Q4 2021 Idacorp Inc Earnings Call
Welcome to Ita Corp's fourth quarter and full year 2021 earnings conference call. Today's call is being recorded in our webcast is life a complete replay will be available later today and for the next 12 months on the Ida Corp website.
If you need assistance at any time during the presentation. Please press star zero on your telephone.
I would now like to turn the call over to Justin Forsberg director of Investor Relations and Treasury.
Thank you Savannah, and good afternoon, everyone.
This morning, we issued and posted the Ida Corp's website, our fourth quarter and year end 2021 earnings release and Form 10-K .
The slides that accompany today's call are also available on <unk> website.
We will refer to those slides by number throughout the call today.
As noted on slide two our discussion includes forward looking statements, including earnings guidance and spending forecast, which reflect our current views on what the future holds but are subject to several risks and uncertainties. This cautionary note is also included in more detail for your review in our filings with the Securities and exchange.
Inge Commission.
These risks and uncertainties may cause actual results to differ materially from statements made today and we caution against placing undue reliance on any forward looking statements.
As shown on slide three on today's call, we have Lisa grow Ida Corp's, President and Chief Executive Officer, Steve Keen <unk> Senior Vice President and Chief Financial Officer, and Brian Button, either Corp, Senior Vice President and General Counsel.
As previously announced Brian will assume the role of Chief Financial Officer on March one.
We also have other members of our management team available for Q&A session after leases, Steve and Brian provide updates.
Slide four shows our quarterly and annual financial results, either Corp's 2021 fourth quarter earnings per diluted share were <unk> 65 a.
A decrease of nine cents per share from last year's fourth quarter.
2021 full year earnings per diluted share were $4 85, which was <unk> 16 above 2020.
<unk> 2021 earnings are the highest in the history of the company and represents the 14th consecutive year of growth in <unk>, earning per share.
We believe this achievement is unprecedented among publicly traded electric utilities.
Today, we also initiated our full year 2022, Ida Corp earnings guidance estimate to be in the range of $4 85 to $5 <unk> per diluted share with our expectation that Idaho power will again not need to utilize in 2022 any of the additional tax credits that are available to.
Support earnings under its Idaho regulatory settlement stipulation. These.
These estimates assume normal weather conditions over the balance of 2022.
I'll now turn the call over to Lisa.
Thank you Justin and thanks to everyone for joining us on today's call.
I'll begin my remarks today 25, with the exciting news at Idaho power just completed the safest year in our company's history.
We experienced record low totals for injuries vehicle accident.
For a time lost due to injury. All 15 employees received the President's award for safety and important recognition for our employees, whose actions exemplify our safety culture.
Safety is one of our core values and I'm very proud of our employees efforts to stay safe both at work and at all.
Our company's safety culture was also recognized by the Edison Electric Institute, which recently awarded Idaho power its inaugural Thomas F. Their own safety leadership and Innovation Award.
Safety is such a vital component of our business and of our everyday lives.
I commend our leaders and employees for their steadfast commitment to keep themselves each other and our communities.
Safety allowance for same base allows us to give our absolute best efforts to our customers and we continue to do just that in 2021.
As noted on slide six our customer satisfaction scores tied the highest year end score in our annual births survey, while ranking at the top of the list among our peer utilities and a national survey.
From working with customers on energy efficiency project to developing a new and improved online customer account tool to expanding our menu of clean energy options. We continue to look for new and innovative ways to interact with our customers and improve our customers' experience.
Reliability also saw another outstanding year, as Idaho power Tech customers lifetime over 99, 9% of the time.
Our field crews load serving operators and employees across our organization stepped up throughout the year to ensure power quality and reliability for our customers, while overcoming drought conditions record summer heat and the highest peak demand for energy our company has ever seen.
Turning to slide seven as Justin just noted <unk> is celebrating its 14th consecutive year of growth in earnings per share.
<unk> mentioned, we believe this is an achievement unprecedented among investor owned utilities in the United States.
And of course quarterly common stock dividend again increased from 71 to 75 per share, marking our 10th consecutive year with a dividend increase.
With the most recently announced dividend to be paid out at the end of this month. The company has paid a dividend for 314 consecutive quarters since $19 43.
He will discuss the 2021 earnings drivers following my remarks.
