Q3 2021 Xcel Energy Inc Earnings Call
Good day, and welcome to XO Energy's third quarter 2021 earnings Conference call. Today's conference is being recorded questions will only be taken from institutional investors reporters can contact media relations with inquiries and individual investors and others can reach out to investor real.
<unk> at this time I would like to turn the conference over to Paul Johnson, Vice President Treasurer, and Investor Relations. Please go ahead Sir.
Morning, and welcome the XL Energy's 2021 third quarter earnings conference call joining.
Joining me today are Bob Frenzel, President and Chief Executive Officer.
Brian Van Abel Executive Vice President and Chief Financial Officer, Amanda Rome, Executive Vice President and General Counsel and a few others.
This morning, we will review our 2021 results share recent business and regulatory developments.
Our capital and financing plan and provide 2022 guidance.
Well I had said accompanies todays call are available on our website.
As a reminder, some of the comments during today's call may contain forward looking information significant factors that could cause results to differ from those anticipated are described in our earnings release and our SEC filings today will discuss certain metrics that are non-GAAP measures, including ongoing earnings and electric and natural gas margins.
Information on the comparable GAAP measures and reconciliations are included in our earnings release with that I'll turn it over to Bob.
Thank you Paul Good morning, everybody today, we reported solid third quarter earnings of $1 13 per share compared with $1 14 per share last year, given our strong year to date results were narrowing our 2021 guidance to $2.94 to $2 98 per share.
We're also initiating 2022 guidance of $3.10 to $3 20 per share, which reflects a 5% to 7% long term EPS growth objective.
Consistent with our past tradition, we've updated our base investment plan, reflecting $26 billion of capital expenditures over the next five years, which provides significant benefits to our customers and supports community vitality. This investment plan delivers rate base growth of six 5% off of a projected 2021 year end rate base.
Yes.
This plan is robust, but there are certain investment opportunities that are not included in our base plan, including potential renewable generation assets authorized in our Minnesota or Colorado resource plan proceedings.
And additional transmission capital that's needed to integrate new renewable generation additions in Colorado beyond the base, Colorado Tower pathway proposal.
So basically it also does not include any capital for Green hydrogen production for our L. D C or generation needs, which we believe could be material over the balance of the decade.
We have our hydrogen pilot at the Prairie Island nuclear plant and were exploring five to eight additional greenfield and brownfield projects.
And with favorable state backdrops in Minnesota, and in Colorado, which if past clean fuel legislation as well as a potential for a federal hydrogen production tax credit we believe that our favorable renewable generation conditions will help us push beyond pilot and into green hydrogen production resources.
That can be valuable to a clean energy future.
Very excited about our investment plan, which supports continued execution of our long term strategy and clean energy leadership.
It provides for sustainability of our local communities enhances reliability and resiliency advances our fleet transition keeps customer bills low and delivers attractive returns for our investors.
We are well positioned for sustainable organic growth over the next decade, including renewable additions.
<unk> renewable additions in our proposed Minnesota, and Colorado resource plans and the transmission needed to enable those carbon free resources.
Together, our resource plans are gonna add nearly 10000 megawatts of renewables to our system and achieve an 85% carbon reduction by 2030, while keeping customer bills at or below the rate of inflation.
We expect decisions on both the Minnesota and Colorado resource plans in the first quarter of next year.
The clean energy transition is also going to need substantial transmission investment we continue to make good progress on the Colorado power pathway transmission project, which is essential for us to deliver on our Colorado Energy resource plan. It will enable over 5500 megawatts of new renewables in the state and its vital as we can.
Floor further western market integration over time.
To date comments for most parties have been generally supportive and we expect a commission decision in the first quarter 2022.
In the Midwest MISO has experienced some minor delays, but we still expect <unk> 21 to be announced in the first half of next year.
We also had a strong operational quarter, our industry, leading nuclear fleets set another record with two units having run over 700 consecutive days prior to their refueling outages.
Another highlight this quarter was the dedication of the 300 megawatt bighorn solar facility at the Evraz steel mill in Pueblo, Colorado in partnership with light source P P and state and local leaders.
We've been able the largest onsite solar array in the country, serving a single customer. This was a really creative solution between multiple parties to ensure the continued operation and expansion of the steel mill and its 1100 employees.
It reduces carbon emissions and creates valuable property tax base that helps sustain the local economy.
