Q4 2019 Earnings Call

Good day and welcome to the XL energy you're in 2019 earnings call. Today's conference is being recorded questions will only be taken from institutional investors reporters can contact media relations inquiries.

Did you want investors and others can reach out to Investor relations.

This time I would like to turn the conference over to Paul Johnson, Vice President of Investor Relations. Please go ahead.

Good morning, welcome to Excel Energy's 2019 fourth quarter earnings Conference call. Joining me today, our Ben folks Chairman, President and Chief Executive Officer, and Bob Frenzel Executive Vice President and Chief Financial Officer. In addition, we have other members of the management team available to answer your questions.

Today, we will discuss and review our 2018 results update you on financial plans and objectives.

Sure recent business and regulatory developments slides that accompany today's call are available on our website.

As a reminder, some of the comments during today's conference call may contain forward looking information.

Significant factors that could cause results to differ from those anticipated are described in our earnings release in or finds with yes, you see.

Today's call, we'll discuss certain metrics that are non-GAAP measures, including ongoing earnings in electric and natural gas margins information on a comparable GAAP measures and reconciliations are included in our earnings release and I'll turn the call over time.

Well, Thank you Paul and good morning, everyone 2019 was an excellent here with a long an impressive list of accomplishments, let me share a few.

We delivered vps of $2.64 in 2019, which is the 15th consecutive year meeting or exceeding our earnings guidance. We raised our annual dividend by 10 cents per share, which is the 16th straight year, we've increased our dividend.

Our stock hit an all time high of $66.05 in September and subsequently at all time, New High 60 769 this week.

We achieved a total shareholder return of just over 32%.

Our own M. declined almost 1%, even while making incremental investments in our system.

The Minnesota Commission approved our purchase of the long road wind assets and finally, we resolved multiple rate cases.

We also had a strong year operationally.

We continue to achieve important milestones in our nation, leading wind expansion program with the completion of our Foxtel Lake Baton inhaled projects. These three projects represent over 700 megawatts and were completed under budget.

In addition, we have almost 2000 megawatts of wind projects under construction, which are expected to be completed in 2020, we're very excited to continue our clean energy transition, which will result in significant customer savings and carbon reductions.

Our new color team continues to make great strides in transforming performance, while reducing cost the fleet achieved a capacity factor of 92.6% in 2019, even with two refueling outages.

We have one of the top performing nuclear fleets in the country is rated by the NRC and MPO.

And in addition to strong performance, we have continued to lower our cost structure without one I'm cost declining a little over 2% in 2019 and this is the fourth straight year of declining Oh, one m. and our nuclear operations I'm extremely proud of the effort and results of our nuclear employees and their leadership in our industry.

[music].

Moving to the wire side of our business our advanced grid efforts have progressed, well and will enable increased reliability and security faster storm restoration better efficiency and new offerings for our customers in 2019, we implemented foundational software and completed our initial metered deployment in Colorado.

So as planned with full scale implementation to follow.

In November we requested approval to expand our advanced grid program to benefit our Minnesota customers and we expect to commission decision later this year.

Beyond our strong financial and operational performance I'm also very proud of our E.S.G. leadership.

2009, we estimate we reduced carbon emissions by more than 40% from 2005 levels.

We remain on track to achieve an 80% carbon reduction by 2030.

In recognition of our carbon free vision S&P Global gave us their award of excellence.

We continue to proactively mitigate the impacts of our clean energy transmission on our employees and our communities.

We provided assistance to impact in employees offering retraining, the relocation opportunities and were levering natural attrition.

As a result, we've managed structure transition with no layoffs from coal plant retirements.

We've also partnered with our communities impacted by the closing of coal plants to build new generation at existing sites and we worked hard to attract new businesses to those communities as well.

In Minnesota, There's continued progress to build a Google data center and relocated in metal recycling plant next door at closing Shareco coal plant in Colorado, We've worked to develop a solar solution to retain a steel mill, which is our largest customer and a major employer and probably below where we are closing two coal units.

Now these collaborative economic.

