Q4 2022 ALLETE Inc Earnings Call
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Good day and welcome to the ALLETE fourth quarter 2022 year end financial results call.
Today's call is being recorded.
Certain statements contained in this conference call that are not descriptions of historical facts are forward looking statements such as terms defined in the private Securities Litigation Reform Act of 1995.
Such statements can include risks and uncertainties actual results may differ materially from those expressed or implied by such forward looking statements factors that could cause results to differ materially from those expressed or implied by such forward. Looking statements include but are not limited to those discussed in filings made by the company with the securities and <unk>.
<unk> Commission.
Many of the factors that will determine the company's future results.
And the ability of management to control or predict.
Listeners should not place undue reliance on forward looking statements, which reflect management's views only as the date hereof.
The company undertakes no obligation to revise or update any forward looking statements or to make any other forward looking statements whether as a result of new information future.
<unk> or otherwise.
Again welcome to the ALLETE fourth quarter 2022 year end financial results call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Well ask a question during that session you will need to press star one one on your phone you will then hear an automated message advising you hand is raised to withdraw your question. Please press star one again.
Again, please be advised that today's conference is being recorded.
For opening remarks, and introductions I would now like to trying to conference over to elite Chair, President and Chief Executive Officer Bethany Owen. Please go ahead.
Thank you good morning, everyone and thanks for joining US today with me are elite senior Vice President and Chief Financial Officer, Steve Morris, Frank Frederickson, Minnesota powers, Vice President of customer experience in engineering services, and Jeff citizens, ALLETE clean Energy's, Chief financial and strategy officer corresponding.
Slides can be found on our website at <unk> dot com in the investors section and will call out each slide number as we go through todays presentation.
This morning, ALLETE reported full year 2022 earnings of $3.38 per share on net income of $189 $3 million compared to 2021 earnings at $3 23 per share on net income of $169 $2 million and.
In a few minutes, Steve will provide more details on elite 2022 financial results as well as our 2023 earnings guidance.
Although our financial results for the year were below our expectations. We are committed to elites long term earnings per share growth objective of 5% to 7% and I am confident in our ability to achieve this for investors.
As you see in slide three of the presentation, we're making significant progress putting sustainability into action and our strategy will provide value to our customers and our shareholders for years to come.
We serve our customers with excellence and provide exciting opportunities for our employees, we take pride in creating value for our shareholders.
ALLETE continues to pay an attractive dividend, while we strategically position all of our companies for sustainable growth over the long term.
Earlier this month, our board of directors approved an increased dividend of more than 4%, reflecting the board's confidence in the growth outlook for ALLETE.
In spite of some headwinds encountered in 2022, our accomplishments were many just a few examples include the approval of Minnesota Power's integrated resource plan and the resulting 600 million dollar expansion of our capital expenditure plan, increasing rate base growth to 11% over.
The next five years.
Minnesota Power's track record for near Perfect system reliability, and storm response, all while keeping customers' bills below the national average.
MISO tranche, one approval of the northern reliability transmission project advancement of our shared vision with grid United for a FERC future first in the nation transmission expansion as well as the acquisition and integration of new energy equity.
These are just a few of our many operational positioning and strategic successes, all driven by elites dedicated team of talented employees.
On the regulatory front I'm proud of our team's thoughtful stakeholder engagement throughout the year.
Superior water light and power finalized its rate case in late 2022 with up with final rates in effect as of January one 2023.
Public Service Commission of Wisconsin improved.
Annual increase of $3 $3 million, along with a return on equity of 10% and a 55% equity ratio.
On January 23rd of this year, the Minnesota Public Utilities Commission made its determination on Minnesota, Power's 2021 rate case, including a return on equity of 965% and a 52, 5% equity ratio. While we are disappointed that the overall rate case.
Decision was below our request and below the recommendations of the administrative law judge we're evaluating options and next steps, which may include clarification or reconsideration of certain items in the case and we anticipate filing another rate request later this year.