We also continue to partner with our states and Oems to electrify the transportation sector. This quarter, we implemented new programs for our Colorado customers that'll help us to achieve our goal of enabling one and a half million electric vehicles across our states by 2030.
We appreciate the collaboration of so many stakeholders as we collectively work to reduce carbon emissions and enable sustainable communities.
We remain well positioned with a sound strategy, a robust five year capital plan and sustainable long term growth trajectory that provides attractive returns to our investors, while keeping bills low for our customers.
These plans are not dependent on changes in federal policy.
However, it's our understanding of the by the administration has reached an agreement on a framework for the reconciliation package.
Which would include extensions for investment tax credits and production tax credits.
Solar in our hydrogen production tax credit a storage and a transmission investment tax credit and direct pay options for all tax credits.
This proposed plan creates significant customer benefits by lowering the cost of our proposed resource plans and potentially accelerating our clean energy transition.
Our steel for fuel program has demonstrated our geographic advantages and renewables.
Proposed tax credit extensions for ITC, and PTC is including our solar production tax credit would make future projects, even more competitive providing additional benefit to our customers.
Additionally, a direct pay option would provide greater financial flexibility increased corporate cash flow and credit metrics.
Which should reduce our financing needs.
A P T C for Green hydrogen would also bring significant value and technology advancement and cost.
It could help accelerate the timeframe in which we could begin incorporating hydrogen into power generation and into our national natural gas distribution operations at a cost it's more economic for our customers.
While discussions continue at the federal level on the final Bill we are optimistic that this plan will be passed.
We will have significant benefits for our customers.
Now I'll turn it over to Brian.
Thanks, Bob and good morning, everyone.
We had a solid third quarter recording $1 13 per share compared with $1.14 per share last year on a year to date basis. Our earnings are 13 cents per share ahead of last year.
The most significant earnings drivers for the quarter include the following.
Higher electric and natural gas margins increased earnings by four cents per share, primarily driven by riders and regulatory outcomes to recover our capital investments.
Lower O&M expenses increased earnings by <unk> <unk> per share and in addition, our lower effective tax rate increased earnings by one seven per share as a reminder, production tax credits lower the T. R. Over P. T. CS are flowed back to customers through lower electric margin and are largely earnings neutral.
Offsetting these positive drivers were increased depreciation expense, which reduced earnings by <unk> <unk> per share, reflecting our capital investment program.
Sure a P. D C decreased earnings by two cents per share largely due to placing several large wind farms into service last year.
Other items combined to reduce earnings by <unk> <unk> per share.
Turning to sales weather adjusted electric sales increased by two 4% in the third quarter, while our year to date electric sales increased one 9%.
Given our year to date results and the continued economic rebound in our states. We're updating our full year weather adjusted electric sales growth to approximately 1.5% to 2%.
Shifting to expenses.
Expenses declined 1.9% for the quarter and increased two 6% on a year to date basis.
Quarterly O&M expense comparisons are noisy with the COVID-19 impacts from last year, but overall, we expect our O&M expenses to increase approximately 1% for the year.
Turning to regulatory we reached a comprehensive settlement in Colorado and are making strong progress on potential Texas rate case settlement.
As a reminder, last quarter, we reached constructive settlements in our Wisconsin, New Mexico, and North Dakota rate cases.
In October we reached a comprehensive settlement with the Colorado staff in the Colorado Energy office, our proposals are resolved several regulatory proceedings.
Key terms include.
We will fully recover all winter storm euro deferred fuel cost over 24 months for electric and over 30 months for the natural gas LDC customers with no carrying charges through a rider. Please note the euro storm cost estimate for Colorado was revised to $550 million.
We will refund to electric customers of approximately approximately $41 million of previously deferred revenue associated with the Twenty-twenty decoupling program.
Gold recovery of approximately $14 million of replacement power costs incurred due to an extended Comanche three outage during 'twenty 'twenty and we will not seek recovery of approximately $11 million of deferred COVID-19 bad debt expense were.
We are pleased that we were able to reach this comprehensive settlement.
Which represents compromises from all the parties and take steps to mitigate the customer impact of the urea cost recovery.
We expect a commission decision in the first half of 'twenty or 'twenty two.
In terms of pending rate cases, we were making progress in settlement discussions in our Texas case.
As a result, the hearing schedule hasnt been abated and we're hopeful that we will ultimately be able to reach a settlement agreement.