And then efforts will help sustain local economies in terms of both jobs and tax base.

And our results have been recognized by others. We were named as one of Fortune magazine's most admired companies for the seventh consecutive year.

One of corporate responsibility magazine's 100, best corporate citizens and among newsweek's most responsible companies.

We aren't another perfect score on the human rights campaign corporate equality index.

Remember, we named among the best places to work, where LGBTQ equality and.

In addition, various publications continue to recognize our strong leadership as a veteran employer.

All of this adds up to an outstanding E.S.G. record, which is becoming increasingly important to investors.

So I'm really pleased with our accomplishments and looking forward I'm excited about the opportunities we haven't 2020 m. beyond.

We will continue executing on our multi state when investment program, which will provide clean affordable energy to our customers.

Longer term will add more universal's solar storage and from capacity to our system as part of our plan to reduce carbon emissions by 80% by 2030.

We'll deliver on our plan transmission projects, well collaborating with others to solve congestion issues over the next decade. This work is critical to maintaining reliability as more renewables are added to the system and it also creates significant investment opportunities well into the future.

Implementation of our advanced grid program will also keep the grid reliable secure inefficient and allow for the integration of more renewables, while enabling new offerings for our customers.

We will continue working with our customers policymakers and other stakeholders to build nation, leading E V programs, which will improve the customer experience and reduce emissions across the transportation sector.

So with that let me turn the call over to Bob will provide more detail on our financial results and outlook as well as a regulatory update Bob.

Thanks, Ben and good morning, everyone. My comments today will focus on full year 2019 results for details on our fourth quarter results. Please see our earnings release.

We achieved another year of strong operational and financial results. We deliver 2019 ongoing earnings of $2. A 64 cents per share, which is a 6.9% increase compared with $2 a 47 cents per share in 2018.

This result represents the top end of our original guidance range of $2.55 to $2.65 per share.

Similar to last year weather was a positive factor contributing almost seven cents per share compared to normal.

However, we also incurred additional or when I'm expense, including approximately three cents per share due to storms, partially offsetting the weather benefit.

The most significant earnings drivers for the year include higher electric and natural gas margins, which increased earnings by 37 cents per share including rate increases in writers to recover capital investments.

Lower or what I'm expenses increased earnings by two cents per share.

And our lower effective tax rate increased earnings by 15 cents per share. However, the majority of the lower each yards due to an increase in production tax credits.

Which flow back to customers through electric margin and tax reform impact both of which are largely earnings neutral.

Offsetting these positive drivers were increased depreciation and interest expense, reflecting our capital investment program, which reduced earnings by 29 cents per share.

And lower AFUDC due to project timing decreased earnings by eight cents per share.

Turning to sales our weather adjusted electric sales decline by 0.3% in 2019.

We saw positive residential sales across all across almost all of our jurisdictions with continued customer growth, partially offset by lower use per customer.

And then the see an eye space, we experienced discrete declines in certain large customer usage due to cogeneration.

And lower Frac sand mining sales, which cost sales to be unfavorable.

Weather adjusted natural gas sales increased 2.7% in 2019, as a result of strong customer growth and higher use per customer.

Partially offset by the declines in the Frac sand mining demand in Wisconsin.

For 2020, we anticipate electric and natural gas sales growth of approximately 1%, which includes the impact of leap year.

Turning to expenses I want them costs were almost 1% lower than last year, driven by continued efficiency gains in a transmission and in our fossil and nuclear generation fleets.

Partially offset by unexpected storm costs, an incremental spending on strategic areas to enhance the customer experience and further reduce risk in our operations.

We remain committed to improving operating efficiency and taking costs out of the business for the benefit of our customers as we have for the past five years.

And that's a result, our consolidated base over them forecast is essentially flat.

However, we do expect incremental own m. from adding new wind generation in 2020 in 2021, which is largely rider recoverable as wells continue to invest in strategic areas of cyber security wildfire mitigation and enhancing the customer experience.

As a result, we expect total over that makes sense will increase approximately 1% to 2% in 2020.

