Q4 2020 Xcel Energy Inc Earnings Call
Okay.
Good day, ladies and gentlemen, and welcome to Act sales Energy's year end 2020 earnings Conference call. Today's conference is being recorded questions will be taken from investor investing to channel.
My questions will be taken from institutional investors reporters can contact contact media relations with inquiries and individual investors and others can reach out to Investor relations. At this time I would like to turn the conference over to Paul Johnson, Vice President of Investor Relations. Please go ahead.
Good morning, and welcome to Excel Energy 2020 year end conference call.
With me today are painful chairman and Chief Executive Officer, Bob Frenzel, President and Chief Operating Officer, Brian Van Abel Executive Vice President and Chief Financial Officer, and Amanda Rome, Executive Vice President and General Counsel.
Morning.
To review, our 2020 results in share recent business and regulatory developments slides.
Slides that accompany today's call are available on our website.
As a reminder, some of the comments during today's call may contain forward looking information significant factors that could cause results to differ from those anticipated are described on our earnings release and our SEC filings.
David will discuss certain metrics that are non-GAAP measures include the ongoing earnings and electric and natural gas margins information on the comparable GAAP measures.
Reconciliations are included in the earnings release.
Going to go off script per section, which cycle a bit dangerous but in December.
Utility dive recognized and book its utility executive of the year for Us environmental leadership bandwidth the architect of our steel for fuel strategy Excel. He was also the one that drove us to be the first utility to declare that we're going to have an objective of 100% carbon free by 2050. This is a well deserved and overdue award with that I'll turn it over to Ben.
Paul on velocity.
Yeah.
But that old, saying never get off the book, Paul net never get all [laughter] I'm not quite sure what that means but I'll just take it as from a pause now.
So anyway, okay, alright, so I'm not going to go off script and I'm going to thank everybody and welcome you to our call.
Last year was certainly a challenging year, but our employees came through delivering on our financial and operational objectives, while mitigating the impacts of Covid.
And helping our communities.
Overall 2020 was truly a stellar year, we executed on our business continuity plans as we kept employees and customers safe, while providing reliable customer service.
We're helping to jumpstart the economy through our capital investment programs, which create jobs and investment in our communities.
We've stepped up our commitment to charitable giving to support those in need including donating to gain of almost $20 million from our sale of the Mankato facility.
We had a long and impressive list of accomplishments in 2020, let me share a few of them.
We delivered EPS of $2 79 in 2020, which is the 16th consecutive year of meeting or exceeding our earnings guidance.
We raised our annual dividend by <unk> 10 per share, which is the 17th straight year, we've increased our dividend and.
And we achieved a total shareholder return of just over seven 8%.
Which was the second highest T S or for our peer group.
On EM declined almost 1% as we took actions to mitigate the impacts of Covid.
The Minnesota Commission approved our wind Repowering proposal and I request, you acquired them our wind farm.
And finally, we resolved multiple rate cases during the pandemic.
Now turning to our investment plans.
The Minnesota Commission recently approved our 650 megawatt wind Repowering proposal with $750 million of rate base investment.
The wind portfolio is projected to provide customer statements on more than $160 million over the life of the assets it'll create jobs jumpstart the economy and reduce carbon.
In addition, we're also proposing to acquire a re powered 120 megawatt windfarm PPA buyout.
About $210 million now.
Now this project was initially submitted as part of the Minnesota relief and recovery RFP, but.
But the Repowering didn't result in customer savings. However, we worked with the party on the terms and the project gets now expected to provide customer savings over the life on the asset. So we will move forward with it.
We also plan to file on Minnesota Solar proposal later in the quarter. This project consists of 460 megawatts of solar facilities near our retiring serco coal plant, which takes advantage of existing transmission with.
We fine tune the GAAP projections and now expect an estimated investment of $550 million is lower cost provides more benefits to our customers.
We have requested a commission decision on both projects in the third quarter and are confident the commission will see the consumer benefit.
As part of our strategy to lead the clean energy transition. We're also working to electrify the transport sector.
<unk> thousand 20, we announced the goal to enable $1 5 million electric vehicles in our service territory by 2030.
We have programs and filings on your way in various states and our transportation electrification plan in Colorado, which just recently approved.
And we continue to achieve important milestones in our nation, leading wind expansion program with the completion of six projects from 2020.
These projects represent nearly 1500 megawatts of capacity and were completed under budget and.
