Q4 2022 WEC Energy Group Inc Earnings Call
Good afternoon, and welcome to W. E T Energy group's conference call for fourth quarter and year end 'twenty. Two results. This call is being recorded for rebroadcast and all participants are in a listen only mode. At this time.
Before the conference call begins.
Remind you that all statements in the presentation other than historical facts are forward looking statements that involve risks and uncertainties that are subject to change at any time.
Such statements are based on management's expectations at the time they are made and.
It Didnt ship to the assumptions and other factors referred to in connection with the statements factors described in WEC energy group's latest Form 10-K, and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated.
During the discussions referenced earnings per share will be based on diluted earnings per share unless otherwise noted.
After the presentation the conference will be open to analysts for questions and answers in conjunction with this call a package of detailed financial information is posted at W. E T Energy group Dotcom.
Replay will be available approximately two hours after the conclusion of this call.
And now it's my pleasure to introduce Gale <unk> executive Chairman of WEC Energy group.
Well good afternoon, everyone. Thank you for joining us today as we review our results for calendar year 2022, first I would like to introduce the members of our management team who are here with me today, we have Scott Lauber, our president and Chief Executive Shao, Lee, Our Chief Financial Officer, and Beth Straka, Senior Vice President of corporate Communications.
And Investor Relations.
Now as you saw from our news release. This morning, we reported full year 2022 earnings of $4.45 a share shall we will provide you with more detail on our financial metrics in just a few minutes, but I'm pleased to report to you that we delivered an exceptional year on virtually every meaningful measure from employee safety and customer.
This faction to growth in earnings per share.
Three major factors really shaped our strong results for 2022 favorable weather solid performance from our infrastructure and transmission segments and steady execution of our capital plan as we pave the way for an energy future, that's affordable reliable and clean.
On the regulatory front as you May know, we saw balanced in credit supportive results from our Wisconsin rate reviews in December despite a little bit of noise in the process new rates are now in effect for all of our Wisconsin utilities and last month on January six we filed rate requests with the Illinois Commerce Commission for our gas utility.
<unk> and Illinois, I would point out that home heating bills in Chicago are currently below those of other major U S cities like New York, Boston, Baltimore, and Philadelphia, and we expect that to continue with this filing Scott will provide you with more detail in just a moment.
Turning now to our ESG progress plan that we updated for you in November it's the largest five year investment plan in our history totaling $28 $1 billion for efficiency sustainability and growth.
We expect the plan to drive compound earnings growth of 6.5% to 7% a year over the period 2023 through 2027.
A key part of the plan is a major commitment to renewable projects both in our regulated business and in our infrastructure segment. In fact earlier. This week, we announced that our infrastructure group will acquire an 80% ownership interest in phase one of the Samsung Solar Energy Center located in northeast, Texas.
And one has a capacity of 250 megawatts. It entered commercial service in May of last year and has a long term power purchase agreement with AT&T.
Pending final regulatory approval, we plan to invest approximately $250 million for our portion of Samsung and one we expect to close the transaction late in the first quarter of this year Sampson one as you May know is the first of five phases being developed by Invenergy overall Samson is the largest solar.
<unk> under construction in the United States today, and we're pleased to take part in phase one.
Now as you know one of our goals is to help shape the future of clean energy.
And today, we're announcing an important pilot project with the electric Power Research Institute and a company called <unk> Blue energy see them Blue is a German designer of long duration battery storage using common low cost environmentally friendly materials in simple English, it's a green battery.
This one to two megawatt hour pilot project will be one of the first of its kind on the United States Electric grid. Our plan is to test the durability of this battery system. We believe it can store energy for up to twice as long as the typical batteries in use today, we plan to launch the project at our Valley power plant in there.
Downtown Milwaukee in the fourth quarter of this year when temperatures during the cold the results will be shared in early 2024 across the industry.
Now, let's switch gears and take a brief look at the regional economy, Wisconsin added 52000 private sector jobs in 2022 and in December the unemployment rate and the state dropped to 3.2% that's well below the national average, we believe the current strengths and remarkable diversity of the Wisconsin.
The economy positions us well as we move forward in 2023 and with that I'll turn the call over to Scott for more information on our regulatory developments, our operations and our infrastructure segment, Scott All yours. Thank you Gail I'd like to start with some updates on the regulatory front.
First let's review, where we stand for the Wisconsin Public service Commission's written orders this past December the.
