Q3 2020 CMS Energy Corp Earnings Call
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Good morning, everyone and welcome to the field much energy 2023rd quarter results.
The earnings news release issued earlier today and the presentation used in this webcast.
Our available on CMS Energy's website in the Investor Relations section.
This call is being recorded.
After the presentation, we will conduct a question and answer session.
Instructions will be provided at that time.
If at any time during the conference you need to reach an operator. Please press the star key followed by zero.
Just a reminder, there will be a rebroadcast of this conference call today, beginning with 12 PM Eastern time running through November 15.
This presentation is also being webcast and is available on CMS Energy's website in the Investor Relations section.
At this time I would like to turn the call over to Mr. Sweeney Multiparty Vice President of Treasury and Investor Relations. Please go ahead.
Thank you Rocco good morning, everyone and thank you for joining US today with me are Patti copy, President and Chief Executive Officer, and Reggie Hayes Executive Vice President and Chief Financial Officer.
This presentation contains forward looking statements, which are subject to risks and uncertainties.
Please refer to our SEC filings for more information regarding the risks and other factors that could cause our actual results to differ materially. This.
This presentation also includes non-GAAP measures reconciliations of these measures to the most directly comparable GAAP measures are included in the appendix and posted on our website now I will turn the call over to Patty.
Thank you Sherri and good morning, everyone. We hope you're all doing well and thanks for joining us today for our third quarter earnings call. This morning, I'll share our financial results and outlook for the first nine months of the year.
We also introduced our 2021 guidance review our capital plan like support supports our de Carbonization efforts and I'll touch briefly on our regulatory calendar Reggie we'll add more details on our financial results and as always we'll close acuity.
We are happy to report that for the first nine months of the year, we delivered adjusted earnings per share of $2.11 up 17% from the same period in 2019, our year to date results were driven by our team's best in class cost management to CE way.
Given the risk mitigation plans for this year and our visibility into next year, we're pleased to reaffirm our adjusted guidance for the year up $2.64 to $2.68 with a bias to the midpoint and introduce our adjusted guidance for 2021 of $2.92 to $2.86 up.
You guessed it 6% to 8% from the midpoint of our current guidance range. We continue to target long term annual earnings and dividend per share growth of 6% to 8% again with a bias to the mid point, which I will remind you reflects both consistent and industry leading growth.
We remain grounded in our commitment to the triple bottom line people planet and profit were committed to diversity equity inclusion and are doubling our spend on diverse suppliers over the next five years after having tripled our spend over the last seven.
Just last month, the Governor of Michigan announced a stated goal to reach carbon neutrality by 2015, which supports our clean energy plan and all the actions we've already taken to protect our planet and reduce our carbon footprint and before moving on I want to highlight the over $100 million and cost reductions realized year to date due to see.
The way this is a true testament to the maturity of our CE way mindset and just what this team is capable of when call to action.
My quick story of the month is from our team at Filer City generating station, who identified a shorter routes throughout the building to perform operate around this.
This team eliminated over one hour or 2500 steps on each shift.
The annual mileage savings are equivalent to the distance from the southern border of our state all the way to them economic rich now that's not to write home about step by step minute by minute dollar by dollar it all adds up to the CE way.
Our team has proven that we can put the pedal to the metal on cost performance to deliver the required results now and in the future.
Our commitment to the triple bottom line shine through in our capital investment plan that focuses on enhancing the safety and reliability of our system, while keeping customer bills affordable protecting our planet and delivering for our customers and investors as we move toward net zero, we benefit from a regulatory construct and mission.
And a statute that allows for the financial incentive above and beyond our current authorized our OE. These include a 20% return on our energy efficiency spend as we help customers reduce energy waste and lower their monthly bills, a financial mechanism equal to our weighted average cost of capital on new renewable PPA case.
And a premium hourly of 10.7% on renewable investments to meet our 15% renewable portfolio standard in Michigan, all of which illustrate that we can deliver reliably on the triple bottom line, what's good for our people and the planet can also deliver top tier profits. It's no wonder we are.
Considered a leader in ESG.
By 2024, we will have added 1100 megawatts of solar to our system on top of one gigawatt of Rps renewable since 2011, our clean energy plan calls for a total of six gigawatts of solar additions to our system or $3 billion to $6 billion of investment opportunity through 2040 as we.
Move forward and file our next I RP in 2021, we'll look to realize some of this opportunity and pull it into our plan as utility scale renewables continue to make triple bottom line sense.
Our commitment to serving all our stakeholders has not gone unnoticed, we have been recognized nationwide for our good efforts and slide seven celebrates that recognition, including that as of 2019 CMS energy received an MSC ESG rating of double A.
Moving on to our regulatory calendar, we settled our gas rate case last month, an agreed not to file another gas rate case before December of 2021, we expect an order in our electric rate case, and an outcome on our securitization filing by the end of this year. Following that we will not have any general rate case decisions impacting our 2012.
