Q2 2021 Xcel Energy Inc Earnings Call

Coal and our fuel mix from 50% to 21% and we reduced our carbon emissions by 51 per cent compared to our 2005 baseline.

We were the first major U S utility to establish a 100% carbon free goal.

While the remaining a stalwart champion for reliability and affordability.

We did.

Excellent for our financial stakeholders as well.

We've tripled the excel energy market cap from 12 billion of 37 billion and our stock price has increased from $24 per share to almost $70 per share reflecting of T. S. Our of 300% and outpacing our peer group.

We've met or exceeded our earnings guidance every year and increased our dividend.

Delivered in line with our earnings growth.

And beyond the XL energy of Ben's recently served as chairman of EI.

Leading through pandemic uncertainties driving focus on the need for increased levels of research and development for new technologies, and inspiring as peers to define diversity and inclusion priorities for their organizations.

He's had a tremendous run as CEO and will leave a lasting legacy at XL energy.

For the utility industry and I would go so far as of say for the country.

Thank you Ben and congratulations on your upcoming retirement in August.

I look forward to your continued leadership of the board level and partnering with you on important federal policy efforts related to infrastructure.

Infrastructure and clean energy.

Looking ahead and I'm honored with the opportunity to lead this great company and I recognize the Lebron James' size shoes that I'm feeling.

Since joining <unk> energy 5 years ago, Ben and I have worked closely on the development and the execution of our strategy.

It will not change.

We will continue to lead the clean energy transition enhance our customer's experience and we constantly work to keep our customers bill low and delivering affordable product.

Had a fantastic leadership team and significant bench strength.

And I am confident in our ability to capitalize on the growth opportunities in front of us.

While maintaining our commitment to reliability and affordability.

I'm excited about our growth opportunities over the next decade, driven by our generation resource plans transmission expansion distribution investments in our electric vehicle vision.

As we move forward innovation is more critical than.

As we prepare to move from 80% carbon reduction by 2030% to 100% carbon free electricity.

I'll be focused on clean technologies in both of our electric and natural gas businesses as well as how we engage with customers in new ways for a more flexible grid.

Also expect.

The innovative work practices will continue to drive efficiency and produced strong operational results.

The safety is another area, where I plan to help drive innovation.

It's 1 of our core values safety is already of priority, but we can do even better.

I want us to move beyond traditional metrics and embraced the heightened focus on prevention.

Ever and culture change eliminate the most serious events by encouraging trust transparency and learning.

In the coming months I look forward to continued engagement with our customers are.

Our communities, our regulators, our investors and of course, our workforce.

We have the best employees in the business and I am proud.

Proud of what we've accomplished and I'm excited for the future successes that will achieve together.

And to our investors. We appreciate the trust that you place in us and will continue to be good stewards of your investments.

Now turning to the quarter today, we reported solid quarterly earnings of <unk> 58 per share compared to 54%.

<unk> per share last year.

We're off to a good start and we are reaffirming our 2021 guidance.

We've made significant progress on various regulatory initiatives, including 3 <unk>.

Constructive rate case settlements that Brian will discuss in more detail.

In addition, we've advanced our plans for adding incremental renewables.

In Wisconsin. The Commission approved our proposal for the 74 megawatt Mustang solar project for $100 million, which will be the largest solar facility in western Wisconsin.

In June the Minnesota Commission approved our proposal the buyout of Repower at 120 megawatt wind farm PPA for $210 million from elite This repower.

Our project will save our customers money, while extending the life of of renewable energy resource.

And the Minnesota Commission continues to evaluate our $575 million proposal to build of 460 megawatt solar facility.

It takes advantage of existing transmission as we phase out of coal.

We are confident the commission will see.

The customer and economic benefits and expect the decision later this year or early in Q1 of next year.

Additionally, as part of our continued commitment to foster of skilled and diverse workforce. We propose the training program in Minnesota to help those in underrepresented communities develop the skills to succeed in energy related construction careers.

Program graduate is 1 of the opportunity to be considered for participation in our serco solar proposal and other future projects.

In June we filed an alternative Minnesota resource plan, which achieved an 85% carbon reduction by 2030.

This proposal addresses the concerns of various parties by removing the serco combined.

