Q3 2022 CMS Energy Corp Earnings Call
Want to start with our simple investment thesis, which continues to stand the test of time.
You've seen this in our calls and meetings and you've seen the results. It works.
This is where we put our words into action.
We remain firmly committed to leading the clean energy transformation.
As I mentioned on the Q2 call the approval of our ERP was a proof point.
Evidence that we have a clear pathway.
By the regulatory construct to deliver on our leading clean energy commitment.
Our investment thesis is fueled by our commitment to eliminate waste driven by the CE way.
I would put us up against anyone in our ability to take cost out.
This year, we are in track to take $50 million of O&M waste out of the business.
Seaway is critical to delivering our operational and financial performance.
Keeping our service affordable for our customers.
Another critical element is our top tier regulatory backdrop in Michigan.
In Q2, we not only delivered our ERP, but we settled our gas rate case and in this quarter. We received constructive feedback on our pending electric rate case further evidence of the health of the Michigan regulatory environment.
A key part of our investment thesis, which we don't talk about enough.
As our diverse and attractive service territory.
Im excited about both the pace and impact of new growth in Michigan.
Just this month, our governor announced that Goshen, a global electric vehicle battery manufacturer selected Michigan for its U S expansion over many other state.
Highlighting another example of onshoring manufacturing within the state.
This project is expected to add over 2000 jobs and provide to $4 billion of investment.
In August President Biden joined Governor Whitmer at Hemlock semiconductor headquartered here in the heart of our service territory.
Together, they announced an executive director to guide the implementation of the chips Act, which will boost domestic chip production and bolster Michigan leadership in the semiconductor industry.
Let me put that into perspective.
Hemlock is one of the largest polysilicon manufacturers in the world.
Nearly one third of the world's chips are made from poly silicon produced at that facility right here in Michigan.
In September Hemlock announced plans to grow its operation.
The project is expected to add 170 jobs and $375 million of investment misstate.
<unk> has already been broken on the expansion.
Also the expansion of SK cell trial now in operation.
My conductor wafer manufacturer, bringing 150 jobs and over $300 million of investment to the state.
These are highlights over the quarter.
From the map on the slide you can see we've secured over 80 agreements year to date, which translates to roughly 200 megawatts of new or expanding load in our service territory.
This growth is bolstered by collaborative innovative economic development efforts supported by competitive rates for energy intensive customers and robust policies policy, which are working and continue to drive growth.
Our work with the Governor's office, the legislature, Michigan Economic Development Corporation, and the Commission has made it possible for Michigan to not only compete but when investment and new jobs.
These economic tailwind or just a few of many we've seen and continue to see across Michigan that will help attract more business.
Grow industrial commercial and residential load and ultimately provide long term bill relief for all our customers.
Our strong commitment to Decarbonize, both our gas and electric systems is a key differentiator for CMS energy.
The recently passed inflation reduction act is another catalyst for our clean energy transformation reporting deployment of renewables and lowering costs for our customers.
We see a lot of benefit in this new legislation.
The extension of tax credits for both wind and solar provides economic certainty and lowest cost while a robust renewable backlog within our IRB, which includes eight gigawatts of solar as well as the remaining 200 megawatts of wind we are constructing to meet Michigan's renewable portfolio standard.
Production tax credits for solar projects will drive cost competitiveness for utility owned projects versus PPA.
As we build scale. This cost competitiveness is enable us to own and rate base, a greater portion of future IOP solar investment.
The investment tax credit for storage will lower cost and provide greater flexibility as we're able to site store storage strategically across the grid.
<unk> includes 75 megawatts of battery storage, beginning in 2024 and could accelerate or increase the 550 megawatts of battery storage through 2040.
These tax advantages reduce the cost of new solar roughly 15%.
<unk> annual cost savings of $60 million versus our plan.
Also with the use of tax deductions and credits.
We do not expect a material impact in the alternative minimum tax through the remainder of the decade.
All of this helps our customers with more savings.
Supports our commitment to grow Michigan, it drives the transformation to clean energy.
And our growing voluntary green pricing program.
Bottom line. This legislation is a great tailwind across the board.
Now, let's get into the numbers.
Year to date, we've delivered $2 and 29 of adjusted earnings per share and remain head.
Plant.
With confidence in this year, we're raising the bottom end of our guidance to $2 87.
To $2 89 per share.
From $2 85 to $2 89 per share.
For 2023, we are initiating our full year preliminary guidance of $3 <unk> to $3 11 per share, which reflects 6% to 8% growth off the midpoint of our revised 2022 guidance and.