In addition, we have approximately 800 megawatts of wind projects under construction.
Excuse me, which are expected to be completed in 2021.
We're excited to continue the clean energy transition, which will result in significant customer savings and carbon reductions.
We also had a strong year operationally for example, or David or team continues to make great strides in transforming performance, while reducing cost per fleet achieved a capacity factor of over 96% in 2020.
Even with a refueling outage during COVID-19.
We have one of the top performing nuclear fleets in the country as rated by the NRC and impulse.
And in addition to strong performance, we have continued to lower our cost structure with O&M cost declining by more than 5% in 2020, and this is the sixth straight year of declining O&M costs in our nuclear operations. So on.
I'm extremely proud of the effort and the results of our nuclear employees and their leadership in our industry.
Beyond our strong financial and operational performance I'm also very proud of our ESG leadership.
2020, we estimate that we reduced carbon emissions by about 50% from 2005 levels.
We remain on track to achieve an 80% carbon reduction by 2030.
We announced our plans to convert the Harrington coal plant in Texas to natural gas by the end of 2024.
Working with our club owners, we announced the proposed early retirement of the Craig in Hayden coal plants in Colorado.
We will address the remaining coal plants in Colorado, and our resource plan filing at the end of March.
We're also making significant strides to improve ESG compliance transparency and disclosure as we issued our tcs the risk assessment or natural gas reported on our plans to reduce greenhouse gases and our LDC and our Green Bond Index reported.
We earned on another perfect score on the human rights campaign's corporate equality index and remain among the best places to work for LGBTQ equality.
All of this adds up to an outstanding ESG record, which is integrated into our strategy and increasingly important to investors.
So I'm really pleased with our accomplishments and looking forward I'm excited about the opportunities we have in 2021 and beyond.
With that I'll turn it over to Brian.
Thanks, Ben and good morning, everyone.
We had another strong year book in $2 79 per share for 2020, compared with $2 64 per share last year.
Most significant earnings drivers for the year include the following.
Electric margins increased earnings by 32 sales per share primarily driven by rises on rate outcomes.
Higher <unk> increased earnings by <unk> <unk> per share due to large projects under construction, including our wind generation.
Lower O&M expenses increased earnings by <unk> <unk> per share driven by our cost management efforts.
The lower effective tax rate increased earnings by 22 per share as a reminder, production tax credits lower the ETR. However, ptc's growth flowed back to customers through lower electric margins are largely earnings neutral.
Offsetting these positive drivers were.
Depreciation and interest expense, which reduced earnings by 36 cents per share, reflecting our capital investment program.
Other taxes, primarily property taxes reduced earnings by $6 per share and finally other items combined to reduce earnings by seven seven per share.
Turning to turning to sales as expected Covid had an adverse impact is weather and leap year adjusted electric sales declined by about 3%.
For 2021, we don't anticipate a full shutdown on the economy like we experienced last spring instead, we expect a slow recovery lingering impacts throughout the year.
As a result, we anticipate modest weather adjusted sales growth of approximately 1% off of depressed 2020 sales levels.
As a reminder, we have a sales true up mechanism for all electric classes in Minnesota, and decoupling for the electric residential and non demand small C&I classes in Colorado. This.
Covers about 45 per cent of our total retail electric sales.
Shifting to expenses, Richard strong cost management by reducing O&M, nearly 1% to mitigate the adverse impact.
Average COVID-19 impacts.
We expect O&M expenses to be relatively flat in 2021, reflecting incremental costs for our new wind farms offset by a decline in based on that.
Next let me provide a quick regulatory update.
In December the Minnesota Commission approved our 'twenty 'twenty, one still proposal as an alternative to our filed rate case.
We view this as a constructive outcome they'll allow us to focus on the Minnesota resource planning and other policy initiatives in 2041.
In January we filed a new Mexico rate case, seeking a rate increase of approximately $88 million or a net rate increase of $48 million after reflecting the fuel savings on ptc's from the Sagamore wind farm.
The net increase was driven by investment in transmission and distribution due to the significant growth in new Mexico since the last case.
The request is based on an ROE of 10, three five per cent and equity ratio of 54, 7% at retail rate base of $1 9 billion in the historic test year it.
It also includes changes in depreciation to reflect the plan with early retirement of our coal.
The decision on nimble and put the implementation of final rates as anticipated in the fourth quarter of this year.
We also plan to file a Texas rate case later on the quarter both cases.
