Q1 2021 Xcel Energy Inc Earnings Call
19 impacts, which continue to disproportionately affect black communities I'm proud of our company is that our company is engaged in a community dialogue and they we are investing in organizations that are having a real impact we've got more work to do as a company community and our country towards creating a more just society, but by working together we can.
I'll be part of the solution.
We're also proud of the recognition we're receiving for our actions for example, excel energy was named among the world's most admired companies by Fortune magazine for the eighth consecutive year ranking second among gas and electric companies.
And we continue to be cited as a top company for LGBTQ equality, earning a perfect score in the human rights campaign's 2021 corporate equality index and a bus a best place to work for LGBTQ equality desert destination for the fifth consecutive year.
So with that I'll turn it over to Brian.
Thanks, Ben Good morning, everyone and thanks for joining us.
A good start to the year bookings 67 per share compared with 56 per share last year.
Most significant earnings drivers for the year include the following.
Higher electric and natural gas margins increased earnings by <unk> 18 per share, primarily driven by riders and rate outcomes to recover our capital investments and increased margin from our small trading operation, reflecting higher market prices.
In addition, our lower effective tax rate increased earnings by <unk> <unk> per share.
As a reminder, though production tax credits lower the ETR ptc's are flowed back to customers through lower electric margins on our largely earnings neutral.
Offsetting these positive drivers were increased depreciation and interest expense, which reduced earnings by <unk> <unk> per share, reflecting our capital investment program.
<unk> decreased earnings by <unk> <unk> per share largely due to placing several large wind farms into service last year.
In addition, other items combined to decrease earnings by <unk> <unk> per share.
Turning to sales weather and leap year adjusted electric sales declined by one 9% in the first quarter, our sales forecasts assume that there was a lingering impact from COVID-19, and we expected a slight decline in Q1.
However, the adverse impacts of COVID-19 on sales were largely felt starting in the second quarter of last year. As a result, we anticipate a positive quarter over quarter sales comparison next quarter and for the year. We continue to anticipate modest weather adjusted sales growth of approximately 1%.
Shifting to expenses.
O&M increased slightly for the quarter, we expect annual O&M expenses to be relatively flat in 2021, reflecting incremental cost for new wind farms offset by a decline in base O&M.
Now turning to our regulatory filings in January we filed a new Mexico electric rate case, seeking a net rate increase of $48 million after reflecting.
<unk> fuel savings in Ptc's from the Sagamore wind farm.
A commission decision on implementation of final rates are anticipated in the fourth quarter of this year.
In February we followed Texas electric rate case, seeking a net rate increase of $74 million after reflecting fuel savings in ptc's from the Sagamore wind farm.
A commission decision is expected in the first quarter of 2022 with a surcharge back to March 2021.
The Texas and new Mexico rate cases are driven by the Sagamore wind farm.
<unk> investment in transmission and distribution due to significant growth.
Loss of our wholesale customer changes in depreciation to reflect the planned early retirement of our coal plant <unk>.
Our requested ROE of 10, 35% and an equity ratio of 54, 6%.
In November 2020, we filed a request in North Dakota, seeking an electric rate increase of approximately $19 million based on a requested ROE of 10, 2% on an equity ratio of 52, 5%.
Interim rates were implemented in January and a decision is expected later this year.
As far as future filings Gulf, we anticipate filing a Colorado electric rate case, this summer with rates going into effect in the first half of 2022.
We are working with parties to reach settlement agreements regarding our plans for Wisconsin rate case.
And finally, we also anticipate filing our Minnesota electric rate case in November with interim rates going into effect in January of 2022.
Shifting to renewables, we continue to achieve important milestones in our PPA buyout strategy in March we closed on the acquisition of the 99 megawatt Repowering Mauer wind farm <unk> <unk> will provide significant customer savings and carbon reduction for our customers.
We've gotten off to a great start for the year and are reaffirming our 2020 on earnings guidance of $2 90 to $3 per share.
We updated our guidance assumptions and we expect incremental interest expense due to the lag in recovery of the $1 billion of unplanned fuel costs associated with associated with winter storm here.
As we work with our commission to recover the field costs, we're not seeking to recover the carrying costs from our customers as we help to manage the overall bill impacts we continue to expect to deliver earnings around the midpoint of the guidance range.