The commission authorized return on equity of nine 8% for all of our Wisconsin utilities. It approved an increase in the equity component of our capital structure to 53%. We will also continue the earnings sharing mechanism to provide benefits to Wisconsin customers, if our performance exceeds our forecast.
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And as Gil mentioned, we now have a REIT filings under review in Illinois for peoples gas and North shore gas.
Our rate requests would continue to support those key capital investments peoples gas operates one of the oldest natural gas delivery networks in the United States and as you May recall, an independent engineering study found that over 80% of the iron pipes into system are approaching the end of their useful life.
We are modernizing the system to ensure safety and reliability and to reduce methane emissions.
With natural gas prices declining we project customer bills will remain largely flat as the new rates take effect in 2024.
You May also recall, we filed a rate review at one of our smaller utilities, Minnesota Energy resources last November we are seeking an overall increase of eight 1% primarily driven by capital investments interim rates went into effect January one.
Meanwhile, we're making good progress on a number of our regulatory capital projects.
Our Red Barn wind development is on track to come online within the next few months in Wisconsin with an expected investment of $160 million. This project will provide about 80 megawatts of renewable energy to our system.
Work continues on the Badger Hollow II solar facility and the Paris Solar Battery Park, we still expect the solar parks to go into service this year, assuming timely release of the panels.
We also received regulatory approval for the purchase of the dairy and solar Battery Park with plans for 225 megawatts of solar capacity and 68 megawatts of battery storage. We expect this facility to go into service in 2024 of.
Of course, we will keep you updated on any future developments.
And just last month with an investment of approximately $75 million, we closed our purchase of the Whitewater cat combined cycle plant a 236 megawatt facility. As a reminder, we previously received energy and capacity for this natural gas unit Andre purchase power agreement.
In the natural gas business, we have been working to bring high quality renewable natural gas to our customers. We signed another contract in January which brings us to a planned total of 1 billion cubic feet of RMG that'll intra system annually, we expect RFG to slow this year supporting our.
Our goal is to reduce methane emissions.
Outside of utilities, we continue to make good progress in zero carbon projects and or WEC infrastructure segments.
Thunderhead wind farm in Nebraska is now in service. In addition, we expect to complete the acquisition of Sapphire Sky in Illinois in the coming weeks as commercial operations begins.
And as Gail noted, we're excited about our plans to add the Samsung one solar project in our infrastructure segment before the end of the first quarter and with that I'll turn things back to Gale.
Yes.
Right got it. Thank you very much we're confident that we can deliver on our earnings guidance for 2023 as you recall, we are guiding to a range of $4 58 to $4 62, a share the midpoint of $4 60, a share represents growth of six 7% from the midpoint of.
Our original guidance last year.
And as we've discussed we expect to fund our capital plan without any need to issue equity.
And you may have seen the announcement that our board of directors at its January meeting raised our quarterly cash dividend by seven 2%. This marks the 20th consecutive year that our company will reward shareholders with higher dividends, we continue to target a payout ratio of 65% to 70% of earnings we're right in the middle of that.
Arrange now so you can expect our dividend growth will continue to be in line with the growth in our earnings per share next up shop will provide you with more detail on our financial results and our first quarter guidance, John All yours. Thanks.
Gail turning now to earnings our 2022 earnings of $4 45 per share increased 34 cents per share or eight 3% compared to 2021.
Our earnings package includes a comparison of 2022 results on page 17, I'll walk through the significant drivers.
Starting with our utility operation, we grew our earnings by 19% compared to 2021.
Whether it drove a <unk> <unk> increase in earnings compared to 2021.
Great base growth contributed 41 cents to earnings.
And Lo our day to day O&M expense resulted in a <unk> <unk> improvement.
<unk> achieved our goal for the year.
These favorable factors were partially offset by 12 <unk> of higher depreciation and amortization expense related to continued capital investment.
And a 12% increase in fuel expense, mainly driven by higher natural gas costs.
In terms of sales on a weather normalized basis retail electric delivery and Wisconsin, excluding the iron ore mines were up 110th of a percent.
Small commercial and industrial sales increased one half of a percent.
Is it Danielle and large snake large commercial and industrial sales stayed relatively flat.
Overall, our sales mix when stronger and our forecast.
Our sales projections for 2023 can be found on pages 13, and 14 of the earnings package.
Overall, we are projecting relatively flat electric and gas sales year over year.
Regarding our investment in American transmission company.
