Q2 2022 Xcel Energy Inc Earnings Call
Good day and welcome to <unk> Energy's second quarter 2022 earnings Conference call.
Questions will only be taken from institutional investors reporters can contact media relations with inquiries and individual investors and others can reach out to Investor relations.
This conference is being recorded at this time I would like to turn the conference over to Paul Johnson, Vice President Treasurer Investor Relations. Please go ahead Sir.
Good morning, and welcome to XL Energy's 2022 second quarter earnings call.
Joining me today are Bob Frenzel, Chairman, President and Chief Executive Officer, and Brian Van Abel Executive Vice President and Chief Financial Officer. In addition, we have other members of the management team in the room to answer your questions if needed.
This morning, we will review our 2022 results share recent business and regulatory developments.
Why is that accompany today's call are available on our website.
As a reminder, some comments made during today's call may contain forward looking information significant factors that could cause results to differ from those anticipated are described in our earnings release and our SEC filings.
They we will discuss certain metrics that are non-GAAP measures information on the comparable GAAP measures and reconciliations are included in our earnings release with that I'll turn it over to Bob.
Thanks, Paul and good morning, everybody. It was certainly an interesting 11th hour twist and Legislative News last evening, but we'll get to that in just a minute.
Let's start with our financial results, we had another solid quarter recording earnings of 60 cents per share in 2022, compared with 58 cents per share in 'twenty one.
Our earnings are on track with expectations and as a result, we are reaffirming our 2022 earnings guidance of $3.10 to $3 20 per share.
During the quarter, we made good progress on our clean energy plans, achieving constructive regulatory outcomes.
In June the Colorado Commission approved our resource plan settlement, which includes.
Approximately 4000 megawatts of utility scale renewable additions.
The conversion of our Pawnee coal plant to natural gas by the end of 2020 five.
And the early retirement of our Comanche three coal unit by the end of 'twenty 30, which would be the final coal plant retirement in Colorado.
We now have the approval of both our Minnesota, and our Colorado resorts plans, which together will add 10000 megawatts of utility scale renewables to our system and achieve an 85% carbon reduction by 2030.
We anticipate issuing Rfps later this year the.
Submitting a recommended portfolios by mid 2023, and receiving commission decisions in the second half of 2023.
We expect the recommended portfolio of Gen are at we expect the recommended portfolio of generation assets will include self built build own transfers and power purchase agreement.
Our plans are consistent with our steel for fuel strategy.
Which provides a valuable hedge for our customers against rising commodity prices.
Our owned wind farms are projected to generate nearly $1 billion of fuel related customer savings in 2022 alone and a total of $2 $7 billion since 2017.
We're excited about our transmission expansion opportunity.
MISO is long term planning approach identified projects and futures one with an estimated investment of $30 billion that will be awarded and four discrete tranches earlier. This week. The MISO Board approved tranche, one which includes $10 billion in projects based on the most recent information from myself, we anticipate a one point too bill.
Dollar investment opportunity for XL energy within tranche one.
Yeah.
Turning to electric vehicles, we're making progress on our goal to power, one and a half million Evs by 2030, supporting our states and achieving their electrification goals.
We are excited to be the first U S energy company to introduce all electric bucket trucks to our fleet and we expect to file a comprehensive transportation plans in Minnesota and Wisconsin in early August .
These stay proposals include single and multifamily residential offerings commercial customer programs as well as the school bus pilot. In addition, we're looking to accelerate easy adoption through the development of high speed public charging infrastructure by partnering with our states and other organizations.
The proposed programs will also foster customer affordability.
Adding significant fuel savings for E V drivers and helping to keep bills affordable for all customers to load growth and enabling more efficient utilization of distribution grid infrastructure.
Minnesota, Wisconsin proposals reflect capital investment of approximately $325 million from 2024 to 2026, which does not include distribution investment needed to upgrade the grid.
<unk> Energy's clean energy leadership, including our long standing track record of carbon reduction is.
This is a direct result of the passion that our dedicated employees bring to serve our customers and our communities.
Earlier. This month, we received another exemplary rating from the Institute of nuclear power operators for our Prairie Island nuclear power plant.
We've continued to improve performance and cost efficiencies demonstrating sustainable excellence in operations.
I want to congratulate and thank all of our nuclear employees support teams contractors and suppliers for their commitment and impact.
Nuclear remains a very important source of reliable carbon free energy, we're proud to be one of the top operators in the nation.