Required as a part of the approval of our wind projects at Sps.
Yes.
In November 2020, we filed a request in North Dakota is seeking an electric rate increase of approximately $22 million.
This is our first rate case in North Dakota in eight years. The request is based on an ROE of 10, 2% an equity ratio of 52 five per cent a rate base of $677 million and our forecast test year.
Interim rates were implemented in January and a decision is expected later this year.
And in February we will file a transmission expansion plan in Colorado to increase capacity to enable the addition of renewables to the system we.
We will also file a resource plan in Colorado at the end of March. It will include proposed plans for our remaining coal plants on a state as well as additional renewable resources as we work to reduce carbon emissions at least 80% by 2030.
The transmission expansion and resource plan will provide transparency into our long term opportunities that will likely lead to robust capital investment in the second half of the decade.
We expect the decisions on both the transmission expansion and the resource plan by early 2022.
As Ben mentioned, the Minnesota Commission approved our wind Repowering proposal as a result, we're moving these wind projects into our base capital forecast, which reflects rate base growth of six 6%.
We also have potential incremental capex of approximately $210 million for the PPA buyout and $550 million per the circle solar facility.
If approved rate base growth would be six 9%.
Accordingly, we have updated our capital tables on our financing plans are detailed in our earnings release.
Anticipating that the incremental capital if approved by the Minnesota Commission would be financed with approximately 50% equity on 50% debt.
This incremental equity will allow us to fund accretive capital investments, which will benefit our customers, while maintaining our solid credit metrics with favorable access to the capital markets.
And with that I'll wrap up with a quick summary.
We continue to provide reliable service to our customers, while ensuring the safety and wellbeing of our employees and communities.
We effectively mitigated COVID-19 impacts on delivered earnings within our original guidance range for the 16th consecutive year.
We increased our dividend for the 17th consecutive year.
We continue to execute on our steel for fuel strategy by adding nearly 500 megawatts of owned wind in 2020.
The Minnesota Commission approved our wind Repowering proposal and the acquisition of the Merrill Wind farm, both of which will provide significant benefits to our customers.
The Colorado Commission approved our transportation electrification plan.
Enhanced our ESG disclosures and made further progress service call exposure and deliver on our carbon reduction goals.
We resolved multiple regulatory proceedings, we reaffirmed our 2021 earnings guidance of $2.90 per share to $3 per share and finally, we remain confident we can deliver long term earnings and dividend growth within our 5% to 7% objective range.
With that that concludes our remarks and operator, we'll now take questions. Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure the new function on your phone is turned off to allow your signal to reach our equipment again. Please press star one to ask a question, we'll pause for a moment to allow everyone going on.
Opportunity to signal for questions.
We will take our first question from Jeremy Jeremy Tonet with J.
P. Morgan. Please go ahead.
Hi, good morning.
Morning, Jeremy.
Just wanted to start off with.
What you can say about what type of capital opportunities are you seeing associated with the Colorado AARP and I was just wondering if you could frame the magnitude of what incremental spend.
It looked like versus your current plan.
Jeremy Good morning.
<unk>.
Two parts to that is really the Colorado transmission expansion plan.
If you if you've heard about us talk before about transmission, we see a lot of opportunities to really this is needed to enable our energy transition.
We need to enable several gigawatts of renewables and if you think about that it's enabling low cost universal scale solar and wind.
To bring it to our load centers in Denver, So what you'll see out of that and now I can't give you specifics in terms of the overall capital investment will file that in the next month or so but the significant investment opportunity on the transmissions transmission side, it's really a transmission backbone.
To deliver that for our customers as part of the ERP.
On the Colorado Resource plan I think.
More details to come on that but look at our Minnesota resource plan is a good proxy where we have several gigawatts of renewables in our preferred plan through 2030. So it will look and feel a lot like that we're looking at what we're doing with our coal plants and adding a lot of renewables to help us achieve that 80% plan. So we're excited about.
Excited to provide that transparency into the back half of this decade.
And more details to come.
That's helpful. Thank you.
I was just wondering if you might be able to comment on how the PPA buyout opportunity set has evolved over the past at year. So during the pandemic and do you expect any market changes going forward here.
No I think it's.
It has evolved a little bit and you see we just announced one here generic will provide more details officially announced that in the next month or so as we file it.
We're excited to continue to execute on it we delivered the malware PPA buyout. This year with the commission and this one I know we continue to have conversations with our counterparties.
