Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the American Electric power fourth quarter Twain 19 earnings Conference call. At this time, all participants are in listen only mode.
Later, we will conduct a question answer session instructions will be given at that time.
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A reminder, this conference is being recorded.
I would now like to turn the conference over to our host Darcy Reid. Please go ahead.
Thank you Tiffany good morning, everyone and welcome to the fourth quarter 29, <unk> earnings call for American Electric power. Thank you for taking time today to join US our earnings release presentation slides and related financial information are available on our website at <unk> Dot com today, we will be making forward looking statements. During the call. There are many factors that may cause future results to differ.
Materially from these statements. Please refer to our FCC filings for a discussion of these factors are presentation. Also includes references to non-GAAP financial information. Please refer to the reconciliation of the applicable GAAP measures provide in the appendix of today's presentation.
Joining me this morning for opening remarks are Nickens, our chairman, President and Chief Executive Officer Officer, and Brian Tierney, Our Chief Financial Officer.
We will take your questions. Following their remarks, I will now turn the call over to Nick Okay. Thanks, Darcy Good morning, everyone and thank you for joining us today for eight these fourth quarter 2019 earnings call.
Well certainly spend some time reporting on the phone a quarter of the year and how the years concluded but there's no question a b has hit the ground running in Twentytwenty.
No I live in Columbus, Ohio, and I do route for the Buckeyes, if they're not playing LS you what I have to use now whats you are now at an allergy given their victory and then a college football National Championship the way in which he LS you off its executed during the season is the way I feel about eight or a P.T., whether it's our emphasis on customer experience right.
Inventory activity major projects initiatives contracted regulated renewables capital allocation, though in M. optimization, and our focus on culture innovation and operational excellence. These are just a few of the plays in the playbook that continue to be executed flawlessly with talent. There are team possesses the results of 2019 indicate that.
The success so far in 2020 of major initiatives that will cover today indicate that as well.
But first let's discuss 2019 20 like team was a great year for the company. We delivered operating earnings of 60 cents per share for the quarter bring your operating earnings were 2019 to for 24 per share which was at the top end of our revised guidance range of for 14 to for 24 per share.
As we show that the last Ceocs financial conference HCP has a habit if any the upper half of the guidance range, if not exceeding it and this year has been no exception as we've said repeatedly we wouldn't be disappointed and not achieving this same track record in the future Ron will cover gap in operating earnings later in todays presentation.
Additionally for 2019, we had an average regulate our we have 9.7% for the year and increase the dividend as well as well during fourth quarter 20 night team. It was also another year of rate case activity with the completion of cases in West, Virginia, Oklahoma, and Arkansas and additional filings made in Indiana, Michigan in Texas.
We also filed for regulatory approvals at the FPSO and Swepco jurisdictions, Oklahoma, Arkansas, Louisiana, Texas for North Central when a 400 1400 85 megawatt wind investment all of which I will update later and during 2019, we acquired the Sempra wind portfolio, which in addition to our other contract renewals.
Portfolio has delivered beyond our expectations.
Lastly, as we promised during last year's Eogs Financial conference, we are focusing on bending the OEM curve with an eye toward the future late last year, we kicked off our achieving excellence program to not only further optimize only but set the tone for a sustainable lasting culture change the costly demands a forward looking view of efficiency gains the process.
Yes, and technology reviews.
Brian will again, the details of load growth, but I'll frame the discussion by saying that although load decrease in the fourth quarter compared to the previous year, we've seen consistent improvement in our commercial classic customers through 2019, mainly in education health care and while industrial growth has slowed we still anticipate further additions and industrial load during 2012.
So we are still projecting an increase in load for twentytwenty.
We have several areas of focus for 2021st of all delivering operating earnings within the guidance range of for 25 to 445 per share with the midpoint of for 35 per share.
We will continue to focus on disciplined capital allocation investing 6.3 billion in capex substantially in our regulated wires businesses.
We're pleased with the progress of our contracted renewables and fully expect that part of our business to continue to grow as well because of very positive focus on fully utilizing our balance sheet for growth in dividends you can expect a more refined approach to capital allocation rotation as we further develop opportunities for earnings growth associated with the capital we deploy.
We expect to continue to develop 5% to 7% operating earnings growth and again, we would you expect a step change of the base for earnings growth after north Central comes into play and continue with a 5% to 7% growth trajectory beyond that we anticipate more granularity on that by the time, we reached November E. R. Additionally, as we've said before we would be.
Disappointed if we're not in the upper half of that growth right right.
