Q1 2022 WEC Energy Group Inc Earnings Call
Craig will be available approximately two hours after the conclusion of this call.
And now it's my pleasure to introduce Gale copper executive chairman of double E C energy grid.
On the home of the defending NBA champion Milwaukee Bucks. Good afternoon, everybody and thank you for joining US today as we review our results for the first quarter of 2022 first I'd like to introduce the members of our management team who are here with me today, we have Scott <unk>, our president and Chief Executive Sha Lu our chief financial.
And Beth Straka, Senior Vice President corporate Communications and Investor Relations.
Now as you saw from our news release. This morning, we reported first quarter 2022 earnings of $1 79, a share a.
Our results were largely driven by colder than normal weather, a strong economy and the performance of our infrastructure segment.
In light of the strong start to the year, we're raising our earnings garden the guidance by <unk> <unk>.
Five a share for 2022 to a range of $4 34 to $4 38, a share with an expectation of reaching the top end of this new range. This of course assumes normal weather for the remainder of 2022.
Our balance sheet and cash flows remained strong and as we discussed this allows us to fund our highly executable capital plan without issuing equity.
We're also making good headway on our $17 $7 billion ESG progress plan, the largest five year capital plan in the company history.
The plan is focused on efficiency sustainability and growth.
Over the past few months, we've received regulatory approval for more than $1 1 billion.
Of needed capital projects in Wisconsin, Scott will provide more detail in just a few minutes.
And we are preparing the way for further progress ahead.
You may have seen our Wisconsin utilities filed rate reviews with the public service Commission for the two year period 2023, and 2024, we provided you with details in the earnings package that we released this morning, and Scott will cover the highlights in just a moment.
But the request ladies and gentlemen is all about the investments we need to make to enhance reliability for customers and continue the largest clean energy transition in our history.
I would add that even with this request the typical electric bill for our residential customers will remain below the national average.
Switching gears now many of you have asked about the solar panel investigation by the department of Commerce, there clearly will be impacts across the industry and at our companies. We may see some price increases and potential delays, particularly on the solar and battery projects that are still going through the regulatory approval process in Wisconsin.
But the important point is that we do not expect the review by the department of Commerce to have any material impact on our five year capital plan.
In summary, we are poised to continue our strong track record delivering among the best risk adjusted returns our industry has to offer we expect our ESG progress plan to support average growth in our asset base of 7% a year driving earnings growth dividend growth and dramatically improved environmental performance.
Across our generating fleet, we're targeting a 60% reduction in carbon emissions by the end of 2025, and an 80% reduction by the end of 2030, both from a 2005 baseline.
At the end of 2013, we expect our use of coal for power generation will be immaterial and we are aiming for a complete exit from coal by the end of the year 2035, our capital investments fully support this transition.
Of course for the longer term, we remain focused on the goal of net zero carbon emissions from power generation by 2015.
We're also investing in our natural gas distribution business and developing sources of renewable natural gas. Our plan is to achieve net zero methane emissions by the end of 2013.
So those goals in mind, we're working to help shape the future of clean energy hydrogen for example could be a key part of the solution in the decades ahead.
Earlier this year as you recall, we announced 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 natural gas powered units in the upper peninsula of Michigan.
Engineering specifications and testing protocols are now being developed and were on track for actual blending of hydrogen in the unit. This fall we look forward to sharing the results across the industry.
And now let's take a brief look at the regional economy. The latest available data show Wisconsin's unemployment rate at two 8% of course, well below the national average the state's economy recovered throughout 2021, with especially strong growth in the manufacturing sector and we continue to see major investments.
Growing companies in our region for example, Amazon is expanding its presence in southeastern Wisconsin with plans to lease a 1 million square foot building that is now under development.
This expansion could add 400, new jobs to Amazon's workforce, a workforce that is already 3000 strong in the region.
Your lines workforce is also on the rise your line as you May know is one of the nation's largest suppliers of packaging and shipping materials 700 employees joined utilize workforce in Wisconsin last year and you align expects to add 300 more jobs. This year. So we remain optimistic about not only the strength.
But the trajectory of the regional economy.
And with that I'll turn the call over to Scott for more information on our utility operations and our infrastructure segment as well Scott All yours. Thank you Gail.
As Gale mentioned across Wisconsin, we're making good progress in the transition of our generation fleet and our ESG progress plan.
Work continues on our Badger Hollow II solar facility in the southwestern part of the state we have planned for delivery and acceptance of the panels and we expect clearance from customs in a reasonable timeframe. So we still project Badger hollow two to be in service in the first half of 2023 and.
