Q3 2019 Earnings Call
This call is being recorded free broadcast and all participants are in listen only mode. At this time.
Before the conference call begins I remind you that all statements in the presentation other than historical facts are forward looking statements that involve risks and uncertainties that are subject to change at any time such statements are based on management's expectations at the time. They are made in addition to the assumptions and other factors referred to in connection with the statements.
Factors described in WPC Energy group latest Form 10-K , and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated.
During the discussions referenced earnings per share will be based on diluted earnings per share unless otherwise noted.
After the presentation. The conference will be opened two analysts for questions and answers in conjunction with this calls a package of detailed financial information is posted double you see energy group Dot Com a replay will be available approximately two hours. After the conclusion of this call.
And now it's my pleasure to introduce Gil class <unk> Executive Chairman of W. E C Energy group.
Good afternoon, everyone. Thank you for joining US today, We review our third quarter 2019 result, first as always I'd like to introduce the members of our management team who are here with me today, we have cousins, what's your president and CEO , Scott Walker, our Chief Financial Officer build Doug Controller, I get Kelcy Executive Vice President and General Counsel.
Okay, and Beth Straka, Senior Vice President of corporate Communications and Investor Relations I'm also pleased to introduce Tony research nuclear or new our Treasurer 20 joined our finance group back in 2006, the most recently.
That's the controller for Illinois utilities welcome Tony Thanks, Kim.
Now as you saw from our news release. This morning, we reported third quarter earnings of 74 cents a share during the quarter. We continued our focus on financial discipline and operating efficiency that focus which is embedded deeply in our culture helped us deliver solid results. Despite severe July storms that caused extensive damage tourists.
System.
Rebuild repair and recovery from nine tornadoes and 120 mile an hour straight line, which resulted in a drag of three cents a share for the quarter.
Also during the summer quarter temperatures were slightly above normal, but milder than the third quarter last year.
So when you shake it up and put it all together, we're pleased with the consistency of the Companys financial and operating performance.
Scott will provide you with more details on the quarter and just a few minutes, but first let's take a quick look of the economic conditions here in Wisconsin.
Unemployment remains at or near record lows in the state.
We continue to see positive news on the economic development front as well.
For example, Foxconn announced plans to begin construction.
High performance computing sooner or later this year as it builds out phase one of its advanced manufacturing campus sell for Milwaukee.
We're also continues on Fox Coms Gen. Six fabrication plateau cruise began installing the roof on the nearly 1 million square foot facility last month.
As you might know this will be the first LCD display plant to be built in North America.
So another positive announcement, just a few days ago Molson Coors, the beverage company confirmed but it will base its major support functions, including finance I'd see legal and human resources here in Milwaukee.
I can hear more about the economic growth in our region. When you join us at the conference next week.
And more growth is on the horizon for our company as well in the earnings packet. We released this morning, you will find a snapshot of our capital plan for the five year period 2020 through 2024.
Expect to invest $15 billion in infrastructure projects. During the next five years. This represents an increase of $900 million or 6.3% over our current five year plan.
I folks we've identified three key areas for increased investment.
First we plan to expand our regulated natural gas infrastructure to meet growing customer demand in particular, Wisconsin needs more natural gas, peaking capacity at the highest demand times on the coldest days.
This became especially clear during the polar vortex about back in January windshields dropped to near 50 degrees below zero.
To address the demand we plan to develop to liquefied natural gas facilities get our surface area. That's like just last week or we energy subsidiary filed an application with the Wisconsin Public Service Commission for approval to build the LNG facility.
We believe these projects are the most cost effective way to serve our customers natural gas needs during the winter peak.
Building LNG plants will differ costly and lengthy projects to expand pipeline capacity into the state.
We're also increasing or five you're spending target for our electric distribution network across Wisconsin.
As you know we've consistently been named the most reliable utility in the Midwest, but to maintain the high levels of service that our customers deserve and expect.
We need to replace aging polls aging transformers, and modernize hundreds of miles of overhead and underground lives.
And finally, we plan to deploy additional capital in our energy infrastructure business outside of our traditional footprint.
We see excellent opportunities to leverage our tax position and continue to optimize our earnings growth.
We expect this segment of our business to grow to approximately 6% of our total asset base by the end of the five year period.
Overall, our new capital plan should grow our asset base by 7% annually over the five year period, and I would emphasize this with no need to issue additional equity.
And the investment plan continues to support our long term earnings growth rate of 5% to 7%.
This projection comes off a new base of $3.50 a share.
That's the midpoint of our original 2019 guidance, we look forward to sharing more details with you at the upcoming conference.
And now I'll turn it over to Kevin for an update on our regulatory calendar in more details on our operations, Kevin All yours I could Gil I'd like to start by reviewing where we stand in Wisconsin.
First an update on the rate review process as you recall in March of this year, we found a proposal, but the public service Commission of Wisconsin set customer rates for we introduced and Wisconsin public service.
