Q2 2022 WEC Energy Group Inc Earnings Call
Yeah.
Good afternoon, and welcome to W. E C Energy group's conference call for second quarter 2022 results.
This call is being recorded for rebroadcast and all participants are in a listen only mode. At this time.
Before the conference call begins I remind you that all statements in the presentation other than historical facts are forward looking statements that involve risks and uncertainties that are subject to change at any time.
Such statements are based on management's expectations at the time they are made.
In addition to the assumptions and other factors referred to in connection with the statements factors described in the Dutch N. W. E. C energy group's latest Form 10-K, and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ material 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 open to analysts for questions and answers. Thank.
In conjunction with this call a package of detailed financial information is posted at W. E C Energy group Dotcom.
A replay will be available approximately two hours after the conclusion of this call.
And now it is my pleasure to introduce Gale copper executive Chairman and W. E C Energy group.
Hot town somewhere elicited good afternoon, everyone. Thank you for joining us today as we review our results for the second quarter of 2022 first I'd like to introduce the members of our management team who are here with me today, we have Scott Lauber, our president and Chief Executive Shortly our Chief Financial Officer, and Beth Straka senior.
President of corporate Communications and Investor Relations.
Now as you saw from our news release. This morning, we reported second quarter 2022 earnings of 91 cents a share a warm start to the summer solid results from our infrastructure segment and continued execution of our capital plan were major factors that shaped yet another strong quarter.
In light of this strong performance were again raising our earnings guidance for 2022. This time by two cents a share to a new range of $4.36 to $4.40 per share we expect to reach the top end of this new range. This of course assumes normal weather for the remainder of the year.
Our balance sheet and our cash flows remained strong and as we've discussed this allows us to fund a highly executable capital plan without any need for new equity.
During the quarter, we continued to move forward on major initiatives across the enterprise, including investments in our 17.7 billion dollar ESG progress plan.
Our focus remains on building and maintaining a highly reliable infrastructure delivering energy that's affordable reliable and clean Scott will provide you with a project update in just a few moments.
Now you may recall, our recent announcement about an adjustment that we made to our schedule of power plant retirements, we plan to extend the operating lines of the four older units at our Oak Creek site rich.
The retirement of units five and six will be delayed by a year until may 2024 units seven and eight will be delayed for about 18 months until late in 2025. These coal fueled units have a total rated capacity of 1100 megawatts.
We base. This decision on two critical factors first tight energy supply conditions in the Midwest power market.
And expected delays in the delivery of solar panels and batteries.
That will clearly affect the in service dates of renewable projects that are now going through the regulatory approval process in Wisconsin.
Keeping the older units at Oak Creek online a bit longer for capacity purposes makes great sense for our customers because we can avoid the need to purchase higher cost capacity in the MISO market.
But even with the extension of the Oak Creek units, we remain committed to our aggressive environmental goals across our generating fleet, we're still targeting a 60% reduction in carbon emissions by the end of 2025, and an 80% reduction by the end of 'twenty 30, and by the end of 'twenty 30, we expect to use coal only.
<unk> as a backup fuel and we're aiming for a complete exit from coal by the end of 2035, the capital investments we planned 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 2050 and.
And as you know, we're working to help shape, the future of clean energy and gauging and policy discussions and on the ground carrying out innovative projects that can drive decarbonization of the economy.
For example, we've now finalized the test plans for blending hydrogen with natural gas at one of our modern gas fueled units in the upper peninsula of Michigan.
We've teamed up with the electric power Research Institute for this leading edge project field work will take place this fall and the results will be shared across our industry.
Separately for our natural gas distribution business, we're making great progress in securing supplies of renewable natural gas Scott will update shortly but as a reminder, our plan is to achieve net zero methane emissions from our gas distribution networks by the end of 2030.
Switching gears now, let's let's take a brief look at the regional economy.
The latest data show Wisconsin's unemployment rate at 2.9% well of course below the national average and we continue to see major investments from growing companies in our region. For example, Gulfstream Aerospace is expanding its operations of the Appleton Airport, that's in Wisconsin Fox Valley southwest of <unk>.
Green Bay the company is planning to build a world class facility for painting and finishing aircraft exteriors. This expansion is expected to open in the third quarter of 2023, and it could add 200, new jobs to Gulfstream has existing workforce in Wisconsin.
And just last month Komatsu mining celebrated the official Grand opening of its new headquarters here in Milwaukee.
The campus excuse me the campus is already hosting about 600 employees. It includes offices, a training center and state of the art manufacturing space to build heavy mining equipment.
During the second quarter groundbreaking also took place for a major expansion of the Georgia Pacific paper Mill in Green Bay.
Georgia Pacific is investing $500 million in its new facility, which is expected to bring about 100, new jobs to the region.
So with a wide range of developments on the pipeline, we remain very optimistic about the long term future 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, Scott All yours. Thank you Gail as Gale mentioned, we're making good progress in our <unk>.
Capital plant construction is underway on a number of regulated projects. We have started work on the reciprocating internal combustion engines or as we call them Grace units at our western site in Northern Wisconsin.
These units are expected to provide 128 megawatts of dispatch will capacity with an estimated cost of $170 million.
Also work on our liquefied natural gas storage is underway as you recall the commission approved two LNG units in southeastern Wisconsin. This 370 million dollar investment will provide needed, peaking capacity for our gas distribution business.