And recently, the Wisconsin Public Service Commission approved our purchase of 90% of the Paris Solar Battery Park, it's the largest investment of its kind in Wisconsin history.
<unk> South of Milwaukee. This facility will host 200 megawatts of solar generation and 110 megawatts of battery storage.
<unk>, our customers with Sunshine after sunset.
Regarding the solar panels, we have a line of sight on production and delivery and we still project commercial operation by mid 2023.
The situation with battery production and delivery is more fluid and we work with and we're working through the details. We will provide you with more information about potential delays in the battery installation of the Paris facility and of course, we will continue to examine our capacity situation in light of these developments.
To put all this in perspective, it's worth noting that only 3% of our five year capital plan is devoted to renewables and battery storage in 2023.
Turning to other important projects. The commission has approved our plans to build 128 megawatts of natural gas generation at our existing Western power plant site in northern Wisconsin, The new facility will use seven reciprocating internal combustion engines or as we call them price units.
<unk>.
Dispatch of all units will support the retirement of older less efficient coal generation. We expect this project to go into service in 2023.
As Gail noted WEC infrastructure was a positive driver for the quarter with the addition of Jayhawk, which entered which entered commercial operation in mid December Thunder.
<unk> will be the next wind farm to go into service and we now expect that in the fall of this year.
As discussed before we remain ahead of schedule and our five year capital investment plan for our infrastructure business.
Turning to gas distribution, just last week, we signed another contract to use renewable natural gas or R&D from a local dairy farm.
This new agreement brings us halfway to our net zero methane goal for the end of 2013.
Now I'll touch on the rate filing scale mentioned on April 28, we filed a rate review with the public service Commission of Wisconsin.
Our proposed plans would help us to continue to reduce emissions strength in key infrastructure and provide affordable power to customers.
I'll discuss the request to set rates for we energies and Wisconsin Public service you can refer to pages 14, and 15 of the earnings packet for more details.
Under our plans for the utilities the typical electric bill for residential customers would increase approximately five to $6 a month in 2023 or roughly 5% to 6%.
Key drivers for our proposed increase include capital investments in renewables.
<unk> storage natural gas generation and LNG storage for our gas distribution system.
Many of these projects have already been approved.
In addition.
We are introducing grid hardening projects that are part of a 10 year plan to protect our system against severe weather.
And the rate review includes other costs that have been authorized to recover in previous proceedings.
In summary, this represents only the second time in eight years, we have asked for a base rate increase for we energies.
We expect final orders by the end of the year with new rates effective in January 2023.
We have no other regulatory reviews pending across our companies and with that I'll turn it back to Gale.
Scott. Thank you very much as you may recall, 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. We continue to target a payout ratio of 65% to 70% of earnings we're right in the middle of that range now.
I expect our dividend growth will continue to be in line with the growth in earnings per share.
And today, we are reaffirming our projection of long term earnings growth of 6% to 7% a year again, we do not see any need to issue new equity next <unk> Shah will provide more details on our first quarter numbers and our second quarter guidance all yours.
Thanks, Dale or 2022 first quarter earnings of $1 79 per share increased <unk> 18 per share compared to the first quarter of 2021. Our earnings packet includes a comparison of first quarter results on page 13.
Walk through the significant drivers.
Starting with our utility operations, we grew our earnings by 13% compared to the first quarter of 'twenty one.
First rate based growth contributed <unk> 13 to earnings.
As we continued to execute on our ESG progress plan, we grew our utility rate base by over 7% last year.
Next colder winter weather conditions drove a five <unk> increase in earnings when compared to the first quarter of last year.
<unk> continued economic recovery added a penny reflecting stronger weather normalized sales during the quarter.
Overall, we saw a continued economic rebound in the first quarter of 2022.
Weather normalized retail natural gas delivery and Wisconsin, excluding gas used for power generation were up three 6% compared to the first quarter of 'twenty one.
Residential natural gas sales were up one 6% from the first quarter of 'twenty, one and commercial and industrial and natural gas sales were up six 8%.
Additionally, weather normalized retail deliveries of electricity, excluding the iron ore mine were up 7% compared to the first quarter of 'twenty one.
These positive drivers were partially offset by <unk> of higher depreciation and amortization expense and a penny increase each in day to day O&M and fuel.
Overall, we added 13% quarter over quarter from utility operations.
Earnings at our energy infrastructure segment improved six cents in the first quarter of <unk> 22, compared to the first quarter 'twenty one.
Higher production tax credits driven by strong wind production added three thanking earnings.
