Q3 2020 American Electric Power Company Inc Earnings Call
[music].
[noise] [noise], ladies and gentlemen, thank you for standing by and welcome to the American Electric power third quarter 2020 earnings release Conference call. At this point all the participant lines are in a listen only mode. However, there will be an opportunity for you.
Questions you May ask your question by pressing one then zero on your Touchtone phone and you can withdraw your question by repeating the ones Europe commands.
As a reminder, today's call is being recorded I will turn the call now over to the managing director of Investor Relations Ms. Darcey Rhys. Please go ahead.
Thank you John Good morning, everyone and welcome to the third quarter 2020 earnings call for American Electric power. We appreciate you taking the time to join US today, 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 SEC filings for a discussion of these factors.
Joining me this morning for opening remarks are Nick Akins, our chairman, President and Chief Executive 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, Dorothy and welcome everyone to American Electric power third quarter 2020 earnings call.
The third quarter has been another strong quarter for a b. Despite the continued challenges with over 90 and its effects on the economy. We continue to be optimistic about our ability to execute and provide the consistent quality of earnings and dividend growth our shareholders expect and provide focus on our customers and communities we serve to get past the multiple challenges we face.
So as a result of the pandemic.
I know many of US have had the feeling during 2020 with us multiple challenges that that Lenny Kravitz, saying about the song walk away, saying, Oh, I Wanna get away I want to fly away here.
[music].
Probably vigorous julianne and literally but there is lot at the end of the tunnel as we move through this memorable year HP continues to drive firmly within the guidance range with targeting the midpoint as we move to the last quarter.
We are accomplishing this by executing on cost control in response to the pandemic keeping our employees safe through the crisis by taking all the extra precautions and working with our customers to alleviate the economic pressures during this time.
We're also learning a lot during this crisis the value of efficient work from home environment. The focus on capital on OEM management, the acceleration of our achieving excellence program and the focus on social issues that drive a cultural brand that brings everyone into the journey of being the premier regulated utility APC strives to be in.
Back to you just made the Forbes just capital 100 list for 2021 being the highest rank utility on the list.
We have also been involved with two major storm events Hurricanes, Lora and Delta and Swepco is Louisiana territory I'm proud of our employees stepped up during these major weather events in the midst of Cove in 19 protocols to effectively and efficiently return service to our customers in a safe manner, just as they do everyday to keep a wide zone.
And now it's even more important service during work from home and stay at home environments financial.
Financially our operating performance continues to be strong in the face of these challenges.
These operating earnings for the quarter came in at $1.47 per share versus dollar 46 per share last year, bringing us to a 356 per share for year to date 2020 versus 365 per share last year. At this time, we continue to be firmly within the stated 2020 guidance range of 425 to 445 and we continue.
To be optimistic regarding our progress going into 2021, we are reaffirming our current guidance range in our long term, 5% to 7% growth rate and as I've said previously I'd be disappointed not to be in the upper half of that 5% to 7% range.
Our board just approved a dividend increase of approximately 6% and along with our earnings in the middle of our targeted payout ratio of 60% to 70% and consistent with our long term growth rate of 5% to 7% and incredible accomplishment given the headwinds. We expect that you are facing in the first quarter in the second quarter of this year, even with this success in turbulent times.
Yes, we are not out of the woods, yet, but we are seeing improvement in industrial and residential load. However, commercial loads. So just churches restaurants hotels in schools not surprisingly are still challenged brand, we will get into more detail on the economy later.
We could not have achieved the outcome today. He has achieved thus far during the year without our employees attention in cutting our costs to compensate for losses from Nicole with economy are achieving excellence program is going very well and not only as of the helped us compensate for the revenue losses view. The pandemic. This set an excellent catalyst for the future in terms of continue.
You know and then cost control more to come on this at November.
Most economists believe the 2021 economy will improve and while we are seeing positive progress going into fourth quarter industrial and commercial progress has slowed perhaps until after the election cycle or during the second wave the covert cases or during the pendency dependency of upcoming therapeutics and vaccines with all of that said.
It has been a very productive quarter, and we expect improvement to continue into 2021.
We continue to adhere to Cove, and pandemic related protocols of temperature testing mask requirements, social distancing and hygiene related activities are confirmed cases are increasing with the apparent second wave and we are doubling down on messaging around practicing safeguards outside of the work environment as much as inside thankfully, we have not lost.
Anyone due to the virus, but vigilance and fighting complacency is key here. We also have continued our outreach to employees and the communities. We serve regarding racial injustice as I mentioned last quarter. Our seized the moment initiative is important to reach a deeper understanding of the racial devise that exist and gain perspective from one another about.
Actionable next steps before I get to the regulatory updates I'll just had this off of the past questions about HP six in Ohio.
I'll, just say flatly that we have nothing new to report from APC perspective, any potential legislative changes not imminently protect eminent particularly given the noisy election cycle. So perhaps we'll hear more after the election as we've said earlier any change to the existing legislation is likely to be financially insignificant Davy.
And we will still be pushing for forward looking legislation regarding clean energy options energy efficiency and other technology enhancements at grid scale and with our customers regarding the legal issues surrounding HB six also nothing new new to report in my previous comments stand on this subject.