Constructive regulatory outcomes are critical to our clean energy transition, Minnesota power is leading the state in providing renewable energy to customers with a strong track record of near perfect reliability and creative hard work by our team to keep rates affordable for our customers.
We're grateful for the Minnesota Public Utilities Commission to recent approval of Minnesota, Power's IRB and.
And a critical component of our ability to execute this exciting plan is earning a reasonable return on our investments and recovering cost in a timely fashion through Minnesota regulatory framework.
Minnesota power is committed to earning its allowed rate of return for shareholders, while caring for our customers.
We'll continue to advance our carbon free energy future, while providing safe and reliable service and keeping customer bills as low as possible and as utilities are asked to do more and faster. We expect our rate review request to become more frequent going forward and we're confident that our regulators will.
Port our work on all of these important front.
Meanwhile, Minnesota power is making significant progress on our vision to provide 100% carbon free energy to customers. Our recently approved IR P is transformative, adding 700 megawatts of wind in regional solar supporting energy storage ceasing coal operations.
At Minnesota Power's two remaining coal units by 2030, and 2035, respectively and investing in a resilient and flexible transmission and distribution grid.
Already providing 50% renewable energy today, Minnesota power expects to provide more than 70% renewable energy to customers by 2030.
We are engaged in the RFP process for the additional wind solar and energy storage identified in this ERP and we'll provide updates on the progress of these projects throughout the year.
In addition, just a few weeks ago, the state of Minnesota enacted new legislation, requiring electric utilities to source retail sales with 100% carbon free energy by 2040.
This is clearly an ambitious goal, but our company has been on an incredibly ambitious clean energy journey as well.
We're pleased that lawmakers listened closely as we describe the state of technology and the investments necessary to build a modern grid and as a result, they included important provisions for utilities and regulators in the legislation.
We support a carbon free energy future with a transition that protects reliability safety and affordability and ensures equity by leaving no one behind and there is a lot of work ahead of us with our customers our regulators our communities and other stakeholders to get all of.
That right it.
It will take everyone working together to achieve these ambitious goals in the state must be a strong partner in supporting the bold initiatives that are required to achieve a truly sustainable carbon free future.
We'll build on our current momentum and factor this new Minnesota legislation requirements into Minnesota powers next <unk> filing in the spring of 2025. So there is much more to come.
Related to Minnesota, Power's recently approved AARP, we've updated our capital investment plan on slide four to reflect this transition Steve will elaborate more on this in a minute, but this capex plan is transformative with significant clean energy and transmission infrastructure investments over the next five years.
As transformative as that five year Capex plan is we have significant investment plans well beyond 2027, which are not currently included in our Capex table, but are described in slide five.
These include the additional investments in generation and infrastructure that will be needed as we responsibly and reliably transition, Minnesota powers, two remaining coal units and to comply with the new Minnesota carbon free legislation.
We also expect to participate in the MISO tranche, two transmission projects and as part of our high voltage transmission strategy will leverage our strategic geographical position to advance inter regional transmission projects that support reliability and the clean energy transition.
So as we execute our strategy in the near term, we're always planning for the future and elite future is bright with important parts of our long term investment strategy already in motion.
As an example on slide six Youll see additional information on our leads exciting recent announcement of our engagement with grid United to develop the North Plains connector at 370 mile High voltage direct current transmission line from North Dakota to Montana.
This H B D. C corridor will be the first of its kind transmission project to connect three regional energy markets MISO and.
In SPP, creating 3000 megawatts of transfer capacity between the middle of the country and the West Coast and more importantly, it will help ease transmission system congestion increase resiliency and reliability and enable rapid sharing of renewable energy across our vast <unk>.
Area with diverse weather patterns.
The project is subject to regulatory approvals and permitting and is estimated to cost approximately $2 $5 billion elite share of this investment is expected to be at least 35%, which will extend and support elite further growth into the next decade.
Moving to slide seven and elites newest company, we couldnt be more excited about new energy equity joining the ALLETE family of businesses New.
New energy exceeded our original projections for the year and has continued to increase its total pipeline of prospective projects.