<unk> increased 7% compared to 2021.
As you recall <unk> related to the resolution of historical appeal that we discussed on our third quarter earnings call.
As previously discussed beginning with the third quarter of 2022 and going forward.
Recording ATC earnings at a 10.38% return on equity.
Earnings at our energy infrastructure segment improved 14% in 2022 compared to 2021.
This was mainly driven by production tax credit as a result of stronger wind production and the addition of our Jayhawk wind farm that went into commercial operation at the end of 2021.
In addition recall that we recognized a three cent earnings contribution earlier in 2022 from the final resolution of markets that all men in the southwest power pool.
Finally, you'll see that earnings at our corporate and other segment decreased 6%, primarily driven by Rabbi Trust performance and lower gains recognized on our investment in clean Energy Fund.
Remember Rabbi Trust performance is largely offsets O&M.
Overall, we improved on our 'twenty to 'twenty, one performance by <unk> 34 per share.
Looking now at the cash flow statement on page six of the earnings packet net cash provided by operating activities increased $28 million.
And total capital expenditures and asset acquisition, where our $2 $7 billion in 2022, a $324 million increase as compared to 2021.
As you can see we have been executing well on our capital plan.
Finally, let's look at our earnings guidance.
This forecast takes into account the fourth warmest January on record since the 18 eighties and assumes normal weather for the rest of the quarter.
Remember last year, we earned $1.79 per share in the first quarter, which included <unk> of favorable weather <unk> from the southwest power pool settlement and the three.
From our investment in clean Energy fund.
And for the full year 2023, we're reaffirming our annual guidance of $4 58.
To $5 62 per share.
We're also reaffirming our long term earnings growth of six and a half two 7% of share.
7% a year over the next five years.
With that I'll turn it back to Gail thank.
Thank you overall, we're on track and focused on providing value for our customers and our stockholders operator, we're ready now for the question and answer portion of the call.
Thank you we will now take your questions. The question and answer session will be conducted electronically to ask a question. Please press the star key followed by the digit one on your telephone if you are using a speakerphone turn off your mute button to allow your signal to reach our equipment.
We will take as many questions as time permits once again, everyone Thats star one.
We will take our first question from Shar <unk> with Guggenheim partners.
Hey, Good luck and Roche are you ready you're ready for the West Coast I am ready for the West Coast and packing my bags.
Alright.
Just two quick ones for you just on the transmission Capex with ATC, which obviously just saw pretty healthy uptick in the past and I know you said you were seeing increases as early as 25 for tranche, one with LR TEP and additional investments even earlier in 'twenty four I guess can you maybe talk about.
The cadence of this current increase as we're thinking about the spending profile and do you see more opportunities any sense on how youre thinking about tranche two.
Yeah, Great question Shar, Let me unpack the second piece of the question first if that's if that's satisfactory.
On the second piece of the question really about tranche, two and again just to level set everyone. In a MISO is going through a very thorough and rigorous long term planning process for transmission investment in the region.
They have been through and have now completed phase one tranche one.
I'm, sorry, future one tranche one so now we're into future one tranche two.
And it's a little too early to tell you precisely.
What we're seeing in the planning for tranche, two but I can tell you that that what we're seeing so far in the in the stakeholder discussions at MISO is that there is I think a good probability that the amount of investment opportunity for American transmission company in tranche two is potentially greater than what we are.
Even seeing in tranche one.
So we're optimistic about that I would expect that we will be able to give you more detail before the end of this year on kind of the broad numbers as they emerge in the planning process and Scott would you like to handle the kind of the cadence question sure. So when you look at and we will hear the end of this year or the beginning of next year.
As tranche two will just see how fast that process goes when you look at the projects.
Starting to ramp up really in 'twenty four.
<unk> 25 in and Thats related to tranche.
But also we saw a lot of increase here at American transmission company, just looking at connecting renewables on the states. So that was about <unk>.
Half of our increase in the prior year, along with tranche. One so I expect we're going to see more of that as we look forward over the next five to 10 years too.
Okay perfect. Thanks, Scott, Scott Shar, Wisconsin, making a good point not only are we seeing the need for additional transmission related to these these longer term projects that are part of the MISO planning, but just to hook in the significant number of renewable projects being built in Wisconsin. That's an additional uptick if you will in our plan.
From just the Wisconsin connections for many renewable projects under development here.
Got it perfect.