And we expect to be towards the high end of that range.
And remember, we always rebase our guidance of actual.
Compounding our growth.
This brings you a higher quality of earnings and differentiates us from others in the sector.
Our long term dividend growth remains at 6% to 8% with a targeted payout ratio of about 60% over time.
We will provide you with an update on our guidance as.
As well as a refresh of our five year capital plan on the Q4 call early next year.
Lastly.
We are confident in both our outlook and our ability to deliver our financial and operational targets for the remainder of the year.
Which brings me to my last slide.
In a few weeks, Michigan will have elections across the state.
New people will join the legislature will also see the results of the race for Governor.
Whatever the outcome, we will work effectively as we have for decades with whoever holds office.
You've heard us say it before we deliver regardless of conditions.
Two decades of industry, leading financial performance.
You can count on CMS energy for that.
Now I'll turn the call over to Reggie offer additional detail.
Thank you Derek and good morning, everyone.
As Gary noted our third quarter results are a continuation of the strong performance we have delivered throughout the year.
Keeping us ahead of plan and positioning us well to achieve our financial objectives in 2022.
To elaborate year to date, we have delivered adjusted net income of $662 million.
Or $2 29 per share up <unk> 11 per share versus a comparable period in 2021, largely driven by favorable weather, including more normalized storm activity in our service territory and healthy economic conditions in the state.
The waterfall chart on slide eight provides more details on the key year to date drivers of our financial performance versus 2021.
As Garrett mentioned, our solid year to date performance has driven our revised 2022, adjusted EPS guidance, which reflects an increase in the lower end of the range to $2 87 from.
$2 85.
So our 2022 adjusted EPS guidance has now been raised and narrowed to $2 87 to $2 89.
As noted favorable sales continue to be the primary driver of our positive year over year variance.
<unk> driven by weather equating to <unk> <unk> per share of positive variance.
Our strong sales were partially offset by planned increases in operating and maintenance or O&M expense, largely driven by customer initiatives, which are embedded in rates to improve safety reliability and our rate of de carbonization to the tune of <unk> <unk> per share of negative variance versus the first nine months of 2021.
It is worth noting that the aforementioned year over year increase in O&M expense was partially offset by lower service restoration expense versus the comparable period in 2021 as anticipated lag.
Lastly, the <unk> <unk> per share of positive variance in the final year to date bucket.
Higher non weather sales at the utility attributable to continued strong commercial and industrial load in our electric business.
Lately offset by drag at the parent from our preferred stock dividend and select regulatory items.
As we look to the fourth quarter, we feel quite good about the glide path to achieve our revised full year EPS guidance range.
As always we plan for normal weather, which we estimate will have a positive impact of about <unk> <unk> per share versus the comparable period in 2021.
We're also assuming we're also assuming <unk> 11 per share.
A positive variance versus the fourth quarter of 2021 attributable to rate relief associated with the October one implementation of new rates from our constructive gas rate case settlement earlier this year.
And these estimates or stated net of investment related costs, such as depreciation property taxes and interest expense.
In addition to said costs our plan assumes increased O&M expense in the fourth quarter versus 2021 for key customer programs such as vegetation management one of the most effective measures to reduce system outages and I'll note that we are on course for a record level of vegetation management spend in 2022, given our focus on improving that.
Reliability of our grid.
We also expect to continue to benefit from normalized storm activity, which nets to <unk> <unk> per share positive variance versus the comparable period in 2021.
To close out our assumptions for the remainder of 2022, we assume the usual conservative assumptions, our non utility business and weather normalized load at the utility.
We have also maintained a healthy level of contingency given our strong year to date performance, which when coupled with our non utility and load assumptions equates to 17 to 19 per share of negative variance highlight that highlighted in the penultimate Barbara chart.
As such we have substantial financial flexibility heading into the final three months of year, which increased our confidence in delivering for customers and investors in 2022 and beyond.
Turning to turning to our 2022 financing plan on slide nine I am pleased to report that we have successfully completed our planned financings for the year with $800 million of debt issuances at the utility priced at a weighted average coupon of three 9%, which is well below indicative levels in the current environment.
And while our plan does not call for any financings at the parent this year.
We opportunistically priced approximately $440 million of equity forward contracts during the quarter at a weighted average price of $68 per share.
Our timely execution of the equity forwards locks in attractive terms for the parent financing needs on the pending acquisition of the new cohort natural gas generation facility.
