Q2 2021 WEC Energy Group Inc Earnings Call
Good afternoon, and welcome to WEC Energy group's conference call for second quarter 2021 results.
This call is being recorded for rebroadcast and all participants are in a listen only mode. At this time.
Before the conference call begins I remind you that all statements in this presentation other than historical facts are forward looking statements that involve risks and uncertainties that are subject to change at any time.
Such statements are based on management's expectations at the time they are made.
In addition to the assumptions and other factors referred to in connection with the statements.
As described in WEC energy group's latest form 10-K, and subsequent reports filed with the securities and exchange Commission's 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.
In conjunction with this call a package of detailed financial information is posted at W. E C Energy group Dotcom.
A replay will be available approximately 2 hours after the conclusion of this call.
And now it is my pleasure to introduce.
Excuse me excuse me I'd like to interrupt just for a minute on <unk>.
On a pig and president of the NBA champion Milwaukee Bucks and I can tell you firsthand in a big way that you can have a truly great NBA team without incredible energy company to power you off so I'm proud to introduce a personal friend 1 of the terrific minority owners of the bulbs and the chairman of 1 of the bed.
Energy companies in America.
Oh crap.
Total box and go W. E C.
Oh my goodness.
Well wonders never sees free Peter Thank you so much for dropping by and congratulations from all of us to the World Champion Milwaukee Bucks.
And I'm not sure I can top all of that but no pun intended let's give it a shot so good afternoon, everyone. Thank you for joining US today as we review our results for the second quarter of 2021 first I'd like to introduce the members of our management team here with me today, we have Kevin Fletcher.
Our president and CEO, Scott Lauber, our Chief operating Officer, Sha Lu, 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 second quarter 2021 earnings of 87 cents a share Charles will provide you with more details in just a few minutes, but given our strong performance through the first half of this year, we're raising our annual guidance the new range is $4.02 a share to $4 and 5.
A share and our expectation is that we will reach the top end of that range.
As always this assumes normal weather for the remainder of the year.
Now as we look across our business lines.
I'm pleased to report that every segment is performing at a highest.
Our company has continued to deliver superior reliability and customer satisfaction.
Solid economic recovery in Wisconsin, with commercial and industrial expansion gives us confidence in our projected sales growth.
Our balance sheet is strong we have no need to issue new equity to fund our ESG progress plan and on our plan is well on track for both our regulated and our infrastructure segments.
Do you mean, though we expect our ESG progress planned to drive average annual growth in our asset base of 7%.
At the same time, it's bolstering our sustainability as we invest in renewable energy and the state of the art technology.
A good example of our progress as the announcement, we made just a week ago about a 400 million dollar investments on the Sapphire Sky Wind Energy Center, Scott will provide you with more detail on this development in just a moment, but I will tell you that the off take agreement is with 1 of the largest high tech companies in the World and we expect the project to meet.
Or exceed all of our financial metrics.
We've also made great progress on our plan to build 1800 megawatts of regulated solar wind and battery storage.
He is carbon free assets will play a significant role in improving our environmental footprint.
Recall that back in May we set near term goals that are among the most ambitious in the industry.
<unk> carbon emissions by 60% from our electric generation fleet by 2025.
Moving and 80% reduction by the end of 2030, both from a 2005 baseline.
What is that we now expect only 8% of our regulated electricity supply to come from coal by the end of 2030.
We believe we can accomplish these targets with the retirement of older less efficient units operating refinements and the use of existing technology as we execute our ESG progress plan.
Of course, our long term goal remains net zero carbon emissions from our generating fleet by 2050.
And our ongoing effort to upgrade our gas delivery networks and introduce renewable natural gas into our system will help us achieve another aggressive goal net zero methane emissions by 2030.
You can learn more about these goals and much more in our corporate responsibility report, which we published just last week.
Now, let's switch gears, a bit and take a quick look at on a regional economy.
Still seeing the positive effects of a strong recovery.
Wisconsin's unemployment rate in fact stands today at 3.9% folks that's 2 full percentage points better than the national average and as I mentioned business continues to grow with new projects across the region.
For example in Milwaukee tool is expanding the operations again here in Milwaukee.
If youre not familiar with Milwaukee tool company has been a leader in the development of battery powered cordless tools at.
The balance has become the world's number 1 producer of tools for professionals in the construction trades utility sector as well as for auto mechanics.