Additionally, we will be finalizing base rate cases in Indiana, Michigan in Texas with constructive results and I will describe that I will describe in a minute and will be initiating rate cases in Ohio, Louisiana, and most likely Kentucky as well.
First the cases with settlements in Michigan on NIM falling unanimous settlement in early January of 2020 with a net revenue requirement of 30 million authorized or are we have 9.86% and effective date of February onest twentytwenty adjustments for wholesale load loss were approved so overall a good settlement there was approved by the Michigan coming.
And in January during fourth quarter, the Arkansas base case was completed with the unanimous settlement fall in October and approved by the Arkansas Public Service Commission in December 2019. It included an 18 million net increase a nine 4.4 or 5% or are we were the cap structure of 50 to 147 non debt to equity.
With a formula rate plan process for five years.
Regarding Texas on February 13th of this year, a p., Texas follow settlement a that included a 40 million revenue requirement reduction with a 9.4% orally and a cap structure of 57 five debt 42, five equity along with other disallowances and refunds associated with capital this warehouses and tax reform.
The settlement also included deferral of cap was vegetation management into a regulatory asset collected over five years and our commitment to fall another base case and within four years and that left to the PCT to decide the ring fencing issue. It appears the commission dealt with the ring fencing issue in a positive way in the Centerpoint case, so hopefully we'll see.
Retreated to favorably as well, we anticipate the PCT will take up the case at the February 27th open meeting.
In the Indiana base case hearing was held in October we continued to weigh in order and still expect the order to be effective in March of 2020.
Regarding the other cases in Ohio, Louisiana, Virginia, Swepco, Louisiana initiated a base rate proceeding previously ordered by the LP S C.
Swepco plans to supplement this filing with the cost to service study in additional testimony during 2020. After the present 2017 Formula rate plan is completed in Ohio, We will file our next distribution rate case by June 2020, we now expect this case to be unusually regard most likely will request a fairly low increases.
Rates.
We're also review the distribution investment rider as part of this case so more to come later in 2020 on this case.
And and Atco, Virginia, we are required to fall in March and will show that we earned below the bottom of the earnings range for the 2017 2019 dry annual period in December 2019, we impaired 93 million before tax related to the early retirement of three coal units as allow them to Virginia law. This enables us to fall for rake rate.
Increase and we would expect new rates to be effective in February 2021.
Now onto the North Central Wind project.
We continue to make positive progress on this 1400 85 megawatt wind project it will benefit DSO and Swepco customers in December 2019, we follow settlement agreement in Oklahoma for 675 megawatts and in late January of this year, we follow settlement agreement with the parties in Arkansas for 171 megawatts to.
Together, if approved by the Oklahoma and art in Arkansas commissions that represents about 1.1 billion of incremental capital opportunity and meets a threshold to move forward a with a project regardless of Louisiana, Texas outcomes.
Move forward with the entire project, representing 2 billion of incremental investment would require Louisiana, and Texas to approve the airports ins or for the other jurisdictions that take advantage of the flex up options and in other jurisdictions. If in other jurisdictions is not move forward, while the Oklahoma settlement does not include the flex up option the Arkansas settlement does recommend us all.
Option. So for example of Louisiana, where to flex up Texas would no longer be required. However, I would say we welcome settlement discussions on both Louisiana, and Texas and remain hopeful that these jurisdictions will also recognize the value that these investments will deliver the customers.
First off the bat for approvals as Oklahoma, which is it's all the softening agenda actually for today.
And Arkansas approvals are expected in may of this year, so great progress and we are optimistic about the future of north central win.
Of course regarding the financing as you might recall the current 33 billion Cat Capex plan provided the E. R, which goes through 2024 supports a 5% to 7% growth rate and does not include north central win.
Although the actual sized investment is still yet to be determined and if you were to ask about a base case assumption. Our current thinking is to finance the acquisition with somewhere between 50 to two thirds equity.
We will Tom the raw the raising of capital where the execution of the project in the event of any asset sale rotation, we'll consider relevant proceeds as part of the financial decision. The Capex associated with this project will be incremental to the current Capex plan and we will result in a step change the base in which to measure architectures, 5% to 7%.
Growth rate, we're committed to our 5% to 7% growth rate in this will not change but the addition of this project is expected to put us solidly in the upper half of the range.
Now since we have talked about some of the growth related issues, let's discuss our achieving excellence program that will enable us to video and amkor over the last decade, Apia successfully been able to manage OEM relatively flat, we historically focused on identifying efficiencies implemented with a lean management system throughout the organization a couple of years.
Go we were put in touch with the company. He Hs partners actually through state auto CEO at the time to specializes in engaging companies to focus on generation and enactment of cost savings.