As noted on slide eight customer growth remains strong at prices across Idaho power service area, our customer base continued its strong trend and grew two 8% in 2021.
We now serve more than 600000 customers.
According to U S News and World report, Idaho led the U S and right in the rate of population growth in 2021, the fifth consecutive year. It has had the nation's highest growth percentage.
We view the reliable affordable clean energy our company provides as a key driver for continuing to attract new business and residential customers to our service area.
Inquiries for incoming and expanding large load projects continue to come in at a rapid pace in.
In December we filed a request with the Idaho PUC for a special contract to bring a 960000 square foot Mega Enterprise data Center, two southern Idaho met.
<unk> is set to become a new customer on our system, creating an expected 100 job and adding capital investment to the local economy with as many as 200 construction jobs needed to build the site.
As noted in their public announcement yesterday meta plans to begin operations in 2025.
The data center also plans to support 100% of its operations through the addition of new renewable resources connected to Idaho power system using the framework for large power customers outlined in our clean energy Your way program proposal, which Idaho power filed with the ITC in December we look forward.
Conserving the data center's energy needs and working to help them better meet its clean energy goals.
In addition to customer growth the economy within Idaho power service area continues to outperform national trend.
<unk> GDP predict sustained economic growth going forward the forecast calls for growth of five 9% in 2022 and four 9% in 2023.
Unemployment within Idaho Power service area is at one 8%, which is significantly below the three 9% reported nationally employment in our region grew two 8% in 2021.
The resource needs identified in our recently filed 2021 integrated resource plan, our IRT continues our path towards 100% cleaner energy future.
As highlighted on slide nine the plan calls for a conversion of two coal units to cleaner natural gas by summer 2024 and operate until 2034.
And exit from coal fired generation entirely by year end 2028.
This facilitates our move away from coal fired energy, while pivoting to transmission renewable energy resources and battery storage along with increased energy efficiency.
As noted in our in our earnings release, we expect the implementation of the IRB could increase our five year capital expenditure forecast by nearly $800 million.
Or 40%.
We continue to work with our plant co owner and regulators as we work toward removing coal fired resources from our system.
Our recently resumed filing with the IPC related to the Jim Bridger plant request for recovery of <unk>.
And return on investment in the coal related plant balances to be completed no later than 2002 2013.
This filing is consistent with the structure of Idaho Power's previous filings related to the north Fahmi and Boardman plants.
In addition to our current low carbon profile Youll also see on slide nine Idaho power has in place short term medium term and long term targets for further reduction.
Our short term target is to reduce cotwo emissions intensity from company owned generation resources by 35% for the period of 2021 through 2025 compared to the 2005 baseline year.
We are finalizing a reduction calculation for the period 2010 through the end of 2021 and it looks like we will do better than our 35% reduction goal.
Our medium term target is based on our Iot, which anticipates a 79% reduction from 2005 emissions by 2030 and of course, our long term target is to be 100% clean by 2045.
While natural gas may be a required resource for the near future to maintain reliability and cost effectively integrate the large amounts of variable solar and wind power on our system. We will continue to look for ways to reduce or offset this need with cleaner energy resources and the deployment of new technology.
We believe all of our Cotwo emission reduction target described above are aligned with the Paris agreement goal of cutting <unk> emissions to net zero by 2050.
Turning to slide 10, we will need new baseload resources to address load growth regional transmission constraints and to replace coal in our energy mix.
In December Idaho power issued its second request for proposal or RFP.
New energy capacity resources altogether. The two rfps are looking to add resources to address projected peak capacity deficit of approximately 101 megawatts in 2023 85 megawatts in 'twenty, four and 125 megawatts in 2025.
As of today, we expect to sign contracts soon related to the 2023 deficit to purchase and own a 120 megawatts of battery storage asset.
We also recently signed a 40 megawatt solar power purchase agreement.
These needed new resources will help meet the growing demand for energy during peak summer evening hours.
The 2021 RFP calls for the addition of 700 megawatts of wind more than 4500 megawatts of solar and nearly 700 megawatts of storage in the 'twenty year preferred portfolio. In addition to the increased transmission capacity that I will discuss in a moment.
The capital expenditure forecast that Brian will address include our plans to invest over $400 million in capital expenditures from 2022 through 2025 for these resource additions.