Along with the inflation reduction act benefits, which could provide investment tax credit upside of up to 50% the new energy teams solid execution and strong pipeline of future projects have only enhanced our confidence in the resiliency and strength of this business and the value of the company.
Provides two elite.
Finally, ALLETE clean Energy's earnings this year were materially affected by congestion and market volatility at its caddo facilities.
Addressing the implications of these issues for both the Diamond Spring and Caddo Wind project is our priority and we're evaluating all alternatives to improve project economics.
All of the sites operated well in 2022, and we continue to believe ALLETE clean energy with its talented team is an important strategic contributor to elite.
As we move forward into 2023, ALLETE clean energy strategy is focused on maximizing the value of the company's fleet and we look forward to updating you on progress throughout the year.
Along with creative solutions for our customers and great opportunities for our amazing employees elite mix of businesses offers differentiated value to investors with significant near and longer term earnings growth and attractive dividend and strong positioning to thrive in.
The clean energy future.
Now I'll turn it over to Steve for further details on our 2022 financial results 2023 guidance and key drivers of elites longterm growth Steve.
Bethany and good morning, everyone I would like to remind you that we filed our 10-K. This morning, along with an 8-K that provides details of our 2023 earnings guidance. Please.
Please refer to slides eight through 11 for the quarter and year ended 2022 income statement details as well as 2023 earnings guidance details today ALLETE reported 2022 earnings of $3.38 per share on net income of $189 $3 million earnings for 2000.
'twenty, one or $3 23 per share on net income of $169 $2 million.
These financial results were below our third quarter guidance update where we expect it to be near the midpoint of our 2022 earnings guidance range of $3 60 to $3 90 per share.
Primary reasons relate to recording a full year of interim rate reserves in the fourth quarter for the outcome in the Minnesota power rate case decision for the costs and losses taken at ALLETE clean energy on the now completed northern wind project and weather impacts in the fourth quarter due to winter storm events. Please refer to slide 10 for details.
Looking at the fourth quarter of 2022 elite consolidated results for the fourth quarter were below our expectations with earnings of <unk> 90 per share compared to $1.18 per share in the fourth quarter and 2021.
<unk> regulated operations segment recorded net income of $35 million in the fourth quarter of 2022 as compared to $29 $7 million in 2021.
Earnings reflected higher net income at Minnesota power due to the implementation of interim rates in 2022 net of interim rate reserves.
As a result of the rate case decision earlier this year, a full year of interim rate reserves of approximately $12 million after tax reflected entirely in the fourth quarter of 2022.
The quarter was also impacted by increased purchase power cost as well as higher operating and maintenance expenses.
Winter storm events in Minnesota Power's service territory resulted in additional O&M expenses of approximately $2 million after tax.
Your thoughts on the Minnesota power rate case at a hearing on January 23rd 2000, and Tony <unk> III, The Minnesota Public Utilities Commission approved a return on common equity of 965% on a 52, 5% equity ratio.
On an annualized basis the rate case outcome resulted in additional revenue of approximately $70 million.
Accordingly, as the final retail rate increase was lower than interim rates in Minnesota power recorded a reserve for interim rate refunds of approximately $12 million after tax as of December 31, 2022.
Turning to our other segments ALLETE clean energy recorded fourth quarter 2022, net income of $1 3 million compared to $14 6 million in 2021.
Net income in 2022 for the Caddo and Diamond Spring wind energy facilities were impacted by market volatility and transmission congestion.
With west power pool, as well as additional costs and losses on the sale of them. There are other wind project.
Weather events negatively impacted fourth quarter earnings by approximately $1 $2 million after tax.
Our corporate and other businesses recorded net income of $19 $9 million in 2022 compared to net income of $17 6 million in 2021.
2022 included earnings from New energy, which had a record fourth quarter of projects closing exceeding our expectations.
There were also higher land sales at ALLETE properties higher earnings from our investment in the nobles two wind energy facility in earnings from Minnesota Solar projects placed into service in 2022 <unk>.
Earnings in 2021 included an $8 $5 million after tax gain from South shore energy sale of a portion of this interest and then imagine Trail Energy Center.