Yes.
They have also worked with other companies in our space and game highly recommended we were not only looking for reviews of existing processes activities, but also with an eye toward digitization optimization and sustainability review in the future. The program is called the achieving excellence program and it isn't the employee based only on prioritization and often.
Position effort to drive down costs in 2020 and beyond going forward, we expect to find additional efficiencies with a program through data analytics automation digital tools use of drones outsourcing workforce planning strategic sourcing others. We started the intensive process last year and are currently in the process of validating its out.
Sales of ideas and are presently targeting approximately 1000 for validation in execution. Some have already started in order to leverage into 2020.
Examples of ideas include various use of telematics to optimize crew routing and utilization robotic process automation for labor intensive processes like some aspects of accounting and various uses for drones for ball or distribution inspections, and so forth. This process is kicking into gear and it will become part of a budgeting process each.
Last year, and ultimately embedded into our culture of innovation more to come on that later in the year.
We are no doubt in a transformational time in our industry. Our resources are changing dramatically, we intend on moving toward a clean energy future as quickly as possible from the north Central project to the recent announcements to the flat Ridge three wind project in Kansas This being sold to averaging out.
Outputs being sold averaging and to our South Bend solar installation that we partnered with Notre Dame on a the are are you are seeing the Indian utility regulatory commission just to prove that yesterday.
And with Google Facebook and Amazon resources are indeed, changing in fact by the end of 2020, we will have retired over 10000 megawatts of generation that make way for the resources of future. This process will continue for ATP and.
And certainly represents another great opportunity to invest capital for the betterment of the customer experience to improve reliability resiliency of the grid and to continue to improve our carbon emissions.
This process will continue and working with arc commissions and other stakeholders and through the development of our integrated resource plans. So when you think about the opportunities regeneration transformation investment in transmission the Renaissance of distribution distributed resources and electrification of transportation and other areas you can't help but be bullish about the future.
Sure this industry in particular ATP with Checkmarks in every category.
So now I'll move to add to the equalizer graph and talk about some of the.
Individual jurisdictions.
So overall, we have a regulated operations, our we have 9.7%.
Generally project the ROI for our regulated segments to be combined in the non after 10% range.
Note that ATP transmission Holdco is now solidly our second largest company based on average equity after atco with a eight the Ohio, ODM Swepco Navy, Texas, all roughly comparable sizes to each other and certainly a FPSO or Bruce.
The north Central project, they'll pick up as well. So we have we were actually pretty.
Pretty well off with a with a subsidiaries that are roughly about the same size with a lot of diversity.
Hi, O. The Aro Eve at the end of the fourth quarter was 12.3%, 9.6% adjusted for the legacy items and his legacy items are still the legacy fueling and capacity carrying charges that we'll be rolling off no probably during this year. So we'll see we'll start tapering off too.
The roughly around 10%.
Are we as those areas roll off ABKCO.
At the end of the fourth quarter 2019 was 9.2% is a blow authorized due to lower normalized usage increased other taxes and higher depreciation from increased capital investments, partially offset by favorable weather West Virginia implemented new base rates in March of 2019, a including a 44 million.
Base rate increase spaced at 9.75%, Norway and as I mentioned earlier before the Virginia Tri Annual review as in 2000, 2020 and will cover those periods as well.
As far as Kentucky is concerned the R&D for Kentucky at the end of fourth quarter was 7.4% as below authorized due to loss of load from weak economic conditions and loss of major customers along with higher expenses transmission revenues were also lower due to the delay of some capital projects.
On the M or at the end of fourth quarter was 11%.
Are we use above authorized due to favorable weather autonomy expenses and one time adjustments NIM expects or are we used to be in the authorized range going forward with the continued successful execution of capital programs in generation transmission distribution and the recent future test year cases in the Indiana, Michigan.
DSO at the end of fourth quarter was 10.7%.
Yes. It was our OE was above authorized mainly due to favorable onetime true ups and weather BS are received an order is base case settlement effective April 2019.
Proving a 46 million increase the transmission tracker or we have 9.4% in the cap structure of 51.86% debt 48.14% equity.
The ROI for Swepco at the end of the fourth quarter.
It was 6.8% that was blow authorized the loss of load mainly the wholesale load and continued impact of the Arkansas share of the turret plant that is not in retail rates.
This.
Certainly we as we said before turf that portion of toric impacts the OE by about 125 basis points.
Swepco received in ordering as Arkansas base case settlement as I mentioned before so we expect an uptick Alan its or are we going forward.
