Q4 2021 WEC Energy Group Inc Earnings Call
Good afternoon, and welcome to WEC Energy group's conference call for fourth quarter and year end 2021 results.
This call is being recorded for rebroadcast.
All participants are in a listen only mode at this time.
Before the conference call begins.
I remind you that all statements in the presentation.
Other than historical facts.
Our forward looking statements that involve risks and uncertainties.
They're 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 factors described in WEC energy group's latest Form 10-K .
And subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated.
During the discussions referenced earnings per share will be based on diluted earnings per share unless otherwise noted.
After the presentation.
The conference will be open to analysts for questions and answers.
In conjunction with this call.
Package of detailed financial information.
Its posted at WEC Energy group Dotcom.
A replay will be available approximately two hours after the call.
And now it's my pleasure to introduce Gale Clapper executive Chairman of WEC Energy group.
Well good afternoon, everyone. Thank you for joining us today as we review our results for calendar year 2021, first I'd like to introduce as always the members of our management team who are here with me today, we have Scott Lauber, who is now our president and Chief Executive Sha Lu, Our Chief Financial Officer, and Beth Straka, Senior Vice President of corporate.
<unk> and Investor Relations.
As you saw from our news release. This morning, we reported full year 2021 earnings of $4.11 a share. This exceeded the upper end of our most recent guidance, which was $4.07 a share our positive results were driven by favorable weather solid economic recovery in our region and our continued.
Focus on operating efficiency, our balance sheet and cash flows remained strong and as we've discussed this allows us to fund a highly executable capital plan without issuing equity.
I would also note that the earnings were reporting today are quality earnings with no adjustments.
Now as you know we've been very active in shaping the future of clean energy looking back on 2021, we said some of the most aggressive goals in our industry for reducing carbon emissions.
Cross our generating fleet, we're targeting a 60% reduction in carbon emissions by 2025, and an 80% reduction by the end of 2030.
From a 2005 baseline in fact by the end of 2030, we expect our use of coal for power generation will be immaterial and our plan calls for a complete exit from coal by the year 2035.
Of course for the longer term, we remain focused on achieving net zero carbon emissions from power generation by 2050.
Now, we all recognize that advances in technology will be needed to decarbonize. The economy by 2050 and hydrogen of course could be a key player a key part of the solution in the decades ahead to that end, we announced last week one of the first hydrogen power pilot programs of its kind in the United States.
We're joining with the electric power Research Institute to test hydrogen as a fuel source at one of our newer natural gas powered units located in the upper Peninsula of Michigan. The project will be carried out this year and the results will be shared across the industry to demonstrate how the use of hydrogen could materially reduce.
Carbon emissions.
Switching gears now we're driving forward on our $17 7 billion dollar ESG progress plan the largest five year plan in the company's history. The plan is focused on efficiency sustainability and growth.
One of the highlights as the planned investment in nearly 2400 megawatts of renewable capacity over the next five years. These renewable projects will serve the customers of our regulated utilities here in Wisconsin.
Overall, we expect the ESG progress planned to support average growth in our asset base of 7% a year driving earnings growth dividend growth and dramatically improved environmental performance and.
In summary, we believe we're poised to deliver among the very best risk adjusted returns our industry has to offer.
And now let's take a brief look at the regional economy, we saw a promising recovery throughout 2021, despite the prolonged pandemic.
The latest available data show Wisconsin's unemployment rate down at 2.8% folks that's a record low and more than a full percentage point below the national average importantly jobs in the manufacturing sectors across Wisconsin have returned to pre pandemic levels.
And major economic development projects are moving full steam ahead horrible the gummy Bear company is now recruiting workers and its brand new campus in Pleasant Prairie.
<unk> has begun relocating employees to its new state of the art Milwaukee campus.
Milwaukee tools downtown office Tower is set to begin operations. This month and we see more growth ahead. For example, a b b, a global industrial and technology company and Saputo, a leading dairy products company have announced plans were major expansions in our region and.
And finally, you've heard the phrase a rising tide lifts all boats.
Well I am pleased to report that one of the most celebrated luxury boat makers in the world Grand craft boats is relocating its operations from Michigan to the Milwaukee region.
J Lo George Clooney, Robert Redford Theyre, among the high profile clients of grant craft, so it'll be interesting to see who shows up below deck.
Our next analyst day.
Bottom line, we remain optimistic about the strength of the regional economy, and our outlook for long term growth with that I'll turn the call over to Scott for more details on our utility operations and our infrastructure segment, Scott All yours. Thank you Gail.