The settlement of the equity forwards will largely occur in the first half of 2023 concurrent with the acquisition timing and in accordance with our recently approved integrated resource plan.
Staying on the balance sheet as we move into the winter heating season, we have preserved our strong liquidity position, which supplements our use of commercial paper and needless to say, we'll continue to monitor market conditions to try to lock in attractive terms for future financing opportunities at the utility.
Lastly, it is important to highlight that we have no debt maturities or planned financings at the parent in 2023 and virtually no floating rate exposure outside of the utility, which largely insulates our income statements from future interest rate volatility.
Our opportunistic yet prudent financing strategy reduces costs, while limiting uncertainty in our cost structure, enabling us to fund our capital plan in a cost efficient manner for the benefit of customers and investors and with that I'll turn the call back over to Maxine to open the lines for Q&A.
Thank you very much for the question session will be conducted electronically. If you would like to ask a question. Please do stay by person with Barclays followed by the digit one on your Touchtone telephone.
Can you speak a function. Please make sure you pick up your helpful.
We will proceed in the Odu's Tequila, and we'll take as many questions as time permits.
Do you find that your questions that.
You may have a major sell side pressure with Barclays.
Can you touch tone telephone, we'll pause for just a second.
And.
Our first question comes from <unk> Kim from Goldman Sachs. Please go ahead. Your line is now open.
Yes. Thank you. Thanks for the updates just first question.
I think there's just been a lot of conversation about the recent opening of the docket for the Michigan store modest process could you just give me that.
Give us an indication of the conversations you've had with the commission kind of where their heads at and what the potential range of outcomes could be here.
Yes, Thanks Vincent for your question.
A couple of things on this and I think it's important to understand particularly.
Particularly in August here had some storm, we performed well during the storm, but again its catching a little media attention and I think one of the things Thats really important to recognize here in Michigan as the impacts of the great Lakes and what look like.
Lake, Michigan does to the weather and storms and then also just a longer term trend, we see as increasing wind speeds across Michigan in part due to climate change.
So the bottom line is we see a real investment opportunity and resiliency.
The commission has been supportive of many of the reliability and resiliency efforts in our electric rate case, but theres more to do there is more to do in this space and so I really view this as a as a collaboration where we can work to.
Again, I think we're both both the commission and.
The company are well aligned here, what we need to do in terms of reliability and resiliency. So I really view it as an opportunity where those opportunities are and create the path to improve that for our customers.
Is there any timeline on when we should have more clarity on the outcome from all of this.
There is a there is a.
Our first effort that's due here in November 4th I would imagine the audit takes place over much of the fiscal year of 2023, and again I see it as a collaborative effort. We want the same thing we have the same goal and it's really aligned to make sure. We have all the right measures and investments in place to achieve that goal and that they are at the right speed and pacing.
Got it.
My last question just thank you for the preliminary guidance on 'twenty three and four.
When you hit that upper end should we think of yes.
The covered acquisition and the financing all embedded in that upper end.
And I guess, what potential items could deviate from that range, even if it could be a potential upside from there.
Yes. The short answer is yes on cover and the financing is in that that piece, but if I'm going to just step back and think of the bigger picture here and so.
How I think about this and how we think about this as a company. So those guidance here at 6% to 8% and we expect it towards the high end, we really think that offers a premium across the sector and we've been doing this for.
20 years of industry, leading financial performance and then I think what's unique about us and again differentiates us and is a strength and frankly, a premium is that we rebase off actuals. So we do this time and time again, and so we're not into sugar highs and so long term play where we're going to continue to deliver towards the high end. So I feel I feel good we.
Feel good about the guidance we've offered here today at $305 to 311 in one.
One more thing on this I want to make sure everyone understands that this is an important balance balance of our customers.
Other stakeholders like regulators and legislators as well as you our investors.
Got it thank you so much.
<unk>.
Our next question comes from SaaS pure SaaS on that Guggenheim Partners. Please go ahead. Your line is now open.
Hey, guys good morning.
Hey, good morning, Sharon.
Good morning morning, So just a question on IRA and I guess, how that impacted your thoughts around.
The ERP I mean, clearly you guys highlighted the customer benefits and lower cost of solar but does it or cannot trigger I guess any sort of revision to the plan as it currently stands.
Gary I think you may have alluded to a little bit of that in the prepared and in particular do you have any sort of tax equity embedded in renewable spending do you have any opportunity to avoid tax equity, where we could see potential increase in rate base.
I will tag team this with with Reggie here.