Next let me provide a quick regulatory update in December the Minnesota Commission approved our rate case stay out proposal, including the extension of the sale capital on property tax true up mechanisms along with a deferral of increases in nuclear decommissioning costs. We view this as a constructive outcome as it will allow us to concentrate another.

Strategic Minnesota activities, including our integrated resource plan, our advanced grid initiative and electric vehicle expansion efforts.

In January the Minnesota Commission approved our affiliate filing for the main Kato natural gas plant and the assumption of the existing P.H.

We closed on the acquisition earlier this month and believe the main Kato asset will bring substantial value and reliability to the upper Midwest system and to our customers, especially as we retire additional coal plants.

As we discussed in the past we anticipate this asset will generate utility like returns over its life.

However, we expect the non regulated returns we slightly lower in the near term and more robust towards the back into the forecast.

We continue to progress we continue to progress on our P. acquisition strategy and we're working with stakeholders to improve the process just your better regulatory alignment, we do not expect to propose future asset acquisitions into the unregulated company.

Moving to Colorado, The commission held deliberations and our electric rate case in December and verbally approved in our we have 9.3% at current test year ended August 2019, and an equity ratio of 55.6% along with other decisions.

We view this support for strong capital structure and progress in improving more current test years positives.

Particularly for the credit support that they provide but we're disappointed in the low or are we which does not reflect our outstanding operational performance and leadership on the clean energy transition.

We are waiting on a written commission order, which we need to calculate the final revenue impacts. However, we expect to seek reconsideration uncertain issues.

We expect new rates will be effective in February 2020.

We also have electric rate cases into Mexico in Texas in New Mexico. We recently reached a constructive settlement that reflects a rate increase of approximately $31 million and our we have 9.4 or 5% an equity ratio of 54.8% and an acceleration depreciation in the top hole plant to reflect an early were.

Tyrant.

Hearings are scheduled in February where the commission decision to follow.

In Texas, we're seeking an increase of $136 million based on a historic test year, an equity ratio of 54.7% and in our we have 10.35%.

The request largely reflects investment for the hail wind project as well as other capital to support strong regional growth.

Intervenor testimony will be filed in February and is in the past what worked to see if we can reach a settlement with the various parties. We anticipate a commission decision in the second quarter of 2020.

We're playing to file several cases next year in February .

We will file a natural gas rate case in Colorado with new rates expected to be effective in November .

We'll also consider falling at Colorado Electric case in the summer.

We intend to file a Minnesota electric case in November and finally, we'll likely filed rate cases in both Texas into Mexico to recover the cost for the Sagamore wind project in the first quarter of 2021.

For the strong year behind US we are reaffirming our 2020 earnings guidance range of $2.73 to $2, an 83 cents per share, which is consistent with the long term EPS growth objective of 5% to 7%.

With that I'll wrap up in summary, 2019 was another great year for XL energy, we delivered earnings within or above our guidance range for the 15th consecutive year, we increased our dividend for the 16th straight year.

We should $750 million of equity representing the majority of our equity needs over the next five years.

Our stock hit an all time high in September and more recently in January .

We achieved a total shareholder return of just over 32% eclipsing that TSR of the S&P 500 for yet another year.

Minnesota Commission approved our acquisition of the long road assets into rate base [noise].

And we put in service three wind projects largely got time in under budget.

We resolved multiple rate cases, and we continue to demonstrate leadership and environmental social and governance arenas, we remain well positioned to deliver on our 2020 earnings guidance range and our long term earnings and dividend growth objectives of 5% to 7%.

This concludes our prepared remarks.

Operator, we'll now take questions.

Thank you [laughter] wed like to ask a question. Please signaled by pressing star one on your telephone keypad.

We're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.

Again press Star one to ask a question.

Well take our first question from Greg Gordon of Evercore ISI.

Thanks, Good morning, everybody.

Greg So it doesn't look like they were any real substantial changes to your medium to long term outlook from from though the your last disclosures. Your your Capex budget is.