Texas, a fourth quarter was 7.7% and as you know we as I just mentioned the P., Texas. So rate case, though is going on a spec expecting an alpha that pretty soon and then also.
The Ti cost and DC RF filings that we usually follow annually aren't made deer in the during the annual period of the a rate case, so theres a lag associated with that and wall earnings should improve in 2020. After we can resume these annual filings a continued high levels of investment will continue to impact.
The R&D as well so investing heavily there the annual trackers are particularly important and there will be great to resurrect those and keep on going after after the outcome of the rate case.
Abby transmission Holdco, the our wafer ATP transmission is 11.5% and is driven by higher revenues due to differences between actual and forecasted revenues as well as a favorable true up and we expect transmissions forecasting to be in the mid mid 10% range in 2020, so with that.
Said, we're still making progress.
From that perspective, and the ones that are lower you know we have a rate cases that are planned and we have a stay out provision in Kentucky. So until June will most likely following the case then there as well so all of them should be moving into right direction.
So lastly, as many of you know I'm, a lifelong drama and out of respect for Neal period of Rush one of the greatest rumors of all time as well as a lyricism novelist you passed away in January I'll leave you with this thought before turning it over to Brian and his novel Clockwork Angels and the song titled The Garden. He wrote the measure of a life as a measure of war.
And respect so hard to earn so easily burned in the fullness of time, a garden to nurture and protect this is true in life is also true for companies like HP, we strive for our investors and other stakeholders to love what we're doing in respect to work that we do through operational excellence financial discipline and innovation the track record of can.
Assistant earnings and dividend quality and the focus on our communities and customers is central to our continued mission of being the premium regulated utility and once again last year in 2019, we continue that progress now on to 2020 rock on Ron.
Thank you, Nick I'll ask participants to listen carefully because.
A little bit settle this is in fact me rocking on.
So good morning, everyone I will take us through the fourth quarter and full year financial results, focusing primarily on year to date.
Some insight on load in the economy review, our balance sheet and liquidity and finish with a review of our outlook for 2020.
Let's start briefly on slide six which shows the comparison of gap to operating earnings for the quarter and year to date.
GAAP earnings for the fourth fourth quarter were 31 cents per share compared to 74 cents in 2018.
GAAP earnings for the year were 3089 cents per share compared to $3. A 90 cents per share in 2018, Theres a reconciliation of GAAP operating earnings in the appendix.
We have consistently provide a value for our shareholders outperforming the S&P 500 electric utilities index in total shareholder return this year and both the S&P 500, and electric utilities index.
Over the three and five year periods, respectively.
Let's turn to slide.
The fourth quarter operating earnings were 60 cents per share or $294 million compared to 72 cents per share or $354 million in 2018.
The detailed.
A detailed by segment is shown in the boxes on the chart.
But the change in our regulated businesses was driven by higher planned.
Planned on them and depreciation more than offsetting the return on incremental investment.
Generation of marketing was down seven cents from last year, primarily driven by the expected timing of taxes. This segment reflects the growth in the renewables business and favorable retail margins, which offset lower capacity in energy margins in the generation business.
Corporate and other was up two cents, primarily due to lower income taxes from the expected timing of consolidated tax adjustments, partially offset by higher state taxes.
Let's turn to slide eight and review our full year results.
Annual operating earnings for 2019 were $4.24 per share or $2.1 billion compared to $3, a 95 cents per share or $1.9 billion in 2018.
Looking at the drivers by segment operating earnings for the vertically integrated utilities were $2.17 per share up 17 cents with successful implementation of rate changes being the largest driver.
[noise] other positive items included lower own them and taxes as well as higher AFUDC.
While weather was favorable compared to normal it was unfavorable compared to 2018 subtracting 16 cents.
Normalized normalized load was also down for the year and depreciation.
And increased as well.
The transmission and distribution utility segment earned one dollar per share down five cents from last year earnings in the segment declined due to the roll off of legacy riders in Ohio, lower normalized retail margins and higher own M depreciation and property taxes.
These items were partially offset by the recovery of increase transmission investment in ERCOT higher rate changes the reversal of a regulatory provision in Ohio favorable carrying charges in Texas and lower income taxes.
The HP transmission Holdco segment continues to grow contributing one dollar and five cents per share, making this the second largest segment for operating earnings.
The improvement in earnings of.
30 cents over 2018 reflected a return on incremental rate base. The nonrecurring prior year accounting adjustment favorable annual true up and FERC settlement as well as higher AFUDC.
Net plant increased by $1.5 billion or 18% since December of 2018.
Generation of marketing produced 30 cents per share the renewables business grew with the Repowering of Trent Mesa and desert Sky as well as the acquisition of multiple renewable assets.