IRA is is really beneficial for our industry and beneficial for our customers and so as you know we've laid out our ERP to eight gigawatts storage build its a nice plan and we go in every three to five years to revise that and so in the in the short term I really see the.
The benefit of the IRR in this production tax credits falling rate to our customers, that's a $60 million per year versus plan and so that's again keeps our customers cost low frankly, and remember this <unk> $600 million of savings already baked in or that and this is incremental to that so again feel good about that.
Thanks.
And with respect to my other comments will file refile, our ERP in three to five years and with this with the IRS.
Upside opportunities in terms of our tailwind opportunities in terms of pulling.
Renewables forward potentially Poland storage forward, let's take a look at that again I see this as a real advantage to utility owned solar and storage versus versus Ppas.
You may have additional commentary, yes, sure I would only add a couple of comments here.
The other benefit to us.
With the continuation of the tax credit for electrical electric vehicles will that certainly could be a catalyst in accelerating the tipping point of electric vehicle proliferation in Michigan, and obviously that would bring rate benefits as well because you're growing the denominator in that rate calculation bring kilowatt hours in the Michigan, which we would welcome so there.
There's a benefit there that should be.
At some point incorporate into our financials longer term with respect to your question around financing, we are not presupposing any tax equity and our funding strategy.
So the IRA.
Theres been a lot of talk about the transferability of credits I still think there's more guidance required from the IRS.
And we will see what type of market develops as a result of transferability of credits. We certainly do have credits that we can monetize at some point, but at the moment, we're not presupposing, a new tax equity and our financing assumptions.
Okay got it sorry, Gary just a quick follow up is just I guess you guys have never had a shortage of capital growth opportunities right. It's always been a function of bills and rates being that kind of that governor customer rates I guess.
$60 million incremental in customer savings does that allow a pull forward of some of that spend because you have that incremental headroom or do we have to wait for the.
Additional IRB filings.
I guess I'm, just trying to figure out how that plays in.
Yes, I don't think you have to wait to the ERP filing for that or is it really a function of how we build out our capital plan and as we've shared historically, we look at what the customer can afford we look at how can we execute work we look at the business cases, we look at the mix, where we put in dollars strategically so there's a bottom up build up for that capital plan.
And so as we're able to create more headroom or as we have in the case of affordable bills will look at how do we put those important capital investments into the system.
But ultimately provide value for our customers and so that's the balance will strike and then youll see it as it plays out here in our Q4.
Q4 call and the five year capital correct.
Okay, Perfect and then and then maybe just a quick one for Rajeev just beyond the cohort purchase as you guys are looking at your five year plan and rolling and more ERP spending into plan, including renewables do you anticipate.
Any associated financing need or the issuance last quarter took care of those needs as we're thinking about the current plan and slightly beyond the current plan I guess.
Yeah. So I appreciate the question Sharon just for semantics, we haven't issued the equity yet we just put in place forward contract and so we've locked in the price we will issue obviously over the course of 2023 in the first half of the year, but.
The forwards we've put in place really provide for the funding for the parent financing needs at kober.
We have yet to rollout, obviously, a new five year plan, but the current plan of $14 3 billion that we're executing on it as you may recall, we've been very consistent in our comments about the equity funding need being limited to 2025 and 2026, so about $250 million per year in.
In those outer years and because of the sale of the bank last year. There is no equity needs prior to that and so we'll see what happens when we start to update the capital plan and in addition to the comments Garrick offered on how we think about the capital plan affordability is a constraint. We're mindful of the other one is financing and we don't want to over lever over <unk> the balance sheet. So we'll.
Be mindful of that and then obviously just execution and feasibility of the capital plan of executing on our capital plan is the other thing we'll think through.
Okay perfect. The last point was I was trying to get at thank you. So much guys I appreciate it.
Thanks sure. Thank you Sir.
Thank you. Our next question comes from Jeremy Tonet from Jpmorgan. Please go ahead. Your line is now open.
Hi, good morning.
Hey, good morning, Jeremy how are you.
Good good. Thanks, just wanted to talk a bit a bit a bit more on 2023 EPS guide here, if we could the drivers and just wondering if you could flesh out for US. The contributions you can cover in 'twenty three and when.
Thinking about sales trends, what do you anticipate for sales trends for 'twenty three how does that compare to kind of current trends just kind of trying to get a feel for upside versus downside drivers within the guidance range.
Sure I'll start and I know Rachel offer some context around it as well so again I want to remind everybody as I stated earlier here that it's 6% to 8% towards the high end and we're pleased with that and that includes cohort as we've said the cohort strengthen and lengthens our.
