Q4 2020 WEC Energy Group Inc Earnings Call
Good afternoon, and welcome to WEC Energy Group conference call for fourth quarter, and year, and 'twenty and 'twenty results.
This call is being recorded for rebroadcast and all participants are in a listen only mode. At this time.
Before the conference call begins I remind you that all statements and the presentation other than historical facts are forward looking statements that involve risks and uncertainties that are subject to change at any time.
Such statements are based on management's expectations at the time they are made and.
In addition to the assumptions and other factors referred to and connection with the statements factors described and WEC energy group's latest form 10-K, and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated during the discussion.
And referenced earnings per share will be based on diluted earnings per share unless otherwise noted.
After the presentation the conference will be open to analysts for questions and answers and conjunction with this call a package of detailed financial information is posted at <unk>.
U E C energy group Dotcom.
A replay will be available approximately two hours after the conclusion of this call.
And now it's my pleasure to introduce Gale Clapper executive Chairman of WEC Energy group.
Good afternoon, everyone. Thank you for joining us today as we review our results for calendar year, 'twenty and 'twenty.
First I'd like to introduce the members of our management team who are here with me today, we have Kevin Fletcher, our president and CEO, Scott Lauber, our Chief operating Officer Shao, Lee, Our Chief Financial Officer, and Beth Straka, Senior Vice President of corporate Communications and Investor Relations.
And you saw from our news release. This morning, we reported full year 'twenty and 'twenty earnings of $3.79, a share, which I will provide you with more detail on our financial metrics and just a few minutes for <unk>.
First I'm pleased to report that we delivered a record year on virtually every meaningful measure of performance from customer service and network reliability to earnings per share. Despite the challenges posed by the COVID-19 pandemic.
Our focus on efficiency on fit.
<unk> discipline.
And and encouraging rebound and energy demand during the second half of the year resulted and the highest net income from operations and the highest earnings per share in company history.
And throughout the difficulties of a pandemic year, we also accelerated our support for the communities we serve.
In total our companies and foundations donated more than $20 million to nonprofits across our service area and <unk>.
<unk> more than $2 million to direct COVID-19 relief efforts.
We also made significant progress on diversity and inclusion and we spent a record $303 million with diverse suppliers during the year and through our board refreshment and 46% of our board members now are women and minorities. In addition, we set new aggressive goals as we continue to improve our environmental footprint.
In fact, I am pleased to report and based on preliminary data for 2020.
Reduced carbon dioxide emissions by 50% below 2005 levels and we have as you know a well defined plan to achieve a 55% reduction by the end of 'twenty and 'twenty five.
Over the longer term and expect to reduce carbon emissions by 70 per cent by 2030.
And as we look out to the year 2050 target for our generation fleet is net zero carbon.
The new five year capital plan lays out our roadmap for achieving these goals we call it our ESG progress plan.
The largest five year plan and our history, it calls for investment and efficiency sustainability and growth and it drives average annual growth and our asset base of 7% with no need for additional equity.
Highlights for the plan include 1800 megawatts of wind solar and battery storage that would be added to our regulated asset base and Wisconsin and.
And we've allocated an additional $1 $8 billion to our infrastructure segment.
Where we see a robust pipeline of high quality renewable projects projects that have long term contracts with strong credit worthy customers on.
And all of our plan and positions us to deliver among the very best risk adjusted returns our industry has to offer.
And now let's take a brief look at the regional economy.
It was of course and unusual year for everyone, but many of our commercial and industrial customers proved to be quite resilient for us.
And our central products and services, such as food plastics paper packaging and electronic controls.
The latest available data show Wisconsin's unemployment rate at 5.5%, that's more than a full percentage point better than the national average.
And as we look to the year ahead, we see positive signs of continued growth for example, Green Bay packaging is building a major expansion of its mill and northeastern Wisconsin.
The $500 million of addition, and is expected to be completed later this year.
For Fox Con Komatsu mining horrible and Milwaukee tool projects that we've reported to you and the past are all moving forward as well.
So we remain optimistic about the strength of the regional economy, and our long term sales growth.
Finally, I know many of you are interested and on a rate case calendar for the year ahead.
As you know under normal circumstances, our Wisconsin utilities would be filing a rate reviews. Later this spring for energy rates that would go into effect on January one of 2022.
And of course, we're in the middle of anything, but normal times and I can tell you that we have begun discussions with the commission staff and we will be talking with other major stakeholders to determine whether a one year delay and a filing would be in everyone's best interest.
The final decision on this around the end of the first quarter.
And now I'll be happy to turn the call over to Scott for more detail on our sales results and our forecast for 2021 as well as an update on our infrastructure segment and our O&M performance Scott All yours. Thank.
