Q4 2020 CMS Energy Corp Earnings Call
Kenneth recession.
Instructions will be provided at that time.
If at any time during the conference you need the reach an operator, Please press star followed by zero.
Just a reminder, there will be a rebroadcast of this conference call today, beginning of 12 PM Eastern time running through February 11.
The presentation is also being webcast and is available on CMS Energy's website in the.
The Investor Relations section.
At this time I would like to turn the call over to Mr Suite commodity Party, Vice President of Treasury and Investor Relations. Please go ahead of it.
Thank you Rocco good morning, everyone and thank you for joining US today with me are <unk>, President and Chief Executive Officer, and Roger Hayes, Executive Vice President and Chief Financial Officer.
This presentation contains forward looking statements, which are subject to risks and uncertainties. Please refer to our SEC filings for more information regarding the risks and.
The other factors that could cause our actual results to differ materially.
This presentation also includes non-GAAP measures reconciliations of these measures for the most directly comparable GAAP measures are included in the appendix and posted on our website now I'll turn the call over to Eric.
Thank you Sri and thank you everyone for joining us today.
I've had the pleasure of meeting many of you over the past couple of months as I've transitioned into the CEO role I'm excited to be hosting my first earnings call and share in yet another year of consistent industry, leading financial performance.
Before I discuss our year end results and our updated five year capital investment plan.
I want to take a moment to reiterate our simple, but powerful investment thesis, while simple to put on paper.
Easy to replicate and that is what sets us apart.
It starts with our industry, leading commitments to clean energy.
Our net zero of methane and carbon goals require significant investment as we update our expanse of electric and gas systems to achieve the carbonization.
These investment opportunities are supported by constructive energy legislation as well as alignment with our commission and the PSC staff.
This strong regulatory and Legislative framework is why Michigan has consistently ranked a top tier regulatory jurisdiction.
But investment opportunities and of supportive regulatory environment are not enough.
Our focus on affordability is critical.
So our customers can afford these investments.
Now.
I've been with the company for 18 years.
It and operations.
Over that time, we've demonstrated our ability to consistently maintenance costs as the.
As we've invested in the safety and reliability of our systems, while improving customer service.
That ability to manage costs is not driven from the top down but from the bottom up it's our 8500 co workers, who are committed to excellence delivering the highest value to our customers at the lowest cost possible.
This is embedded in our culture and was built in partnership with our Union over the last two decades.
These unique attributes to the CMS story of what allow us to deliver for our customers and you our investors.
Our adjusted EPS growth of 6% to 8% combined with our dividend provides of premium total shareholder return of 9% to 11%.
Our ability to deliver this growth each and every year is something we are uniquely capable of doing.
Regardless of whether on.
A global pandemic, who is leading our state of our commission for our company, we have delivered consistent industry, leading results year in and year out.
2020 prove this 2021 will be no different.
In 2020, we delivered adjusted earnings per share of $2 67.
Up 7% from 2019 and achieved operating cash flow of almost $2 billion.
Excluding $700 million of voluntary pension contributions in 2022.
Today, we are raising our adjusted EPS guidance for 2021 by a penny to $2 83.
To $2 87, with a focus on the midpoint.
This reflects annual growth of 6% to 8% from our 2020 of results.
Last month, we announced our 15th dividend increase in as many years $1 74 per share up 7% from the prior year.
We continue to target long term annual earnings and dividend per share growth of 6% to 8% again with a focus on the midpoint.
Today, we're also increasing our five year capital plan to $13 2 billion.
Up $1 billion from our prior plan.
The 18 consecutive years.
Of industry, leading financial performance.
I'll, let that sit with you for a moment.
I am pleased with our financial performance, but equally important is our commitment to the triple bottom line, we balance everything we do for our coworkers customers and the communities, we serve our planet and our investors as demonstrated on slide six.
2020.
2020 was a tough year for everyone.
The global pandemic impacted all of us emotionally physically and financially.
Through it all I am proud of the work done by our co workers.
We were able to provide over $80 million of support for our customers.
The and communities in 2020 through support programs low income assistance donations to foundations and reinvestments to improve safety and reliability.
We focused our efforts on Covid relief for residential and small business customers payment forgiveness as well as enhanced support in the area of diversity equity and inclusion.
Despite changing our work practices.
As a result of the pandemic, we maintained first quartile of employee engagement achieved first quartile customer experience and attracted 126 megawatts of new load to our state, which brings with it significant investment and over 4000 new jobs.
From a plant perspective.
We continue to lead the clean energy transition.
We added over 800 megawatts of new wind and are executing on 300 megawatts of new solar the first tranche of our integrated resource plan.
Furthering our commitment over $700 million of investments were made to advance our clean energy transition.
Additionally, our demand response and energy efficiency programs continue to save our customers money reduce carbon and earn an incentive.
And last but certainly not least we finished the year with more than $100 million in cost savings driven by the CE way.
Many of you have asked about my commitment to the CE way.
The light Blue Arrow at the bottom of the slide and my experience, leading this operating system over the past five years.
Should be a strong signal.
I'll tell you. This we are positioned well, but there is still more opportunity through the CE way, we will continue to improve reliability reduce waste and deliver better customer service and that is just the tip of the iceberg. There are opportunities in every corner of the company to achieve excellence.
Through the CE way.
My coworkers and I remain committed.
We will continue to lead the clean energy transition with support from our new five year $13 2 billion capital investment plan, which translates to over 7% annual rate base growth.
And focuses on enhancing the safety and reliability of our system as we move towards net zero carbon and methane emissions.
In fact, 40% of our planned directly supports our clean energy transition and includes our renewable generation electric distribution investment to support this generation grid monetization as well as programs like our main and vintage service replacement of programs, which reduced methane emissions.
In addition to our traditional rate base of returns.
Our wind investments renewable ppas and.
And demand side resources are supported by regulatory incentives above and beyond our Roe.
These incremental earnings mechanisms enhance our earned returns and combined with our investments in clean energy are growing percentage of our earnings mix.
Our customers ability to have for the investments in our system is complemented by our continued focus on cost savings.
Over the last decade, we have reduced the utility bill Bill as a percentage of the customer's wallet.
And we continue to see further opportunity to reduce costs in the future.
We have unique cost saving opportunities relative to peers and two above market, ppas, Palisades, and MTV, which will generate nearly $140 million of power supply cost recovery savings.
This coupled with the future retirement of our remaining coal facilities provides over $200 million or 5% cost savings for our customers the.
These structural cost savings combined with the productivity will deliver through the CE way will ensure we deliver on our capital plan and keep customer bills affordable.
Now of the Great thing.
The great thing about the CE way is it delivers more than cost savings.
What makes us unique is our engaged coworkers we value our best in sector employee engagement and our 8500 coworkers who work every day to deliver the best value for our customers. This.
This engaged workforce is double of productivity, which has enabled us to consistently increase our capital plan without significantly increasing our workforce.
Furthermore, we have never served our customers better.
As we move from the bottom quartile to top quartile not just in the utility industry, but across the hall industry <unk>.