We expect a decision on our Colorado Electric case in March of next year with new rates effective in April.
As a reminder, we're seeking a net rate increase of approximately $343 million based on an ROE of 10% an equity ratio of 55, 6% in the 2020 two forecast test year.
The case was largely driven by capital investment.
In October we filed in Minnesota Electric rate case, seeking a net increase of $677 million over three years. The filing is based on a requested ROE of 10, 2%.
The ratio of 52, 5% and forecast test years, we've requested interim rates of $288 million to be implemented in January 2022.
Finally, we plan to file a Minnesota gas rate case in early November with interim rates going into effect in January of 'twenty to 'twenty two.
We also plan to file a stay out option as we look to help mitigate bill impacts of euro cost recovery for our customers.
As Bob mentioned, we have issued a robust $26 billion five year capital forecast, which is detailed in our earnings release, our base capital plan results in rate based growth of approximately six 5% using 2020 one as a base.
The base forecast reflects significant grid investment, our Colorado power pathway proposal and other transmission system investments to maintain asset health and reliability and they enable for renewable generation.
Plan reflects a modest level of renewables, including our proposed circle solar facility. It also includes two natural gas, peaking plants to ensure reliability as we retire coal plants, along with investments to improve the customer experience.
Beyond our base capital forecast, we anticipate potential incremental capital investment for renewables associated with the Minnesota and Colorado resource plans.
Our proposed resource plans include approximately 2000 megawatts.
Of renewable additions from 'twenty to 'twenty four to 'twenty 'twenty, six which would result in incremental capital investment of 1.0 to 1.5 billion, assuming 50% ownership.
In addition, we anticipate the need for incremental $500 million to $1 billion of related transmission for the Colorado IOP.
Combined we could see a potential incremental investment to support the clean energy transition of 1.5 to $2 $5 billion in the latter part of this five year forecast.
We've also updated our financing plan, which reflects a combination of internal cash generation and debt issuances to fund the majority of our capital expenditures.
We expect to issue $800 million of equity and $450 million of drip and benefits equity over the next five years the.
The financing plan maintains our current credit metrics and strong balance sheet, which is important for maintaining a low cost of capital for our customers.
We expect the equity would likely be issued through an ATM over the five years.
We anticipate that any incremental capital would be financed with approximately 50% equity and 50% debt. This incremental activity will allow us to fund accretive capital investments, which will benefit our customers, while maintaining our solid credit ratings and favorable access to the capital markets.
However, our equity needs could be significantly reduce if the reconciliation packages pass with the current framework.
Shifting to earnings we are initiating our 2022 earnings guidance range of $3.10 to $3 20 per share, which is consistent with our long term EPS growth objective of 5% to 7%. He assumptions are detailed in our earnings release.
In addition, we've updated the base of our growth rate to $2 96 per share, which represents the midpoint of our revised 2021 guidance range.
This represents six 5% growth in the base between 'twenty, and 2020 and 'twenty one.
With that I'll wrap up with a quick summary.
We reached a comprehensive settlement in Colorado that resolve several regulatory proceedings.
We're making progress towards the settlement of our Texas rate case.
We narrowed our 2021 guidance range to $2 94 to $2 98 per share.
We announced a robust updated capital investment program that provides strong transparent rate base growth and customer value.
We initiated 'twenty to 'twenty two earnings guidance consistent with our long term growth objective.
And finally, we remain confident we can deliver long term earnings and dividend growth within the upper half of our 5% to 7% objective range, we continue leading the clean energy transition and keeping bills low for our customers.
This concludes our prepared remarks, operator, we will now take questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Press Star one to ask a question.
And we will take our first question from Jeremy Tonet with J P. Morgan. Please go ahead.
Hi, good morning.
Hi, Jeremy how are you good morning, Jeremy.
Good Thanks, just want to start off on the loan side.
If I could what types of customers drove the C&I growth there and had a residential performed relative to your expectations heading into the quarter just trying to see how you think these respective classes would be trending into 2022, you know, particularly with retained residential load.
Yeah. So I think residential has been stickier than Nicol forecasted going into this year that we expected to give back some of the call. The residential gains that we saw last year, but it's been sticky.
If you look at it year to date basis residential is up a 1.8%. So I think that's that was one of the big drivers of our updated guidance for the year.