Turning now to sales, we continue to see customer growth across our system at the end of 'twenty and 'twenty. Our utilities were serving approximately 11000 more electric and 27000 more natural gas customers compared to a year ago.
Retail electric and natural gas sales volumes are shown on beginning on page 17 of the earnings packet.
Overall retail deliveries of electricity, excluding the iron ore mine were down two 1% compared to 2019 and on a weather normal basis deliveries were down two 9%.
Natural gas deliveries and Wisconsin decreased seven 9% versus 2019 and by two 4% on a weather normal basis and this excludes gas used for power generation.
On the electric side Youll note the positive trend that we've seen and residential sales has continued important it is counterbalanced the weakness and small commercial and industrial sales caused by the parent debt.
Meanwhile, large commercial industrial sales, excluding the iron ore mine were down seven 1% for the full year compared to 2019 on a weather normal basis. However, these sales were only down four 6% for the fourth quarter, a notable positive trend, reflecting the <unk>.
Coverage of Wisconsin, and the economy.
Now I'd like to briefly touch on our 2021 sales forecast for our Wisconsin segment, we are using 2019 as a base for 2021 retail projections.
And we're using 2019, because it represents a more typical year.
We are forecasting a decrease of 1.5% and weather normal retail electric deliveries, excluding the iron ore mine compared to 2019.
This would represent a one 4% increase compared to 2020.
We expect large commercial and industrial sales to continue to improve and anticipate the same positive offsetting relationship between residential sales and small commercial and industrial sales.
For our natural gas business, we project weather normalized retail gas deliveries decreased by two four per cent compared to 2019.
This leaves the projected sales outlook compared to 2020 relatively flat.
With this and mine, we remain focused on operating efficiencies and financial discipline across our business.
We lowered operations and maintenance costs by more than 3% and 2020 and.
And we continue to adopt new technology and apply best practices, we plan to reduce our operations and maintenance expense by an additional 2% to 3% and 2021.
I also have an update on our infrastructure segment.
Blooming grove into tanker and projects.
Our in service now and came in ahead of time and on budget as a reminder, our thunderhead wind investment is projected to go and service by the end of the third quarter. We accept that this segment to contribute an incremental eight cents to earnings in 2021.
And now I'll turn it over to Kevin for his update on utility operations. Thank you Scott throughout 2020, we kept the energy flowing to our customers safely and reliably.
Our largest utility we energies was named the most reliable electric company and the Midwest for the 10th year Ryan.
And our peoples gas subsidiary was named the most trusted brand and a customer champion for the second year, and a robot esculent, a leading behavior and analytics firm.
Now I'll review for we stand on current projects and our ESG progress plan.
As you heard on our last call for two Creek Solar farm is now operating as we've mentioned a very large project and in fact, just days after achieving commercial operation and this past November.
Our share of this project accounted for more than 20% other solar output and the entire MISO generation market.
Also in Wisconsin, we energies is making progress and the approval process for two liquefied natural gas facilities, which would provide enhanced savings and reliability during our cold winters.
If approved we expect to be on construction and the fall of this year and to invest approximately $370 million in total to bring their facilities and operation in 2023.
And as Gail just mentioned our ESP progress plan includes 800 megawatts of wind and solar and battery storage.
Filings with the Wisconsin Commission for a number of these projects will begin in the first quarter.
Turning to Illinois as you May recall, we are in the midst of a rate review for one of our smaller subsidiaries north shore gas, which serves approximately 160000 customers and and the other northern suburbs of Chicago.
Rates for nor short gas for laughs at more than five years ago before we acquired the company.
Since then we have consistently investing capital to serve our customers, while reducing operating costs.
The Illinois Commerce Commission has set a schedule for concluding the case hearings are expected to begin in late April with a final order in September.
And with that I'll turn it back to Gail Kevin and thank you very much we're confident that we can deliver our 'twenty 'twenty one earnings guidance and the range of $3.99 a share due for dollars and three cents a share.
This represents earnings growth of between seven and 8% of our 'twenty and 'twenty base of $3 and 73, a share and you may have seen the announcements and our board of directors and its January meeting raised our quarterly cash dividend to <unk> 67.75 cents a share for the first quarter of 2021.
And increased folks a 7.1% the new quarterly dividend is equivalent to an annual rate of $2 71, a share and this marks the 18th consecutive year that our company will reward shareholders with higher dividends.
We continue to target a payout ratio of 65 to 70 per cent of earnings right Smack Dab in the middle of that range now so I expect our dividend growth will continue to be in line with the growth and our earnings per share next up shop will provide you with more detail on our financials and our first quarter guidance Sean.