Slide nine serves as an exact ex <unk>.
Slide nine serves as the excellent example of how.
Our team Leverages, the CE way to deliver on our triple bottom line.
Our ability to deliver this level of excellence for our customers.
And investors.
The supported by Michigan's constructive regulatory environment.
We benefit from a legislative and regulatory construct that supports our rate case proceeding.
And the statute that allows for financial incentives above and beyond current authorized Roe.
Michigan's regulatory jurisdiction has been ranked in the top tier.
Since 2013.
That's not by accident.
It's a reflection of the hard work my coworkers do every day.
To earn the trust of our customers policymakers environmental groups and the PSC staff.
We are proud to have a commission that demonstrates strong leadership with diverse backgrounds, which was enhanced with the appointment of commissioner per Tech. We welcome Commissioner per tech and look forward to working with her in the future.
Turning to slide 11, we have of light regulatory docket with no financially significant regulatory outcomes in 2021.
With the approval of our current securitization and electric rate case in December of last year, We will file our next electric rate case in the first quarter and our gas rate case in December of this year.
Notably we will file our second generation of our integrated resource plan in June.
I'm sure many of you would like a sneak peek.
But it's too early we're in the midst of the modeling phase.
You can be confident that this next iteration, we will continue to build on our industry, leading clean energy commitments and.
And we will find ways to get cleaner faster.
And the corporate storage and customer driven solutions as they become more cost effective.
Beyond that we will ask you to stay tuned until our second quarter earnings call, where we'll provide more information after we file.
With that I'll turn the call over to Reggie.
Thank you Derek and good morning, everyone.
We're pleased to report our 2020, adjusted net income of $764 million or $2 67 per share up 7% year over year off our 2019 actuals and.
Now I'll briefly note that our adjusted EPS excludes select non recurring items previously discussed in our third quarter earnings call and the Numerate and in this morning's releases.
To elaborate on the key drivers of our year end results. We released we realized increases and rate relief net of investments due to construct the borders and our recent gas and electric rate cases strong performance on our non utility segments and most notably our historic companywide cost reduction efforts led by the <unk>.
The way, which Garik noted earlier.
These positive factors were partially offset by mild weather and reinvestments for flex up back into the business.
We've talked in the past about our practice of flexing up which enables us to put financial upside to work in the second half of the year to pull ahead or commit to work to improve the safety and reliability of our gas and electric systems to fund customer support programs, which was particularly important in 2020 given the.
The effects of the pandemic.
Invest in co worker training programs and de risk our financial plan and subsequent years. This tried and true approach benefits all stakeholders, which is the essence of the triple bottom line of people planet and profit.
On slide 13, Youll note the.
We met our key financial objectives for the year.
To avoid being repetitive with <unk> earlier remarks, I'll just note that we invested $2 3 billion.
Of capital on our electric and gas infrastructure for the benefit of customers, including investments in wind farms, which add approximately $500 million of Rps related rate base, which I'll remind you earned a premium return on equity of 10, 7%.
I'll also note that our treasury team had a banner year successfully raising approximately $3 5 billion of.
Of cost effective capital, which include which includes roughly $250 million of equity while navigating turbulent capital market conditions over the course of 2020 the.
These efforts further strengthened our balance sheet for the benefit of customers and investors.
Turning turning to page for 2021 as mentioned we are raising our 2021 adjusted earnings guidance to $2 83 to.
The $2 87 per share, which implies 6% to 8% annual growth of.
For 2020 actuals on.
Unsurprisingly the majority of our growth will be driven by the utility and I'll also note a modest level of anticipated upside at the parent and other segment in 'twenty 'twenty, one largely due to the absence of select nonoperating flex items executed in 2020 on.
All in we will continue to target the midpoint of our consolidated EPS growth range of 7% at year end, which is in excess of the sector average.
To elaborate on the glide path to achieve our 2021 EPS guidance range as you'll note on the waterfall chart on Slide 15, we'll plan for normal weather, which in this case amounts to <unk> <unk> per share of positive year over year variance given the mild winter weather.
The experienced in 2020 <unk>.
Additionally, we anticipate 41 of EPS pickup in 2021 are attributable to rate relief net of investment costs, largely driven by the orders received in the second half of 2020.
It is also worth noting that the magnitude of EPS impact here is in part due to the absence of an electric rate increase in 2020, which was the condition of our 2019 settlement agreement.
While we do plan to file on electric case in Q1 of this year as Eric mentioned that test year and economic impacts of that case will commence in 2022.
As we look at our cost structure in 2021, you'll note approximately <unk> 27 per share of negative variance attributable attributable to incremental O&M approved on our recent rate cases to support key initiatives around safety reliability customer experience and de carbonization Needless to say we have under.
Buying assumptions around productivity and waste elimination driven by the CE way and we'll always endeavor to overachieve on those targets, while delivering substantial value for our customers.
Lastly, we apply our usual conservative assumptions around sales financings and other items and I'll note that while the pandemic remains relatively uncontained, we're assuming a gradual return of weather normalized load to pre pandemic levels around mid year.
In the event the mass teleworking trend persists <unk>, we see an accelerated reopening of the Michigan economy, we could potentially see some upside from incremental residential and commercial margin as always we'll adapt to changing conditions and circumstances throughout the year to mitigate risks and increase the lie.
<unk> head of meeting our operational and financial objectives, we're often asked whether we can sustain our consistent industry leading growth in the long term given the widespread concerns about economic conditions for potential changes in physical energy <unk> environmental policy.
And our answer of remains the same irrespective of the circumstances, we view it as our job to do the worrying for you are familiar EPS chart on slide 16 illustrates one of our key strengths, which is to identify and eliminate financial risk and capitalize on opportunities as.
They emerge.
To deliver additional benefits to customers, while sustaining our financial success over the long term for investors. Each year provides a different fact pattern and we've always risen to the occasion 2020 offered some unique challenges, resulting from the pandemic and more familiar sources of risk in the form of mild winter.
Whether and as usual, we didn't make excuses instead, we offer transparency devise our course of action and counted on the perennial will of our 8500 coworkers to deliver for our customers. The communities, we serve and for you our investors.
To summarize our financial objectives in the near and long term, we expect 6% to 8% adjusted EPS and dividend growth and strong operating cash flow generation.
From the balance sheet perspective, we continue to target solid investment grade credit ratings, and we'll manage the key credit metrics accordingly.
One item I'll note in this regard and debt we had slightly modified our episode of debt targets to align better with the various rating agency methodologies.
Given the increase in our five year capital plan, we anticipate annual equity needs of up to $250 million in 2021, and beyond which we are confident that we can comfortably raise through our equity dribble program to minimize pricing risk.
And two additional items I'll mention with respect to our financial strength as we kick off 2021 that are not on the page, but no less important or that we concluded 2020 with $1 6 billion.
Of net liquidity, which positions our balance sheet well as we execute our updated capital plan going forward and we are fully funded benefit plans for the second year on a row due to proactive funding the latter of which benefits roughly 3000 of our active co workers and 8000 of our retirees.