On the renewable front, we've deployed $155 million toward refurbishing projects at two of our regulated wind farms. When completed these projects will enhance reliability and performance at these farms. These investments will qualify those sites for production tax credits for an additional <unk> <unk>.
10 years.
Also we expect our Red Barn Wind Park development in southwestern Wisconsin to come online around the end of the year.
It will provide about 80 megawatts of renewable energy to our Wisconsin public service customers.
And the solar and battery front work continues on the Badger Hollow II solar facility in the Paris Solar Battery Park.
We still expect these solar projects to go into service next year supplying more clean energy to our Wisconsin customers. However, we've informed the Wisconsin Commission that the battery portion of the Paris project is expected to be delayed until 2024.
As you May recall, we have filed for approval of two other solar battery projects Ariane and Koskinen. We initially planned to add these to our fleet in 'twenty 'twenty, three and 'twenty 'twenty four we now project them to enter service in 2024 and 2025, respectively.
In addition, we now expect the retirement of Columbia Energy Center to take place in 2026 as you know Alliant energy operates the Columbia facility and we are part owner of course, we will keep you updated on any further developments.
As you recall, we filed a rate review last quarter with the public Service Commission for our Wisconsin utilities, our proposed rate increase would support important capital investments and grid hardening projects.
Recently, we provided an update to our filing we factored in the extended operating life of the older Oak Creek units and the Columbia units.
This update also reflects other variables, including higher interest rates and costs associated with the completion of our solar projects.
We expect final orders by the end of the year with new rates effective in January 2023, we have no other rate reviews pending at this time.
In our gas business, we discussed plans to bring high quality renewable natural gas to our customers. The Wisconsin Commission recently approved our pilot project for this initiative just last month, we signed our third R&D contract, which will connect our distribution system to a large dairy farm in northeast BC.
Johnson.
The three contracts in place are projected to bring us 80% of the way toward our goal of net zero methane emissions we've.
We plan to have RMG flowing in our system by the end of this year.
Outside of our utilities, our WEC infrastructure segment was once again, a positive driver for the quarter.
The Thunderhead wind farm located in Nebraska will be the next project to go into service scheduled for later this year. We also expect the Sapphire Sky Wind project in Illinois to come online by year end.
Together, the two projects represent approximately $800 million of investment keeping us well ahead of our five year capital plan.
As you know beisel, the Midwest grid, operator has set out a long range plan to address transmission needs across the Midwest and last week. The MISO Board approved the transmission projects for tranche one.
At this time American transmission company estimates that its investment opportunity in tranche, one is approximately $900 million that's in today's dollars.
Investment in these long dated projects are expected to start as early as 'twenty 'twenty seven.
That I will turn things back to Gail Scott. Thank you very much.
As you May recall, our board of directors at its January meeting raised our quarterly cash dividend by 7.4%. We believe this ranks us in the top decile of our industry. We continue to target a payout ratio of 65% to 70% of earnings and therefore, I expect our dividend growth will continue to be in line with the growth in earnings.
For share and today, we are reaffirming our projection of long term earnings growth at 6% to 7% a year next up Sean will provide you with more details on our second quarter financials and she'll touch on the likely impact of the reconciliation bill that appears to be headed for a vote in the U S Senate.
We view the legislation is broadly positive for customers for the energy transition and for our future investment opportunities Shah.
Scale, our 2022 second quarter earnings of 91 cents per share increased four cents per share compared to the second quarter up 2021.
Our earnings package includes a comparison of second quarter results on page 17, I'll walk through the significant drivers.
Starting with our utility operations the impact of weather it was flat quarter over quarter.
On a weather normalized basis retail electric deliveries in Wisconsin as coding the iron ore mines were up three tenths of percent led by our small commercial and industrial customers.
They're all retail demand for electricity is tracking our forecast.
Across our regulated business, we grew our earnings by five points compared to the second quarter of 2021 states.
<unk> contributed nine thanks to earnings.
This is partially offset by three things have higher depreciation and amortization expense and a 1% increase in day to day on EM.
At our investment in American transmission company earnings increased one penny compared to the second quarter of 2021, driven by continued capital investment.
Earnings at our energy infrastructure segment improved four cents in the second quarter of 2022 compared to the second quarter of 2021 patients.
This was mainly driven by production tax credits related to stronger wind adoption across our portfolio as well as our T. Wind farm that went in commercial operation at the end of last year.
Finally, you'll see that earnings at our corporate and other segment decreased 6%, primarily driven by Rabbi Trust performing and a gain last year on our investment in a clean energy fund that we recognized in the second quarter last year.
Remember Rabbi Trust is largely offset in O&M.
Overall, we improved on our southern quota per funding by four cents per share compared to last year.
Looking now at the cash flow statement on page six of the earnings packet net cash provided by operating activities increased $536 million.
Cash earnings and a normal recovery of commodity costs contributed to this increase.
And total capital expenditures were $1 billion during the first half of 2022 as you can see we have been executing well on our capital plan.
Okay.
Before I turn it back to Gail I'd like to give a bit of color on the recently proposed inflation reduction Act.
I'll also provide our guidance for the third quarter.
We're still analyzing the details of the proposal from what we understand now we believe that proposal would provide additional benefits to our customers from the last months in renewables.