A lot of that is in Colorado, If you look at where Colorado has been we also see strong customer growth on the residential side across all of our service territories.
Residential permits are building permits are significantly up on the C&I side I think it's we're really seeing good rebound in across all all CNI sectors in our op codes, but really the Permian basin is coming back you know we focus a lot on what's happening with our oil and gas customers and S. P. S.
Now we look at some substations that directly serve those loads and that load is up 25% even relative to pre pandemic levels and in so we're hearing are those customers are disciplined but continue to drill and also theyre looking at electrification.
They're feeling ESG pressure and it is a big focus on electrifying drill rigs pumps compressors, certainly good load growth for us So I think we're.
Pleasantly surprised with the strength of our sales and confident that it will continue into next year.
Got it and just on residential for next year do you expect more kind a give back or have we kind of hit a new normal of as far as kind of partial work from home what have you.
You know I you know I think we expect a slow give back I think there'll be a the amount of stickiness long term that will be there as you think about return to work and I'll give you. Our example.
We have a telecommuting policy for our employees when they come back to work so they'll be able to work from home on a on a part time basis and I think we will see that stickiness.
For a long time, but I do think it will come to start to come down from last year and this year a little bit.
Got it that's helpful. Certainly the northern Delaware, there in new Mexico really a lot of activity you could see it coming through fee. There and then just wanted to pivot I guess you know it's a bit early for our MISO <unk> process, but just wondering what your current thoughts are or what you might be able to say as far as the first wave of projects.
It could come out there could you frame your expectations of the timing of the release the volume of investments expected potential start completion of project announced.
Yeah, Hey, Jeremy It's Bob agreed.
I agree that the analysis and the output of up to <unk> 21 has been probably slower than we expected. We do expect a series of M tests over the next number of years that will continue to highlight the need for transmission expansion in the upper Midwest.
My expectations for 'twenty one R. R.
Reasonable maybe modest I think we'll see more in 'twenty two 'twenty three I think the timeline for construction is probably.
At the very tail of this five year plan, but probably more in the back half of the decade for these projects is going to take a while to get through once you file the proceeding is going to take a while to get through permitting and things like that and then actual construction so probably outside of our five year forecast, but really in the five to 10 years after that.
Got it just one last one if I could for the incremental Capex. How do you expect a line of sight to develop here as the IRB process continues could could the opportunity be fully defined in 2022 or do you expect it to take more time.
Yeah, I expect 'twenty two for it to really shape up you know call. It a year from now we should have a real good clarity of Q1 of next year, we expect the phase ones of those resource plans in both Minnesota and Colorado.
To be approved by their commissions and with a substantial amount of renewable opportunity and growth in each of our jurisdictions as I highlighted in my prepared remarks, I will go through phase II processes through Q2, and Q3 of next year and we expect to be back here next year, having some pretty good clarity on the outcomes and for <unk>.
Clarification phase two is there they're the request for proposals to determine how much the PPA versus the ots and ownership.
That's very helpful. That's it for me thanks.
Thank you.
And we will take our next question from Andrew Kim with Goldman Sachs. Please go ahead.
Thank you my first question and apologies if I missed it is and the on the Minnesota side of things for urea cost recovery process, where are we in that process and you know similar to what you got on the Colorado side or do you think that there's a potential for a constructive settlement there.
Okay.
Yeah, So hey into this is Brian so in terms of Uri in Minnesota. The Commission is has approved recovery of the cost over 27 months subject to a prudency review, there's some disputed amounts if you remember the department of Commerce dispute at about $20 million of our call.
And the OAG disputed about $34 million of our costs. So we'll work through that proceeding we'd expect to see intervenor testimony late December and then a commission decision mid next year no.
Feel like we've acted prudently and followed commission improve hedging policies and we feel good about working through the process with the commission and expect to reach a constructive outcome.
Got it.
Question, just a little bit longer term maybe for Bob.
Youre seeing a lot of other utilities in their generation transformation plan.
Putting out timeline for coal retirement from the 23% from you know in 2040 period to the late 2000, Twenty's and whatnot.
I know in your Colorado, and Minnesota jurisdictions, you have to hire people that have been filed that are you know that call for acceleration and have robust plans in place, but just how much further acceleration opportunity do you think is possible given the current regulatory frameworks that are in place and you know maybe from a financial and reliability perspective, as well and you know why.
What other helper items do you think are needed to cut.