The same but you did you did slightly tweak some of your.

Guidance drivers for 20, including you know a modest reduction and an expected on m. growth.

I'm wondering as you as you look this year and then you look out over like a five year planning horizon.

You guys have done a great job as you say it bending the cost curve and controlling costs to reduce regulatory lag and I'm just wondering.

Yeah, you know in general I Wonder about the industry, which is also specifically with regard to excel how as you circle back around to look at your organization how much lead or do you think you can get.

Given improvements in technology and.

You know the cost of.

Deploying renewables et cetera.

Thanks, Craig It's Bob you know, it's great question as we give guidance you know we do expect modest increases in knowing them over the next year two is bring the wind onto the system and we spend some money in very strategic areas like cyber and wildfire risk mitigation over the longer term, we expect to keep Oh and in flat probably beyond the 21.

Period, and that includes you know substantial cost curve bending as we absorb increases in salaries and bargaining unit increases in you know increases from suppliers looking for upticks in our contracts and things like that so it's a continuous effort, but I think the guidance for us is flat and 22 and beyond.

So what is 21.

Great second and last question I think tomorrow, we're expecting unless things have changed right decisions in Texas for two of your competitors Centerpoint any P. I know that you've got a pending case and.

That where decisions not expected to later this year.

You know there has been concerned about regulatory risk, both lower equity ratios and lower or are we use.

In that state Centerpoint looks like they're coming out a little bit better than where they otherwise would have landed but it still you know not not a great outcome relative to industry average how do you think you guys differentiate.

Well I, Greg it's been a you know I think historically, there's been a lot of differences and do a pure T. N D. A utility with no customers in ERCOT like Centerpoint and a vertically integrated a company like S.P.S. outside of ERCOT and.

And you see that you know we've been in front of the regulator numerous times in the last five years and the equity ratios are what they are a as well as the are always so you know I think the more relevant case that I look to us I think about how taxes might get resolved is actually the settlement, we had a new Mexico as you know Greg many.

At the same Interveners in Mexico, [noise] excuse me are going to be the same ones in Texas. So you know obviously look at those cases, but you know we're cautiously optimistic that well have some opportunities to potentially settle the Texas case and in the March timeframe of this year.

Fantastic. Thank you guys.

Thank you won't take our next question from Insoo Kim Goldman Sachs.

Thank you. My first question is on the morning on the 2020 outlook for <unk> the weather adjusted load growth. Okay. Thank you for the color that you gave on what impacted on especially on the electric side, whether it's just a vote or as you look out towards this year and just having gone through just a month of this year.

Because there's still give you confidence that you could achieve the 1% a increase in mode.

The leap year effect.

[laughter].

Yeah into its Bob Thanks for the question and briefly on the call I think our sales forecast is reasonably conservative we did have some discrete declines in our large see an eye customers in 29 team that we don't expect to continue in 20 and underlying those discrete items, we do have strong customer growth, which is slightly.

Lottery and by use per customer, but I think our forecast is as expected and we don't expect to adjust that from from guidance.

Got it. Thank you and my second question in Minnesota, You know with your ongoing discussions on the clean energy first <unk> potential legislation or how does how did the latest discussions fit in with your overall timing shape of fleet transformation that you've played on the RP and do you see you know and if there are changes do you see.

The potential opportunities or challenges relative to their original plan.

Well, that's a really good question I I think clean energy first basically codifies, what we're already planning to do and so.

This would be the second time that it was you know were the state as Lumpiness.

Legislate that clean energy first legislation and I think a there will be some opportunities that come out of it up for us. It's important that we make sure we do this and the most efficient way possible.

We recognize the the very strong importance of our nuclear energy.

And we recognize the fact that as we close and shut coal plants when a voluntary bases to achieve that 80% carbon reduction that our investors have some opportunities to to you know to be rewarded as well so.

Yeah, well see where it goes we yeah, we're going to move forward, we're filing our IR Peep plan and you know that's as you know, that's where we filed it rather and that that'll be discussed throughout the year and its you know I think it's pretty extraordinary plan, which has a lot of renewable some gas.