And then just lastly, just on the current five year plan I know you guys budgeted roughly $1 9 billion in the infrastructure segment. Obviously, you had two recent announcements with investing in sort of PTC eligible solar projects I think for the first time, obviously in this segment how are you sort of thinking about the remaining.
$1 1 billion of capital I think you plan to deploy at this business and should we expect more solar more wind or perhaps can you open it up to other technologies, which are obviously now PTC eligible post IRI. Thanks.
Sure, we certainly could open it up to other technologies, but the big likelihood given what we're seeing in the pipeline of projects that we're doing due diligence on the big likelihood is they will largely be solar and wind.
And you're referring to the announcement, we just made a couple of days ago. The Samsung one solar energy center in North Texas.
It is coming in a little earlier I think internally, we all thought that we would probably add another solar project towards the end of 2023.
So thats.
That's actually good news as it's coming in a little earlier and as I mentioned, we hope to close on that transaction final given final regulatory approval late in the first quarter I hope that helps our Oh, it always does and Scott always makes good points by the way I appreciate it guys and I'll see you soon.
Sounds good great. Thank you shar.
Our.
Question comes from Julien Dumoulin Smith with Bank of America.
More afternoon Julien.
Yes.
Julien are you are you and your wife by a dog yet.
Oh My God, just you wait just you wait.
The update next quarter.
Thanks.
Oh My God.
Oh man.
So.
Just going back to Wisconsin is very quick.
Reopener filings, if we can talk about Super quickly, obviously, there's been a lot of attention of late.
Perhaps just at the outset any comments.
And reactions of what's transpired here and just how to think about that reopener and then within that just a couple of sub point just west Riverside.
Confident are you that you'll be able to submit data to.
To prove the benefits for Wacker greater or equal to LNG and then with respect to Oak Creek. Some of the same considerations around what are the unrecovered balances of scrubbers. Another plant in and do you see any specific obstacles around Oak Creek retirement of recovery on that front.
Okay, well, let's kind of laid it all out.
I'm glad you got it all out.
Try to kind of walk through that if I forget Scott Shaw any of the elements of the question Scott and Scott will help remind me.
But first I think you were asking about the quote unquote limited reopener that was part of the rate decision.
December so the limited reopener is for 2024 and it truly is a limited reopener relating to the relating to the investment cost of several projects that will be coming into service over the course of 2023 all of them regulated projects.
I think virtually all of them are really the renewable project Scott.
We are underway with here.
So the limited reopener is simply to reopen and put into rates.
Cover the investment cost for projects that have already been approved and are underdevelopment Scott by the commission, yes, very it'll be very specific for example, the liquefied natural gas plants, we have going on in our gas system. Some of the renewable projects I talked about in the prepared remarks, and some of the new race units that we have going in and western <unk>.
Very specific projects.
For instance, LNG goes in at the end of the year and we'll just factor that in for a full year. Then so that should be very straightforward as you do that filing yes, exactly and then there is no.
There is no reopener related to the equity layer or the row. This is simply related to capital investments in projects already approved so I hope that answers that question and then in terms of just the general backdrop.
One of the one of the things that I believe Julien you actually did an interview with the chairperson of the Wisconsin Commission I would just encourage everyone to.
To listen and read through some of the additional comments that she has made related to her view of the future of regulation in Wisconsin wanting very much to be credit supportive as the decision was of our Wisconsin utilities.
And.
Wanting to maintain the reputation of the Wisconsin Commission is very professional and certainly.
Carrying out day to day.
Concept of gradualism, So I hope I hope that helps I hope that's helpful.
And then secondly on Riverside, we have already provided.
On time all of the additional modeling data that the commission asked for in terms of modeling the impact of exercising the riverside option and to level set everyone. Riverside is a natural gas combined cycle plants at Alliant built.
During the construction process, we agreed with alliance that we would have two options each for 100 megawatts.
Per option to essentially acquire at book value.
Those megawatts over a certain period of time. So this particular question that you have relates to the first option.
And again the modeling data that the commission asked for is in their hands right now.
We expect some time in the next 45.
No more than 60 days for the commission to take up the matter.
I hope that responds and I hope we didn't miss anything.
So a lot there just lastly super quick.
Creek just.
The current unrecovered balanced the scrubber and plan.
As far as getting.
Recovery, there and any obstacles in that end.
That was the last well.
Great. Thank you for reminding us the current book balance for the older Oak Creek units remember there are four older Oak Creek units, they're labeled Oak Creek 567 and eight.