Increases in retail margins were offset by lower generation sales due to lower energy prices retirement of plant and outages.
Finally.
Corporate and other was down 14 cents driven by higher tax expense, primarily from state taxes in the prior period tax adjustment.
Interest expense was also higher.
For 2019, we are pleased with our results as we landed in the upper end of our increased earnings guidance range.
Now, let's turn to slide nine to provide an update on our system load.
Starting in the lower right chart normalize retail sales declined by 1.5% in the fourth quarter compared to 2018.
The growth in commercial sales this quarter was more than offset by the decline in industrial and residential sales.
For 2019 eighties normalized retail sales were down eight tenths of a percent from the prior year.
Sales were down across all customer classes and most operating companies in 2019.
Moving counter clockwise normalized commercial sales increased by half a percent for the quarter. The results varied by operating company, but were strongest new transmission and distribution utilities segment.
Commercial sectors that experienced the fastest growth for the quarter, where utilities government support offices and accommodation.
For the annual comparison normalized commercial sales were down four tenths of a percent in 2018 not surprising the sector that saw the biggest decline in 2019 was traditional retail.
By contrast, theres been consistent improvement over the past 12 months and commercial sales growth.
Moving left normalized residential sales decreased by nine tenths of a percent for the quarter.
Residential sales were up in the west vertically integrated utilities, but lost momentum elsewhere, while personal income growth across a piece footprint outpaced inflation for the quarter. It was unable to keep pace with incomes for the rest of the U.S.
For the year normalize residential sales were essentially flat compared to 2018.
Customer counts increased by three tenths of a percent while normalized usage decreased by four tenths of a percent.
Finally in the lower left chart industrial sales decreased by 3.5% in the fourth quarter, which brought the annual comparison to 1.9% below 2018.
For both periods industrial sales were down across most operating companies.
Looking forward to 2020, we're projecting normalized load growth of five tenths of a percent over 2019.
The majority of this growth is expected to come from the industrial class, where a number of industrial expansions are expected to come online.
Turning to slide 10, I will provide a brief update with respect to industrial sales growth by sector.
This chart shows the distinction in growth between oil and gas sectors and all other industrial sectors.
Sales to oil and gas industries increased by 3.5% in the fourth quarter and ended the year, 4.4% higher than 2018.
This was largely driven by the 17% growth in the pipeline transportation sector.
Most of this growth was the result of a number of anticipated expansions that address congestion in the major oil and.
In the major shale regions in our service territory.
There are additional oil and gas related expansions that should provide continued growth in 2020.
Focusing your attention on the green bars, the non oil and gas industrials were down 6.1% for the quarter and ended the year down 4.2% for the ATP system chemicals manufacturing and transportation equipment manufacturing accounted for most of this impact.
Now, let's turn to slide 11 interview the status of our regional economies.
As shown on the left chart GDP growth for ATP service territory was 2.1% for the quarter, which is three tenths of a percent below the U.S. all of our service territories experienced GDP growth for the quarter with Texas being the strongest.
Moving to the right chart employment growth for the ATP service territory improved to eight tenths of a percent of 2018, while U.S. growth moderated slightly in the fourth quarter.
Throughout the ATP footprint nearly 20000 jobs were added in the fourth quarter with a third of those coming from the education and healthcare sector.
[music].
Now, let's turn to slide 12, and review the company's capitalization and liquidity.
Debt to total capital ratio increased during the quarter to 59.8% from 58.7% as we borrowed to fund our investment program.
Our FFO to debt ratio stood at third team, 0.5% on a GAAP basis, and 13.9% based on Moody's methodology, reflecting increased debt and the impact of the flow back of 80 I T through customer rates importantly, this was consistent with the drivers embedded in our guidance provided at the November 2019.
Yeah I conference.
Liquidity remains strong at $2.1 billion supported by our revolving credit facility.
Our qualified pension funding increased approximately 3% to 97% and our OPEB funding increased approximately 22% to 145%.
Positive equity returns combined with rising yields that decreased pension and OPEB liabilities, resulting in improvements in both plans funded status.
The OPEB funded status also benefited from legislation the president signed in December that repeal the Cadillac tax and health insurance fee.
[noise], let's try and wrap this up on slide 13, and get to your questions. We begin 2020 with a solid track record. Our 2019 earnings were strong as we continue to invest capital in our businesses and earn a return on this investment.
We successfully integrated new contracted renewables into our portfolio.
For nine years now we have maintained on m. disciplined and kept spending that of offsets in the tight range of between 2.8 and $3.1 billion.