Thanks, Gail our 'twenty and 'twenty earnings of $3.79 per share increased 21 cents per share compared to 2019.
Our favorable <unk> 'twenty and 'twenty results were driven by a number of factors. These included the execution of our capital plan rate adjustment at our Wisconsin utility or improvement at American transmission company production tax credit and our infrastructure business and continued and.
On operating efficiency.
These factors helped us to overcome the sales and capped out for COVID-19, and mild winter weather and.
All of our utility met their financial goal in 'twenty and 'twenty.
The earnings packet placed on our website. This morning includes a comparison of 'twenty and 'twenty result on page 21, I will walk through the significant drivers impacting our earnings per share.
Starting with our utility operations.
Our earnings by 22% compared to 2019.
O&M expenses were favorable Inc.
<unk> eight and from lower day to day, O&M expenses, and ninth and from lower sharing amounts in 'twenty and 'twenty at our Wisconsin utility.
Doug and despite the impact on Covid, 19, and reduce wholesale and other margin rate adjustment at our Wisconsin utility continue.
Continued capital investment and fuel drove a net 21 cent increase and earning.
Third we had 12 cents is higher depreciation and amortization expense and an estimated five cent decrease and margins related to mild winter weather year over year.
These factors, partially offset the favorable items we discussed.
Overall, we added 22 cents year over year from utility operations.
Earnings from our investment and American transmission company increased eight cents per share compared to 2019.
And we call that seven of the eight cents for Kevin.
Due to our O E changes from FERC order issued in November 2019, and May 'twenty and 'twenty.
Horst and resulted from day November 2019 order and three from day May 'twenty and 'twenty order.
And the Penny came mainly from continued capital investment.
Earnings at our energy infrastructure segment improved five and 'twenty and 'twenty compared to 2019, primarily from production tax credit related to wind farm acquisition.
These include the Coyote Ridge wind farm placed and serviced at the end of 2019.
Additional 10% ownership of upstream wind energy center, and the Blooming Grove and the wind farm came online in early December.
Finally.
And that we recorded a nine cent charge and corporate and other true accounted for the make whole premiums we incurred in the fourth quarter as we refinanced certain holding company debt to take advantage of lower interest rates.
And remaining five cent decrease is related to some tax and other items, partially offset by lower interest expense.
In summary, WEC improved on our 2019 performance by 'twenty, one cents per share.
Now I'd like to update you on some other financial items.
Our effective income tax weighted till late 15.9% for 'twenty and 'twenty X.
Excluding the benefit of unprotected taxes flow into customer are.
<unk> was 22%.
Looking through 'twenty and 'twenty, one we expect our effective income tax rate to be between 13 and 14%.
Excluding the benefit of unprotected taxes flow into customers, we project, our 'twenty 'twenty, one effective tax rate to be between 19 and 20%.
As in past years, we expect to be a modest taxpayer in 'twenty and 'twenty one.
Our projections show that we won't be able to efficiently utilize our tax position with our current capital plan.
Looking now at the cash flow statement on page six of the earnings packet net.
Net cash provided by operating activities decreased $149 $5 million.
Our increase in cash earnings in 'twenty, and 'twenty more than offset by higher working capital requirements, primarily related to COVID-19, and by higher pension contributions.
Total capital expenditures and asset acquisitions for $2 $9 billion and 'twenty 'twenty of 345, no and dollar increase from 2019.
This reflects our investments okay and already.
Utility and contracted and renewable businesses and our energy infrastructure segment.
In terms of financing activity in the fourth quarter of 'twenty and 'twenty, we opportunistically refinanced $1 billion of holding company debt, reducing the average interest rate of these notes from 3.3% to one five per cent.
We continued to demonstrate our commitment to strong credit quality.
As expected our <unk> to debt ratio was 15, 4% in 'twenty and 'twenty.
Adjusting for the impact of voluntary pension contributions and customer arrears really related to COVID-19, our F O to debt was 16, 9% and 'twenty and 'twenty.
At the end of 'twenty and 'twenty, our ratio of holding company debt to total debt was 28% below our 30% target.
In addition, as Gale mentioned, we have no need for additional equity over the five year for cats period.
Finally, let's look at our guidance for the first quarter of 'twenty or 'twenty one.
Last year, we earned a dollar and 43 cents per share in the first quarter.
We project first quarter 'twenty 'twenty, one earnings to the and the range of a dollar and 45 cents per share to a dollar and 47 cents per share.
We have taken into account mild winter weather to date and this forecast assumes normal weather for the rest of the quarter.
For full year, 'twenty and 'twenty, one we are reaffirming our annual guidance of $3.99. So for dollars and <unk> per share.