As Bethany shared we have made good progress on key initiatives in 2022, setting the stage for improved financial performance in 2023.
I'll now turn to our 2023 earnings guidance. Please.
Please refer to slide 11 for further reference today, we initiated 2023 earnings guidance of $3 55.
To $3 85 per share on net income of $200 million to $220 million. This guidance range is comprised of our regulated operations segment within a range of $2 55.
The $2 70 per share at ALLETE clean energy <unk>.
New energy at our other businesses within a range of $1 <unk> to $1 15 per share.
First a few comments on our regulated operations outlook for 2023.
Overall regulated earnings are expected to be similar to 2022.
Our guidance reflects the impacts from Minnesota, Power's retail rate case decision and industrial sales slightly lower than 2022, we expect a slight increase in operation and maintenance expenses of 2% over 2022 due to inflationary pressures.
Depreciation and property tax expenses are expected to increase by 7% primarily due to more plant in service.
As a result of the <unk> decision on Minnesota power rate case, we expect to earn a return on equity of eight 5% in 2023 significantly below their authorized 965%. Consequently, we're planning to file a request for a rate increase in November one of this year with a two.
24 calendar test year.
Rates would be expected to go into effect on January one 2024.
We are committed to earning our allowed return on equity at Minnesota power and always we will manage our discretionary costs and improve operational efficiencies. For example from 2017 through 2020 to Minnesota, Power's operating and maintenance expenses increased by an average of less than 1% on a comp.
Average growth rate.
Looking at clean energy is outlook for 2023.
ALLETE clean energy expects normal wind resources in 2023, with total and generation of approximately 4 million megawatt hours this year.
Similar to last year.
Our guidance also reflects the sale of the 92 megawatt red barn build transfer projects in the first half of 2023 and improving financial performance for the portfolio. However, we still expect challenges in the southwest power pool market for the Oklahoma wind energy facilities.
At new energy and impressive number 44 megawatts of projects closed in the fourth quarter of 2022.
Our strong fourth quarter allowed new energy to exceed the acquisition plan for 2022 and set the stage for a solid 2023 and beyond.
New energy continues to gain momentum with more than 2000 megawatts in a robust and growing pipeline, New York, Illinois, and Minnesota continues to be strong markets for new energy, while Maryland, New Mexico, and Virginia are new promising markets with strong prospects and opportunities starting in 2023.
We expect net income of approximately 16 million to $17 million at new energy and note that 2023 will not be impacted by purchase price accounting for transaction cost.
We anticipate approximately $7 million in earnings from Minnesota investments and for elite investment in Minnesota Solar projects and we expect similar earnings from <unk> energy.
Our investment in the nobles two wind energy facility in 2023 was slightly lower earnings at ALLETE properties.
We expect minimal equity needs in 2023, but do expect earnings per share dilution of approximately <unk> 10 per share due to the increased average number of shares outstanding as a result of our March 2022 secondary offerings.
As stated previously we are committed and confident in our ability to achieve elite long term earnings per share growth objective of 5% to 7%.
Primarily fueled by the historic clean energy transformation underway.
As we customarily do at the beginning of each year, we have updated our five year capital expenditure table in the 10-K also please refer back to slide four.
This updated plan reflects $3 3 billion of Capex, which is an increase of approximately $600 million of our Capex plan and shared in November of last year reflective of the final ERP order.
This plan highlight significant clean energy infrastructure investments over the next five years translate into a compound annual rate base growth of 11%.
We will continue to navigate this clean energy trends transition as we have in the past with customer rates and overall competitiveness in mind.
I'll now turn it back to Bethany Bethany.
Bethany Thanks.
Thanks, Steve We're obviously very pleased with all that our team has accomplished in 2022, and we're already making significant strides here in the beginning of 2023.
Demand for cleaner energy are increasing providing new and diverse investment opportunities for elite businesses. We believe our reputation as a leader in this clean energy environment, We will continue to attract capital and we're committed to delivering value to our investors.