This August we entered to enter into settlement agreements with the citizens utility Board at Wisconsin, Wisconsin, Industrial Energy group and clean Wisconsin.
He has concluded in October and I'm pleased to say that we received a unanimous decision from the commission approving a settlement agreements just last week.
Great design will be determined by the commission in mid November and we expect the written order in December with new rates effective January the first.
Now turning to our solar projects you may recall that in Wisconsin, We have a total of 300 megawatts of utility scale solar capacity plans.
We've broken ground on two solar projects for Wisconsin Public service.
Great and Badger Hollow one as a reminder, these projects will be the first utility scale solar facilities in Wisconsin.
Our share will totaled 200 megawatts with an investment of approximately $260 million.
We expect both projects to begin producing energy by the end of next year.
We also have plans for more renewable generation at we energies.
This past August we filed with the public service Commission for approval to acquire 100 megawatts of capacity at the Badger Hollow tube Solar Park.
The projected investment would be $130 million and with respect to receive the commission decision in spring of 2020.
Meanwhile, on the natural gas side of our business, we're taking steps to maintain reliable and affordable service for our customers.
As Gale mentioned, we Energy's just filed an application to construct to liquefied natural gas facilities here in Wisconsin.
We expect to invest approximately $370 million and these projects.
We're now evaluating site plans than subject to approval, we would begin construction in the summer of 2021.
Turning to Illinois, our peoples gas subsidiary continues to modernize Chicago's natural gas system.
This program is critical to the long term safety and reliability in Americas third largest city.
As we replaced the city's aging aren't pipes and facilities. We're following rigorous protocols to keep our employees and the public safe.
The program will be approximately 28% complete by year end and has created more than 2000 jobs. So far.
And with that I'll turn it back to Gil Kevin. Thank you folks considering our strong performance. So far this year, we're tightening our 2019 full year guidance to a range of $3.51 a share to $3.53 a share with an expectation of hitting the top of the range.
This translates to a growth rate between seven and 7.6% off the midpoint of our original 2018 guidance.
Now for a quick reminder, about our dividend as usual our board will assess our dividend plans for next year or scheduled meeting in early December we continue to target a payout ratio of 65% to 70% of earnings were below that range now. So I expect our dividend growth will continue to be in line with the growth in our earnings per share.
I would details on our third quarter results and our outlook for the future is our CFO Scott Lauber Scott. Thank you Gale.
Our third quarter earnings of 74 cents per share were level with last year's results.
We benefited from additional capital investment production tax credits and it continued emphasis on cost control. However, as Gill mentioned in July severe weather significantly impacted portions or electric system.
We estimate that the storm restoration expenses resulted in a three cents hit in the quarter.
In addition, comparatively mild temperatures accounted for a two cents drag on the quarter and we did not book any sharing at our Wisconsin companies in 2019.
We posted the earnings package to our website. This morning, and it includes a comparison of third quarter and year to date results I plan to focus on the quarter beginning with operating income and then other income interest expense and income tax.
Referring to page nine of the earnings back it reported $310.9 billion and consolidated operating income for the quarter. This compares to $302.7 million in 2018, reflecting an increase of $8.2 million.
Adjusting for the impact of tax repairs and or adoption of the new lease accounting rules operating income was flat quarter over quarter.
Recall that as part of our previous rate settlement, Wisconsin, We agreed to apply the benefits of tax repairs to offset the growth of certain regulatory asset.
That plant continues through year end and our expectation remains that the transmission escrow balances that we energies will be reduced the zero by the end of this year.
My update we'll focus on changes in operating income by segment, excluding the impact of tax repairs and that's been the new lease accounting rules.
Starting with those constant segment operating income decreased $5.6 million net of these adjustments lower sales by due in part to less favorable weather resulted in a $22.4 million decrease in operating income.
Depreciation expense increased by $9.7 million.
These items were substantially offset by 23.5 million dollar reduction in operating and maintenance expense.
This was largely driven by a couple of items recall that the July storm resulted in a $12 million drag on the quarter.
However, we recognize about a $20 million cost reduction driven impart by our recent plant closings. In addition last year, we accrued $15 million in the third quarter from the earnings sharing mechanism, we havent place and our Wisconsin utilities.
No sharing with recorded this quarter.
In Illinois operating income increased by $9.3 million as result of our continued investment in the safety and reliability of the people gas peoples gas system.
Operating income at our other states segment increased $3.2 million driven by higher volumes related to customer growth and capital investment in gas utility infrastructure.
Turning now to our energy infrastructure segment.
Operating income at this segment was down $1.3 million.
As expected the Bisha pill and upstream wind farms did not have been material impact an operating income. However, recall that a portion of earnings from these facilities come in the form of production tax credits, which I recognized as an offset to income tax expense.
These production tax credits added approximately two cents per share to our earnings for the quarter.
The operating loss at our corporate and other segment increased by $5.6 million. The variance reflects the $5.3 million gain that we recorded in our third quarter of 2018 related to the sale of a legacy business.