A critical part of our clean future depends on enhanced transmission as highlighted on slide 11, our boardman to Hemingway high voltage transmission project or <unk> continues to be a cost effective resources.
Preferred IOP portfolio and it continues to move forward.
In January Idaho power entered into a non binding term sheet with the projects. Other two participants Bonneville power administration and Pacific core that contemplate Bonneville.
Transferring its share of the project to Idaho power commensurate with BPA intent to utilize the line for a minimum of 20 years through a long term service agreement taking.
Taking over and building BPA shared the lion's simplified permitting and construction of <unk> strengthening our chances of completing the project on schedule. So we can meet growing customer demand.
Idaho power has begun pre construction activities such as detailed design survey and geotechnical investigation.
We expect to finalize situates permitting in 2022 with align currently planned to be in service in 2026.
We now expect to invest over $380 million. In addition, additional capital expenditures from 2022 through 2026 related to B to H approaching $500 million in potential Idaho power total system rate base related to the project by 2020.
Given the expected growth in rate base.
To date, the major capital investments and current growth.
Current growth projections and other factors, Idaho Power's evaluations show the appropriate time to file general rate cases in Idaho, and Oregon is approaching.
Steady customer growth constructive regulatory outcomes effective cost management project in service date, and economic conditions also play significant roles as we refine the need and timing of the future general rate case.
Turning to a more near term outlook slide 12 shows a recent outlook of precipitation in whether from the national Oceanic and atmospheric administration.
Current weather projections for March through May call for relatively normal condition.
We started with the snowfall in late December and early January and we hope more is on the way to for the winter and.
Clean low cost hydro generation has traditionally been our single largest generation resource.
Strong hydropower generation helps keep our costs low for our customers as we enter this new phase of growth in Idaho power system.
Finally on slide 13, Youll see an overview of recently announced changes in our management team and board of directors.
As we announced last November Steve team, who has played a substantial role in our financial performance over the past several years announced his retirement to be effective October one of this year.
Which by that time, we'll be more than 40 years of service to Idaho power.
The board of directors has appointed Brian buffer to succeed Steve effective March one.
And Steve will stay on as a senior vice president until he retires.
Pat Harrington, our corporate Secretary will assume the role of General Counsel also on March one.
These contribution to Idaho power are hard to overstate.
It has helped us navigate challenges and seize opportunities always making sure we were well positioned financially to best serve our customers and shareholders.
EBIT taken incredible path and has built a strong finance team and Brian is well positioned to continue to lead that effort.
Hope you will have the opportunity over the next several months to join with me in wishing Steve well.
I'd also like to acknowledge our newest board member, Jeff candidate, who was appointed last week Jack.
Jeff is a board member of the Src Arctic slope Regional Corporation, a private for profit Corporation owned by <unk> and representing the business interests of the.
India.
Okay.
Shareholders.
As was previously president and CEO of the Ed Arce Energy service one of their largest business unit.
Jeff has strong Idaho connection having attended northwest Nazarene University here in the Treasure Valley.
And as background makes him a perfect fit for our board with that I will hand things over to Steve for an overview of our 2000 22021 results.
Thank you Lisa.
And thank you to everyone who has helped me work with the success of this company over the years.
Our finance organization has been truly outstanding and Brian will be leading our skilled team with the likes of Ken Petersen and our talented group of finance leaders.
While I'm excited for what lies ahead I will certainly Miss my interactions with all of you.
I can't walk through a hotel lobby without remembering our many great discussions about this industry. So.
Here's a virtual chose to each of you for your interest in <unk> and also for your friendship.
Now, let's move to slide 14.
Where you'll see our full year 2021 financial results as compared to 2020.
We had a very good year boosted by positive weather impacts continued strong customer growth and more typical operating and maintenance expenses, allowing <unk> to achieve its highest earnings ever recorded with more than $245 million and net income.
On the table a quarter over quarter changes youll see our continuing customer growth added $16 million to operating income.
Cooling degree days were 28% higher than 2020, and the hot and dry conditions led to a respected 6% and 1% higher irrigation and residential per customer usage bolt.
More normal operating conditions led to a 3% higher usage per commercial and industrial customer.