The very foundation of our growth strategy at ALLETE is sustainability in all of its forms people planet and prosperity and as always we are committed to doing all of this and the absolutely right way.
Slide 12 contains links to information on this work, including our recently updated corporate sustainability report.
CSR illustrates how we are building on our strong track record not only to mitigate climate change risks, but to create a clean energy future through just equitable and meaningful change, making a difference and doing our part to make our world a better place for everyone.
<unk> family of businesses is well positioned today for an even brighter future. This is truly an exciting time for elite and we look forward to sharing more with you in the coming quarters at this time I'll ask the operator to open the line for your questions.
Thank you.
As a reminder to ask a question. Please press star one one on your phone and wait for your name to be announced to withdraw your question. Please press star one again.
One moment please for our first question.
Yes.
Yes.
Our first question will come from Richard <unk> of Jpmorgan. Your line is open.
Hi, good morning, Thanks for the time today.
Good morning.
Alright.
With the Capex revisions.
I guess I was wondering could you walk from the researchers identified in your IRB settlement, Judy maybe assumptions baked into this capital plan and I am curious whats driving your line of sight here versus leaving the projects outside of Capex and as upside.
The RFP process.
Rich good morning, Steve Morris so.
Great question as you know we have our capex from <unk>.
November where we reflected the initial IRB and with this outcome from the final ERP, we've added 100 megawatts of.
Solar again subject to Rfps, we added 100 megawatts of solar 150 megawatts of wind.
Storage about 200 megawatt hours those are all incremental that we did not have in the initial.
Capex plan when we met in November .
So subject to RFP as we've talked about the solar and storage, we feel very good about our RFP prospects about that.
The window, we have said we had previously we added 200 megawatt partnership in there.
The IOP was up to 400. So there was another 200 out there we feel confident on the other $150. So we left our 50 put in 150 megawatts.
And just in terms of accounting share would you say is.
Is that based on kind of interconnection positions or.
What youre seeing on the cost side relative to.
Relative to.
PPA options just.
Curious for any color there as to how you kind of bake that risk adjusted point of view I guess, yeah very good question. So as we talked about at <unk>, the solar and storage our regional regional in our areas right. So there was a little bit of a.
A recognition for solar storage in and around the Boswell.
Site, we're we're confident in that there. So the wind one will we're also confident in our ability to get that the along with the.
The wind project the partnership project as well, but again as we've talked about <unk> solar storage are more regional in nature.
So we think we're in a very good position to win those rfps.
Okay. Okay. That's very helpful and then just.
In light of this revision on the Capex side.
What are your equity needs associated with financing was planned and can you speak a little bit to the timing and potential methods to address the equity.
Yeah. So as we've mentioned already on the call are no equity needs in 2023, so that's the Capex starts up.
Little bit more in earnest here in 'twenty four 'twenty five we're probably look in mid 2024, but we have increasing cash flow. So obviously, that's the primary source of our.
Finding for this second as we talked about <unk> and in the past, we do have to maintain our regulated capital structure. So that's 50 50 equity and debt. So that'll help round. It out we also talked about holding a forming a holdco, which gives us greater financial flexibility.
Finally, as we just look at our capital allocation and financing options as we always do we will maximize the value of all our assets.
Opportunistic redeployment of capital into our regulated Capex.
Capex plan.
Okay.
Okay.
<unk> it sounds like there are multiple levers and focus.
But on the timing front.
Is that more like mid 2024, and then for quantifying it.
It's subject to examining the holdco asset recycling and these other leverage yep Yep that's fair.
Okay, Okay got it and just sorry, one final one for me there's been a lot of changes in light of the Capex side.
The rate case order when you talk about the 5% to 7% growth is that now based on the 2023 guidance 2022 actual just what's the right base to think about for that number yes I'd use.
He has 22 actual $3 38.
Okay, great. Thank you very much for the time thanks Richard.
Thank you.
One moment please for our next question.
And our next question will come from Brian Russo with Sidoti Your line is open.
Hi, good morning good.
Morning, Brian <unk>, Brian .
It's just when I look at slide four of the presentation regarding the Capex it looks like the majority of the Capex.