[noise], combining these variances and excluding the impact of tax repairs and the new lease rules consolidated operating income was unchanged.
Earnings from our investment in American transmission company totaled $38.7 million, an increase of $5 million as compared to the third quarter of 2018.
The increase was driven by Eightys continued capital investment.
Other income net decreased by 4.3 million as a result of lower investment gains associated with our benefit plans note that these investment gains partially offset the benefit expenses included in our operating segments.
Our net interest expense increased by $13 million, primarily due to higher long term debt balances to fund capital investment. This excludes the impact of the new lease accounting guidance.
Our consolidated income tax expense net of tax repairs decreased by 13.1 million.
Dollars.
Drivers include production tax credits related to our infrastructure when investments and the 2018 tax reform item.
We expect our effective income tax rate to be between 10, and a half an 11%. This year, excluding the benefit of tax repairs. We expect our 2019 effective tax rate would be between 20 and 21%.
At this time, we expect to be partial taxpayer in 2020.
Our projections show that we should be able to continue to efficiently utilize our tax position with our updated capital plan.
Looking now at the cash flow statement on page six of the earnings back at net cash provided by operating activities decreased $167.5 million.
The decrease was largely driven by higher working capital balances.
Total capital expenditures and asset acquisitions were $1.8 billion for the first nine months in 2019.
68.6 million dollar increase from the same period in 2018.
This reflects our continued investment focus on a regulated utility and energy infrastructure businesses.
Our adjusted debt to capital ratio was 53.8% at the end of the third quarter compared to 53.4% at the end of 2018.
Our calculation continues to treat half of the WPC Energy group 2007 subordinate notes as common equity.
We are using cash to satisfy any shares required for our core one k. plans options and other programs going forward, we do not expect to issue any additional shares.
We paid $558.4 million in common dividends during the first nine months for 2019, an increase of $35.4 million over the same period in 2018.
This reflects the 6.8% increase the dividend level that was effective in the first quarter. This year.
Turning now to sales, we continue to see customer growth across our system at the end of the third quarter 2019, our utilities for serving approximately 10000 more electric and 21000 more natural gas customers compared to a year ago.
Retail electric and natural gas sales volumes are shown on page 13, and 14 of the earnings backup.
Overall retail deliveries electricity, excluding the air and ore mine were down 3.2% compared to the first nine months of 2018 and on a weather normal basis deliveries were down 1.8%.
Natural gas deliveries in Wisconsin increased 2.7% versus the first nine months of 2018.
Natural gas and deliveries in Wisconsin grew by 1.3% on a weather normalized basis and this excludes use for power generation.
Finally, it quickly binder and earnings guidance as Gill mentioned, we're tightening our full year earnings guidance to $3.51 to $3.53 per share with an expectation of reaching the top of the range. This assumes normal weather for the remainder of the year and with that in turn things back to Gail great. Scott. Thank you very much.
Overall, we're on track and focused on delivering value for our customers and our stockholders operator, we're ready now for some jive talking better known as the question and answer portion of our call.
Thank you know we will take your question the question and answer session will be conducted electronically.
Asked a question. Please press the star Keith followed by the digit one on your phone. If you are using a speaker phone turn off your mute function to allow your signal to reach our equipment, we will take as many questions as time permits once again press Star then one on your phone to ask a question.
Your first question comes from Greg Gordon with Evercore ISI. Your line is open.
Hey, Greg Hello, Gail your Bucks look like they're up one okay start you think they're going to be able to take the next this year.
The next well that's a good question.
Well, we can take the over on that in Vegas.
I will talk about ready I have to actual real questions now the first is.
Your your weather normal sales growth is down it's not a terrible number but it is you know a couple hundred basis points off what you are assuming your longer term.
Economic normal economic growth forecast is going to be can you can you.
Chalk that up to the near term uncertainty with regard to the trade issues or are there. Other factors that are also weighing on sales.
Yes. Good question, Greg I think the biggest factor is clearly the decline that we saw in industrial energy consumption.
I may have mentioned that to you are on a previous call that about 20% to 25% of all the industrial production that takes place among the various industries across Wisconsin is designed for export.
So if you look at economic conditions in Europe , the trade tensions with China.
Thank you see those as the reasons why were down in terms of industrial sales, having look, though scotton, Kevin and I just looked at the latest data.
Thinking that you might ask this question actually.
And well were down in the last quarter or the last few weeks.
Roughly four and a half the 5% compared to a year ago.
The various industry seem to have stabilized at that level.
So we're not seeing any further deterioration as we enter Q4, but I really think what's going on is an industrial pause associated with the trade war tensions and with the soft economy in Europe , I would remind everybody though.
That our margins from industrial energy use, particularly those customers that are on real time pricing our margins are very slim so.
Slight downturn or even a four and a half or 5% downturn in industrial demand does not translate into a major earnings yet at this stage of the game.
Okay. Thanks, My second question is on the capital plan.
