Q1 2021 WEC Energy Group Inc Earnings Call
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Good afternoon, and welcome to W. E T Energy Group conference call for first quarter 'twenty 'twenty. One results. This call is being recorded for rebroadcast and all participants are in a listen only mode. At this time.
For 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're made.
In addition to the assumptions and other factors referred to in connection with the statements and factors described and W. E. T Energy group 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 discussions 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 WEC energy group and 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.
Well good afternoon, everyone and thank you for joining us today as we review our results for the first quarter of 2021 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.
As you saw from our news release. This morning, we reported first quarter 2021 earnings of $1 61, a share and as always our focus on operating excellence was a major factor and our performance for dish.
And we saw the positive impact of colder weather and the economic recovery and our region. John will provide you with more details on our metrics and just a few minutes, but first the comment about the polar vortex events that we experienced in February our people and our infrastructure were put to the test literally and performed remarkably during bitter cold stretch.
And when temperatures dropped to minus 42 degrees Fahrenheit and the northern portion of our service area.
Please to report that the investments, we've made and our energy grid and our diverse fuel mix and kept the economy, moving and our customers safe and warm.
As you know just over a year has passed since we first saw the impact of the COVID-19 pandemic, our commitment to safety efficiency and reliability has only been enhanced by the operational challenges, we faced our company today stay and stronger than ever and our $16 $1 billion capital plan. The largest in company history is on track.
Yeah.
Over the next five years, we expect our investment plan to drive average annual growth and our asset base of 7% at the same time that will bolster our sustainability as we continue to invest and renewable energy and the state of the art infrastructure and fat.
Ex the potential we see and renewables and battery storage and the progress we've made across our system already and supportive public policy and have allowed us to step back and reassess our future environmental goals.
So today I am pleased to announce that we're setting even more aggressive targets for the next several years.
Our goal is now a 60% reduction and carbon emissions by 2025, and and 80% reduction by the end of 2030, both from a 2005 baseline.
We believe we can accomplish these targets with the retirement of older less efficient units, some operating refinements and the use of existing technology as we continue to execute our capital plan and of course, our long term goal remains net zero carbon emissions from our generating fleet by 2050.
And in addition, and the natural gas distribution side of our business. We're now targeting net zero methane emissions by the end of 2030.
Our ongoing effort to upgrade our gas delivery networks and incorporate renewable natural gas into our system will clearly help us achieve this 2030 milestone and youll.
And you'll be able to read more about these goals and our updated climate report, we'll be launching that report on our website tomorrow morning.
And as I mentioned earlier and the call, we're making really good headway on our capital plan, we call it our ESG progress plan.
Since our last visit with you we've announced for renewable projects for our regulated business and Wisconsin and another wind project. The Jayhawk wind farm and our work infrastructure segment, and Scott and Kevin are untapped to fill you in sales, but I will add two important points about the impact of our ESG progress plan.
As we continue to reshape our asset mix, we project that less than 10% of our revenues and Melissa and 10% of our assets will be tied to coal by the end of 2020 five.
And we would more than triple our investment and renewables across our enterprise you put it all together and we expect to deliver among the best risk adjusted returns the industry has to offer.
We have strong credit quality and no need to issue equity.
The heart of it all is our ability to deliver the affordable reliable and clean energy that our customers depend on.
Now switching gears for a moment lets take a quick look at the regional economy.
The rollout of the COVID-19, vaccinations, well underway, we're seeing more signs of economic recovery Wisconsin's unemployment rate stands today at three 8%, that's close to pre pandemic levels and more than a percentage point better than the national average and <unk>.
And our recent business survey by the University of Wisconsin, and confirm that all core indicators for productivity to income are looking up.
Also you may have seen the announcement last week that Foxconn has reached a new agreement with the state of Wisconsin regarding Foxconn and high Tech campus South of Milwaukee.
The agreement provides for up to $80 million of performance based incentives Foxconn and hires 1000, and 450 for qualified workers and invest $672 million by 2026.
And also importantly gives foxconn and the flexibility to be responsive to the marketplace.
This time the Foxconn campus is expected to focus on producing computer servers and server parts and that's one of the Fox kind of specialties and in fact, we understand that Fox non supplies approximately 40% the worldwide market for servers.
Foxconn and also noted that over time it plans to make the Wisconsin site one of the largest if not the largest manufacturer of data infrastructure hardware in the United States.
So as business opportunities continue to arise Foxconn will work with the state on contract changes that would incorporate additional jobs and more new investments beyond this agreement.
And as we look further across our service area, we see numerous green shoots of growth for example, and Green Bay packaging, just completed a $500 million expansion of its paper mill and northeastern Wisconsin Amazon continues to expand the company just announced another fulfillment center. This one will be located and one of our western suburbs.