An option to choose production tax credits for solar project and the ability to transfer tax credits would provide more flexibility for future renewable investments.
This would apply both at our utilities and at the W. E T infrastructure segments.
So overall, we see benefits to customers future investment opportunity and stronger credit metrics.
Now let me give you the guidance for the third quarter, we are expecting a range of 82 to 84 cents per share.
This accounts for weather and storm recovery costs in July and assumes normal weather for the rest of the quarter.
As a reminder, we earned <unk> 92 per share in the third quarter last year, which included five better than normal weather.
And as Gail mentioned earlier, we're raising our full year guidance to a range of $4 36 to.
To $5 47 per share. We then expectation of reaching the top end of the range with that I turn it back to Gail Jonathan. Thank you overall, we're on track and focused on delivering value for our customers and our stockholders operator, we're ready now 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.
<unk> followed by the digit one on your phone.
We are using a speaker phone turn 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 the number one on your telephone keypad.
To ask a question.
Your first question comes from the line of Shar <unk> with Guggenheim partners.
Your line is now rock'n'roll shar.
Hi, Good morning, John Hey, guys. Good afternoon, guys. How are you doing.
Doing great how about you are not too bad not too bad.
Yeah, Let me just if we can.
Such on MISO policy for a second and maybe more specifically the generation backdrop fallen the PRA earlier, this spring and kind of your own retirement modifications or like you highlighted delays.
Scale from your position do you envision any structural changes to the auction in the coming years and could we be in a position where we see work undertake maybe additional retirement extensions because of the supply demand dynamic, which could present, maybe a possible O&M headwind or is this a definitive timeline it.
This point.
No. That's a great question Shar based on everything we're seeing today.
Don't sense that we're going to enter into any other significant extensions of plants.
The dates we gave you we feel pretty good about in terms of the retirement of the older Oak Creek units.
And I think really what's going on here.
And in MISO has said this I think fairly clearly that.
There's been so much retirement up to date.
Of older coal fired units that really they found themselves in a couple of regions and really really tight capacity situations.
Hum.
Luckily we've had the diverse supply here, we've been well prepared.
We were basically unaffected by the big increase in capacity costs in the last auction, but it was very prudent for us to make sure that we have that capacity online I remember.
These plants that we're extending these older Oak Creek units, they're not projected to run a great deal we need them for capacity purposes at high demand times.
And this protects our customers from.
From continuing high auction costs in future capacity markets, but as we continue to bring.
The units online that Scott talked about.
I think our current plan is likely to hold in terms of the retirement dates.
I hope that answers your question no. It does and I appreciate that and then I think Chuck kind of mentioned a little bit on sort of the IRA inflation reduction act, but there's obviously some linkages to your capital program and and taxes as well as you kind of work to finalize the roll forward. This fall could we.
See additional spend from the program, especially as we're heading into the EI conference. How do we think about that and then there is obviously that counteract it for us which is the minimum tax that will probably be there by the customer right.
Yeah.
And we're working through all of that in our models I will say this right now based on everything we're seeing in shock and comment further but based on everything we're seeing some of the other benefits of that piece of legislation really kind of offset the minimum tax issues. So we don't we actually think as Sean mentioned in <unk>.
You might want to expand on this a little bit this likely there will be a credit positive or an <unk> metric positive for US sure yeah exactly like Gale mentioned, we see a very manageable impact on M. T. I think in general probably 20 $39.
The increase in cash tax payment, but.
Like Bill mentioned, we see quite a bit of sources of credit metrics benefits from either that monetization of tax credits or.
Lower.
Just offset by the.
But you lowered that bombing financing cost and so forth. So I think overall, if you take into consideration all of the other moving pieces, we actually see a benefit to the credit metrics.
And our benefit also shar one other I think point there will continue to emphasize.
We talk about investment opportunities here expanding with this piece of legislation not only at the utilities, but also at the infrastructure segment, but one of the things that comes through clear to US. This is good for our customers I mean, this can help reduce the cost investment cost.
But that our regulated customers have to cover so theres. Some theres some broad positives here sure. Okay got it got it and then just real quick lastly, if I may just a rate case that procedural schedule was obviously issued last week you guys are great at settling says we're thinking about potential settlement.
<unk> should we be looking at maybe at the end of September early October for that.
Yeah.
It's hard to place an absolute timeframe.
On the pace of settlement discussions right now we're still pretty early in the process of it.
Staff is continuing to we continue to interact with the staff on their data requests, which are very normal and very good.
So that part the staff audit part, which has kicked off by our filing that's going smoothly going well going on time.
And as you say the.
The administrative law judge in the case has proposed a schedule, which I think the intervenors would like a little more time.
In between some of the dates so I'm not sure of the schedules final, but it's certainly close to final and I would say steady as she goes in and just a reminder, I mean this case is very straightforward, it's really all about investment in grid hardening investment in renewables.
Investment in reliability.
And over half of the capital projects in this case have already been approved in our O&M that we proposed is actually lower than what was approved in the last order. So the backdrop is still very positive and right now its steady as she goes.
Alright terrific execution, thanks, guys I appreciate it.
Thank you Shar take care.
Your next question comes from the line of Julien Dumoulin Smith with Bank of America. Your line is now open.
Hey, Julien good afternoon team.
So just coming back to a couple a couple of details here if I can.