Up from 14.1 to 15 billion.
And the energy infrastructure component is also up but it's up a little bit more on a percentage basis than the overall increase I think your.
Your infrastructure spend as a percentage of the 14 billion was around 10% your infrastructure spend as a portion of the 15 billion is closer to 12% not a big increase but where are you seeing those opportunities and do you still think that the risk profile at that level of capital spending.
Is commensurate with what you're doing in the quarter utilities.
Well first of all Greg I thought you're going to let charest all the multiple questions.
[laughter] got me you got me [laughter], sorry, I'll be back to back here in a moment I'm sure.
Yes, we saw you're seeing them in the new five year plan a slight uptick.
In the percentage of capital spend going to our energy infrastructure business outside of our footprint two reasons driving that one.
Again, we're looking.
In seating.
A significant number of really good projects that fit our risk profile and when I say fit our rose risk profile meeting high quality projects with a high quality long term offtake agreements.
With credit worthy customers number one number two.
This level as we continue to refine our our projections this level of spending not only meets the kind of opportunities. We think we have the don't change our risk profile, but also maximizes our tax position. So we think that we think this is a really good deployment of our capital.
Thank you Gale.
Welcome Greg Thank you.
Your next question comes from sharper as that with Guggenheim Partners. Your line is open.
Hey, sorry, guys.
Hey doing were good how are you.
No not too bad Briggs questions are like Rodney Dangerfield, one question 27 parts [laughter] and he can't get back.
It's back to school I'd just like to.
Question is here.
And on first on the utility side.
We did we did see one of your Wisconsin peers propose a one gigawatt.
Solar proposal by 23, I'm kind of curious like your you guys are doing Badger hollow, you're doing two creeks, how do we sort of think about sort of incremental opportunities here, especially since your generation Capex looks like it modestly decreased in your plan and the Governor is obviously kind of for this kind of curious on how you're thinking about that.
I'll give you my take on it will also as Kevin to give you. His his view this as well.
First of all.
As you know our generation planning really tracks, what we think our capacity needs really are so at the moment. We've got 200 megawatts of solar already approved then for our we energy subsidiary. We just went in for another 100 megawatts approval. It what we call Badger hollow too which would be immediately adjacent.
Obviously, the Badger hollow one.
So absent retirements of additional.
Other generating capacity that type of solar investment fits our capacity need which is really Kevin a peaking need right now.
Having said that the governor has formed a task force.
Related to trying to figure out what is the most cost effective way to get to net zero carbon generation by 2050 I'm pleased that Governor is asked our company to be a member of that task force.
And and we'll see where we go in terms of whether there's any acceleration coming out of the task force Kevin any of the phone well scale of just add as you mentioned the Governor has announced his plan enough had an opportunity and several of our move to talk to govern about his plan and I'll tell you. He saw comfortable with where we are with what we've laid out and you said we've retired.
Well since 2014 about 40 plus percent of our coal fired plants as you mentioned.
So to capacity meets our peaking needs for now, but we'll certainly take a look at what our peers are doing so as time moves on but I feel good about what we're at what we've announced so far.
Got that that's perfect and then just on your remaining coal assets.
The Ts, obviously, the CW sounded pretty cautious around kind of improving that a partial securitization a pleasant prior any sort of thoughts or guidance and how we should think about the balance of your fleet as we're looking at sort of the generation transition he was sort of the securitization a one off.
Or was it could we assume that sums could be a template as we move forward.
Well first of all Shara I guess, we read the.
The reaction of the commission and the discussion of the commissioners.
The securitization of $100 million of our remaining book balance of Pleasant Prairie, we read that will differently than what you may have read it.
Perfect.
My sense is from their conversation and from the feedback we've gotten from staff that they thought this was a very positive solution that work in this instance.
I think the the perhaps the one note of caution that you might have picked up on is that I think every one of the commissioners said publicly that this works and this was a good solution for this particular situation right retired but at that particular plant, but they would they were open to whether or not this is a template and they.
Werent, saying by by being positive about this approach this time, but it was necessarily a template.
But I think overall I mean, the settlement and the process. I think was was very well received by all of our stakeholders and in terms of going forward. We don't have any plans to retire any additional capacity in the next 12 months or during 2020, but obviously, we continue to look to.
Look at our portfolio look at the band look at economics.
And.
And see where we're at but right now for the next for the next year and a half or so we're going to be focused on getting that solar capacity in and operating well field enough just add to that as we look at the a decision is pushing forward on what the right generation mix as far as we as you mentioned in your your comments, we don't have to look part back into January .
We had our polar vortex, we'd has extremely cold weather.
And the balance of having a mixed portfolio of generation, including the coal assets was something that we needed to keep people lights on and keep the gas flowing. So in addition to the economics and from a technological standpoint, making decisions will balance out into our decision, making also as we move forward.
Kevin and Charles Thats, a great point.
In truth. The matter is if we haven't had the full array of capacity.