Anyone earnings, which provides further visibility and economic certainty throughout next year.
Turning to my favorite slide slide nine reminds you of how we manage the work intra year to mitigate risk in future years and deliver the financial results you've come to expect so in a year like this year. When we have seen an enormous amount of headwinds our team hunker down and exercised our lean operations define and eliminate way.
But the pending retirement of our car and call facilities, which commenced in the fourth quarter of 2019.
Year to date, we have delivered adjusted net income at $605 million or $2 11 per share a 17% from the same period in 2019.
As pending noted we're trending well in large part due to our companywide efforts and cost reduction largely driven by the <unk> way.
As you know we continue to monitor our electric sales of utility closely given that the pandemic is not yet fully contained and we remain encouraged with the trends we've observed across each customer class over the course of 2020 on flight 11, you'll see that weather normalized electric sales were up roughly roughly half of a percent.
For the quarter versus the third quarter of 2019 with the residential segment continuing to lead the way up 6% for the quarter versus the comparable period in 2019, the commercial and industrial segments continue to recover down, 4% and three 5% respectively versus the prior year, which aligns well with the face.
Re opening of Michigan's economy as.
As noted in the past the weather normalized industrial in total electric sales I just quoted exclude the effects of one large low margin customer.
As we look ahead to the fourth quarter in 2021 were cautiously optimistic about the normalized trends we've seen so far in 2020 with normal lines load for the residential segment continuing to outperform expectations, which I'll remind you offers a higher margin than those of our commercial industrial segments and has historically represented over 60% of our customer.
Contribution.
Turning to our waterfall chart on Slide 12, you can see the current unexpected drivers of our year over year financial performance.
As mentioned cost performance continues to be key factor to our financial results for 2020 and is Patty noted we have delivered over $100 million of savings to date. The vast majority of which is represented in the 28 per share a cost savings highlighted in the table on the left hand side of the page and more than offset the pandemic related expenses incurred.
To date and mild weather experienced in the first quarter.
Relief net investments and less storm activity relative to the comparable period in 2019 provided 13 and five per share a positive variance respectively. In the first nine months of the year with three months ago. In 2020 will plan for normal leather as we always do which implies <unk> per share of negative variance versus the prior year.
And is more than offset by the constructive outcome, we achieved in our gas rate case settlement, which equates to seven per share pick up in the fourth quarter Needless to say, we will remain paranoid by maintaining sufficient contingency to mitigate the inherent risk to our business such as weather and storms as well as a potential resurgence of virus in Michigan.
And we will concurrently reinvest any estimated excess contingency to provide near and long term value to our customers co workers and investors.
As we look out longer term, even with our significant success, reducing costs in 2020 and in years. Prior there is still ample opportunities to reduce costs to create headroom in customer bills for future capital investments as a reminder, the expiration of our large ppas and the retirement of our call fleet offer sustainable cost reduction opportunity.
<unk> over the next several years.
We'll also realized capital enabled savings as we modernize our electric and gas distribution systems and will continue to reap the benefits of the ongoing maturation of the <unk> way you can see the long term effects of our historical cost reduction efforts in the chart on the right hand side of slide 13, which highlights that we've kept customer bills low on an absolute basis.
And the relative to other household staples in Michigan from 2007 to 2019, while investing roughly $19 billion of capital and our gas and electric systems over that timeframe. In fact in 2019, our utility bills made up approximately 3% of household expenditures in Michigan down a full <unk>.
Furnish point from the 2007 level Rappen asked whether we can sustain are consistent industry, leading growth in the long term given the widespread concerned about economic conditions or potential changes in physical energy <unk> environmental policy you named the risks and I can assure you we've heard it before.
Well the reality is that change is the one constant that you can count on in this business and we will continue to adapt to the inherent risks and other external factors that may impact our business and still deliver for our customers co workers the planet and our investors as we have for almost two decades now as illustrated on page 14.
And with that I'll pass it back to Paddy for some closing remarks before we open up the lines for Q&A.
Thanks strategy.
Simply this our model holds together well and that's why this thesis remains strong with that Rocco. Please open the lines for Q&A.
Thank you.
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And our first question today comes from Jeremy It with.
Please go ahead.
Hi, good morning.
Good morning, Jeremy.
Okay.
Just wanted to shut off.
You might be able to provide us some thoughts on what the next IOP filing could look like and any more color. If you seek opportunities further accelerate cole retirements integrate renewables more and include storage as part of the resource Mixner.
Yeah, Jeremy Great question, we're excited about our next fine of our IP, which will be mid year 2021, we're still in the modeling face. So now early read just yet, but I will say, we're hopeful that in the outer years in particular in our first filing.