Yesterday, it was announced that Senator Schumer and Manson had agree it reached agreement on the inflation reduction Act of 2022.
While we still need to analyze the detail to understand all the nuances of the act. It appears to include nearly all of the broader clean energy tax credits, including new and extended track tax credits for wind solar hydrogen storage and nuclear.
Well it doesn't include direct pay for all taxpayers for all tax credits. It does include tax credit transferability as an option when direct pay is unavailable.
As we've previously discussed our capital investment plan is not dependent on changes in federal policy. However, the energy provisions included in the act will provide substantial customer benefit and help enable our clean energy transition, while keeping our customer bills affordable.
There's still a lot of twists and turns that can happen in Washington, but we're optimistic that the bill could become law.
This past quarter, we were honored to be among the first companies inducted into the climate leadership Hall of Fame, which recognizes different organizations across the country for exemplary leadership and response to climate change.
We were also recognized with the Hubert H Humphrey Public leadership award for our groundbreaking sustainability goals in Minnesota.
Finally, we received the E R National Key accounts award for outstanding customer engagement, which recognizes companies in their account executives for providing excellent support and offerings to corporate customers.
Our customers are at the heart of everything we do.
And it's great to be recognized for our work in helping them achieve their goals.
I think these organizations for the recognition.
Along with our employees partners and stakeholders, who make it possible so with that I'll turn it over to Brian .
Thanks, Bob and good morning, everyone.
We had another solid quarter recording earnings up 60 cents per share for the second quarter of 2022 compared with 58 cents per share in 2020 one.
The most significant earnings drivers for the quarter included the following.
Higher electric and natural gas margins increased earnings by 25 cents per share, primarily driven by riders and regulatory outcomes to recover our capital investments.
In addition, our lower effective tax rate increased earnings by six cents per share.
But keep in mind production tax credits lowered E. T. R. E. T. R. However, P. T. CS are flowed back to customers through lower electric margins are largely earnings neutral.
Offsetting these positive drivers were increased depreciation expense, which reduced earnings by <unk> 15 cents per share, reflecting our capital investment program and the recognition of previously deferred costs related to the Texas electric rate case.
Higher O&M expense, which decreased earnings by two cents per share.
Higher interest expense and other taxes, primarily property taxes decreased earnings by eight cents per share.
Other items combined to reduce earnings by four cents per share.
Okay.
Turning to sales.
Weather adjusted electric sales increased by three 1% for the first six months of 2022 largely due to higher C&I sales driven by strong economic activity in our service territories.
In addition, our unemployment rate is 80 basis points below the national average.
As a result, we have revised our assumption for 2022 sales growth to 2%.
O&M expenses increased $14 million for the second quarter, primarily driven by the recognition of previously deferred expenses related to the Texas electric rate case.
Additional investments in technology, and customer programs and increased cost for storms and vegetation management.
Like other businesses, we are facing inflationary pressures and now expect an annual O&M increase of approximately 2%.
In addition to the Colorado resource planning approval. We also made strong progress on a number of other regulatory proceedings.
The Colorado Commission approved our Euro storm settlement, including full recovery of all costs with the exception of an $8 million. This was primarily related to conservation messaging.
In Minnesota, an ALJ recommended full recovery of all Yuri related fuel costs, we anticipate a commission decision later this summer.
In Texas.
The Commission approved our electric rate case settlement, which provides a rate increase of $89 million.
Rates were effective back to March 'twenty, 'twenty, one, which is why you see some year to date true ups in revenue and various expense lines of the income statement.
The agreement also accelerates the depreciation life of the top coal plant to 2034.
We have a pending natural gas case in Colorado seeking a rate increase of approximately $175 million over three years.
Based on an ROE of 10, 5% and an equity ratio of 55, 7%.
In June Intervenor testimony was filed.
Staff recommended an ROE of 9% an equity ratio of 55% and the historic test year.
While the UCA recommended a 9% ROE and equity ratio of 51, 5% and the historic test year.
In July we filed rebuttal testimony, providing additional support for our file position.
Hearings are scheduled for late August we anticipate a commission decision later this year with final rates implemented in November of this year.
We recently filed our first electric rate case in South Dakota. Since 2014, we are seeking a $44 million revenue increase based on an ROE of 10, 75% an equity ratio of 53% in the historic test year.
We expect a decision and final rates implemented in the first quarter of 2023.
We also have pending electric and natural gas rate cases in Minnesota.