Solar wind.
Natural gas coal and nuclear if we hadn't had that full complement of capacity back at the end of January it would've been a life and death situation. So this nothing to fool around with but obviously, we'll continue to refine our plans will continue to look at what makes the most economic sense.
Got it thanks, so much for the reads Congrats and we'll see you actually.
Sounds good thank you Sir.
Your next question comes from Julien Dumoulin Smith with Bank of America. Your line is open.
Hey, guys. Good afternoon, Hello, Julian how you doing.
Good Howdy.
I'll keep it I'll keep it short here.
So first off we appreciate that we appreciate that Julien.
Brevity.
Bill.
Two quick points, if I can your peers regionally in the MISO footprint have generally been revising upwards, there sort of five year Capex outlook can you comment if theres anything specific in the HTC context, obviously, the MVP stuff.
Rolling off still so that there could be some discrete items there.
How do you think about that rolling into the longer term and then separately forget the second part in here now.
The infrastructure bucket I think I heard that you will largely are not a cash taxpayer through the forecast period and I presume that's tied to the infrastructure spend how do you think about your ability to continue scaling infrastructure through the forecast period, given what I presumed to be.
Largely tax producing assets that you're going to be investing in our tax credit for doing asset.
Alright, great great questions Jillian and if you don't mind I'll tackle your second question first on the tax position.
What we what we wanted to say and and should clarify for you is that.
Today, if we don't have any more infrastructure investment coming.
Then we would be a partial cash taxpayer in 2020, however, with the infrastructure plan that we've laid out in our new five your capital budget, we expect that will optimize our tax position.
And allow us to efficiently add additional.
The tax credit related capacity in that infrastructure segment, and maximize our tax position Scott of no that's exactly correct.
We will be a cash taxpayer in the future in the 1.8 just helps us.
We're going to utilize that efficiently if we can make those purchases so acquisition in essence. This what we put in the capital budget for the next five years essentially effectively takes advantage of our cash tax position.
And allows us to take full advantage of the production tax credits that would be available to us with the additional investments I hope that I hope that clarifies that 40 Julien.
Indeed, and this and the law and the former.
Yeah, but tell me again I was so focused on your tax question that about rollout first question bias again.
So with respect to the your peers in MISO on transmission.
Is there anything we should know about HTC use your friends at some of the adjacent utilities have seen positive revisions and meaningful positive revisions that that.
Yes, hey can be aware of.
Yes, Great question, let me just put it this way.
Scott and Kevin I don't like a lot of white space in our capital plan and so in essence, we have pulled out of our capital plan any potential HCC investments outside of our footprint. So what you see in what you'll see in more detail of the at our five year capital plan is really solid stuff that we know is going to have to be built.
HTC and our footprint, but we deliberately pulled out anything outside of the footprint, but.
Because essentially right now that would be white space and we just don't like a lot of white space, we like to be able to show you exactly what we're going to do and I think the potential exists as more and more renewables get under system that there may be more transmission projects that do come in the future, but we took out all the white space, but I was going to add discussion a little bit if I look at I have to study this from our peer.
Is that mass my suspicion is that a lot of that additional capital is for what Scott said for additional opportunities on the renewable side.
So indeed, if something if there is something there it will be upside for us.
Got it alright, well fair enough I'll leave it there thanks guys.
Thank you Julian.
Your next question comes from Michael Weinstein with Credit Suisse. Your line is open.
Yes, Michael how are you doing.
Hey listen to your.
Okay Bucks radio program and the other day and just wondering when you're going to.
Switching to me that new career path everybody knows you really get at.
Well I appreciate you say on that right now I still want to keep the day job though.
Hey, I'm just continue on the tax question.
Are you guys.
Do you have any insight at all as to whether you think the ptcs.
Might be extended.
Beyond the current program and then separately from that.
If the Ptcs are as things start to wind down do you do things that on the infrastructure bucket you might start focusing more on solar projects rather than wind.
At some point in the future.
Well my two things first of all the any probably picked this up there had been some rumblings.
On one or two of the house committees.
In Washington.
Got a potential extension of some of the tax credits associated with renewables if that were to happen. Our understanding is that it would occur in the tax extenders bill that would be likely to be voted on like less than 59 on new year's Eve. So if that happens great, but we're not counting on that.
With the plan, we've laid out and the additional investment we've put into the five year plan in our infrastructure business, we're assuming that the production tax credits roll down as they would roll down from the current law.
So that that's kind of answered the first part of your question I think the second part.
If they roll down if the current lost stays in place and the production tax credits become less valuable would that pushed us more to solar.
Probably not.
Although we continue to look at solar projects as well as win as well as other natural gas infrastructure that would fit our risk profile, but.
Everything we've seen so far it would indicate that the better.
The better projects for us still stay with the win.
Even even with.
Potential reduction in the value of the tax credits.
So I mean, if there is an extension of 11 59.
Should I be expecting an update to the capital forecast for the infrastructure bucket.