We had about 450 megawatts of storage I would love to see more storage in the outer years, we were requested in our settlement and agreed to study earlier retirements of some of the other coal plants, but right now our plan remains the same but certainly when we know we'll let you know and we're excited about that.
The potential is that new IR PNY to offers too.
Benefit the planets and the cost structure and our customers, it's really a great.
Time in this business.
Got it and the extent thanks for that and then separately just wondering if.
If you could provide a bit more detail on the benefits at 6% uptick in residential sales has had on the electric margins and really just with this increased residential skew in customer mix.
Sales and the cost cutting you've achieved so far just wondering how we should think about that how that might impact upcoming requirement.
Jeremy.
We talked.
Talked about in the past the impact that the residential segment has at our electric business and so the general stomach you are thinking about the annual impact as a 1% change in residential equates to <unk> of EPS accretion and that's the metrics so up or down.
And for industrial on the other side it's about.
Have a penny for 1% change commercials, all closer to residential so it does have a pretty good impact.
And as you think about the road ahead I'll just remind you the electric case that we have pending that has a four test here, which reflects all of 2021 and so we are contemplating at subsequent file on the heels of this electric rate case, and so that will obviously have an impact on 2022.
But if we continue to see a trend like we've seen over the course of this year. It could provide a potential tailwind in 2022, but we're still and obviously the early stages of our planning process for 2021, but I would say the electric rate case that depending on.
The order on that will obviously dictate a lot of our economics going into 2021 and the existing gap settlement that we've already got provides a lot of economics going into 2021 does that address your question.
Yes, that's very helpful. Thanks for taking my question.
Thanks, Jeremy.
And the next question today, Mrs. Merkel lines name, where credit Suisse. Please go ahead.
Good morning, Michael.
When we might go with your line on me perhaps.
Okay, I'm sorry about that.
Good morning.
Was wondering if you could comment a little bit on whether you might be considering.
Right plan going forward I know you have solar test years.
Annual rate cases of worked out well company.
Especially in Michigan, which is pretty favorable state for investors, but.
There any has there been any consideration for some type of multi year situation going forward.
Michael you make a really good point and the fact that we do have forward looking task years, and so what we like about our annual filing is first of all just because we file.
<unk> case doesn't necessarily mean customers bills are going up and is Reggie described in his prepared remarks, we can deal capital investment in this this business model of ours were cost savings are passed along to customers has to occur in those proceedings and so our annual filing provides us to.
What I think are big advantages, particularly given the certainty of the regulatory environment here in Michigan, one that we have alignment with the commission before we spend it so we have no risk.
Post Ah right order that will have disallowances, we have alignment on the work that we're going to do we have alignment on the investments that we're going to make and so that is a real certainty going forward, but you would also allows us to adjust to plan as conditions change and we can pass along the cost savings that the team achieve.
While we're adjusting those plans and so we can build a budget. We can build an operating plan that matches and agreed upon framework with the commission and so I think thats. Good regulation I think that's the right kind of transparency the right kind of certainty and yet at the same time demonstrates agility as we move forward in conditions change around.
I do think it's in the best interest of our customers.
Great and also for the.
Plan for dig.
As you go forward with the LCR upheld by the Michigan Supreme Court.
Do you think you'll be trending more towards the upper end of the opportunity range of three to 754.
Yeah exactly Michael in October 21 for example, we secured some contracts.
For planning year, 24, and 25, and 25 and 26th at 425 $4.25 a kilowatt months.
Security about 30 megawatt so we're definitely seeing that kick up that wasn't all the way it calmed, but with the LCR. There's only a few places within zone seven witches, Michigan's lower peninsula, where an alternative energy supplier can take care of that capacity and dig. It's one of those places and so we've absolutely already seen a little bit of that upside.
Great Great and.
I guess that's about it for now thank you very much great. Thanks, Michael.
And our next question comes from sharp Razor Guggenheim Parkers. Please go ahead.
Hey, good morning, guys Morningstar.
Just a couple of questions here.
So just some equity you. Obviously has you didn't have any equity in 19 that was deferred to 2020.
250 millions planned for this year.
Just remind us what is your new 21 guidance embedded in terms of equity and how we think about sort of the perpetual need as it should we just assume around the uninteresting million dollars per year levels set for.
For 2020, excluding the 2019 that you deferred into 2020.
Sure just to be clear we haven't provided.
Ain't a view based on our latest modelling for equity needs and 21 and beyond but I think the working assumption that we provided as we rolled out our five year plan in the first quarter of this year. We should 250. This year as you rightly noted and then we said run right 150 per year that presuppose, a 12 2 billion five year capital plan to Utah.
<unk>. So as you know we provide a new five year look in Q1 of every year on our fourth quarter earnings call in so willman calibrate will look at what the capital plan looks like from 21 through 25, and if that dictates additional equity needs. Then we'll adjust accordingly, but I will say this I feel very confident and this has been our general rule of thumb.