We also recognized <unk> earnings contribution in Q1 this year from the final resolution of market settlements in the southwest power pool at work related to storm Aerie.
Finally, you'll see that earnings at our corporate and other segment decreased to one when compared to the first quarter of 'twenty one.
Favorable Rabbi Trust performing resulted in a <unk> earnings reduction this was partially offset by a pickup of one.
From our investments in clean Energy fund.
In summary, we improved on our first quarter 'twenty, one performing <unk> 18 per share.
Looking now at the cash flow statement on page six of the earnings packet net cash provided by operating activities increased $682 million.
Cash earnings and recovery of commodity costs contributed to this increase.
Total capital expenditures and asset acquisitions were $384 million in the first quarter of <unk> 22, a $207 million decrease in 2021.
It's primarily driven by spending on Jayhawk wind farm.
In closing before I turn it back to Dale I'd like to provide our guidance for the second quarter.
For the quarter, we're expecting a range of 82 to 84 per share.
This accounts for April weather and assumes normal weather for the rest of the quarter.
As a reminder, we earned <unk> 87 per share in the second quarter last year, which included an estimated three from favorable weather.
And as Gil mentioned earlier, we are raising our 2022 earnings guidance to a range of $4 35 to $4 38 per share. We then expectation of reaching the top end of the new range.
With that I'll turn it back to Dale shelf. Thank you overall, we're on track and focused on delivering value for our customers and our stockholders operator, we're now ready to open it up for the Q&A portion of the call.
Thank you 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 youre using a speakerphone. Please turn off your mute function to allow your signal to reach our equipment.
It will take as many questions as time permits.
Once again press Star and then one on your phone to ask a question.
Your first question comes from the line of Shar <unk> with Guggenheim partners.
Sure.
Okay.
Yes, congrats on the box, making it to round two of the playoffs.
Going to be tough series, but boy they sure showed up yesterday.
For sure for sure.
Just on the Wisconsin rate cases, and specifically <unk>.
Hardening and grid resiliency, how should we sort of think about maybe the timing and pace of the spending for the 800 miles of underground being planned over the next decade, what's the sort of the cost per mile and it's 800 miles just the starting point for maybe an expanded program.
Yes, I think sharp the way the best way to look at it is what we have proposed in the rate review is really the start of about a 10 year program that we see ahead of us.
To maintain reliability and.
And to really make sure that we continue to be one of the most reliable utilities in terms of outage history and restoration of the country. We've had a great track record, but were seeing last year in particular, I mean, we saw some very serious storms.
I don't think thats going to abate necessarily we also have aging equipment. So we have laid out and Scott can give you more detail, but we've laid out internally a 10 year grid hardening program. What you see in the rate case, Scott is the start of that correct.
Yes, the start up it is starting in 2023.
And it's about $700 million right now, but we will continue to evaluate it like we do with <unk>.
$700 million over that 10 year period, but it's more than just underground, it's adding the technology to the grid more re closers that self healing technology similar to the benefits we had in a couple of projects in northern Wisconsin, where we saw a 97% an improvement so looking forward to this program, but it's about $700 million, but.
Of course, as we get into it we'll evaluate it more.
Okay got it and Scott this is incremental to the plan or is this inclusive inclusive of the current plan.
No that has been factored in our 10 year plan.
As we laid that out last year or at our five year plan, but remember that just gives us a runway a lot longer runway as we look through this because a majority of our system is getting to that 50, 60 70 years old and now is the time I think how you renew that system shock.
Chuck We've got we've got some transformers as always you are so we really need to kind of replace them.
There are only 20 to 22 year old transformer that's pretty.
Yes.
And then just scale you've done you guys have done a great job kind of reducing O&M. Historically I guess now I guess, how are you thinking about your current O&M target of flat to 1% reduction in light of some of the observable inflationary pressures, we're seeing in the market, especially if theyre not transitory.
And just remind us what level of O&M reductions for 'twenty three 'twenty four are you assuming in that case, we just filed the cases.
While it will take will take the answer in two pieces and I'll ask <unk> to give you. The 23 number for the rate review, but long story short for 2022.
Our target was a zero to 1% reduction in day to day O&M, We still believe that's achievable and Thats whats in our plan and then when you look at the filing for the rate review.
In light of inflation in light of wage increases et cetera. We have we have proposed in the rate review a modest increase in O&M for 2023 sure.
So if you compare to the last rate order in 2020.
Our AP filing for O&M, it's actually a net reduction of two 6% compared to what the commission ordered us.
Two years ago, we actually proposed a reduction, but if you compare to the actual 2021 and modest increase icon like Allen mentioned.