And your line is growing again.
Building, two new distribution warehouses, and the Kenosha area South of Milwaukee with a projected investment of $130 million, if you're not familiar with the name. Your line is one of the nation's leading distributors of shipping industrial and packaging materials.
And with all the developments, we're seeing and the ground and we remain optimistic about the growth of the regional economy, and our long term sales growth.
And I'll turn the call over to Scott for more detail on our sales results for the quarter as well as an update on our infrastructure segment and Scott All yours. Thank you Gail.
Turning now to sales and we continued to see customer growth across our system at the end of March our utilities were serving approximately 7000 more electric customers and 25000 more natural gas customers compared to a year ago.
Retail electric and natural gas sales volumes are shown on a comparative basis, beginning on page 10 of the earnings packet.
And Wisconsin, we saw sales growth on a weather normal basis across our entire retail business compared to the first quarter of 2020.
Natural gas deliveries and Wisconsin increased three 2%.
This excludes gas used for power generation.
And on a weather normal basis natural gas deliveries and Wisconsin increased by one half of 1%.
Retail deliveries of electricity, excluding the iron ore mine were up one 1% from the first quarter of 2020 and on and weather normal basis were up one 4%.
Overall, our growth is tracking ahead of our forecast as the economy begins to open up.
As we announced in March we are adding another project to our infrastructure segment.
We acquired a 90% ownership interest in the <unk> Wind farm. This project will be built and Kansas and consists of 70 worth wind turbines with a combined capacity of more than 190 megawatts.
Jay Hawk is expected to go and service by the end of this year.
This project fits our investment criteria well as a long term off take agreement with Facebook for all the energy produced we plan to invest $302 million for the 90% ownership interest and substantially all of the tax benefits.
As a reminder, our thunderhead wind investment is now projected to go and service by year end.
We now have seven wind projects announced or and operations and our infrastructure segment. This represents one $9 billion of investment with a strong pipeline of opportunities ahead, and we expect to invest and additional $1 5 billion and this segment through 2025 and.
And now I'll turn the call over to Kevin for an update on our utility operations. Thank you Scott All COVID-19 statistics have been improving and our service areas and we remain focused on keeping our employees and customers site.
We continue to realize efficiencies across our system of companies and will apply the lessons learned as we design and workforce practices post pandemic.
Now, let me touch on some recent developments and our ESG progress plan.
Since our last call, we announced for large scale renewable projects for our Wisconsin utilities, the Paris, Darian and Costco knock solar battery parks and.
As well as the Red Barn Wind Park.
And total our share of these projects would provide 675 megawatts of solar generation three.
316 megawatts and battery storage.
And 82 megawatts of wind.
Any of the Commission's approval, we will invest approximately one $5 billion to bring them online between 2020 two and 'twenty.
We expect these projects to deliver significant operating cost savings and maintain reliability.
These projects and of course are all part of our plans to invest significant capital dollars and renewables and battery storage for utilities between 2020, one and 2025.
More to come and the next few months.
We are also proposing to build 128 megawatts of generation at our existing western power plant site and North Thompson.
The new facility will use seven reciprocating internal combustion engines or as we call them rice units.
And if approved we expect to invest $170 million and this project for a targeted in service date in 2023.
And on the natural gas distribution side, we energies is making its way through the approval process for two liquefied natural gas facilities, which would provide enhanced savings and reliability during our cold winters.
Pending approval, which we anticipate by the end of this year and would expect to bring the facilities and operations late in 2023.
Now for a few regulatory updates.
On March the 30th we filed a request for the public service Commission of Wisconsin to forego a rate case filing. This year. After we reached an agreement with a major customer and environmental groups and.
We look forward to the Commission's decision and 60 to 90 days.
At this time, we're in the midst of rate reviews at two of our smaller utilities.
With short gas and Michigan gas utilities. These proceedings are to support and important investments and our distribution infrastructure and with.
And that I'll turn it back to bill.
Kevin and thank you very much.
As we look for the remainder of the year, assuming normal weather, we expect to reach the top end of our earnings guidance for 2020, one that stands at $3.99 a share for $4 and three a share. We're also reaffirming our projection of long term earnings growth and a range of five to seven per cent a year and as you may recall in January.
Our board of directors declared a quarterly cash dividend of <unk> 65, and three quarter cents a share that was an increase of seven 1% over the previous quarterly rate.
Continue to target a payout ratio of 65 to 70 per cent of earnings for 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 and nausea, and will provide you with more details on our financials and our second quarter guidance Sean.
Thanks, Dale our 2021 first quarter earnings of $1 60 line cents per share increased <unk> 18 per share compared to the first quarter of 2020.