With that I'll turn it back to Dale Charles Thank you so much on.
And we're on track and focused on delivering value for our customers and our stockholders operator, we're ready to open it up for a little pressure talking on the Q&A portion of our of our conference call today.
Thank you very much now and we will take your questions. The question and answer session will be conducted electronically to ask a question. Please press the star key followed by the digital on on your phone and.
If you are using a speaker phone turn off your mute function to allow your signal to reach our equipment we.
We will take as many questions as time permits.
Once again for Star and then one on your phone to ask a question.
Your first question comes from Shar <unk> with Guggenheim Your line is open.
I can roll Shar, how are you today.
Hey, sorry to disappoint, it's actually James for sure.
What's alright, better looking and younger.
Yeah exactly the easier question.
So I guess, if we could start on the infrastructure side.
You've laid out at $2 2 billion and going forward, how should we sort of think about the cadence of that and does the extension of tax credits earlier. This month kind of change any of your timing or thoughts there.
Any changes on the opportunity set.
But happy to answer those questions first of all for the five year plan, we've laid out $1 8 billion of additional capital.
And that five year plan and as I mentioned in our AR and the prepared remarks, but we're going through due diligence on a number of projects right now we've got a robust pipeline that we're looking at and because we're so far ahead of schedule.
On our infrastructure segment right now we can afford to be very selective.
And really Cherry pick only the very best projects that meet or exceed our criteria.
So long story short the cadence will continue wouldn't surprise me, if we have one or two more announcements during the calendar year 'twenty and 'twenty, one and then regarding the regarding the change and the tax credits for the extension of tax credits.
Really all of that all that does and I think as give us even more.
To look at and the pipeline.
It certainly does not in any way diminish our opportunity set and remember that we are we're really utilizing our tax appetite here.
As a way to continue to grow earnings continue to improve our environmental footprint and build optionality for down the road when we're certainly going to need and our retail rate base, a more carbon free energy.
And.
Just so there's no confusion it is $2 2 billion and the five year plan and $400 million of that is the is the thunderhead project has been announced already that the additional 1.8 is just what hasnt been announced yet just so there's no confusion if we at 1.8 billion to look at Thunder ahead is on its way and we hope by the end of the third quarter.
Perfect. Thanks, and I guess, just kind of following on the clean resources side.
Since you and Shar last spoke we've seen nextera formally file at the NRC to extend the life of point Beach have you had any conversations with them yet or are there any general updates there to think about the potential would be contracting or retirement.
Well first of all.
And the very early stages of thinking through what they might want to but they might want to put together for a life extension to the point Beach.
And and we have had some very preliminary discussions, but one thing is very clear for us.
Our standpoint, and Nextera standpoint, we're going to make the best decision possible from a standpoint of economics for our customers whether that includes and extension of point Beach, whether that includes an investment opportunity, but either way I see us having a robust investment opportunity set as we get into the next decade, one way or another.
Got it thanks, guys and congrats on a strong finish to a tough year.
Thank you for your questions appreciate it fell short of behave okay.
And it will do.
Your next question comes from Jerry just hop brought with Evercore. Your line is open.
Hydro geis.
Hey, Gail good afternoon, and thanks for taking my question just I'm clear on the quarter. Thanks for the update and the on 'twenty one.
On the rate case from Gill.
And just how have you been here before so have you done this and Wisconsin before can you just remind us and what might be options look like could you defer.
On the rate increase or if I'm thinking about 'twenty and 'twenty two.
Could you accelerate your cost savings to sort of stay on target with your five to seven per cent EPS growth rate just any color on around debt would be helpful. Thanks Gil sure. Thank you drew and I. Appreciate the question I mean, the short answer is yes, we have had to stay Alex before in fact, if you think about.
What occurred after the acquisition of Integra and 2015, we were out of a rate case for for years.
And again in constructive discussions with the commission staff and the intervenor groups.
So again as I mentioned to you. We're in early stages of discussion right now with the Commission staff.
We will be talking with all the stakeholder groups with concept would be rather than potentially filing a rate case on a normal schedule. This year. The concept would be is it and everyone's best interest to have a one year delay and the filings for our Wisconsin utilities.
And so we're working on what the outline of that looks like and whether or not again, everyone would agree that it soon and the best interest of all parties involved for us to push out given where we're at with the economy et cetera for us to push out a rate filing for one year and I do believe those conversations are constructive and we should have.
A final decision I would think around the end of the first quarter.
Got it. Thanks, that's all I had thank you.
Thank you take care.
Yes.
Your next question comes from Julien Dumoulin Smith with Bank of America. Your line is open and.
Julian.