Okay got it.
And then just real quick lastly, can we go it sounds like thank you for addressing the supply chain constraints and circumvention issues, but I just wanted to bring this home do you still feel comfortable with the 700 megawatts of solar in the current plan, which you haven't filed for approvals on yet or could we see some of that replaced with for instance.
Since let's say wind can you pivot if these tail risks arent.
Syed.
Yes, it's a great question Sharon I think the short answer is yes, we're at a point, where pivots are certainly still doable, let me be clear about that.
Scott covered with you.
The two projects that are really on the immediate horizon that have already received regulatory approval that are already.
In the earliest stages of construction and we either have a plan or a line of sight on those two projects related to the solar panels. So we feel very good about that when you think about the projects that are still going through the solar and battery projects that are still going through Wisconsin regulatory review.
There there may be price increases there may be some delays, but if you think about as Scott said, if you think about our total five year capital plan less than 3% of that is in solar and batteries in 2023.
And we've got significant significant projects that are not solar related like the very important capacity additions of the rice units in northern Wisconsin.
And yes, we could still if we needed to pivot to win so we feel very good about where we are even in light of the difficult situation posed by the department of Commerce.
Terrific. Thank you guys, so much and congrats on the results and hopefully that continues to make really speedy recovery. Thanks guys.
Great. Thank you so much.
Your next question comes from Julien Dumoulin Smith with Bank of America.
Rock'n'roll Julien.
Hey afternoon, and thanks for the time I appreciate it.
Hope you guys are all doing well and best Hope Youre doing in particular doing better here.
Okay.
Very good well at the moment.
Okay, Yeah fair.
Fair enough fair enough I keep going I was like wait a second I got cut off.
Alright, so just coming back.
Just kind of filling out on what I heard you guys say a moment ago and then also in the remarks here.
Any net delays to your projects forget 'twenty, two but really in that later period in 'twenty three 'twenty four.
How does that impact the rate application that was filed right first off and then secondly, it sounds as if.
So as we said anything shifts here et cetera.
You're committing to be largely intact in your numbers, regardless, but again I just want to make sure I would like to close the gap on that last question.
Yeah, Great clarification, Julian yes, given everything we're seeing right now the five year capital plan. The ESG progress plan at $17 7 billion.
We are we don't see anything that will derail.
That five year capital plan could something move between year here or there depending upon how long. This department of Commerce investigation goes could we pivot to win.
Wind instead of a particular solar installation in a given year, yes, but we have a lot of flexibility Scott no absolutely. So we'll be looking at it in.
As you recall in Wisconsin, we have a two year forward looking test year, so that will give us an opportunity to look at 2020 for any effects on the timing of the batteries and the cost of the solar as we look at putting that.
Next part of the case together.
Excellent Okay and then.
Just.
Absolutely I appreciate it and then just if you can speak to this a little bit more I mean, especially as you think about the solar net impact as well over time like where you are within your CAGR, but I think the bigger point I wanted to bring up here, what's driving the guidance raise already and pointing to the upper end already right I mean, just to frame. It here it's not.
It doesn't seem as if your retail sales outlook at half a percent year over year growth is particularly outside.
Whether it is obviously a tailwind but.
O&M it looks like a little bit of a drag ex the Rabbi trust like what's driving this pivot here if you can speak to it also.
Or are you in this long term EPS outlook, especially net of any any gyrations in solar irrespective here.
Alright, two points to two pieces to the question and the first is <unk>.
Essentially the nickel raise is really the result of <unk>.
Results outside of our utilities I mean, if you think about if you think about the performance of the infrastructure segment. If you think about the penny pick up from the.
Technology fund that we've invested in basically you get to about a nickel. So essentially if you think about being on target with a strong start but being on target for the remainder of the year for our utility earnings projections.
And then you layer on what happened in the first quarter with our infrastructure segment and with the pickup from the energized fun.
Basically.
Basically there was no reason not to raise guidance by five.
So that was our thinking essentially as we as we raise the range and again, we expect to come in at the top end of that range and then longer term.
As I said in the prepared remarks, we still believe we're at 6% to 7% earnings per share growth for the longer term.
And again no need to issue equity.
Excellent. Thank you for that and then it seems like as you said you took the words out of my mouth next verification energy infrastructure is tracking well above expectations. It was above expectations for <unk> and really the delta here for the balance of the year, which would be accruing that into the energy and for its not as if there is some further offset.
Through the course of the year that would impact the infrastructure segment.
You are correct.