Looking back we made significant progress in 2021, I'll start by covering some developments in Wisconsin.
As Gale mentioned, we're continuing to make progress in the transition of our generation fleet and our ESG progress plan.
I am pleased to report that our Badger Hollow one solar project is now providing energy to our customers you will recall that we own 100 megawatts of this project in southwest Wisconsin.
We have also made progress in the construction of Badger hollow tube.
Currently we expect an in service date in the first quarter of 2023. This factors in a delay of approximately three months due to ongoing supply chain constraints we.
We do not expect a material change in the construction costs.
In addition, the public service Commission has approved our plans to build two liquefied natural gas storage facilities in the south eastern part of the state.
Construction has started and we plan to bring the facilities into service in late 2023 in mid 2024, we expect this project to save our customers approximately $200 million overtime and help ensure reliability during Wisconsin coldest winters.
And we recently signed our first contract for renewable natural gas or RMG for our gas distribution business will be tapping into the output of one of our large local dairy farms. The gas supplied each year will directly replace higher emission methane from natural gas.
Yes that would have been entered our pipes.
This one contract alone represents 25% of our 2030 goal for methane reduction.
The Wisconsin based company U S gain is planning to have R&D flowing to our distribution network by the end of this year.
The Commission also approved the development of Red Bar.
A wind farm in south Western part of the state.
We expect our Wisconsin public service utility to invest approximately $150 million in this project and for it to qualify for production tax credits when complete it will provide WPS with 82 megawatts of renewable capacity.
And just this past Monday, we filed an application with the commission for approval to acquire a portion of the capacity from West Riverside Energy Center West Riverside is a combined cycle natural gas plant owned by Alliant energy.
If approved Wisconsin public service would acquire 100 megawatts for approximately $91 million.
That's the first of two potential option exercises, we expect the transaction to close in the second quarter of 2023.
Looking forward, we expect to file a rate review for our Wisconsin utilities by the by May.
We have no other rate cases planned at this time.
Turning now to our infrastructure segment, the 190 megawatt Jayhawk wind farm located in Kansas began service in December .
We invested approximately $300 million in this project.
Overall, we have brought six projects online in our infrastructure segment, representing more than 1000 megawatts of capacity.
And as you'll recall, we expect the we expect the thunderhead wind farm to come online for the second quarter and the Sapphire Sky by the end of this year.
Including these two projects we plan to invest a total of $1.9 billion. In this segment over the next five years and we remain ahead of plan and with that I'll turn things back to Gail Scott. Thanks. So much we're confident that we can deliver our earnings guidance for 2022, we're guiding as you know in a range of $4 29.
Cents, a share to $4 33, a share the midpoint for 31 represents growth of 7.5% from the midpoint of our original guidance last year and you may have seen the announcement that our board of directors at its January meeting raised our quarterly cash dividend by seven 4%.
We believe this increase will rank in the top decile of our industry. This also marks the 19th consecutive year that our company will reward shareholders with higher dividends, we continue to target a payout ratio of 65% to 70% of earnings right in the middle of that range now so I expect our dividend growth will continue to be in la.
Line with the growth in our earnings per share next <unk> Shah will provide you with more detail on our financial results and our first quarter guidance Shah.
Thanks, Gail turning now to earnings our 2021 result of $4 11 per share increased 32, or eight 4% compared to 2020.
Our earnings packet includes a comparison of 2021 results on page 17.
Walks through the significant drivers.
Starting with our utility operations, we grew our earnings by 10% compared to 2020.
First weather added farhang, mostly driven by colder winter weather conditions compared to 2020.
Second continued economic recovery drove a 9% increase in earnings.
This reflected a stronger weather normalized electric sales as well as the resumption of late payments and other charges.
Let me give you some highlights on our weather normalized retail sales.
They're all retail deliveries of electricity, excluding the iron ore mines were up two 6% compared to 2020.
We saw a continued economic rebound in 2021 in our service territory.
While commercial and industrial electric sales were up four 4% from 2020.
And large commercial and industrial sales, excluding the iron ore mine were up five 1%.
Natural gas deliveries in Wisconsin or relatively flat.
Excluding gas used for power generation.
Lastly rate relief and additional capital investment contributed 14 cents to earnings.
And lower day to day, O&M drove a <unk> <unk> improvement.
These favorable factors were partially offset by 17 <unk> of higher depreciation and amortization expense.
And a net three cent reduction from deal costs and other items.
Overall, we added 10 cents year over year from utility operations.
Earnings from our investment in American transmission company decreased <unk> <unk> per share year over year.
Deposits are being capped out additional capital investment was more than offset by two factors.
