyer: Yes. We sure can.
Jonathan Reeder: Great. So maybe just piggybacking off of Brian a little bit regarding the decision to now issue all $200 million in ‘21, was this decision at all influenced by some of the positive drivers, in particular, the transmission strength, not the deferral portion, but just the strength in general partly driven by the hot weather out West and maybe the thought that you could opportunistically strengthen your credit metrics a little more now without adversely impacting your ability to hit guidance?
Crystal Lail: I guess, so Jonathan, I would answer your question in a couple of parts. One, the sense of the additional equity, as we had talked about coming out of Q1, we are on a negative outlook from Moody’s perspective. So we are mindful of where we are going for a credit rating perspective. The other key factor certainly is the amount of CapEx and investment in the system at this point. So, those are the bigger pieces of it. And then obviously from a guidance perspective, I think we have talked to a bit of what we had from – our performance through the first half of the year is in line with our expectations.
Jonathan Reeder: Okay. And then regarding that PCCAM base request, do you have what your final base that you are going to be supporting. I know the interim was based on like $156 million, but the plan was to kind of update a final request off of forward power prices as of the end of June I think. Do you know what that updated number is, just trying to get a sense?
Crystal Lail: Yes. I think the final number is $165 million.
Jonathan Reeder: $165 million. Okay, great. Thanks so much for taking my questions. Appreciate it.
Travis Meyer: Thanks, Jonathan. We will take our next call from the line of Brian Russo at Sidoti. Brian, your line should be open.
Brian Russo: Yes. Hi, good afternoon.
Bob Rowe: Hi, Brian.
Brian Russo: Hey, so just could you elaborate on the dynamics of the transmission margins outside of the interim rate? You mentioned hot and dry weather in the south and west of you, I would imagine that’s continued into July? Does your guidance capture the transmission revenue potential upside above normal in July?
Crystal Lail: I guess a couple of things I would say about that is obviously the conditions related that drive that there is long-term firm transmission, there is the short-term market. And that short-term market is more of what’s driven and day-to-day that can be different. So certainly, we had – we have moved into a formula rate environment. So, we have captured that in our expectation for the remainder of the year. But the thing I would just highlight at a high level perspective is we have continued to highlight where we have margin headwinds, there maybe puts and takes in there. But from a guidance perspective and being narrowing in that range, we expect that I get the performance through the first half of the year and we are expecting to be the back half of the year, obviously, transmission is good news, if that continues.
Brian Russo: Great. So I mean, in essence, third-parties are utilizing your transmission to wheel power to the west where demand is needed?
Crystal Lail: Yes.
Brian Russo: Okay.
Crystal Lail: That’s all.
Brian Russo: And then Brian, you mentioned earlier that you are hopeful to have a Montana pre-approval decision by the end of the year. But I think the clock is 270 days plus another 90, which would be a total of 1 year. And I am just curious why the expectations for the end of the year and why don’t you think the commission would take the full amount of time?
Brian Bird: Well, in fairness, you are absolutely right. If you did the math, I am focused on 270. The extra 90 days, of course, puts us a full year and I was eternal optimist, Brian. There is always an opportunity, they could be done by the end of the year. But you’re right, if you actually do the shot clock in 270, you’re going be around the end of the first quarter.
Brian Russo: Got it. And then on the second RFP that you alluded to, in the press release during 2022, I would imagine you want to wait for this pre-approval process to be over. But in terms of the size or components of the next RFP, would it be similar to the one that was just concluded?
Brian Bird: I think the best thing to say at this point in time, like you said, you are absolutely right, let’s get Laurel approved and move forward and I think we’ll assess at that point in time, our needs, and we will size accordingly.
Brian Russo: Okay, great. And then just lastly, on the balance sheet, you have the 50% to 55% debt to cap and even with the equity issuance and the solid first half of 2021. The debt to cap is still at 53% or so, I mean, are you targeting just the midpoint through the end of the year and going forward or you are targeting the lower end or the higher end?
Crystal Lail: I think I will stick to my 50% to 55% range in that regard, Brian, but also just say that obviously we are focused on the FFO metrics that we would need to be out from a credit ratings perspective.
Brian Russo: Okay, got it. Thank you.