Normal both for large C&I, just again I get that that doesn't move the needle as much a margin but.
Through 630, there is it does it help that versus what you guys had forecasted on the air.
What you're seeing there I know you highlighted a number of industrial trends at the outset here there that bode well, but just are you expecting that to reverse in the second half or just what's the setup there for you Ken.
Yeah, Great question, Julian and by the way I got a question for you when I'm done answering.
Okay.
The small decrease that we saw in large C&I as we kind of rumor we serve industrial customers in 17 different sectors of the economy. So it's a very broad gauge of whats going on we saw three sectors in the first half than in the second quarter that really showed a bit of a decline.
Food processing food and food processing.
Some of that is related to one of our very large customers that are switching product lines.
So they had a they had an outage that is going to extend a little bit.
And actually I think they're going to make more chocolate.
Which is a good thing according to my wife, but anyway.
So electronics food processing and printing where the three categories.
It showed some decline primary metals was up but long story short the rebound in small commercial customers that the rebound in the commercial sectors of our economy was very strong and very good.
So, we'll see where industrial moves in the second half.
We're not at all concerned about it.
But clearly what we're seeing is a very very strong recovery in the commercial side of the business. I mean every every commercial area. We looked at is up.
From entertainment to hotels to restaurants to you name it.
There's a really very active backdrop right now in the Wisconsin economy. So when you when you put it all together.
Take a look at it holistically.
As Sean said.
We feel like we're very much on track with our our sales forecast for the year.
Nice okay back half of it is excellent and before you ask your question.
And then one more here if I can put you on the spot a little bit here do you want to quantify a little bit as best even a range on what that credit metric that net credit metric ambac is as well as the U S.
At this point Beach method <unk> done I think a $600 million of that give or take if you can talk to that and how that.
Might impact anything.
Sure.
Really don't have a number yet because there's so many moving pieces as you would know that qualification and production tax credit versus our investment tax credit could change.
The dynamics among just the regulated businesses. So we really haven't quantified a number for you, but more to come on that.
On the.
Youre talking about a supplemental filing that we made in Wisconsin related to a methodology change related to S&P is just the uptake the most they recently updated their methodologies to calculate.
And the implied imputed debt related to purchase power agreement. So we updated the calculation based on the new methodology is nothing more than that and they are applying the same methodologies across the industry.
So we're not we're not at all there.
Right and presumably the recovery there.
Right, it's pretty formulaic.
It's a pretty standard type of thing.
So Julien I'm, just going to check the house Mary lifestyle.
[laughter], Okay, great got it.
Got it.
Alright, alright.
Step two.
Hey, Gary said it.
Thanks.
Your next question comes from the line of Jess <unk> Chopra with Evercore your.
Your line is now hydro gas.
Hello, Andrew.
Hey, good afternoon, Gil congratulations on yet another solid quarter.
Just I wanted to sort of.
Sorry shot, but I'm going to put you on the spot again and this is just knowing how well you know this topic.
Just on the concept of this the monetization of the tax credits and transferability. So obviously this bill doesn't include direct Bay, which is part of the build back better. How are you. How are you viewing that as an opportunity is this transfer, but it really sort of.
An opportunity for utilities like yourself to monetize those credits or what might be those other options. When you think about monetizing bdcs itc's etcetera etcetera.
Yeah.
I think like high touch in the formal remarks, we see this overall bell.
With benefits for customers for future investment opportunities in credit metrics. So in terms of the sources of customer benefits, obviously ptc's versus ITC from solar project could be one.
So the flow through of ITC benefits on Standalone battery versus normalization could provide a customer benefit.
You touch the marketing of tax credits, so that could be beneficial for our customary extension of tax credits.
Those are the sources of customer benefits and then like Gail touched in terms of future investment opportunities.
Wacky for example, right now where we're looking at the tax appetite to try to to match our investment opportunities with our tax appetite, obviously with marketability of tax credits that goes away so that could open up for <unk>.
Additional opportunities and we could potentially consider.
Investment opportunities beyond the wind and then I touched already the credit metrics. So I think overall.
We see this as a potential positive having said that our current capital plan isn't reliant and downtime any of these so I think <unk> I think we would see some tailwind from that.
I suppose what path is not where we're just fine.
Okay got it.
So I guess.
Yes, I'd, just like to add onto something Shaw said.
She is exactly right the $17 7 billion five year capital plan that we've outlined for you doesn't envision any of these potential benefits. So that's why we think this is broadly positive.
I'd say just personally and this is just my own view.
The idea of the transferability of tax credits basically creating a market I think is actually a superior solution than direct pay frankly.
It's much simpler it gets rid of we don't need tax equity, but it gets rid of a tax equity structure, that's complicated and.
Time consuming.
I think this is actually a pretty ingenious approach in terms of the transferability of tax credits and the Bill I hope that helps.
That helps tremendously, but just so I understand Gail am I right in thinking about this translate ability is that you don't need ownership. Unlike tax equity, where you actually need an ownership in the project you don't need ownership as an investor or buyer of these tax credits so essentially the the market or interest in these tax credits is going to be.
Much larger than just those select banks or those.
Vic tax equity investors is that the right way of thinking about it.
Yes, I think youre right on I think your debt under geis and in fact.