That's a continuation of our nuclear plants.

So.

I think we're well positioned.

Got it thank you very much.

Thank you well take our next question from Julien Dumoulin Smith of Bank of America.

Julien.

[noise], Hey can you hear me.

Yeah. Good morning Here You Act Hey, good morning. Thank you for the time, so perhaps just a follow up a little bit on the the a tax extenders bill and some of the developments on the P.D.C. I know you guys are all <unk> always vocal about your opportunity as the when side can you elaborate a your latest thinking on Repowering, specifically, given the extension and I know, it's a little early but just all together how do you.

Think about the repowering opportunity in the the P. BYOD strategy at large given the extension.

Well I think it's helpful. I mean, that's the short answer a you know the the.

60% PTC extension allows you to lock in technology through you know 2024 with 60% Ptcs. So I think that'll potentially create some more opportunities to your point for Repowering Julian we as you know we don't have those opportunities embedded in our forecast but.

We are certainly going to be looking for those opportunities.

Got it actually and then as you think towards the the rate case in Minnesota do you want to give any kind of practices as to how you think about that you know again, obviously being pushed out but any parameters you'd think about in setting expectations going forward and in that case, specifically I know you just alluded to some potentially on the.

Last question here, but maybe.

Maybe just to start to open up that conversation.

Well I mean, you know Oh, we pushed it out a year and I think the terms were constructive we you know unless we can figure out a way to push it out another year or will file in November .

With interim rates to go into effect in January of of I guess I would be 21.

So I don't really have much much more details the not.

We were pleased to work with the staff and stay out I think that allows us to focus on you know the resource plan and and Ah, It's nice to be able to take a little burden off the stuff to its they've got quite a workloads. So could we stay out another year, well I don't know, but but I guess.

I can add much more color than that drilling that's where we are.

That is fair alright excellent. Thank you guys.

Thank you we'll take our next question from Travis Miller of Morningstar.

Hi, Good morning Traveler night.

Hi.

As you're looking in the industry, obviously are quite active both solar and wind.

2020, and 2021 as you're negotiating contracts, both regulated and possibly be P is outside of those.

What are your what are you, saying just in terms of cost comparisons where costs are going when Dan solar are they still going down or they're changing terms just wonder if you could characterize.

What you're saying.

Going 2020 and 2021.

In wind and solar.

Well I think you're still seeing the technologies fall and price. The you know you. You then have to match that up with the you know where we are with P.D. season, Itcs, but as we just talked about that 60% extension I think is gonna be helpful.

You know a without that 60% PTC extension Travis I would have.

Told you that perhaps we'll see some bump up and win and we still might.

Which is why I'm really pleased we locked down 100% I think that's no regrets strategy in every sense of the world word.

But I think the technology is still gonna Pete compete head on with fossil alternatives, even in a low natural gas environment.

Course, the key that I think it's important to that is that we will put more renewables on the big grid that we're all connected to it than anybody else, but we're going to need more than just renewables and battery storage renewables will be our biggest source of energy by the mid Twentys.

But as you see in India are I.P. in Minnesota, and will well dressed as in Colorado next year. We're also going to need the backup that when a with natural gas and then also when they were going to need to start developing.

Acknowledges carbon free Dispatchable technologies that will allow us to achieve our goal of a zero percent carbon system by 2050, So maybe that's a little bit long winded, but that I thought I'd throw that out there for you travel that's the plan.

I will also known as rather our industry is really really stepping up to the challenge of carbon reduction I mean, we're proud of than the first is to.

Establish the goal, but if you go down the line and add up what utilities are doing it is really significant and I'm quite proud of this industry.

Yeah, you're trying to.

<unk>, Yeah real quick you know our year over year fuel cost decline was about $325 million and well half of that was just lower commodity prices natural gas and coal. The rest of that is our steel steel for fuel program coming home to roost to the benefit of our customers and while we are investing steel in the ground.