Our favorable results for the first quarter of 2021 were driven by a number of factors. These included the continued execution of our capital plan.
Winter weather condition and stronger weather normalized sales increased production tax credits and lower interest expense and continued emphasis and operating efficiency.
The earnings packet placed on our website. This morning includes a comparison of first quarter results on page 14.
And I'll walk through the significant drivers impacting our earnings per share.
Starting with our utility operation, we grew our earnings by four cents compared to the first quarter of 2020.
First quarter winter weather condition, when compared to the first quarter of last year.
And five cent increase and earnings.
And also rate adjustments and weather normalized sales added five thing compared to the first quarter of 2020.
Negative drivers included force and of higher depreciation and amortization expense.
And a 2% increase and day to day O&M expense.
The increase and O&M expense was more than offset by the favorable performance of our Rabbi Trust for fun.
Goodbye Trust and investment included in our corporate and other segment.
Overall, we added four cents quarter over quarter from utility operations.
Moving on to our investment and American transmission company, we picked up a penny related to continued capital investments.
Recall that our investment is now, earning a return on equity of 10 five 2%.
We are aware of the recent proposal to remove incentive adders for RTL membership.
Past ATC would lose the 50 basis point <unk> adder on.
And on annualized basis, it would be a tooth and earnings drag for W. E T.
Of course, we are watching the developments closely.
Earnings at our energy infrastructure segment improved two and the first quarter of 2020, one compared to the first quarter of 2020, primarily from production tax credit related to wind farm acquisition.
These include the booming growth windfarm, placing survey in December 2020, and.
And then to Towncar Ridge Wind farm, which came online in early January.
Finally, you'll see that earnings and our corporate and other segment increased 11.
Driven by improved Rabbi Trust investment performance and some favorable tax items resolved in the quarter and lower interest expense.
In summary, we improved on our first quarter, 2020 performing by 18th and per share.
Now I'd like to update you on some other financial items.
For the full year, we expect our effective income tax rate to be between 13 and 14%.
Excluding the benefit of unprotected taxes flow into customary we project, our 2020, one effective tax rate would be between 19 and 20%.
As in past years, we expect to be a modest taxpayer in 2021.
Our projections show that we will 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 package.
Net cash provided by operating activities decreased $295 million.
Our increase in cash earnings and the first quarter over 2020, one was more than offset by higher working capital requirements.
Spike in natural gas costs and throughout the central part of the country. This February coupled with customer arrears contributed to the increase and working capital.
However, there's no collection practices underway in our major markets, we expect working capital to improve throughout the remainder of the year.
Total capital expenditures and asset acquisition for $599 and the first quarter of 2021, and 94 million increase from 2020.
On the financing front with the $600 million Holdco issuance and March along with our refinancing efforts last year.
The average interest rate on our Holdco senior note is now at one 8% compared to three 5% a year ago.
This will continue to provide a favorable interest bearing and throughout the year.
And.
In closing before I turn it back to Dale I'd like to provide our guidance for the second quarter and full year 2021.
For the quarter.
<unk> a range of 75 to 77 cents per share.
This accounts for April weather and assumes normal weather for the rest of the quarter.
As a reminder, we earned <unk> 76 per share and the second quarter last year.
Excluding <unk> <unk> of better than normal weather and a three and pick up from the FERC R. O E decision. We would have earned <unk> 70 cents per share and the second quarter 2020.
As Gale mentioned earlier deciding to the top and of our range for the full year and as a reminder, that range is $3.99 per share to $4 <unk> per share.
And normal weather for the remainder of the year.
And I'll turn it back to Gale.
Thank you very much overall, we're on track and focused on providing value for our customers and our stockholders operator, we're ready to open it up for question and answer portion of the call.
Thank you.
We'll take your questions.
<unk> and answer session will be conducted electronically to ask a question. Please press the star key followed by the digit one on your phone if youre using a speakerphone and turn off your mute function to allow your signal to reach our equipment, we will take as many questions as time permits once again.
And then one on your phone to ask a question.
Your first question comes from the line of sharp <unk> with Guggenheim Partners. Your line is open.
Hi, Sharon and good afternoon.
Hey, Phil and.
Unidentified bunker and Jersey share that.
Right, that's right and determined when I go back, but yes, that's correct I hope you're well.
We're good we're good all good here.
Excellent excellent.
Just a policy question and then just the fundamental question and the second thing.
We've seen some movement, and Illinois and sort of the policy from soft Pritzker come out last week against the price again.
You've seen more skeptical on the prospects for legislation. This spring can you maybe share sort of with the data points that have been moving around any updated thoughts there and anything on the dialogue around the Q IP.
Sure be happy to share our.