But a little bit of background I know, but some of the background of how this came to came to be in terms of discussions with Senator mansion and the idea that this really opens a much broader opportunity for these tax credits not just with a tax equity investor.
That was a major selling point, so I think.
A major selling point period, all of those were crafting the bill.
So I think you're really analyzed it well.
Thanks, Gail I appreciate the update.
Youre welcome. Thank you.
Your next question comes from the line of Jeremy Tonet with Jpmorgan. Your line is now open.
Hi, Jeremy.
Hi, Thanks for having me user you survived your conference.
Did I did thank you. Thank you for attending the Fireside chat was great.
Just wanted to come back to the coal retirements, a little bit if I could as it relates to the Wisconsin rate case, and just what if reaction has been so far and do you see any potential implications on.
Settlement talks from this.
The short answer is and when I ask Scott to give you some detail, but the short answer is we don't see any implications in terms of the rate case.
And the reaction has been.
Uniformly positive.
Certainly the Governor's office, which we communicated well with prior to the prior to the announcement was very supportive.
<unk>.
The staff at the public Service Commission, obviously, taking its responsibility to help sure rely to ensure reliability.
Was very positive the industrial customers were positive and overall Scott. This really is not a big factor in changing the revenue requirement no not at all Gale and when we factored everything in factoring in keeping these units running a little bit longer extending those lives factoring in the delay in remember we delayed these due to some supply chain.
Challenges building, the solar and the batteries factoring those delays in it was relatively revenue requirement neutral and remember for this particular case then just in this case you are avoiding those additional capacity costs. So it was well received adding that reliability and until we can get these renewables built and.
Some of the other capacity online. So it was well received across the board from my conversations with individuals across the board like Gale said.
And in addition to that Jeremy we were able to reassure as I've mentioned in the script, we were able to reassure everyone that our commitment to really aggressive environmental improvement is unchanged by by this action. So it just made a ton of sense, both from a customer reliability and customer cost standpoint.
Got it that's very helpful. There.
And just wanted to come back if I could to IRA and tax.
Tax credits and whats possible there you talked about the investment opportunity set for work infrastructure being larger.
<unk> is larger than a bread box, but just wondering if you could give us any breadcrumbs as far as what the scale of opportunity.
Possibly.
Or at this point in time, Jeremy it's probably too early to give you how much bigger than a breadbox answer, but I will say this right now.
Our significant investments that we've made which which as we've reported to you are performing very well in the infrastructure segment those have all been wind projects.
I think we have eight wind projects that we're committed to and some of them operating already a number of them operating already.
What this does do and sharp pointed to it which is giving companies like ours. The option of production tax credits for solar that could open up an entire avenue of investment in the infrastructure segment for solar simply because of the way the economics work today.
So that just gives you an idea of their all wind right now in the infrastructure segment.
We continue to see opportunities with wind, but it could also open up a whole different technology investment with solar.
Yes.
I will add though we have the 10%.
Total investment.
Portfolio from Lucky So we don't see that change.
Even with this bill passing.
Yes, that's a good point.
But the opportunity continues because our regulated business is growing as well so.
But yes, we intend to keep the infrastructure segment at around 10% of earnings going forward.
Got it that's very helpful. Thank you.
Thank you.
Your next question comes from the line of Michael Sullivan with Wolfe Research. Your line is now open.
Hi, Michael.
Good afternoon.
Afternoon to start with the and I know, it's a shoulder quarter for the gas business, but sales trends remain pretty strong they're looking at the first half of the year really really strong I guess any color on what's driving that and how sustainable you think that is.
So your question is how strong is it right.
Okay.
Actually.
You are asking an interesting question. The other day as we were reviewing all of the data.
We were asking ourselves. So this is really interesting what are we seeing here what are the trends.
And two answers and it's gotten so I should add their viewpoint, but two answers.
One is and you've heard me say this a gazillion times weather normalization is more precise and accurate.
So.
I'm not sure that that our weather normalization techniques picked up all of the weather impact that we saw particularly in Q2.
April started out as a abnormally cold month in Wisconsin, and I think that drove some sales and perhaps our weather normalization techniques didn't quite pick up that fully.
But the other thing that we're seeing and this is not surprising but positive a big chunk of the increase that we're seeing and it is a strong increase is in industrial processes for gas.
When you look at the segments of our gas customers actually the biggest increase in Q2 is coming from industrial process used for gas.
And again that reflects back on the strength of the economy, and we see that as pretty positive.
So I hope that I hope that's helpful. It is it has been a very strong six months no question about that.
We'll see what continues here, but but the biggest driver in Q2 in terms of the increase we saw was a cold April .
Our residential customers use more gas.
And throughout the quarter the increased.
Use of gas by our large industrial customers for process purposes.
Okay.
Okay very very helpful. Thanks, and then in terms of the pending renewed.
Renewables projects on the on the regulated side of the business that you're building.
I think there's been like a little bit of a.
Cost pick up on some of the nearer term stuff, whereas.
The longer term has been pretty steady thus far.
So are those numbers still good or do you think there's ultimately going to be some.
Some upward pressure there as well.
We'll let Scott give you his view on this I will say this the nearer term cost changes we fully anticipated.
And had communicated with our our regulatory folks.
We anticipated and talked to them about it I don't think its a surprise.
To anyone when we file the incremental increases in what we've been saying is we're going to see cost increases in that 20% to 30% in fact, the last filing on the solar the first.