I think there's another opportunity if you see potential tax credit extensions.
In Washington that you get some further repowering opportunities, but it is something that we continually.
We continually look at and work out with their counterparties. Another good data point watches that are erp's, often drive rfps, where we can have ppas bid into us PPA buyout opportunities. So that's a really good opportunity longer term. So we're excited about it we've delivered if you look what we've delivered on our PPA buyout opportunity.
It was.
Counting this one day, we just announced it's over $500 million on PPA buyouts and Thats, excluding Mankato. So we've delivered Moller long road this new one tactical and Nancy and Belmont So they all.
A good long term opportunity as we continue to look at harvesting.
Yeah, and I think just.
Whether it's ppas, whether it's transmission spend whether it's renewables.
You should feel very confident that we've got a long runway of capital investment and that's what we're.
We're really excited about and of course, you know we've been focused on renewables that actually save customers' money too so that clean energy transition can be driven by economics, which of course, then sets up the electrification of other sectors like transport So I.
I think we've got great organic growth in front of Us Jeremy.
Got it that's very helpful. Thanks, and one last one if I could sneak in here just wondering.
What do you guys see as the risks and opportunities with the potential acceleration of municipal carbon free electricity coal to 2040 here and also thinking about on a national level Biden has set our plans for 2035, there and just wondering if you had any thoughts you could share. Thanks.
Well I mean first of all.
Please.
Excel and our whole industry now is really on volume toward achieving on.
Net zero goals and for us.
We think we can do a zero carbon net zero zero carbon by 2050 with an important interim goal of 80% by 2030, but if you heard me talk before I will tell you that that last 20% is going to take.
Technologies to become commercially viable because.
Jeremy I think it's incredibly important that this transition is based on economics. So that you do have the opportunities to electrifying other sectors with economics and buying you get a lot of bipartisan support when economics can drive the decisions.
So.
Could we go faster than our goal of 2015, well, it's possible I mean, but I think that would mean that those technologies that we referred to whether it's the next generation nuclear whether it's the development of hydrogen whether it's carbon capture working economically whether it's on.
Long term storage they have to do.
They have to come into the money much sooner than that.
I think they will but you've.
You've heard me say before I never bet against the technology.
So more to come on that.
Got it I appreciate the thoughts there that's it for me thanks.
We'll take our next question from Julien Dumoulin Smith with Bank of America. Please go ahead.
Hey, good morning team thanks for the time.
So just wanted to follow up on Colorado and latest thought process on timing for a rate case, there and I in conjunction with the question I was just curious about the shift in your 'twenty. One guide on on O&M is that driven in part by a thought process on Colorado rate case timing or I also noticed that theres, a little bit of a shift in the rider.
There as well so if you could speak to the 'twenty, one shifting on O&M as well as the latest on Colorado and timing there as well as they come on.
Hey, Julien it's Bob good morning.
Thanks for the question with regard to the case I'll cover that and I'll turn it back over to Brian to talk a little bit about your question on the O&M.
So in Colorado, obviously, we've been talking about our case there are we filed two riders in the summer of last year, obviously, we watch what happened with the agent Ryder, we're still prosecuting the wildfire writer, but theres a number of other factors that go into evaluation of our case in Colorado.
Moving to watch those obviously the pace of economic recovery in Colorado is very important we're seeing very strong growth there.
But as Brian indicated our sales forecast still expect a slow recovery with some lingering impacts. So sales is a key driver and obviously our efforts around O&M and efficiencies that we can gain in that business will probably dictate when and how we file a case in Colorado.
And a second half outcome at the earliest.
And it's largely associated with capital investments in the distribution business and then.
<unk> technologies for us to continue to deliver a great customer experience out there so more to come from us, but it's probably at least a second half decision for us.
Good morning Julien.
On your O&M question first just wanted to say really proud of the employees and the work that was done in 2020, just a great effort in terms of the mitigation work.
That everyone did in this company.
2021. It is a combination of things one is we're continuing to drive sustainable cost transformation and to our 2020 actuals came in a little bit higher than we thought in Q3, two due to a couple of discrete items. So.
But expect us to continue to drive O&M transformation, but what you don't see in our flat guidance is we're adding about $50 million of wind O&M in 'twenty and 'twenty. One so we're offsetting that to keep our overall overall O&M flat with our cost transformation effort. So excited about what we accomplished in 2020 and what we expect to accomplish in 'twenty.