Our model has served and will continue to serve all stakeholders well our customers receive safe reliable and clean energy at affordable prices, while our co workers remain engaged well trained and cared for and our purpose purpose driven organization and our <unk>.
<unk> benefit from consistent industry, leading financial performance to conclude my prepared remarks on slide 18, we have refreshed our sensitivity analysis on key variables for your modeling assumptions as you'll note with reasonable planning assumptions right orders already in place and our track record of rich.
The mitigation the probability of large variances from our plan on minimized and with that I'll hand, it back for Garik for some final comments before Q&A.
Thank you Reggie or.
Our investment thesis remains simple but unique.
It enables us to deliver for all our stakeholders year in and year out we remain committed to lead the clean energy transition.
Excellence through the CE way and delivery of premium total shareholder return through continued capital investment the benefits the triple bottom line.
With that.
Rocco Please open the lines for Q&A.
Thank you very much Gary.
The question the answer session will be conducted electronically.
You asked the question. Please do so by pressing the star key followed by the Brazil, one on you touched on the telephone.
If youre using the speaker function. Please make sure you pick up your handset.
Proceed in the orders of loss and we will take on for any questions as time permits.
If you move on to your question is the answer you may remove yourself by pressing the star key followed by the busy too on your clubs.
The telephone.
We'll pause for just the second.
Today's first question comes from Jeremy Tonet JP Morgan. Please go ahead.
Hi, good morning.
Good morning, Jeremy.
Good morning, just one thanks.
Just wanted to start off I guess on renewables Capex deployment. It seems like that stepped up a little bit there and just wondering I guess your appetite or of your vision of how you see that could progress over time and just wanted to clarify as well specifically on slide 22, when you talked about the clean energy generation there how much of that is regulated versus non.
Regulated spend thanks.
Yes. Thanks for your question, let's just talk broadly about the regulatory the regulatory build out here of.
The renewables and the likes of so first of all we have industry, leading commitments and I want to be clear about that net zero by 2040.
Is one of the best in the industry out there and so it's the aggressive plan from a build out perspective, and our current integrated resource plan. We of one one gigawatts of solar net as part of the build out with the broader plan.
Of six Gigawatts of solar on.
And in the course of this integrated resource plan. This Rev. Two which we'll file in June will continue to advance our aggressive plans and our leadership on the clean energy transition.
So what you are picking up in our capital plan on an additional $1 billion Youre right on right on.
On the Mark Jeremy.
Theres more renewables to the tune of about $200 million of additional solar and renewables in that plan.
There's 200 million of hydro and that might be surprising for some but thats the original.
Original renewable carbon free and if you think about our ludington pumped storage facility, which is the largest fourth largest in the in the world. It provides an important rolling of Intermittency, there's $300 million for.
Electric reliability to improve service out there, but also prepare the grid for the future and then the.
The balance is made up of investments in our gas system to further de Carbonize decarbonize and so those are the important pieces when we think about our on.
On slide 22, specifically and the investments there right now our integrated resource plan.
<unk> 50 50 split.
Between purchase power agreement and build on transfer.
Now, it's a little better than 50 50 split because there are renewable energy plan commitments and we're building on when to support that so it's greater than 50 50, but let's talk about the 50 50 for a minute on all of those Ppas. We are one of the the few in the industry and certainly a leader in the industry to get of financial compensation mechanism.
Associated with that and the rest of come through build own transfer now as we think about our second ERP.
ERP.
We're going to take a strong look at what that mix looks like.
That will be for the future.
And so that'll be something we explore and grow and certainly will be part of our integrated resource plan for the future now I am going to pass it over to Reggie too because I know he has some additional thoughts to offer on this as well. Thank you Derek Jeremy of the only thing I would offer an additional on Eric's could comment and I don't know if this is on additional part of your <unk>.
Question, but all of the capital spend.
Spend that we have highlighted on this call so of the $13 $2 billion on the $2 4 billion of clean energy generation that is going on 22 on page 22. This is all for the regulated utility of consumers energy. So all of the capital investment we're talking about is earmarked for the regulated utility.
That's very helpful. Thank you for clarifying that.
Just wanted to turn to the balance sheet of little bit there I guess the easy the equity you talked about stepped up a little bit there on the up to $2 50, and just wondering if you might be able to provide more color.
Kind of ratable across years, or if that could be kind of more or less kind of given year and there is really the driver there just kind of the step up in Capex this year or any other color you can provide there would be great.
Jeremy.
Say starting of the second part of your question for US. It really is a ratable increase with the capital investment plan, which obviously has increased by $1 billion of vintage of our vintage and so because of the capital plan of the utility increased $5 billion. We've had the equity needs increase roughly commensurate with that and so the Pryor plant as you know is about one.
$150 million per year run rate on our $250 million now when you think about that distribution of the next five years, we may be opportunistic in some years maybe.
<unk> 250, some years, a little less we'll look at where the market is and how receptive it is to our currency and we'll look at the price of stock obviously, it I will just add for the first $250 million that we're planning to do in 2021, we've already taken about.
20% of that pricing risk off the table of forwards we executed in the back half of 2020, and so we'll be opportunistic so I wouldn't say, it's going to be of clean $2 50, each year, but that's the target and in some years of little more some years of less and so when I say, a little more up to $2 50 of the ceiling on it day in some years will be less of that just to be very clear.
That's super helpful. I'll stop there. Thank you.
And our next question today comes from Shar <unk> Guggenheim Partners. Please go ahead.
Yes.
Hi, good morning, and congrats on the strength of updated it's actually Constantine here for sure.
Yes.
I caught the tail.
Hey, Justin.
Quick one on kind of the clean energy mix for <unk>.
Method.
Line, some reductions on kind of coal on rate base and Campbell is obviously still a decade away.
We're now kind of jump into the IRB of ethylene.
You kind of talk about kind of of the opportunity to move the retirement of ahead on any threshold that you kind of envision for kind of moving those dates around especially on replacement economics start to improve for the.
Sure.
Okay.
Yes. Thanks for your question, we're in the process of our integrated resource plan I call. It two point all of our rep to looking at that and so right now.
And maybe you can take a step back over the course of my career, we had 12 coal plants were down to the remaining five carnival and current too.
And IOP one auto on a retirement of 2023 and right now in this ERP for two point of where we're looking at the potential for early acceleration earlier early retirement for Campbell, one and two right now the date is 2031 and evaluating whether that pulls forward or not and so.
That modeling is underway there are a number of things we look at in that modeling.
But it's all across our triple bottom line. So we're looking at customer affordability.
Looking at the reliability of the grid looking at impact of coworkers, obviously the benefit of the planet, but also the balance sheet and on the impact from.
What's the remaining book value the securitization impact and how does that play on the credit metrics on what is the capital build out there is a variety of variables that go into that but that is certainly something thats under consideration also we put that in the context of what's going on with the by the administration and some of the ambitions around that from the plant.
Perspective, which we support and so that also factors into our thinking on the.
On our coal plants.
Perfect. That's very good color on the shifting a little bit of kind of planning assumptions on kind of.
Load growth.
No.