Projects, we came in were about $1300 a kw a kilowatt hour.
And then now it's about $15 40, I think the last one was about $16 40, so theyre moving up a little bit still in line with what we're seeing across the country.
In the future, we'll have to see where things go, but we said it could be 30% to 40%, but once again, there's a lot of supply chain here in New York and multiple years out so right now there the costs. We did see go up but really in line in fact, a little bit lower than what we see it across the country.
Okay. Thanks, and last one real quick any plans to file a peoples gas case and anytime soon.
No time soon no.
Okay, great. Thank you.
Thank you Michael.
Your next question comes from the line of Anthony <unk> with Mizuho.
Your line is now upgrading the grid.
Things Anthony How's it going Gal I hope all is well.
Same here.
How about battery life is married life is going well for me also just for checking but.
Hopefully.
Just in case my wife see somebody I don't want any problems.
Hopefully two easy questions.
One is I guess guidance of 6% to 7%.
One of the slide decks I think from the July July presentation. Historically, it's been 9% CAGR. There's really you highlight didn't dream GAAP and non-GAAP , which there is no difference.
Just curious with all the tailwind that you've mentioned on the previous questions. What has to happen for you to hit the 6% number.
What has to happen to Rusty had a 6% growth trajectory yes.
Downsides that I really don't anticipate that would be kind of out of the blue right now.
And remember our projection is six to seven.
And <unk>.
Certainly what we have in the pipeline in terms of approved capital investments.
<unk>.
And simply are continuing our continued efficiency and driving best practices through our operations.
It would take something that I don't anticipate Scott.
We have really good value added customer projects, we're putting in and when you think about like grid hardening.
The storms that we've seen this summer and last summer it makes a lot of sense. They go as we do that.
The additional transition to renewables.
We feel really comfortable with where we are to be able to execute it as a very executable capital plan also.
With no need for equity exactly so.
But we will continue to evaluate our growth and as we look at the fall and we pull into the capital projects will continue to look at it.
And Anthony when I see your wife and <unk> I'll, just say what goes on in Boston stays in Boston.
Thanks, I appreciate that I appreciate that.
If I if I look at it on.
On the cost side, so far first half of the year O&M is down for.
4% roughly when I look at the slides you put out.
What is the more challenging part of maintaining the cost in O&M in this inflationary environment. What are you seeing as the biggest challenge what part of your O&M budget.
Well I can give you an initial thought on that we'll certainly Scott shar very close to the numbers as well. So we'll ask for their view I would say the.
When you think about our own.
First thing that comes to mind actually may not be the biggest cost factor in our in our array of cost that we have to operate the enterprise day to day, but you just think about the gasoline that our fleet.
Our trucks are service trucks are our.
Our bucket trucks, when you think about the cost of gasoline having more than doubled that's certainly a big factor and we got.
We are rolling as few trucks as possible, but when you have a storm you got to roll trucks. When you have an outage you got to roll trucks. So that's one big factor that has been largely out of our control and I would just point to that one first Scott Shaw.
Yeah, no you're exactly right Gale and you really have to kind of pull yourself by the numbers here.
And when you look at the O&M.
Just to correct, where we're at here some of those decreases that we're seeing on the top level of the income statement or some of the items that we had in our rate review last year for transmission Theres, a little detailed breakdown in a few additional pages in our packet. So some of thats related to transmission reductions that we agreed to so Wisconsin actually.
It was up a little bit year to date, so just because its reaction to storms.
And some of these inflationary pressures that Gail talked to you, but overall when we look at our forecast, we're still projecting to be down about.
1% flat to 1% of total O&M.
John anything you'd like to add.
No I think you covered it very well, okay terrific Anthony I hope that's responsive to your question perfect. Thanks, So much and NFL schedules out and I think my Gest May finally win one in Green Bay in October Thanks for taking my questions.
Yeah, I'll take the over under on that one for you.
Yeah.
Take care.
Your next question comes from the line of Sophie Karp with Keybanc. Your line is now open.
Greetings Sophie how are you doing today.
I am doing great. Thank you. Thank you for taking my question.
Great discussion so far just if I may ask you a little bit more on this.
Alright provisions right.
More there than just spending so we have basically a lot of incentives for evs for now.
Diagnostic PTC is at some point right.
Do you think about maybe moving beyond the wind and solar.
Branch now too.
Right could you do for example, modular nuclear or have you looked into it.
Electrification opportunities like some of your peers are doing their own fleet prevention gasoline prices or maybe when it's supposed to meet et cetera. If you could just elaborate on what what is beyond I guess wind and solar.
No happy to and of course, and it did and Sean mentioned this as well but batteries.
The battery inclusion in this act is also important in terms of the credits so batteries certainly and that's in our plan already in <unk>.
Probably will be even more greatly in our plan going forward. So batteries is one area that can be beneficial to all of us given given what's in this piece of legislation.
We do have and we probably don't talk about it enough, but we do have goals for electrification of our fleet.
No doubt about that.
So that's coming we have now a pilot program in place in Wisconsin that the Wisconsin Commission approved a few months ago.
Where we are approaching commercial and some residential customers.
Installing.
Individual chargers at their locations.
Where we would own the asset.
And that is off to a really good start.
Those two things come to mind immediately as far as small modular reactors.