Cycle from consideration and replacing it with 2 combustion turbines.

The key components of the revised plan include an early retirement of both the king of the circa 3 coal units in 2028 and 2030, respectively.

Life extension for our Monticello nuclear plant <unk>.

Construction of new transmission lines in order to <unk>.

Take advantage of the interconnection rights from the retiring coal units.

And the addition of 3150 megawatts of Universal Solar 2650 megawatts of wind.

800 megawatts of new hydrogen ready Cts and 300 megawatts of re powered Blackstock Cts.

9.

Megawatts of flexible, peaking resources and 250 megawatts of of new storage.

We provided the commission with an outstanding resource plan that will reduce carbon while maintaining reliability and customer affordability.

We expect the decision on the Minnesota Resource plan later this year or early next.

And.

100, <unk>, we continue to make good progress and are in the discovery phase of the Colorado resource plan and associated transmission tower pathway project.

We expect the commission decision on both proposals in early 2022.

And between Minnesota, and Colorado Resource plans, we anticipate adding nearly 10000 megawatts of new renewables to our system.

In addition to meet our 80% carbon reduction goal by 2030.

With that I'll turn it over to Brian.

Thanks, Bob and good morning, everyone.

We had a good second quarter recording 58 per share compared with 54 cents per share last year.

The most.

Significant earnings drivers for the quarter include the following.

Higher electric and natural gas margins increased earnings by <unk> 19 per share, primarily driven by riders and regulatory outcomes to recover our capital investments.

In addition of lower effective tax rate increased earnings by <unk> <unk> per share.

As a reminder, production tax credits.

For the ETR, however, ptc's our flow back to customers through lower electric margin and are 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 programs.

Increased O&M expenses, which reduced.

Reduced earnings by <unk> <unk> per share and lower <unk> decreased earnings by <unk> <unk> per share largely due to placing several large wind farms in the service last year.

Turning to the sales weather normalized electric sales increased by 5.3% in the second quarter. This reflects higher of a comparison to last year.

Year on the pandemic restrictions in our states, where at the highest levels in our sales of our most depressed due to COVID-19 impacts.

Our year to date weather and leap year adjusted electric sales increased 1.6%.

We continue to anticipate modest annual weather adjusted sales growth of approximately 1%.

Shifting to expenses O&M.

<unk> increased $50 million for the quarter, which largely reflects the timing of expenses between the 2 periods last year, we had significant O&M reductions in the second and third quarter to offset the impact of lower sales from call of it while the fourth quarter was at higher levels. So the quarterly O&M comparisons will be chunky this year.

Turning to the sort of regulatory filings.

We reached constructive settlements in 3 rate cases.

In Wisconsin, we agreed to a rate increase of $66 million over 2022% to 2023 based on the ROE of 9.8% in 2022.

10.0% in 2023, and an equity ratio of 52, 5%.

In new Mexico, we agreed to a rate increase of $62 million, reflecting the ROE of 935% and an equity ratio of 54, 7%.

We also accelerated the depreciation life of our total coal plant to 2032 as we plan for its early retirement.

In North Dakota, we agreed to a rate increase of 7.

<unk> <unk> based on the ROE of 9.5% in the equity ratio of 52, 5%.

We anticipate commission decisions in these cases later this year.

In July we fall of the Colorado Electric rate case seeking of net rate increase of $343 million based on the Roe of.

7 <unk> and an equity ratio of 55, 6% and the 2022 forecast test year.

The rate case is largely driven by capital investments and we anticipate a commission decision in the spring of 2022.

We also have of pending Texas electric rate case, we're seeking the seeking a net rate increase of 74.

Million.

After reflecting fuel savings in Ptc's from the Sagamore wind farm.

The request is driven by capital investment and is based on the ROE of 10, 35% and the equity ratio of 54, 6%.

Commission decision is expected in the first quarter of 2022 for the surcharges back to March 2021.

Of 10 per as far as future filings ago, we anticipate filing of Minnesota Electric rate case in November with interim rates going into effect in January of 2022, We also plan to file a Minnesota the natural gas case later this year.

With that I'll wrap up with a quick summary.

We received commission approval for the Mustang Solar project in the <unk>.

Wind PPA Repowering buyout we.