And now Milwaukee tool is redevelopment of vacant downtown office tower to provide space for 1200, new employees over the next 5 years.
In addition, a number of other economic development projects are in the pipeline that will be covering those with you in future calls.
On that note I will turn off on our call over to Scott for more detail on our sales results for the quarter as well as an update on our infrastructure segment as Scott All yours. Thank you Gail.
We continue to see customer growth across our system at the end of June our utilities were serving approximately 4000 more electric customers and 18000 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 13 of the earnings packet.
Overall retail deliveries of electricity, excluding the iron ore mines were up 7.1% from the second quarter of 2020 and on.
The weather normal basis were up 5.8%.
We are encouraged by the economic rebound we are seeing in our service territory. For example, small commercial and industrial electric sales were up 10, 4% from last year's second quarter and on a weather normal basis were up 9.2%.
Meanwhile, large commercial and industrial sales, excluding the iron ore mine were up 14, 8% from the second quarter of 2020.
And on the weather normal basis were up 13, 9%.
Natural gas deliveries in Wisconsin were down 4.9%.
This excludes gas used for power generation and on.
On a weather normal basis natural gas deliveries in Wisconsin grew by 2.5%.
Overall, our growth continues to track ahead of our forecast as the economy continues to open up.
Turning now to our WEC infrastructure segment as Gail noted, we have agreed to acquire a 90% ownership interest in the Sapphire Sky Wind Energy Center.
The project is being developed in Mcclain County, Illinois by Invenergy.
<unk> consists of 64 wind turbines with a combined capacity of 250 megawatts. We expect it will go on service late in 2022.
The projects project fits our investment criteria very well, we plan to invest $412 million for the 90% ownership interest.
We now have 8 wind projects announced or in operation in our infrastructure segment.
This represents approximately $2.3 billion of investment we expect to invest an additional $1.1 billion in this segment over the remainder of our 5 year plan.
Our Jayhawk wind farm is projected to go in service by early next year and our Thunderhead wind investment is now projected to go in service in the first half of 2022.
These timelines have been factored into our forecast.
In case, you're wondering about the impact of inflation on these projects to date, we have not encountered any significant inflationary pressure.
Remember that we primarily invest in turnkey projects with developers. So we are seeing no reduction of returns with that I'll turn it over to Kevin for an update on our utility operations.
Thank you Scott touching on some recent developments in Wisconsin.
We used to report that our Badger Hollow 1 solar project is nearing completion and is producing test energy.
If you may recall, we own 100 megawatts of this project in southwest, Wisconsin.
In Madison gas and electric owns the remaining 50 megawatts.
This is our second large scale solar project and part of our plans to more than triple our investment in renewable energy between 2020.1.
And 2025.
We expect the next phase of the project Badger Hollow II to achieve commercial operations next year.
Now for a few regulatory updates.
Recall that after reaching an agreement with a major customer and environmental groups. We filed a request with the public service Commission to forego a rate case for our Wisconsin utilities this year.
We expect a decision in the weeks to come.
And we're pleased that the commission has approved pilot programs for electric vehicle charging in our Wisconsin service areas.
With these programs, we plan to install charging on women and electric distribution infrastructure.
This is the first step in our effort to promote affordable charging options for electric vehicles.
And we also have update on the rate reviews at 2 of our smaller utilities.
In Illinois, although this year north shore gas requested a rate increase primarily due to the significant capital investments. We have made since the last rate case in 2015.
Recently, the administrative law judge on the case issued a proposed order.
The order recommends a $4.2 million rate increase on a 9.67% Roe.
And 51, 6% equity component.
We expect the Commission's final decision by mid September.
Finally in Michigan I am pleased to advise you that we have reached a settlement with all parties to conclude a rate review for Michigan gas utilities.
This settlement stipulates a 9.85% return on equity on a revenue increase of 925 billion with an equity layer of 51, 5%.
We expect the commission's approval by the end of the third quarter.
We have no other rate cases pending at this time.
And with that I'll turn it over to shelf.
Thanks, Kevin our 2021 second quarter earnings of 87 cents per share increased 11 cents per share compared to the second quarter of 2020.
Our favorable results were largely driven by higher earnings from our utility operations.
Our regulated utility benefited from warmer than normal weather.
Covering economy.
<unk> execution of our capital plan and our focus on operating efficiency.
The earnings packet placed on our website this morning.