We're in the discovery phase and expect Intervenor testimony. This fall followed by commission decisions in 2020 three.
Sales on these cases and schedules are included in our earnings release.
Shifting to earnings we've updated our 'twenty to 'twenty two guidance assumptions to reflect the latest information.
Details are included in our earnings release.
We are reaffirming our 'twenty to 'twenty, two earnings guidance range of $3.10 or $3 20 per share.
Which is consistent with our long term, 5% to 7% EPS growth objective.
With that I'll wrap up with a quick summary, the Colorado Commission approved our resource plan and storm urea cost recovery settlement.
We received an ALJ recommendation in Minnesota for full recovery of fuel costs related to winter storm Uri.
We will be filing our Midwest E V plan shortly.
The Texas Commission approved our rate case settlement.
We are reaffirming our 'twenty to 'twenty two earnings guidance.
And we remain confident we can continue to deliver long term earnings and dividend growth within the upper half of our 5% to 7% objective range.
As we lead the clean energy transition and keep bills low for our customers.
This concludes our prepared remarks, operator, we will now take questions.
Thank you and if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speakerphone make sure. Your mute function is turned off to allow your signal to reach our equipment. Once again, everyone to ask a question simply press star one on your telephone keypad.
For a moment to assemble the queue.
Yeah.
Alright, and our first question will come from Nicholas Campanella with Credit Suisse. Please go ahead.
Hey, good morning, Thanks for taking my questions.
Good morning, So I guess, hey, yeah. Good morning.
I guess, just thanks for the upfront color on the inflation reduction.
Helpful. Just if.
If there is an alternative minimum tax can.
Can you just remind us how your business is positioned there.
Hey, Nick Good morning, this is Brian .
Yeah. It's a good question the way, we think about that book M. T is we looked at it a couple of different ways.
First as we we have credits available where you can offs offset 75% of that book of M. T impact and then also when we look at the Transferability. That's included in the legislation that ultimately when we put those two together that we see this as cash flow accretive.
For us now.
Caveat that just came out yesterday and its 700 pages of legislative tax. So we're still working through it but that's our view on the book M T.
Okay, Great. That's helpful. And then I guess on sales you know this is like the second time I think this year that you're in.
Electric sales forecast for the for the near year has changed to the positive.
So just.
Maybe kind of talk about what type of trends you're seeing for this year, how that kind of compares to your long term forecast and you're kind of starting to see structurally higher demand going forward and is that a long term tailwind for you. Thanks.
So that's a good question and now we've seen you're right. Both in Q1 and Q2, we've increased our sales guidance for the year and I would say, there's probably some more opportunity there as we look into the balance of the year now certainly the dependence on the macro.
Impacts that could occur with what the fed's doing but now we see strong C&I sales and it's even better if you look at.
We're Colorado is the C&I sales in Colorado, that's there's an adjustment there when you normalize for this large solar farm that we help them with a major customer of behind the meter C&I sales in Colorado are strong too. So we're seeing that across our service territories with that C&I strength good economic rebound.
Seeing it on the residential side, we expected that cost reduction and when we look at our budget we're.
We're actually higher on residential are then than we expected. So structurally I think we've seen a strong economy in the first half of the year and is certainly in the energy sector and the manufacturing sector across the board. So as I think about longer term now.
Obviously, you could have some potential headwinds if there's a recession or what happens and how big of an impact interest rates have but I think we're bullish longer term when do we start to think about the electrification opportunities when we start to see EV penetration when you start to see electrification electrification of industrial processes. So I think there's a longer.
Term tailwind as I look at our service territories.
And just another example, and offered down in the Permian Basin now we've seen extremely strong growth, but longer term, we're talking to their customers about electrification they have their own ESG goals and in net zero goals in the Permian and so we're in discussions with how the electrified pumps and rigs in compressors and ensuring that we have the capacity and the.
Investments in our distribution and transmission system down there to serve them. So I think there are a tailwind longer term and it's great to see the rebounds that we have in the C&I sector.
That's great I appreciate it I'll get back in the queue.
Alright.
Next question will come from.
Jeremy Tonet with J P. Morgan. Please go ahead.
Hi, Good morning, Jeremy Hey, how are you good.
Good good. Thanks, I just wanted to dive in a MISO what about here now that we have some more developments and.
Touching on.
$1 2 billion, just wondering if you could characterize a bit more in terms of greenfield versus brownfield and I guess this is just a preliminary estimate but you know what's the scope I guess what.