'twenty 'twenty FERC order that benefited 2020 earnings and an impairment that we booked in the fourth quarter of 2021 and then a last name outside of the ATC service territory.
This substantially wrote off all of the goodwill on the project.
Earnings at our energy infrastructure segment improved six cents in 2021.
This was mostly related to production tax credit from the blooming Grove and to conquer Ridge wind farms.
Finally, we saw an 18% improvement in our corporate and other segment.
Lower interest expense contributed seven turns year over year.
Also we recognized a forest and gain from our investment in a fund devoted to clean energy infrastructure and technology development.
The remaining positive variance related to improved Rabbi Trust performance and some favorable tax and other items.
In summary, we improved on our 2020 earnings <unk> 32 per share.
Looking now at the cash flow statement on page six.
Net cash provided by operating activities decreased 163 $9.
The increase in cash earnings was more than offset by working capital timing, mostly related to higher natural gas prices.
As we resumed normal collection practices and this spring, we expect working capital to improve throughout the year.
Okay.
Total capital expenditures and asset acquisitions were $2 $4 billion in 2021.
This represents a $471 million decrease compared to 2020 due primarily to the timing of the in service date of Thunderhead Wind farm.
Turning now to financing activity, we opportunistically refinanced over 459 $459 of holding company debt during the fourth quarter.
This reduced the average interest rate of these nodes from four 5% to two 2%.
We continue to demonstrate our commitment to strong credit quality.
Adjusting for the impact of voluntary pension contribution and a year over year increase in working capital R. F O to that was 15, 7% in 2021.
Finally, let's look at our guidance for sales and earnings.
Our weather normalized sales in Wisconsin, we're expecting half a percent growth this year in both our electric and natural gas businesses.
Continued growth after a very strong year.
In terms of 2022 earnings guidance.
Last year, we earned a dollar and 61 per share in the first quarter.
We project first quarter 2022 earnings to be in the range of a dollar in 68 cents per share to a dollar and 70 cents per share.
This forecast assumes normal weather for the rest of the quarter.
And as Gail stated for the full year 2022, we are reaffirming our annual guidance of $4 29 to $4 33 per share.
With that I'll turn it back to Gail sure. Thank you. So much overall, we're on track and focused on providing value for our customers and our stockholders operator, we're now ready to open it up for the question and answer portion of the call.
Now we will take your questions. The question and answer session will be conducted electronically.
To ask a question.
Please press the star key followed by the digit one on your phone.
If you are using a speaker phone.
Off your mute function to allow your signal to reach our equipment.
We will take as many questions as time permits once again press star.
And then one on your phone to ask a question.
Okay.
Your first question comes from the line of Shopper Rosa of Guggenheim Partners.
Rock'n'roll Shar how are you doing today, how are you doing gal.
All good.
Good.
Yes excellent.
So just I know this seems like a perennial topic at this point, but any sort of thoughts on the potential end of Q IP in Illinois. It seems like efforts till eliminated are getting traction yet again with obviously a piece of legislation there was a press conference on Monday.
It is scheduled to expire so what are your thoughts here I mean, it's a little bit noisy just high level would be great.
Terrific. Thanks for the question first of all.
This is really nothing new each year late in the session for the past five years.
Bill has been introduced very similar bills have been introduced each year for the past five years, we don't expect any significant movement in that piece of legislation.
Just exactly as what happened in the last five years you are correct under current law.
The Q IP rider that allows us to.
Put into.
Basically begin, earning a return on it of after.
New piping is put into service that.
That rider is scheduled by law do expire at the end of 2023. So we got a ways to go I would say this.
We continue to try to educate and I think have had some significant success.
In helping most people to understand two things first of all the Q IP rider on the way. It works is actually the most cost effective way for customers.
So basically have us continue with a very needed pipe upgrade program and secondly, the Illinois Commerce Commission last year.
<unk>.
Authorized a study actually asked us to hire an independent consulting firm called kicker which did more than a year's work and looking at what's needed in Chicago and they concluded that <unk>.
More than two thirds, almost 80% of the remaining gas distribution pipes under Chicago have a useful life of less than 15 years. So the work has to be done we're doing at the most cost effective way possible not concerned about any near term legislation.
Okay perfect.
And then maybe just shifting over to the infrastructure segment. It seems like it's been a bit of a longer time since your last acquisition like Sapphire Sky versus I guess your prior cadence.
Just curious is this sort of a symptom of anything in particular is is there are fewer opportunities or just a lot of competition supply chain.