Comparison of second quarter results on page 17.
Walks through the significant drivers.
Starting with our utility operations.
Our earnings by 9% compared to the second quarter of 2020.
First.
<unk> economic recovery from the pandemic 12, a 6% increase in Iron Inc.
This reflects stronger weather normalized sales as well as an assumption of late payment and other charges.
Also great relief and additional capital investment added <unk> <unk> compared to the second quarter of 2020.
So our day to day O&M contributed 1 penny.
And all other factors resulted in a positive variance of <unk>.
These favorable factors were partially offset by force of higher depreciation and amortization expense.
I like to point out that quarter over quarter, the impact of weather was flat.
Overall, we added 9 quarter over quarter from utility operations.
Moving on to our investment in American transmission company.
Earnings decreased 2% compared to the second quarter of 2020.
While we picked up a penny in the current quarter from continued capital investment this was more than offset by a <unk> <unk> benefit recognized in the second quarter of 2020 related to a FERC order.
Recall that this order allowed ATC to increases from 10, 38% to 10, 5.2% retroactive to November 2013.
Earnings at our energy infrastructure segment improved 1 penny in the second quarter of 2021 compared to the second quarter of 2020.
This was mainly driven by production tax credits related to wind farm acquisition, partially offset by less than projected wind resources.
Finally, we saw a 3% improvement in our corporate and other segment.
Lower interest expense contributed <unk> <unk> quarter over quarter.
We recognized a 3.
<unk> from our investment in a fund devoted to clean energy infrastructure and technology development.
These positive variances were partially offset by a reduction of 1 cent in Rabbi Trust pro forming and Weinstein and taxes and other.
In summary, we improved on our second quarter 2020 performance by 11%.
Now I'd like to update you on some other financial items.
On the full year, we expect our effective income tax rate to be between 13 and 14%.
Excluding the benefit of unprotected taxes flow into customers. We project, our 2021 effective tax rate will 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 6 of the earnings packet.
Net cash provided by operating activities decreased $153 million.
Our increase in cash earnings in the first 6 months of 2021 was more than offset by higher working capital requirements.
Recall that the spike in natural GAAP cost things throughout the central part of the country. This February coupled with higher accounts receivable balance contributed to this increase in working capital.
We were able to improve our working capital position in the second quarter.
With normal collection practices underway in our major markets.
Expect for working capital.
Chantal throughout the remainder of the year.
Total capital expenditures and asset acquisitions.
$1.1 billion for the first 6 months of 2021 and 93 non dollar increase as compared with the first 6 months of 2020.
This reflects our investments okay in our regulated utility and energy infrastructure business.
On the financing front, we continue to find opportunities to lower our interest cash in.
In fact in June we refinanced $309 of debt at Wisconsin electric reducing the average coupon of these notes by over 1.2% and extending the maturity to 2028.
In closing before I turn it back to Dale I'd like to provide our guidance for the third quarter.
We are expecting a range of 72 to 74 per share for the third quarter.
This accounts for July weather and assumes normal weather for the rest of the quarter.
It also takes into account timing of our fuel recovery and the cost associated with major storms that impacted our system last week.
As a reminder, we earned <unk> 84 per share in the third quarter last year. This includes an estimated 5 better than normal weather.
And as Bill mentioned earlier, we are raising our 2021 earnings guidance.
<unk> of $4.2.
$2.4.5 per share.
Expectation of reaching the top end of the range.
This assumes normal weather for the remainder of the year.
That I will turn it back to gale.
So thank you very much in addition to raising our annual guidance, we are reaffirming our projection of long term earnings growth, 5% to 7% a year with a strong bias towards the upper half of that range.
And finally, a quick reminder, about our dividend as you may recall in January our board of directors raised the quarterly dividend by.
Bye.
7.1% to $67.75, a share we continue to target a payout ratio of 65% to 70% of earnings. We're in the middle of that range now so I expect our dividend growth will continue to be in line with the growth on our earnings per share overall, ladies and gentlemen, we're on track focused on providing value for our customers.
And our stockholders and operator, we're ready now to open it up for the question on answer portion of the call.
Yes, Sir and once again, ladies and gentlemen, if you would like to ask a question during today's call simply press Star then the number 1 on your telephone keypad.
Once again for a question over the phones that are star then the number 1 and we'll pause for just 1 moment to compile the Q&A roster.