What could possibly following incremental to this is this some competitive processes that that still could make the way I'm just trying to feel our way through what this could mean.
Yeah. Good morning, this is Bob.
Look I first of all let me just comment on transmission broadly, we feel very I'm very confident and excited about the transmission build out opportunities we have and as you think about where we've been this past quarter between the Colorado power pathway the transmission needs.
From the Minnesota resource plan and now the MISO and tap tranche, one that's about $3 $5 billion of large scale transmission projects that.
We've identified and in some cases have approved.
So the classes is important to us, it's certainly going to enable our ability to add the 10000 megawatts of renewables that we need from the Minnesota, and Colorado resource plans and to continue to execute on our 2030, 80% carbon reduction vision.
Particularly with regard to the MISO <unk> process, you think I think we've put our best estimate out in terms of the investment opportunity around $1 billion in a quarter.
For about six different portions of six different projects you know, we've got ROE for legislation in Minnesota, North Dakota, South Dakota, and feel pretty confident about what we've put forward in terms of the opportunity in <unk>.
And Jeremy I'd, just add to that like Bob said, we feel good about our point estimate and the Wisconsin projects were deemed upgrade so they are not expected to be competitively bid. So what you see is we put in our earnings presentation, our what we expect to be ours and owned and that's our our good estimate right now.
And the estimate does not include any competitive bid. So if we just if we choose to be competitively bid and we're successful that would be incremental to the one point too.
Got it so that this 1.2 replaces the one to two range, but theres still potentially competitive processes that could add to this is fair way to think about it.
Yeah.
Got it thanks.
Thanks for all the comments on the climate policy, so far and noting that this is hot off the press.
But just wondering.
If theres any particular items in there if we peel back the onion more what do you see as the largest potential impact and points of opportunity to your plan near and long term I mean could ccs be something that's thought about more now.
Great question again, as Brian said, you kind of have to absorb without a page of minutes. Since it came out last night to get through all the text but.
We've been talking about a lot of these broad strokes since the third quarter call in the EI Financial conference last fall.
Some really interesting things in here as we've seen production increases in solar the PTC for solar is really interesting relative to an ITC and you might see some regional differentiations on people using ptc's versus Itc's I think the transferability piece is really interesting as we think about not just for.
Our calibre for everybody, who builds renewable assets and the friction costs that are embedded with financing some of those things, particularly with tax equity. This could overall bring the cost of of both owned and PPA.
That's down again real benefits for our customers as we continue to make this transition.
Standalone storage credit it is interesting that there's some really challenges with the pairing of solar and storage. We made them work, but this makes standalone storage pretty interesting and then obviously, our North Dakota company is.
The governor there has put a very aggressive.
Carbon neutral goal on the table in Ccs is really important to North Dakota. So I think as we look across the country and across our portfolio, you're going to find bits and pieces of all of this to be interesting and notwithstanding all of that there's great stuff around energy security electric vehicles and resiliency all built into this that we really haven't even done.
Into but I think it's a terrific piece of legislation for us as a company and we're excited to dig in and hopefully see this passed the house and the Senate before the.
Before the end of the fiscal year.
I would just add to that Bob I mean, as we as we're in the middle of developing or clean heat plans for our gas L. D. CS in Colorado, and Minnesota didn't have a hydrogen P. T. C. So you couple that with a long term PTC for wind or solar or is it really gives us should give green hydrogen a jumpstart.
And so we're excited about that and so I think there's a number of great things in this bill and ultimately we look at it.
It's really looks and feels similar to what I talked about on Q3 of last year in terms of the impacts to us, but ultimately no we look as cash flow accretive.
And slightly there was some slight rate based reductions from we'd become more tax efficient, but slightly EPS beneficial now again, that's what the caveat, we're digging into and make sure we understand everything particularly around transferability.
But when we look at this whole package as we talked about our current plan is not built on this but our current five year plan and long term planning our resource plans were approved with current tax law. This just makes our plan even better for our customers and that's the important point long run great for our customers as we can make this clean air clean energy transition even more more affordable.
So we're excited about this and optimistic that it gets passed.
Got it that's super helpful. If I could just circle back to MISO real quick real quick last one here up to $10 3 billion of capital. There do you would you be willing to share any thoughts on how much of that you think could go through a competitive process.
I think the estimates I've seen of about $1 billion.
Got it thanks, so much I'll leave it there.