With that I'll wrap up with a quick summary, we continue to execute on our PPA buyout strategy with the acquisition of Tomorrow wind farm and filing of the elite PPA Repowering buyout.
We filed our solar proposal in Minnesota.
We filed our Colorado resource plan on transmission expansion plan, which will provide transparency into our long term opportunities and will likely lead to robust capital investment in the second half of the decade, we reaffirmed our guidance range.
And finally, we remain confident we can deliver long term earnings and dividend growth within our 5% to 7% objective range.
This concludes our prepared remarks, operator, we will now take questions.
Ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad keep in mind. If you are using your speakerphone make sure. Your mute function is released to allow that signal to reach our equipment. Once again star one for questions. Today, we will pause for just a moment to allow everyone an opportunity to signal.
And we will begin with Jeremy Tonet with J P. Morgan.
Hi, good morning.
Good morning, good morning, Jeremy.
I was just wondering how does your Colorado generation transition impact transmission needs overall.
Given the national attention on transmission currently what type of receptivity do you expect to this proposal on other similar investments you are evaluating cross the rest of your footprint.
Well, yes, I mean, I think the response has been very favorable and I think there's a recognition that.
If we're going to achieve in the case of Colorado on 85% carbon reduction with almost 80% of it coming from renewable energy that we're going to need a strong backbone to be able to do that in.
Jeremy when you factor in the <unk>.
Price of all of that it still comes out in an incredibly.
Portable our price point for our customers, which quite frankly might be made all the more affordable with some of the policies that are coming out of the biden infrastructure planning if you think about it.
If we if the extension of PTC as the direct refundable day, the normalization opt out.
For solar on ITC for transmission.
That promises to make our plan, which of course includes 10000 megawatts of renewables.
Much more affordable for our customers and when you keep your product affordable you create headroom for additional investments in the grid like the transmission, you're referring to so I'm really optimistic debt.
We've got a tremendous opportunity in front of us with transmission aided by the policies that I mentioned that will keep the price point, low and Thats and thats in all of our regions.
On the MISO studies are preliminary but I think you can see that that's an enormous investment opportunity and hopefully the slides we've attached for you.
Our helpful in demonstrating whereas some of that build could happen.
That's very helpful. Thank you.
And you outlined a lot of great capex opportunities out there over a long period of time and just wondering how we should think about capex as you've laid it out there.
As it relates to your growth rates do you see this kind of firming up the $5 to seven over a longer time period or do you think that there could be upside at some point just wondering how this all kind of comes together in your mind.
Well.
We firmly believe we can be in the upper half of that 5% to 7% range. The things I'm describing on only are helpful for that but I mean, you've made a great point when we talk about our long term growth rate, we're not talking about three to five years, we're talking about.
A long time.
So I'm quite confident.
Confident that the opportunities we have in front of US we'll give you.
Should give you comfort that we've got transparent plans to hit that and again, we believe that we can be in the upper range.
Of that range.
Upper half from got it.
That's helpful. Just one last one if I could if you could speak to recent sales trends across territories, particularly Sps.
How do you see reopening trends impacting sales over the balance of the year here.
Yes, Hi, Jeremy.
Yeah. Good question I think from a.
Talk about I'll talk about Sps, specifically, when we talk about little bit broader no. We're in touch with our major customers.
Oil patch area and I would I would say they are cautiously optimistic.
And we monitor some of our substations that serve those loans specifically in their reaching pre pandemic levels. So that's a good sign. We're also hearing from them that there is a from the oil majors that theres, a big focus on electrifying rigs and pumps as they look at ways. They can improve their carbon footprint. So I would say optimistic was.
What we're hearing down there overall I think our territories you know, we're starting to commodity the COVID-19 restrictions that we have no restrictions in the Dakotas, and Wisconsin, and Texas, and Minnesota, and Colorado are starting to ease up in Minnesota here, we're at about a 75% capacity for bars and restaurants. So now we look at all the leading.
<unk> on our economies and I would say there is no positive growth in signs for this year and I think we feel pretty good about our 1% year over year sales growth on the electric side.
That's very helpful Thats It from me thanks.
Thank you.
We will now hear from Stephen Byrd with Morgan Stanley.
Hey, Steven.
Hey, good morning, how are you all doing.
Good.