And our first question comes from the line of Shar <unk> with Guggenheim partners.
Hey, good afternoon, guys, it's actually James for Shar, sorry Gil.
Hey, How're you doing.
Good good thanks for taking my questions.
Just what have you done with Shar.
He is still on its bunker in New Jersey.
Are you going on that's what okay great.
So I guess just first on the policy side on Illinois, It sounds like negotiations on the comprehensive package hidden in past recently.
I realize it's not heavily focused on gas, but you guys are still involved.
You guys have any updated thoughts on the prospects for something that gets on the coming weeks.
Well I think we always thought that getting something done reasonably quickly was a very long shot in Illinois.
But 1.
The 1 thing that I think stands out.
The.
Public discussion of the impasse between the parties is that both both the governor and the Senate majority leader have essentially urged the parties to continue talking so.
So we'll see what happens but.
Again, very little impact on gas distribution companies in Illinois. This is major focus if you as you know, particularly on Exelon and on the nuclear power plants, So pass or not agreement or not there's really no material impact on our company on peoples gas or north shore gas in Illinois.
Yeah.
Gotcha. Thanks.
I guess, a little closer to home on the Wisconsin side.
<unk> recent settlement had an interesting proposal for the recovery.
On their retiring Edgewater plan have you guys got on the 10th to dig into that and could that be a template for the balance of the non power the future fleet, which I think is just western on Colombia at this point.
Well, we're very aware of the of the approach that aligned to it.
Could it be a template for going forward.
Certainly could be it's an interesting approach I think it's a balanced approach.
And certainly something we'll be taking a look at as you know.
We're planning to retire the older units at our Oak Creek site units 567, and 819 sixties vintage units were planning to retire those we've announced the retirements in 2023 and 2024. So we have plenty of time to.
To continue to work with all the parties involved but yeah. It was a very interesting approach to a settlement and 1 that really could make a lot of sense going forward.
Got it that's all I had thanks and congrats on the results on the championship.
Thank you appreciate it very much fell short of behave okay.
Yeah.
Yes.
And your next question comes from the line of Julien Dumoulin Smith with Bank of America.
Greetings Julien.
Hey, how are you.
We are good.
How about you grasp.
Quite well. Thank you congrats on the rest of the win here.
Terrific that's been great been great for the city been great for the region. So happy for the team and happy for you I understand that you proposed during the game 6 is that true.
Scott.
Right.
I can confirm that.
It's been exciting thank you.
Maybe the cash.
The other exciting news here.
If I look at 'twenty, 1 guidance relative to where you are year to date here.
We're ahead 30, Seth how are you thinking about O&M in the back half of this year I know you guys.
The push and pull O&M to manage to.
To ensure a linear trajectory here, but as you think about the relative conservative nature of your guidance can you comment a little bit on on where do you stand on on the back half of this year.
Sure we have a number of maintenance projects planned.
For the back half of the year and also as Sean mentioned, we had some 60.
6.7 billion of reasonably extraordinary cost just last week for repair from serious storms that took over 100000 customers in northern Wisconsin and had 6 tornadoes.
On a line between the western Milwaukee suburbs in Madison So.
We had some extraordinary costs in July which influenced.
On the range of guidance that <unk> gave you for the third quarter, but again there are numerous projects that we have lined up for the fourth quarter for O&M I still believe that we will our day to day O&M will be down for the year.
But we certainly have an opportunity to really.
Carry out some very very good maintenance that will help us for 2022.
Right excellent and perhaps just the part that statement a little bit you still believe it to be down but your previous expectation.
2% to 3%.
That was our previous expectation is certainly a goal we could hit but as we look at some of the extraordinary storm costs and other work.
Again, we believe it'll be down may not be down 2% to 3%, but that doesn't mean that the trajectory is still long term not in place. It's still is it's just a matter of looking at a 6 month period, if you will.
Got it excellent and last we connected here.
Obviously, you are pretty excited about sales some of the leading indicators of what sales might do can you comment a little bit preliminarily on how you're thinking about trends into 'twenty 2 even I mean, obviously 21 retail sales coming in 1% below 19 on a normalized basis.
Sets up pretty nicely here as you think about it but I'd be curious on how you would characterize some of these larger projects et cetera coming in.
Well many of the larger projects that we've been referring to their larger economic development projects are now under construction wouldn't necessarily.