Our plan here and so when I think about this this is again, we're playing a long term game here, where we have this consistency and repeatability of delivering industry, leading financial performance and so that's how we're thinking about it as we move in 2023 and then even in the outer years, but Roger you walked through some of the specifics. Please yeah sure. So.
Jeremy again I appreciate the question.
The Kovar acquisition as we've discussed I think in Q2 of this year, we anticipate that being about three to four cents of EPS.
Upside versus plan.
Then the financing.
For the equity should offer a penny or two on top of that and so that's all incorporated into the guide as Garrett mentioned and so.
We could spend more time on the details of that but that's what's embedded in that three five to 311 guide with with respect to sales as you know we plan conservatively and so we're assuming.
It pertains to whether that clearly this year. So far has been quite good and so we would anticipate a little bit of a headwind just planning for normal weather versus what is a strong 2022 comp on the non weather side, we've been surprised to the upside really starting with the pandemic and so we've just seen a nice bit of upside in terms of <unk>.
Well mix with residential load outperforming expectations. The last couple of years, we will plan conservatively and still assume that you'll see that pre pandemic level of residential load and again I think we're seeing very good momentum on the commercial and industrial side, and we would expect that to carry on.
Into 2023, and so those are the puts and takes.
With respect to covert in sales the only thing I would add just to just finish out on the drivers for 2023 is that clearly we have a constructive gas rate case settlement.
Earlier this year and so we should expect to see the benefit of that increase in rates, which went effective October one this year start to flow into the heating season in Q1 of next year. So for the first three or four months of 2023, and then we've got a pending electric rate case, and anticipate a constructive outcome there as well. So those are the kind of the primary drivers you've got <unk> you've got.
Conservatism on sales you've got then the rate relief that we anticipate from constructive outcomes is that helpful.
Yes, no that's very helpful and just wanted to pivot a little bit to.
Battery storage, if I could just.
I'm wondering if you could provide some more thoughts on how you think the system could potentially change of this decade, especially if renewable penetration ticks higher than planned from IRA benefits and is there anything else you're watching out for in this front.
Thanks, Jamie that's a great question. So in our ERP, we are 75 megawatts and that has to take place in 'twenty four to 'twenty 2027, and we have already issued.
The RFP for that that work and so that's well underway and so youll see inclusion of that in our five year capital plan.
But clearly what is nice about this this ITC and the flexibility thats offered within the IRA as.
You can have stand alone solar so typically it's been coupled.
With with solar and so the ability to move storage around and have it be not just a supply asset but to have it be a grid asset provides a greater amount of flexibility in how we use and so you can see like the the value stacking.
Storage of lithium I am and other storage technologies. So we look forward to that.
To continue to look at our five year plan, but also in the longer term strategy and how we might accelerate or how we might think about differently. The deployment of lithium ion other storage technologies and already have some comments on this as well Jeremy the only thing I would add is it's important to remember that the IRT.
Is iterative in nature, and so we will be filing one per the statute at a minimum every five years, but our bias will likely file sooner than that and so the importance of that and the benefit of it is that as we see a potential descent and the cost curve whether to <unk> point, it's lithium ion or any other storage technology, we can incorporate.
Right new assumptions in upcoming IR piece, and so we're assuming in the full plan over the next 15 years to 20 years about 550 megawatts of Garrick noted the 75 megawatts in the short term, but it's a larger portfolio longer term and again, if the cost curve.
Permits it we will look to pull some of that forward and potentially expand it particularly with the optionality provided with the ITC using it for standalone storage as well as opting out of normalization, which is helpful too.
Got it that's helpful and just a real quick last one if I could.
Just wondering what the potential impact to rate payers could be should palisade successful reopening and does this change how you think about future customer savings should this transpire.
Hello, I offer a couple of comments on Palisades.
So if we get into the technical questions like we don't own and operate the plant. We don't operate the plant anymore and we no longer have a purchase power agreement, which was a significant savings for our customers and power supply costs over the course of the year. So tech.
Technical questions and related questions that should be really directed the whole tech or maybe the department of energy and the like.
But bottom line it here's what we've shared with the Governor's office and with the Michigan Public service commissions will be will be open to a purchase power agreement. It has to be a much more competitive and much more market based and it has been historically and we would expect financial compensation mechanism on that PPA is a new purchase power agreement. So.
That's really what I would offer on palisade at this point.
Got it makes sense I'll leave it there. Thank you.
Thanks, Jeremy CODI.