And beyond.
Excellent Thanks, David Hey, Bob coming back to you real quickly if I can.
In terms of when you said that there are to quote you a number of other factors here that go into it.
I think if I'm hearing you right the perhaps the most decisive one is obviously the sales on economic growth are there other material drivers that will come into it it sounds like you're just waiting to see the trajectory of this post COVID-19 year.
On sales, but I just want I don't want to mischaracterize at.
You know look we still have our wildfire rider proposal in front of the ALJ right. Now we went through hearings are a week or two ago and felt like we made a really good showing there I mean this is a significant investment to mitigate a big state policy desire in terms of mitigating wildfires.
So we would ask for a rider the intervenors came back proposing deferrals and we're deferring on.
Links and return profiles of those so obviously, arguing a decent outcome in the wildfire.
Ryder is one of the factors that would go into our decision, making but not certainly not exclusive.
Do you have on hand, probably right.
It's sales it's O&M.
And then it would be regulatory decisions all of that would factor into a midyear kind of <unk>.
<unk> determined whether or not we need to pile on.
Non.
Right Yeah understood.
You've got the deferral that would that be adequate it sounds like there's more than just a binary decision on the on the the wildfire here.
I think you'd have to just look at how the.
The Devil is always in the details on those things so that along with the other drivers that I mentioned sales on O&M will be all of the factors that we've looked at.
Totally appreciate it alright, guys. Thank you very much all the best too.
Thanks Sheila.
We will take our next question from <unk> Kim with Goldman Sachs. Please go ahead.
Good morning, Thank you.
Morning.
Brian on the pipe.
Your Capex plan can you just.
I guess growth through which on the items.
Or in the place based plan versus the incremental I know the.
The proposed the powering and the one PPA buyout is looking in Quebec on lot of the based on our investments in the head between coal tank conversion and the investments that fell off on protection on all of those.
Embedded in the based on or would that be incremental.
Yeah no those are the ones that you mentioned are basically in the base plan, it's a relatively small investment into Harrington.
On the conversion of Harrington from coal to natural gas.
All of our wildfire wildfire investments in our base plan.
You're right you know clearly that we have the solar opportunity in the P. P about opportunity in the incremental plan and hope and expect to give visibility into those by the end of this year. So can you provide color on hopefully a arabias growth trajectory on.
Seven per cent that we execute on those.
Got it.
And then just going back to Jamie's question on President <unk> plans to.
Achieve the carbon X pollution free power sector on the USD <unk> 35.
And setting aside for a moment the probability of passing a federal or state policy such that you think when you look at your fleet.
On the underappreciated value of your remaining coal plants or other Paul fulfill thoughtful appeal units.
How do you see that do you see that as potentially achievable given the current regulatory and.
Price framework for renewables or what items do you think you would need on both ends to to achieve that.
Well you know.
The accelerated depreciation is certainly a factor, but as I said.
With the prior question, it's far more a question on Arlo technologies rhetoric ready and economically viable.
Because.
Getting to 80% is not easy, but we know we can do it with existing technology and I know I can do it in a way that preserves affordability and reliability, but.
Just two.
Moving completely away from fossil would require.
An incredible emergence and acceleration on technologies that I think are still.
A ways away.
<unk>.
I mean again, it's technology can emerge, but $2035 like tomorrow and utility land as far as technology goes so I.
I think theres going to be I mean, I think there's going to be an element of pragmatism net debt.
Baked into those goals and.
I've always said, we'll move as fast as the speed of technology and that's what we'll do but honestly I think it's a good thing.
Very much of a stretch goal based upon the way I see the horizon in front of us.
So that said I mean, I've said I mean, there's a lot of good things that come with that Goldman support on.
Per cent carbon free so we're aligned with that.
I think under the by the administration, you'll see an acceleration of <unk> and <unk>.
On an acceleration of transmission build I think you'll see an acceleration of the R&D and the technologies that we need to achieve those goals, whether it's 2000 35040 or 2050 and I think that that is the key to me and if we can all pull together on that.
Develop the right frameworks invest in R&D have the right tax policies I think I think we're gonna do amazing things and nobody would have thought that we'd be where we are today as an industry and certainly not an excel energy just five years ago. So.
I'm excited about what the future possibilities hold.
Got it. Thank you so much for the color.
Got it.