Further support our exploration.
Yeah. That's a great question and look we've been a leader in coal plant transitions over the last decade, and we expect over the next decade to close the majority of the coal plants on our systems across the country will be out of coal in the upper Midwest by the end of this decade.
We are and where were we have plans and approved plans to close a coal plant almost every single year. This decade, which you know we've done a great job of transitioning the communities and the employees as part of that program. Our philosophy has been long runways into making sure that we take care of the communities. The property tax base, we get a chance to do.
Economic development and bring businesses back to those communities has supported us and those assets for decades.
So with the proposal on the table for us.
Production tax credits that are part of the reconciliation Bill you know I think youre going to see with a 10 year window, we've got a long runway to manage this transition.
And I think for the company, we are going to potentially accelerate areas that that might've been a bit behind as best we can but these resource plans are very much in the works.
And so we expect to work through these resource plans and we fall about every three years. So you know come 24, so we'd have another bite at the Apple to think about the remaining assets on our fleets and those transitions.
At the core, though we need we need to identify that next generation of generation. We were the first company to announce we'd be carbon free by 2050, I think what we need is another type of emissions free generation and I think the infrastructure Bill triples D O funding for research and.
I think that's critical for the industry to progress past, where we expect to be which is about an 80% to 85% carbon reduction by the end of the decade.
That makes sense. Thank you so much.
We'll take our next question from Julien Dumoulin Smith with Bank of America. Please go ahead.
Hey, good morning team. Thanks for the time, perhaps just the reconciliation hey, good morning.
Just to pick up on the reconciliation point I wanted to follow up on this and just how are you thinking about the potential for expanding repowering here, depending on the various combinations on ptc's here I mean, it seems like you're all position might be particularly enviable when it comes to leveraging an expanded PTC could you elaborate a little bit more specifics.
On some of the opportunities that could emerge there I mean, I know we've been talking about repowering in various forms.
<unk> here for a bit.
Yeah look repowering is a great opportunity for us we've been leaders in wind for 15 years. So we've got some assets that have moved past their PTC dates.
And we've got a lot of wind on our system already we have four repowering underway already that were approved as part of the R&R playing here in Minnesota.
Think that this bill again, which lacks a lot of definition and clarity, but would provide people who've owned wind for a long time to repower those assets. So we haven't delved into the details on our side on our legacy assets and what this would open up for for Repowering, but I think the opportunity could be.
A pretty substantial yeah, and I think if you Julian this is Brian if you heard me talk before if you look at our our PPA buyout strategy is particularly the ones who've been successful and have been on the wind side, where we bottom out in repower them. So I think a long term extension of wind P. T season, even solar Ptc's, new solar PV sees longer.
Term open up that P J about opportunity or kind of just extend the runway for that longer term right. We're obviously opportunistic and you've got to make it work for the customers and show customer benefit and make it work from a financial perspective, but I think that's a longer term opportunity that disrupt conciliation package and the 10 year of extension of credit Springs.
Got it excellent and then I mean, the risk of staying on the subject of reconciliation here can you elaborate is there anything else that you all are looking at particularly closely and scrutinizing in terms of potential angles out for you. All specifically here I mean, I know, we talked about transmission a little bit ago.
Perhaps maybe elsewhere what else are you seeing in that reconciliation bill that could really move the needle beyond the PTC in front of us.
Yeah look I think the I think the bill lacks a lot of clarity and I understand even even towards the goal line, we were putting in a $100 billion or so of of government infrastructure proposals that lack a lot of clarity from our side, but I see real opportunity in hydrogen as I mentioned in the prepared remarks.
Storage and transmission with.
With potential developments in and obviously with the potential for a nuclear production tax credit you are talking about significant opportunities on the customer bills side as our plants run.
Through the next decade as we've applied for in the in the Minnesota Resource plan. So opportunities are out there, we really honestly without a lot of clarity on the bills.
Laxson definition, but that's the stuff we're going to be working on through the course of the next couple of months.
Have more clarity as we get more insight into the bill text.
Yes, no I appreciate your prepared remarks, it sounds like just to clarify that on the nuclear front. It sounds like you could potentially tap into that depending exactly on how it's framed here.
For your regulated correct Yep.
Excellent good to hear alright, well ill pass it on thank you guys very much.
Thanks Julien.
And we'll take our next question from Steve Fleishman with Wolfe Research. Please go ahead.