Our next question comes from Julien Dumoulin Smith from Bank of America. Please go ahead. Your line is now open.
Hey, good morning team. Thanks for the time appreciate it Hey, listen just maybe just starting hey, Thank you just.
Starting with preliminary rate I want to focus on that word can you.
<unk>.
Can you can you. Please apart why use the word preliminary at the outset what are the moving pieces in your mind. If we can go back to that quickly in terms of when you pivot to a more finalized guidance.
And what you're watching here in the next few months.
I wanted to clarify that.
Yes, preliminary because we rebase off of actuals and that's the short of it.
And so as we wrap up Q4, which again at year end I feel good about.
We will deliver within that guidance range. We've provided and then we will rebase off actuals and so when I think about this year and this guidance of course, we've tightened the guidance raise the bottom end, which should be an indicator of confidence.
I'm really thinking about the midpoint of that guidance and again managing the work.
Imagine storms and other things that come our way that we typically deal with and then we'll look for reinvestment opportunities.
Also as we go through the remainder of the year and those reinvestment opportunities Derisked 2023, and ensure our path to success for 2023, and so that's how it'll play out through the remainder of the year I don't know if Raj do you want to add to that.
Julien the only thing I would add in addition to just.
Q3, and will Rebase of actuals in Q4 and take into account any contingency deployment over the next couple of months, but the other variables is obviously, we have a pending electric rate case, and so we will have a little bit.
Couple of months more visibility into how that's trending or certainly in the process of evaluating potential settlement and so we'll see how things go there and then at that point, we will have filed a gas rate case, and so we're still thinking through the size and implications of that and will assume a constructive outcome there, but still some variables in place. So that's the other bit of information we'd look for as we establish our.
2023 final guidance on our Q4 call early next year.
Got it Okay, Alright fair enough. Thank you and then if I can just going back to the last question a little bit can you talk about how any revisit of a contract with <unk> and their palisades could actually feasibly play itself out vis vis.
Your <unk> RFP processes.
Obviously, it's a little bit less than traditional.
I get the <unk> involvement is also less than traditional but I just wanted to rehash, a little bit like how that would fit into your ongoing processes that are continually in flight and admittedly of late have somewhat been crystallized at least in the near term.
The RF. So just for context I know you know this julian but for context for others on the call.
700 megawatts.
Within this IRB. That's 500 megawatts is dispatched little 200 megawatts of clean energy that RFP has been issue. It was issued at the end of September .
That's going to play out it is done through a third party because of the potential for an affiliate transaction with the <unk>. So that plays out we would anticipate those proposals to be submitted in the December timeframe. Those will be evaluated again by the third party that will take to February and then we anticipate we will have some direction in that in the may timeframe likely.
Sure.
At the May may or May earnings call timeline.
So that's how it's going to play out I do not know who will participate in that again, it's by a third party.
Should hold tech choose to participate with the Palisades plant and if it comes in at a competitive price. It may be an option out there and again because it's not an affiliate we would earn our financial compensation mechanism.
Our return on that.
That's the approach that would be.
We play out here over the course of the next eight months.
Got it alright, I know you can't I can't comment too much on it but I. Appreciate it. Thank you guys very much and good luck to you soon.
Thanks Julien.
Our next question comes from David <unk> from Morgan Stanley . Please go ahead. Your line is now open.
Hi, good morning, Thanks for taking my question.
You alluded to it but just any latest thinking on the electric rate case in potential for settlement and then I was just curious with timing you'd be contemplating for the next electric rate case filing at this point.
In terms of the gap between the rate cases here.
Okay.
Well, just a little background too and so I was really pleased with the team and we did a lot of work on this electric rate case to improve the quality of the case and.
And I believe and see it's evident in the best position on that it's a constructive starting point that they provided in August and so.
As Reggie shared we're looking at the potential for electric rate case settlement and.
So that will continue.
Until the case is final we anticipate.
<unk> in December and then a final order in February so.
That's the current status.
And then just a longer we have the opportunity.
10 months 10 months cycle and so it would be in early in 2000 2023, what we consider.
Another filing an electric rate case, and that's a little far out for us in terms of we've got to see how this one plays out and make sure we're making the right investments for our customers.
Yes that makes sense. Thanks.
And I was just wondering if you could give the latest in terms of what youre seeing in terms of cost pressures from inflation, whether it be labor materials components.
And just how that's impacting the O&M outlook here.
Yes.
That's it.
That's a great question.
I appreciate you start with our customers because that's a key piece and so just let me give you a little facts here to this and so in 2021, we had $75 million of state Federal and some company funds that went to our customers.