And in 2020 of was obviously a little bit of of volatile year debt in terms of kind of <unk>.
Shifting the mix.
And your plan kind of already mentioned that you are kind of going back to normal by the end of 'twenty one.
Do you anticipate kind of the residential load trends play out similar of that kind of how they have been in in general and on being a little bit of higher and how does that impact kind of the need for O&M flags.
On the 21 earlier regarding the recovery than the.
The kind of reset.
The baseline or are there more of a return to normal O&M profile by the tail end of the year.
Well I'll start off of the Big picture, which the slide 16.
Every year when there is for.
On Theres work to do we get after it and we flex our muscle and find savings opportunities and then we reinvest it and so again, we've positioned well for 2021, that's the not.
The broad message, but specifically from us from a sales perspective residential sales as we talked in Q3 and still here in Q4 of its sticky as people are working from home.
Many schools are still virtual.
But as we see this pandemic playing out we anticipate that those would decline as you might expect expect as people go back to the traditional workplace as kids return to school of.
Also we expect the commercial sales to grow a little bit of restaurants have been opened up here recently, some limited capacity, but those will continue to grow, particularly as the vaccines is more readily available and distributed across across Michigan, and so again, there's not aggressive assumptions in there.
The conservative assumptions as you might expect from us.
And really returning to of some pre pandemic levels.
Sure.
<unk>.
From an O&M flex perspective.
As I shared earlier, we feel like we're well positioned for 2021, we've got a lot of reinvestment for our customers at the end of the year towards to the tune of 18.
That only helps our customers and provides benefit but of Derisked 2021.
Now.
The weather.
It could be mild in the winter it could be of cool summer on Theres still pandemic out there, but rest assured we do each and every year.
As we don't we don't lease that we don't carve out we get after it and reflects the <unk> muscle and deliver and so.
No matter, what the year throws at us on prepared we're prepared as the team.
And I am confident on the guidance we've provided.
Thanks Garik.
One of them ill jump back in queue.
And our next question today comes from Michael Weinstein with Credit Suisse. Please go ahead.
Hi, good morning, guys.
Hi, Michael Hayes.
Just thinking about the IOP filing that's coming up.
Does the $250 million of equity already contemplate.
The range of possible Thanksgiving.
Speaking of in the filing or should.
Should we expect to see some changes to the equity needs as a result of the plant.
Yes, Michael this is rajeev.
Just say that the equity issuance needs that we have laid out are reflective of the $13 $2 billion capital plan.
And that had some <unk> related capital investments other than it because remember we're still executing on the first tranche of the one one gigawatts.
Solar that were provided in the ERP that was approved in June of 19, and so there is some of that and sort of the outer years of this plan and so that's what that.
Of that equity will support we have not been too speculative as to what will come out of IR of <unk>.
To point out and we will see aware of the outcomes take us for I remember, it's the 10 months of potentially 12 months process that we will file in mid 'twenty. One as planned we'll get an outcome around mid 'twenty, two and Thats, a 3% or for an approval. So.
My sense is you'll see more of the results of that reflected on the next vintage of our five year plan, which will rollout obviously in Q1 of next year. So for now we're comfortable with the $250 million per year of equity funding this $13 $2 billion plan.
Makes sense.
<unk>.
It's an approval that comes out of this for three years right is there could you.
On a little bit about the appetite and Michigan are the legality in Michigan of of multi year.
Settlement for rates.
The.
Coincide with the IOP of three years.
I'm just wondering if theres any possibility of there and also the upside of the company for that kind of thing I know that in the past you guys have been very happy with the way of the annual rate cases.
Just wondering what the prospects are for something like that.
We're still our approach is still to go with an annual.
On a rate case approach.
For a couple of a couple of reasons one.
As we work on.
And we.
Find opportunities for savings it provides opportunity to give that back to our customers and that creates headroom which allows for.
The capital investment plans and so that the the strategy that works for US It works for our commission and.
And our commissioners and we'll continue on that path for for some time.
Alright, there is nothing legally it's not big.
Blocking that type of the outcome that we're either maybe.
It allowed Michigan have of multiyear rate plans.
No theres nothing legally the blocking and we've explored it at times and but again, we feel this is the best option for our strategy.
The annual rate cases.
Okay. Thank you very much.
Our next question today comes from Julien Dumoulin Smith with Bank of America. John. Please go ahead.
Hey, good morning team, thanks for the opportunity and congrats again.
I wanted to follow up here on the question on the IRT and weaving that into the Capex uptick here.
And I know listen we're pretty early on but I wanted to understand.
Clearly if you look at the slides.
Shall we say remaining large coal plant on Campbell, you've already shifted a little bit some of the timeline here.
Would you say that next year, we could get an update on the five year plan, obviously as one larger plant that's out there. It's got a pretty long dated on retirement and is there a chance that we could see that on the five year window and could that impact the five year Capex I just wanted to clarify and then also can you clarify I know you guys of raising capex here on clean energy.
I want to make sure that does not contemplate anything about any future any IRT outcomes to the extra clear about that.
Julian Thanks for your question.
It's going to feel like a little bit of a reiteration for me on this on this answer but.
We've got an aggressive plan.
Zero by 2040 and.
Lee we're looking at the potential to accelerate part of that plan with the.
The Campbell wanted too.
Part of this or this plan, but were also in the broader context of the by the administration on the 20 to 35 and even our governors goals within the state of Michigan. We're also considering what does that mean and what does that look like.
So right now Campbell three of that 2030 net.
2039, and so.
We will continue to take a look at what it means for Campbell III.
But again, there's a lot that goes into this modeling and there is a ton of ton of.
The analysis of the needs to go into this I mean in addition to what I shared earlier, we're looking at what is the cost of renewables on the future we want to feather in those renewables over time to take advantage of the cost of those costs come down we want to take a look at storage right now on storage is not at the right price and so how does the storage come in and how do we further than that and over time.
If we go too fast in this.
There's going to be risk from a reliability perspective.
And frankly, when you get out to the end part of that plan. It counts on that last 8% of accounts on technology in terms of carbon capture and carbon sequestration that make up the balance and so important part of this is making sure that we also not only decarbonize, but we ensure affordability and the.
For sure reliability on both.
For ability and I think we can answer all of III. The ships that we have the pacer and allow technology and so when it comes to the by the administration of <unk>.
Not only will CMS, but are in this room pushing for more R&D and more technology advancements to be able to have the aspirations and meet the aspirations that the that the new administration is putting out which frankly, we support from a planning perspective.
Until the all offer that in terms of in terms of the plan and then I know <unk> had some thoughts on this too.
Yeah, Julian the only thing I'll add is.
There are two old things.
Couple of things with respect of the CMS story over time of day, both precede me and Gary but they still are true to this day, one we plan conservative and no big bets and so in this plan. We've rolled out we have not made any major presumptions around what will be an AARP to point out and say that's not flowing through it is 'twenty one through 'twenty five plan and in fact the components.
As Gary highlighted earlier <unk> got a little bit of color just south of $400 million of Rps related spend that is still taking share for some of the wind investments that we're making about $1 billion of half related to the RFP and again, it's just execution on the solar.