Okay, great. Thanks for the time guys afternoon.
And so.
Lives and incredible cost reductions right and so here's what I want to know how are you guys continuing to reduce costs. As you think about this two to three per cent.
After a year, where so many of your peers already brought down cost and the question is the sustainability of those cost reduction. So if you could elaborate on that and then separately just to follow up on the last one and I'll throw it in there.
You've already articulated some benefits on O&M, you've talked about your refinancing activities here that certainly have some tailwind.
And what other pieces.
And this.
What other ingredients are there in terms of Ah stay out here that are relevant and these conversations and humana.
Okay, great questions as always Julian well first of all.
Related to the sustainability of O&M reductions.
Let me be very clear.
We have continued runway and and I believe strong sustainability for continued O&M reductions and and.
And let me give you three reasons why I mean, the first is.
We're pretty damn good at it number one.
Number two.
We continue to benefit from.
But from putting in common systems across our footprint and remember we had the acquisition of a tegra as at the end of 2015. Since then we have we have done an enormous amount of work to basically put everybody on the same platforms. We've put in a new general ledger for every one of the companies just Kevin just 10 days ago.
12 days ago, we completed a major conversion.
To a brand new customer information and billing system, where all seven of our customer facing utilities are now on that system that is going to drive.
And optimization of our call centers and significant cost reduction.
So number one we are very very good at financial discipline. Our operating folks are just terrific every single area of the company has has a cost as a cost initiative.
For 'twenty and 'twenty, one and beyond.
And it really it's more than a cost initiative, it's and efficiency initiative.
So so I feel very good about but basically our DNA in terms of continuing to drive efficiency and best practice across the enterprise number one number two just.
Just the continued ability to optimize the organization, we still have a runway to go there post the acquisition of Integra and.
And the example, I gave you a common customer information and billing system. I think is a very good example of that and then thirdly.
[noise] announced as you know the retirement.
A number of older less efficient coal fired power plants. There are significant O&M savings that will drive with the retirement of those plants, particularly over 'twenty and 'twenty three 'twenty 'twenty four and 2025 of the retirements are really going to come in that timeframe.
But there are millions of dollars.
Cost savings as we retire those plants going forward and replace that capacity with much more efficient with much more efficient technology. So that's a long answer to your question, but I hope. It gives you some color on first of all our success at continuing to drive efficiency, but also are the reason why we feel that that's sustainable and ongoing.
And then in terms of the rate case itself and it sounds like you've got the key ingredients to justify not going in for a rate increase I suppose.
Well Julien if we didnt, we we'd be talking a whole different story here.
And we feel we feel good about about depending upon everyone's view of whether or not.
And the best interest of the state to us for us to stay out for another year, we feel very good about about our ability.
To do that again for both our customers and our shareholders.
Yeah, absolutely excellent and then comment on 'twenty three 'twenty five that relates to Columbia here just to meet the thick and sizing.
Gosh it relates to the for older units at our Oak Creek site.
And it relates to Columbia that was our that was our player to be named later in our investor deck.
And so that's because our Wisconsin public service subsidiaries and minority owner at Columbia, and it relates to a unit as well and Wisconsin public service.
So it's across the fleet.
Okay.
And excellent alright, well leave it there thanks guys.
The care Julian.
Yes.
Yes.
Your next question comes from Jeremy Tonet with J P. Morgan Your line is open.
Greetings, Jeremy how are you today.
Good afternoon, and thanks for having me.
The nice B and head.
Just wanted to kind of start off with a high level question if I could.
And the Biden and administration has some new emission reduction goals out there and I was just wondering if you and any thoughts on them and if this becomes law, how this might impact whack.
Are you thinking Jeremy specifically about the aspirational goal of carbon free grid by 2035 is that your thought process.
Yes.
Okay Alright.
Well.
First of all I think if you asked anyone in our industry.
And.
You never say never but that is one toward.
I would kind of.
Analogize it to a moon shot actually.
When you think about what it would take.
And again, you know the pace of technology development.
Change all of this and do you think about what it would practically take to get to a full carbon free grid by 2035.
You would frankly have to have.
Enormous technological change and you think about what levers could you pull to get there and there are probably for.
One might be huge advancement and modular nuclear.
One might be.
<unk> advancement.
On the cost effectiveness of carbon capture one might be a breakthrough and long duration and battery storage and.
The other would be hydrogen.
And again when you look at where hydrogen is add in terms of its stage of development hard to think that that could be widely available as a tool in 2035 modular nuclear is a long way away from being widely available. So.
It kind of leaves you with carbon capture.
And also leaves you with Kim there be some more significant advancement and battery technology for a longer duration storage I think those are the elements that we would continue to look at if I were a betting man I.