That we will be able to continue we need to increase the equity needs to align with the capital plan, we should be able to continue to avoid block equity and really just being able to execute our equity needs through our dribble program, which are generally like to think is around 152% of our market cat. So we feel that the equity.
These may change will see with a math ends up in our five year plan, but I don't expect us to be additionally material amounts of equity every year going forward.
Got it got it and then just the cost savings you called out of $100 million savings in 2020 actively being reinvested how much of that is the first mortgage bonds opportunistic refinancing year to date and how do we think about sort of that being worn time versus sort of perpetual nature I mean, what types of.
Things are you learning as you move past the crisis stage of Covid.
Yes, it's a great question insurance several I'd say generally when we will.
Look at identify and realized cost savings or two classes. There are operating cost savings and non-operating cost savings what we highlighted in our prepared remarks and this has been an ongoing theme over the course of this year as well as in queue too.
The vast majority of the savings realized today have been operating savings there have been some not operating savings. So you probably saw in a waterfall slide that worried about.
The benefits those are clearly non-operating in that industry and the team and treasurer, you've been really quiet opportunistic and executing on very attractively priced financings over the course of this year I can come back to the exact EPS amount I think we had about a penny or two of upside this year.
And we do anticipate a good portion of that being ongoing and sustainable because the reality is if you price a bond below plan, particularly with the recent you obviously have their savings over the life of the bond now obviously, our debt financing needs will increase to fund capital until you have some new money in there, but the <unk>.
<unk> those those lower bond financings, particularly pull forward a bond maturity's, we have in the past those savings you should get for several years.
Got it perfect and then just one last one for me on sort of the load growth.
Obviously, you reported very healthy whether adjusted both numbers in the third quarter.
<unk> on what you are embedded in the guidance for 21, what are you assuming as far as covid related batch of the kind of slightly alluded to it a little bit in the prepared but are you assuming sort of V shaped recovery, which is I think a lot of your period is seeing are you eating sort of a more gradual pick up like what's kind of embedded in plan.
And then you touched a little bit on the contingency there but.
It seems like from what you are highlighting the ability to see another protracted downturn or you've been to a weakening in the residential market that you haven't much levers to offset sort of that headwind, but I don't want to leave the witness ready to see you go.
Yeah. So.
Approach that in a couple of ways Shar. So first there are all say the sales assumptions embedded in the pending electric great tastes, which will capture all of fiscal year 2021, and so we're past the evidentiary phase I don't want to prejudge, a foreshadow where the commission may end up but I think clearly there is.
A change.
In the assumptions embedded in the rate case, and then what we've observed over the course of 2020 in as we've talked about the last several quarters now we are seeing a favorable mix in the form of residential in excess of expectations and C&I I'll play slightly down now the variables, which could lead to a tailwind.
In 2021 is clearly residential we've seen just this sustained level of residential non whether uptake and I think it has a lot to do with remote working a number of companies a sustained that and we said we have a sense. They may sustain is even post pandemic and so that could provide.
A a tailwind going into next year and.
And then the.
Right or pace at which C&I has recovered over the course of this year has also been a little bit of surprised to the upside and so going into many here. There's what's embedded in the rate case into there may be a little bit of upside there. But then if you think about okay. Now that we're 10 months smarter since we filed a rate case, what are we seeing and.
And how do we think that compares to what we've seen over the course of 2020 and I'll say, it's fair to assume that.
The pandemic started out in the mid March timeframe in Michigan, and we had the shelter in place in late March and so a lot of the effects of the Pandemics are flowing through our 2000 2000 forecast until when you think of the year to year comparison.
I don't expect we'll see a material bump in residential versus what we've experienced so far 2020.
Because again a lot of that is already reflected on our numbers, but I do think C&I, we will see I think it could be flattish I hate to put a letter to any type of shape of the recovery I would say the Nike and it seems to me that would be the most applicable shape. I've also heard people talk about a K shape, because you will have some sectors of bounce back quickly and some that do not and so.
I'd hate to hazard, a guess at this point, but I think it will be a gradual recovery and a continued recovery for C&I that we've been surprised to the upside the head.
Pandemic is yet to be contained so.
And cautiously as we always do.
Terrific. Thanks, guys Congrats again.
R.
Okay and the next question today comes from there. It goes to go with a report on its own.
Please go ahead.
A good morning G G.
Good morning to Big Big two questions one.
Elections around the corner just can I get your thoughts the opportunities and risks the climate planning a potential tax changes I appreciate early but just any thoughts there.
Yeah, you bet at the highest order you know.
As we have always said, we work with everyone.
So we're sure that America will sort out all of this election business now.
No I think what to expect from Donald Trump and his administration.
And that's been working fine for us.