Just add another year, and then ludington on the hydro side, which Garik again mentioned earlier. So this is all just incremental blocking and tackling again, we do not swinging for the fences when it comes to the financial planning and when it comes to the regulatory approaches we just do not make big bets. So it's a very conservative plan and we think it's highly executable.
Got it excellent maybe rajiv if I can check with the Super quick.
To clarify this from your earlier comments and I apologize if I misheard it what's the order of magnitude of the range that's associated with the residential sales.
Scenario to the upside that you are talking about.
Yes, you can put on.
We have on our sensitivities Julien as you know on slide 18, if memory serves Nancy you can see what incremental residential would look like and we've shown on the on annual basis and it changes a little bit each year with regulatory outcomes, but a 1% change in the context of 'twenty. One is worth about <unk> <unk> per share on an annualized base.
And we're assuming a fairly conservatively as Garrett mentioned that we will get pretty close to pre pandemic residential around mid year until we're showing just year over year of little bit of a decline in residential again, taking back to pre pandemic levels. So if were.
For a percent or so.
Price to the upside to the tune of the percent that's worth about <unk> <unk>.
Per share on an annualized basis and I'll, let your modeling assumptions go where they will but thats generally the sensitivity.
Right, Okay excellent the 1% of kind of the order of magnitude.
Well now to be clear, that's the sensitivity I wouldn't offer any ceiling for you as to where that could go because as we've said in the past the mass teller working true.
<unk> net may not I don't think thats going to be of fat I think of number of companies have said very publicly and referred also offline anecdotally a number of companies are going to sustain some level of mat teller working going forward now again, we planned conservatively. So we're assuming you have that traditional negative correlation, whereas C&I comes back you start to see residential.
It will come back down is to provide the workforce, but theres a good chance that we could see who knows one 2% of upside on that so again I don't want of cap you I just want to give you the sensitivity there.
Thank you for clarity.
Okay.
Thanks.
Thanks, John, especially today comes from Barry guys show progress.
Evercore ISI. Please go ahead.
Hey, good morning team. Thank you for taking my question, maybe just one tactical one real quick Rajiv just can you clarify.
You mentioned some rating against agency adjustments to income of order debt.
What exactly are those.
And I mean.
I guess, the presentation change or or what were you trying to convey there yes sure gas John so.
As you know.
Both Moody's and S&P and Fitch that entire charge both for all three rating agencies have tailored computations as it pertains to episode of debt. So for example, moodys ascribed to a different level of equity credit for hybrids, we have been issuing those.
As of Ppas as parts of debt Moody's include Securitizations. So they all have their sort of bespoke ways in which they calculate episode of debt and so what we're trying to highlight.
In our current guidance is that we're trying to show those tailored computation. So that we can maintain the solid investment grade credit ratings that we have historically targeted and so that kind of takes it to a mid teens level I think historically just to keep it simple we've shown it on an unadjusted basis, which gets you closer at the high teens, but we wanted to reflect on.
Reality of what those tailored computations will lead you to and so that's what we're effectively doing.
I see okay. So no change to the absolute forecast numbers. It's just the adjustments all of the credit grade rating agencies may can you sort of one of show that as relative to the bar or sort of the.
On the metrics the hold you accountable zone, that's exactly right. So our philosophy has not changed at all we want to maintain solid investment credit and.
Investment grade credit ratings, and we think that mid teens episode of the debt level again, albeit tailored for the rating agencies should allow us to stay there.
Excellent. Okay. Thank you then just maybe just a quick one for you Derrick maybe not so quick but just coming out of the IPO meetings I didn't get a chance to catch up with you, but just any thoughts.
Debt that you can share yours or other industry leaders on the front on the legislation on what might come down from the button the administration.
Might it look like what might the timeline look like just any color there would be appreciated.
Yes, Thanks for your question Digress.
So if I had the opportunity to listen to on to industry events separate of industry events, John Kerry who is part of the mine the administration for the climate climate envoy as well as the Gina Mccarthy, who is also part of the buying the administration here.
Engaged on the planet.
Ambitions.
Furthermore, our relationship with former Governor of grant home and now.
Likely lead of the department of energy here shortly.
Gives us a good context around some of these emissions.
And what we've heard clearly is from a net zero perspective for all sectors by 'twenty five alright, I mean 2050 and for the electric sector by 2035 from.
From a net zero perspective.
And.
Sure.
John Kerry was specific to say that it was an all in approach and that also these ambitious.
Vicious of these were ambitious goals.
But again it was going to be about R&D type development and technology development to move it forward and then you also offered the thought this was not a regulatory approach because of that takes too long and it would be incentives based on the market.
The spur an increase the market and so I.
I believe we are well positioned for that.
Again on where we stood at $2040 to 2035, we can do that but again the important piece.
Really from an industry perspective is that we maintained for the affordability reliability and de carbonization of all three of those can be addressed and thats going to require more R&D from a federal policy perspective.
And so when we develop the technology, but it also moves at scale. So we can get the economics of it for all of our customers and so that's an important piece.
And we will lean in from an industry perspective to shape that.
Thanks for your question.
Excellent. Thank you I appreciate the time.
Yes.
And the next question today comes from Andrew Weisel with Scotia.
For the bank. Please go ahead.
Hey, Thanks, good morning, everyone.
The first a question on the O&M. So the 100 million of so that you identified in 2020 was extremely impressive now that the year is closed how are you thinking about that in terms of the sustainability of that $100 million.
The follow up in the waterfall on page 15 can you just dig a little further into the negative 2007 incentive higher costs as far as how much of that is built into the new rates and how much is what I would call. Your typical annual <unk> cost.
Cost savings.
Yes, so from a from the $100 million challenge in our work there very successful really over a $100 million very successful year about 50% of of that I've put in the category of sustainable.
Let me talk about kind of the both buckets and so obviously.
There has been some just changing the way we do business. This year, we're not flying places, we're not having of hotel rooms days most of that.
Those aren't sustainable at some point, we'll go back and we will do those things right as part of the business, but through the CE way, we don't have 50% of it is clearly sustainable and there are a number of actions that we've taken which will continue to provide savings.
For our customers and create headroom as we go forward for I want to give you. An example, and this is the longer term one but there was also of value that we've seen here in 2020.
So if I go back to 2015, we used to be about 6 million calls in our call center of our contact center in 2017 here in 2020 here, we had $2 7 million calls the drop of 3 million calls.
Over that time period, it's roughly $3 of call and so.
I'll just give you one real example of the work and it speaks to the empowerment and what is unique is that we empower our coworkers to do this.
And so some people still pay by calling in and dialing in and put it in the credit card information.
Subset of our customers.
That team took that process took 24 steps out of the process moved it from 405 to 305 seconds.
And so as you imagine a customer who wants to pay that way the more steps they have the longer it takes the more they get frustrated it turns into a defect and goes over to our call Center. So that's just one example of how we've improved the process the better for our customers made it better for our quarters and then the cost of balls out of that and Thats small but imagine.