Now for the regulatory update.
If there is one observation is become apparent through this spend dammit is the acknowledgment of the criticality of the service that we provide to our customers and communities. This year, we have weathered through the effects of a pandemic and overcome significant storm activity. They have challenged our system and our workforce as we work with our regulators to position the company to.
Be able to continue to meet the expectations of our customers and communities. We are stressing the fundamentals of a strong balance sheet now more than ever it is essential for our operating companies to be well positioned to have the cash flows and returns needed to attract the capital necessary to meet the ongoing needs of our customers and communities and as you all know.
We have a number of regulatory proceedings pending before our state regulators this quarter, most of which are needed to conform with previous regulatory stipulations stay on provisions or to address the timing needs of critical investments.
Ohio follow this most recent base base case June 1st as required under the terms of our prior EPS before settlement we are.
We are seeking a $41 million rate increase with a 10.15% ROI.
A procedural schedule has not been established yet on that case Atco filed its base rate case in March as required by Virginia Law, we have completed hearings and the case has been submitted to the commission for a decision our Virginia residential customers have not experienced a rate increase over the past 10 years. In this case, we have asked for.
$37.9 million net of depreciation with an ROE of 9.9% we were disappointed with the position taken by both staff and the AG, which fails to recognize our need to have an opportunity to earn our authorized return over the next Ryan on period.
We remain confident that the commission will see through these arguments and recognize their obligation under the law to allow the company an opportunity to earn a fair return a decision is expected in November can.
Turkey was subject to a stay out provision until June of this year. We subsequently filed our base rate case on June 20, not where we asked for a 65 million increase in an ROE of 10%. The company has also sought to use the remaining unprotected FDIC.
Funds in Kentucky to offset bills for customers, who cannot afford to pay their bills. The commissioners elected to combine this request with a base rate case, falling and we expect resolution by year end.
Last but not least in our Swepco jurisdictions, we received approval from the commission to create a regulatory asset for the costs associated with Hurricane Laura We will ask for similar treatments for the costs associated with Hurricane Delta and we are hopeful that we can put this year's hurricane season safely behind us in Texas Swepco made its base rate case.
Filing on October 13th where we are seeking at 90.2 million increase within our OE of 10.35%. We're also seeking to increase the storm reserve and increase our vegetation management expenditures to minimize the risk of future outages to our Texas customers.
We continue to make progress on our north central wind projects, which will.
Which will benefit our customers and Louisiana, Arkansas and Oklahoma.
Foundation work has commenced at the Sundance facility, which is expected to be in service by the end of first quarter 2021. Inventergy is currently completing final site preparation on both the maverick into reverse locations. We continue to expect to acquire the Maverick facility by December 21, and Thats reverse facility into December.
First quarter of 2022 timeframe we.
We have followed our settlement threw up in Arkansas, and our final finalizing our settlements grew up in Oklahoma. We are looking forward to the benefits of these projects will bring to our customers by providing access to some of the nation's richest wind resources and helping swepco and PMSO advance a greener energy future.
Okay. So now to the equalizer chart I'll talk about that I think it's on page five of the presentation.
So our current our OE is about 9%.
We didn't you know generally target. These these returns to be in the non they have to 10% range the Roe.
We are always blow or not weather normalized.
And certainly keep in mind that we're we're also taking equity layers as well.
So I'll talk about Ohio for Us I just mentioned the rate case there.
Its above authorized primarily due to favorable regulatory items, partially offset by the roll off of the legacy issues that we've been talking about for years.
Regarding the per in the RSR.
We also expect the year end are we at a trend around the authorized levels of 10%.
For ABKCO.
You had mentioned earlier is slightly below authorize due to lower normalized usage and higher depreciation from increased capital investments, partially offset by continued management of the OEM expenses effective January 2020 costs associated with the last 17.5% of Wheeling power as interest in and Mitchell I missed.
Plat became recoverable through Atco, and Wheeling rates, and then I already discussed Virginia's Tri Annual review, Kentucky are you discussed the rate case, there, but they are below you can see well below off.
Authorized due to loss of load from weak economic conditions and loss of major customers along with high power expenses. During the stay out period. So we have a lot of work to do there.
I am.
The ROE for on them at the end of third quarter was 10.4%.
It's our OE was above authorized due to continued management of OEM expenses reduced interest expense and rate true ups, partially offset by lower commercial industrial sales.
EMR OE is projected to trend slightly below 10% by year end consistent with authorized ROE is in Michigan and in Indiana.
DSO.
It's our OE is 8% at the end of third quarter. It was below its authorized level, primarily due to lower normalized usage and unfavorable weather and 2020, partially offset by continued management of OEM expenses PS. Those 2019 base case as you recall approved the transmission tracker or partial.
One tracker and an ROE of 9.4% authorized so we'll continue to make progress there swepco.
Swepco the.
The are we for Swepco is about 7.4% and as you recall.
Much of that is related to the Turk plant not being in retail rates in Arkansas and that impacted about by about a 110 basis points.
Swepco received an order in its Arkansas base case settlement in December 2019, and effective 2020 approved the 24 million revenue increase in our ROE of 9.45% in October 2020, We also filed the rate case in Texas is as I mentioned earlier in.