Well first of all as you know there are numerous competing builds now on the energy front and Illinois.
And Theres, an old country song and it says a long way to go on a short time to get there.
And that's kind of I think the situation in Illinois.
Coupled with the fact that not only.
As the time running out in terms of the length of the legislative session, but also understanding his legislature has to deal with a budget for Illinois, which has been historically consensual contentious and redistricting. So there is a lot on their plate and.
We'll see what happens, but the number of competing bills.
And lots of discussion going on and we'll see if anything really does take place, but I would remind everyone.
But the focus remains very much on the electric side of the business, there, which we're not involved with potential.
Potential subsidies for ex loves nuclear plants.
So there are lots of things going on there and I suspect.
And I suspect that the.
The writer for example that we have at peoples gas.
And is not necessarily the major focus of what's going on right now we will see.
But again.
Even if that rider were to be repealed and I don't really think it will.
And then we would revert all of the utilities would simply revert to normal rate cases with forward looking test periods. So time will tell but we're not overly concerned at the moment.
In terms of the future of what needs to be done and Illinois.
Terrific and then maybe probably a question more for Scott and shop, but.
With a strong start to the yards and clearly you guys highlighted.
And your prepared remarks is it too early kind of in your view to discuss potentially calling some O&M forward is that something that you could do the performance keeps us so how do we sort of think about that.
Well I'll be happy to have Scott and chugging and there'll be I will say this you got a lot of year ahead, including.
And.
A large quarter in the summer quarter. So we'll have to see I think what weather bodes for them and Scott I would think the biggest swing, we're looking at potentially as weather and the summer you're exactly right. As you think about the summer months July and August are the biggest biggest month during the summer and what we'll do is just like we did last year, we'll keep monitoring it and look at our stuff every day.
And as you get closer to the end of the year, we definitely have list of projects going both ways. The weather it doesn't come through ex the weather does come.
So we will continue to look at it but it's a long ways that yet before before we can do that I will say, Scott and shall have a list and their checking accounts.
Yeah. Thank.
Thank you guys. That's actually all the questions that I had congrats on a terrific start again as always I appreciate it. Thank.
Thank you Shari good to hear from index.
Two.
And your next question comes from the line of Julien Dumoulin Smith with Bank of America. Your line is open.
Greetings, Julian but Gabe.
Thanks for the time, guys listen and you all are announcing quite a bit on the regulated investment front of late and nice details on the call. Just now just curious as to how you think about the target itself right, obviously doing well and the year, but how do you think about the longer dated targets. I think you had 800 megawatts of solar and 600.
Storage for 100 of wind and obviously you've articulated the preponderance of these targets already so just curious again admittedly you're just well on track or is there actually some potential upsize. These as best you see interest.
Curious, how you would frame that.
Well and will let we'll let Kevin give you his view on that as well, but I will say this remember that.
Much of what we wanted to accomplish.
In terms of adding renewables for this five year period.
Want to have and service in 2023 and 2024.
Those are the years, where we would retire some and some older particularly the older units at our Oak Creek campus. Those are the years and we would retire the older less efficient coal fired capacity.
So my view is we're ahead of schedule in terms of announcing these projects and as Kevin said more to come but again thinking about the gestation period the approval period the construction period.
And I think as you said there'll be more to come but I would see us slightly ahead of schedule, but the schedule being intact.
Just underscore that we are a bit ahead of schedule, but and as again as I've said in prepared remarks, there will be more to come because there's other opportunities out there that were evaluating so.
Hey, tuna.
Excellent and then and if I can and maybe to follow up on the last question here and obviously doing well in 'twenty. One here how would you frame the longer term sales forecast here, the 1% to 1.3% sales growth for 'twenty through 'twenty five because obviously Fox con plays into some of that math you alluded to it a moment ago and your prepared remarks as well as Avi.
You see some of the I believe you've seen some residential tailwind here.
Can you elaborate a little bit on how that kind of fits the puts and takes against your longer term.
And I'd be happy to and I'm also I'm going to ask Scott to give you his view.
But first let me address something that I think is not particularly well understood about the foxconn situation.
And I think it's important in terms of how it plays into our sales forecast.
So.
We talked about the revised agreement with the state.
Importantly that agreement with the state runs through basically 2026.
The earlier the first agreement that Fox gone ahead with the state was a much longer term agreement.
So it would be a mistake to think that what's on the table now.
And were Foxconn has clear line of visibility on what they will produce at the campus.
A mistake to think that that's all there is and <unk>.
As I mentioned in the prepared remarks ex kind of still saying that they're aspirational goal is to make this campus one of the largest producers of data infrastructure hardware in the United States.