You'll note on the table that the combined usage changes led to a $13 $4 million increase to operating income.
Right below this youll see a decrease in operating income of $13 $4 million that relates to the charge for change in the per megawatt hour revenue net power supply cost and power cost adjustment impacts year to year.
A partial driver of this relates to the decrease in annual customer rates, reflecting the full depreciation of all Boardman power plant investments after ceasing coal fired operations at that plant in October 2020.
In addition, the balance of the decrease relates to the amount of net power supply expenses that were not deferred to Idaho Power's power cost adjustment mechanisms.
Recall that Idaho customers generally better than 95% of power cost fluctuations.
And those costs were higher summer heat wave in 2021 impacted wholesale energy prices at a time increased energy usage by our customers.
The summer heat wave combined with cold weather in the southwest.
In early 2021 led to higher transmission Wheeling related revenues, which increased operating income by $16 4 million.
These higher weather related Wheeling volumes, where in addition to two new long term Wheeling agreement, but also increased transmission Wheeling related revenues, beginning last April and running through March of 2024.
Thank you.
Wheeling customers also pay 10% more for Idaho Power's out rate that increased in October 2020 to reflect higher transmission costs.
Rates increased an additional 4% on October one 2021 to account for higher cost of the transmission transmission system going forward.
Next on the table.
Other operating and maintenance expenses increased by $9 $2 million.
Primarily due to a return to more normal levels of purchase services and maintenance costs compared with the previous year.
Each was more negatively impacted by the COVID-19 pandemic.
Also labor related other O&M expenses increased slightly in 2021 and in a moment.
Brian will discuss our future expectations related to O&M.
Idaho power also recorded $6 million as a provision against current revenues to be refunded to customers through a rate reduction expected to take effect in June 2022.
The sharing is premised on a regulatory mechanism in Idaho and based on the full year.
2021 return on year end equity in the Idaho jurisdiction, having exceeded 10%.
We've now been able to share nearly $130 million with Idaho customers, while the earnings support and revenue sharing mechanism has been in place.
This represents more than 6% of total Idaho jurisdiction net income since 2011.
Nonoperating expense led to a $3 $1 million decrease in earnings mostly due to an actuarial related medical plan charge is not expected to recur.
And finally income tax expense increased $7 $7 million this year due mostly to greater 2021 pretax income.
The changes collectively resulted in a net increase to <unk> net income of $8 2 million or <unk> 16 per share.
With that I'll turn the call over to Brian .
Thanks, Steve as we've noted you have a tremendous legacy with this company and I am grateful to have a few more months to work with you and gather more of your knowledge before you retire.
I've been with Arctic work for nearly a dozen years, but for some of you on the new face over the past few months I've met some of you who are on the call and I am looking forward to spending more time with all of you going forward.
I'll start on slide 15, which shows our initial full year 2022 earnings guidance.
And our current key financial and operating metric estimates as Justin noted earlier, we expect <unk> 2022 earnings to be in the range of $4 85 to $5 <unk> per diluted share.
This guidance assumes normal weather and economic conditions for the year and it also assumes Idaho power will use no additional tax credits in 2022 under the Idaho regulatory stipulation, which provides support in the Idaho jurisdiction at a nine 4% return on year end equity.
We expect our full year O&M expense to fall in the range of $355 million to $365 million.
And as we've accomplished in the past, we will be driving keep O&M relatively flat with last year. It's fair to say this goal will be challenged by the level of customer and load growth, we're experiencing in our service area as well as the associated cost pressures.
You got the five year Capex forecast in a moment, but I'll mentioned, we currently expect the 2022 capital expenditures to significantly increase from our actual 2021 capex to the new range of $480 million to $500 million.
Reflecting the capital spending needs Lisa outlined earlier and finally, we expect hydro power generation to fall within the range of five five to seven 5 million megawatt hours.
Moving to slide 16, you'll see our five year Capex forecast has grown by approximately $800 million.
From last year's five year forecast.
Which is an increase of 40% and while much of the increase relates to additional potential capacity resources in the now incorporated assumption that Idaho power will build and own 45% of the <unk> project. The overall amount of ongoing capital spending is a notable lift of the previous base levels, which were closer to $300 million per year for the past few years.
<unk>.