I mean, we're tracking and we're tracking the progress no question about that.
Our.
Our strategy focus on the generation side of the business they've had regular contact with the developers of SMA.
I will say this we are not in the business of serial number one.
But certainly down the road, particularly if this kind of tax credits apply.
That certainly could be an option down the road not in our five year plan and probably not in the next five year plan, but certainly down the road sure anything you'd like to add.
No I think the only thing is we are going through the hydrogen test.
Process to learn more on that and as part of this Iia theres new clean hydrogen production credit. So that's something that is it indeed is making things that would be something we would be happy to appeal to a very good point, Scott and I think the other point you mentioned Evs and we really see it more as Natalie.
The adoption of Evs, how does that even expand our grid hardening as more and more evs come onto the system.
<unk> said, we've got a robust program already have seen a lot of traction, but remember we didn't put any of this in our future five year forecast that we talk about it.
In our third quarter call. So we have nothing in our long term plans related to EV adoption there could be.
Nice little tailwind there for some sales yeah, Sophie you probably heard our rule of thumb that.
For every two new evs put onto our system.
It's probably the equivalent of the energy equivalent of a single new household. So when you think about and we just saw some statistics the other day from the state of Wisconsin projecting the trajectory of EV adoption in the state.
It's even closer right.
Scott's point will be borne out in.
It really really fully because I mean, we only have a few thousand a couple thousand evs in the state today.
They're projecting just huge numbers by 2030, we'll see if that's right, but behind that would have to be a very significant investment.
Particularly with our rule of thumb estimate about two new evs on our system equal to the energy demand of a single household.
Terrific color. Thank you so much that's all for me.
Thank you have a good day.
Your next question comes from the line of Michael Lapides with Goldman Sachs. Your line is now open.
Hey, I'll say, Michael taking my question much appreciated.
Pete.
You're welcome Michael Hope you're doing oil.
I have an easy one for you.
Actually I have two questions.
Actually the first one and it follows on the EV question that just came.
Can you talk about what you think is a long term role.
Utility the electric utility is and the potential ownership of charging stations.
Relative to kind of the various market models, we have today in this country, where the utility is generally not the owner of charging stations or it's a very small component of that how do you just think about that from a public policy standpoint.
Well, that's a great question, Michael I would say this I don't think there's a one size fits all answer because I think you've hit on it earlier, there's a lot of different models floating around the country.
State by state, even though federal government now with a charging plan.
So we're very as you know very very early in the development of the whole infrastructure that would support a massive transition to electric vehicles. So I think the jury is still out and time will tell in terms of just in terms of how much of the actual charging equipment.
Equipment that utilities will own.
But and so I really can't I don't think anybody can give you a really clear answer on that question today I will say this though when you think about and it goes back to it goes back to Scott's comment on grid hardening.
If you think about our neighborhood, let's say a colder sack with I don't know eight homes for example, if two or three of those homes.
Adopt Tvs.
Well, we're going to have to put in a much larger transformer that neighborhood.
So there are there are incredible investment requirements in terms of our basic infrastructure forget the charging equipment itself for a moment there are very significant investment needs that are going to come with.
The adoption of Evs.
And that I think will open up again.
Tremendous capital opportunity for a company like ours, but also the need.
To be able to have the grid.
That really supports that kind of transition to a massive massive number of evs.
So again, none of that's in our forecast.
Meanwhile, we will wait and see how we how the EV adoption.
Moves forward.
But I can tell you, it's beginning to gain momentum here in Wisconsin, and I don't think there's any question about that so I hope I hope that answers. Your question to some extent I just don't think there's a good single answer about who owns what to what extent going forward. There are just too many models and too much discussion in development right now to give you a much more specific response.
No totally understand and then my second question is.
Another kind of policy, one which is we need to meet you and the team go meet with Governor Evers work go meet with folks in the state legislature are some of the leaders of some of the large business groups.
What is it that the utilities in the state are not doing today or having their next one or two or three year plans.
Still like to see you guys do.
That we would still like to see or that governor Evers, we'd like to see.
Is that the governor and.
They're both.
<unk> officials and business leaders.
It all comes down to it all comes down to one word reliability.
Affordability, yes, but reliability is the key.
I mean, whenever we have discussions with legislative people win with the public service commissioners with the Governor's office.
It is really all over all being around reliability, they want to make sure that what happened in Texas does not happen here.
In that regard.
Going to have the capability to continue to support the energy transition Scott its reliability not only on electric but also on natural gas keeping the houses warm here in this cold environment in Wisconsin. So.
That's also a key so we just don't want look at from one side.
Which again led to us talking with them and making the decision to briefly extend the lives of the older Oak Creek units again, it was all about assuring reliability.
Got it and then finally with the changes in the time and the in service dates for the stores.
Solar projects.
Should we think about what this does to the Capex forecast for the next two to three years.
Very little it might shift from year to year, but.
I mean, we have so much flexibility in that capital budget, that's got I don't see any major impact.
Yes, we're really looking at the numbers, but every year, there's a few things that we have to move.
Move around a little bit so it's not going to be a substantial change as we as we flow through our next iteration here.
Got it. Thank you guys much appreciate it.
Take care Michael.
Your next question comes from the line of Andrew Weisel with Scotia, Howard Weil. Your line is now open.
Greetings Andrew.