Excellent alright, thanks, I'll leave it there. Thank you guys very much all the best and then welcome Julian J care.
Your next question comes from Michael Sullivan with Wolfe Research.
Hello, Michael how are you doing good thanks, how about yourself.
And we're good we're good.
For a second I was hoping for a wind tomorrow night in Boston.
Awesome awesome that sounds good.
Yes, sorry to beat a dead horse here, but just sticking kind of with some of the solar questions to start off.
I guess first can you just clarify when you say line of sight on production and delivery to does that mean, you physically have the panels.
For your near term projects and then also if we could just get a little more color on what exactly is going on on the.
On the battery side of things I wasn't.
Quite following.
What's causing the delays there.
Okay sure, we'll be happy to do that.
Scott can provide you with some detail as well let me just start out by saying this.
We have we have Scott mentioned a plan.
The first project, which is the first project, we mentioned, which is the very nearest term one which is badger hollow II.
We got a plan, we know where the solar panels are.
<unk>.
We're confident in the schedule.
So that's really pretty clear on Paris, which really got approved just very recently.
There, we have clear sight on our production schedule and a delivery schedule.
And.
A clear sense, given precedent that there won't be a customer's problem. Scott do you want to add onto that no thats exactly we've talked through this quite a bit walking through the details on logistics.
Looking at our timeframe.
The sites are getting ready right now so it's just a matter of delivery of the panels and like Gale said, we laid out that delivery and still feel comfortable with that beginning of the year mid year 2023 for the completion of those two sites on the solar aspect.
As we look into the batteries the batteries.
Across the country has just been a little a little more volatile and trying to get the delivery and production of those batteries delivered to our site. So we're just very cautious here until we work through more of the details. We first wanted to work through the solar aspects of it.
And now.
Go after the batteries and lay out on schedule for those.
And Scott's rather than to put all that in perspective, if you look at our five year capital plan in the 2023 spending so the 2023 spending on batteries that was in the five year plan. The 2023 spending on batteries is like 1% of our of our $17 7 billion capital plan.
So it's not it's not going to move the needle.
Significantly one way or another is that helpful. Michael.
That is if I could just follow on there.
In terms of the cost of things I think you mentioned.
A little bit of fluidity, there too, but maybe if you can just.
A level set on what you saw for some of your most recent solar projects and then where things are tracking.
At least as of right now on some of the nearer term loans.
Yes for the future solar projects.
Scott It wouldn't surprise me to see a 30% to 40% increase compared to what we've been seeing in the past correct correct and remember the first solar projects we put in.
Extremely at a low rate.
<unk> thousand $800 a kilowatt. So those first two projects we put in about 3500 kilowatt hour. The next ones are going up a little bit more probably in the shorter term, probably 20% to 30% and then Gail in the longer term probably 30 to 40.
And battery pricing as Scott said has been has been a bit less predictable and.
Kind of all over the place so we'll see how the battery situation shakes out but.
But I hope that gives you some sense of what we're seeing on the solar side.
Yes Super helpful. If I could just squeeze one more in shifting over to the rate case.
Is there.
Precedent in Wisconsin for the limited reopener that Youre asking for in 2024, just trying to jog my memory, a little bit there.
Yes, there are.
Ample precedent for a limited reopener absolutely.
Okay. That's great. Thanks, Thanks again.
Youre welcome Michael take care.
Your next question comes from <unk> Chopra with Evercore ISI.
<unk> how are you today.
Good afternoon. Thank you for taking my question doing very well thanks.
I'm Unfortunately going to ask you.
For your sort of thoughts and views as an industry leader on how does this investigation actually goes I mean, what are you hearing and what do you think the department of Commerce's headed here Gil Clap his views.
Oh gosh.
On the day, and we won't get too much at Starbucks, but I'll be happy to give you my opinion.
I do think that.
There's going to be significant amount of pressure on the department of Commerce Youre seeing it already I think I think a letter went to the department of Commerce, either Friday or today signed by 'twenty six Senators basically, saying look department of Commerce. This is really messing up the industry in the U S. So please get off.
On with the investigation try not to take nine months.
My sense is there.
The department of Commerce will be thorough it's our duty to be thorough but my sense is.
Given given the real need.
85% or more of the.
Solar panels utility scale solar panels.
That are produced are coming from outside the United States. So that just gives you a sense of the magnitude of the issue.
And the potential impact of the delay. So my sense is the department of Commerce will probably have a duty to be thorough but I'm guessing that they might speed up the review process to the extent they can and will just have to see where they go.
<unk>.
Could the industry stand more tariffs nobody would like it but potentially that might be the case.