Multiplying that by 8500 people that are doing that type of because they are empowered that's the unique piece until that day rate, we're not going to go back and make the experience worse for our customers. That's the type of cost savings opportunities I can go through hundreds of them in for.
We have delivered on hundreds of them and we will continue to deliver on hundreds of them and so.
So that's how I think about it.
And there is more opportunity across our company to deliver.
On excellence from the CEO of <unk>.
Now to your question.
We were very successful in the midst of of pandemic and I think it speaks to a regulatory construct and getting on gas settlement in 2020, and an electric rate case and so.
And as we look at forward test years, and we look at the work we're underway we've got recovery in place and so when you see that uptick on O&M much of that is for improved customer service we increase.
It was.
Awarded through the electric rate case outcome in December our forestry work, our tree trimming work with the number one cause of outages, we increased that by $30 million. So thats already recovered and we're going forward with that work to improve customer service.
For all of our customers that just one example of the increase the keynote there.
But again big picture perspective, Theres more opportunity, we continue to improve the way we do business.
Excellent for the CE way.
Okay sounds good thank you.
One on the heating season and bills, obviously gas prices are up you've got the bad economy can you give us an update on what youre seeing from customers in terms of their ability to pay their bills and I'm sure. It's always a concern, but how does the compare now versus in the past seasons and maybe if you could dig a little deeper into some of the programs that <unk> got to health care.
To help support the customers in need.
Yes. This has been one of our biggest years in support for our customers. So let me talk about the numbers. So when I look at current to 30 days right now our customer 80%, 87% of our customers are in that bucket.
<unk> 30 days and that compares with <unk>.
<unk> 2019, which was 88% in 2009 for 2017 I'm.
I'm, sorry, 2018, which was which was 89% and so there is an impact there, but as you see it.
It's pretty light on in terms of what is kind of is on historical.
On receivables to 30 days.
And so and really we believe thats by design.
We worked closely with the commissioners.
And made sure that one we didn't have.
Mandatory moratorium on shut offs has been the voluntary we work closely with the commission to do that.
We've put invested.
Number of dollars in both payment forgiveness as well as foundation help specifically $15 million in 2020, we put another.
$24 million into our foundation, which has also started to provide some of that benefit in 2021, and so we continue to increase of that work in fact I was on the phone with the Attorney General's office. This week and we're looking at how can we work together on this issue to do even more in 2021.
And so there are a variety of ways, we've helped out those particularly in need during this time and we will continue through the course of the pandemic.
I'm going to offer one more thing.
Particularly around Michigan.
It was.
We are in the midst of this pandemic, but I think there is a lot of break things that are occurring both from a COVID-19 perspective, but also of Michigan's economy perspective.
One we've got great distribution of the vaccine and if you look at our numbers. The state of Michigan has improved and that performance and so we've seen restaurants opened we've seen this movement of kids going back to school and that's already underway, but if I, even take a bigger picture perspective look at some of the economic things that I've seen here in Michigan and I sit on two.
The development boards.
126 megawatts of new load to $5 billion of investment for 4000, new jobs. That's not just the highlight from this year. If I look back for the last three years to four years, it's been very similar to that any of you.
You go to a place like Kalamazoo, Michigan.
Kalamazoo, Michigan this is where the mat manufacture the vaccine for Pfizer that place is going gangbusters and all of the industries that support that are going gangbusters. Many people payments of the automotive state we truly have an automotive background, which is risked rich, but we're one of the leading.
States and the growth of life Sciences, like we see at Pfizer and other places so.
Although we are in the midst of the pandemic and Theres certainly we need to be sensitive about those that are.
Our low income and are working through that and we're doing our efforts. There I'm also optimistic about what Michigan offers and the growth that I've seen here over the last for five years.
Alright, thats, great if I could.
The squeeze one last one just to confirm you roll forward of the five year Capex, but the 10 year plan of 25 billion with three to four of upside. That's just a reiteration right. That's not meant to be a roll forward of my right that that won't be updated until after the ERP is done in a year and a half for sale.
That's correct, it's $25 billion for three to 4 billion opportunity.
Theres events.
Warranted, we will make the adjustments.
Okay. Thanks, so much.
And our next question today comes from Travis Miller Morningstar. Please go ahead.
Thank you good morning.
Franchise.
But when you look at the rate case outcome from last year, what are some of the pluses and minuses debt.
The Windsor losses.
You might want to address in the next I know youre not Canadian on specifics, but general pluses and minuses that you might want to address net.
Next year for this year other.
Well one thing.
Both of the forestry outcome, that's going to be in the great improvement in <unk>.
On the number one cause of outages in our state is true.
Tree trimming and so thats, the big a big lift.
We got a lot of great work on on electric capital and we made a great case and received.
A good portion of our electric capital investments.
The investment that will prepare the grid for the future from a renewable perspective, as well and also improve reliability.
On the electric grid.
We got some good outcomes and on distributed generation and our approach to that which reduces the subsidy is paid from our customers.
And Furthermore, our.
Much about electric vehicles, but our power power My fleet, which is where I think there's a great opportunity in electric vehicles.
That's the space, where we got approval for and so.
And there's a whole host of other positive net would offer.
In there.
From a.
From an opportunity perspective, and we do see this as an opportunity perspective.
We can do more work to justify our capital plans, particularly from the facilities perspective and of fleet perspective, we're a little short of our expectations, there and Thats an area, where we can build a better business cases, and you can get better outcomes. I also think there's a better opportunity to have.
Our commission not go look at historical five year.
Because when the.
And what we invest in.
And that work.
How fast that is changing when you do of historical look it doesn't provide the right amount of O&M you need and so there's more work we need to do with our staff with the staff of the MPC and with the commission to make a better case for O&M related to IP investments and so those are a couple.
All of examples of things that we use to strengthen.
And I'll pass it over read General read you have some thoughts as well.
The trial is the only thing I would add to <unk> comments is that we did see in the electric rate case modest degradation on equity thickness.
So when you take into account the deferred tax flow back is the only about 40 basis points of ratemaking equity thickness reduction so again modest level of degradation, but at the end of the day. They went out to three years beyond tax reform and the balance sheet and cash flow generative effects of tax reform of very real until.
We would like to see the equity thickness of create some to offset the effects of that and so again, the <unk> points. The illnesses on us to continue to make the compelling case debt equity thickness at worse should stay where it is today, but ideally create some time, we've seen other jurisdictions do that so we will try to make that case better on subsequent cases.
Okay. That's great I appreciate the and then real quick you mentioned the EBIT program.
For the thing about of scale, let's say EV sales doubled over the assumptions that are in the in your program what kind of Capex does that mean.
The minimal as a lot kind of thing.
But that scale on.
On the EBIT.
So what I would offer I mean, this is really a preliminary piece here.
We have nice scalable programs on the fleet side on the residential side that are on and continue to grow as electric vehicle growth and I would put up a level out there of about 150, just as an early marker and I think what is the important key about this is fleets and I'm really excited about what came out of the electric rate case, because we're going to offer a concierge.