Qualify for your rider mechanisms just can you just remind me how those mechanisms work is it full recovery of and on the investments.
Most real time or on an annual basis, just trying to get a sense of.
The trajectory of the.
The margins from riders.
In between rate cases, which sometimes.
Historically has created.
Stair step type.
Profile to your earnings.
Yeah, Great question Brian .
So writers are real time really helps with the regulatory lag we do have filings to do but the ones that we have in here listed on this page for Capex will qualify for rider recovery. So there's there'll be very little lag here by the time, we have initial spending too.
Revenue recognition there is than cash.
Cash that comes later, we have to do what's called the factor filing to get the cash on that but so when you get the earnings.
Right away of the cash will come a little bit later.
Okay, and just to tie that into the 11% rate base CAGR versus the 5% to 7% EPS CAGR.
The lag there or the difference primarily.
The financing or is there some other very bad era.
That create that that delta.
Yes, we don't look at the 11% CAGR as is synonymous with 5% to seven growth, we believe that the kick the CAGR here rate base growth.
Certainly leads to growth, but it will enable our 5% to 7% growth.
Okay got it and then also.
The 30 to 33 million tons of taconite production.
Forecasted in 23 versus the $32 million in 2022, how does the triangle that maybe with the December .
Nominations, you guys received for the first four months of 2023.
Good morning, Brian Frank Frederickson here, Thanks for that question so.
Good question on we're budgeting and our outlook for 2023 and taconite production.
Sure.
I'd say overall tonnage generally in line.
With that.
Small margin with what we saw in 2022.
We are pleased with December nominations were starting off with.
Several of our customers nominated at full production through the first four months of the year.
And as Youre, probably aware cliffs' Northshore facility has been off since second quarter of 2022 and that facility remains down.
Okay got it got it and then just on the new energy 2023 guidance, obviously, youre optimistic and bullish anymore assumptions you can give.
<unk>.
Related to that that we can kind of maybe extrapolate.
Post 2023, maybe if it's.
Details on the 2000 megawatts in the pipeline or the profile.
Of that debt can extend what looks like to be a nice growth trajectory.
Good morning, Brian This is Jeff <unk>.
We did try to provide the net income to try to fill in some of those gaps what we talked about earlier was was the EBITDA. The 20 million of EBITDA in 2021, and roughly 10% growth off of that as we sit here today that that net income guidance represents.
10% growth in EBITDA, So, we're looking at $24 million to $25 million of EBITDA.
As mentioned on the call.
The strength of the pipeline gives us the confidence that we think that the company can grow in line with the market, which which we continue to see is 10% or greater.
Okay, and then last one just on the.
Sorry, Brian was just going to add from a megawatts thats. The other metric we've been referencing in and new energy was just under 100 megawatts that they closed in.
2022 again not every megawatt is the same but we do expect them to be 100 megawatts of just over 100 megawatts. This year. That's another metric you can track.
Sure.
Okay, Great and can you quantify the <unk>.
Red barn sale gain that's embedded in the <unk>.
<unk> and other <unk> $2 15, and EPS in 2003.
Yes, Thanks, Brian Jeff again this is the Red bar in project, we expect to close here at the end of the first quarter early second quarter.
It's still in the construction season, and we do expect a small gain like a couple million dollars from net income.
In the guidance.
Okay, great. Thank you very much.
Thanks, Brian Brian .
Thank you.
Again to ask a question. Please press star one on your phone and wait for your name to be announced one moment. Please for our next question.
Our next question will come from Alex Mortimer of Mrs. Mizuho. Your line is open.
Hi, good morning, Thanks for your time.
Good morning, Alex Good morning, Alex.
So just kind of back of the napkin there'd have to be about 47 cents of growth to get to the high point of your range at 385 for 2023.
We're just hoping you could provide some clarification on sort of what factors would influence you being able to hit the high middle and love that range.
And if theres currently any bias within that range as things stand at the moment.
Yes, Great question, Brian So we do flex around.