A big uptick in 2022 from those projects, although there will be some but really it's 2023 and 2024 and beyond where we will see the big impact from some of the economic development projects.
But I would say kind of as we look at the landscape again, you go back to the tailwind of the economic recovery in Wisconsin, which has been very strong Scott.
Scott the tail, the big uptick in large commercial and industrial demand.
And Scott I think 1 of the more encouraging things to me on the natural gas side of the business as we continue to see very strong customer growth.
That's exactly correct deal. So we're seeing good customer growth specifically on the gas side, but on the electric side too we're hooking up a lot of new services on both gas and electric.
Wisconsin, and Michigan and Wisconsin.
Minnesota on the gas side also so good growth in small commercial industrial really did well this quarter, but remember it was compared to the first quarter the pin debit class share, but very happy where the sales.
All right now.
I do think we have to see how the varian continues to spread.
Many companies were planning on a significant return to the office. If you will in September we and others have now pushed that off till October at the earliest so that could have some short term impact, but overall as Scott said.
We feel very very positive about our projections for demand growth for both gas and electricity.
Excellent alright, well. Thank you very much thank you.
You too thank you Julien.
And your next question comes from the line of Turkish <unk> Chopra with Evercore ISI.
Hydro cash are you today.
Congrats.
On both fronts sports and a great quarter.
Just 2 questions for me Force force for sure on the on a twist on gain on clean Energy Fund could you elaborate on what that is.
Sure we have a very small investment in a fund that invests in development stage company and the renewable energy space.
Charging infrastructure space.
So it's a very small I think the balance is only like $39, but we were happy to see that again.
Got it okay.
I didn't realize you actually have that investment okay.
And then maybe just quickly Gil sorry, if I missed this but any update on the Wisconsin rate case proceeding you're sort of partition to delay the rate case we.
We haven't heard back from the commission yet right.
Yes, we are we have now seen publicly.
The Commission staff memo on the subject and usually the commission will vote post the publication of the staff memo on it on any matter like this within a matter of weeks. So I would expect within just a matter of weeks, we will have a commission vote on this day, our proposal and again the overall the staff memo was just volume.
Excellent.
Again here on.
Back to back execution for many years and again this quarter. Thanks.
I appreciate it.
And your next question comes from the line of Michael Lapides Goldman Sachs.
Hey, guys, Michael greetings, and congratulations scale and on the city of Milwaukee on the NBA title that's.
I wish my Grizzlies would pull off something like that rooting for them.
Got a question for you when I look at your capital budget.
5 year on I know, you're only a couple of months away from providing investors with an update to that year for near 5 or down from years 1 through 3.
You know if that actually happens it means you become a free cash flow generating company.
But if you had to be a wagering mean at this earlier stage.
And I know year for near 5 isn't a turn of D away.
That actually happens and if not what are the things what are the buckets that could make you or for near 5 or maybe even years 3 through 5.
A good bit higher than what you outlined in last November for your 5 year outlook.
Great question, Michael first of all.
If you look historically at our 5 year capital plan years, 4 and 5 always tail off a bit.
Just kind of how we roll.
And the reason for that as well.
We don't like to have a lot of white space.
On a lot of undefined line items in our 5 year capital plan. So we tend to give you, particularly for the first 3 years.
Stuff that we know is actually going to be proposed is actually going to be build upon approval et cetera, but historically I think for all the years I've been here when we've laid out our 5 year capital plan, you've always seen a bit of a downturn compared to the first 3 years 4 years 4 and 5.
So to directly answer your question I do not believe when we update our 5 year capital plan, which will do on our next analyst call in early November Beth I believe.
And then with much more details of the <unk> Finance conference.
You're not going to see I would be stunned if you saw any kind of a decline in what is now years 4 and 5 just not going to happen now.
I'm not going to happen in particular because of the strong investment opportunity that we that we have in front of us.
And what kind of buckets might we see well.
Clearly, there's going to be an additional emphasis on continuing to invest in renewables and battery storage.
Distribution upgrades new customer connections.
You name it.
It'll be across the board, but as you know a very significant tailwind as we continue to execute our ESG progress plan continue to reach those lofty environmental goals those aggressive environmental goals.
No.
Again, I wouldn't put too much stock in looking at years, 4 and 5 right now those buckets will definitely be filled up Scott anything to add to that.
Youre exactly right deal and we've always had a tendency.