We provided an alternative to our Minnesota resource plan, which will deliver 85% carbon reduction by 2030 provide transparency into our long term opportunities. We reached constructive rate case settlements of Wisconsin, New Mexico, and North Dakota.

We filed our Colorado electric rate case.

We reaffirmed our 2021 guidance range and finally, we remain confident we can deliver long term earnings and dividend growth when our 5% to 7% objective range.

Now before we open up for questions I'll turn it over the baton for some closing comments.

Well, thanks, Brian and good morning, everyone.

It's really been an amazing decade of CEO and before that.

As CFO.

Really proud of the tremendous accomplishments, we manage the company I'm extremely proud of the incredible efforts and contributions our employees make in serving our customers and our local communities.

So really enjoy the interactions I've had with our investors and the financial community and appreciate your interest in the company your feedback.

Suggestions I'm going to Miss that.

It's really hard to retire from the role that I've truly enjoyed but I'm, leaving the company in great hands, I know that Bob Brian and the rest of the management team will continue to do on outside of standing job, leading the excel energy well into the future.

Also plan on attending <unk>, Paul and I look forward to seeing you.

And you get there.

Thank you all and with that operator, let's open it up for questions.

Thank you, ladies and gentlemen, if you would like to ask a question today. Please press star and then 1 on your Touchtone phone. If you are using a speakerphone you might have to pick up of the handset or de press the mute function for the signal.

A lot of each of our equipment.

Again that is star and then 1 if she would like to ask a question today.

Uh huh.

And we will take our first question from Jeremy Tonet from Jpmorgan.

Hi, Good morning, Ben Congratulations and best of luck moving.

Moving forward.

Thank you very much appreciate it.

Just wanted to start off I guess with the renewables.

If you could expand I guess on how the pipeline looks for incremental renewables after the share of co and the wind Repowering and also I guess, how local stimulus efforts might influence this.

Forward.

Hey, Jeremy Good morning, it's Bob and thanks for the note this morning.

We filed resource plans in both Colorado, and Minnesota, and as we worked through those proceedings I'd say by the first quarter next year, we will have real visibility into the outcomes of both of those.

And we will move forward with what we would call resource acquisition plans.

Where we propose.

The projects and we solicit input from others for projects that are coming.

I think if your question is around where we are in the.

R&R recovery plan in Minnesota in particular the <unk>.

For.

Those of Repowering for approved in December of the elite <unk>.

<unk> project was just approved in June and we still have the short go solar project that is proposed that we hope for approval by end of this year or maybe early next.

Got it.

Helpful. Thank you.

Maybe just pivoting over to Uri, if we couldnt if we could just wanted to see the early stages of your winter storm recovery of proceedings, how theyre progressing and what changes if any do you expect to operationally going forward.

Sure.

So we.

For wind approvals and I think for of our states at this point, we're still working through proceedings and 3 others I think the largest of those is both the Minnesota and Colorado are still working through the preceding zone as well as Texas.

Our expectation is we acted and of course with all of our regulatory regulations.

We have seasoned procedures and so we do expect a full recovery of our incurred costs on winter storm here.

Looking forward, Colorado has opened a docket to explore alternate mechanisms for.

For us and others in the state to look at and they've proposed an alternative we've commented it's of no first.

So theyre looking for inputs and we've commented for the <unk>.

And we expect some some resolution and some hearings in that process in the <unk>.

Third or fourth quarter of this year.

Got it that's helpful I'll leave it there thank you.

Thank you.

And we'll take our next question from Julien Dumoulin Smith from.

Bank of America Securities.

Hey, Julien good morning, Hey, good morning.

Good morning, and congrats.

It's been a pleasure I will see you soon.

I'm sure but.

If I can absolutely.

For the senior the.

If I can pivot to the transmission side in brief here you all talked previously about the Colorado being potentially expanded overtime, obviously youre looking for the first phase here to be approved as he talked about in the prepared remarks, but can you talk about subsequent corner ship partner.

<unk> it just ultimately expansion of what you guys have underway here.

If theres been any progress.

Yeah, It certainly happened to.

But before I get started actually I think the congratulations are in order for you and be in and look forward to your pending nuptials next year. So congrats.