Great well, thanks, so much for taking the time to address my question. So.
Thinking more on transmission just building on some of the.
Prior questions just you laid out in MISO some potential additional growth and I was just curious if you could just talk a little bit about the.
The sort of the process steps in MISO from here how will this develop over time how might this impact your thinking on your capex over time.
Hey, Steven its Bob here good to hear from you.
Look with MISO and there <unk> 'twenty one plan.
We expect all transmission owners to work through the process at MISO over the course of 2021.
Ultimately with the goal of by the end of the year coming out with a series of recommended projects all over the territory, obviously being one of the largest <unk> in MISO transmission owners, we would expect a lot of those projects to be in our service territory areas, particularly since those are the high density renewable areas.
In the territories as well.
So that goes forward those projects are generally long dated items and we don't have cash.
Capital for new major transmission lines in MISO in our five year forecast, but we've been talks about the elongation of our growth and the investment that this industry needs to make the clean energy transition, we see that as the back half of the decade, that's going to perpetuate the growth profile that we shared earlier.
Yes, David I would just add debt. Please I would just add debt.
On the throttle has always been the cost to the consumer and as I mentioned and to a question earlier, we already had on affordable plan I mean taken advantage of very low cost renewables, which even with transmission built into that still is.
Great for our customers you make that even less expenses.
More affordable with the tax policies that are.
That I think have a pretty good shot of getting past and thats, creating a lot of headroom for our investment while keeping our product affordable.
Low enough then focus on things like electrification, which is also going to get ramped up with.
Under the buy and administration proposal.
Really I think very very bullish for excel energy on great for our customers and I'm really excited about it.
Obviously, what you're saying.
And one more opportunity right and on the on the SPP side.
While they haven't been as outspoken and probably aren't as long as the process as Ben mentioned earlier.
That region of the country as renewables rich is the opportunity to be a energy export or to the country and thats going to need transmission investment. So we think the MISO studies will provide some I'll call. It no regrets projects early.
MISO and SPP also going to have a lot more longer dated capital projects to enable the resource rich regions of this country to exports to either the east to the West coast.
And we have a lot of road person in place. So that's the other thing we really we have right of first refusals as you probably know on some of our key states. So.
I'm excited.
Adding these together I guess that its a combination of if you get federal support in the form of an extension of tax credits for wind and solar may be new storage tax credit that really helps reduce the cost in the second half of the decade anyway, because you already have kind of a visibility on those tax credits in the first half and that lines up with potentially for example, more transmission spending in place.
MISO.
So that can kind of work together yeah.
We had some pretty conservative numbers.
Our resource plans on how you know what the price point would be by 2030, and it's very affordable now if you have this it becomes that much more affordable, creating the headroom to again make those investments.
In the grid that debt.
We will be able to do and keep our product affordable, which opens up electrification opportunities in other sectors.
That's really helpful. One just follow up.
You are in your resource plans, you've often talked about sort of the role of energy storage versus the role of peaking generation you've raised a lot of good points about.
Storage has a kind of a limited duration.
You really do need, peaking generation to ride through extended periods, where renewables output might be low for example, but I was just curious as you think about the evolution of costs for storage the potential for a federal tax credit for storage would that sort of tip the balance a little bit more towards storage, a little bit less peaking or how are you on.
Thinking about sort of the trade offs between the two technologies.
Well I think it's one of the reasons why for example on the Colorado Resource plan, we I think we'd call for <unk> thousand 500 megawatts of flexible resources. That's in addition to identified 400 megawatts of storage. So you know, we'll let the economics aside if it's gas or if its batteries.
That said.
There are still going to be limitations to how much you can rely on batteries for longer term durations like winter storm Yuri.
More than four hour battery storage or even eight hours, but to the extent that it becomes affordable I mean, we will definitely have more batteries on our system.
Stephen there's legislation in Colorado, that's moving around innovative technology for pilot programs on.
The spatula zero carbon assets long duration storage and any one of those can solve the reliability and affordability needs of our customers.
Right now we look at what's available on the market and Thats short duration storage for eight hours stuff or gas Cts, but you might find a hydrogen fired.
Opportunity or a long dated energy storage opportunity that comes out of work.
That we're working on with <unk> and other organizations over the next decade. So we can be flexible at this point, we don't have to build that stuff today.