Returns are you seeing projects, maybe getting pushed out a little bit ahead of federal policy clarity just maybe some thoughts there would be great.
Now I'd be happy to answer that question Shar first of all as Sean mentioned and Scott We're way ahead of plan.
Alright, so jayhawk came into service a bit early on budget Sapphire Sky, which we announced late last year is under construction and I expect Sapphire Sky to begin commercial operation at the end of this year, we don't have anything, particularly in the plan for this year not because there is a paucity of projects as.
We have a robust pipeline that we're looking at I think some of the uncertainty.
Credits maybe.
Maybe slowing things down a hair, but we're way ahead of plan. We didn't have anything specific in this year's plan, but we continue to look we have a we have a robust pipeline of projects and you will see some continuing effort here. We can be as you know very selective because we're so far ahead of plan.
Got it got it and then just one real quick modeling question as the ATC Holdco goodwill impairment that's in the drivers slide just remind me what that is.
Yeah happy to it's a it's an outside the service area investments at years ago.
The joint venture of Duke and ATC made in California, and will let shall give you the detail.
Yes, basically that we jointly own a transmission project, we acquired that backing twenty-third Ooh and Ah we performed the normal goodwill assessment on that project and decided that Jan.
Is there a prudent for us to write down there the majority of the goodwill.
A noncash or country that we did in the fourth quarter 2021.
Got it perfect. Thanks, guys I appreciate it and hopefully the quote unquote no adjustments comment in your prepared remarks was with understood well by the by the audience I appreciate it thanks guys.
Thank you Shar.
Yeah.
Your next question comes from the line of Julien Dumoulin Smith of Bank of America.
Afternoon today.
Hi afternoon. Thanks for the time guys I appreciate it.
Just to clarify the last question just a little bit on peoples in.
Illinois here.
What do you think that because.
The Capex spend that you have over 22 to 26 here, which obviously spans the lapsing of the current program.
You're saying that if that program were to go away here that would that number ballpark would stay intact.
Well, what would happen I mean first of all.
The most direct answer to your question is that work is needed for safety and reliability. So we either would continue assuming that the but the rider was renewed by legislation post post the end of 2023 or we would revert to.
Basically annual rate cases, and again, if you recall in Illinois. The commission. There uses forward looking test periods. So either way that works got to continue and the investment is in the range, depending upon the year of $280 million to $300 million a year.
Got it excellent. Thank you and then just pivoting on the transmission side here, just a card Cardinal Hickory.
Obviously the developments in the courts last week, just how are you thinking about.
<unk> given the federal Wildlife Reserve.
Just in terms of alternate routes timing Capex recovery.
Anything you can share there.
Sure happy to and for those who might not have been following cardinal Hickory.
There is some activity in the courts with an environmental group challenging the permits that were issued by the U S fish and wildlife service by the Middle of Iowa, Our public Service Commission by the Wisconsin Public Service Commission. So there have been multiple permits that would allow this more than 100 mile line to be built coming out.
Of Iowa into southwestern Wisconsin, and then working its way over to the Madison area. So.
So that's essentially a little more than a 100 mile line and to show you. How long. These projects take that project was first envision and first discussed in 2011.
So.
Construction.
Has been underway.
Essentially in the Iowa portion.
The portion in question, where the permits are being challenged is in the southwestern part it's an environmentally sensitive part of the southwestern section of the state of Wisconsin is called the drift Louis area.
Yeah.
American transmission company and again. This is this this is partially own. This line will be partially owned by ITC ATC and the dairyland power cooperative the ATC portion.
No. One has question the permits for that section of the line. So we will see how all of this works out in court, but long story short.
The Wisconsin Commission has reiterated the need for the line.
And reiterated their belief that the approval was appropriate and needed.
We will see how all this works out in court at the end of the day.
That line is an important part of moving renewable energy across the Midwest and industry, Wisconsin. So at the end of the day I'm confident something positive will come out of this may be a bit delayed, but we'll see what happens in the courts I hope that helps Julien.
No actually its good color well I'll leave it there guys. Thank you again and best of luck and hope to see you guys did.
Sounds good thanks Julien.
Sure.
Your next question comes from the line of Jeremy Tonet of J P. Morgan.
Greetings Jeremy.
Hi, it's actually rich Sunderland on for Jeremy can you hear me.
I can what have you done with Jeremy.
Jeremy sorry to Miss but.
I'm happy for me today, just maybe starting around the load growth expectations for 2022, you are curious on the key drivers there and really how you think about realized recovery from the pandemic in 2021.
Maybe how much conservative is conservatism is baked in there for the <unk> outlook.