And would say carbon capture is probably further along.
But long story.
For sure it's a tall order and.
And in the meantime, I think the good news is on.
Our industry has done so much already our company has done so much already and emission reduction that we're on our goals are mirror the goals and the Paris climate accord.
So regardless of whether we're totally there and 2035 I think we can we can continue on the path for reducing emissions, we don't need any change of technology to hit our 2030 goal.
Over 70% reduction so I'm still optimistic about the path for the path of emission reductions and we will see about 2035, but I guess my bottom line messages never say never but it would take very significant technology evolution.
That's very helpful economic context I appreciate that thank you.
On your well.
And just one last one if I could just just to clarify here.
And I might've missed it here, but could you confirm that.
And the guide for 7% to 8% guide is based on a 373, if that's how we should be thinking about the CAGR here.
Yeah, it's based off the midpoint of our 'twenty 'twenty original guidance, which was $3 73.
That's great. Thanks, So much you are welcome and good questions Jeremy.
As a reminder, it is star one on your telephone keypad to ask a question. Your next question comes from Michael Weinstein with Credit Suisse. Your line is open.
Hello, Mike and are you doing today.
Alright, alright.
Good.
Hey discipline.
Well your technology and may not be doing so good Michael.
Operator, Unfortunately, Mike cut off there.
Okay. Thank you. Your next question comes from Michael Lapides with Goldman Sachs. Your line is open.
Greetings and thanks for taking my question.
Youre welcome How're you doing.
Okay I have two for you.
One is well one may be for others on the team one for you.
Just curious for you.
There are lots of states that are talking about are putting out restrictions on gas distribution and customer dominion's growth or GAAP that where that would impact gas distribution and volumetric growth I guess my question for you at all.
Are you on that in general, it's clearly had an impact on tenancy and the pure play gas utilities out on the market, but also just how investors and and how policymakers are thinking about.
Gas distribution businesses and are you any of that type of activity and the states you Sir.
Short answer and it's a good question Michael short answer is no.
Fact, I believe and one of the states we serve there's a.
Someone is drafting legislation to make sure there is never a ban on.
On the use of natural gas, particularly for home heating.
Couple of thoughts along those lines and then.
And to have Kevin sure Scott give you their view on.
Add to anything that I might say.
First of all of the regions. We serve are for state area with natural gas.
Well, let me give an example, it's gonna get according to the weather forecast.
32 below and International Falls, Minnesota.
One day.
Theres, not a heat pump and the world or one under development that could keep you warm and 32 below.
So the net.
The market share for natural gas heating and each of the for states, where we provide natural gas is huge and on average and Michigan, Wisconsin, Minnesota and Illinois on average.
And almost a 70% market share so natural gas for home heating has about a 70% market share and there's a reason for that is cost effective it's convenient it's clean.
And in these kind of climates and natural gas is really the best alternative now looking way down the road.
And some have said well maybe hydrogen will take the place of natural gas.
Well you still have to get the hydrogen for you still have to get the hydrogen to the customers and as difficult as it would be.
And as difficult as permitting it as difficult as it is to build infrastructure in this country today.
I can't imagine, it's practical to develop and entirely new distribution network and.
And technologically we believe.
We believe with some slight changes.
Natural gas distribution that where could carry hydrogen fuel.
So my sense is that that the fear about the future of natural gas.
As a bit overblown, maybe way overblown, but and a climate like ours and the upper Midwest.
Natural gas is going to be on important product.
For many years to come and Scott, we're still seeing very strong customer growth on the natural gas delivery side of the business. Yeah. That's correct Gale and fact, we're still seeing.
Especially in Wisconsin, and Michigan, and Minnesota about 1% new customer growth.
And.
We saw a large customer even switch over and the fall from using coal and their industrial process over to natural gas. So we're still seeing really good growth on the customer side.
And natural gas.
And also.
We're seeing conversion from propane and still those wells and our geographic area gas will be a part of our future.
The European group.
That's a good that's a very good point, if you look at market share I mentioned and about 70% market share for natural gas.
Propane is and our four states.
The next most used fuel source, so yeah and people are moving off of propane.
Over to our gas distribution network, Michael I hope that responds.
No that's super helpful and just one quick follow up.
Whether organically, meaning we are growing the rate base faster than your current plan or Inorganically would you be willing to help the mix of the earnings power of the company, even more towards being more towards gas versus electric.
Mike and you never say never but when I think about capital allocation.
And you know when the four of us when Shaw and Scott and Kevin and I.
Look at our opportunities with our team.
We see so many significant investment opportunities on the electric side.
But I don't.