In Texas.
It's our OE is around 7.5% was blow authorized you to lag associated with the timing of annual cost recovery filings. We add this we did not make those volumes during the pendency of the previous rate case and of course onetime adjustments from our finalized base rate case itself favorable regulatory treatment allows ATP, Texas to file.
Annual DC RF and T calls filings and we've since filed many of those at this point I think there has been three cases that have been filed and while earnings should improve in 2020 with a base rate case finalized an annual filings now resumed.
10, new levels of investment in Texas will impact the ROI.
The expectation is for the are we to trend towards an authorized ROE of 9.4% in the long term, but it will be around probably 8% by the end of 2020.
As far as the transmission company is concerned APC transmission Holdco was 9.8%.
And it was below authorized primarily driven by the annual revenue true up in the second quarter of 2020 to return the over collection of 2019 revenues transmission is forecasted anoro, we have 9.8% to 10.1% range in 2020.
It is also interesting to note that when you look at the average equity in our operating jurisdictions.
The transmission Holdco is now the largest which.
Which that SAP and for the first quarter. This first quarter is that that has actually occurred so making progress but at the same time, though the investment is being made relative to transmission is certainly improving the quality of service to our customers. So very happy with the progress, we're making around our TNT and.
Estimates and its ability to to improve customers' experiences.
As I close I'd be remiss in not thanking our employees at the local Union power station that was officially retired from service a couple of weeks ago. After several decades of providing generation resources in meeting the needs of our customers electricity demands in Texas, and Oklahoma Oakley Union was under construction without the time I joined a positive comp.
Average and when you see people and assets retiring it just further illustrates the resiliency of HBP over the last 114 years, but also that change occurs and we have to change with it. Thanks again to all the local union employees through the years. So.
So all in all a solid quarter for HCP and I can't resist when thinking about APC future post Cove, it with a latent value of the need for resiliency and reliability of the grid to support work from home environment moving forward with the transformation to clean energy resources, which we at HCP or in the beginning stages of and the further clean electric.
Occasion of the economy, we would say in the words of the late Eddie Van Halen, It's about time this time as our time and ride down we'll let it shine I am convinced in overcoming the challenges of 2020. This company will be even stronger as we move into 2021 and beyond Brian. Thank you, Nick and good morning, everyone I will.
Take us through the third quarter and year to date financial results provide some insight on load and the economy review, our balance sheet and liquidity and finished with a preview of what we will present at the conference let's.
Lets up briefly on slide six which shows the comparison of gap to operating earnings for the quarter and year to date periods.
GAAP earnings for the third quarter were $1.51 cents per share compared to $1.49 cents per share in 2019.
GAAP earnings through September were $3.56 per share compared to $3.58 per share last year. There was a reconciliation of GAAP to operating earnings on pages 15 to 16 of the presentation.
Let's turn to slide seven and look at the drivers of quarterly operating earnings by segment.
Operating earnings for the third quarter were $1.47 cents per share or $728 million compared to $1.46 cents per share or $722 million in 2019.
Operating earnings for vertically integrated utilities were 85 cents per share down four cents. This was driven by unfavorable weather, primarily due to warmer than normal temperatures last year, particularly in September.
Other drivers included lower wholesale load and the other operating revenue as well as higher depreciation and taxes, primarily due to timing that will reverse in the fourth quarter.
Favorable items included lower owing to favorable rate changes and higher transmission revenue.
The transmission and distribution utility segment earned 31 cents per share up four cents from last year favorable items included higher rate changes and transmission revenue as well as lower open end. These favorable items were partially offset by unfavorable weather depreciation taxes and interest expense.
[music].
The transmission Holdco segment continued to grow contributing 28 cents per share an improvement of three cents. This reflected the return on investment growth as net plant increased by $1.5 billion or 16% since September of last year.
Generation and marketing produced operating earnings of 13 cents per share down three cents from last year. This was driven by timing around income taxes and lower wholesale margins.
Finally, corporate and other was up a penny from last year, primarily driven by lower taxes related to consolidating items that will reverse by year end.
Let's turn to slide eight and review our year to date results.
[music].
Operating earnings through September were $3.56 per share were $1.77 billion compared to $3.65 per share were $1.8 billion in 2019.
Looking at the drivers by segment operating earnings for vertically integrated utilities were $1.90 cents per share comparable to last year.
Favorable items in this segment included lower owning them.
The impact of rate changes across multiple jurisdictions and higher transmission revenue, primarily due to true ups.
Weather was unfavorable due to warmer than normal winter temperatures this year and a warmer summer in 2019.
Other decreases included higher depreciation and tax expenses, primarily due to timing and lower revenue items and AFUDC.
The transmission and distribution utility segment earned 84 cents per share down a penny from last year. The negative variance was primarily driven by the 2019 reversal of a regulatory provision in Ohio.
Other smaller drivers included higher depreciation and interest expense the roll off of legacy writers in Ohio Prior year, Texas carrying charges unfavorable weather and tax expenses.
These items were mostly offset by higher rate changes the recovery of increased transmission investment in ERCOT and the impact of the Ohio transmission true up on both OEM and transmission revenue.
Other own them was also favorable due to the concerted effort to decrease I want them expenditures through onetime and sustainable reductions.