If Joe Biden is elected and there's a stronger.
<unk> for clean energy transition or a carbon free electric sector. We have a plan that's pretty aggressive already we have a plan that gets can net zero by 2040, and so even when he says 20.
35, and kind of campaign ads the idea as it really being national at 2035 seems aggressive, but we could actually.
Work to adapt one thing we'd like to remind people about this is that as we make this clean energy transition and we've been very ambitious as you know we've retired seven of our 12 coal plants already reduced our carbon emissions by 40% are net zero plan for 2040 puts us again in about a decade ahead.
Most in the industry and so given that.
We feel like there's a need for some technology advancements in those outer years and when those breakthroughs occur and as the cost of solar and potentially storage continues to decline, we'll look forward to accelerating our plans and we know that that can be good for both for our triple bottom line people.
Paul Planet and profit so we're pretty.
Agnostic on the outcome in the elections, we think theirs.
Clean energy plan stand on its own.
Reggie maybe you wanted to talk about some of the tax implications of a bite and administration I'd be happy to.
So <unk> you know the Bible team has rolled out at least a preliminary look on.
Fiscal policy and so what we've seen as a potential increase in marginal tax rate from 21% to 28% and since.
Federal tax performance in the too distant past Europe may recall, just sort of puts and takes it we saw there and so I think.
Conceptually you can anticipate that there may be a right and Craig rate increase.
Obviously, the inverse of what we saw we went from a 35% tax rate down to 21% and so they're potentially be a rate increase in the commission in Michigan was very thoughtful and how they incorporated that into our filing process and I anticipate that they will probably take a similar approach.
And so obviously that will eat into headroom, but I think we've proven time and time again irrespective of the headboard and we'll manage the cost to make sure that our customers.
Will stay at or below inflation, and so there will be or are likely rate impact that you see an increase in tax rate down. The upside is that there was cash flow and credit metric degradation on the hills is federal tax reform. So if you see a 7% increase in the marginal tax rate you should see a cash flow benefit as well as some credit metric accretion.
On the other side of that and that will put that presumably lower our funding costs and that too will offset from the rate impact. So I think you'll see some pros and cons and it's almost the inverse of what we saw when we had federal tax reform and 17.
Understood Alright, thanks, Thanks for all the color.
One quick follow up just on <unk>.
Strategy and long term strategy. So a couple of transactions here your date portfolio optimization company's going to.
Streamlining the businesses setting nonregulated businesses Yo.
Mostly latest thoughts on interbank and your other nonregulated businesses.
How does it fit into your long term value proposition and then just just flipping the coin then and then perhaps even opportunities for expansion, giving sort of.
The multiple you are trading at verses peers.
Well great questions. Your gas first of all the interbank team shout out to that came there performing well and benefiting from this year actually from the uptick in home improvement.
I have heard of impact it's called investing in nesting and interbank is.
Being.
Participating in that so that's been good but.
Really divider mine is this we're very content with our business mix, where it is and I just wanted to remind everyone to our utility is far and away the driver of our growth at CMS energy with 90% of our business mix.
And really so to that and there's really nothing new to share about our nonregulated businesses and we just we manage I'm very much like we manage our utility business with consistency high quality off taker as long term contracts leveraging our core competency downside risk management know big bed.
We like our mix.
Excellent and just maybe any thoughts on potential expansion M&A.
And just ends up not really being on the top of our list given our organic growth strategy, we've got ample capex to deploy.
People ask us because of the way is that something you could deploy and maybe someday, we would want to but that's a long time from now we really we have a solid five year capital tenure capital plan.
In the next five years, we have got real visibility to our ability to deliver growth and shareholder value.
I appreciate the time that it. Thanks, so much you are welcome.
I have a question today comes from Jonathan with vertical research Burgers. Please go ahead.
Good morning.
Hey, Jonathan.
Just a quick one on the.
The three 6 billion property that you called out the renewables.
Oh, it sort of fits on the top of the 2040.
Slide in his curious how much of that is in the county versus.
In the subsequent yes, yes, great question.
Have a $1 billion actually one $8 billion in renewable.
The five year plan and.
The 10 year plan, we have potential for additional maybe even up to $3 billion of the total renewable and the 10 year plan and so when we think about the three to 620 40, that's another 10 years, but our solar deployments our front end loaded we have of our 6000 megawatts.
Solar we intend to deploy by 2000 45000 out of his by 2030, so that really makes up and that's already in our 10 year plan, but we'll share more visibility to that when we update the capital plan at the year end call.
Okay, great. Thank you for that and then.
More high level, you'd be very clear that you're going to be using.
Outperformance you've had this here in the south out to reinvest not just give us 2021.
Beyond and.
I'm curious to the Y while I have a range.
Thanks growth.
Well I know it just target seven.
The second.
Secondary to that.