Hey, good morning.
So.
Just a I think Brian you said in your remarks that your equity needs could be lower for a conciliation passes could you explain that more.
Yeah.
Yeah, absolutely Steve as you know.
Significantly significantly be reduced.
If the current primary passes now still.
A little light on details in terms of what gets passed what you see you know we have $1 $2 billion of equity in our plan and you can see that cut significantly down right. The direct pay opportunity reduces called the tax inefficiency and provides a probably you know call. It 75 to 100 basis points of improved cash flow and so.
We look at that and molding them from a financing perspective, it gives us a lot of opportunity to reduce those equity needs. So we're pretty excited about the overall plan really good from customers. When we look at that long term tax credit extension and what that can do for our customers.
Okay, and then I know this is also sorry same topic.
I know this is early but the oh it looks like they've added up the provision of a minimum corporate tax of 15% on larger companies like yours.
And I think renewables credits are excluded from that which is good.
But I don't know if there might be other issues related to that for you. So could you talk a little bit about how to think.
Think about that provision and.
I think bonus went away with the Trump.
Changes, but just.
Thoughts on that issue and whether that could be.
Our pressure.
Yeah. So.
You know, it's a new regime and we spent the last ski yesterday looking through the legislative tax in assessing that and we think it's for us very manageable in terms of really it's the way. It's qualified as a book alternative minimum tax so different than the old the empty that existed, but overall, we feel comfortable with.
With Howard working we can manage through it and so when we look at the overall package, we viewed as very positive for us so, but again like I said, there's a new regime and in details will continue to come out, but that's our initial read on it.
Great that's very helpful.
Last question just.
High level you you obviously have the two big.
Rate cases, Minnesota, Colorado.
You've had a lot of success and regulatory for a while now I guess, the one thing that might be different today is just a lot of upward.
Rate pressures.
Yeah.
Those are decent sized rate filings there is fuel costs are rising and Yuri and things like that just could you talk about does this make that.
You know different this time.
You know, Steve it's Bob and Thanks for the question you know one of the key tenants of our strategy is affordability for our customers.
You hear how resource planning will will drive over the long term.
Continued transitions in renewables that'll drive customer bills relatively lower we always worked for ways to mitigate the.
The customer impacts.
These cases are largely capital cases under our approved capital investment plans and we have deferred and at least in the Minnesota side for over six years, we haven't had a case and we've offered ways to mitigate some of the impacts of this case in particular, if you remember we deferred cases throughout the pandemic.
And feel like we've been very judicious in watching our O&M expenses and trying to continue the investment plans and drive the clean energy transition, but ultimately end up investing in capital that that will ultimately need to get recovered. So our plans we've offered mitigation on interim rates.
We think that the the bill increases are manageable I think under the proposal will be down at about a dollar and a quarter a month for residential customer. So I think very manageable in total bill impacts.
And so other areas, we improve we work hard on if you think about our steel for fuel program.
And the success of adding wind in the upper Midwest that we've talked about this at the outset, but that addition of those megawatts has provided a natural gas hedge we think we saved our customers over $300 million per year by having wind blowing instead of procuring natural gas on the margin so very successful steel for.
Fuel program.
Which doesn't necessarily show up but it is mitigated bills over the last years and certainly with this uptick in natural gas pricing.
Okay.
Great great. Thank you so much.
And we'll take our next question from Douglas <unk> with Evercore ISI. Please go ahead.
Hey, good morning morning won't give or take thank you for taking my question.
<unk> answered all the questions I have maybe just elaborate a little bit on the last point you made about natural gas prices.
We've had a ton of discussions with investors on that front. So.
Perhaps your hedges your gas assets holiday plays.
No impact on customer bills or anything that you can share with us.
Yeah, So really Bob's point was really around our no our owned wind investments, providing significant fuel reductions and we look at what the costs would have been had we not had those wind farms would ran a $300 million higher impact to our customers on a year to date basis. This year. So that's really what Bob's point is.
I think the broad or your broader question is around kind of how are these higher commodity costs potentially impact our customers and we think about on the electric side I think we're really well positioned right Bob already made the point about our win strategy our steel for fuel strategy, but also look right.
Natural gas is a relatively small portion of the overall customer bills on the electric side and we also have length. I mean, you look at in NSP U S. P. S. A this is something that doesn't quite come through clearer, but we've had liked this year and we can sell into the market and we've provided over $300 million in market sales.