These anticipated higher levels of spending and reflect the ongoing need to continue upgrading existing infrastructure and respond to the needs of a growing service area and customer expectations.
As you can see we expect to be very busy over the next few years implementing our capital spending and infrastructure development plans.
Turning to turning to slide 17, we provide a refreshed look at the projected total system rate base over the next five years, which includes our assumption that the federal energy regulatory Commission could ramp a new license for the health Canon complex in 2024, you can see on the slide that our capital forecast could result in an increase in rate base of about $2 two.
Over the next five years, our accumulative average growth rate of nine 8% a variety of factors, including those previously mentioned like customer growth and cost management illustrate why our efforts to determine the timing of filing general rate cases will be ongoing at this point, while we're doing that assessment, we believe that.
Idaho power can filed general rate cases in Idaho, and Oregon is approaching as Lisa mentioned.
Keep in mind that Idaho Power's required to file a notice of intent to file a general rate case with the Idaho Commission at least 60 days before filing an application.
As we look to our anticipated increased capex forecast ironbark, and Idaho power continue to maintain strong balance sheets, including investment grade credit ratings and sound liquidity. We expect this to enable us to fund our growing capital expenditures and deliver on our dividend plan to shareowners.
<unk> operating cash flows and liquidity position as of the end of 2021 are included on slide 18.
<unk> from operations in 2021 were about $25 million lower than 2020, and that decrease was mostly related to typical items such as the timing of tax payments as well as working capital fluctuations.
The liquidity available under hydrocarbon and Idaho Power's credit facilities is shown in the middle of Slide 18 at this time, we don't anticipate issuing any equity outside of our compensation plans in 2022 and you can also see on the slide that we target a 50 50 capital structure at Idaho power and as we work to fund our upcoming capital plans we plan.
Primarily finance the execution of those projects with that at least until the ratio is closer to target.
Overall, our existing cash operating cash flow and access to liquidity along with expected regulatory support from our annual adjustment mechanisms and the substantial backstop to our expected near term capital and operating needs as Youll see on slide 19 that in addition to our current equity heavy capital structure, we believe our current debt profile.
And bond maturities provides for significant flexibility and windows of opportunity for debt issuances.
With that Lisa, Steve and I and others on the call are happy to answer your questions.
We are now ready to begin the question and answer session and I would like to ask a question. Please do so by pressing star one on your phone they would like to remind you to ensure that your mute function is turned off before you ask your question, we will take as many questions as time permits on a first time basis. Once again that is star one to ask a question.
And our first question will come from Julien Dumoulin Smith of Bank of America.
Please go ahead.
Hi, Julien.
Afternoon team. Thank you and again, Steve talk about leaving on a high note here Wow, what an incredible year you guys just had a really top notch.
Alright.
Yes.
Absolutely Wow.
And then maybe to that point actually can we go back to your comments in the remarks on.
On rate case timing I, just wanted to understand a little bit more on the relative.
Merits of timing what are the what are the factors here that youre thinking about obviously capital, but what else I mean tax credits what else could be driving the timing of this is it kind of looms over us in the next few years.
Well I can start and then I'll hand, it off to Steve.
Certainly the things that you mentioned, our capital plan or a financing of that.
<unk>.
Cost increases.
With materials and.
The wage pressure there just there's a lot of things that are sort of coming together for that.
<unk> that are changing and we're watching very carefully as Steve what else would you add.
Yes, Julian I would say, it's really that we can deliver earnings.
Mike you and the other analysts and all of our shareholders happy and we can do that without having to go to the customer we prefer to do that and it's been a pretty.
A pretty successful run that we've had with that and I think the things that are looming now.
<unk> more capital expenditure.
We had a little more O&M expense this year, but I think it was more of a return to kind of what we.
<unk>, maybe had we not gone through the pandemic anyway.
And so we're still feeling we can be.
We're hopeful that we can hold the line on what we put out there as a goal this year it'll have some challenges, but it's more really that we looked at if we can get to an earnings result.
Is it going to be good for shareowners without having to go to the customer we do that.
We can see the convergence of point when we put out too many dollars on these the new things we're required to put in both to handle growth.
Bring on these new cleaner resources that at some point you have to get paid for those things and that those bank lines going across.