What could potentially push you too.
Given year.
Seeing how are you handling this year for example, yeah.
Yeah, and I will remind you that are six to eight or four range.
Range so.
So.
A single point, where practically a single point as it is.
But.
We we do think that this top tier 7% EPS growth for the sector is among the best and particularly when you factor in the consistency of it and I just think as a utility that you can count on for 468 with a course that range.
The.
Pushed to 8%.
It has a temporary benefit but many would prefer to have an annual.
Take it home take it to the bank sleep at night, we write that straight or rewrite that roller closer. So you can plan on that straight line. So.
The idea of pushing it to a.
What what we've always had an impact when we first announced that we were going to six to eight years ago, We said.
Might be aware that there were surprises to the outside about well I want to be really clear about is that this year, we have ample opportunity to redeploy those savings into protecting aliter years, and that's always our first priority and so I don't want to mislead any line and make them think is going to be a sugar high in 2020.
This is the perfect time of year to plan for uncertainty, we're heading into for 2021, and making sure that 22 can be delivered to.
You'd like us to go with it.
For the reminder.
Yes, Thank you Jonathan.
Mmm No question today comes from Steven Bird with Morgan Stanley. Please go ahead.
Good morning.
Good morning Congrats.
Congrats on the continue strong execution.
A lot of my questions have been addressed I wanted to go back to the.
Point about.
In the event that there is.
<unk> Sweet and there's clean energy legislation.
Just wanted to talk a little bit more about your resource mix and you have a resource plan as you mentioned coming up.
21, and if there was legislation that extended tax credits for wind and solar perhaps created a new tax credit for storage.
Is it your sense that that would be enough to essentially sort of.
Tip the scales further meaningfully in favor of renewables adoption more quickly than facing on fossil fuels more quickly just given the magnitude.
How do you kind of think about the magnitude of impact of that kind of support on your kind of thinking on your resource planning.
Yeah, Stephen Great question, a couple of things one I do think further tax incentives on storage would be beneficial I think what's going to be more beneficial is the amount of R&D. That's underway on storage you and I have talked many times about the electric vehicles and all of the research happening.
They're on.
Battery storage some of the research that's being done on hydrogen.
Both for fuel cells for vehicles, but more importantly for us from a perspective of hydrogen as a fuel cell version of storage on our system.
All kinds of whether it's tax treatment or R&D investments can accelerate the deployment of clean energy and we look forward to that there's a real problem with the ITC with solar that utilities can't because of normalization can't take full advantage I think if there were some fix it.
From a tax perspective on the ITC for solar that could be interesting for utilities and could potentially make.
Solar deployments more economic faster.
And so I do think there'll be some interesting developments with them. If there is in fact, a blue waves here in a couple of weeks.
But that's that's helpful thing all adequate good comments is that obviously the tax credits can help address the cost related problem or costs related challenge and that's a big element of the equation, but the other elements of the equation, obviously, a resource adequacy and I will also add balance sheet to that equation and so I think if you're.
Getting at whether that could lead to an accelerated retirement, a coal you'd have to see an improvement in the cost again tax credits may get at that but also the efficacy of those alternative resources to if you really want to be comfortable taking out say two gigawatts of Covid, an accelerated basis to then balance sheet, Moody's still continues to and cute.
Securitizations.
That and so again, if you think about the rate base, we have in our coal facilities and that potentially becoming dead in an accelerated fashion their balance sheet issues as well. So I think cost is a huge component that tax credit could solve but we have to make sure that all elements of the equation add up the the interest of the triple bottom line.
Yeah, that's a that's a good point about sort of the balance sheet treatment. If you if you're required to do a PPA in the negative impacts to your balance sheet.
I guess, if I were to thinking through what you both said.
If there were away for utilities to actually really utilize the tax credits, which could require modification will let's assume that that modification could happen and if there was a.
By a tax credits to reduce the cost of storage with those types of changes together potentially permit a.
Somewhat more aggressive shift.
Shut down a coal and and more aggressive deployment of renewable stores are those the kinds of changes that could actually make a difference in your thinking those are some of the changes I think we have to prove the efficacy of these distributed.
Distributed resources Steven Lee.
There's a lot of.
Theories about it I think we.
Need to prove to ourselves that with Ah distributed resource mix, we can provide the reliability that customers why we can't have.
Rowling curtailments, because we didn't plan and don't have the resources necessary. So.
I think the timing when we think about our 2040 net zero plan.
That feels to us like a good timeline to really build out these new technologies and including the energy efficiency and demand response, those things take time to enroll customers and get the right behaviors and so I do think there.
A two pronged there's the cost as we've talked about but there's also is Reggie mentioned the efficacy of those resources and making sure that we can provide the reliability that customers expect and so that you have to actually build the stuff and prove it to ourselves before we can scale the whole system.