So the door is wide open for future projects beyond this period and again the first agreement for the state had with Fox got ran more than 10 years. This agreement is shorter term and deliberately so but does not preclude additional long term investment and.
In fact, the doors open for additional long term investment at that campus, having said all that and I would Scott you are our sales forecast that we publicly announced is pretty darn solid yeah exactly right Gale and you look at our sales forecasts that 1% to 1.3% growth and those years still feel good about that because all of the projects that we have and.
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There are still there and still developing in fact, we've been talking about more of a baidu line today on the call. So feeling good about that and I think in the past, we've talked about that growth and southeastern Wisconsin over $1 billion and do development beyond the projects that we have lifted and that continues to grow and build.
Feeling good about the forecast overall really happy where the quarter came in.
Inclusive of that debt residence to tell it actually if I could elaborate just ask you to elaborate equip and quickly on southeast, Wisconsin, and you know reassuring as a major topic focus on manufacturing domestically here and any any other comments on an additional new development and nascent efforts on that front.
Short answer is yes, none that I can give names to at the moment, but I will tell you and as you know I've been involved in.
Economic development here for a number of years.
Through the Milwaukee, seven which is our regional economic development initiative I will tell you that our the number of prospects.
Particularly from a high tech manufacturing standpoint.
The number of prospects looking at the.
And this area.
I've not seen this robust and and.
Any time that I've been here and it's close to 20 years that I've been at back and Wisconsin. So again that gives us a lot of optimism about the regional economy about the attractiveness of Wisconsin as a manufacturing center.
And as they say and the UK watch this space.
The excellent alrighty, well with that thank you guys very much other Beth.
Thank you Julien.
Your next question comes from the line of <unk> Chopra with Evercore ISI. Your line is open.
Greetings and for Gosh, How're, you doing today, Hey, good afternoon, and Gil Thanks for taking my question doing well. Thank you great quarter, Sean maybe just on the quarter can you help us reconcile the $1 61 to guidance. It's it's.
Weather and.
Better COVID-19 related sales strength, but can you just quantify those pieces and if I'm missing anything else.
Yeah sure. So overall the weather was.
Kind of in line with the guidance I think what came in a little better for several things. One is we resolved a older tax item.
Historical attack item, so that came in better and we were a little bit conservative on O&M and interest savings and PTC. Other artists all the business units performed better than what we are and.
We guided.
Got it.
The weather was normal it was more so driven by this tax items and just O&M and interest expense coming lower than expected can you quantify the tax item for us.
So it's about it's about.
At four 3% to force and better than what we guided nine.
Okay perfect. Thank you.
Just a quick clarification and that's all I have for Kevin You said, Wisconsin rate case.
60 to 90 days.
That is from your sort of debt.
Date of the filing or from <unk>.
And here on when are you expecting a final outcome there.
Well, obviously the commission staff is going through its normal process now and the 60 to 90 days would be basically from the date of our filing that's our projection.
Okay perfect. That's all I had thank you guys much appreciate the time.
You're welcome thank you for cash.
Thanks.
Your next question comes from the line of Jeremy Tonet with Jpmorgan. Your line is open.
Jeremy and good afternoon, and good afternoon, and thanks for having me.
It's been nice being ahead I don't know.
Maybe just starting off here I was just wondering if you could comment on the bite and plan here and how you see that potentially impacting your ESG progress plan and.
You see any impacts on infrastructure investments are associate opportunity over time to this kind of change how you think about things here and or even on the transmission side granted early innings and things can change a lot just any thoughts I was curious.
Yeah. Good question Jeremy.
I think our our overall view probably can be summarized and maybe three points. The first is way too early to tell as you can imagine.
You can imagine the sausage, making.
And the concessions and the changes that are going to take place over the course of I think and extended period of debate.
Particularly to craft something that could get through the Senate.
So I think overall.
And again, probably way too early to tell however, there are a couple of things that seem to have very strong consensus. The first I think would be very beneficial not only to our industry, but to our company and specific and that's the extension of the production tax credits the investment tax credits.
For the application of tax credits to battery storage.
And the additional drive toward continuing to incentivize renewables.
That obviously will be extremely helpful going forward and I suspect just based on everything we're seeing and hearing and as we talk to folks in Washington, I think that those those particular items have very strong consensus and support.
In addition to that.
As long as there is any question that.
If all of the if all of these tax credits continue to be extended and applied across the board as we expect they will be.
And there will continue to be more renewable development, which is helpful to us, particularly in terms of our infrastructure segment and actually our regulated segment as well, but also a continued drive toward expansion of transmission.
And as you may have seen and <unk>.
Kevin has got some very specific statistics.
MISO has made a.
Very interesting projection for the next 20 years and how much additional investment just in the midst the MISO and made us footprint.