But over time, we're betting with technology not against it.
Great. Thanks, so much I appreciate it.
Thank you.
Now, we'll take a question from drew cash Chopra with Evercore ISI.
Good morning.
Hey, good morning. Thank you for taking my question I just wanted to clarify one thing Brian.
On the 2020.
One.
Guidance slide the lower depreciation expense.
I think you explained it well, but just so I have it.
St Jude.
You're deferring that.
The depreciation expense on the balance sheet.
And that's what's driving the D expense, lower and you're going to get recovery of it over the longer term debt what's going on.
Yeah do you base. It really is just a timing you know previously we thought we'd get the Texas rate case order by the end of this year. So you would recognize the revenue and the expense with it now given that procedural schedules in Q1 of next year. So we just defer that expense for this year whoever relate back date to March so earnings neutral, but just a change in our in our.
Expenses are.
Got it okay.
And then maybe just can you comment on the debt.
On the timeline for recovery it sounds like Youre, not asking for carrying costs on the on the storm impacts, but maybe just timeline for recovery of those dollars I mean, you've got I believe authorization in one of your op codes, but just what to look for there in terms of timeline on recovery.
Yeah, So yeah, you're right in Wisconsin, and that's over the nine month period.
But generally what we've proposed in Minnesota, and Colorado is over two years and really looking to help mitigate the bill impacts on our customers. So think of that over the next couple of years, we'll work through the proceedings here in the summer and we're also you know not asking our customers to recover those carrying costs because we're really trying to overall helped mitigate the bill impacts.
And we have a slide in there where it's been over two years, it's anywhere from two to $10. So really looking at how we can help our customers here.
Got it so you said a decision on sort of the Colorado, Minnesota when summer.
Yeah. It should be yes, yes later this summer.
Okay perfect. Thank you so much.
Thank you.
Moving on to a question from Travis Miller with Morningstar.
Good morning.
Hi, Thanks for taking my questions.
Back to the Colorado pathway. So earlier this week it was.
Put on I don't know what I think about is the anointed list.
Nationwide the top transmission projects.
I don't know what ill call it.
But.
How does that change.
How are you.
<unk> discussed this with regulators the probability of getting the project approved and then even beyond that the probability of getting that incremental investment being on that list.
Well I mean, I think I don't.
Now how much it helps but I mean, the reception as I mentioned before has been very favorable to the project and its very much tied to our ability to hit.
I think remarkable interim goals that we're shooting for in Colorado. So.
Brian or Bob I don't know if you have anything to add to that no I look I think the initial reception to the filing was well received we expect.
That filing to proceed alongside our resource plan, which has been mentioned calls for.
More than $4 5000 megawatts of renewables in the state of Colorado.
And when we filed that plan, we had transmission owners in the state of Colorado alongside of US very supportive very excited about the opportunity not only for us to hit our goals, but we're going to help the state its goals with other other energy providers in the state being able to access the transmission for their renewable goal.
<unk> at this point I think we're going to be.
We're going to build and own that pathway right now is our expectation that our owners are the other transmission owners are supportive but at this point I think they have declined to participate in the construction and ownership and operation of that asset that can change over time, but right now that's how we expect to move forward.
Okay.
Real quick one clarification on that additional investment so the plan would be one seven is that again just remind me. That's what you filed for and then there could be on.
Another $1 billion or does the extra 1 billion included in that $1 seven.
Yes, the way I think about it Travis is.
I'll call it the base double loop $3 45 circuit on the Eastern Plains of Colorado is about $1 7 billion.
There's an additional extension on that loop that would drop it down into the south Eastern most part of Colorado. That's another couple of hundred million dollars $300 million and then once we get the resource plan approved and we know where assets are going to get firmly located than we.
To come back and look at how much voltage support we might need for those assets, where theyre going to be specifically located and that comes with incremental capital costs, but again as Ben said you take the renewables you take the pathway and its probably an $8 billion initiative in Colorado, all going to keep our bills at or below the rate of inflation.
<unk> in Colorado really excited to be able to transition that state to an 85% carbon reduction 80% renewable penetration.
At that low cost.
Okay.
If I could sneak one more in there on the project what are your thoughts on suggestions about investment tax credits for certain high priority transmission projects or federal backed loans what are your thoughts in terms of that.