Alan and have capital cases for recovery, you're seeing the real benefit on a few allied and that does it screen attribute that does accrete to the customers and provide some headroom in the bill for US for continued investments in the distribution and transmission grid, which we know we need.

Okay, great. Thank you and then did I hear you correctly, you do not plan on any unregulated renewable energy acquisitions, what you would possibly keep doing the P type acquisitions.

Just make sure there's no change there.

From what yourself.

Our goal is to look for P.P.A. buyout opportunities are repowering opportunities or with the benefits flowing to the customers. So that means putting them in a regulated operations and into rate base. That's always been the plan of course, we you know we offer.

That is well for a gas fired plant and then Kato and the commission decided the benefits, which were primarily backend loaded weren't sufficient enough to go forward. So we made this decision that we would the asset was important and often we thought valuable enough that we would hold it in our portfolio, but as a non regs selling into.

To the utility under a long term power purchase agreement, but I.

So I view that more as an anomaly than anything else and I would challenge any anybody to find a utility that is more focus and more has more of their growth 100% other growth coming from regulated operations that there's no no body, that's more pure play and vertically integrated clinics.

So energy and that's the way, we mean to keep it.

Okay, great. Thank you very much.

Thank you well take our next question from Ali Agha of Suntrust Robinson Humphrey.

Yeah Ali Thank you hi, good morning.

First first question you know in 2019 as you noted.

In the slides.

Okay cool level are you learned at 9.26% out or we can you just to remind us.

What I found out are we is embedded in your 2020 guidance.

At the local level.

Yeah Ali it's Bob.

You know our weighted average.

Ah regulated are always about 9.4% across all of our jurisdictions and we still have you know approximately 50 basis points of leakage and lag in that so you know high eights, it's probably a good number right now.

I see as well do you expect a little bit of leakage on a reduction from 19 ended up money.

I do mostly driven by a lower or are we in Colorado Electric case, you know we're still working on trying to close that are are we gap and we think we have some opportunity over the longer term to do that.

Oh I I think it's important to note, though that you know we are I will tell you. We are disappointed in the in the order we received in Colorado, but as but as Bob mentioned you know the there were some.

Positive things there too, but you know as you as we're into you know the end of January and Weve see the puts and takes that that we've had so far I would tell you that were solidly positioned to be in the middle of our earnings guidance range.

Okay.

And secondly, I know, you'll get him 20 to 24 cap ex five yet as I've said on 22 billion and Ben you alluded to you know looking at additional opportunities or whether its renewables et cetera, if they do arise.

Just from a constraint perspective in terms of whether it's Rick is I mean, returning back to customers or balance sheet et cetera.

How much can you stretch that 22 billion, if they would opportunities or do you don't see any constraints tonight opportunities are there.

Well I don't if the right opportunities are there there are no constraints and you know we're focused on capex that helps reduce total bills for our customers and where we can find those opportunities. If it's a P.A. buy out that's great. If it's you know trading on M. for capital that's great. If it's more steel for fuel.

With that saves customers money on their fuel bill more than offsets the capital cost and the associated return that's great. We're always going to be looking for that and you know and longer term how do I think we're in the early days a beneficial electrification and you know saving customers money on their total energy Bill a would.

These and other opportunities so no I mean I'm excited about the capital opportunities, we have to invest and and I think we've demonstrated we can grow our regulated rate base again, that's a 100% of where we get our earnings from and and keep our bills flat for our customers.

Okay and last question again, a quick reminder, when you when you look at this 5% to 7% growth rate darned, good but you laid out can you remind us.

As you stand here today, and you look at the opportunities on the Capex.

You.

Comfortable in the upper harmful stent range the highest end of that range can you just remind us.

Where you stand on looking at the gross it up from where we are today.

Yeah, I think we're positioned to be on the upper part of the range.

I mean I'd.

Yeah, Bob and nor do you have any thing that.

I agree with that.

So higher then is the way we should think about it.

Yep.

Thank you.

Thanks all.

Thank you well take our next question from Sophie Karp of Keybanc.

[noise] Hi, anything you can do so.

Oh.