To be a little bit lower on those outer years and as Kevin mentioned in his prepared remarks, we're just seeing the start of the electric vehicle pilot we have so.
We already got some interest in that and then we don't even have the order yet so I think there's a lot of opportunities ahead on the generation and the distribution side.
Got it and then 1 follow up you made a comment about inflation.
What are you seeing in terms of cost and commodity cost input for things like gas distribution mains or or equipment other equipment things like copper et cetera, and and even on the regulated side of the business the larger side of the business and what that does to your capex.
Jackson's.
Well at the present time I mean, you look at copper for example.
It was elevated 456 months ago, and Havent hasn't moved much since for example.
We're really frankly, not seeing a ton.
I think as we phrased it really not no significant impact so far.
Now part of that is because of the way we deal with our infrastructure segment.
The fact that we have set prices with developers that have very long history of being able to procure.
It very positive and constructive prices.
So on the infrastructure side, we haven't really seen any significant impact at all on the regulated side again, a lot of the projects that we have underway procurement has already taken place.
Not much at this stage of the game in terms of inflationary impact where we have seen.
Where we have seen some inflationary impact is actually in the natural gas commodity prices.
Gosh, we were up over $4 per million Btu, just the other day.
So there I think you know what.
With the glut of natural gas a bit disappearing across the country.
I think we're going to see some elevated natural gas prices certainly for winter.
The winter.
On the upcoming winter, but that's where.
My opinion, we're seeing the first kind of signs.
And then in terms of the future.
You know, it's anybody's guess, how sticky the inflation numbers are but 1 of the things that I always tend to look at it for what it's worth.
You remember Milton Friedman said that inflation is has been and always will be a monetary phenomenon. So 1 of the things I think that we look at is essentially the growth of the money supply and if you look at the growth of the money supply it's already begun to taper off a little bit, it's still up and up materially but it has already begun to taper off a little bit.
So that gives me some hope that while we probably for the next year, we will see some elevated inflation numbers, perhaps it's on its way to a more normal level.
Got it and Hey, 1 last question and this is just a modeling 1 can you remind me you mentioned in the prepared remarks, the in service dates for Thunder heading Jayhawk.
Yes, Scott.
Thunderhead, there's going to be in the first half of next year, and then jayhawk should be.
It probably in the first quarter.
Got it so both of those both of those moved a little from our original in service dates.
Well Jayhawk you know, maybe a month or 2 no big deal Thunderhead, we ran into a problem with something called the American burying beetle.
<unk>, which has now been removed as I understand it from the endangered species list.
Actually the construction on Thunderhead is about done it's a matter of the substation completing construction.
Now that all of that has been worked through in terms of.
In terms of moving forward post the issue with the American bearing beetle.
Got it. Thank you guys much appreciate it.
Youre welcome Michael Thank you for your questions.
And your next question comes from the line of Jeremy Tonet with J P. Morgan.
Hello, Jeremy how are you today.
Good afternoon, and thanks for having me.
It's been nice being head no go right ahead.
Just wanted to touch base on on what's your latest wind announcement here. It seems that about half of the planned infrastructure investments are now identified.
Are there any timing of cash consideration is limiting our continued acceleration here and just how do you see the market backdrop amid kind of broader infrastructure discussions in D. C. Here.
Yeah, well the truth of matter is we have timed.
The size, if you will and the timing of our of our infrastructure segment investments over the 5 year period to match, our tax position and the ability to monetize production tax credits.
Theres, nothing though that would that would stand on the way of some modest additional acceleration.
The investments and Youre right. We are ahead of schedule with very high quality projects going forward.
I know theres been a lot of discussion around the industry about lower returns.
About.
Backlogs in delays.
I would say.
If you look at our pipeline of potential projects.
It is still very robust.
And we're working with potential projects and developers that have long successful track records.
We don't see right now any dimunition of the kind of projects that were interested in for our infrastructure segment or and importantly, we're not seeing any any excuse me any significant diminishing returns.
In fact, we mentioned, both Scott and I that Sapphire Sky.
That has the potential to be 1 of the very best return projects, we have ever had.
So again for us.
Excuse me on for the for the.
We're looking at and for the for the highest quality projects with great developers.
We feel very very positive about our pipeline and I hope that responds to your question.
That was a that was very helpful. Thank you for that.