They project for additional transmission that would support renewables, Kevin Yes, Gail if you look at the isolate it was a long runs transmission plan day suggests a $30 billion to $100 billion potential trends.
And over that 10 to 20 year period to Gill mentioned.
I'll know more about that later in the year, but certainly that's good for ATC and for us.
Jeremy and I hope that helps to answer your question at this point.
That's very helpful. Thank you.
Separately appreciating that the ROE.
It's small for you just wondering what your thoughts are on Forex proposed transmission incentive changes against the backdrop of.
Wanting to increase transmission development for optimizing renewable and deployment.
While on the surface the reduction of the ROE adder for.
The 50 basis point reduction on the surface it really doesn't seem to be supportive of the overall broad public policy of the administration.
I continue to believe that.
When the public policy.
<unk>.
Move PRC and a direction of setting allowed ROE for transmission companies that are at least at or above the retail allowed Roe and <unk>.
States still believe that would be the case.
So we will see how and of course. This is a proposed <unk>, we'll see how all that shakes out and.
And again minor hit to us.
And I really think that at the end of the day for.
For policy is going to be have to be reflective of the administration's broader policy on renewables, which must mean incentivizing transmission.
Got it makes sense and just a last one if I could.
As you mentioned at the onset of the call.
Appears to be renewed focus on and attention and resiliency and reliability and the aftermath of winter storm here and we saw intertwining impacts across the energy economy here.
Do you see this impacting your service territory and investment opportunity.
Even just thinking about line five is kind of a high profile example, here where your state appears somewhat at odds with this focused if you have any thoughts you could share here that'd be helpful.
You'll be happy to well first of all.
A bedrock of our entire approach to managing this business and serving customers has been resilience and reliability and as I mentioned earlier that focus that execution came through in spades win win.
And when the polar vortex event associated with Uri.
When temperatures hit minus 42 degrees Fahrenheit and the northern portion of our service area.
At the state for the state level.
Our public service Commission and I think the gubernatorial administration.
And there they've been very supportive of resilience and reliability and.
And that for example is another reason why.
Just to make to maintain resilience and reliability and very difficult climates. During the winter. It's another reason why we're optimistic that we'll get approval for the LNG storage facilities that.
And that we have before the public service Commission today, So I don't see state policy, particularly public service Commission.
<unk>.
And positions us in any way being at odds with resilience or reliability in our region and in fact I think for recent events just underscore how important that is.
Got it and I'll stop there. Thank you.
Youre welcome.
Your next question comes from the line of Michael Weinstein with Credit Suisse. Your line is open.
Greetings Michael Hill.
Hey, Al Scott how are you doing.
But.
And as well.
Good how about you.
And I'm doing good for.
We're getting into the summer right everything is going to get better and the summer.
Got it.
And just better year than last year, and hopefully just crank up your area and that's all good and.
<unk>.
Hey.
The your asset growth projections through 2025 previously this is a 7% right now.
You're talking about ramping up.
The card for the greenhouse gas reduction goals through that period for 2025, and 2030 is that increase that asset growth rate at all during that period and also does that mean that you might be at the higher end of the EPS growth range as well.
But.
I think there are probably two pieces to the answer to that question and our capital plan are $16 1 billion dollar ESG progress plan from now through 2025.
That is unchanged based on the announcements that we've made today.
No, we refresh and we update our capital plan.
Every fall going into the conference and on our on our analyst call in late October early November So we'll have a refreshed five year capital plan.
Going forward and we will take a look to see whether or not whether or not there may be some additional investment upsides associated with the continuing progress we're making on C. O two and methane production, but the short answer is for this particular, a five year period 2021 through 2000 and twenty-five no change.
Okay and those are those reductions are those targets are across the enterprise or is that just at the utilities.
Well known for.
First of all.
With our wind projects and the infrastructure segment.
So this this would relate specifically to our operating utilities.
Yeah.
And I'm thinking about it the wrong way I'm thinking about.
And our percentage of our renewable assets.
And those line.
And then one question for sure. This is a more technical but.
With the Rabbi Trust up for sense and O&M down two cents is that mean that essentially O&M was not.
Not related to the Rabbi Trust.
Just my two cents.
Yes, it's not it's not exactly dollar for dollar, but directionally you're exactly right.
Okay Gotcha.
Alright, well, thank you very much and that's all I have.
And then there Michael Thank you.
Yes.
Your next question comes from Michael Lapides with Goldman Sachs. Your line is open.
Hey, guys. Thank you for taking my question.
A couple just I wanted to make sure I understand from the environmental targets, you're trying to hit.
What's your basically saying galer, Kevin is that you think by the end of 2025, the only remaining coal plants, you'll probably have to kill operating are the.