No no no no not necessarily but not necessarily this is what we think we think what we've gotten that plan as our sweet spot.
Okay, well I know alone when I'll be talking on new year's Eve now.
Yes, well and I can spending another linked to a court side with walk you Bucks that'll help [laughter] I'll take it.
Mike.
Your next question comes from Michael Lapides with Goldman Sachs. Your line is open.
Hey, guys. Thanks for taking my question.
Real quickly does does the change in the capital spend forecast change your expected kind of five year CAGR for rate base growth, whereas law big numbers kicking in because just your rate base growth has grown so much that that the expectation is it takes this higher capital level at the utility.
To maintain the same rate base growth percentage level.
Well, what I can tell you Michael and thank you for the question is that if you look at the whole.
Wheel of Fortune as we call of in terms of the in terms of the breakdown of our capital spending our asset base across our company. Given this five year plan will grow at 7% of year.
Got it and do we anticipate having.
He is holding company debt at all to find the growth at the utility so will the utilities be self financing I mean, I know holding company financing will be used to.
Finance the wind projects outside of the utility Im just trying to think about financing the utility themselves.
Occasionally we occasionally we do use commercial paper due to fund the.
Utility infrastructure growth, but by and large given the given the the equity and debt situation by and large that would be a timing things Scott rate and for the most part our utilities are devoting doing dividends up to the parent to support the overall dividends as a corporation and remember that we power also as a positive cash flow item.
It goes up to the pair.
Got it and then.
Last item I noticed spend on generation is down.
Relative to the prior prior you pure forecast not not a lot just under $200 million just curious whats the driver of that and where are you in the process about thinking about whether there could be incremental coal plant retirements and therefore, a need for other forms of generation incremental couple 100 megawatts of solar you have coming.
Okay.
Well when you look at the new five year plan compared to the five year plan that we rolled out at this time a year ago.
The biggest difference in the generation pieces that we completed the what we call. The rice units in the Upper Peninsula, Michigan I was a fairly sizable capital expenditure. Those units are in service. They are working great, they're providing very cost effective energy to to the upper peninsula, including the iron ore mine.
Which by the way the iron ore mine demand for electricity is up considerably this year.
But the big difference you see is that we have said essentially put into service a large capital projects. What is really kind of replacing that as you mentioned is the solar capacity that we that we're now gotten approval for any additional solar capacity that we're hoping to receive approval for in the spring of 2020.
And then to answer your question about additional coal retirements our focus in the next 12 months next 15 months or so is going to be on getting those solar that solar capacity in service and operating well. We don't have any immediate plan to retire any additional coal units in the next 12 or 15 months. However.
Having said that we will continue to collaborate and have good interactive discussions with our major customers, where the commission staff as we continue to refine.
Our generation plan going forward, and obviously MISO is a big factor and whether or not any units can be retired as well so.
You never say never but certainly in our plan for the next 12 to 15 months is to focus on getting the capacity in the solar capacity in an operating well and to continue to look at the economics in the future of our system.
Got it. Thank you guys much appreciated Gail Oh, you're welcome.
Your next question comes from Payphone Mehta with Citigroup Your line is overdone.
Greetings, Brian Hi, guys.
Hello.
Hi, So maybe on the industrial growth point that you talked about earlier, if there is more create uncertainty and industrial growth continues to be week.
Do you see at some point going into 2020 , that's starting to impact.
Other factors I know you mentioned the margins are 10, but obviously does support helping spread the costs out over a larger base. How do you see that industrial growth weakness if it drugs into 2020 .
Well and I think theres a good possibility. It will go into 2020, however, we have anticipated this.
We have looked at this it was part of our thinking in the rate case.
So I don't see any any change in our outlook.
Given even given continued weakness of the kind we've seen in the industrial sector, Scott I agree completely and we've been monitoring our industrial sales weekly in fact is and we've been factoring this into.
Into like Gail said, our rate case settlement and what we're looking at for the future years.
Okay. So what kind of growth could do you assume for 2020 I guess on the industrial side just to be more specific then.
Great for we're right in the middle now of our updated assessment with our major industrial customers. We have a process that we've had in place for years, where we actually interview our large industrial customers on their outlook for 2020, and then we update our plan. So nothing we're seeing right now would change the answer we've given.
But you'll see in neither December January and you'll see our updated forecast I would remind you though that.
We're still seeing very significant economic development opportunities that are coming into service not next year.
But as Kevin pointed out I mean, we've got Foxconn ramping up 2021, 2022, we've got terrible coming in we've got komatsu coming in.
So I.
I don't expect that you're going to see any change in our longer term growth forecast, Kevin I would add to that deal. If you look at exactly you mentioned Fox Con and just from an economic development perspective, when you when you see businesses like that come to a region in we've mentioned it yeah, we'll refresh it coming up here next week.
There's a lot of industries that are there to support box con, but just peripheral industries and not when customers that are being added as well.