I think it is really unpredictable as to where the Boc will eventually go but this is a very important energy security issue for the United States. So.
My sense is there will be a balanced decision.
And I think you can also see if worse comes to worse you could also see some executive action out of the White House.
So too early to give you anything more definitive than that.
And I think there will be a continued drumbeat to conclude one way or another this investigation thoroughly but as soon as possible <unk> I hope that helps.
That helps tremendously thanks, Gil and just one quick clarification, the 30% to 40% increase that you just mentioned I think in response to an earlier question that is before any additional tariffs.
Put in place am I, correct about that and what would be what could be the implications of additional tariffs. If if you can answer that question or maybe it's too early.
I think for the second part of the question, it's probably too early to <unk>, but the short answer is yes, the 30% to 40%. We were quoting is before any impact of the department of Commerce investigation.
Understood. Thanks, Kevin I appreciate the time.
Youre welcome you take care.
Your next question comes from Jeremy Tonet with J.
J P Morgan.
Hello, Jeremy Hi.
Hi, good afternoon, well wishes to Beth and thank you for having me.
Now youre more than welcome.
Just wanted to start off I guess.
We've talked a lot about the potential solar delays here as you noted and maybe just wondering if we could dig into a little bit more about reserve margins in your service territory and the outlook. There as you've noted demand continues to grow theres coal retirements.
There could be delays with the solar and batteries being delayed and just wondering I guess, how you think about reserve and risk.
Well, it's a great question and you probably saw.
The information released by MISO in just a few days ago about concern about this coming summer even in terms of potential capacity shortfalls, particularly if theres a warmer than normal summer.
And as Scott mentioned in his in his remarks, obviously and we continually do this but obviously we have to re look at our capacity situation.
We have retirements on tap.
And as part of this five year plan, so nothing definitive yet, but we will certainly have to re look.
Our capacity situation.
I think in Wisconsin, certainly for this summer.
We are in reasonably good shape.
But actually Scott in Shanghai, and we're talking about this earlier the fact that MISO is signaling a potential concern not only potential concern, but a real concern about reliability and potential outages in a hot summer in the Midwest.
It doesn't surprise us because of what we've been seeing you may have heard me say over the last few years couple of years in particular.
Even on.
Even on moderate temperature days in Wisconsin.
We were being asked by MISO to run our units at full capacity for lengthy lengthy periods of time to help keep energy and balance to meet demand in the MISO market.
So we kind of saw this potential shortfall coming.
And we'll see how it goes again I think for Wisconsin were in reasonably good shape.
Guessing we will be producing a lot of energy.
That will be fed into the into the grid to help keep things stable. This summer, which is a good thing for us obviously.
But in the longer term here, we have to see the length of the delays any issues with battery production and delivery.
And as Scott said, we will continually re look at our capacity situation I hope that helps Jeremy.
Yeah.
Got it yes that is a that is helpful. There and then maybe just.
Pivoting towards the sales a little bit here.
As it relates to retail electric sales growth could you provide more color I guess on the drivers between the Delta with your initial expectations versus what.
What was achieved in the quarter.
And do you see retail growth projections higher at this point just wondering if you could provide a bit more color. There on how you or your outlook might have changed as it relates to those sales.
Well I think I'm going to let Scott Chuck gave you some more detail from my standpoint, the longer term outlook is unchanged you really can't you really cant move your expectations based on one quarter, particularly a quarter, where it was colder than normal weather normalization is art not a science.
So we give our best estimate of what's weather normal and what's not but.
But I think at least Scott from my opinion.
The backdrop and strength of the manufacturing sectors in Wisconsin is a big driver for US no youre exactly right. So two items really when I look at the data you see that large manufacturing in the.
In our sector or in our company, we track about 17 sectors a couple over in the manufacturing, we're seeing that as being very positive.
In addition, this quarter, although it is just one quarter that small commercial industrial was ahead of our forecast. So just business is getting back open even opening more than we anticipated where the pandemic was et cetera. So they have been growing pretty pretty well here.
So really happy to see that small commercial go on and the large industrial was positive, particularly in the manufacturing sector. So overall very happy with where the sales are coming in.
And I'll add one anecdotal thing we.
Our EV penetration doubled when shall move to become our CFO because she brought our Tesla weather, but I noticed yesterday I thought this was amazing and we have nothing in our forecast for any significant EV penetration of that five year plan.
But in the large condo building, where Judy and I live north of downtown Milwaukee, Theyre basically 99 units.
Seven seven of those units now have evs.
And that really that really surprised me I'm just happened.