Those units went into service mid literally I think the oldest one was $19 59, and the others are 19 sixties vintage units.
So the base plant itself there is almost no book value lift.
The major part of the book value is in the emission controls the modern emission controls that we build and put on those units at least a decade ago now.
And that is roughly about $400 million.
But I would remind everyone that is not a subject for the limited reopener in Wisconsin in 2024, because the retirement dates have been pushed out a bit given the tight capacity market Scott anything you'd like to add.
Remember when we look at those retirements, we also when they do retire when all four of them retired thats like 30% to $35 million of reduced O&M expense, along with less fuel costs.
So we will be we'll be looking at it but I think our current data as may of 24, so it potentially will be analyzing it but we got to look at our capacity situation, but right now that is the plan. So maybe part of the limited reopener.
But.
Guys get really save alright.
When you look at the whole picture and it reduces O&M cost reduces fuel costs and remember, we're replacing a lot of this capacity some of it with renewables and get that production tax credits there in the front end it is going to be very good for customers and yes.
Scott's right there are some immediate significant savings.
When you think about 30% to $35 million of O&M savings from the closure of the plant and then on top of that you get fuel cost savings.
Yes.
Wonderful guys Gil Scott.
Scott you guys do.
Thank you so much take care Julian.
We'll take the next question from Jeremy Tonet with J P. Morgan.
Afternoon, Jeremy here.
Thanks for having me.
Theres been nice being ahead.
Yeah.
Just wanted to pick up a little bit on the prior conversation there with regards to Wisconsin Commission are you hearing anything from the governor of stakeholders about who the next commissioner might be if the governor has any particular policy goals with the commission that could potentially be expressed in this next nominee.
No in terms of any particular change of policy goals no.
The conversations we're hearing related to the concept of what the appropriate next appointee will be.
Really.
In my opinion and from everything we've heard revolve around the major concerns that the governor has had since he took office, which is reliability affordability.
And the continued transition away from fossil fuels, but in a pace and in a manner that preserves reliability.
No.
Nothing nothing different in terms of our belief in the Governor's policy objectives.
And the other thing that I would say is.
Sure.
I would be shocked if the vetting process was not already underway.
We would expect some type of an appointment announcement if you will.
I would guess in the next 60 days the other point I think that's important to remember is all the governors appoint these have to be confirmed by the state Senate.
And the state Senate.
As heavily Republican.
And I think all of that all of that leads to the type of an appointment that's really close to the center line in terms of philosophy and in terms of approach of continuing the same type of approach. The commission has been noted for over the course of many decades I hope that helps Jeremy.
Yes, no that's helpful.
I mean, I don't think I say different I was just more thinking just type of.
Policy as far as we were under the impression that maybe some labor oriented policy might be in focus here. So didn't know if that was something that had come across your radar, but we can.
Move along here.
Jeremy actually to your point, we do know and we've had conversations with the Governor's office as more and more renewable projects are under development under construction inside the state of Wisconsin, We do know the Governor's office is very interested in making sure as many of those jobs as possible, our Wisconsin jobs. So.
<unk>.
What youre, saying would not be would not be a particular surprise I think thats been part of the governor's agenda from the very beginning.
Right right great. Thank you for that and then kind of moving along and recognizing it's earlier in the PGS rate case process.
But have you received any stakeholder feedback here, particularly on how the QEP writer impacts this and any sense from the legislature on an extension.
Well as you probably recall.
Our filing position, if you will and we announced when we filed the case on January six that it would not be our intention to try to extend the <unk> rider through legislation.
It's pretty clear from conversations with a number of the policymakers, including the Governor's office in Illinois, but the preference is to return to traditional rate, making procedures for all the capital investments, the PGM and north shore, making but in particular the capital investments.
That had been that had been part of what we call the <unk> rider program.
So when you think about it and then actually.
We really talked about this a lot internally.
First of all important to point out that the Illinois regulatory process in these rate reviews utilizes a forward looking test period.
So.
Even with going to a traditional rate making process.
You're in a forward looking test periods, so that that should help in terms of eliminating regulatory lag number one number two.
Actually going through a rate review.
With all of the testimony and all of the <unk>.
All of the different stakeholders being able to voice their opinions actually I think it is going to be a positive thing because there has been noise about the method of recovery of the investment as opposed to the need for the investment what this will allow us to do this process over the course of 2023. This will allow us to again make the case.