That happens when you have these areas that become very popular and the growth and that's what we're seeing in that particular area of our of our state at this particular time more more to come on we talk a little bit but the.
So to summarize grateful I wouldn't get overly concerned about this bit of a downturn that we're seeing an industrial is not something that we have not an it is something we have anticipated and plan for.
Gotcha and that's Super helpful color and then maybe just quickly on.
The equity side, you mentioned that youre going to become a cash tax payer, but you have all these investments on the renewable side, then probably help you offset most of the cash taxes.
Just wanted to understand you also mentioned no equity need is there a.
Push up in the credit metrics as into the metrics get a little weaker over time or do you still have the ability to maintain the metrics, but still don't need equity or this time period.
We will maintain our metrics and we do not need additional equity. So thats one of those read my lips, no new equity.
And the metrics stay in very good shape.
Gotcha, and that's a great story I appreciate it. Thanks, so much you are more than welcome.
Your next question comes from the two will emerge with Avon capital. Your line is open.
Rock'n'roll, but it will.
Hey, good afternoon.
A few things.
When I was looking at the.
Adjusted.
We kill sales in a normalized from whatever.
Like it's.
Pretty soon.
But I was looking at fairly weak across the board.
<unk> residential small commercial.
I'm just wondering if you can maybe speak to kind of what you're seeing and live here as we go forward quicker thats going to be something we continue to see or was there that.
Yes, because normalized whether there's any factors that are.
Distorting that.
So really you'll you'll probably.
You are probably say I've heard this before from you and you have.
Our weather normalization techniques in this industry are not great.
In fact, Scott and I were just talking about this as we saw the numbers come in.
Everybody does their best at weather normalization, but frankly.
The error margin or the margin of error in the weather normalization is pretty significant so I.
I think both Scott and I believe that but the residential and commercial piece that looked a little weak is probably just because we didn't get the weather normalization right last year. The industrial I've talked about you probably heard me say, it's down I think we're in a pause.
But we've taken this into account as we look forward and we don't see any significant deterioration from though from that drop in our low margin customers in terms of usage Scott.
Exactly right Gail and in fact, they pulled up last year's investors are that the deck and the residential customers actually normalized last year about 2% than we talked about that being a little high now we're showing 0.2 year to date. So you average and together it's right in that 1%. So I'm not really concerned I really do agree is most likely related more to lap.
Issue than this year or more of a trend into that it's out of trending issue and there's going to be a lot of air conditioning next year next summer when somebody comes the telco. That's right. If you look at the next July we're going to be hosting as I'm sure. All of you know the DNC and as Gale mentioned anything around the downtown Milwaukee area bit, though residential industrial commercial all along.
Chris witty will be flowing all their conditions will be on and it'll be a great time for us. So we're looking forward to that.
Lot of hot air to have to call off but.
Yeah.
[laughter].
You got to comedy fresh Villa Yeah trying.
Uh huh.
Well I think was things that always was the hallmark for you guys have been able to talk about your.
Competitive advantage in terms of rates, but an all in residential commercial industrial classes within the region and given the Oh over the two another period of time and the investment can you refresh us as to how you're viewing that and.
Because.
Let's take it seems like it's now that bags has been.
Compressed.
Oh I suspect during certainly during the period when we were putting all of our power the future investments into place investments that were badly needed.
That advantage with somewhat compressed.
But we've just come off of a four year freeze in rates in fact, our base rates.
For our customers were lower in 2019 than they were in 2015, and then you look around the neighborhood and you see double digit rate increases by many of the utilities of Michigan I'm sure you saw excel in Minnesota, and urban States power, Minnesota, just asked for a 15% rate increase over three years we.
We feel very good about our competitive position.
And Oh, one by the way at our in our rate settlement as you know for our largest subsidiary we energies customer rates are going only going up 1.3%.
I appreciate that and one last thing.
Given what you do a pleasant prairie in terms of your voluntary.
Securitization on some of that investment.
Well.
How should you know can you give us a little thought as to.
You know Oh, we expect is not simply a one off but this is a idea of how to use a tool going forward over the next few years and can you just some thoughts as to how at least as of today, how we should be thinking about how you're thinking about using that tool going forward.
Well, let me start by saying there is a law in the state of Wisconsin, which allows companies like ours.
To request securitization for environmental the cost of environmental projects.
So that's that's the long the state of Wisconsin. It is a voluntary law in other words, it can't be order, but it's a voluntary law.
We actually.
We actually supported the development and the and the vote on that law Oh, My goodness back about 15 years ago. So we thought it was a good tool for this instance.
I think the commissioners in there in their public setting and their public discussion of our rate review a couple of weeks ago agreed that for this particular case this worked exceptionally well and benefit at all of our constituents, but they also said.
Don't count on this being the full template going forward and we certainly understand that so I think there will be a lot of discussions among all of the stakeholders and the commission staff.