In addition, overtime, we have grown our dividend with earnings and expect to be able to do so going forward.
Our dividend payout ratio is solidly in our 60% to 70% targeted range.
Looking ahead to 2020, we are reiterating our operating earnings guidance of $4.25 to $4.45 per share.
We will finalize our pending rate cases, and move forward with additional opportunities in the renewable space.
We will continue our disciplined approach to allocating capital and are confident that theres significant runway on our capital programs to re reaffirm our long term operating earnings growth rate of 5% to 7%.
With that I will turn the call over to the operator for your questions.
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One moment for our first question please.
Our first question comes from Ali Agha with F. T. H. Please go ahead.
All right Ali good morning, Thank you.
First question I, just wanted to confirm that the 5% to 7% growth rate is that still based on the original midpoint of 2018.
Yes, yes, it is yep okay.
Okay, and then in the Boston No new again, Brian.
Talked about.
When it was one of the five to seven you've talked about hitting the high end of the range I think today I heard you see upper half so.
Just wanted to be Claire.
The is the aspiration upper half audited the high end, which I've heard you will see in deposit as well.
Yeah. So so we say the upper half as far as a generalization, obviously and and as we go board. There's there's no question I mean, we disappointed we it's pretty much the same thing to us.
Okay.
And then.
Can you give us your latest thoughts on.
Ken Ducky power and wed that fits in the portfolio might that be a source of funding for north Central Lynn just how you're thinking about it better.
Well certainly.
We're in a position now to where weaken.
When we have uses for certainly for capital to invest.
We're able to look at our entire portfolio and the end determine okay is there is there a an opportunity for a rotation is there an opportunity for sale of assets those types of things.
But certainly Kentucky remains a part of our portfolio, obviously as we look look at any.
Future positive investment, we're making I think I think it's probably safe to say and you probably see from the FFO to debt and other credit metrics that that they were fully utilizing our our balance sheet. So we're moving into a stage where.
We have to think about optimization from an ROI standpoint for for investors and that forces us to look at sources and uses so no no not commenting on on Kentucky in particular, I think it's important to say that now we are fully regulated utility we can look at.
Investments across the board and see what the best approach is and I think thats.
That's what we're certainly alluding to as you go through this process and really with north central by the time the investment is needed a we have time to go through that process.
Last question, Brian looking at your Twentytwenty load growth projections, what's causing the residential to fall off most significantly in 20 wasn't that trend to be so in 19.
It's just the it's just the normal business cycle.
In that we see residential and commercial generally follow a industrial and now industrial starting to come out of that and and residential and commercial just haven't followed yet it's really just a normal business cycle.
Thank you.
Sure thing Ali.
Our next question comes from Andrew Weisel with Scotia Bank. Please go ahead.
Andrew.
Good morning.
My first question is.
Dividends.
2020 increase was 4.5% first guidance debit growing approximately in line with EPS growth at a high and really.
7% range. So can you just remind us what the latest thinking is on what to expect going forward and if 6% would be a good bogey.
Yes, it's unchanged, we fully expect our dividend growth would be commensurate with our earnings growth and as soon as you know we've talked about this the for NAV present. This year and then the previous year is 8.2% or something like that so.
So it averages out to 6% we focus on nominally the 6%. So you can expect that in the future.
Okay, Great just wanted to affirm that.
Next question forgive me if I missed it but can you describe what you're expecting a around FERC approved transmission ROE for your subs and would you expect your PJM and SPP allowed or are we used to be within the ranges the reasonableness.
Yeah. So obviously, we have that a case in the northeast that that as brought up at least some issues and certainly that's being evaluated lot of parties involved.
To review that that outcome of the MISO case and that was really the one that that I think sort us in a send a message that previously in northeast there was a mechanism for four different measures and they went to two different measures with a with MISO and as I think maybe had some unintended consequences hopefully.
But certainly the industry's responded apds respond as far as Transource.
Our we have we have settlements in our in the east and the west and in the East we have a stay out provision in the west and.
And in the West we we do not.
So there there, but it wouldn't make any sense for filings to occur or while the rather FERC is continuing to review.
The outcome of the MISO rehearing that's occurring so.
Yes, yes, or the stay out was an SPP so.
Make sure that but nevertheless, right now, though our rates, we view them as consistent with that realm of reasonableness and and we continue to see it that way and I think as we get through the rehearing. It at FERC I think there's there's certainly an opportunity.
For us to ensure that that's the case going forward.
Any sense of when we might have a better clarity on that I know, it's a tough process to predict everything at FERC, it's tough to predict in terms of timing.