Yeah look I think been captured it early in the conversation, but we've got a plan that is very affordable and reliable for our customers.
Any incentives that come with that plan make it more affordable and moral and on the opportunity to then look at other opportunities to accelerate either our own portfolio or potentially accelerate stuff like electric vehicles in the states and keeping customers energy bills lower so I think on balance it is helpful.
But we think we can do it at a very affordable price with or without it and its not contingent on legislation passing at the federal level.
Great I appreciate the time and the answers.
Thank you Travis.
Yeah.
Now, we'll take a question from Julien Dumoulin Smith with Bank of America.
Hey, good morning team. Thanks for the time I'll make it quick.
Hey morning.
Just just to re ask just transmission point I just wanted to just make sure. We hear you clearly on this with respect to the MISO process. What's your level of confidence on this looking more like MVP over the last decade versus being this future one proposal being the start of a fairly protracted effort to get these discrete projects underway.
Obviously, you've been fairly contentious time, so I just want to understand your sense of confidence around.
Sort of the near term.
<unk> and processes from these projects.
I'll, let Brian and Bob comment Julien, but I mean, it's going to take time I mean, that's part of that.
As you know on Colorado Thats. The advantage of we also when we might be in an RTL, but you could definitely.
Moving quicker when when you're not in an <unk> process. So I recognize it's going to take time, but the need is compelling and it will get done and how it gets built in.
How it's allocated I think it's important to keep in mind that we do have a writer first refusal in Minnesota and I think that's very helpful and I think we've got a demonstrated track record of.
Building transmission.
A very good cost.
So.
I don't know if im answering your question fully so I don't know.
Brian and Bob have any additional commentary there hey, Julien it's Bob I think about it is in tranches theres, probably some no regret stuff that come out on <unk> 21, I think we will probably see more transmission expansion planning through MISO that'll get to maybe some of the harder stuff as you were mentioning.
No.
The MVP projects were a point in time and lined up very well.
I think that there's some projects that MISO and the transmission owners in MISO recognize our needed sooner rather than later on I think thats the stuff, you'll see come out of <unk> 21, and I am hopeful and working with the MISO that we will see those by the end of the year I think theres more when they talk about the large numbers of $30 billion.
Dollars $100 billion that stuff could take a little longer it might be a little bit more.
Contentious, but as Ben said, absolutely positively need this to meet state Scholes and company's goals and I think it'll happen.
Alright, excellent and guidance one further follow up if I can it might be somewhat evident but the decision to file in Colorado here do you want to walk through that a little bit.
I'll leave it open ended.
Yeah, Hey, Julien, earning on ROA.
Yeah.
Yeah, Julien on anything we look at it at a couple of things right. Now we had originally filed for in Asia Rider and a wildfire rider.
We still have our deferral on her age of CPC and costs and we have a deferral on our wildfire investments, but really we're putting those on our balance sheet. You don't want those deferrals to get too large so that's one piece of it but also we have some regulatory lag in the Colorado electric jurisdiction.
So as we look at it in and look at that and look at kind of how the economies are really coming out on COVID-19.
And in terms of the strength, we're starting to see their debt.
It's really the time to file.
And I would add to that we talk about our advanced meter investments that we're making in Colorado, we're really ramping that up this year with deploying about 400000 meters is the first large deployment and again, it's about getting that cash in the door versus deferral on it and putting it on our balance sheet and kind of kicking the can down the road.
Alright, great, but I'll put it this way you expect to be able to earn.
Relatively close to your authorized into the future wherever that mainland.
I would expect we'd close that GAAP rate. This I mean, we will file. This case here this summer, but we will get an outcome until next year. So you'll see us from regulatory lag in Colorado. This year and an improvement next year as we get to those rates into effect.
Got it. Thank you guys best of luck.
Thank you.
Moving on to a question from Paul Fremont with Mizuho.
Hey, Paul.
Hey.
Congratulations on number one number two.
If I look at Colorado pathway.
How would you allocate the $700 million of investment would it be fairly even for the period 'twenty. One through 25 is it backend loaded.
Hi, I just wanted to get a sense of when that $700 million would head.
Yeah, Hey, Paul it's think of it more kind of in a little bit more backend loaded you'd have a little bit of spend as we go through the recovery. We go through the proceeding on getting approval late this year and so you start to spend next year, but really the ramp up is in the back half of our five year forecast.