We're going to let Scott handle that for you he and shower on top of those details I will say this though we were coming off of just as a reminder, we're coming off a very strong recovery.
In 2021, and we see continued growth in 2022, Scott, particularly.
At least I was impressed by the numbers related to the small C&I segment.
You're exactly right Gale in fact, when we go back and Sean I look at our forecast.
Pierre do what to what happened in 2021, we were right on with residential it hit exactly on the positive surprise was in small commercial and large commercial so.
We came in almost our original forecast is about one 3% growth we came in at two and a half at a retail less mind. So yes.
Very happy with the growth that we saw and as you look at it. We can continue in 2022 to expect residential is people can start coming back to work and you're starting to see more and more people returned to work residential to go down a little bit and then that small commercial to grow.
Continuing to expand in there and then once again large commercial we almost have a 2% growth in that large commercial sector. So we're seeing really really good growth and you can see as you look at our longer term plan a lot of good economic growth that <unk> talked about on the call. So a lot of good economic growth come in here too.
Thanks, I appreciate the color there and then maybe pivoting this new pilot program in Michigan Whats the longer term target for blending and how do you think about this program in the context of your entire fleet.
Youre speaking I believe of the hydrogen pilot program that we're going to undertake in the upper peninsula of Michigan at one of our newer rice units and just to put all of that in context for everyone. The rice units.
It's a technology, that's been well proven fueled by natural gas modular technology, if you will.
<unk> does not require water permit I mean, these are really advanced state of the art.
Power generation facilities and the project is really a pilot project.
It's being designed right now we will actually test burn hydrogen and a mix with natural gas up to 25% hydrogen 75% natural gas and this project will will actually be in the field in the fourth quarter of 2023, we with the electric Power Research Institute will then analyze the results.
And as I mentioned in the prepared remarks, the results will be shared across the industry.
We're optimistic that this pilot program one of the first of its kind in the U S will demonstrate that hydrogen with that particular technology. The rice unit technology could be a major player going forward and decarbonize the economy.
Great. Thank you for the time today.
Youre welcome.
Your next question comes from the line of Neel Carleton of Wells Fargo Securities.
Greetings Neil everybody, Yes, Hello are you Neil are you getting snow or ice where you are.
We're getting a lot of it and I'm watching all my neighbors, and my wife, and son Shoveling. The driveway right now so I'm feeling pretty good about winning.
I just got a text from your wife and said your dog.
Yeah.
Yes, bad back I can't do things so anyway, just a question on the solar.
So obviously.
I guess it slipped a little bit.
Understandable, given all the supply chain issues et cetera, but you've got quite a bit more solar in the plan as we look out over the next few years and I'm curious if you're if there's any at this point any reason to be concerned about costs or timing.
From what Youre seeing right now as it relates to the additional I think 13 megawatts that you plan to do over time.
Yeah, Great question, Neil I think the short answer is with what we what we're seeing for 2022 and what we have under contract.
No significant issues other than perhaps some timing down the road Scott your thoughts down the road I mean, we're definitely watching steel prices for the infrastructure and also the exited of solar panels, but as you look at natural gas prices also as those prices go up the economics are still there so.
We expect that some of the costs will rise.
We're monitoring it very closely as you can imagine, but I don't think it's going to change our plan.
Okay, I agree with Scott and Neil one other point.
The drive to Decarbonize the economy.
It is not abating in any way shape or form so.
We continue to see those investments as both needed and.
And expected as we go down the road.
Perfect. Thank you.
Thank you Neil.
Your next question comes from the line of Ducasse Chopra of Evercore ISI.
Greetings to Geis, Hey, How're you doing.
I'm doing I'm doing well, thank you Brad and thank you for taking my question also.
Sure.
This is a modeling question the <unk> and the gain on clean Energy fund can.
Can you just elaborate on that and then what quarter was that gain and then im assuming youre not sort of modeling anything for 2022 and that was a multipart multi part question I'm sorry.
Yeah.
Okay.
<unk>.
I think on the second quarter call I mentioned that Chad we book three.
Again in the second quarter, then we picked up another penny in the fourth quarter so far.
<unk> for the whole year.
And we when we developed the financial plan, we don't.
Try to bound any expectations out anything like an alert Nike matchmaking cycles, but if the market continue to.
I can point to the right point in the right direction and that if we end up having more games, we will be happy to book, but we don't count on those going forward.
She was right we'd be delighted to book more gains I think this was from.
A REIT or re about a revaluation. If you will of one particular investment in the fund that as these funds as you know investing in clean technology some of them hit some of them don't this one hit.