All of our businesses to come up at the high end of the range course, Theres always opportunity at Minnesota power with <unk>.
Increasing taconite lowered again, we're at 33 million tons, they operated that way.
Last year as you know that was in our test year, but so there is some opportunities there along with O&M expense management efforts.
From ALLETE clean energy, we certainly could do better just on.
Wind wind resources.
We budget, what we have seen similar to this year, but it could be better in certain spots and that can have a material impact on us.
Not just the revenue, but on the PTC side of things.
Along with the new energy, so new energy has upside as well and we look at.
We look at that closely plus or minus 10% 15%.
Wonderful. Thank you and then just on the side of regulation, you've seen regulators, both in Minnesota and kind of across the country really start to push back on higher customer bills is as customers face inflation across their spending do you have any concerns about them potentially pushing back on obviously this pretty significant increase.
And capex over the last couple of quarters.
Do you have any concern on them pushing back as they look to prioritize affordability as opposed to to renewables.
Thanks, Alex this is Bethany.
We have confidence in our regulators that they understand kind of the care that we have for our customers and ensuring affordability of our rates as we continue this really significant transition and we've had and we've shared in the past some really creative work that our team has done to try to minimize.
Great impact for the future and so certainly that's the regulator's role also is to ensure that our rates continue to be affordable as we as we continue to work, but I believe they've stated that they are excited about the ERP that was just approved and they know that this is going to take.
Investment on our part in order to continue this transition so as I mentioned earlier I am confident and our regulators support for our work to do that recognizing that we are doing a lot of work to try to keep our rates affordable as we continue this transition and we've been successful to date.
So certainly more frequent rate cases going forward, but we're confident in our regulator support for the work that we're doing Frank did you have anything else you wanted to add thanks Beth Thanks for the question Alex a.
Couple of things I'd add to that as you know, Minnesota values being a leader in clean energy and that floats through even even the regulators and it actually flows through into how we're serving our customers. We're a leader in the state at over 50% renewable and on our way to be over 70%. So really as we work with.
<unk> industrial customers delivering a premium product that helps them meet their ESG goals sooner.
The energy they procure from us and as it pertains to how we work with the residential customers and commercial customers. We're also the leader in the state for energy Conservation programs were the only utility that can can claim that we've exceeded state conservation goals over the past 12 years.
And that helps us have the lowest residential bills in the state because we're helping both parts in terms of reducing usage for efficiently and effective use of that renewable energy.
You pair those together and we've also our teams have done wonderful work with low income customer stakeholders.
One of the items, we'd like to share is that our low income customers have some of the lowest bills the lowest rates in the state and as well as lowest bills because of the work that we've done.
To mitigate that as we've gone through and even the most recent rate case, where.
Even with the increase in residential rates low income customer bills are going to be.
Flat or lower than they were before the rate case.
Understood. Thanks for that and then just one last one on 2023 guidance it seems that regulated ops or slightly down or the guidance is slightly down at the midpoint.
Just hoping if you could just mentioned is that that decrease just based on the dilution you mentioned if there are other headwinds.
There are other headwinds when you see those easing.
And if they are just sort of based on the recent rate case or if there are other issues.
Whether it's O&M or inflation.
Our interest rates, just sort of a little bit more clarity on on when you see that potentially easing.
We have very good Alex Steve Morris again, so right. So that the rate case outcome certainly as was reflected in 2022.
The amount of revenue essentially in 2023.
The major driver is as you mentioned, we do have some increase in O&M expenses, we do have some significant increases as we as I mentioned in the call for a 7% increase in depreciation and property taxes.
That's really the major driver.
<unk> being flat one of the reasons why we're going to need to file a rate case again.
This year with a 2020 for test year.
Okay wonderful. Thank you so much.
Thanks, Alex.
Thank you.
And speakers I do not see any further questions in the queue I would now like to turn the conference back to Bethany Owen for closing remarks.
So thank you again for being with US This morning and for your investment and interest in ALLETE. We look forward to speaking with many of you at investor venues throughout the year and we hope you enjoy the rest of your day.
This will conclude today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
Okay.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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