Our service to help businesses make the choice that'll be a big difference on how this moves because.
Some of these fleets when you have to expand by two to three to four megawatts youre talking about transformers and sub stations and other upgrades associated with that and so dependent on the fleet mix is really.
It is an important variable in figuring out what the capital build out looks like as GM announced here.
I think it was about a week and half ago their the inflect.
Inflection point between when it makes sense to be on electric vehicle fleet for some of your trucking.
<unk> go into hydrogen and I think that point right. There is an important point that we need to understand a bit more and we're working to do that and that's the importance of this fleet program. We got in the last of electric rate case, and we will see more of that grow and be able to better pinpoint our capital investment opportunities.
And Rajiv go ahead.
One of them you've got more of that the only thing I would add is just it also just depends on customer or end user behavior at the end of the day as well and so part of the.
The power, Michigan drive program that we put in place and.
An element of that is really to educate customers on when to charge and ideally charging off peak to get better utilization out of existing assets. There are economic incentives that were trying to provide as part of that but if.
EV owners feel compelled and this is more on the residential side two charged during peak periods, while that could have implications on the electric infrastructure as well as supply needs that we may have which would have a direct impact on capital and so again, we've talked a lot about shaving the peak and so even though that may lead to additional capital investment opportunities. We think that's suboptimal.
In terms of where to put the best dollar longer term and so I think of lot of this will also be dictated on EV owner behavior.
Okay, Great. That's very helpful. I appreciate all of the thoughts thanks.
Thanks for your question Travis.
And our next question today comes from David Fishman of Goldman Sachs. Please go ahead.
Good morning, Thank you for squeezing me in here.
Thanks, David.
So we've talked a little bit about the renewable on the electric side, but I'm just curious a little bit for more color on the net zero on methane by 2030 on the natural gas.
Kind of side of the business of our CMS needs to invest to achieve the kind of rapid level of the carbonization on the GAAP side.
It seems kind of like over the past for years, the five year plans more or less debt around $5 billion now a little bit more this time than the 10 year plans around $10 billion with all the upside but is that is that the run rate you need on <unk>.
Order to debt to reach net zero by 2030 with some orange mixed in or is there something else that maybe we should be looking for that might lead to accelerating on a reduction in methane over overtime, but it's the first fiber next five years.
I Love I Love This question David.
The next.
Next week in here of this coming weekend I should say on the next couple of days.
It is.
It's going to be zero.
And negative one and one here in Michigan.
You know what I haven't electric heat pump on home and I'll tell you what it does not keep up.
<unk>.
And so I've got a supplement with gas to be able to keep my house warm and in fact, 75% of.
The Michigan residents count on natural gas.
And so I'm. So glad you asked that question because I think it's really important when we think about de carbonization and we're thinking not only about the electric but the gas business and that's exactly what we're doing.
And so we do have a 10 year plan as you pointed out to get the net zero by 2030. These investments which are represented in our five year plan and those in our 10 year, which will have the opportunity to grow as the.
We move forward.
Our exactly what delivers the net zero.
<unk> invest in shake taken out of old metal and the old materials out there, we'll replace it with plastic across our distribution system, which provides for safety that is so critical in our gas business and we continue to maintain reliability affordability and de carbonization, because you can do all across that.
Also within that plan, you add a little bit of a renewable natural gas we have some on our system, we're going to add a little bit more renewable natural gas that will help the decarbonize that stream that will get us to net zero methane by 2030 now I'll tell you what there's more opportunity to Decarbonize natural gas.
We've got energy efficiency programs that we have ran for 10 plus years, which are great. It's a win for our customers save them money, we get incentive on it helps the plan all of the above win win win.
We have the ability to expand those programs on our gas business and you can think about the technology in the hole in the home envelope and the equipment of the home to further Decarbonize and then if you want a belt and suspenders. We can also talk about iron and we spent a lot of time and the use cases around the hydrogen I won't go through them all now because I'm getting away from your question, but yes that invest.
<unk> spend right, there and we have a little bit more opportunity in future cases, where we've been there will deliver net net methane two.
<unk> 2030 target.
Got it. Thank you very helpful and just one quick follow up on that one so the on.
RMG that you'd be adding into the system than just most of the tariff space straight you adjust.
Pretty much be taking.
RMG sources that are kind of separately owned and maybe adding an additional charge associated with the <unk>.
The kind of when it reaches of the customers or how would that work with the ownership and kind of supply dynamic.
Yes, so we'd look to put it on our system and how that would be part of our gas supply cost recovery efforts. There and then we work we will do.
Got some on our system as we add more and we'll look at different opportunities.
I think theres opportunities to to think about individual customers, who have a specific renewable natural gas need as part of our sustainability targets and so I think theres customer programs.
We would.
We would consider as well.
And then just one more if I can on regulation.
I think thats part of the last of electric rate case the.
MTS the I've mentioned looking at performance based metrics for performance based ratemaking I know, obviously you have some related to renewables right now, but I was just curious.
What you think the commission kind of looking for there and maybe if you just add any color on what performance based ratemaking could look like in the future in Michigan.
After the work that you referenced and that in the Michigan powered rhythm for a number of.
Activities and actions are looking at everything from interconnections.
Two what it means to achieve.
Net zero by 2050, Thats, our governors goals the carbon neutrality by 2050, and so there are a variety of things that theyre, taking a look at and so it is not.
And part of it is performance based ratemaking, but I would offer this to our commission staff continue to be very thoughtful in their approach and for example, some of it is just frankly updating.
One of the things Thats part of our performance metrics, we already have in place is average speed of answer.
That's the call center metrics, most of our communications and most of our activity as I shared with the earlier, our digital in nature and so to measure average speed of answer in today's time period, it's not really relevant and so part of this too is the thoughtful updating on one of those standards.
That we measure ourselves to get the alignment around the Olson so.
John.
It's still in development, that's currently where where we are and.
I believe our our commission and the regulatory construct will continue the.
On a thoughtful and that approach.
And I guess, just with that example of the idea would be essentially every rate case for every set of rate cases, maybe you have kind of a target for average speed of answer is performance metric that you just the gauged against that and you might have an incentive for penalty associated with that.
Yes.
Well, we already have the average speed of the answer that's already of performance metric, which we.
We work with them and we measure our performance to and work with staff and the commission on so right now it's really too soon to tell.
The power grid work and the work that's going on.
Is.
There's a lot of avenues of this and it's just price.
Work groups that are underway and we.
We simply don't know what it looks like from a performance based ratemaking perspective.
Okay. Thank.
Thank you very much for Scott I appreciate it and congrats on a great day.
Thank you.
And the next question comes from Paul Patterson with one of those associates. Please go ahead.
Hey, good morning, guys how are you doing.
Paul on doing well Paul Thank you.
So some really quick book ends here on <unk>.
Interbank and I apologize if I missed this the <unk> increase in the.
Fourth quarter was there anything in particular their debt.
That happened.
Yes, Paul this is Reggie.
The other interest.