Pass through our underground garage yesterday and their seven tesla's with charging units in our own condo buildings. So I think I think if anything.
We may be conservative about the penetration.
And we're also getting a lot of interest in our EV pilot. So that really started beginning of this year that pilot went in went in place. So we're seeing a lot of good.
People a lot of good.
Inquiries on commercial side, which we expect that some nice load coming potentially here and then also on the residential side. So it's just early yet but good indication the challenges now that everyone's going to get the vehicle.
That's right.
Thank you for all that color, that's really helpful. I'll leave it there.
Terrific. Thank you Jeremy.
Your next question comes from Anthony <unk> with Mizuho.
Hey, good morning, guys.
Good morning.
Yes time flies when you're having fun yes.
Yes, and good luck in Boston Tomorrow Night Yankee fan, so anytime a Boston team loses I am so happy.
There you go.
Just maybe two quick questions one of them, obviously, a lot of the call delays on the solar talked about rising cost.
Some renewable projects before any impact of department of Commerce investigation, I think the company's plan over the years has been more of a diversified portfolio and it's benefited a lot of the customers do you see any change from the regulators on the headwinds that are going on right now with renewable to maybe change your strategy going forward. It may be kept.
Going forward this diversified generation portfolio.
Well, that's a great question and I think actually.
We have ongoing conversations obviously with policymakers, particularly in Wisconsin and I can tell you that there is there has been and continues to be.
Both strong support for de Carbonization, and as you know we have some of the most aggressive de carbonization goals in the industry, but also.
Our strong strong support for energy security.
I mean, we talk with the Governor's office, we talk when we can.
With commissioners, we talk with the state Department of natural resources, which is the state EPA.
To a person with all past gubernatorial administration since I've been here and with the current one.
There is there is a strong support to do both yes, decarbonize, but do not take your eye off the ball, we have to have energy security.
That hasnt changed and I don't think it's going to I think in Wisconsin.
And we're pretty practical and.
And I believe that over time, we can do both we can decarbonize the economy, we can still provide.
Reliable power.
But we can also we also have to do that with a variety of energy sources and as you've heard me say, we look at everything through what I call. The arc AARC affordable reliable clean it's got to be all three but theres going to be a transition and natural gas is going to be a significant part of that transition in terms of power generation.
You just cannot keep a major economy alive and trucking without.
Without the range of up in the range of options that we have in our portfolio today.
Great and last one and I apologize if I had this wrong.
Maybe its are you guys being I guess two customer focus that there's such a thing I.
I believe you filed for the same ROE request in.
This rate filing as you currently have and as I've seen other utilities across the country file rate cases, maybe the last month two months given this inflationary environment, they've all had a significant step up in what they are requesting for row, just thoughts on the level of ROE that you guys had filed for.
Well, we think we think that level of ROE is appropriately reflects our cost of capital.
With the with basically with our planning that.
That level of ROE again, with the opportunity to earn above the allowed ROE and the sharing mechanism that provides benefit to both customers and shareholders. We just think it's an appropriate and appropriate approach at this point in time and would provide us the cash flows to maintain strong credit ratings. So when we look at our when we look at the overall situation.
<unk>.
We think it's the right level for us.
Great. Thanks for taking my questions and again hope you beat up the south looks pretty good.
Thank you.
Your next question comes from Michael <unk> with Goldman Sachs.
Hey, guys how are you doing Michael.
Great Gail and while obviously, you've got your bias, but the box I'm always going to lead with the <unk>.
Couple of questions for you one on the rate proposal if I read this right. The electric side has fuel cost embedded in it. So the gas side can you just remind me what's happening to the customer the total customer build these days not just.
The base rate component of the Bill I'm, just trying to think about what's going on in Wisconsin relative to some of the neighboring states to the total bill.
Scott do you want to give that a shot.
So the numbers that we did provide on the call the 5% to $6. A month is the total bill of it was still below the national average and right in line with our Midwest peers.
As it relates and this does include in fuel at the time, when we put the case together, but just like every year, we will file for a fuel update and the commission has a process of updating you at the latest forecast that gas prices et cetera in the fall of each year and that's an ongoing every year, we go into that so but.
It's really right now it's a very modest number at five or $6 that may change a little bit when you look at that final fuel.
That's even makes the case, even better for renewables as we put more renewables in and have that.
Fuel free resource there.
Where would you like to add.
No I think that I think Scott really covered it.
Overall, we look at our rate requests and compared to the peers.
And compared to the National average, we feel really good about the overall customer impact.
Got it and as Scott said I'm.