For why the upgrade of aging deteriorating piping systems underneath Chicago is so so necessary for the safety and efficiency and stability of gas distribution in Chicago.
We kind of look forward to the debate and we look forward to the whole process, which Scott will take probably through close to December I would guess it will take most of the year.
And they are just currently will we haven't even seen a final schedule, yet so that will be coming out.
Got it thats very responsive to.
That is very helpful. Just one last one if I could here just after this latest solar investment with the Sampson announcement, how does the broader market interest currently stand.
Anything notable to highlight here on this transaction.
No other than.
I mean other than in this particular transaction.
There's really no construction risk because the facility went into service in May of last year.
So we really have no construction risk here whatsoever, we've got a year of operating data that we can base our due diligence on.
And again, we're really.
Pleased with the.
With this particular investment.
We think it's going to again add really high high high quality project to our infrastructure portfolio.
And just on the ITC. So did you guys disclose how many years you're amortizing.
The silver.
Well, we're using production tax credits instead of investment tax credits and that's really what helps our economics here.
Obviously with the inflation reduction Act.
<unk> is now eligible you can choose either itc's. Our PTC is that our choice here is clearly ptc's, which will be spread over has got a 10 year period 10 year period.
And adding that second solar farm in in our portfolio really adds diversity to the portfolio too.
So really happy to.
Adding that second solar.
Very helpful I'll leave it there thanks.
Thank you.
We will take our next question from Michael Sullivan with Wolfe Research.
Greetings Michael.
Hey, Joe how are you.
We're good you're keeping Steve straight.
I'll go ahead, we're going to steal Erinn Roger Schrum too.
[laughter], Okay. It looks good in the Green I believe.
Yes, actually I'll playbook.
Anyways.
Wanted to start with just the.
The credit metrics I think you all used to give a reconciliation of <unk> to debt with year end earnings.
Do you have that off the top of your head or are you able to give where that ended up shaking out for the year.
Sure, we'll ask John to give you a response to that.
Michael we.
We disclosed.
Longer term credit metrics and.
We have all of the actual data, we'll be happy to provide that to you I think it's all public information.
Okay. Okay. Thanks.
And then I just wanted to check.
On the solar build out.
Scott I think you said like assuming release of panels, which is kind of like a little bit of a moving target just any any updated color there on.
Where things stand with where the panels are and being able to get them.
Yeah, so we've been but he's been able to get them in the U S. We've been able to get them in a warehouse in fact about 40% of the panels, we need to complete Badger hollow II in Paris or in Chicago warehouse and another 30% of the panels are about in the U S. So we have the panels, we're just working to get them through the <unk>.
Paper work.
Get through the border patrol.
We are starting to see a few panels not ours, but a few panels get through the border patrol so we're optimistic but.
But we have them in the states and we just need to get them re leased yet. So we think all the paperwork is good we've gone back and worked with our suppliers and work with our developers to get everything lined up it's just a matter of getting it through the final border patrol, but we're already at the site.
The one site is ready and we have a lot of the panels right here just a few hundred miles away to be able to put them on and we just got to get them all.
Okay great.
And then lastly, they are in a warehouse.
There isn't a hermetically sealed warehouse in Chicago.
Yeah.
Okay, and then last one just flipping to the Samsung acquisition I know like none of these projects R. R.
Exactly alike, but just on like on like a dollar per kw basis Thats actually it was one of the cheaper deals that you've done is that just a function of.
Location current environment anything like nuance, there that we should be thinking about.
No I think.
When you look at when you look at the appropriate purchase price one of the Big factors is the particular elements of the offtake agreement or the purchase power agreement in this case with AT&T. So that that was a heavy.
Permanent of the overall value that we saw in the project. So you want to add to that no.
That's it that's exactly right.
<unk> PPA purchase price.
Okay, great. Thank you. Thank you very much.
You're welcome Michael.
Our next question comes from <unk> Chopra with Evercore ISI.
So <unk>, you're going to sing fly Eagles fly for us yeah.
They'll book you can sleep.
But but I will be sending after they they actually went in and.
In a few weeks here.
Okay.
Thanks for giving me time I was going to ask you.
Question on the price.
Sampson one versus Naples last that you've answered so.
Thats good maybe just.
Seeing.
We've heard a lot about transformer shortages and.
And just general material shortages I think you talked about the panels already being in house, but can you just generally talk about materials or construction materials and are you seeing some tightness there specifically issues.