That makes sense. Thanks, so much for the thoughtful comments, that's all I have.
Yes, thank Steven.
Thank you very much question today comes from Charvis Miller was more installed. Please go ahead.
Good morning, Thank too good morning chest.
I was wondering if you could give your thoughts on the world that you'll play in the healthy climate plan I know you've got a lot of the goals already out there in the investments out there that correspond to the goals in that plan look slimmer.
Next year, if you'll be involved.
Physically in the planning and goal setting around that and then could have any other thoughts in terms of how it might affect so your next five years in the early stages of the plan.
Yeah.
We will definitely be involved were trusted resource here in Michigan as a clean energy leader and the clean energy.
Okay.
I think it's just reaffirming to our clean energy plan that we filed and it certainly.
Is an ambitious goal for Michigan, but we really intend to continue to be leaders and our IRT is.
Very much in support of the Governor's ambition.
Okay.
What do you think that the.
Political viability of that when you are talking about 20 plus years.
Of a policy, obviously politics can change here what are your thoughts around that and the the buy in from.
All of the different parties, and Michigan and industries even.
I Wonder if you make a great point, because there's a couple of things that are going to be challenging I think from Michigan, but one of the things we've learned here in Michigan.
The actual law that we passed in 2000, a and then I would say upgraded in 2016 is where the actual targets get set drive actions and they're more near term clearly Rps for example in 2016, while in 2008 was 10% by 2015 and 26th.
<unk>, we passed the law to take it to 15% by 2020 does the incremental concrete.
Target get passed in legislation. So you are absolutely right there needs to be a full.
Appreciation and adoption and energy.
Legislation here in Michigan has been typically happening about every eight years ourselves so.
It would take some time I think to get new legislation passed and but nonetheless, the other challenge here in Michigan with natural gas for example.
For home heating is very.
Very economic and so I think politically difficult uphill battle to tell all michigander is they're going to pay twice as much for their home heating I think that's a challenge that politically would be hard to overcome without a significant change over time.
Okay, Great I appreciate it.
Alright, I was supposed to come from.
Is your stores since he was Super Google. Please go ahead.
Thank you. So so proud of you just mentioned you'll definitely be until I have two questions about it one N.
Business, leading the first season.
Season, that's your that's L. D C will be going through covid like conditions.
So I'll just need a bit of a guessing game, but.
Do you have a similar customer makes on the gas side as an extra side. So that the trend that you've seen in volumes could be replicated at the gas utility you think.
<unk>, Yes, we don't expect the same kind of.
Uptick in use.
Most people heat their homes and keep them at that level.
Mike lowered a couple degrees during the day, while they're at work, but we don't expect sort of the increase that we've seen on the electric side. However, we are more residential mix and the gas business, but we have ample supplies here in Michigan, we are blessed with robust energy natural gas storage fields here.
In Michigan and we.
We have no concerns about having any ability inability to meet the needs of our customers for their winter heating.
Okay, and and my second question is.
And you just mentioned the economics of desk, a seating versus an extra coupon from Michigan.
On the other hand.
We have.
Meaningful D rating Standalone gasoline D C.
You'll go home a big one it's coupled with electric utility. So you haven't seen an impact, but if you look at your longer term growth plan.
You feel the need to shift some of your spending away from the gas L. D. C. Two words, the electric utility because that's basically the preference of investors and also that's more of a trend decarbonize the entire entity well.
Well, there's a couple of thoughts as we look at our camp.
Capital planning number one Ah.
Safe and reliable gas system is extraordinarily valuable today and will be in the coming decades safety is always number one.
And the replacements that we are doing are like for like we're not adding capacity, we're making our system safer and by the way at the same time, reducing methane emissions. So it's both good for people and the planet and then those investments obviously have reliable return. So it's our triple bottom line thinking there I would also say that.
The electric utility the combo. The fact that we're a combo utility does make us.
Head to some degree if there is a big push for electrification is electric home heating becomes a real trend then we will be able to benefit from that and in fact, the earnings potential is even greater in that perspective, but when we think about it from a trip align bottom line perspective, we think we can do the.
Net zero methane target for 2030 as we've stated.
Through our capital investments in the gas system without hazard in sort of stranded assets and and I guess I would just offering.
State like Michigan with the kind of temperatures, we experience and the value that customers received for the cost of natural gas.
It will be the last to go.
Our customers are really they appreciate our natural gas is a home heating source and so I think it would be a long time before there is a big change here, but when that change happens as a combo utility we're in a good position to whether that.
Great. Thank you.
And the next question today comes from Anthony Corrado with <unk>.
Good morning, good morning, Reggie good morning.
I know you've entrusted earlier gaseous.
<unk> question, but.
Coupled with your business mix I think for the curtains or that's really growing as a 90% mix between regulated nonregulated businesses.