Practically I think our set of investment opportunities is even greater.
As electrification continues and as the push toward renewables continues so again, you never say never but.
Our investment opportunity set I think is even more significant on the electric side, and that's where that's where our capital allocation will continue to grow.
Got it and then last one and if you'll pardon me.
Ever disclosed or would you disclose what you think your excess balance sheet capacity is meaning how much incremental more investment whether on the on the infrastructure segment and we are at the core utilities, and Wisconsin, and Illinois or elsewhere, how much incremental investment could you make with your current ban.
Allen feat and expected balance sheet.
Before it would require you to see debt other external financing and that's not just debt financings.
So how much more can we do if.
If we were to issue more equity or not issue more equity.
Yeah, I guess not issue equity like do you have that excess balance sheet capacity do you have the ability to raise your capital plan without actually having issue.
Well I'm going to ask shot and give her view on this as well Oh give me and my my overall kind of high level opinion and that is that you know.
We try to we try to marry our capital plan against three very important criteria. The first is what is the need and we're in a you know most of our assets are regulated assets.
Have to prove the need to make those investments so number one what is the need.
And number two.
How do you finance it.
And.
And maintain solid credit metrics that debt.
And we strive to maintain and have maintained.
As you know we have one of the stronger balance sheets, and the industry and we intend to keep it that way.
And then number three.
If there were and opportunity.
You know would it require more equity, but long story short, we really try and we really try to balance the need and the financing to maintain the kind of credit quality.
Yeah, I totally agree I think I would just add two more tied for one is.
WEC you heard me say all the utilities met the financial calls in 'twenty and 'twenty actually that has been a track record so in terms of.
Putting money to work and we deploy sleep and dollars a year, we earn our allowed our elite and.
The utilities and generates very healthy internal cash as it were.
So that's number one number two you heard us say that for the Lucky the W. E T infrastructure investment.
Very much focused on using our own tax appetite.
Focused on day time horizon.
We could get the cash back and we we just tried to take advantage of not only the investment opportunity, but also the cash flows. So I think overall the combination of strong utility performance.
And the ability to recover the cash from the wacky infrastructure investment and I think really allows us to continue to be on the trajectory that we havent had been on.
Got it. Thank you guys much appreciate it.
Youre welcome Michael take care.
And.
Your next question comes from Steve Fleishman with Wolfe Research Your line is open.
Are you doing today to hi, Hi, Gail and everyone. Good afternoon.
So just a question and Wisconsin are related to the coal shutdowns and regulatory treatment.
Alright.
Could you just remind us a.
What you've done so far with that and.
And wood wood something related to that potentially be in.
And your stay out agreement and.
How you're kind of thinking about that overall.
Yeah. Good question, Steve first of all if we were to come to a stay out agreement. It would not involve it would not involve any discussion or any delineation of our retirement of coal plants because.
It's outside of the rate case window right now so again, we're talking about 'twenty and 'twenty, three 'twenty and 'twenty four.
For.
The majority of the retirements that were talking about including the one of Columbia that was just announced by alliance.
So.
And there would be no need to address.
The coal plant retirements.
And any kind of a stay out arrangement, if I'm, making any sense for you.
Secondly.
Secondly, if you think about what we have done so we've retired a fair amount of capacity already.
We've retired I think 65 per cent of our coal fired capacity.
Since about 2015.
And in essence, the Unrecovered book balance of those plants has been fully recovered with the exception of $100 million of Unrecovered book balance at Pleasant Prairie, which a large coal fired power plant and southeastern Wisconsin and that was our most recent retirement and then.
$100 million is being securitized and.
Fact expect to be to have a securitization offering this year.
Got it.
Okay.
Great and just one other question is.
On and we're gonna have a new for ultimately Democrat majority and I'm. Just curious if you have any thoughts on.
Whether there could be another change and transmission policy or Roe.
Or you think it will stay relatively stable.
Steve I'm guessing realm.
Relatively stable if not up.
And the reason for that is when you talk to.
As we have when you talk to people early now and the by the Australian.
And there is enormous focus on incentivizing renewable development as you know.
And enormous focus.
And I think the appointees that we will see that the federal energy regulatory Commission I'm guessing, we will fully understand that youre not going to reach the administration's goals for renewable development.
Further incentivizing transmission development those two go hand in hand, chicken and egg and it's got to be done.
And so it would be almost counter to.
A huge tailwind of public policy to try to to try to do anything from here that would that would not continue the the return incentives for needed transmission. So my guess is that the overriding public policy will keep things stable or at least pause at least stable if not <unk>.
And with FERC.
Great.
Thank you very much.
Youre welcome Steve appreciate your call.