I'm, sorry, and as Scott said, the 5% to six Bucks a month for a typical residential customer at this stage of the game does include an estimate of fuel.
Okay. That's super helpful. The other question I had is when you are entering the year I know somebody asked about electricity demand and I know, there's some Gail you and ive talked about at length over the years, but just curious when you all entered the year what was your guidance for weather normal gas demand growth because it seems that.
And one quarter doesn't make a long term trend, but it seems that gas demand growth again is kind of surprising to the upside again.
Yes.
In Scott was three tenths of 1% to half a percent half on half a percent.
And remember and I'll discuss this with the normalization of the first quarter when it's colder than normal is not the.
The best indication on the other hand gas sales have been very strong I mean, we see several customers still converting from oil fuel oil to natural gas and actually commercial and customers last year converted from coal to natural gas getting cleaner and yet the usages up I do think though as you get into the fall gas usage.
When you think about gas cost, but you are seeing in the paper everyday people may be putting into more installation and looking for conservation a little bit more this year. So we'll see but we're we always want to be.
Looking at that gas or gas growth in line with customer growth and surprised on the upside with usage.
Yes, Scott Scott is making a great point, but I will say, we continue to see as Scott said, we continue to see good customer growth on the gas distribution side of our business.
And it really is a mixture of things.
I mean, my gosh, some people have 40 year old oil burning furnaces, they're not putting oil burning furnaces and today. They are converting to natural gas and then as Scott said, we have customers industrial customers that are actually getting cleaner by switching off of their own generation and moving on to our gas distribution network.
We see both usage growth, but also strong customer growth in fact in most months of last year.
Our gas customer growth exceeded our electric customer growth.
Got it Super helpful. One last one just curious what is.
The earnings growth.
Kind of annualized multiyear is for ATC, meaning for the transmission business.
And looking at that in the five year plan, it's probably it's probably roughly 4% to 5% a year, yes, that's alright.
Got it okay, so kind of in line with rate base growth.
Yes exactly accept.
We don't have anything in there for tranche one of future one.
And what I'm, referring to MISO has gone through a law along long planning process, which they call future one in future one has three tranches.
So theres tranche, one which is now kind of Cree.
Creeping toward resolution, if you will and I think MISO has said they would vote on the.
<unk> in tranche one in late July if I remember correctly, we don't really have anything in there.
Our five year plan Scott for tranche, one no. We don't have anything in our five year plan, but when you think about it those projects probably won't start hitting to the end of the decade.
So I mean, there's.
Let's talk about the transmission you will see more about it in July but once again it probably won't hit this year's five year plan may be the next but the last couple of years from ATC, we've actually seen some growth just from the renewables that are happening in the system in Wisconsin here alone.
And from upgrading aging transmission lines. So.
Just wanted to be clear when we said, 4% to 5% asset based growth coming out of ATC. It doesn't assume anything about future one.
Got it. Thank you guys much appreciate it super helpful.
Thank you Michael.
And toward the last question, we have Paul Patterson with <unk> associates.
Greetings, Paul how are you today greetings.
Okay.
So.
No.
Wonderful and award winning as usual, you're having a bad day Paul.
Not a particularly bad just an average day.
Okay.
It is what it is you know viggers can't be choosy.
I thought our call would brighten your day I don't know Paul.
It is isn't its own way so.
It's always sunny in Wisconsin, I guess.
There you go.
So.
So actually my question was asked just now but.
There is this proceeding.
Regarding the roadmap to zero.
Investigation.
<unk> been looking at all things PBR performance based regulation.
Affordability in energy efficiency and stuff and I was just wondering since I've got you any.
I mean, it looks to me like they put out an order a few weeks ago sort of saying that they are still sort of interested in it and they are exploring it but do you have any any thoughts about where this might lead.
I think theres, a very very deliberate.
Process that has just begun the.
The Wisconsin Commission to investigate whether there are any other regulatory incentives or any other changes that could help to continue to incentivize the right kinds of de carbonization again without compromising energy security.
<unk>.
We see this as a as a.
As always with Wisconsin regulation forward looking far sighted balanced.
And but I do think they are in the very earliest stages of considering any potential alternatives. So I wouldn't see anything for example that would impact our current rate case.
Okay.
Fair enough, we'll see what happens I really appreciate it.
Thanks, so much.
Youre welcome take care.
Alright, well folks I think that concludes our conference call for today. Thanks, So much for participating if you have any other questions feel free to contact best you won't be on mute for 142 to 14639, thanks, everybody take care.
This concludes today's conference call you may now disconnect.
Okay.