The transmission Holdco segment contributed 75 cents per share down seven cents from last year due to the impacts of the annual true up and prior year FERC settlements are fundamental return on investment growth continued.
Generation and marketing produced 31 cents per share up a penny from last year. The renewables business grew with asset acquisitions more than offsetting lower wholesale and retail margins and timing around income taxes.
Land sales and other onetime items offset the impact of weaker wholesale prices on the generating business.
Finally, corporate and other was down two cents per share due to higher interest and taxes related to consolidating items that will reverse by the year end and offset by a prior year income tax adjustment.
Partially offsetting these items was lower on them.
Overall, we are pleased with our financial results and are confident in confirming our annual operating earnings guidance of $4.25 to $4.45 per share.
Turning to slide nine let's review the assumptions, we shared during the first quarter earnings call to reaffirm guidance. So.
Starting with the top line, we recently updated our retail sales forecast.
Third quarter sales came in higher than previously projected we now expect 2020 normalized sales to come in 2.7% below last year, which is seven tenths of a percent better than the load forecast from the first quarter.
While the outlook has improved it is still below the pre recession forecast used for our original guidance the favorable sales mix and 2020 has helped to mitigate the impact on earnings.
The second item was the impact of weather, while the first quarter weather produced a significant drag the second quarter and third quarter weather impacts were slightly favorable.
In the second quarter presentation, we mentioned that july's weather was quite favorable however August and September weather was mild.
As a result, we have revised the weather impact on 2020 earnings and now expect an eight cents drag.
2020 results.
The next item was on track to Nm expense, we had originally planned to drive on M. costs down to $2.8 billion from $3.1 billion in 2019.
In response to the expected sales decline, we identified an additional $100 million of savings from both onetime and sustainable reductions that are on track to hit this lower expense target.
Finally, we identified approximately $500 million of capital expenditures in the first quarter that can be shifted out of 2020 and into future years. We made this decision to support our cash position through the expected downturn during the pandemic.
As we discussed at the second quarter earnings call results have come in better than expected and we have reinstated approximately $100 million of the 500 million back into 2020.
Given the progress we have made on these key assumptions, we are able to reaffirm our 2020 operating earnings guidance range.
Now, let's turn to slide 10 to provide an update on our normalized load start.
Starting in the lower right corner, our third quarter normalized load was down 2.6%. This was slightly better than the forecast we shared with you in the first quarter.
Through September our normalized sales were down 3% from last year.
In the upper left quadrant, our normalized residential sales increased by 3.8% in the quarter year to date residential sales were up 2.6% we saw.
We saw significant increases in our residential load at the beginning of the pandemic.
The growth in residential sales has moderated as people return to work over the summer.
Weather normalized residential sales are up across all jurisdictions.
Moving clockwise our normalized commercial sales decreased by 4.6% in the third quarter, bringing the year to date declined to 4.9%.
As expected the biggest declines in this class came from schools churches restaurants and hotels.
Finally in the lower left chart industrial sales decreased by 7.8% in the quarter, bringing the year to date declined to 7% a number.
A number of factors have changed the outlook for this class, but the biggest drivers overall economic activity the.
The industrial sectors that posted the biggest declines for the quarter were mining oil and gas extraction and primary metals.
By contrast, plastics and rubber manufacturing posted a strong quarter related to the recovery of the automotive industry.
Overall load growth across the service territory, followed the pattern, we anticipated earlier in the year.
During the second quarter residential sales peaked and commercial commercial and industrial sales hit their lows.
Since then our service territory has been working its way back to more normalized levels, but.
Because some businesses will continue to wear to work remotely we expect our residential sales to continue at higher levels for some time.
Let's take a deeper look into why we raised our outlook for normalized load on slide 11.
Solid bars represent weather normalized load growth by quarter in 2020.
The green lines represent the updated load forecast, we shared during the first quarter earnings call.
At that time, there was still a lot of uncertainty regarding the depth and duration of the economic slowdown and how customers would respond while that.
While that forecast accurately predicted the depth of the contraction in the second quarter, our third quarter results indicated a better recovery than forecasted our.
Our latest view anticipates, a continuation of this trend barring another shutdown of the economy.
Now, let's move on to Slide 12, and review the company's capitalization and liquidity.
Our debt to capital ratio remained unchanged in the third quarter and stands at 61.1%.
Our FFO to debt ratio decreased 1.3% during the quarter to 12.8% on a moody's basis, primarily due to timing of fuel recovery storm cost deferrals and a pension contribution in power.
Importantly, we expect this metric to end the year in the low to mid teens consistent with the guidance we have provided.
Our liquidity position remains strong at $3.8 billion supported by our revolving credit facility.
Before providing an update on pension funding I would like to discuss the plan to finance the north Central wind project as it.
As a reminder, we have stated that we intend to use equity to finance approximately two thirds of this $2 billion project we play.
We plan to issue equity in coordination with the completion of the three individual projects that comprise north central wind.
For this reason, we will take a flexible approach, which could include an at the market mechanism asset rotation as well as traditional secondary offerings. This approach avoids unnecessary dilution and helps us deliver on the 5% to 7% earnings growth rate.