Thats looking closer as we get there and we will keep evaluating that we've said that we do.
We do that really every year.
And have for some time, so we'll just be watching that and be closer.
Things like Hells Canyon also are looming not too far in the future. So something is going to be the item the trips that wire as we need to come in and go.
With the general.
Got it thank you for that and maybe if I can ask you. Another question trying to culminate this a little bit further.
How are you thinking about the longer term EPS trajectory here I mean, you've got a lot of different pieces.
Moving obviously, a lot higher capex, but perhaps if you think about getting visibility on these various investments at what point in time do we actually get a more formal update that long term target.
Yes.
I'd say, Lisa I'll, just weigh in and you can take it if you'd like but I think.
These are formulating pretty quickly right now I mean this growth that we had in 2021 it.
It was a step up from 20, and then you put in the bigger customers with the one that was just announced.
Those are those are big shifts and.
As we roll that in I think youll see a better projection and we've talked about the fact that.
The way you predict our future earnings is going to likely shift over to the rate base look the way you've done in most of the industry.
It'll be a little less on how much new customer growth and how cost control work that a little bit more on on where thats driving us as a company in size and I think that when that switch happens.
You'll get a better view of the future because it will be based on those projections were giving you.
On capital.
Got it and then Supercoil last quick detail on equity I know you made some comments in the prepared remarks here, but just across the full year or the multi year outlook rather than just 22 here.
Yes, I would just say we're going to go to that first would be my I think Brian concurs with that that we have some room that we can do.
Growth.
And really funded all with the lowest cost of capital, which is the debt when we get to the.
The point that we do need to issue both I think we'll be assessing options. There on what's the best way to do that but I think about a little ways, we have some room.
And the good earnings years actually give us.
More room before we have to do that so each each year that we've had positive results helps us out a little bit with that.
Got it what's the metric Youre targeting just as you think about that that's about a death.
You say the emphasis on funding it with them.
We're mainly target that I think when we get to a rate case, we would probably be in and around 50 50 <unk> from that we haven't actually always put that out but.
And partly is because I think world with a really long lines of our assets are.
Our collection is slightly slower than some have all gas assets or.
Non production, we have production assets that have been around for 100 years. So it slows things down when youre getting paid over a really long time.
But needless to say our cash flow has been really strong in that.
We feel very good about where we sit there it's more in line, but I think we'll be watching that debt equity ratio.
And wanting to.
Keep them approaching and locked in around that 50, 50, that's probably our optimal place when we when we get back to the right planning.
Right.
So those two kind of it sounds like there'll be teed up one next three other eventually.
Excellent.
Awesome guys I'll leave it there. Thank you for your patience again, congratulations Steve and team. Thanks Julien.
Thank you.
And our next question will come from Brian Russo with Sidoti.
Please go ahead.
Yes, hi, good afternoon.
And procurement.
Yes.
Yes.
Hey, so just on Boardman to Hemingway line.
And the development on the regulatory side I think we are awaiting a.
A final order from the energy facilities Siting Council in Oregon in the <unk>.
Second half of 2022 is that still kind of the timeline and then we're also expecting a conditional use permit in Idaho, maybe just if you could add some clarity on that.
<unk>, there and then I think theres still some pending.
Litigation are contested case.
Ongoing if you could just address that as well.
Sure.
Correct that we're expecting Nasdaq.
Process is complete at the end of the towards the end of this year and then.
Adam I'll hand that yes that is correct and then.
We're in the middle of doing pre construction activities as well, which we hope to have our 30% design here coming out in the next couple of months, we've had an RFP out to builders.
Ultimately construct but where.
Doing Geo Tech work as well. So in addition to this state permitting we're making good.
Progress I think other preconstruction side too I think when you. When you mentioned <unk> I think you might be referring to the gateway west mainly.
So with Gateway, we continue to keep an eye on that it's being built by our Pacific core kind of east working its way, where we continue to put it in our <unk>.
A great resource plan it shows up as being a solid benefit, but probably after <unk> when that would come into play.
And as you might it make sure I understood. Brian were you asking about the CPC and for <unk>.
Hemingway.
Yes, what's the next also the regulatory approvals alright, good thanks, Jeff.
You said <unk> <unk>, yes, as soon as we get the state permitting process through we would file hopefully.