Maybe just kind of shifting gears a bit here given the elevated market attention on cogeneration and when you think about power the future KOL here just wondering if you could update us how you balance local reliability needs with this backdrop and maybe the potential to repower, the assay with natural gas and how near term.
Could this potentially be if you decided to go in that direction.
Well, great question and I'm on.
To ask Scott to give you his view on this as well.
Let me, let me just say 2 quick things.
I mean, essentially with the retirement of older coal fired units that has already taken place on our system with the announced retirements that we've talked about already.
Really there's very little coal fired capacity left on our system after 2025.
Like you and others were asked about the new units at our Oak Creek site.
Those new units very efficient among the most efficient thermal.
Fired power plants in the world.
And.
I should remind everybody that we need to do in looking at the future of those units.
Is to separate the value of those units from the fuel source.
And let me explain that the new Oak Creek units are ideally situated on the transmission grid on the Midwest.
They are very important to reliability in the middle Western part of the United States not just Wisconsin.
So we built those units and remember the first unit came on line in 2010, the second in 2011.
We built those units with some flexibility.
In fact, I mean, there is natural gas into the site.
It is possible and we've done it several times to co fire the units on coal and natural gas and yes. It is possible technically possible.
For the units to be converted away from coal to natural gas at some point.
We are taking a look at both from an engineering standpoint, and a cost standpoint, the feasibility of doing so Scott what would you like to add to that no. That's exactly right deal and when you think about the reliability that she brought up the reliability of the system.
When we look at it and when we talk about 8% of energy from coal in 2030 that still gives us potential for about 17, 18% of capacity as needed on that really really peak day to.
To make sure we have the energy that's needed and gives it exactly right. We can look at potential conversions there in the future. So we really have to look at.
How do we keep the reliability and affordability and clean energy.
In the system.
And 1 other point our goal for 2030 of an 80% reduction in carbon does not assume any conversion of the new Oak Creek units away from coal to natural gas.
So that just gives you a sense of how of how effective we can be in continuing to reduce <unk>, even with a very efficient coal fired units at the new Oak Creek site is still in place.
Got it so it sounds like a nice optionality going forward there.
And I think that's a great way to describe it we have a lot of options with a very key asset again to reliability for the region.
Great. Thanks, and just 1 last 1 if I could sneak it in here. Thanks.
For the update on the Wisconsin rate case process. There just wondering how you focus on any other regulatory items locally in advance of a filing next year.
No it's pretty calm I mean, it really isn't Kevin described.
The ALJ proposed order at North shore gas 1 of our smallest companies in Illinois, just agreed to a settlement of a rate case in Michigan for Michigan gas utilities.
Other than that in the normal course filings, it's a pretty steady as she goes yeah. The condition will continue to look at our solar projects we have on.
On the solar and battery projects. So we can get approval on those and start.
Implementing that.
That's a good point, we've made several multiple filings if you will over the course of the first half of this year to move forward with about 1800 megawatts.
Wind solar and battery storage regulated for Wisconsin, that's going well.
Great. Thank you kindly I'll leave it there.
Thank you Jeremy.
Okay.
And your next question comes from the line of Sophie Karp with Keybanc capital markets.
Reading Sophie.
Hi, This is actually thankful for Sophie Thanks for taking my questions.
Sure.
So on that all Creek in Columbia units that you plan to retire can you tell us if that's part of the regulated utility on the unregulated.
Sure.
No those are all part of our regulated asset base in Wisconsin.
And it does it.
Okay.
And this is share does it makes a day.
Switch once you decide to retire firstly I'm just trying to get a sense of what factor.
Thank you.
Thank you for your time.
Yes.
Well, that's really a very simple answer and that is as we look to retire additional capacity, we look first and foremost at older units that are less efficient.
So, it's all driven by age and efficiency.
What kind of capital it might take to keep those units alive.
It's really it's really not a complicated formula we look at age efficiency and whether or not it makes any sense from a capital investment standpoint to spend the dollars that would keep those units alive and of course as I mentioned the next units to be retired on our system would be the older Oak Creek units, they've been part of the Wisconsin retail rate basis.
19, sixties, that's units 567, and 8 at our older or Creekside.
Then we are a joint owner with alliance.
For the Columbia units, 1 and 2 and Scott those would retire on the same timeframe correct, correct 23 and 'twenty 4.
Okay, great. Thanks, so much.
Welcome.
And your next question comes from the line of Andrew <unk>.