The the Oak Creek plant the AUM Road plant, that's part of power, the future and maybe west and for and everything else probably shut down by them.
Really the two campuses that would remain and are the new Oak Creek units and the western side Youre exactly right.
But just west and for or kind of or other you and I forget what else is day or whether it's one of the older units is there it is operating as well.
Well, Scott, there's western three yes, both west and three and western for Sylvia.
Sylvia operating.
Got it Okay and then.
And then.
I guess my second question is when you're thinking about the nonregulated energy infrastructure segment. It seems that you've had a lot of opportunities to come in and and and kind of by projects from developers just curious how that landscape.
Is changing if at all given the fact that lots of your peers, you were and early mover, but lots of your peers among the large cap regulated utilities and the Midwest, they're all kind of trying to compete and buy a lot of the same projects as well.
And I'm just curious if.
If returns on that business for being competed downward given the fact of more bidders, whether it's the amarin for aep's or some of your other neighbors or whether just the.
The landscape is so big Theres. So many projects, we haven't gotten to that point yet.
And.
And Im chuckling, Michael because I remember.
You were asking a question earlier on your email about the Memphis Grizzlies, as well and and reminded me of a comment from coach Bud here, where the Bucks, who said this is a copycat lead and we steal from each other so I think some of some of our brother and maybe stealing from our early idea, which is just fine but the truth matter is we have not seen any kind of for us our pipeline of potential.
<unk> projects that we are taking a look at and being very very careful with our due diligence that pipeline of additional projects is as robust as it's ever been.
And.
The returns again as Scott mentioned in his prepared remarks on the Jayhawk project that we just announced returns are are as good as we.
<unk> for them to be so we haven't seen any dimunition of either potential project opportunities or the financial metrics at this stage of the game and I don't expect we will.
Got it and then one last one just curious.
It's been a little quiet and this sector on the M&A front.
How are you thinking about kind of this point and time for utility M&A in general relative to kind of other cycles that you've seen and your history Gail.
Oh gosh, that's a great question Michael.
And we've seen two or three cycles over the last 30 years or so driven by different driven by different motivations I think.
And.
So I'm not sure that comparing the cycles is necessarily the right thing to do because I think the motivations for the M&A were different.
Having said all of that.
And longer term I still believe we're in a consolidating industry.
Still believe that scale matters of the good news is we have significant scale and continuing efficiency opportunities.
But I think over time.
You'll probably see a different form of M&A at least my opinion and.
And what you saw over the last five or six years, I think less in terms of premiums and more in terms of mergers of equal type opportunities.
And scale still does matter growth still does matter.
Efficiency is still does matter. So we've clearly seen a lull as you probably would expect going through a pandemic.
And I don't think there's going to be a giant uptick immediately and M&A and our industry, but over time I do believe it's still a consolidating industry but.
But I would suspect.
That the criteria will be much closer to the ones that we use and I can just briefly repeat those again, if you'd like and that as we would have to be convinced after significant due diligence.
And that an acquisition would be additive or accretive to earnings per share and the first full year. After closing. The second is we've worked very hard to have one of our stronger balance sheets and the industry and we're not going to trash the balance sheet to do it and the third is really important as well and that is that you'd have to really believe that the growth rate of anything that we would have.
Acquire would be at least as strong as our own organic growth rate. So read that at least 5% to seven per cent a year I hope that answers your question Michael.
No that's super helpful and and last point My Kids, all hate me for saying that is because they're knicks fans and and they play each other and Tonight, but go growth.
Aim and yogurt is by the way you know that you know that other head coach of the Grizzlies used to be on our staff here in Milwaukee is a great guy.
And he is a great guy and he's been here.
It's been a little tough, but they'll turn it it's early we've got some time.
Aim and good luck Tonight. Thank you.
Your next question comes from the line of Anthony <unk> with Mizuho. Your line is open.
Good afternoon, good day.
And a long time first time here.
Hopefully.
Hey, Joe.
Maybe high level questions I guess, the first is I think you spoke about maybe.
Less than 10 per cent of our 10% of the company's revenues and I don't know if you said revenues and earnings were going to be from coal assets. I'm. Just curious is there is there something with that figure like is there a target 10 does that include the accompanying to any ESG indices or anything or how the company come up with the 10% number.
What we came up with the 10% number simply by doing and accurate estimation with the math.
And just to be clear again, I think you're raising and important point.
By the end of 2025, we would expect our revenues and our asset base tied to coal will be both be less than 10%.
And and the reason we wanted to mention that as I think there was perhaps spent and perception among some investors that we still have a very large.
For a portion of our asset base types, but simply as we as we reshape our energy and our asset mix, that's simply not the case number one the other thing that I think is really an important point here.