Towards the end of this year with bolt, the Idaho, and Oregon, with both Idaho, and Oregon yet.
Okay, Great and then.
Also on.
The transmission agreement that you're likely to sign with BPA is that incremental revenue and margin relative to the $500 million of incremental rate base that you earn a return on.
Right.
Go ahead, Ken Yes, Brian .
It would be kind of a bifurcated so retail customers would be paying a portion of that and then BPA paying a portion of the of the revenue requirement associated with the $500 million.
Okay got it understood and then just just on the O&M forecast.
And basically over 10 years of.
Flat annual gross in O&M and.
With the inflationary environment that we're in.
What were kind of the assumptions made in that forecast that made you comfortable to actually convey.
Convey.
The relatively flat O&M in your guidance.
Well I will start I mean, it is certainly something that we have been laser focused on for more than a decade is really finding efficiencies and looking for ways to take cost out of how we serve our customers.
There it is true that we're seeing.
Cost increases as just about everybody is.
Whatever industry, you're in and certainly in our industry. So we continue to try to balance our cost management, which leads to increased costs, but again as we mentioned that sort of there's not an infinite capacity to do that.
And so we're going to do everything we can and then that will be I think one of the triggers that would lead us to a rate case anything that you guys put out there the only thing I might add too Brian is the growth has just been so explosive here that as we grow and more we have more to maintain and so youll start to see a little bit of increase in O&M is based on the amount.
The customers that we're seeing out there, which is a good thing but at the end of the day, sometimes that puts a little bit of stress and pressure on O&M as well.
And then just on the guidance.
It seems that your initial guidance.
Many years now has been relatively conservative and as you move through the year that mid point.
Increases.
Just wondering what should we look for this year, we're seeing same type of.
Sure.
Guidance update trends.
Weather in the third quarter.
Or is it just.
Sales versus cost just a.
A little bit more insight there and then does.
Does the range.
Is that booking by the $9 four.
And the 10%.
A bit to sharing band.
Again, I'll start here I think it sort of all of the above you know that we are we are conservative.
To deliver on what we say and so we are watching growth we're watching weather.
And so we do tend to.
Third quarter is our biggest quarter for sure and so I would say is I don't see anything particularly unique.
In front of us it's sort of.
How our business has been going over the last few years, but growth sort of surprised us last year or two in addition to our historic heat down so we'll be watching for those things.
Okay.
Okay got it and is there any Brian regular.
EBIT if you don't mind, if you look at last year's guidance, we opened at $4 60 to four eight so we're full where 25 cents above that at both the bottom and the top it doesn't look quite as.
Robust when you look at where we finished because we had a really strong finish but.
We have said over the years.
It's hard to grow off of growth and we're 14 years in a row that we haven't had any kind of a reset and so we probably are a little modest at the start but it just like last year, we move that guidance up a couple of times I think because we got into the summer we moved it a bit and then we tightened. It later in the year. So we will look for those opportunities.
<unk>.
Yes, that's what we hope is that we have good news and we can pass that on.
Okay.
Understood and then just.
On the regulatory cap structure target of 50 50 is there any.
Regulatory appetite to maintain a higher.
Regulatory equity ratio is there any recent precedent and any regulatory outcomes, where you've been.
<unk> a higher equity ratio.
Yeah.
Brian We don't have a whole lot of recent activity at all.
We have seen some of our peers get slightly over <unk>.
50% in equity so I don't know that it would be impossible to be a little bit off.
It's just I think we do longer term and planning.
Directionally that 50 50 is a good marker to remember.
We'll try and be in and around it.
Okay, great. Thank you very much.
Steve Thank you.
For the help over the years best of luck.
You bet. Thanks.
Thanks, a lot Brian I've really enjoyed our time together.
Thanks, Brian .
And our next question will come from Chris <unk> with fiber William.
Okay.
How are you.
Congratulations to Brian and patent, especially used.
I do hope you enjoy your retirement.
Brian as far as looking at this capex slide.
And your.
Discussion about equity in the cap structure.
Can I assume that within sort of this timeline is time horizon that you do imagine some equity.