We'll take our next question from Stephen Byrd with Morgan Stanley. Please go ahead.
Hey, Good morning Hope you all are doing well.
Yeah.
Great and just following up on that you can sense team on the questions here on the on federal policy, but I wanted to maybe get a little more more specific we may see further legislation that would.
Extend tax credits for wind and solar potential to create a new tax credit for storage and I'm. Just curious if you saw that kind of let's say that there is a longer term extension could that be material enough for you all to one or both kind of re look at your Minnesota resource plan could that have a pretty big impact on how you think about your resource mix in Colorado.
Like how impactful could you know longer term extensions for wind and solar and kind of a new tax credit for storage B as you think about your resource mix on the future.
Alright, well first of all I think it would be a positive so.
And you know.
And I think there's also discussion about.
Tax credits for.
Nuclear as well, which I am fully supportive of that transformation all of those things are going to enable us to go.
I think even faster.
Because of the affordability equation to it.
Obviously at some point you do saturate, the big grid with renewables regardless of cost.
But.
If renewables continue to fall in price and what that would allow you to do is put more renewables on your system. Even if even if you have an increase in curtailments because of the economics would pencil out better so.
It's probably on a long winded answer to your question, but.
Hopefully that gives you some insights into it.
Stephen I'd, just add that dip.
Depending on how our certainly dealt in detail with depending on how long that that PTC extension is for when you start to see more repowering opportunities come up as the wind farms exit their original 10 year PTC life and so that's what you saw with the couple of wind farms that we got.
<unk> just recently in Minnesota Commission, so I think that could present themselves more opportunity just to get a longer term extension.
That's a good point, maybe just following up a little bit on this.
Let's let's dream here, and let's say that there is going to be longer term extension of these tax credits in new stores that shred it.
Transmission nuclear is that enough to sort of trigger a kind of a formal review on your part in terms of the mix that you've sort of established or is it less less formal than it was just you continue to evolve your thinking over time, but it wouldn't necessarily sort of trigger a reassessment of your broader plans.
Well I mean, I think it would I think it just puts our IRB processes and on proposals that much more deeply on the money for our customers.
It makes the economics that much more compelling again I think we can do more accelerating some of the renewables that we put into our system within operational limitations.
Oh Boy, Stephen I mean, you've got.
Our electricity because of those things becomes even more affordable I think about the opportunities to accelerate.
Others on electrification of other sectors.
That is they would be a tremendous benefit.
But that's a fair point, maybe just on <unk> last question for me I promise just if we did.
Even if you book.
Can't hear you.
Thank you hung up on US no I don't think he's still there.
David did you go on mute by accident.
That's one of the most popular terms in 2020 by the way. The other one is could you go on mute.
On the other one is I forgot my masks.
Operator.
Yes, I'll go to the next.
Questions. Okay, we'll take our next question from Sophie Karp with Keybanc. Please go ahead.
Hi, Good morning day, I'm, hoping you can hear me.
And that would be I guess all of it.
Well congrats on the year in this challenging environment for sure.
Maybe to continue.
Capex rate what are the opportunities.
Advancements.
So U S sites participating in the charge on infrastructure.
Have you done.
Robert maybe along the lines of it.
David penetration in households, Richardson level.
Maybe some updated due to the distribution system.
Which areas state maybe have more need for that how should we think about that.
Got it.
One nine gigawatt, Inc.
Hey, Sophie it's Bob maybe I'll start this and then I'll kick it over to Brian potentially.
You were a little bit muffled, but I think youre asking about whats the investment opportunity. If we have a significant penetration of electric vehicles.
I think our forecast right now for the next five years has a half a billion dollars in an electric vehicle and that includes charging stations and the distribution infrastructure as you mentioned to enable that.
And over the decade that number is closer to what on a half to $2 billion.
Kimberly that's all encapsulating into the distribution system.
The one area that we could probably still sharpen our pencil on a little bit as the impacts of fleet and heavy duty vehicles, and how that would impact us those are very discrete and high loads in certain theaters on our system.
We probably aren't as sophisticated we'd like to be right now on exactly when and where that would happen because it's largely in the hands of the owners of those vehicles.
So it's possible there is some incremental upside there are distribution feeders are I wouldn't say wildly underutilized at this point and so potential capital expansion opportunities on fleets and heavy duty vehicles is probably where any of the upside might come.
I think to Sophie.
There's a virtuous circle here the more EV penetration, we get particularly if we can encourage customers to charge off peak.