Hit very very well and and with the new round of funding and with the valuation it was perfectly appropriate to to revalue our investment.
Awesome. Thank you for that color and then just maybe.
Your peers on our call today talked about.
I wanted to sort of be interested in your.
Progress on your actually your execution there in your capital plan.
For 'twenty, one you mentioned some supply chain concerns in that to push some of their nuclear projects out. Just wondering are you seeing any of those pressures and how do you actually do in in 2021, where see your targeted Capex plan.
Well I will ask Scott to give you his view as well the one impact we had was really more from COVID-19 than it was from supply chain and that was a large solar farm a large solar field called Badger hollow, one and that got delayed it's now in service that got delayed several months and it was a decision that we have.
To make at the point.
Where we were deep in the pandemic in 2021 to continue the construction of pace, we would've had to bring in about 150 crew people from outside the state to continue the construction at that point in time in the middle of the pandemic. We felt that was really not a very good idea. So we agreed to a schedule delay, but Scott no.
Cost delay at all and that's now behind US no Thats exactly correct in and everything else for 2021, our supply chain worked with our vendors to get everything in line and we've had a practice year for several years that we are ordering some of the long lead time materials, a year year and a half at a time for some of these major projects to make.
Sure we have it so and then the only other item was just what we mentioned in our prepared remarks, whereas Badger hollow too we see about a three month delay right now, but no significant cost at this time.
Excellent. Thank you guys much appreciate the time.
Youre welcome. Thank you for your guys take care.
Your next question comes from the line of Michael Sullivan of Wolfe Research.
Michael How's your it department.
Yes fantastic.
[laughter] you might kind of reiterate no change in your rating right Michael Yes.
For sure.
Hum.
Tom.
The first question, maybe just if you could give us a sense of what the Queen O&M.
O&M savings number was for 2021, and what Youre embedding in 'twenty two guidance.
Happy to do so she has got it right in front of her show.
So for the full year 2021, we ended with one 6% down year over year compared to 2020, we guided earlier in the year to two 3% and were right in that in that range.
And what we've kind of had a second part of your question.
What are you assuming in 'twenty two.
Yes for 2020 till we guide.
That two 1% reduction from 2021.
Okay great.
And Michael up Michael I'm, sorry, I'm sure you recognize this but in light of the general inflation in the economy.
We think thats really really strong performance, we're very pleased about the plan we have in place to deliver what Charles discussing.
Got it okay, and just curious if you could give any latest thoughts.
On where you think things might go with the pending.
Pending issue.
<unk> as it relates to the <unk> adder.
My own guess and this is just a guess, but my own view is.
The R. T O rider is probably history, but to be replaced by something else.
Absent incentive type of mechanism.
I'm guessing the RTL rider as we've known it probably won't survive however, very.
Very important point, we have not assumed the continuation at all of the RTL rider in our forecast.
For 2022 earnings.
Okay. That's great. Thanks, and sorry, just one last one it may be.
It looks like the <unk> to debt metric ticked down a little bit year over year should.
Should we think about that as kind of stabilizing around that.
15%, 57% I think where it came out.
As we go forward target.
Shall your view, yeah, we target.
The 15% to 16%.
Measured by Moodys and S&P Oh. This is right in that neighborhood and as I said in the prepared remarks.
And that is really driven by Europe .
Year over year change in working capital.
Hello, and then that's largely exited it to higher natural gas prices fell and we expect that to recover and we also made a voluntary pension contribution in 2021 overall, we I think we're right in the target range for F O Tibet.
Great. Thank you very much.
Thank you Michael take care.
Keep an eye on our it folks.
Your next question comes from the line of Andrew Weisel of Scotia Bank.
Good afternoon Andrew.
Hey, Thanks for taking my question.
Most of them have been answered I just wanted to follow up a little bit on the upcoming Wisconsin rate case, two quick ones. First is do you see any potential for yet another stay out or agreement to keep rates unchanged I don't mean to be greedy you've done a great job managing the customer bills. Just wondering strategically if you want to extend the stay out or if you feel it's time to have a conversation.
<unk> with regulators and intervenors like you do every so often.
Yeah, It's a great question, Andrew and I think unanimously we believe it's time to reset if you will number of moving parts that are that are in our thinking and first of all as you recall, we've announced the retirement of four older coal fired units at our Oak Creek site. These are 19 sixties vintage units.
And we've announced the retirement of the first two of those four in 2023 and the second two of the four in 2024, so there'll be retirement, there there'll be cost savings there.
And we really have been out of a rate case for so long that it's really just time to step back and reset.
And I think every.