[laughter].
Alright, our next question will come from Julien Dumoulin Smith with Bank of America. Please go ahead.
Hey, good morning team thanks for the time here.
Really appreciate it.
Good morning Julien.
Hey.
I'm going to keep going on that are on the same front.
Let's talk a little bit more on the legislative how does your prior after about a debt improvement target under triple B with direct K compare to your first taking the provision under the irate factoring in the transfer of transferability elements right.
Typically called that out a moment ago in your prepared remarks.
Hey, Julien good morning.
No like I said there was involved so it is hot off the press and 700 pages of legislative textbook, making sure we understand it and our new nuances. So there's absolutely caveats as we think about it but I think the best way to think about it if you remember what we call talked about on Q3 is.
No.
Maybe a hunter is 75 to 100 basis points or higher improvement in EF afforded that you voted that as we look at it which gives us financing flexibility down the road potential capital headroom.
But again, there's a lot to unpack around transferability and how that would ultimately work, but ultimately you know.
Our our initial take is a little bit in line with what we talked about Q3 so.
Really good for us, but ultimately great for our customers as we think about how we can make this clean energy transition even more affordable for our customers. It should also be noted that Brian didn't go to bed last night. So he's doing all the math on this so I take that with a grain of salt, yes totally in his delirium, though nonetheless these broadly affirm.
Your expectation that the math is not too different from what you described with third quarter.
Correct, which with the caveat that we're still understanding.
[laughter] totally completely with that abstract, but so what does that do for your equity needs right. Let's just take that a step further if we can start to you add back that.
Look so we talked about it gives us more flexibility I think how we're going to unpack. All of this is now we're rolling forward our capital plans and we will release those in Q3.
October earnings release.
We'll know whether or not this passes by then will they should know a lot sooner whether this passes or not and we can provide you a full update because that'll that'll include updated capital plans and how we're going to finance that sell but it certainly does give us more financing flexibility.
Got it excellent Alright, and then Super quick last one here.
I know I'm transmission, we talked a bit already but what about these broker challenges at the FERC again I know that's more recent here, but any.
Any thoughts or perspective on the FERC angle here again I get this as states versus FERC and then also timeframe.
Yeah, Hey, Julien, it's Bob I think I think these have been challenged in both state and federal Court and the ROE for <unk> have held up and we expect them to.
Got it alright plain and simple.
Excellent guys. Thank you.
Our next question comes from <unk>, Kim with Goldman Sachs. Please go ahead.
Hey, guys. Thanks for the question.
Thanks for taking my question my.
First one just regarding the inflation impact on O&M and higher financing costs. There like as we look I guess beyond 'twenty two into 'twenty three and you just try to get ahead of it what are some options you have that you could do now in any levers I guess too to get ahead and position for 'twenty three.
Hey, Good morning, Ensue, you know certainly were.
Continually looking to offset inflationary pressures and this is no different than any other year like we've had O&M flat since 2014 and were very proud of that because it has a direct impact on customer bills now.
Everyone else, we're feeling the inflationary pressures this year and adjusted our O&M up by a percent, but you know as we go through the year and see how the year unfolds you certainly take actions to see if you can set up next year in terms of how it's looking in we have a continuous improvement team that is regularly working with our business areas. We're investing.
<unk> <unk> technology. This year, what we have something called the digital operations factory that helps drive technology into the business areas to reduce O&M costs and make us more efficient. So that's just part of our DNA and part of our culture that we've stood up and you can see it in how we manage O&M over over the long term. So that's really our focus in terms.
Of what we see now we do expect some inflationary pressures to continue through the balance of the year and that's a bit why we increased our guidance, but you know I think you should expect more of the same ahs right, we're going to deliver for our customers, where and deliver operational and will deliver financially this year and in the future.
Got it.
My second one and I think I know the answer to this one but just given.
What could be at the table here on the legislative front for nuclear.
Does that change your thoughts on I guess over the next five to 10 year plan on building more maybe its the small modular nuclear or others.
Hey, Ed to its Bob look I think the legislation as it starts is really beneficial for the existing nuclear owners in the cut and in our case the customers who would receive any any benefits from production tax credits associated with the existing nuclear embedded.
Yeah.
Within the new legislation I think longer term, we've been pretty stalwart in saying that.
We as a country need to identify new clean energy resources that can be dispatched bowling carbon free to enable the transition to a carbon light economy or a carbon neutral economy, and I think new nuclear has to play a role in that I don't think it's a this decade role certainly not for XL energy.