Turning to our pension I'm pleased to report that funding increased 3.6% during the quarter to 97% and our OPEB funding increased 5% to 141%.
Strong equity returns was the primary driver for the increases.
Pension plan also benefited from a company contribution in the amount of the plan's annual service cost of $111.5 million.
Let's wrap this up on slide 13, so we can get to your questions. We are.
We are reaffirming our existing 2020 operating earnings guidance of $4.25 to $4.45 per share.
Our message it will be that we are leading the way forward as a premium regulated utility within SSG focus delivering 5% to 7% earnings growth with dividends growing in line with earnings.
Our plan includes the $2 billion North Central wind project in Oklahoma benefiting our customers in PMSO and Swepco as we transition to a cleaner energy future we will.
We will provide detailed drivers for 2021 earnings guidance by segment and updates to our capital expenditure and financing plans we.
We look forward to talking with many of you at the virtual EEI conference in a couple of weeks.
One final item in 2021, we will release 2024th quarter and full year earnings in late February coincident with the filing of the 2020 10-K like we did last year.
With that I will turn the call over to the operator for your questions.
Thank you and once again, ladies and gentlemen, if you wish to ask a question. Please press. One then zero on your telephone keypad you may withdraw your question at any time by repeating the ones you command and if you use any speakerphone. Please pick up the handset before pressing the numbers and again if you have a question May press one.
At this time.
And one moment for our first question.
And we will go to let Julien Dumoulin Smith with Bank of America Merrill Lynch. Please go ahead.
Good morning, Julien good morning.
Good morning, everybody. Thanks for the time guys.
Adjusted earnings off.
You talk about rolling out in the Ria, reaffirming or perhaps preemptively reaffirming into Iot.
Seven can you talk a little bit about what's what's backstopping that specifically.
In the last few months, we've seen some pretty substantial changes from some of your peers in Virginia, I can that planned amco and perhaps also similarly in Indiana. Many of your peers are talking about opportunities you all have perhaps rockport just just curious if you can talk about or perhaps foreshadow some of the conversations here.
On that report if you don't mind.
Yes.
Julian I think a lot of the things that we're going to talk about our renewable opportunities. In addition to north central wind, how we're transitioning from.
A carbon based.
Generating fleet much more to a lot of the renewables that the Virginia Clean Energy Act enables and legislation.
In Indiana enables as well so we're going to provide a lot more detail on that.
And take you through.
Take you through what that looks like we do have the there were.
The renewable requirement in Virginia in you mentioned NAPCO.
We've got the requirement there.
And also Indiana, Michigan, we continue to do renewables in various areas. There were also doing renewables.
Listed for sale and.
In Oklahoma and then we also have renewable applications here in Ohio that are that are brewing as well. So we'll have plenty to talk about and I think I think we don't we don't spin.
The spin and then maybe we should spend more talking about.
The opportunities we've got available to us from a renewable standpoint, but the way I see it is that that.
We are just on the precipice of.
A massive transformation to renewable resources and ATP.
If you if you look at the runway.
As is pretty substantial so and that will continue, particularly as we do individual relationships with customers but.
But also.
In terms of the regulated side as well through the integrated resource planning process. So, we'll certainly talk more about that at November.
Got it thanks for any.
Entertaining.
Perhaps.
If I can get more detailed here if you don't mind I know you all provided a little bit for you on 23 here, but can you gave an updated view on FFO to total debt under Moodys definition.
Low to mid teens versus perhaps prior characterizations of mid teens is that simply a factor of rolling 40 year or how are you thinking about that at this point.
Join its the low to mid teens is completely consistent with our prior messaging on FFO to debt.
And and and that outlook was incorporated in UTI and Moody's when they made their adjustments back in August.
And remember that that will continue to improve.
As we as some of this.
[music].
Accumulated deferred income taxes that is being repaid to the regulatory jurisdictions are occurring much work quickly quickly than we thought maybe we originally think continues and and it turned out to be five years. So.
And that's that's occurring more quickly so that.
That FFO to debt metric will pick up as that rolls off.
Got it excellent. Thank you.
Our next question from I guess shelf Brown with Evercore ISI. Please go ahead.
Hey, good morning, our newborn.
Good morning, Thanks, great.
Hey, just just.
Just digging in a little bit into 2021 at reshaped, you'll sort of share more color.
But could you quantify for us what that 2% 2.7% sales.
Sales degradation was year to date.
But one and two I should we assume some of that 51 million year to date on M. savings to be carried forward into the next year.
Yes, So let me start with the 2.7% load degradation. It's it's what you would expect it's it's largely commercial and industrial sales.
Decreases being offset by residential and so what we've seen is it takes more than just looking at the raw numbers on residential commercial and industrial it's really the mix you remember we make more margin on residential sales than we do on commercial and industrial and that mix has come in better than we had anticipated.
Yes.
At the beginning of the pandemic. So it's not been as dire as what we thought it might be because of what's happened with the sales mix rather than just the overall decreases. So that's been positive looking forward on all of them. We have for a number of years been tightening our belt and been very very tight around on track.
Going to them in that $2.8 billion to $3.1 billion range and with what we're doing with achieving excellence and everything else, we're doing with sustainable end.
Non sustainable OEM cuts.