Most of this topic I think I guess, but I just wanted to healthy.

A lot of background noise, we can hardly hear yet.

[noise] every week.

[noise] can you hear me now.

Much better.

Oh, sorry about that so.

I've been Scott, but I just wanted to circle back quickly on Colorado.

[laughter], we're gonna their regulatory environment in the state is going Directionally are you guys would be.

Washington, REIT decision and that means a deferral boulder.

It wouldn't be fair to say overall, it's I'm getting more difficult, maybe where it's not no I think.

Yes.

No I don't I wouldn't categorize it that way you know boulders been we've been talking about Boulder for 10 years, now and probably be talking about at least for another five and that's more centric I think too.

Boulder, and and and and a you know we continued to I think do quite well in a legal bases. There with you know supportive commission decisions as well.

As far as the regulatory environment in Colorado, Yeah, I mentioned, Bob and I. Both did were disappointing and a nine three or are we we think we're one of the best performing utilities in the nation and and Ah that already or are we quite frankly doesn't reflect that so you likely look for reconsideration.

And on that but longer term Sophie.

I believe that what we're doing it and what we're doing was codified into law last legislative session. A were highly aligned with what our customers and our stakeholders want to see in Colorado and when I think about how you achieve long term success. That's exactly how you do it align with stakeholders and then execute on a Chris space.

It is and that is what excels join and I think that that bodes well for future success.

Terrific. Thank you.

Thank you well take our next question from Andrew Levi effect for this point.

Andy how are you doing.

Good to asking about the growth rate I guess, I always [laughter] point handy what about the dividend. It [laughter] Ben I just wanted I'm really to get your thoughts on this.

Obviously, I didn't catch him to yesterday.

Kind of ticking up.

A big.

They grow with.

As far as how people are testing.

But I guess another part that's been talked about relative to your natural gas.

And whether it you know as LTC, whether it's mid stream, whether its fracking, whether it's even using it in Europe power plant.

As a fuel.

I just wanted to get your thoughts just on natural gas as the commodity and whether you think it's clean or dirty or alright, and then you know the context. The P.S.G. if you kind of agree.

With some people's views that it's a dirty fuel.

Yeah, well, Andy I think that is a very good question. It's a it's it's a challenging question because.

We're going to need natural gas to achieve that 80% carbon reduction that I mentioned and you know early action is pretty darn important and in addressing the risk of climate change.

So you'll get we're gonna get pushed back on natural gas, but I think the key is to make sure that people understand you shouldn't make perfection be the enemy of a great plan and we're moving away from coal completely here in the upper Midwest That's the plan.

We're going to need gas to back it up we had this time last year, we run a polar vortex.

Reliability is critical.

You know so I think we've got a really pragmatic plan our challenge as an industry Andy is gonna be making sure that people see that you know 2050, so long way away, we're going to need different types of innovation will put as much renewables and battery storage on the grid, but experts tell us that the big grid that wall.

Connected to does get saturated but.

The 10, 10 10, depending on where you are in the country between 50 and 70% that's amazing yeah, that's the big grid.

But that's where were good but after that we're going to need things to back it up and ultimately new technologies. So you know as part of you know the leadership of the Guy that's a message I want to get out there now as far as the L.D.C. goes and as far as using natural gas I think our industry needs to be more demanding upstream methane.

Issuance I think thats really important and we can do something about that we need to double down on energy efficiency on the gas side and then ultimately I think we need to look at a potentially using renewable gas or hydrogen and you know made out of a carbon free energy and other things and start blending that in the resource mix I will also tell you.

That here in the upper Midwest heat pumps and things like that are pretty tough to make work at least with today's technology. So you know when we got to keep customers warm. So it's a challenging issue, but I think with the right messaging and and and demonstrating we've got a great plan.

I think we can persevere.

They keep and that was actually a great answer. Thank you. Thank you.

Thank you we'll take our next question from Paul Patterson of Glenrock Associates.

Hey, good morning, how you're doing well hey, Paul.

I'm just I'm really quickly on on Alley all goes.