[laughter].

Thank you so much I sincerely appreciate that.

Hey, and transmission in particular in Colorado, you know we put forward. What we think is a pretty progressive plan Julien you know historically, we'd have generation. He put forward first in and then you can follow up with the transmission that's necessary I think where we are.

Certainly in Colorado, where I think of lot of the country is actually is as we need to build the substantial amount of transmission to relieve congestion to enable the renewables that we see are necessary to complete the clean energy transition. So in Colorado, we've put forth what we call the power pathway, that's largely a I'll call. It a super highway.

And its mission lines through the eastern Plains of Colorado to connect the goods solar and wind resources of the eastern half of Colorado with the load centers predominantly in and in Denver and in the I 25 corridor.

So that path along with the Colorado resource plan of progressing in parallel.

2 separate dockets, but in parallel we expect resolution on both of them by you know late this year or probably early next year and you know your comment on <unk>.

Got a base plan and I call that sort of we're going to build the free way.

But we also have to build the on and off ramps and things like that so while the base.

<unk> plan for the free way itself I think is about and Brian correct me, if I'm wrong somewhere in the $1.7 billion range, but.

But we need to build voltage and bar stability, we need to build once we find out exactly where the generation resources are gonna exists then we need to build supports along that free way for how those.

Transmissions will integrate with the broader bulk electric system, and that's sort of where that incremental and variation in sort of the base plan versus the other things that we'll need to do once we identify exactly where the resources are like.

So like I, just mentioned of Jeremy will conclude the phase 1 of the resource plan in Q1 of.

We are in that point will go into resource acquisition and that's why we've picked the resourcing of exact locations and then we kind of a better more granular answer to your question on what's the total pathway costs above and beyond sort of the base system that makes sense.

Yeah totally I again it excellent.

If I can pivot to a slightly related question. If you don't mind, what are you seeing in terms of the impact across your portfolio here vis vis the inflation cost structure of logistics just as you guys look at your renewable build here.

And perhaps just some of the timing on that for instance, sugarcoat here.

Perhaps not necessarily related but just do you think about some of the <unk>.

Isn't making Chris.

Yeah, Hey, Julien, it's Brian good to hear from you.

Yeah, you know, it's certainly we're seeing inflation you know if you're just looking at the headlines right. We're not we're not immune to some of the headlines of.

Everyone is seeing you know for US. It's you know inflationary pressures of commodities such as steel of copper in labor.

But really we think it's transitory in nature.

And I think really.

I think we've found it is pretty easy to shut down the economy and it's a lot more challenging to restart the economy from the supply chain and the demand that has followed the shutdown of the economy.

Something that we are focused on the in practically managing.

Labor of IGN prospectus of won't see any significant impacts as we sit here today no specifically if I wanted to touch on a couple of the the major projects we have in flight.

For the for wind Repowering is that we have we feel really good about those of Minnesota. None of those are partial repowering. So I'll think blades in the inside of the cells are not replacing the steel towers.

So we're not facing steel price risk of there and so we don't really face any significant inflationary pressures on those so I feel good about that the.

The large scale solar farm that we have in front of the Minnesota Commission I'm.

I'm sure everyone's aware of the solar panel pricing that has been increasing this year, but the we look at that we have a lot.

From a sort of ability in terms of construction and when we place that in services in term in terms of what year. So we feel really good about that project too. So overall something were certainly focused on and watching but don't see any real impacts as we sit here today.

And just to clarify some of your guide here.

Flagship O&M at the outset by the gas sales.

Super Nuance there.

For 'twenty 1.

The shift to know as the gas sales you know certainly good to see an uptick in gas sales from zero to 1%, but if you remember gas is a pretty small piece of our business of 1% change in gas margins about.

The $4 million.

So I wouldn't say necessarily fully offsets it.

Okay, Alright fair enough. Okay. Thanks, again, guys see you soon.

Thank you for the devices.

And well take our final question from Ryan Levine from Citi.

Thank you.

Couple of questions 1 on transmission.

To follow up on some of those points. It looks like in your presentation. You highlight 300 millions of dollars of CPC and for that project looks like previously there was of 200 of $50 million number that was out there for the May Valley Longhorn.