It shows the transformers or any other equipment.
Yes, Great question, let me say this a couple of years ago.
We actually were in a position, where we thought we would be very protective of our customers and our franchise. If we did a double order of Transformers and that has served us pretty well I think everyone's a bit tight Scott we feel reasonably reasonably in good shape with where we stand and we feel like we're in good shape, we've been working with our suppliers.
Every week.
Probably the one that's across the industry as more of those pad mall transformers, but we've been working then.
We are able to continue with all our construction and our capital work. So we don't think theres any issues, but we're watching it very closely hopefully things will loosen up here.
But the product.
Padma Transformers, along with some meter sets have been probably the tightest things for us, but we're watching everything.
And so far so good.
I guess you sourced for the balance of the year and 'twenty four is that how we should think about it when you were talking about the two year kind of preorder.
Yes.
I think were sourced through the year next year, what we did is some of our larger transformers that we need for Substations, we went out and did some orders way ahead of time.
Just to get into the queue those of the Transformers that Gail is talking about so there is different sizes of transfer as those real large ones. We got out there a year ago to put orders out ahead of time.
One of the reasons, we did what Scott just described is the large economic development projects that were coming to fruition. Here. For example, I mean, we've talked a lot about horrible, but they are up and running and ramping up.
Matsui is finished and is now operating their new headquarters and manufacturing state of the art manufacturing plants. So a number of a number of the major economic development projects, which we knew would require large transformer sets.
We prepared for that in advance which was really good.
Got it guys. Thanks, so much I appreciate the time.
Go Eagles.
Our Shaw go Eagles.
Yes.
We will take our next question from Andrew Weisel with Scotiabank.
How're you doing Andrew.
Hey, I'm good thanks.
First question is another one on tims and one here, it's early but how do you think about the potential to invest in some or all of the next five phases, I mean that alone could be more than half of that five year budget or would you prefer to diversify your projects.
Well, we've really followed a philosophy of diversification. However, you never say never we will see if the performance on Samsung one is as we expected.
And we're certainly open to looking at.
Portions of future phases, but we have not made any any decision on that whatsoever, it's certainly a possibility.
And.
I am confident if we wanted to be a continued partner in any of those future phrase phases, we would have the opportunity to do so.
But we'll balance that against what we see is the performance in Samsung one and against our thinking about diversification, both solar wind and region.
Do we know the timing of when Samsung two is going to be at that decision point.
It's under construction now, but I don't have a don't have a in service dates, but we know its under construction now. So my guess is it's in the next 12 to 18 months Max.
Okay great.
Next question on a similar front here the year over year EPS walk shows positive 10 cents from Ptc's are you able to quantify what percent of your total earnings relate to renewable tax credits at the energy infrastructure segment.
Sean might be able to give you that I can we can tell you what the earnings from our renewable investments, where we can start at 2008, which is what we delivered in terms of the investments in our infrastructure projects. So you wrap in the PTC as Youre wrapping in other revenues and sure we got to about <unk>.
Eight cents a share for 2022 from the infrastructure segment, correct and we don't have the breakdown between PTC.
Operating revenues, but the majority of the 28 is that PTC.
Okay, great Thanks and.
And then one last one if I can the new battery pilot sounds exciting.
Im interested in your other science project the hydrogen blending you.
You briefly mentioned on the last call that initial results were encouraging and are you able to give us any additional updates on that project.
Yes, there were very encouraging and within a matter of weeks now.
Think before the end of February .
The electric Power Research Institute, which really was the main technical organization, helping to drive the project and helping to analyze the project. The electric power Research Institute will have a full report available.
All of the analysis.
And we expect that report to be out in the next few weeks, but again very encouraged from the standpoint of both the.
The efficiency of what we saw no degradation of the equipment and you name it and it was.
As Scott said, the engineers were giddy and that's scary actually when the engineered joined the project.
Yes.
Yes.
Very good looking forward to that thank you.
Youre welcome. Thank you Andrew.
Yeah.
We will take our next question from Anthony <unk> with Mizuho.
Anthony it's in Israel.
Absolutely.
I saw some photos of view with Amazon lockers at a basketball game recently.
And one of the local papers.
Yes I was.
Apparently seated next to him in.
And some other folks it was for some reason or another.
When youre sitting next to era, there are a lot of pictures being taken.
It was all of you Aaron was very fortunate and I am I own one share. So I hope he wasn't out that later I hate keep in my employees out late there.