In 2022 that number was $79 million.
And again just for context.
<unk> October as the fiscal year for state and.
And so I'm really pleased that we've been able to get money in the hands of our customers and youll see from our.
Our customers have a lower.
Net debt balance our bad debt balance on their bills are not carrying a big balance and in fact from an uncollectible perspective, we're in a quarter.
Core tier one position so I feel good because our customers are starting out in a better position.
Now I am certainly empathetic and sympathetic to their needs and so what we know about our customers. When we look at their bill about 80% of our gas bill of consumption.
90% on electric Bill, we can influence that they can influence that through our energy waste reduction energy efficiency programs and we are doing that.
And that's great for our customers. In addition, or about 30000 thermostat re thermostats or those that are most in need vulnerable customers to help them.
Again control to us.
We're pushing again with nonprofits and other state and federal funds and so our focus is clearly on our.
Our most vulnerable customers. During this time and then broadly as a company and you asked the question really have we seen material prices increase absolutely 11% year over year, but there's a lot of things we're doing too.
To mitigate that particularly in the CE way $50 million of O&M waste reduction $90 million approaching $90 million on a capital perspective.
Our plants ran just again.
Brian Phenomenally.
Over the over the summer months low heat rate gas and coal MISO was bouncing all around and the volatility of the market.
<unk> steady state, we saved our customers $500 million year to date, it looks like $700 million by year end again, we used our gas assets. All these storage fields to help manage gas cost impact.
So those are the here and now and then we have a whole host episodic cost savings $200 million.
The Palisades PPA Palisades PPA fell off.
He retires karn, one and two retired $30 million of O&M there so.
Array and that PTC again, I can go on and on but you can see we're squarely focused on.
Cost reduction for our customers, creating the necessary headroom as we make the right investments to improve the system again for our customers to manage that and I know Reggie.
Even more to offer.
Garik I think you've covered all the key points on the cost side. The only thing I'll remind you David is that we're still.
Looking at load opportunities as well the announcement of Goshen.
I'm, an economic development perspective, the global electric vehicle battery battery manufacturer out of China.
As we see it as the beginning of what is going to be likely a fruitful period of good economic development opportunities as a result of the good legislation passed over the past several months the chip that chipset and the IRA and it really created a once in a generation opportunity to bring really good loan opportunities excuse me to Michigan and that help.
The equation as well and I mentioned earlier some of the benefits the IRA if it accelerates the tipping point for EV growth proliferation in Michigan that helps a load equation as well and so we're looking at all the cost opportunities as Garrett the numerator, but we're also looking at top line as well to reduce rates.
Okay, great helpful points there. Thanks, so much and see you soon.
Yes.
Thanks, David.
Our next question comes from Travis Miller from Morningstar. Please go ahead. Your line is now open.
Good morning, Thank you.
Good morning Travis.
Yes.
I'm wondering you highlighted obviously the business slowed.
Do you see coming in the industrial load.
What does that mean in terms of mix of capital investment need or any kind of other need wondering thinking about distributions versus generation is that type of load something where it will get more distribution investment to serve it or more.
Generation type of investments to serve it.
It's a little bit of both but the immediate the immediate piece is really in the space of distribution. So these companies are located in here like if you take a.
C. As an example, our hemlock semiconductor they.
They are building out that load right now and so we're looking at the existing substation, how do we offer additional redundancy and buildout in the case of the Goshen again, they're constructing their facility. So a little further behind almost start point, but again youre going to be running at.
Electric line and build a substation dedicated to that facility and so the first steps really show up in the in the distribution space.
For investments and Youll see those as part of our five year capital plan.
To be able to.
Again building construct cells.
And then really a beautiful part of the integrated resource plan. We continue to look out 20 years and balance the the demand needs and the supply needs and right now we look long on capacity.
Really through 2031, so we have room to grow and add these investments.
But as that as Michigan continues to grow we continue to add low we'll make adjustments as we move forward in our subsequent aarp's from a supply side that helpful. Travis.
Yeah that helps thats exactly what I was asking.
And sort of everything else that I had to ask so I appreciate it.
Couple of weeks.
Take care.
Our next question comes from Anthony <unk> from Nomura. Your line is now open. Please go ahead.
Hey, good morning, guys. Good morning, Rajeev, congratulations on a great quarter, Hey, good morning.
Thank you.
And I apologize this is.
Real semantics.
I understand if you're just going to ignore the question, but I think about you talked about the ERP, maybe strengthened and lengthen.