Travis Meyer: Okay. We will take our next call from the line of Andrew Levi at HITE Hedge Capital. Andy, your line is open.
Andrew Levi: Can you hear me?
Travis Meyer: Sure, can. Can you hear us? Andy?
Andrew Levi: Can you hear me now?
Travis Meyer: Yes, we can, Andy.
Andrew Levi: Yes, yes. Okay, so hello, everybody.
Crystal Lail: Hi, Andy.
Andrew Levi: presentation. Couple of questions. So, the first one is just on load specifically commercial and my guess to a lesser degree industrial, but again, we’ve only had a couple of samples this quarter from the company’s reported results on the earlier side. So we have seen quite a recovery in commercial loads in other parts of the country. So, could you kind of just talk about that? And why, again, I understand that you said they have recovered, but it seems going slower than others, because some are at like pre-pandemic levels. And how much incremental low would it take together get to like pre-pandemic levels on the commercial and industrial side?
Crystal Lail: Yes. I think the thing I would just highlight there, Andy, is a couple of things. One, we did see improvement in commercial loads, certainly as you look at compared to the prior period, but not back to what we would term normal. So, I think if you look at the detail we have in either the appendix of the investor deck or in our materials, you would see that we are continuing to trend under what would be if you think back to 2019 levels, what would be a more normal amount of commercial loads there. So, certainly some improvement and I guess I will give a little – I start to say, I won’t give commentary, but I don’t think it’s obviously the prior year was shutdown related. This year, I think if I had to weigh in, it’s more workforce issue related and other factors in the economy, so different drivers. But again, we are seeing some improvement there, but not back to what we would call normal. On the residential side, so again, you haven’t heard from probably many utilities, but we continue to see strong residential usage, but not as strong as prior year. So, the thing that I think is indicative of that is that you kind of see flat residential revenues, even though we had a warmer quarter in certain ways. So, I would think about it that way. And we are continuing to monitor, as I mentioned, from a guidance perspective, with the back half of the year, there is still quite a bit of uncertainty there as to where those trends move out.
Bob Rowe: So, just the color I would add to that is just the three economies we serve are among the very strongest in the country. And just as Crystal said, we don’t know everything that’s going on, but very clearly, one of the challenges is a severe workforce constraint. And I know that’s occurring in other parts of the country too. We have a number of communities we serve where the employment rate is actually slightly – unemployment rate rather is actually slightly negative. So, that is a constraint on businesses getting back to full operation.
Crystal Lail: But we certainly saw improved commercial usage, right. And so it’s – well, it’s not back to what we would call normal, it’s considerably better than it was last year.
Andrew Levi: So, if you kind of had to net it all out longer term. So if you got back to a more commercial, like some investors have said too, more like pre-pandemic load. And residential properties can always be a little bit stronger than what it was pre-pandemic. Did that mean kind of like a neutral earnings outlook just relative to that, would there be looking at the base now upside, but you got to add back to a more normal situation?
Crystal Lail: I guess I would answer it this way as we will see where and I hate the term the new normal, but we will see where the new normal is. But ultimately, the other thing I would remind you of is we have solid customer growth in our service territory. And just from a customer account perspective are seeing good indicators there, solid economies. So all those things are certainly something I would look to as favorable indicators.
Andrew Levi: Okay. So then kind of transitioning through like the customer growth and also what you mentioned on your press release, I guess, you are saying by – I forget it, I think it’s 2025 maybe it’s little bit longer, the 700 plus megawatts that’s needed incremental capacity. And I am assuming the $250 million of CapEx that project that’s addressing some of those 700, right if I am not mistaken. But on top of that, that leaves 500 plus of megawatts needed, what type of customer growth are you seeing in that and I guess is there an upside to about 700 megawatt shortage? At the same time, if you kind of had the perfect world, because you have got to kind of address what’s best for the customer, what’s best for your balance, what you can do? How many megawatts if you will be able to run over not the same that you want to do and how many megawatts do you think you could reasonably do yourself if we were to fulfill that?
Bob Rowe: Yes. Andy, I will take that. I think I’m just going go back to what I said earlier from – on a longer term basis we are continuing to address our capacity needs. And there is still a lot of moving parts that we see in Montana and around us from a resource perspective. And so we will give more clarity around that in our upcoming our RFP and then ultimately in our RFP that follows.