Yeah.
Dasburg that question.
But but I think that that.
Certainly.
I think theres that theres, a necessity to get resolved quickly because is brought a lot of unintended.
<unk> risk into the a into the investment and transmission.
And I think it's important to get it get at rectified earlier and as you as you might recall.
Before did start looking at actually are our path project as a proxy for evaluation of of wells and ongoing view should look like and that we view that as promising and certainly or they have reacted reasonably quickly from that perspective, and I think they recognize that.
That or that the market is truly watching in terms of what fercs philosophy is relative to transmission investment, which I believe is unchanged.
And actually.
I think I think at least what I've heard from the from the commissioners and public forums is that the transmission continues to be.
Investment that's required for optimization of the grid and and historically, they've they've incentivize that not I fully expect them to continue to do that.
Great Thats very helpful. One last quick one I know that Texas rate case settlement doesn't directly impact in north central when proposal, but did that come up at all in your discussions to be Interveners give any indication about how they're thinking about it.
No I think.
I think or they are being dealt with completely separately.
The Texas is the case that as the base case, and then actually the wind project is in the Swepco jurisdiction associated with Texas. So it's still integrated regulated in that part of Texas and they're used to dealing with when request. It's happened before there's lot of lot of.
Precedence for a review of the wind projects and and and certainly we were building up on what we learned from the previous when catcher activity and followed something that that we felt like addressed a the concerns during that period of time, but also dealt with it in a way that's consistent with.
The integrated resource planning processes, and something Thats fairly a innocuous in terms of in terms of review Oh by the commission so.
We certainly as I said earlier, I think a Oklahoma and Arkansas are well on their way, Louisiana, and Texas or or certainly.
In the process so.
And we would we would certainly we're hopeful that they'll continue to see the benefits of that project as well and get it done very quickly.
Right now I know they're separate jurisdictions.
I think there's a lot of overlapping interveners, but a fair enough I. Appreciate the color. Thank you know there's not there's not really I mean, the intervenors met the interviews themselves might maybe the same but the but the issues are very different.
Understood. Thanks.
Yep.
Our next question comes from Praful Mehta with Citigroup. Please go ahead.
Thanks, So much hi morning, guys and congrats on a good quarter and a great yeah. Thanks.
So just wanted to clarify again on the equity point on the credit find first.
It was helpful to get the overall perspective on how you look at the portfolio and the credit clearly at this point your balance sheet is being utilized well. So if north Central award to move forward is the understanding that if there isn't any portfolio optimization opportunity that some equity would be issued at some.
Point, just wanted to clarify the timing of fat and any any further thoughts on that credit an equity point.
Yeah, So I'll turn it over to Brian and second, but but certainly our view is that we sort of presented a base case of Ah without any rotation or any of those kinds of activities occurring.
We would expect equity be issued in that in that 50 to two thirds.
Range. So I think that's that's or at least the going in going in position and certainly the we're saying the project is entirely a 100% incremental.
To our to our existing capital forecast. So you would expect equity, but if there's any kind of a capital rotation or sale of assets that that mitigates a the need for any portion or all of the equity then certainly that'll be a part of the process Brian Yeah. The only additional color I'd add.
To that profit was.
We think that we could time any equity needs consistently with when the projects.
For north Central when would come on line a small portion at the end of 2020 and a much more significant portion at the end of 21.
Got it okay. So the earnings and the dilution Paul the match that helps kind of at the earnings profile.
Thats right, we think we could time them very closely.
Okay, Perfect and then just secondly on the renewable opportunities and which you highlight eight is this more utility side renewables or is it more on the unregulated side. All both if you can just give a little bit more color and also how big do you see the opportunity to be because clearly everybody seems to be investing more on that side.
And there is a significant opportunity. So if you can scale that for us that'd be helpful too.
Yes, it's on both sides both sides of ledger, and obviously, we still have integrated regulated jurisdictions and and the the with the one South Bend project in partnership with Notre Dame that's on the regulated.
Indiana, Michigan power and and and then also there's there's projects that that others have died.
And our regulated footprint and as well on the contract and side, we continue to advance that around the country in various forms, but not just tied to wind power solar, but but other projects as well and we're sort of a unique I guess from the from the contracted business.
We cover about every quadrant of the business relationship.
That customers are would expect and ER and really our onsite partners are a b a energy or a p. retail all those come together to really provide I'm.
Sort and all and solution for forecast of or so so we see we see the growth occurring on both sides. I think I think was it is certainly northwest.