The 1 horn of expansion are we seeing are you seeing cost inflation on that particular project or is there another dynamic that may cause the change the number.

No I look I think we're still in very early innings on sort of exact routing and pathways I wouldn't read.

Read too much into that Ryan.

Okay. I mean are there a lot of different pathways that you're no pun intended around the the way that that project can get built out or is it fairly.

As of both from your mind in terms of how the project will be constructed.

Well look I think we haven't gone through local permitting we've got a lot of just local land processes will have to go through so and we're early stages in engineering of that project I think we felt we felt it was really important to make sure that the transmission in the in the generation proceeded in parallel and so I think that.

As we go through time, as we get better engineering, as we get better insight into the land processes. Those routes will be very specific there is still a pretty big range of of capital.

Capital expenditures for that a lot of it's based on final routing and in final land approval costs. So like I said I wouldn't read too much into that particular.

Leg extension.

Okay.

And then lastly in terms of some of the recent legislation in Colorado.

Turning to gas.

Or are you anticipating any material impact for your business around the.

1 of the reason.

S B 21.

The 246 in the 12.38, and 12 months of 86 and so many other set of recently.

Can you repeat those again Ryan.

That's quite a litany of of of Bill numbers low.

I'll talk a little bit about the clean heap plan and income.

Colorado, and maybe even to a parallel path of the innovative gas act that that was also approved here in Minnesota.

You know look I think both of those bills recognize that we're in early innings of of lowering our customers' emissions from the gas LDC businesses.

The thing that's similar to what we went through in the mid nineties with renewables I mean, the technology is nascent and.

And the solutions are relatively expensive, but we also recognize we need to start somewhere and so I think that the legislation in both places recognize those facts.

And look we are.

All.

Pilots will introduce technology, we'll look at beneficial electrification in the energy efficiency programs, all tools that maybe aren't readily available under the current regulation schemes today, but the pieces of legislation allow for some of that innovation to happen on the gas LDC side I think.

The Polish it also recognizes its really important to respect the reliability and affordability and I think each state addressed it slightly differently.

But theres a cap in Colorado and regulatory approval for plans.

And in Minnesota, Similarly, their regulatory approval for the pilots that make sure that there.

Cost justified and beneficial for our customers as well as we think about lowering the their emissions profile from the gas LDC business. So we're we were very active in both of those pieces of legislation and we are.

Working with the regulatory agencies to look at.

How we write the regulations for those pieces of legislation and then we'll be active as we put proposals forward to help our customers reduce their footprint emissions profile in each for each state. So I think there is opportunity here.

And we're going to continue to work with our our commissions and our stakeholders.

I appreciate it.

You bet.

And it looks like we have a question from David Peters from Wolfe Research.

Yeah, Hey, good morning.

I'd Echo the congrats to Ben just.

Question for me is you guys.

Make progress working through your IR of PS in Colorado, and Minnesota and the.

The transmission opportunities as well it just seems like Theres a lot of.

Incremental capex opportunities of both some of the more basic blocking and tackling.

How would you kind of characterize that within the context of the.

The kind of 5% to 7% growth targets, you've you've targeted here recently.

Yeah, Hey, David Thanks for the question this is Bob.

I guess similar to Julian I might have to start with congratulations to you for your recent <unk> yourself. So we have 2 of those on the call today.

In terms of.

Incremental capital.

Yes, I think theres some some projects still out there that we're working through regulatory processes on the largest of which is the short go solar.

We've talked about I think longer term.

We.

Got base proposals on our resource plans and for our transmission.

Planning.

The stuff that's not included in the near term is obviously.

MISO and SPP transmission expansion plans and those are generally outside of our 5 year forecast, but definitely in sort of a 10 year vision forecast.

And then we expect our base.

Plate based growth plan to be right around 7% and.

And so any incremental.

There's a couple of incremental projects that could take us above that I think.

We'd expect to keep our 5% to 7% earnings growth rates.

And we can reevaluate that regularly.

<unk> do.

But I think right now, we're just comfortable with being at the high end of our guidance range and David I'd, just add that I think of what you're.

Here for most of what we're really focused on doing is providing.

Our investors with that long term transparency as we work through our resource plans in Minnesota and Colorado This year.

We're looking at.