Bank.
Hello, Andrew.
Hi, good afternoon.
Good morning.
It seems like like so many others you've been facing a growing number of extreme weather events <unk> been.
Fortunate and well positioned to react quickly so it hasn't been devastating in terms of outages, but.
As you evaluate your O&M programs.
Do you see any opportunity or need to change anything as far as storm preparation and response.
Well the short answer is we continue to invest in reliability and I'm very proud of our folks very proud of the fact that we energies has been named the most reliable utility in the Midwest for 10 consecutive years running so we have a we have a.
Historic and positive investment program that we continue with to insure upgrades and reliability.
Not only just from the standpoint of underground in some lines like we've done in northern Wisconsin, but.
Proactive replacement of Transformers, where we know Theres a failure rate post age 50, there's a lot going on in terms of again positive investment opportunity to maintain superior reliability.
I would just say, though Andrew.
I'm not sure we're seeing more extraordinary weather events and we have in the past in fact in the law.
Last couple of years, the tornado season in Wisconsin has been milder than in some previous years, we have seen 2 or 3 polar vortex events, but if you look back over the course of the last 40 or 50 years candidly Scott we've both been around Wisconsin on a long time in the Midwest.
I don't think we're seeing a dramatic change in the.
Weather events do you know.
We were having extreme polar vortex years ago. They just didn't have the fancy name polar vortex. It was just cold.
But I think youre, just seeing more strain on the system as across the enterprise are across the country.
Like we saw on Texas and a variety of I think you are getting a lot more.
Media time too.
And to Scott's point, there's a lesson here from what we're seeing around the country.
And it's a lesson that I think all of us who've been around for a while I truly believe in and that is.
When you have to have it for reliability when lives are on the line when it's -42 without the windshield on northern Wisconsin.
Diversity of fuel mix and dispatch ability really make a difference.
And that's something we can't forget as an industry or as a company reliability is at the bedrock of what we do millions of lives were saved by the availability of natural gas this past winter.
Northern part of the U S. So we're very cognizant of how important the reliability has and will continue to invest to maintain superior reliability.
Got it thank you everyone.
Youre welcome on Q.
And your final question comes from line of Madhu, low Marty with Hudson Bay capital.
On a rock and roll the doula long time, no talk too.
Can you hear me.
We can hear you how're you doing vanilla.
Doing well thanks.
First a little bit on.
Hello.
Sure.
Right.
Yes.
Thanks, Joe.
Thanks, Kevin.
Great.
I will begin.
Staying on reading the balance.
Cool.
Yes.
Sure.
Tim.
Paul.
And we've also equal.
Thanks, Paul.
Please go home capabilities too.
Our bad debt.
Okay.
Right.
Yes.
Any questions.
Okay.
On the weighted with.
We've told you would happen.
Hum.
On the party.
Got it.
Good morning.
Okay.
Yes.
I'm very sorry, you broke up several times I'm not sure that I understood. The gist of your question Beth was a little bit closer to.
Beth can you tell me what you think the dual is asking.
Of course.
Thank you.
The growth okay.
Right well, we can we can certainly do low if you want to try it again.
You broke up a few times and I apologize we couldn't quite follow you.
Well, let's go on.
Go ahead Sir.
Okay, well, we can talk a bit about the growth of the vs.
Again, we're very pleased there will be I think a number of policy initiatives. Both at the federal level as you know, but also at the state level here in Wisconsin to try to encourage the penetration and customer ownership of Evs and I see that as another investment opportunity for us.
As Kevin mentioned, we just had approved a pilot program.
That will allow us to offer cost effective charging options for a range of customers, including some nonprofit customers, including government entities et cetera et cetera.
So we're on it in terms of trying to encourage the adoption of electric vehicles.
And we will see how this goes but already again as Scott mentioned, we don't even have a final order written yet and we have a number of a number of interested parties and we're already beginning substantive talks with folks on our EV pilot charging program I hope to do a low that answers your question.
Alright.
We will flow.
I'll follow up on thank you.
Okay terrific. Thank you.
Alright, well I think that covers the waterfront for today folks that concludes our conference call for this afternoon. Thank you. So much for taking part if you have more questions feel free to contact Beth Straka and she can be reached at 4142 to 14539. Thank you everybody take care.
And this concludes today's conference call. Thank you for your participation you may now disconnect.
True.
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