Andrew Levi: Okay, that’s fair. And when will that RFP – I am sorry, I missed, when will that be signed?
Bob Rowe: Yes. RFP is in sometime in 2022, as Brian mentioned earlier, expectation that you would basically had an outcome on Laurel, that’s probably at the earliest then with the mid-2022.
Andrew Levi: Right. Okay, got it. And then my last question is just around the equity, ATM verse – I mean, you saw a lot of equity that you need to do. I mean, I guess a lot relative to how many shares you have outstanding, but as far as people like us putting up capital it’s really not a lot of capital, a lot of equity to dedicate to you guys. So, the ATM, you did about $56 million in the second quarter, I guess it could kind of be sad to say in the third and fourth quarter ultimately we don’t get that $200 million, but why not come to us and just kind of get it done. Even if it’s at the end of the year, there is kind of dribbling it out. And I have asked this question before, I am under the belief especially since there is – there are lot less hedge fund money around, there is plenty of long-only money around. But the volumes are much lower than they traditionally have been. So I think it affects your equity a little bit more during the ATM. So again, has anything changed in that thought pattern? And obviously, I’ve asked you this question before.
Bob Rowe: Crystal will give you the CFO answer. What I will say is it sounds like you are very enthusiastic about supporting NorthWestern Energy stock and we appreciate that very much.
Crystal Lail: With Bob caught there, I would say, the key piece here is we wanted to set your expectations, so the amount of equity as to the rest of the year with regard to the technical execution, we will worry about that as we close out the year.
Andrew Levi: Right. Okay, thanks for taking it up.
Bob Rowe: Thank you.
Crystal Lail: Thanks, Andy.
Andrew Levi: Have a good one. Goodbye.
Travis Meyer: Okay. We will take our next call from Matt Davis at Coann Capital. Matt, your line is open. Matt, if you are not unmuted, you’ll need to unmute your line.
Matt Davis: Hey, guys. Can you hear me?
Bob Rowe: Sure, we can.
Crystal Lail: We can.
Matt Davis: Okay, thanks. Sorry about that. Good afternoon. Just a quick question, maybe I am missing something. But I just wanted to go back to the load commentary before with the improvement that you are seeing in margin. When I look at Slide 21, it looks like the volumes, megawatt hours were actually down period on period for the electric segment. Can you just reconcile that if I am missing something and how that circles with your commentary on the $5.6 million of upside year-on-year?
Crystal Lail: Getting to that page, so give me just a second here. So, I think from a commentary perspective, you will see that residential is roughly flat, right. So, that’s a key piece of it there. The other piece that I would say is that commercial, you see certainly an improvement from the prior period. And then the offsetting headwind there is the industrial loads are off a little bit. And again, the key piece there between the megawatt hours and what you would see in our revenues is also a piece of what falls to the bottom line. And so the trend wise, I think we are highlighting the right pieces for you, but from a margin perspective, the ultimate impact there, there is certainly retail volume improvement between those.
Matt Davis: Okay, thank you.
Travis Meyer: Thanks, Matt. We will take our next question from the line that ends in 0231. The line should be open. Remember star 6 to unmute your line. That is line 02...
Sophie Karp: Hello.
Travis Meyer: Yes.
Sophie Karp: Can you guys hear me?
Travis Meyer: We can now. Yes.
Sophie Karp: Alright, this is Sophie Karp, KeyBanc. Thank you for taking my questions.
Bob Rowe: Hey, Sophie.
Sophie Karp: Hey. Just wondering on transmission, there is lot of conversations happening in the West, right now about transmission planning, especially as it relates to California load, but others as well. Is there – as you think about your IoT next year or even beyond that, is there a room for you to maybe add transmission into that thinking process? Thank you.
Bob Rowe: What I would say and I will hand it off to Brian is we are and have always been very deeply involved in all of the Western discussions around transmission. Most of those are relatively informal, because this is not an organized market. Many of the most structured discussions around transmission come in the context of regional resource adequacy work being led by the Northwest power pool. And as we look at how we are going to meet our Montana retail customers’ needs, we are very aware of the constraints on our transmission system in terms of being able to import power, which is why it’s one of the reasons it’s so important to have generation in our balancing authority. More generally, we have hadn’t been pretty active transmission investment program now for the last, certainly for the last decade, within our service territory, that’s transmission to serve our customers. Beyond that, as transmission projects, rise or fall in the West, that is certainly something that we want to stay close to and consistently have. Brian?