The more all customers benefit and so that tends to give.
Give us that.
Tailwind to keeping our product affordable, which makes more electrification more on these everything else more possible. So it's.
That that element of it is super exciting you look way down the road.
And there's a lot of folks I think.
<unk> penetration could be an extension of the grid. If you will the use of those batteries and I was kind of encouraged by the CEO of Ford when you spoke to us at an industry event.
He was he saw that future too because in the past I've been told that.
The car manufacturers were a little worried about using batteries in that matter now we're a ways away from that but I mean, when you look down the road you can certainly see a future that.
Incorporate tvs into the grid.
Got it got it very helpful. Thank you and then just on the supply side.
As you know the renewable targets and goals become more aggressive on us.
Possibly we will see more build out is.
Thank you mentioned, we'll have additional.
You are the fiscal incentives.
Not a scenario, where maybe you see.
You know, it's kind of throwing in there potential quota retirement in Colorado.
Scenario, where in some of the jurisdictions, Colorado, specifically or maybe Minnesota.
You'd see a shortage of baseload power likes on.
Dispatch of growth capacity, if you will like what they see maybe in some other regions in that area right now or do you feel like you have adequate supplies to tell you over to the point, where you can have dispatch believability source.
So let me just make sure I got heard your question because it is not book did you did you ask it do you see in a situation where because of the deep penetration and other things that we buy.
That we might have a shortage of.
Special generation basketball generation is that your question not not as much not as much because of evs, but due to its high on maybe rooms penetration in the coal retirements.
In the region.
Well I mean, that's what the IRB processes are all about I mean, we do take a long term view, that's why I do think the vertically integrated regulated model really works because we can plan for those kinds of contingencies and make sure that we do have adequate reserves and adequate backup.
On the.
The point that we have to get across is to hit an important interim goals, we do need in the upper Midwest to preserve nuclear fleet, though that's going very well by the way and we're going to need a little more of a gas back up not necessarily using more gas, but having theyre, having it ready when some of the renewable resources might not be there all in all it's still pencils out to be.
Cost beneficial for our customers, but those are the kinds of things we have to discuss and those resource planning processes. So that we have a plan to your point that provides economic benefits the environmental benefits on of course maintains reliability.
Yeah.
Thank you so much I'll jump back into the queue.
Thank you Sophie.
We will take our final question from Paul Patterson with <unk> Associates. Please go ahead.
Can you hear me.
Hey, Paul we can hear you loud and clear.
Yes.
I wanted to just really quickly.
I noticed that.
Micro grids.
I guess you guys have a microgrid projects are thinking.
For something I think in December in Wisconsin, I was just wondering what are you seeing or are you seeing any trends on that and any other service territories or.
I mean, I realize it's a pilot and I think it's only about 170 something million but.
I'm just sort of wondering if there's anything.
More youre seeing on that end.
We service territories.
Hey, Paul It's Bob we filed for some we call them community resiliency initiatives in Colorado.
And work those through the process with the commission and we're now got approval and we're going to start to to build out those initiatives.
Haven't seen a lot of Paul in micro grids.
In the rest of the service territories, but obviously something that we're willing to explore with our customers.
Through the process, but it's been pretty quiet other than Colorado.
So Paul Microgrid. Thanks, so much.
I think micro grids have a role in.
Utilities future it just.
They don't come without a price tag so the resiliency element of it.
Those become important things and what we always willing to do is figure out how we can incorporate that into our total distribution planning process and I think you'll see more of that in the future but.
It is not.
It's not without a cost obviously.
So just to sort of follow up on that because I guess it varies from from territory to territory.
Hmm.
I guess, it's two within your service territories I guess, the economics, just simply aren't there in terms of arbitrage on stroke in terms of offsetting those costs is that how you sort of see it in terms of it being widespread.
Yeah, I think that's fair I think.
They work, primarily again, one extra resiliency and extra reliability is in order.
Right.
Okay. Thanks, so much.
Thank you Paul.
Ladies and gentlemen. This concludes today's question and answer session for closing remarks, I like to turn the conference over to Brian Van Abel.
Yeah. Thank you all for participating on our earnings call. This morning for any questions. Just please contact our investor relations team and have a great day. Thank you all.
Ladies and gentlemen, this concludes today's call.
Conference. We appreciate your participation you may now disconnect.
Yeah.
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Yeah.
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