Okay. So like the last two years as most of it would be that the lion's share yes.
That's a fair way to think about it.
Perfect.
That's it from me. Thank you so much.
Thanks, Paul.
<unk>.
Next question from Ryan Levine Citi go ahead. Please.
Good morning.
I was hoping to just follow up on from the comments on the PPA buyouts curious how those potential future transactions have been progressing and whats the paces and in the context of biding infrastructure planning.
And the Wyden Bill.
If any of the tax provisions there could accelerate or decelerate some of the opportunities for PPA back.
Hey, Ryan Yeah. Good question, I think I take a step back and say we've delivered if we look at what we've delivered or have pending approval is about $750 million of of Capex related to PPA buyouts, and that's and we've if you look at them on a customer savings is copper.
Comparable to that so spend a great strategy for our customers and the growth strategy for us.
And I know you've heard me talk about we will continue to stay in contact we continue to stay in contact with our Counterparties and still think now up to $500 million to $1 billion of PPA buyout opportunities are absolutely possible.
I think about what we could see coming out of the potential infrastructure plan with a longer term extension of credits now I look at what we have been the two wind farm PPA buyouts that we have an improved day, Minnesota They were a PPA buyouts with the Repowering and that Repowering.
An additional 10 years of Ptc's helps us deliver affordable projects in customer savings and so I think that absolutely presents an opportunity over the longer term if we get it in the long term extension of credit. So we'll continue to look for the opportunities and we will transact when we find on.
On an opportunity where it works for our customers and works for our shareholders.
Ryan, It's Rob I'll just energy.
Thanks.
As we move through the resource planning process in both Colorado and Minnesota those are other opportunities that present themselves during those proceedings and so as Brian said, we still got a goal to execute on this strategy and we think theres opportunity.
Thank you for that and then on a similar vein in the context some day.
It would be.
Incentives are federal filled out.
Just your thoughts on how that could impact your business and an impact to some of the service territories.
Some of those broader federal mandates, where it would be rolled out.
Well I think it's very supportive.
The goal we have for getting Evs on the road in and everything that comes with that and one of the things as we all know is that.
The range anxiety that consumers have justifiably so.
We'd certainly be.
Diminished if you had 500000 charging stations.
Out there.
Suppose under the plan so it's only going to be helpful.
And Evs.
E vs a great low for us.
The benefit all customers and I really.
I think we're pioneering subscription rates and other things that.
Encourage not required but encourage customers to charge off peak.
And I think.
That minimizes the.
We will have infrastructure needs, but that will minimize it again for the benefit of all customers keeping prices low and.
I just think that the.
On the economics associated with it.
Expectation of transport are pretty compelling.
And.
This is only going to help accelerate that so it is very positive.
Is there any numbers you can put around the potential capex around additional infrastructure that excel may have to deploy to support.
On federal EV programs, if they were to be.
Yes.
Yeah, Ryan the way to think we think about it right. We have our stated goal for <unk>.
One $5 million vs. In our service territory by 2030, and Thats about 20% penetration of Evs.
And with that we have $500 million of capital in our current five year forecast and I would say, we have some industry, leading EV programs with what we're accomplishing in Colorado, and Minnesota, and really helping our states reduce carbon emissions in the transport sector and then we kind of pivot to the back half of that forecast is another about $1 billion $5.
In terms of estimates and and that's for that 20% penetration and if you know the federal incentives helped drive that penetration faster you can kind of Ratably I'd say scale that up so we viewed as a really good opportunity here longer term as we pivot and help take out the carbon emissions from the transport sector with how clean our fleet.
Yes.
All contributed at keeping prices low too I mean, because again evs, even if you don't own one.
Somebody that does that helps with our.
Programs, all customers will benefit from that and it tends to.
Increased the denominator.
Keep costs low, which again, that's the virtuous cycle allows us to make other investments.
Yeah.
Great. Thank you.
Ladies and gentlemen, this will conclude your question and answer session I will turn the call back to Brian Van Abel CFO for closing remarks.
Thank you all for participating in our earnings call. This morning, please contact our Investor relations team with any follow up questions.
And ladies and gentlemen, this does conclude your conference for today, we do thank you for your participation and you may now disconnect.
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