The Commission staff the Intervenors I mean, we all believe is just time to it's just time to take a thorough review again and we're looking forward to that Scott.
It's going to be a very straightforward rate case, I mean, when you look at our capital investments that we've made the capital investments.
And the majority of them I think when you look at what dollar, but <unk> already been approved and at the Commission right now that's about 60% or a little over 60% of the rate base and then you even add in new services and other reliability capital almost all of this has been approved or great capital additions for reliability are decarbonizing the environment.
It's going to be a pretty straightforward rate cases, as you see us pull the final numbers together here in the next.
Couple of months.
Okay and not to get ahead of that but are you able to give us any kind of high level guests.
Due to rates directionally or quantitatively.
Stay tune, we're pulling everything together the filing is due by May one so we'll certainly have a good conversation with you.
In advance of that.
I think the other thing to remember is this is a place where you do two year forward looking rate cases, so a lot of our capital projects and you see that capital spending is going to come in over two years, just like Gale mentioned the retirement of those plants are over two years. So we'll factor that into so it'll be a multiyear filing we do here.
Very straightforward case, though.
We wouldn't expect to have.
Anything is dramatic in terms of is this is not a case about higher O&M as Scott said. This is a case about capital much of which will have already been approved cap.
Capital needed for reliability and for Decarbonization.
Very good and just a quick follow up is it too early to talk about performance based ratemaking and this upcoming case.
Yeah.
And I'm glad you asked.
For those of you who have not followed it perhaps quite as closely the commission did have an informational hearing about.
Just about the concept of performance based ratemaking.
That hearing came out of.
More than a year's worth of work of the Governor's Task Force looking at climate change looking at de Carbonization looking at what initiatives the state might put in place.
But I think it's very clear from the informational hearing that any changes in the process for putting rates in place in Wisconsin is going to be deliberate going to be thoroughly thought through and I would not expect to have that to have any impact on our upcoming rate review.
Sure.
Okay very helpful. Thank you.
Youre welcome by the way before we go to the next caller I just got a text from one of your brother and who says given your performance Nobody's asking the most important question will Aaron Rodgers be back in Green Bay next year.
The answer to that is I don't know, but your honest is still with us for the Bucks and rock and roll.
Your next question comes from the line of Michael Lopez of Goldman Sachs.
Hey, guys. Thanks for taking my questions and I'll leave my.
<unk>, perhaps at home for now.
There you go really nice night in New York last night.
Real quick.
Just thinking about gas demand.
If I go back over the last several years kind of three or four years or so.
GAAP weather normalized gas demand in Wisconsin was actually pretty elevated I cant even go back five years.
Now this year, you're forecasting about half a percent and then if I look at your November slide deck, Youll kind of forecast I think it's around <unk>, 7% to 1% demand growth can you just talk to us a little bit about the trajectory, meaning why coming down off that kind of first of all what led to the abnormal kind of that 3% ish plus range from a couple.
Years ago and that lasted for several years, and then down a half a percent now kind of as we're coming out of Covid, but then re ramping back up.
Yeah, and Scott now both take a shot at that for a good question Michael.
The easy question. The first piece is what happened.
Why did we not see growth in weather normal.
Gas demand during this past year during 2021 and as we looked at the data I think the answer is really pops out from the data and that is the effect of the pandemic.
If you think about.
If you think about the most dramatically impacted segment of our customer base for the pandemic.
Small commercial and industrial customers. Many of those premises were just closed during you know huge swaths of the pandemic and so they weren't thinking with the restaurants that werent that werent cooking think of the stores that were completely closed or not heated to the normal level. So clearly the impact of the pandemic tempered.
The growth in customer demand for natural gas.
But we still think we're going to see a growth trajectory.
And Scott, we're still seeing strong customer growth.
Thats exactly right and when we look at it we're looking at strong customer growth of about a half a percent maybe seven tenths of a percent.
As you can imagine we're factoring in as prices stay a little bit higher conservation will continue and products continue to become efficient so looking forward.
We're still assuming that half a percent in the future about seven tenths of 1%. So good growth and to Gail's point remember the pandemic started in about March. So last year. There is two months that weren't reflected in the previous year when the pandemic. If we didn't have a pandemic. So that's also why 2021 was a little weaker because of just the timing of that.
Devon.
Yeah, I would just add Michael that eight we came pretty much on top of our forecast last year. So we guided that way. So we came out exactly what we thought it would happen last year.
Got it and then.
Just a follow on question like if I look at 2020 in 2021 earnings.
Both years actually would have been a higher number.