Going forward, including including I suspect with the Governor's office, because as you know he would like to get to net zero carbon by 2050, and that's going to retrieve that is going to require additional technology and retirements of existing units. So I think the short answer is time will tell but we have one good tool in the quiver right now and we'll see where we go.
Alright.
Thank you and no I appreciate it thanks.
You're welcome Bill.
Your next question comes from Paul Patterson with Glenrock Associates. Your line is open.
Hey, good afternoon.
Good afternoon, we're well how about you.
Managing so what.
Wait a minute now did you say you were wonderful and award winning Paul.
No, but I I don't think that under advisement okay.
Figure out what it will take you know.
I don't know baby just getting through this earning season. So let me just asking this.
Just a follow up on the duals question on the.
Built growth forecast last I recall, you guys were looking at electric I think zero to half a percent from for through 2021.
Then 1.2% to 1.5%.
And 2022 beyond.
So is that still the case and does that include industrial.
Yes, I mean, what would it be without industrial I guess without industrial what would it be I guess why does it go up again in 2022 and field.
Well it goes up in 2022 and beyond because we have this as I've mentioned this very large pipeline of economic development projects that will be coming into operation from Foxconn Tahira boat to come up to two.
Amazon to walk you tool.
There is a very significant number yes, a very significant number of projects that are either in the groundbreaking stage right now or under construction, where there will be significant additional electric demand coming out in 2020 to 2023 in 2024. So we're out we'll obviously put together.
As we finish up the year, our revised sales forecast, but as Scott mentioned the downturn that we've seen this pause that we've seen in industrial demand.
We anticipated this it was part of the discussions in the right in there in the rate settlement.
So I don't see I don't see this is causing any kind of major change in our longer term forecast Scott no I agree and specifically the longer term forecast, we're still seeing that good construction projects are continuing geared foxconn Amazon all that stuff that Gail Gail and Kevin just mentioned so thats positive unemployment is still.
We'll at near record lows here in Wisconsin, So thats been positive and on the gas side, we continue to see great customer growth. So.
Not really that concern or forecasted remember what we put into forecasts are only announced projects. We really didn't put in that secondary effect of other smaller customers coming in on the secondary or the residential load. So we only put what we actually knew was out there in coming in we're monitoring those literally on a.
On a monthly basis here, so I feel very comfortable with that forecast and poker. So when we look at that the forecast we should be thinking about.
Increase being essentially sort of economic development large customers, which I would assume again, two comments earlier or sort of low margin customers.
Correct or because you're not really counting in sort of more higher margin ancillary effect is that correct.
Correct, that's exactly right and I would just remind you because you've kind of nailed it but I would remind everyone.
The low margin industrial customers, particularly those on real time pricing really do not drive our earnings growth.
I got you know just on Fox gone there has been a lot of local press.
That they really aren't coming through.
With what was originally expected.
In terms of the original announcements et cetera.
There's been some last month or so lot of Oh, well press about that just wondering if you could comment since you made comments about foxconn before about how how your items.
What youre seeing I guess on the ground or your expectations with respect to that.
I'm glad you asked the question my my overall advice for what it's worth is ignore the noise and look at what's actually going on on the ground.
So what's actually going on on the ground is that they are following through in great detail on the revised plan that they announced in January so remember that the plan was to have three phases of development.
Which eventually over a 10 year period would add 13000.
Well paying jobs.
They have not backed away from the 13000 over the longer period of time, they have redesign phase one.
In phase one will be a bit smaller in terms of the footprint.
But.
In their original phase one they had to things that were changed originally they were going to build.
A gen 10 five.
LCD plant there now building a gen six that is not inferior technology, but the difference is the gen. Six plant produces smaller sized LCD screens.
So there is a downsizing in terms of of the footprint and the electricity demand from a gen tend to a gen. Six however.
They've added now to their phase one plan and in fact are going to begin construction later this year on a high capacity data center.
So when we look at in our technical folks meet with Foxconn every single week.
And I meet with the Fox come folks about every six weeks.
When you look now at our projected demand for phase one even though it is changed some from their original thinking the overall demand hasn't changed because of the addition of a very significant high capacity data center.
So I really have a different view than what you might be seeing in the press.
They did revise their thinking in terms of phase one.
Phase one is rock and if you if you drove from Milwaukee to Chicago, you would see off the side of the freeway enormous amount of development going on.
They are following through to a ti on their revised phase one plan guilt. Let me just had two in addition to the things that you mentioned the Fox cons doing there also building a.
As they call it a smart manufacturing center, where they're actually building Doe hardware from servers and things like that to offer for service for them for their data centers and others. So in addition to what you mentioned there was an additional high tech facilities fits all the draw on board and they plan to build a immediately.
Hmm Okay.
Okay, great. Thanks, it looks good.
Good morning welcome.
Alright folks will I think that concludes our conference call for today. Thank you. So much for participating if you have any other questions feel free to call best Straka and she can be reached at four one for two to one for six threenine. Thanks, everybody's thinking about a week bye bye.