That credit back to our customers and help offset some of those higher commodity costs. So I think we're really well positioned on the electric side and don't see a significant impact on our customers on the LDC side you know.
Certainly there there's less you can do there given the commodity costs are are a higher portion of our customers Bill.
But the.
On the going into the winter right, we have physical storage, we have financial products and so I think we're you know when we look at it for take Colorado. For example, you know I think our forecast or an impact the average impact on our residential customer bill is about $15 per month for this winter. So we.
I think it's manageable, but we are obviously to look for every opportunity we can to help mitigate these customer bill impacts.
Things back to the $15.
15, one $5 per month rate.
One five yes, not five zero.
So what would that be a percentage wise.
It's about 20% over the wind in the winter months.
Got it thank you so much.
And we will take our next question from Sophie Karp with Keybanc. Please go ahead.
Hi, Good morning, and thank you for taking my question.
A couple of housekeeping items, if I may.
You guys are showing some.
Some equity needs and your financing plan I was wondering can you give us some color on what shape and form those might come.
I mean, as and and what what should we expect in terms of timing.
Yeah, I think yeah. We show you know, we'd get about $450 million of equity through our dividend reinvestment and benefits programs. So that's.
And then the other piece, we say $800 million, that's likely we'd do it through an aftermarket program just through an ATM and we have flexibility over that five year timeframe as you look at our capital needs.
Sophie if you're if you want for modeling purpose, you can kind of assume something ratable, assuming again, assuming that the that could be significantly reduced through a direct pay program that could potentially be approved by the government by year end.
Got it got it and then just overall the Capex is going higher right and so how should we think about the rate base growth in this scenario and they can appreciate there's lots of puts and takes here with the uncertainties.
Uncertainties with what the Washington is going to do but in general how should we think about that then the corresponding pending regulatory lag in the earnings growth with this new forecast and then if you guys not prepared to talk about this now let Gwen when do you think about those numbers.
Yeah, No I think we're pretty excited about our new capital plan I think we as Bob mentioned drives a lot of benefit for benefit for our customers and it's.
Based off of our kind of 2021 rate basis roll hordes of six 5% rate base growth for our five year plan and then if you look at that call it potential incremental capital that we need on the transmission system and in some renewables that could come out of the resource plans that could push north of seven to about seven 3% if we executed on that.
And a lot of this right depending on the type of capital it could be recovered through riders. If its transmission of renewables are no built into our multiyear plan in Colorado. So we're comfortable with the overall capital plan and have kind of plans in place to address the regulatory regulatory recovery of it and.
And so if you look at the slides that we do detail the rate base growth by year. So if you want to see that you can check that out.
Got it thank you.
Finally, I'm, Colorado, So I'm pretty good outcome, I guess with the a settlement there.
Cost recovery.
Should we think about potentially that open the door on the settlement in the rate case, you have there or is it too early to say.
Well I think you're hitting on one of the key points of the settlement I mean, we put four proceedings behind us as part of the settlement.
So that we could get to the more strategic conversation Sophie.
Power pathway in the resource plan are certainly right in front of us and ripe for fourth quarter conversations and then as you mentioned longer term you know the the electric rate case in Colorado could also be in there. So yes, I think what it says is we've got pathways to settlement in Colorado, We can reach constructive outcomes, we wanted to clear the underbrush a bit.
And get to the bigger and more strategic issues.
Thank you I appreciate the comments I'll jump back into queue.
Okay.
And we'll take our next question from Travis Miller with Morningstar. Please go ahead.
Good morning, Thank you.
Hey, Travis City drivers.
I wanted to kind of build on the customer affordability and rate, making a little bit.
If you look holistically across all the regulatory rate, making proposals and such that you have out there.
What kind of buckets around.
Those components. So they allowed ROE in your cost of capital another bucket being operating cost recovery and other bucket being capex.
Where are you seeing the most pushback in terms of <unk>.
Keeping customer bills affordable.
On that.
You know I think.
Roy has always been an area of dispute in our rate case, right. So I think that.
No I don't think that's unique to us I think that's that's pretty common across our other utilities are that that's one of the big levers that they looked at and in determining what the appropriate ROE is now we feel pretty good that you know from where we stand you know are always I've been authorized over the past few years have been.