Yes, I would just wanted to follow up are you guys, indicating that you in general just to make sure I understand its <unk> you don't expect any.

<unk> increases.

When everything is factored into it fuel and everything else.

With respect to.

To your regulatory objectives are your.

Your Capex objective.

Paul I hope I didn't give that impression I mean <unk>. Our goal is to keep our our total bills to customers out or below the C.P.I. index and if you look back on some of our you know like on our Investor deck, you can see that we've done that over the last five years.

Now you know what the other you you will see increases as well in the kw age right.

But remember that's only one component of a total bill so we're really focused on keeping bills again.

C P I or less as we go through this timeframe in our analysis says we can with the right deployment of technology and supportive public policy.

That's really important because you can also make it much more expensive than it needs to be.

But and that's where we are.

Okay and is there any thought about baby going to sort of a P.B. yours, CPR minus X or.

Something like that if that sort of the objective maybe maybe not have all these sort of rate cases the rate proceedings.

Oh, you mean like change the regulatory compact for something around that held back so much as just the regulatory I mean, you guys are going in all the time for rate increases or rate cases, if you follow me and they're kind of you know there you know more about that I do they can be kind of technical and and you know what have you in some places around.

In some jurisdictions internationally, you have something like a CPR micex where basically.

This sort of performance based rate, making sort of thing where you where you rates do.

Place is take into account in terms of where do your rates are set.

Honestly.

I don't know just was wondering if there's any thought about something like that or.

Well I mean, we're always open to new ideas, but I I think you have to you have to be pretty cautious when you start addressing those sorts of things Paul and then and you know we.

We do file a number of cases and <unk> that you know we spend a lot of time on calls like this talking about it but we've got a great track record of managing that and we got to I think a very good track record of aligning with policymakers, which again on the long term basis gets you where you need to be so you know my experience.

In some of those mechanisms aren't necessarily good for the companies that have them that have those in place they can be but they can also be.

Oh harmful as well so sure sure I've just I was wondering if there's any thought about that that's all I don't I used to so I just.

I just thought I'd ask that that's all.

That's right, making is great, but sometimes it's not symmetrical I guess, so that's you know so we're pretty pragmatic about that.

So and then in terms of.

There's been some some questions about as you know coal and coal dispatch and you guys major filing in December .

In Minnesota I'm, just wondering if you know going forward you see additional activity in that or.

Anything that you guys are looking at in terms of in terms of coal plant retirement, any sort of flexibility that might be worked into in terms of potential or additional savings that might be enhanced by I know you guys are looking at all the time, but.

In terms of coal plant retirements or dispatch changes that might also drive.

Savings or.

For customers are for you.

Should we think about that.

He is there anything any other than what you guys have been doing for some time that was there any additional sort of things on the horizon.

Well I mean first of all thank you for recognizing what we did with our coal plants up here I think you know I mean, I think that working with the commission here I thought that was a great example, a partnership.

And moving from must run to economic dispatch I think that was positive first step you know the the commission is very interested in and understanding how you know.

A pause in coal coal dispatch could work as we start to ready for the day when we don't have any coal in the upper Midwest. So I think it's you know the Midwest from way to kinda.

No.

The pragmatic about how we Oh, we approached this going forward and to your point, Paul I think there are opportunities across our system to look at how we dispatch our coal plants.

Particularly when you look at you know the the variable cost and things like steel for fuel and renewable energy. So we're definitely looking at that in down in the S.P.S. region. We've got some water issues that we need to address.

And that could be solved with some seasonal dispatch so again with economics in mind. So yeah. This look for us to to look for more opportunities like we're doing here in the upper Midwest.

Okay, great fix what.

Alright, thank you.

Thank you we have no further questions in queue I'll turn it back to Bob Frenzel for closing remarks.

Well, thanks, everyone for participating in our call. This morning, we look forward to seen you out on the road this quarter.

Please contact our Investor relations teams with any follow up questions.

Thank you.

This concludes todays call. Thank you for your participation you may now disconnect.

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