But if if you started to see all the utilities and I know you're not going to comment on between but if the team will go to like 100% regulated or is that all you until you think that small slice of 10% of nonregulated Ernie.
That's a benefit moving full amount of a more robust robust valued company.
Cause you to looks look again at the business mix that you have.
Like I said.
Anthony and I'll, just reiterate we're really comfortable with our business mix 90, 10, and you know when we think about our enterprises business in particular that we learn a lot from customers having them in the family.
We get a chance to understand what the competitive marketplace looks like and it makes us a better utility and so we're very satisfied as I mentioned with our business mix.
Great. Thanks for taking my question you are welcome. Thanks.
Anthony.
Sooner next question today comes from David Fishman with Goldman Sachs. Please go ahead.
Good morning.
Good morning, David.
Just a.
Extent, 150% Ppas are just.
Wondering if you could discuss if you're thinking is involved in all around maybe appropriate balance between out tpa and utility ownership future.
Especially as soon as I started getting a little more scale and renewables jokes, how you might be able to deliver a better value for customers.
Yeah, you know.
We will refile Anionotropy every three to five years, so as I mentioned, we're preparing for next summer.
File our next one.
Agreement that we made for 50 50 ownership and.
Such as seeing Ppa's with a financial compensation mechanism. We felt was a great outcome for customers. It's a competitive marketplace, we're getting to see and observe the landscape we do.
Continue to learn and.
It'll be interesting to continue to learn so I guess I would say it's too soon to say that we would recommend a change because we we feel like it has provided a huge benefit to customers and investors given the FTM combined with the.
The ownership in the Ppa's, so I'd like to suggest it is too early to say that we would recommend any kind of change there and we continue to learn and balanced that triple bottom line.
I think.
That makes a lot of sense I'm just one quick follow up on that I know in the past you guys would kind of discussed how would you like to have a smoother lumpy capex kind of projects profile.
Wood.
Would having too many large renewable.
This investment opportunities at once kind of going away from that or is that something that you can get comfortable with just the right. It is one of the things we love about renewables is that they are modular just in nature and so we can phase them and as demand grows we can move them faster if demand diminishes, we can install them.
More slowly.
We're not going to have just one big project, we're going to have lots of.
Call at 200, 300 megawatt project.
100 megawatt project.
And that gives us real modularity and I think that's a huge advantage that clean energy transition over the old traditional just build a big.
Central station Powerplant, you were locked in Monte dug that first hole. There you went and that was going to be a real challenge if conditions changed and so we do love renewables for that feature.
Perfect very helpful. Those are all my questions and congrats on a great color.
Right.
We have a no smoking.
Oh Whoops Scotiabank. Please go ahead.
Good morning, everybody.
And a lot of good details. So I was just got two quick ones for Ya one housekeeping in one big picture first it looks like the overall liquidity fell by about $1 billion, mostly related to lower unrestricted cash balance is that a timing issue in reverse or are you comfortable with the overall liquidity at around 2 billion versus over three previously.
Andrew I'll answer your last question first.
Quick answer very comfortable with 2 billion that liquidity position as I mentioned in queue to that.
$3 billion that we had at that point, there was a bit of timing of that where we had some looming maturity that just in the flow through our second quarter numbers and they were pending and you'll see that if you compare the maturities in this document versus what we shared in the second quarter.
Feel very good about the 2 billion my senses, it will come down a little bit more again because of the nascent stages. The pandemic, we really wanted to err on the side of having excess liquidity, particularly given the cost of fun, but longer term again, we will not have a bunch of.
Lazy capital just sitting on our balance sheet, we'll put it to work and that's what we look to do over the next couple of quarters.
Definitely a capital raising Bonanza merchant April that makes sense.
My other question is maybe a little esoteric, but you talked a bit about Michigan naturally occurring natural gas storage fields in the context of hydrogen potentially being one of domestic things do you know the geologically could those storage fields store hydrogen.
We are studying nap, we understand that it's likely that they can and so we do find that intriguing and as we're doing our long term gas planning wandering.
And looking for opportunities to pilot being able to use hydrogen in a different way, whether it's as a portion of our mix.
Whether we would use it and some.
Blend in our power generating at our gas natural gas power plants or just in the system. So we're doing a lot of homework and study on hydrogen right now we have joined with <unk>.
They are carbon studies. So we're excited about learning more and we have a feeling that Michigan is going to be extraordinarily well positioned.
If in fact that transformation starts to occur.
Good to hear thank you very much.
Thanks, Andrew.
Mmm wooden gentleman. This concludes our question answer session I'd like to turn the conference back over to Buddy probably for the final remarks.
Thanks, Rocco and thanks again, everyone for joining us today.
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Thank you Ma'am today's Congress has now concluded we thank you for your participation you may not as much orange and have a wonderful day.