We are active at any I, we were active in the development process.
We've been working diligently with new scale as they've been trying to stand up there and get permission to build their first new nuclear reactor, so where we watch very closely we are engaged in the dialogue I think its a.
Next decade or beyond issue.
Issue and opportunity for rest of the company.
Got it.
What I expect it. Thank you. Thank you both.
Alright, moving on we'll take our next question from David Arcaro with Morgan Stanley . Please go ahead.
Hey, good morning, Thanks, so much for taking my question.
Hey, David.
Hey, let's see did I had a quick question on the Colorado pass pathway and the potential upside opportunity. There is is that something that could crystallize basically after you get the rfps done and you get a sense of when and where the projects are coming into place there that we get a sense of whether that could be added to the plan.
At some point in 2023.
Yeah, Yeah, Hey, David Yeah, you're exactly right you know once we kind of see where these projects are located in call. It the mix of projects will be able to come out at the same time with what we expect the call the network upgrades voltage support that we need.
And also the commission did conditionally approve that call it that lag.
That $250 million leg Ah.
Basically a radial and you know we fully expect projects to show up there too. So we'll give be able to give a color both on the call. It a renewable opportunity at that point in time, plus the training the incremental transmission investments, we expect to make.
Which which will be probably.
We play this out would probably middle of next year once we see the final portfolio.
Yeah that makes sense, okay. Thanks, and on the on the Minnesota rate case I was wondering when does the window kind of open for potential settlement and any any thoughts on prospects of a settlement given.
The focus areas and what you've proposed here.
Yeah. Thanks, David It's Bob we look at the cases are progressing through the regulatory process.
I think when I look at the cases, they reflect a lot of the investment categories and alignment with our policy and stakeholder. So we don't expect any contentious issues. There typically we don't start talking settlement with Counterparties until after their testimonies then receive so on the gas case, that's expected at the end of all.
And in the in the.
<unk> case, that's early October so probably more ripe for discussions in late Q3 or into Q4.
Okay, great sounds good thanks, so much.
Yes.
Our next question will come from Sophie Karp with Keybanc. Please go ahead.
Hi, Good morning, and thank you for taking my question.
Hey, So quick question if he is fine.
Follow up on the.
So.
Tranche one.
How much of the 1.2 is sort of a low hanging fruit here, where you'll have rights of ways and.
Basically shovel ready if you will and then the same question for.
Your comparative opportunity within that.
That could potentially come behind it.
Yeah. So look I think we're in early innings in terms of the development of those lines I think that some of them are conclude into existing substations, but most of the lines themselves are gonna be greenfield.
Require local siting and permitting processes.
I think that this is an area of strength and execution for the company as we do this we did the Capex 2020 plans up in the upper Midwest We did.
<unk> N V P plans and so we've got a really strong team and a good partnership with the grid North partners group that we think that from an execution perspective. This is something that's right in our wheelhouse and I would just add Sophie as well will go through the regulatory processes statistics certificate of need processes with our commissions.
And so you know that will take a year year and a half to get through those processes, where we'll determine final work on final routing and permanent everything.
Right right and so is that how.
How much of that is already baked into your long term capital plan.
Can you remind us.
So we we had some a little bit in our five year plan, but we really look at it right. These in service states are expected to be called by 2030. So we will start you will you'll start to see as we roll forward. Our five year plan is that spend will kind of be baked in that new five year plan that we roll forward as how you'll see it in October and we will include it in our.
In our 10 year plan as we bring roll forward, our 10 year plan too.
Did have some of it captured in the second five years of our forecast so not the first not not materially for the first five years, but in the second piece.
Got it thank you.
Another question I had is on the.
Right, so kind of seen a nine them low nines right across the board in your territory.
Rates keep going up.
Is that kind of sticky.
At this level and I can appreciate the fact that they were sticky on the way down to right but.
Hey.
Rate being higher than you know argument to be made that think that structurally be higher than that.
Decade.
Do you see this trend a little bit and maybe picking up or is that pretty much are not something that we should look forward too.
So I think that's a good question I think the way we look at it we kind of look at some recent data points and Theres a couple of data points in Minnesota one was.
Our ROE decision late last year for Otter tail at a nine four rate and then there's a and we have a nine O 600, Minnesota Electric business right now and then in the gas side Centerpoint has a settlement pending in Minnesota with a 93 nine in our in our Minnesota gas ROE is 904 or so.