Brian Bird: Yes. Bob, I think you said spot on, I would add is we are very concerned about both electric and gas transmission constraints. And obviously, there is an opportunity for us to invest in increasing transmission on gas or electric. We are more than happy to do that, to actually access ourselves to markets outside of Montana. And we would gladly do that. In the meantime, we are also going to be focusing on what we can do within Montana, from both electric and gas perspective to make sure we have supply and able to meet our needs within Montana. And I think that’s an opportunity now to protect our customers to deliver to them on a daily basis every day, particularly during peaks, but also for us a great opportunity for investment as well.
Sophie Karp: Thank you.
Travis Meyer: Thanks Sophie. And it looks like Jonathan Reeder from Wells Fargo has a follow-up question. Jonathan, your line should be open again.
Jonathan Reeder: Hey, I just figured I would ask the obligatory inflation question what you guys are seeing, on that front, any pressures and your ability to combat them?
Crystal Lail: I will take my first crack at it. And then I know Brian will have something to add and maybe Bob too. But I think for him a couple of regards. One as you think about our CapEx plan here, in 2021, I think I am in – a lot of those costs are already baked in where I would expect you would consider inflation is more in the out years of ‘22, ‘23. If the trends continue, whether they are short-term trend or a long-term trend, time will tell. But if so then certainly your cost per to do the same work, we would certainly expect that to ultimately impact us and customer build.
Brian Bird: And all I would add is that inflation is certainly a concern going forward. Obviously, we have to increase operating costs, potentially, and obviously capital investment, and also tell you that we are running into supply – some supply chain issues. We have done a really nice job of managing that thus far. We are having great success to share. And we wanted to actually expand our implementation of AMI in Montana, it was going so well. But due to supply chain concerns there, we are going to have to kind of keep to our original schedule. So otherwise, things are going pretty well. But we are keeping our eyes out for concerns around inflation concerns around supply chain.
Jonathan Reeder: Got it. And then the other one just kind of wildfire activity, I know there has been some in Montana. Anything that we should be aware of that’s kind of impacting all our concern, and maybe just remind us how, I guess any incremental costs associated with either wildfire mitigation or I guess, binding them or whatever that recovery process works?
Bob Rowe: What I would say is we have been very active planning for wildfires and other events for a number of years. We participate in a lot of good regional analysis, but have developed our own strategy in terms, it includes everything from hazard, tree clearance, those are danger trees outside the right of way down to really sophisticated analytical program to identify the line segments that need particular investment because of the nature of the program. That’s a capital item, not an expense item. We could talk to you about it for two hours that we did. Just a couple of weeks ago, have a great two hour meeting with the Montana Commission, giving them a good presentation of what our fire team within asset management is doing. We also spent good time at the Board of Directors this meeting talking about the program. The Montana Commission did give us support specifically for hazard trees in the last general rate case. And I think we are seeing the benefits of all that work during this very dry year. There is always more that we can do just in maintenance of the system. But the foresight of our distribution and transmission folks is really paying off well.
Brian Bird: Yes. I would just add. I mean, Bob mentioned earlier today that we had a peak load as of yesterday, and obviously there are fires in Montana, you are reading about in the paper. They impact our system, we manage around and we continue to provide that service with very little interruption to our customers. And it just speaks to the quality of our operations at this company. I think the other thing I would say is we get reminded – I get reminded at least by the T&D folks, this company, we have been dealing with forest fires over 100 years we have been in operation.
Jonathan Reeder: Great. Thanks.
Travis Meyer: Thanks, Jonathan. With that it looks like your queue is exhausted. Before I hand it back to Bob though, I would invite everybody over to the pool party at Andy’s house. So, I like the phone over there. Bob?
Bob Rowe: You left me speechless and it’s really hard to do, but it’s a great visual image. I wish we were all at Andy’s pool. So, enjoy the rest of your summer. I very much look forward to seeing you in person over the rest of the year. Take care, everybody.
Travis Meyer: Thank you.