We anticipate us being towards the lower end of that range going forward.
Hi, there so well.
When we look at the.
The load forecast I mean, if you if you assume 2021 going to be better which is which we believe it is.
And you look at that mix.
We don't see.
Residential.
I mean, obviously feel it will moderate as the economy comes back on the industrial and commercial side commercial in particular.
But.
Still you're going to have you can have a continued longstanding ram that have improved residential support just by virtue of what companies have learned from the work from home environment, So I'm little bit little bit little bit book.
A little bit bullish on the load and then at least a financial picture associated with load and then and then.
When you look at the OEM. This.
This achieving excellence program I don't.
It is truly been fundamental change for us and.
And augmentation of all the lean activities and other things that we did before and it really is focused on a regular part of our budget process to ensure that we're capturing savings in every step along the way so.
Feeling pretty good about.
About the continual progress year on year of achieving excellence.
That's great guys.
Thanks for that color, maybe just initial.
Initial thoughts and I appreciate the Devil is going to be in the details of the initial thoughts in elections taxes as climate line and implications gravy.
Yes, so I guess.
First of all as the election.
Certainly as a noisy election cycle, and who knows what's going to happen here, we never know, but but we've got a 114 years history of managing between the goalposts here. So.
We'll continue to do that and our focus is on move into that clean energy economy. So really the only difference Aussie as maybe maybe the.
The pace at which the change will occur if if if theres abide administration verse.
Versus drop, but but nevertheless, it doesn't change that much for us because.
We're focused on moving that clean energy economy as quickly as we can to ensure that we are making that transition into the future that we know it's going to happen.
Now, who knows where technology will go.
And for fossil fuels, but but nevertheless.
We'll continue that transition to.
Two.
To renewables and certainly some natural gas.
To ensure that we are delivering for our customers in the future. So.
From a client perspective, we've got a very we have an excellent record matter fact, that's why we get.
As seen from the USG community out where they know what we're doing there no. It won't know what our message is we're making continual progress and we will continue to make that progress and and then when you think about as I said in my original right up I used the word leighton.
Because it is a somewhat of an undeveloped.
Or emerging activity around electrification of the economy search.
Certainly around OEM, and what we find with Digitization and automation.
And then of course.
As we move forward with the transformation the generation transformation that we see ahead of us so so.
That's why I'm feeling pretty good about where this company is adding just.
Just a quick update on taxes, if we were to have an increase in taxes, we anticipate that our commissions would handle it right.
Really one of two ways and not to similar to how they handle tax reform.
Three or four years ago.
We anticipate that they will either allow the increase to be deferred until the next rate.
Rate proceeding or we anticipate that they'd have kind of a one issue order come.
Order come out where they would allow us to adjust rates just to reflect the new.
Expected higher income tax rate in any event, we wouldn't expect it to be a significant driver.
Earnings or cash for the company going forward.
Great. Thanks.
Could be a modest sales into gas low given sort of a reset in AG in.
And amongst other things.
Hey, good help if ever that it yes.
Again, we don't anticipate it to be significant one way or the other.
Understood. Thanks, Ryan Thank you Nick Thank you.
Yep.
Our next question from James So accurate with BMO capital markets. Please go ahead.
One days.
Though.
James is your line on mute, possibly your line is open.
Hey, Thanks, guys apologize there you are.
Okay.
Good morning.
Good morning.
Two real quick questions, just first but I guess, Brian just addressing.
Our central wind I noticed in the slides that.
Traverse look like potentially the in service could be pushed out maybe by a quarter or so could you talk a little bit about is that just yet.
A supply chain issue related to co bid or there's something else that was kind of driving that extended outlook.
Yes, a lot of it has to do more so than.
More so than actual physical things, it's our ability to get permitting and the like done and so during the shutdown. It was hard to be able to get into the offices do land acquisitions title searches and things like that and that just pushed us.
Potentially pushed us back a big James we're not anticipating anything material. There we still anticipate late this year early next year, but just wanted to signal that.
Due to some of those unanticipated issues largely associated with coated.
That that project.
Could have a range of when it would come online Hey, James we we feel I guess still going to be the end of December but we're obviously it could fall into that range in the first quarter were confident of that of that particular range, but remember, we're not making any progress payments either it's sort of a.
We acquired when it's when it's done so.
So from a financial perspective, it's it's it's.
It's fine so.
Okay, great, Thanks, and I guess just.
Following up on that same issue, Brian you talked about three sort of.
Potential ways to finance the final acquisition of those.
This has been beaten to death, but as you look to go.
Give 2021 guidance, obviously, an ATM would be something because spread over the full year, but.
Asset rotation or even block equity would be probably something I think as you were saying sort of cordoning. It with the final close would be something maybe closer to the end of the year. How are you guys I guess thinking about that from a modeling perspective as you present 2021.
It kind of it kind of matches, what Nick was saying is that the projects don't.
We don't get the projects until commercial completion is done we then get the project and given the discrete nature of them. We can really time the equity issuance very closely with when the project comes online.
And James the reason, we need that flexibility you look at Sundance, which we're anticipating in the first quarter of 2020, that's about a 300 million dollar.
Project, we will be able to time the equity issuance.
If that's what it is closely with when that project comes online in the next one.