Is that is that we can achieve not only the 2025 goal, but also the very aggressive 80% reduction in <unk> missions by the end of 2030.
With existing technology, some operating refinements and some retirements.
And so that I think gives you a sense of how.
<unk> dynamic are reshaping of our asset mix is and how and how small the reliance will continue to be obviously less than 10% by 2025, and we think lower than that by 2030.
Great. Thank you and lastly, I think a question earlier you highlighted that.
All of our vortex, you've had really highlighted the strength of your infrastructure and maybe that gives the regulators.
Maybe a tailwind on improving additional.
Programs or capital I guess, if I could flip that question around though and thinking how strong maybe your fossil and infrastructure before and does that give the regulators any pause on approving the company's ESG.
ESG platform, if we think about some are blaming it what happened in Texas and a fault that some other renewable projects that we are going there and given how strong your.
Fossil infrastructure work. This past winter does that may be caused any pause on build out of renewables.
Yeah, Great question and I.
And the honest answer is we have a intelligent and very well and form state Public Service Commission here.
And they recognize that basically for to give you a very specific example, during the polar vortex event in February we had to have everything running to keep the lights on and the gas flow and everything.
Coal units the nuclear units the wind farms for solar everything had to be operating given the demands that we saw so to the contrary I think the diversity of our fuel mix.
Just and <unk>.
And it performed and needed to perform for public safety I think underscores.
The fact that we have to have a diverse fuel mix going forward.
And clearly we think we can maintain not only think we know we can maintain reliability by adding this amount of renewables, but it's possible because we have such efficient strong dispatch will fossil units.
So put that altogether, and we can still achieve and 80% reduction and C O two and C O two emissions.
So I hope that responds to your question Anthony.
Great. Thanks for taking my questions and stay healthy.
And you to take care.
Your last question comes from the line of Andrew Weisel with Scotiabank. Your line is open.
Greetings, Andrew how are you doing today.
And good still smarting, a little bit from the Buck speeding minutes last night, but we get another chance tomorrow.
And you do well.
And I'll, let you ask a question if youre going to root for the room for the nets tomorrow.
Yeah.
How about a few questions. So the first one is.
You mentioned first of all congrats on the new emission reduction targets. That's always good to see I think you said the 2030 target now will include the use of some existing technologies.
That includes stuff, that's available, but not yet economic but you're expecting cost reductions to make it economic later this decade.
No no.
It's three things, it's the retirement of older less efficient units some operating refinements on the ground.
And essentially executing our capital plan to add the renewable mix that we're talking about but no other technology needed.
Pretty cool.
And yes, it's impressive could that provide even more upside as some out of the money things become and the money.
Possibly yes, possibly certainly.
Again.
Wouldn't expect that to occur between now and 2025.
And you never say never for Peter nine or 10 years out so we will see but yes.
Okay, Great and then I believe your 2050 goal is net zero from generating implications does that target also include net zero from company operations like offices and vehicle fleets.
Well, we've got a.
And the.
The truth of matter is.
The absolute preponderance of our emissions our C. O. Two emissions are obviously coming from the operation of our generating fleet, we will step back. So basically the goal really just covers the generation fleet will step back and look at our other operations as well, but we have an aggressive program over the course of the next few years, Kevin to add electric vehicles to our <unk>.
Our field fleet and that's exactly right Gale and we will continue to.
Evaluate that over time and as more vehicles become available, especially on the commercial side and our.
Shifting over to the EBIT and our fleets and warehouse equipment will continue as well, but we do have those targets established now.
Okay, Great and then just one last one I just want to clarify on the energy infrastructure. I think you said you spent $1 9 billion and plan to spend another one for let's say one five rather that would be a total of $3 4 billion.
Guidance for the five year period is to point to is that an increase or are you simply including stuff from before that 21% to 25 period.
And now we're including some things from the past and I think the key to look at there is the additional $1 5 billion debt, we will still allocate for this segment between now and the end of 2025 and of course, we're way ahead of schedule, which is good news.
Okay, but youre sticking to 2.2 for 'twenty, one through 'twenty five right.
And our story and we're sticking to it Andrew.
And just if you share that.
And I am I correct to assume that doesn't include any potential changes from D. C around either corporate tax policy of renewable tax credits.
You are correct that that assumes status quo.
Okay, great. Thank you very much.
And we're more than welcome. Thank you for your questions. Andrew We appreciate it and go Bucks.
Well folks and this concludes our conference call for today. Thanks, So much for participating if you have any more questions feel free to contact Beth straka. She can be reached at for one for 221 for 639 and thanks, everybody take care Bye bye.
This concludes today's conference call. Thank you for participating you may now disconnect.
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