North central as a business as an example, obviously of the way the integrated resource plan for the various jurisdictions are moving board I know out at Atco, a there's a solar requirement and a in Virginia and then there's other opportunities for us to do it on the regulated side as well as the unregulated and keep in mind.
We are contracted business, we limit to 10% of the business because of tax reasons and so we want the regulated side to grow.
It to enable our contracted business to grow as well and a this is a nice balance for us and we'll continue doing that and certainly I would say is moving very much in both directions and if you look at post north central.
And Ah what's now after the the purchase of the Sempra wind assets, where we're probably on the roughly half and half. So so I think it's a it's a it's a great a great diverse solution.
Got it that's super helpful. Given the size of your footprint and as you said you have opportunities on both sides.
You see that as helping you achieve that higher end or upper end at the seven or even getting beyond that I'm just trying to again dimension, how big the opportunity could be given you have it on really both sides given your footprint.
I think thats why we said upper half because there is all there's so many opportunities out there for us and for our ability to continue to to grow certainly we're going to have to continue to to feed the beast in a way that that that continues that 5% to 7% growth.
Trajectory, but but as we said before with all the projects that that we know that are out there where the opportunities in front of us.
And you could look at our integrated resource plan on the regulated side and see what's in front of US and you can certainly see.
I think there was a report recently of ATP.
And the trend just the generation transformation alone, which drives the renewable piece of it along with some natural gas is a real opportunity for abiotic to continue to to enhance that that that growth pattern. So so or really the fundamentals are there.
It's a matter of execution.
Got it Super helpful guys. Thanks, so much.
And ladies and gentlemen, if you do wish to ask a question. Please press one than zero on your phone at this time.
Our next question comes from Sophie Karp with Keybanc. Please go ahead [noise] reserving.
Hi.
Good morning.
Thank you for taking my question no on North Central Wind I guess, you've had pretty constructive settlements in the couple of jurisdictions by now, Texas being more or less they only one way or you still engaged and then inactive regulatory process and just curious at what point do you think you have a critical mass to efficiently quality go input.
In the plan.
Yeah, we've got that watch the once the if we get approval from the Oklahoma Commission maybe today.
Yeah, and then we get approval from Arkansas, we have the critical mass for the project to move forward. The them. They question is at what scale. So.
With with those two projects together you're already at 846 megawatts of the 14 85, and it's already a 1.1 billion.
Investment and if you if you move forward with.
<unk>, Louisiana for example.
And and Arkansas remember has the flex up so the flex up means that they will take the additional capacity capacity. The the wind power capacity, if it's not taken by any other jurisdictions of Arkansas Flexes up and then Louisiana approves with a flex up then you've got the 14 eight at 1400.
And 85 megawatts of the whole project now, obviously, if Texas seizes way to be a part of the project as well, which which I believe they should than than each of the states all well participate in the full project. So right now I'd say.
Neo with Oklahoma in Arkansas off those settlements or approve the project is moving forward. That's a given then then the question becomes okay, a web scale and and and that'll that'll be determined by.
The other two jurisdictions and the amount of flex up that's that's a enabled in those settlements so I'd say.
You should be happy with the progress right now.
And and I think.
Also thinking should be optimistic about about this project being fully vetted and fully approved.
Terrific terrific. Thanks for clarifying this and then as a follow up to the same kind a line of thinking right. It seems like this playbook is working really better than maybe some of the type projects you're looking at a is that something that you can use over and over again as you scale IPO investments in renewables Canadian regulated side, though ABS.
<unk>, Yeah, I think I think there's a there's a pattern here in that and that's why talk so much about the generation transformation, that's occurring where we already have we're retiring generation old older generation.
And that's that's coal and natural gas and certainly replacing with a new resources that that.
Provide a real opportunity in that opportunity is really driven by reducing costs for for consumers and this thing the north central is a perfect representation of overall, if the entire project 2 billion.
Investment with over 3 billion and I'm in savings to customers and and that's a one of the key areas for the utility in the future is to be able to deploy capital.
Reduce customers bills and ER and that's what we're that's what we're doing and that's what many of these projects allow us to do.
Thank you.
Back into queue. Thank you.
Our next question comes Manav Kumar with Granite Lane. Please go ahead.
Hi, guys.
Hey, Matt Congratulations on Alethia.
Yeah, but then in there for you.
[laughter] I wanted to I had a clarification for you just when you guys talk about your pro forma for north central wind as that putting at the high end of five to seven or does that.
Put a step up an earnings and then you grow off of that.
It will be a there'll be a step up it'll be a step up a step change when north central gets in but we will continue at the 5% to 7%.
Okay. All right. That's helpful. Thank you very much I appreciate it.
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