Which we're anticipating at the end of 2021 is about a $400 million project Maverick and then the last one is traverse which is about $1.3 billion and we talked about that being late 2021 early 2022.
We believe that whether it's an aftermarket and at the market program a follow on issuance or asset rotation, we're going to be able to time, those very very closely with when those discrete projects come online. So.
From a modeling standpoint, you know that.
The timing that we're talking about really is going to be insignificant to 2021 and and it's just.
Yes.
I'll start repeating myself and say big moving into 2021, James Brian mentioned the option, Jim Brian mentioned.
Brian mentioned the options were looking at and rest assured internally. We are also being at the death. So.
So, we'll we'll make sure that we're making the right decisions relative to the timing associated with those investments.
No no no, whereas I understand I understand the in service dates and it gives you guys a lot of flexibility.
Last question I guess I had and you kind of answered. My initial question was going back to the trailing 12 month FFO a kind of dip down you guys are looking for that to show sort of trend back into kind of where you guys are thinking sort of low to mid teens. I guess is that are you still targeting that in the sort of 21 22 23.
Timeframe I know you updated your your cash flow forecast for that recently.
We are is that timeframe yet.
Okay perfect. Thank you so much for the non thanks.
Thanks James.
And next we'll too Michael Lapidus with Goldman Sachs. Please go ahead.
Good morning, Michael Good morning, Nick. Thank you guys for taking my question and then Nick sorry back like you Tiger that help us there.
Okay.
Uh-huh ROP mandate Alabama's doing good though I'm sure you are happy with that.
Let's hope they keep coating.
Hey, how come back I want to come back that has a little bit and who the heck.
Okay Im going to do in the next year, so regarding corporate tax rate, but.
If there is that changing administration. If there is a higher corporate tax rate I think we've seen numbers floated around 27 or 28%.
Yes that is probably not much of an impact on the earning power one way or another for 18.
But.
Talking a state commissioners or staff at the Pfcs therapies or others.
It is the rate increase on the customers and it's a double whammy because the.
Cost of service goes up due to the higher tax rate and that just kind of flows through rate but.
But also the flow back that it kind of slows down or decline.
And it just strikes me as they find that the utility commissioner or public policy makers and given state yeah.
You are asking for what could be pretty decent sized rate increases on customers coming out of an economic downturn.
How does that get off that I think about it from a customer standpoint, what's the gift.
Hey, I think I think there is no doubt that.
[music].
And again I think.
There was a lot of advantage taken with the tax reductions that occurred and you're right. There is no doubt that there will be head room.
That that is reduced because.
It is certainly going to.
Going to be an impact to put those back in now now the question is how its put back in over what timeframe and that kind of thing but.
But also that's why it's so important for us to move forward as quickly as possible and accelerate achieving excellence so the.
So that we can mitigate that impact as much as possible, but still you are looking at it in the face of a of a definite need for rehabilitation and continued capitalization of the grid to ensure that we have reliability and resiliency of supply, particularly with me today.
Dealing with with Hurricanes wildfires cyber all those kinds of issues we.
We have to respond to that so so there there will be there'll be there'll be rate increases associated with.
With the implementation of new of new taxes, and and and I don't I think it's unavoidable, but certainly it's incumbent on us to make sure we mitigate that as much as possible with.
With our achieving excellence program and other other measures and and we will have discussions with the commissions just like we had discussions when when tax reform occurred.
And it's unfortunate we didnt do it over a longer period of time like we had suggested because then it would mitigate even though even the return of taxes and if we continue vacillating back and forth like this.
That's going to be that's going to be a continual issue for.
For our industry that that that our regulators need to recognize.
We do have to.
We do have to keep some reserve there to ensure that ensure that we're not moving customer rates around.
As much as as could be as if it becomes.
Pretty volatile so.
Your point's well well recognized but we will do what we can to mitigate the effects and we'll have those conversations but but.
What I think one thing Thats also come into play here. Though is is is the nature of the importance of the service that we provide for everyone to be able to watch their netflix or or or do all the things they need to do at home work from home all those types of activities will.
Change the nature of how we look at residential supply and and Theres No question that that's going to change going forward and and.
And that's why.
I'm always troubled by by coming.
Commissions, saying that.
MRF versus am off for example, the investments we want to make an am on it's not because Amies is you don't just look at the cost of the meters of a PMA and the UN depreciated balances associated with them are you've got to look at what you're leveraging into and thats the customer's ability to.
You adjust to the.
Their own energy picture and DBA.
And be able to drive energy efficiency, and all those things and give the customer the opportunity to do that as opposed to.
Of the system, just decided that for them. So I think there's just.
Lot of things, we need to have discussions about.
With our regulators to to really focus on what that future actually means and with electrification of the economy.
That's that's clearly going to be an issue that we need to deal with to make sure. Our customers are more resilient more reliable and is economically.
As economic as possible, but also give them the opportunity to make adjustments on their total bill as opposed to dealing on a on a headline on on rate increases.
Got it thank you for that and then.
One other question totally unrelated.
Thinking about state were not really talked about sizable rate base growth and an investment in one of those that stands out a little bit as west Virginia, How do you.
How do you think about.
Going forward the pace of generation transformation in a state like West Virginia.