Below the national average so when we think about ROE risk there, we think of more of a potential upside in getting calls sort of national average rate as we know we're leading the clean energy transition, helping our state's lead.
With their policy goals. So I think there's an opportunity there for us on the ROE side no for US I think we're pretty proud about our O&M story now if you go all the way back to 2014 and look at where we are today were basically flat from an O&M perspective. So we saved if you you know if you just apply to 2% inflation growth on that number.
<unk> that'd be several hundred millions of dollars that we've avoided and save our customers annually. So I think you know overall I think we have a really clean story. Our cases are primarily capital driven you know investing in in the needs of the system. So I think overall no. Obviously you have sometimes its lumpy. If you hadn't filed the case in six years, then becomes a big headline.
Number, but you know we look forward to working with our parties and the commissions on working through these rate cases, and really delivering a great product in hand.
Travis It's Bob just one more thing to add on to what Bryan said, which I completely agree with we've got you know what I'm.
This earlier, we've got such a favorable renewables regime, where we said that we've been able to both mitigate commodity increases whether that's coal or natural gas over time.
To deliver on our steel for fuel premise and drive the fuel component of customer bills down and provide sort of a mitigate in terms of volatility and that provides real value both.
Both on the residential side, but when you talk to our industrial customers stability and predictability is what they really want is they are making investments in their own business and by being able to have a favorable regime for that we can deliver renewables.
Difficultly more beneficial costs and a lot of the country and that has helped mitigate our total bills for all of our customer classes.
Okay.
Yeah.
Okay great.
We appreciate it and you had answered all my other questions.
Okay.
And we'll take our next question from Paul Patterson with Glenn <unk> Associates. Please go ahead.
Hey, good morning.
Hey, Paul Good morning.
Really quick clarification question on I guess, it's Jeremy.
Just on a high level.
1% sales growth.
I realize that it's been shifting around or what have you and of course, we've had COVID-19, but just going forward.
2022.
For my understanding would you say that that 1% is kind of what you see as being now in the new normal number not so much between the classes of customers just a general projection in 'twenty three et cetera.
You think that that sort of your new.
Our run rate in terms of sales growth.
Think it might be looking beyond 2022, I think 'twenty to 'twenty, two we're still starting to see still a little bit of a rebound.
From the depths of Covid. So I don't know if that is a full 1% probably between zero and 1% on the longer five year forecast, but I think that's.
Theres upside opportunities as I, all hedge when I give that number there is upside opportunities right from electric vehicles and now we're just getting into the discussion of beneficial electrification. So I think longer term, there's a lot of opportunities on the electric sales side, but I think for this this front five year, probably talking in the zero to one person.
<unk> after 2022.
Okay, that's great and then in terms of.
Inflation no change in that since we talked about last quarter. So I don't want to go over it again, but unless there has been a change in your outlook has there been any change or any new thoughts about it.
No, but I mean I'm sure you read the same headlines as we all do with the near term inflationary inflationary pressures, but no real changes from a commentary on Q2.
Awesome, because we think about it longer term gotcha.
Gotcha. Thank you.
Well take our next question from Masha Kahn with <unk>. Please go ahead.
Hi, good morning.
If I heard correctly in response to Steve's question, you said that.
This reconciliation built buses in the direct pay out provision that you can eliminate most of your equity needs.
One 1 billion that you have in the plan is that accurate I just want to like I said, we could significantly reduce our equity needs.
Significantly, okay significantly as more than 50%.
[laughter] I think significantly as significantly and we are we really have to see the details of this plan right. It's it's a framework in the details of our lives. So once we get through all the nuts and bolts of it will come back with it assuming you get passed through.
We are optimistic that that gets passed we will come back with the full details on it.
Okay. Okay. So, but then if that significantly happens hopefully.
Then that should imply a higher growth rate because we have less dilution is that would that be a reasonable assumption one leading to the other.
Well.
There are some puts and takes you could see a little bit lower rate based growth depending on the details of it. So there's puts and takes but I think overall, we're positive about where the reconciliation package stands both for our customers and for us as a company.
Okay shareholders Okay.
Thank you.
Yeah.
It appears there are no further questions at this time I'd like to turn the conference as CFO, Brian Van Abel for any additional or closing remarks.
Yes. Thank you all for participating in our earnings call. This morning are with any questions. Please contact our investor relations team.
This concludes today's call. Thank you for your participation you may now disconnect.
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