If I back out that kind of roughly the eight tenths of debt extinguishment costs that showed up in each year.
So the earnings number like a lot of companies consider that.
Nonrecurring and I respect the fact that that back things in an ALS Leo kind of stick with gap.
But if I think about it that that is something that probably isn't going to happen in 2022 or 2023, I may be wrong. There. So it would imply the base would have actually been higher meaning that 'twenty, one starting point or the 'twenty starting point, but the growth rate into 'twenty, two and 'twenty three would actually be a little bit lower because just because the starting point is higher.
Kind of thinking about that right or are there.
Are you looking at the debt tranches at the Holdco, and saying, Hey, look I'm going to have other refinancings and I'll, probably incur other similar like cost or are there other moving parts I'm not considering.
Michael asked shall I answer the question about the Holdco debt.
Me, if I can respond, though a little bit more broadly.
There are a number of moving pieces in any given year, but as you know.
Some companies in our industry basically adjust their way to a high growth rate, we don't do that.
And.
I'm glad you're asking the question because I think the quality of our earnings and the fact that we don't adjust our way to a higher growth rate.
That's a differentiator for us and I really do and it shows up in things like cash flows it shows up in things like dividend growth.
And so what we're reporting I mean, we don't nickel and dime you to death with little adjustments here and there just to hit a growth rate. What we're reporting is high quality and real and gap and with that I will get off my soapbox and let Shah response.
Michael I wouldn't.
Just pick out that one item and readjust whatever you're trying to make us because to <unk> point. We are we very much focus on the quality of the earnings if we see favorable weather, we see stronger economic recovery than what we originally forecasted we if we also had some favorable tax regime.
Shouldn't happen in 2020 in the year.
We remain opportunistic about that.
That refinancing and just to just to take advantage.
The development. So I think that's just the normal course, that's what we do to manage manage throughout the year. So I wouldn't take one item out and adjusting it out at all.
Got it. Thank you guys much appreciate it.
Take care Michael.
Your final question comes from the line of Paul Peterson of Glen Rock Associates.
Paul you changed your last name did you.
That's common misunderstanding so.
Lot of my questions have been asked and answered, but and I don't want to nickel and dime you guys did that but just sort of just sort of a quick little follow ups here.
The <unk>.
For the taxes.
Is that how should we think about that going into.
2022.
Is that is there any sort of something unusual there or just how should we think about that going into 2022.
Sure your thoughts yeah. So.
No nothing unusual there as I said on the in the <unk>.
As prepared remarks that was largely driven by the production tax credits. The additional projects that we brought online. So you know that and we expect a couple more projects coming online one in the middle of the year. They either ended the year L.
We expect another eight cents.
Pick up from this section.
The only thing I would warn you is I wouldnt do it two cents per quarter, depending on the.
The timeline of everything else it could be skewed to one quarter versus another but for the year, we expect another 8% increase.
Awesome.
And then just with the goodwill impairment that I know it looks tiny to me I mean, it looks like it's a penny or something maybe but but just.
It was just a little bit curious you guys did a test.
It led to a reevaluation, but but what caused.
What changed in order to have the test.
I'm just sort of you don't think of the transmission project in California, I'm, just sort of curious as to what what made you guys say hey, the goodwill doesn't apply anymore. What was there any particular event or anything there that that had that again I know, it's kind of nickel and dime you guys, but I'm just sort of wondering.
No no problem it was really basically a FERC Roe.
Case.
But that we got a FERC order and we took another look sure.
So Dale mentioned one of the drivers for us for the year over year change for ATC, but if youre just looking at the goodwill impairment, we do that every year, we look at the good well, we do the evaluation Willow Kathy assumptions, including forward looking <unk> E capital expenditure opportunities.
And all of the assumptions around that.
The most recent assessment led us to believe that the goodwill actually should.
It should be written off.
And then nothing is normally just normal number of course.
Right.
Because basically you guys saw a lower lower because of lower Roe.
It had been awarded.
It impaired goodwill that how we should think about it or do I understand you guys correctly or was it something else.
Now its capital expenditure opportunities is that yeah, no nothing unusual.
We just look at the net cash flows and terminal value and apply the different assumptions in that which led to the conclusion that the goodwill should be written off.
Okay, Okay, well, thanks, so much I appreciate it.
You're more than welcome happy to have your questions.
Alright, well I think we've worn you out so thanks, so much for participating in our conference call. Today. We appreciate all your questions and if you have any other questions feel free to contact Beth Straka. Her direct line 4142 to 14639, thanks, everybody take care so long fertile.
Again, thank you for participating in today's conference call you may now disconnect.