Yes, I think well, we're looking at all of our states now and all our state jurisdictions.
And it's really sort of our resource planning on on steroids and even the dog likes like Ross.
And then as I think.
I think there.
There's no question that that we are we are in the process of moving forward with that transformation as quickly as possible, making significant TMD investments, but all and you see that based on the changes in capital, but then when you look at states like West Virginia.
We will be.
So I think the first step is going to be how we run coal fired capacity for example.
Well, we have other forms of energy coming in have lower capacity factors on own coal units, but still may be available.
If those times, where you have severe cold weather or are really warm weather in the summer. So is the way we run these facilities during the interim but then it's also that transition that we make going forward I think thats true for all of the jurisdictions and our jurisdictions have been rarely fairly conservative.
In making that transition I think that pace can quick and though as a result of.
The even the bipartisan focus on own continue into a lower emissions or at our plants. So.
I think there's the catalysts are there.
And actually post election, who knows what will happen, but but I still see euro.
You're already seeing some Republican and Democrat Democratic legislation.
This being proposed that drives the answer that question and if you have that from a national standpoint and the.
And the states are moving forward with their own resolutions than than we can be particularly helpful. In ensuring that occurs as quickly as possible.
Got it thank you Nat cat sorry about the document NY. Both appreciate it thank God, so no thats fine.
Our next question from the line of Sophie Karp with Keybanc. Please go ahead.
Hi, good morning, Thanks for taking my question.
Yes sure thing good morning.
Hi, I'm curious I want to go back to load.
In addition, any Keith activity.
As we own for rent and load dislocation.
Looking at the can use to preset clearly have this unusual situation residential maybe higher.
Let's see a nice.
Less than that.
Not really undermine picture.
Those who youre right now in the future rate cases, where at this period becomes your test here right. How do you address that.
Do you attempt to normalize the deal do you just add though with what the actual it looked like.
My first question I guess.
Yes, so we have multiple utilities right. So so we have the opportunity to move around capital investment.
To time it with relative.
Rate case activity to ensure that we are spending on the right things at the right time not to say that we're trying to load load the budgets or anything what were saying is is that that when when we go through the rate case filings. It's important to not only have discussions with the commissions about what were spending on but what the reserve.
Also that spending will be so if that if the load is if the load is not increasing obviously, it's it exaggerate.
Certainly chat.
Challenges.
The rate impacts because the denominator is not growing now if the denominator is growing obviously that's helpful.
But if it isn't you're still having to make choices about what the priorities are for each regulatory jurisdiction based on discussions with the commissions to help us determine okay, what what number.
Number one what are we willing to pay for number two where do those priorities that exist and some of those are absolute priorities and some of them are things that we'd like to do but but it may be that we have to work out for a longer period of time before bringing that in so there's there's all kinds of dialogues occur.
Relative to what that prioritization should be and we'll continue doing that with our commissions and we have done whether it's gone where the economy is going well or where the economy has been a downturn I think we're moving toward an upturn so thats going to be helpful. Sophie. We also have some jurisdictions that have forward looking.
Test years, so we'll be able to incorporate a forward looking view and then we have places like Ohio, where residential and small commercial are already decoupled. So.
There there are lots of mitigants to unusual load circumstances that we find ourselves in right now and some of these things are known in Reais.
Knowing and reasonable adjustments to so you have to look at the 2022 last year and say Hey, we had to make these changes because of Covance and Cove is going to be.
Sort of a unique circumstance.
I mean, we had to react and actually the commission's themselves we had moratoriums on on.
On customer customer cut offs. So there's adjustments we all made in that process and I think we will make those adjustments coming out of that process as well.
Great. Thank you and then if I may a quick follow up.
From a quick follow up on that I am not central wins, you mentioned assets rotation I guess as a primary consideration for equity.
Financing there what might those be.
Is this more of an electron off situation with that certain assets in your portfolio or could we be looking at something more strategic here and could well so when we talk about.
Potential assets.
We look at everything and we look at sources and uses and obviously, we will want to use part of it right. Now is is how do we finance and north central win a major project and the sources can be anything on our.
In our portfolio and Thats, where portfolio management is going to be a key part of what we do in the future. So I'm not going to say specifically.
What we're what we're looking at.
Our or anything like that at this point, but what I will say is that that that.
It's incumbent on us to be looking at everything from a source perspective, and then focusing on how we deploy capital in the best way and transfer that into.
Really projects like north central and be able to be able to find it in the best way to to ensure our shareholder value. So.
And we will continue to do that.
Savi I think.
You sort of have to let the year play out.
Thank you.
Yes.
And with no further questions, Yes, I will turn it back to you.
Thank you for joining us on todays call as always the IR team will be available to answer any questions. You have John Please give the replay information.
Certainly and ladies and gentlemen, this conference is available for replay. It starts today October 22nd at 11 30 am Eastern time will last until October 29th at Midnight you may access the replay at anytime by dialing 8662 zero 710 for one or 402.
970 0847, the access code is eight to 22465 those numbers again 8662 zero 710 for one or four zero to 970 0847.
Code eight Q2 2465 that does conclude your conference for today. We thank you for your participation you may now disconnect.
Okay.
[music].