I think one thing that Steve mentioned I'll reiterate is that we do have quite a bit of room on the debt side quite a bit add room. There. If you look at a 50 50 cap structure compared to where we are today. So we do have some pretty sizable capital projects in the mix. So there is possibility that equity comes into our window in the next few years certainly.
But again, we're going to target that 50, 50 and try to use that lower cost debt headroom first sure.
Sure.
Lisa you talked about the additional capacity needs can you just talk about sort of what the.
Company's philosophy is versus ownership and PPA is right now.
Sure we certainly were.
We'd like to own as much as we can not just because we are.
For profit entity, but I, just believe that the business model of being a regulated monopoly and having the obligation to serve is it incentives to make those longer term investments in it and we built this system. So that we can really survive extreme.
We can look at Texas, and some of the where it's more merchant based where that's not always the case now having said that.
I think it's a little bit of all of the above where I think tpa have a play.
In our in our portfolio, if you will and so we're not trying to make it all one thing, but we're very careful we've had cases, where people have said that they want a bit into <unk>.
And then they pull out because they decided they don't want to do that that's really hard to build a system based on that and then finally.
Our system changes and we're shifting into our team portfolio. The way you operate that we havent done that in our history and so we're learning in it and it may be really hard to contract for the services that we might need that we have an experienced yet and so having ownership in and that capability to run.
Just the way we need to to keep reliability.
In focus and keep costs down I think.
All of that together is how we're viewing it. So short version is all of the above long version adds we think there is an advantage to the utility owning it. So that we can we can fulfill our obligation to serve.
Okay.
You talked about the gas conversions as sort of a I guess sort of a stop gap measure.
What are your thoughts strategically for future capacity batteries solar wind or whatever.
What do you envision your future editions mix looking like and do contracts like meta.
Sort of skew your your thought process, a little bit about what types of resources you do want.
Well I think that again.
Moving forward in cleaning up our our portfolio by by removing call. So there's the shorter term view of what we need to do something now.
And what's available is is wind solar and storage.
I don't feel like we.
We're getting anything skewed by.
By having meta.
Have their requirements and you could argue that it sort of enhances our move towards that goal, but when you think about how do we get there all the way to 2045, and 100% theres going to have to be something else and we've talked about it before that I think hydrogen is very interesting small modular.
Reactors are interesting I think theres going to have to be some other technology I don't think that that wind and solar.
In short duration shorter duration battery or the full answer. So we've got we've got time to really evaluate what that fits into our portfolio and then in the meantime to your point of the gas conversion that helps us lower our carbon footprint and keep the system reliable and.
And affordable So I think that's just a great example of how this transition is going to look anything that you would have noticed that in addition to that obviously transmission is a big part of our diversified as well.
Having two projects that are close to being permitted and something that we think is pretty special in the industry and we're going to continue to focus on diversifying how we bring energy to us through transmission as well great. Thanks for that.
You talked about the long stretch that youre looking at the long window 2045, plus.
Are you thinking that over time longer duration storage technologies as part of that expectation of what we'll fill in as well.
Absolutely absolutely.
I think one last or to see it dropping off a little bit is in the winter time, when you start to look into 2000 32035 timeframe.
That's when you really need to have longer duration storage and so we're hopeful that as technology progress we will get there sure.
Lastly, as you start to approach that next general rate case have you got any thoughts about how you might envision adjustments to your mechanism through that case.
We had some adjustments that we just.
Went through and Ken.
Have some count there as well.
ITC is evergreen and carries through two.
For the next rate case, if we actually have the credits still available. So if we're able to save them mechanism, we'll just move forward.
Other mechanisms that we have would also move forward there will be updated at the FCA would have new fixed cost fayetteville into at the PCA would avenue, our supply cost baked into it. So those are all natural movements that occur.
In our rate case.
Okay, great. Thanks, Steve.
Steve.
Thank you very much Chris.
And our final opportunity. Please press star one if you would like to ask a question and we will pause for just a moment.
And with no further questions that will conclude the question and answer session for today.
I will turn the conference back to you.
Thank you all for your continued interest in <unk> and you look forward to seeing some of you at the upcoming upcoming conferences that we plan to attend over the next several weeks I continue to wish you all good health and I Hope you have a great afternoon or evening, depending on where you are thank you very much.
And that will conclude today's conference. Thank you for your participation and you may now disconnect.
Okay.
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