No I think as we see inflationary pressures interest rates go up that you know they were seeking to go down but I think we do have below the national average authorized ROE is across most of our jurisdictions I mean, we'd like to work to get those closer to the National average. We do think we are a very good operator, where policy aligned with.
Our commissions policy aligned with our states in terms of helping them achieve their de carbonization goals and hopefully that can be reflective in some of the outcomes, we see in the future.
Great. Thank you that's helpful.
And next we'll take a question from Paul Patterson with Glen Rock Associates. Please go ahead.
Hey, good morning.
Hey, Paul.
Just.
I can completely relate to the 700 pages.
Late night experience, but but you you mentioned, how affordability could be potentially.
Potentially beneficial from.
From the from the Bill.
Do you have any sense as to you know.
What the potential rate impact might be from Google.
So.
Longer term when we look at it and this is some of the analysis, we havent done a very long term model, we modeled it a while ago and we were looking at their earlier provisions we saw about a 1% benefit to our customers over a long term on a CAGR basis.
As we thought about how there's a lot of caveats are in terms of what type of a renewable deployment, we have but we are looking at inflationary right. Our target is long term customer bill impacts of inflation and this helped us drive below that yeah. So I think that's kind of the magnitude now certainly will depend on the nuke.
<unk> P D C and some of the nuances in terms of hydrogen, but I think longer term, we see cigna.
Significant benefit to that than.
I would just add that.
We're really well positioned for this type of long term credit extension because I don't believe there's an IOU that has a better combination of wind and solar in our backyard than we do and so you know our commissions approved our plans without any extension of tax credits now to have this on top of it just.
We're seeing a really good position to deliver on this clean energy transition for our customers, even more affordably and now our view is long term customer bills matter and for us to make this transition more affordably for our customers is great and we look forward to working through with our commissions.
I'll just add on to what Brian said and I agree with him completely I think the opportunity here is really interesting because if we can make the energy transition more cost effective that becomes a economic driver engine businesses are attracted to places that have clean energy and low cost clean energy and reliable.
Clean energy when I think about a.
[noise] to clean fuels and green hydrogen with the production capability that we have in the wind and the solar resources, we've got in and adjacent to our footprint.
Should make the production of clean fuels more cost effective in the middle of the country in the Midwest and in the southwest that other parts and you've seen that as we've located wind and solar across the country they've been concentrated in those areas and we'd expect those continued economic development drivers to drive our business long term.
Yeah, and then just to clarify when you talk about one person that's on a CAGR basis. So as you accumulate that over time it becomes a very significant for our customers. So like I said no optimistic. This this gets passed what our plans are not built on it but if it does we look forward to.
All driving forward our plans even faster.
Awesome.
And then there was a local article about curtailments of wind production in southern Minnesota.
I know you guys are pretty well positioned to what have you but.
You guys are also very large footprint and you guys are all pretty familiar with with the situation around you do you see any well are there any issues potentially that you're seeing but also more significantly perhaps are there any.
Situations that youre seeing with specific wind farms, Ah and curtailment occurring with other parties.
In your jurisdictions I mean, the story sounds pretty significant in terms of how some counties were being impacted.
From tax revenue perspective are in the in the southern part of Minnesota. So I just was wondering if you had any.
Any insight on that.
Yeah look I think that we have seen curtailment in southwestern Minnesota was a source of a significant amount of wind build out over the last decade for us and for the region and so one of the great things about the N type program as it it's identifying the need and locating transfer.
Fish and resources to move.
That zero cost resource to to the load in the short term, it's led to curtailment.
Congestion in the longer term, we think that frees up and is able to get to the load and deliver.
I don't think that it's it's concentrated in any one entity.
In terms of the owners of the farms.
But I think it's it's it's it's it's out there and as we think about.
The impact for our customers some of that is just it's driven by the.
Desire and the need for clean energy curtailments built into a lot of our plans and we recognize that.
Sometimes that has implications for local communities on property taxes or wind production payments.
But I think it's certainly manageable and something we're in conversations with our stakeholders well.
Awesome. Thanks, so much guys.
Okay.
We have no additional questions I will turn the call back to CFO , Ryan Van Abel for closing remarks.
Thank you all for participating in our earnings call. This morning, please contact our Investor relations team with any follow up questions.
Yeah.
And this does conclude today's call. We thank you again for your participation you may now disconnect.
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