On the story throughout 2020 of them, just executing and delivering so loan origination volumes were up and we saw that basically after that brief pause for March and April origination slowed down a little bit in the nascent stages of the pandemic for them. They just executed and delivered throughout the year. So that's what's reflected on that too.
Uptick.
Okay, Great and then on slide.
Sure.
Slide eight so this est.
The cost savings I, just wanted to touch base on.
What the sort of represent so I can see with corn and Campbell.
Adjusted.
It's adjusted for.
O&M savings.
But.
But let me clear on Palisades and.
And I'm just wondering also some securitization of it looks like $126 million.
I think the.
With estimated by the commission.
And I wanted to.
I wanted to sort of get a sense as to why those arent being included if you've heard of it.
Yes.
Paul I can take the so with respect to the PPA related savings.
To give you the quick answer both Palisades and MTV when you look at energy and capacity of both price around 55 to $60.
Per megawatt hour and so we looked at that relative to the replacement cost and so for palisade specifically.
That is worth about $90 million run rate per year MTV is a bit more nuance. That's more just the fact that the capacity price embedded in the contract steps down.
Post 2025 of it effectively cut in half and Thats worth about $50 million. So that's the essence of the savings there for those two now.
Now with respect the securitization I just want to make sure I understand the spirit of where you're going is that with respect to when we tried to terminate palisades early of few years ago or the 126 I just want to make sure were you referencing there.
The securitization order for the 680 $690 million of something correct.
The December and I think the $126 million was basically.
It was what they basically saw was.
What they basically for what was the savings that they called out as being the savings of it I guess, what I'm wondering is it seems like there might be other savings that you guys would be.
Encountering here from securitization also it seems maybe some stuff on the coal as well.
You guys aren't adding in there and I'm, just wondering why youre not calling those out.
Okay. So you are correct about the December securitization order of about 688 million to be very clear that was specifically related to karn, one and two and so what we've enumerated on page eight are the O&M related savings that we have quantified.
There could be additional savings above and beyond that we have good experience as you know closing coal facility. So we obviously did the classic seven in 2016 and based on that history, that's where we come up with a $30 million of their additional savings potentially on the fuel side or otherwise.
Well, obviously realize that upside for the benefit of customers and investors, but for now we're just reflecting the O&M savings.
Savings of Karn, one and two and the securitization order that we got the December solely related to that closure.
Are these annual numbers.
The data run rate. So we don't anticipate these being just one time or episodic the events themselves are episodic, but we expect these to be ongoing.
Im just im sorry of the slow on this but it looks like there's maybe considerably more savings that you guys might be getting from the this seems conservative these cost savings that youre that youre, bringing up I mean, so that obviously will go back to customers but.
Am I correct on that well a couple of things. So we always plan conservative for sure and remember this is just related to the.
<unk> debt so the Palisades retirement, the current facilities the Campbell wanted to potentially in 2031 as well as the MTV. This excludes all of the CE way and waste elimination related savings. So $200 million is not the extent of our ambition that is solely the quantification of the asset or whom.
And on the slide we certainly think we can do more and if there are additional savings within these items enumerated on page eight well realize them on where we come when they arrive but again Paul you know our style. We are very conservative on how we go about our business and we'd rather.
I'll say deliver and surprise to the upside in the downside.
Thanks, So much guys. Thank you.
And our next question comes from Sophie Karp with Keybanc. Please go ahead.
Hi, Good morning, guys. Thank you for taking my question.
Most of the most of the questions have been answered I guess that I'm on the beat the dead horse on equity.
So on but just maybe if I may of quick followup on pensions, you mentioned that the plans are fully funded.
I think the market.
Action helped.
And for any of planning.
How does.
What how do you contemplate.
Yes.
Thanks for your contribution over the next five years bearing Glenn.
Period end.
Is that factoring into your equity needs and just getting a bunch of thing. Thank you.
Yes, I appreciate the question on.
Thank you for the opportunity for us to really promote our activities over the last not just last year, but a couple of years where.
Similar to our mindset around flexing up on the income statement side, we also choose to flex up on the operating cash flow side in the last year, we saw pretty good upside largely driven by cost performance a little bit from the cares act that allowed us to have some upside on ocs and so we took the liberty to put about $700 million to work.
In discretionary pension contributions most of which were in January of last year, but we did a good portion.
And late in Q4, and that's allowed us to fully fund the pension and so where we sit today, we don't anticipate certainly not any debt, we certainly don't anticipate any involuntary.
The contributions.
I think if there are any embedded in the five year plan I would say the relatively de Minimis and so where we sit today, we think there should be really light contribution requirement for the next five years that clearly there are variables. So.
The discount rates come down if you see asset performance underwhelmed or underperform that could require.
Additional contributions so where we sit today, we feel quite good about the lack of limited amount of contributions over the course of the five year plan on so theres no real material impact embedded in our equity issuance assumptions, but again these variables toggle on you have to recalibrate every year. So we will see what the fact pattern it looks like over the next couple of years is that helpful.
Yeah. It's super helpful. Thank you and then one last one if I may squeeze out and very quick.
Yes, <unk> guidance.
This is down versus 2019 2020.
By a lot, but like about 100 plenty in the land.
I would say so.
Is the rate or are you guys. Most recently during the Covid kind of.
The situation.
The driver of that or is there something else that day.
The missing here.
Yes, So let me offer this just to be very clear Sophie and so what we have done in this precede the end Garik, it's just been.
Adjusted long standard longstanding standard we've had for a financial planning perspective for ICF as we have not unlike inc. On the income statement.
In EPS, we have not guided ocs off of the prior year actuals, we have just looked at the budget for the guidance we provided for the prior year and we said directionally It will increase by $100 million each year off the prior year's guidance and so for example last year, we guided to $1 75 billion, obviously, we delivered well on <unk>.
<unk> of that in the next year again of $100 million above and beyond that one 5 billion. So yes that is down from where actuals were which was just under $2 billion on again, a lot of that had to deal with the cost performance as well as against some cares act related benefits and so I wouldn't view of that.
As conservatism or just any type of rate or regulatory related actions. It's just us again, just thinking about the <unk>.
Annual growth that we can deliver from an LCR perspective, but we're saying all in over the next five years, we're going to do over $10 billion of operating cash flow generation and that is in excess of what we were anticipating over five years for the prior vintage, which I think was south of 10 billion of around $10 billion. So we feel good about our deliver.
The ability to deliver on operating cash flow and if not.
The result of any of the regulatory outcomes I think the only thing youll see on the gas settlement is about $30 million to $35 million of operating cash flow challenge, because we're staying out but again, it's relatively de minimis in the Grand scheme of things.
Got it. Thank you very helpful. I appreciate it thank you.
So ladies and gentlemen. This concludes the question the answer session I'd like to turn it back on with regard for ourselves for any final remarks.
Thanks Rocco.
And I'd like to thank everyone for joining us today for our year end earnings call on.
Are we back out on the virtual road shortly and I look forward to connecting with you on.
Im hoping we can meet face to face safely before the year's over take care and be.
Be safe.
Thank you ladies and gentlemen. This concludes today's presentation. You may now disconnect your lines and have a wonderful day.