Almost 10 Gigawatts of renewables by 2030 between those 2 plus the associated transmission. That's comes in Colorado, and what we could expect to see how the MISO here is giving investors that transparency into extending.

It really feeling good about the long term growth rate after this 5 but through and talk about.

Relative to the decades, so something we're focused on.

Great. Thank you for the color.

And we have a question from Paul Patterson from Glen of all questions Paul.

Hey, good morning, Paul.

Congratulations Dan.

Thanks.

Okay.

Absolutely so.

There have been some comments out of Colorado from some of the commissioners regarding.

Regarding rates and sort of the accumulative impact of et cetera, and you mentioned on the call I think that you don't see any significant you think that the inflation.

The issues that we have currently are sort of.

The transitory.

But I'm wondering in terms of your goals I think it was pretty much to the.

Some of it below the rate of inflation or are we still on track with that with respect to them through outlook and in the various jurisdictions has there been any.

Change in that because of of.

Of the transitory impact or anything else that we should think about.

Hey, Paul it's Bob and I'll, let Brian chime in if I Miss anything but.

In particular with respect to Colorado I think that's the thing.

Our customers bills in Colorado are about.

The third 35% less than the national average and have been basically flat for the past 5 years and although we file the <unk>.

The rate case out there you know we expect even after the rate case are still going to be 25% below the national average if we get everything we ask for everything you've got everything in the case that we asked for it will be 25% below the national average.

Average.

But your longer term question is do we think we continue this transition.

Transition to a cleaner energy economy.

Cost of Affordably and the answer to that is yes.

The impacts that we're seeing for for inflation. We would say are still relatively transitory I think some of the macro economist would sort of agree.

Comment we think that we can transition our states that are less of the rate of inflation over the next 10 years to an 80% carbon reduction, Colorado in particular will be 85% carbon reduction of less than the cost of inflation.

I think our strategic thesis holds and we don't see.

Agree with the current spat of restarting the economy is as derailing our longer term plans, yeah, and I would say you know you see that in our resource plans right or are we kind of show that the bill impacts over over the next decade in both Colorado, and Minnesota, and we do the rerun those resource plans of in the cases, we've put forward to the commission with current tax policy and you know Theres a.

This discussion in D C about.

A long term extension of federal tax credits are around clean energy and we certainly support.

Fully support center widens clean Energy for America Act in the you know when we run that analysis, that's really good for our customers in terms of those extension of credit is only brings down the cost as we make.

A lot of ambition.

Okay and just your long term just for.

Obviously, it could change, but put your long term inflation expectations of around 2% sales up about right.

Longer term yeah, okay.

Awesome. Thanks, so much guys.

You bet.

The strength, we have a question from Ashok Com alright.

Ben I just wanted to dial in to congratulate you on you for a long time and the company did wonderfully well and of book and continuing that spirit. So congrats again and if I can ask 1 in the strict question I know you've.

Heading the EIA and trying to get the nuclear PTC is across the board in the Legislative front could you give us any update where we stand on that on debt endeavor.

Well it will likely be part of the $3.5 trillion budget reconciliation process.

There was a lot of moving parts with that.

The first part of that'll be.

Given the the budget resolutions to the various committees and not all of establish how much funding those committees have the pursue broad topics, which we believe will ultimately include the nuclear the PTC.

I mean.

We like to see that in August and then of course of the actual legislation would take place in the fall.

Again, theres a lot of moving parts.

The 50, 50 Senate and the very narrow margin in the house, so it's a balancing of that but.

We are definitely advocating for that we're advocating.

<unk>.

As Brian mentioned.

Senator Wyden Bill, we think direct pay a P T C for solar.

These are things that are going to win.

Really helped the clean energy transition of the affordable for our customers and the industry in general.

And I look.

Forward to seeing you perhaps of the yard.

Certainly the setup.

But.

Thank you so much.

Got it.

Yeah.

And it appears we have no further questions at this time I will turn the conference back over to Brian Van Abel CFO.

Yep. Thanks, all for participating in our earnings call. This morning, please contact our Investor relations team with any follow up questions. Thanks, everyone.

Yeah.

And once again, ladies and gentlemen that does conclude today's conference. We appreciate your participation today.

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