CMS plan and then when I fold over to earnings guidance of 6% to 8% towards the high end if I look at 23, where it's kind of.
Preliminary it's right now at 7% more than mid point.
Yes.
I'm trying to reconcile 6% to 8% towards the high end is that just.
It takes 6% out of that.
Are you planning out of our planning assumptions or is 6% to 8% towards the high end.
Right.
I Love your question and I'm not going to ignore it so.
Let's answer it.
Okay.
Go back in history, a little bit even even free interbank.
We guided at six to eight and we always said we had a bias toward the midpoint. That's how we approached it and now our language is definitely different.
Six to eight and we expect to be towards the high end.
And so that's the approach going forward.
We again, we look for repeat ability into that and so.
As you saw in our 2023 preliminary guidance.
Off that midpoint of 2022, but we're again, we're saying six to eight and expect to be towards the high end will rebase off actuals as we always do but you can expect year after year, we're going to be.
That consistency of industry, leading financial performance.
And we're going to we're going to continue to guide in that 6% to 8% range again from the Hyatt.
That's what I'd offer.
That's helpful.
Okay last shot at it and then I'm finished.
If I look back in the last 18 years as I've delivered very consistent 7% do you view.
The performance when I look back 18 that you hit the high end of that 6% to 8% range.
I don't know what data you have in front of you, but I can only talk about.
What we have.
In the context of the call here and our 2023 guidance.
We've said 305 to 311 and I would expect that we would be to that to the high end of that range.
Does that does that that cleared up.
Perfect I wouldn't anticipate the mix I would expect.
The upper half of that range.
Perfect. Thanks, so much and looking forward to seeing you in Hollywood.
See you there.
Thank you. Our final question today comes from Michael Sullivan from Wolfe Research. Please go ahead. Your line is now open.
Hey, everyone. Good morning.
Good morning, Michael.
Okay.
Hey.
I just wanted to ask on just.
With.
Your own renewables, becoming more competitive post Ira.
I think the current plan is 50% ownership in there what is the capex associated with that and if it were.
If you were to be cost competitive across the board and go to a 100% what would that look like theoretically.
Yes, Michael or I assume youre asking about the full portfolio of eight gigawatts is that fair.
In the current.
Yes, yes, either way whatever is easiest for you. The current five year plan. The IOP that just got approved.
Yes, so for the eight gigawatts.
<unk>.
Roughly quantified in the past that 50% ownership of that could be around $4 billion, but again with cost curves reduced in the way they are and that was a pre IRR assumptions so presumably.
It could be a lower amount of capex, but we would expect to own as Garrett highlighted greater than 50% over time, if we continue to see that.
Cost of owning continue to be more and more competitive with the cost of contracting and so.
We will revise those estimates over time in the five year plan currently we've got about $1 billion.
Of solar in the plan and obviously, we'll refresh the capital plan in the first quarter as we have our fourth quarter earnings call.
Next year. So we will give an update then but the current plan at about roughly $1 billion.
Okay. That's super helpful. And then just kind of following along that.
This is kind of theoretical but if you start finding that.
You are more cost competitive.
More regularly here.
You limit that at all if that if that introduces more equity needs into the plan.
So the current construct per the settlement agreement has a natural cap.
Of 60% and so it's effectively a caller from $50 to 60% for ownership and so we wouldn't be able.
Contractually to go above that now but in subsequent arpus.
We could potentially earn more than that and so we'll revisit it and particularly if we are cost competitive with contracted solutions, we'd like to think that ceiling could potentially come off but.
But I would say garik highlighted this earlier I emphasize it as well when we think through the capital plan, the constraining factors or three things, it's affordability and making sure that.
The rate increases.
A relatively modest as we execute on the capital plan. We also think about the feasibility of executing we do not want to significantly grow our workforce to execute on our capital plan because that has.
Structural cost implications and so there is the operational feasibility aspect, we take into it and then theres balance sheet and we will.
We would rather not over <unk> to over lever the balance sheet in order to fund our capital plan and so that's generally how we think about building out the capital plan and we'll take that into account.
As we construct this latest capital plan that we'll provide in the first quarter next year and obviously subsequent capital plans after that.
Thanks, Thanks, Rajeev Super helpful.
That concludes our Q&A session for today I will now turn the call over to Mr. Gary Michel for closing remarks.
Okay.
Thanks, Maxine and thank you everyone for joining us today.
Look forward to seeing you at EI and a few weeks take care.
Stay safe.
This concludes today's conference we thank you for your participation.