You bet.
Your next question comes from Neil Carlson with Wells Fargo. Your line is open.
And Neil how are you doing on.
Doing great.
And Louis' lovely this time of the year.
And what you're invited the international Falls this weekend.
Alright.
So anyway just.
And I'm just curious E vs have been at a pretty hot topic recently right all in the news and I'm wondering how you guys are thinking about your investment opportunity around Evs.
How soon do you need to start planning for the system is this you know eight to 10 years out are there going to be quicker needs, just any kind of insight into how youre thinking about.
Okay, Great question, Neil well first of all.
On the.
Current.
The current governor and the current gubernatorial and administration here in Wisconsin.
And as a very keen understanding that.
In order for the state to continue to make progress on C. O two reductions there has to be.
There has to be a much stronger pickup in terms of electric vehicle penetration.
I've heard that I've had probably three discussions with the governor about this and he he he really really believes that's the case so do I.
So long story short we have there are two things going on and first of all.
We have filed a modest proposal for EV infrastructure.
And that is pending before the Wisconsin Commission right now and in addition to that the Wisconsin Commission has opened up or is opening up a generic proceeding on.
What is it they should be broadly looking at to try to advance the governor's objective of and accelerated pickup in electric vehicle market share. So very early right now, but we do have we do have a pilot that we've suggested that that's getting.
Getting regulatory review right now and.
And Scott do you want to give a couple of just a couple of details on that on that filing.
And so we've got a pilot out there it's about a $50 million.
We provided a couple of alternatives on how to also.
Support some of the.
Lower income areas of the state that maybe all the help.
Put some of that infrastructure support that whether it's through buses or some other ideas there.
So, it's and they're really early stages, but it would be.
Somewhat of a rebate program that would help actually put.
Some chargers and individual houses.
So early early days Kevin some.
And some of our larger customers, who are looking at the E vs and looking at what they want to do and their fleet longer term. So we've got a close relationship with them and we'll continue doing that in today's day.
And Kevin and makes a good point, we've actually seen a pickup and we're advising a number of our larger commercial customers who are either thinking about.
Switching over to an all electric fleet.
Or who have other needs.
As EV penetration and begins to pick up so again very early days.
I think you'd see any major impact on our earnings in terms of EV penetration in our region probably until very late.
Very late in the 2000, Twenty's and I'll address.
Statistics that I looked at here recently present day.
The electric C O two emissions at 34% transportation, which we're just talking about it as 37% so just a little bit more already today.
And is making a good point, both in our region and nationally.
And the utilities have done so much that essentially transportation is now the largest contributor to C O two.
It has surpassed or we have we've cut more and so transportation is now the largest contributor not the utility industry I'm, sorry, and he'll go ahead.
No no that was perfect for.
For me.
Okay.
Terrific.
Thank you Neil.
And your final question comes from Michael Weinstein with Credit Suisse. Your line is open.
And I'll come back.
Hear me this time.
And that's all.
Great Great a quick question about the extension of the ITC and PTC.
And just got passed in December and.
It looks like it.
Decent chance you might have and it further extensions going forward.
Could you know could be.
I guess the decreased and I a M.
Economic benefits from from the tax credit extensions could that change your view on the targeted business mix between infrastructure and utilities and.
Could you increase your desire for for the more projects.
It's a great question, Michael I would tell you. This we have really tailored up to now we've really tailored our our appetite no pun intended for growing the infrastructure business, we've tailored that to two things.
The availability of very high quality projects with strong credit quality off takers, but also our own tax appetite.
So to the extent that our tax appetite is what we projected it to be the pace of that business growth will be exactly what we've talked about on the other hand.
We were just talking about this the other day actually.
If we see an increase and the corporate income tax, which some have proposed as you know as part of the bite and plan.
And then we might have a stronger tax appetite and if you couple that meaning a stronger tax appetite for the extension of these ITC and PTC is there.
May be.
And there may be a greater opportunity there, but long story short all of that would have to fall in place right. Now we're working on the plan we laid out.
At the total.
Total sense, Hey on one other question too.
If.
If you do get a one year delay for the rate filing.
Could we expect to see like and increased target for O&M savings this year beyond what Scott laid out earlier on the call.
No no.
Because remember that remember the that is all about 'twenty and 'twenty two.
Gotcha Gotcha, that's right okay.
Okay. Thank you very much on it.
And there Michael Thank you.
Alright, well I believe that's our final question for the day, we really appreciate you taking part on our conference call.
Thank you again for participating and if you have any more questions feel free to contact Beth Straka for direct line, which she gives out to only a few of you for direct line for one for 221 for 639 and thanks, everybody take care Bye bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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