Hi, good afternoon, everyone.
Couple of quick ones on coal first so first in terms of the O&M impact between delays to solar coming on solar and battery and the decision to move some retirement dates around you talked about the benefits of non fuel O&M savings in the future what does that impact looks like as you as you think about this.
Fundamentally changing from operating as base load units to becoming capacity resources that won't run very often.
Well I think we basically said there'd be about a $10 million of upticks in the O&M.
To use these overall creek units as capacity machines offset by the other factors that Scott mentioned Sky. So that as you look at it as compared to where we're heading in the rate case here, but when you think of ongoing when you go back a couple of years.
When they were really full blown baseload plants, probably the O&M come down maybe $10 million. When you think about it overall, so we're still trying to 10 by $10 million still looking at the efficiencies youre not running them quite as much you can utilize the staff at a variety of projects trying to make the workforce as efficient as possible. So.
But.
It's a lot cheaper than going out and buying that capacity in the market.
Right that makes sense, Okay, and then how will that transition look for the coal units will they gradually decrease their capacity factors over a few months or seasons or will that flip a switch on a predetermined day that all of a sudden there are only for back up now.
No I think it all it all depends I mean, as you know in the MISO market, we basically.
The Midwest grid, operator know what units, we have available and what marginal cost all the time.
Hey ahead, our head et cetera. So those units will run based on efficiency and demand in the MISO market, but we anticipate just looking at our modeling we anticipate they will be used really seasonally.
At the highest demand times winter and summer probably not online very much during the during the higher demand time, Scott No that's exactly right.
It's not going to be a switch will will continue to look at the forecasts in.
Due to this strategy as we do every other type of asset.
Okay, but just perhaps is ultimately determined by MISO right.
Yep, absolutely Yep, just like every other units. So basically this just becomes an asset in our portfolio that we offer to MISO everyday.
Okay, Great and one separate question if I can attack the O&M question from a different perspective, given the strength of the year to date results are you thinking about or have you started pulling forward expenses from 'twenty, three and beyond to better position yourself.
You are in the midst of a rate case and you talked about pressures from inflation from storms, just wondering how to think about those puts and takes.
But the short answer is we have had particularly in July we've had some pretty serious storm. So we've had some additional operating costs in July that youre not seeing in our numbers yet obviously.
And we have a number of maintenance projects are already scheduled in our normal planned for the second half of the year power plant maintenance other maintenance so.
We're not planning on pulling forward.
Any any additional.
O&M, because we've got plenty of things to do in our normal plan Shah.
I think thats exactly right.
Yes.
Okay. That's very helpful. Thank you again.
Take care.
Your final question today comes from the line of Paul Patterson with Glen Rock Associates. Your line is now open.
Once you're up to Paul.
Last but not least hopefully but.
Good talking to you.
Good talking to you.
No.
Just to follow up on the coal plant thing with them.
Confused by it.
The impact of the supply chain issues.
From what Ive been reading in the local press it seems like the associated with renewables and I'm just trying to understand.
What.
Projects that were delayed I mean is it storage or transmission.
Our components or is it.
I'm just wondering how.
Wed actually cause I guess, the pushback on the on the the plant retirements.
Well, it's a great question and to clarify.
Yes.
There's really two elements to it and we'll let Scott cover the details, but the first is.
One of the major.
Solar battery Park investments that we're making are have already been approved which is what we call. The Paris battery Solar park. The batteries there are going to be delayed so that's a piece of it.
And then I think Scott you mentioned during the prepared script. There are two solar projects that we are now going through the regulatory process on.
And they're not going to come in of the original dates correct, they're not going to come in so we had several solar projects and those additional solar projects also had batteries attached to them.
And with that uncertainty in the capacity.
Did that make sense to pull the trigger on those retirements.
Okay.
Paul just to kind of put all that in perspective remember, we're going to be running those overall creek units over the next couple of years here as we extend their lives just a little bit we're going to be running them as capacity machines.
The solar that we were putting in and the batteries were also for capacity.
So.
That's really that's really the trade off were making here.
Got it.
And then we're seeing around the different parts of the country sort of constraints.
Transmission constraints impacting wind production.
I'm wondering are you seeing any of that in Wisconsin or.
Or anywhere else that you guys.
Did you guys are associated with.
Have you seen any any impact on curtailment of wind production.
So far in Wisconsin, very little however, in our infrastructure segment.
We've seen some lengthy transmission maintenance outages.
In the Dakotas for example.
We've seen some transmission issues that are seem to now be resolved in Kansas with.
With our Jayhawk wind farm.
So the sporadically yes, we have seen some transmission issues and there is no question that that we have got to as a nation move forward with transmission projects. We've just got to do it.
To maintain reliability of the grid without a doubt and Thats why were pleased that MISO has gotten to the point, where they've gotten too.
And you probably heard Scott actually its a $100 million higher than we thought originally so the MISO tranche one for American transmission company is now up to a $900 million investments.
Awesome. Thanks, so much guys.
Thank you Paul we'll take care.
Alright sports fans, while I think that concludes our conference call for today. Thanks, So much for participating always enjoyed talking with you. If you have any more questions feel free to contact Beth straka. She can be reached at 4142 to 14639, thanks, everybody. So long.
That concludes today's conference call. Thank you for attending you may now disconnect.
Please wait the conference will begin shortly.
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