Yeah.
Just.
More housekeeping questions I guess, one on Illinois, I think you spoke earlier on the rate case in May.
I think if I characterize it correctly, it's good maybe they go through an entire case.
The Commission I think parties, we'll see how much the company has invested.
Curious when you see the the timing of the <unk> rider expires, then also on the electric side, which I know you guys are not there, but on the electric side that formula rate plan expired. So the commission right now has six or seven pretty sizable rate cases does that make settlements may be more likely to happen given the workload there.
Oh, that's very difficult to say, one way or another but certainly the commission will have a solid amount of work to get through I believe every natural gas distribution company of any size is filed or is filed their rate case in Illinois and of course as you say the formula rate plans.
And the changes in under the legislation on the electric side, so there'll be a lot cooking.
And Illinois, this particular year, whether that leads to more settlements I think it's way too early to tell.
But clearly.
<unk>.
Illinois has had a track record of settlements.
We actually I believe had a very positive settlement with our north Shortcake's, just a year or so ago. So it's certainly not out of the realm of possibility Anthony at all.
Got it and then if I stay with the gas business.
At least Henry hub gas price have really declined.
The winter till now and we're still.
A couple more weeks of winter left I mean is the company able to maybe capture that in customer bills from contracts I'm. Just wondering how is maybe the companies.
Buying more hedging process kicked up with these lower prices to mitigate customer bill impact.
Well, we're clearly going to see I mean, gosh look today and I think we were around $2 60 per million Btu is amazing.
Compared to where we were just about two to three months ago.
<unk>.
But if you look at particularly for our natural gas heating customers.
We have a set commission approved strategy, where we basically in advance of the winter season, we basically do a third a third and a third.
Roughly a third of gas in storage, a third of financial hedging and a third on the spot market. So to the extent that third that's being purchased off the spot market is materially better it's going to be helpful to customer bills.
And we also have that process as we start thinking about next year as we put an injection. So we may be hedging a little bit right. Now just following a very strict pattern to lock in some of those prices for next year exactly.
And one thing that I would add to all of that is that.
When we filed our case for peoples gas in Illinois, and Scott mentioned this in his prepared remarks.
Just looking at the futures market for natural gas.
We should be able to completely even with a rate increase in base rates, we should be able to completely offset that with lower commodity costs and keep customer bills flat.
In 2024 in Illinois.
Great and then if I just last question I would say with costs I'm just curious.
It seems obviously, Wisconsin WEC.
A large corporation in our space.
<unk> been able to navigate a lot of the challenges of maybe higher rates in <unk>.
Placing headwinds and.
Is it the scale and size I mean, how big of a.
Factors that in navigating where some of the smaller utilities as smaller companies that are really stumbling on navigating I mean is it that do you need at the scale and size to handle these challenges.
Anthony It's a great question in my view would be we are in a scale business I don't think theres any question about that and I'm going to ask Charlie to give you one statistic that I think underscores the benefits of scale. If you look back to the.
As a starting point to.
To 2016, which would be the first full year. After our acquisition of Integra. So from 2016 to the end of 'twenty two Sean will give you a statistic that will blow your mind.
I think Gary mentioned is thinking about the day to day O&M funding.
We knew we brought down over $300 million since the acquisition they take our 2016 all the way.
On to the projected 2023, I think it's about two 5% reduction year forget it now at the same time, if you think about the asset base growth over the same period, it's been north of 7% a year. So late.
Rate base asset base at the same time, bringing down O&M.
That's a pretty pretty.
Pretty solid track record.
So just gives you an example, anthony of the benefits of scale.
Well thanks, so much thanks for the time.
I'm also not planning a dog anytime soon I hope you guys have a great day.
Thank you Anthony.
Okay.
Our last question comes from the line of <unk> <unk> with Hudson Bay capital.
Hello Videla.
Good afternoon How're you.
We're good how about you.
Okay.
A question on I don't know if <unk> keep up keep wanting you to say wonderful and award winning you know that.
Great and Wonderful award winning I appreciate that thank you.
Alright.
Hey.
Yeah with all the focus on affordability.
<unk>.
Andy.
Regularity of great filings and.
And rate increases.
Over multiple years.
So the investment et cetera, I'm wondering if you can.
Maybe.
You're going to talk too much about is that great design and whether in fact, there is any.
Room or any ability to kind of work on that too.
<unk>.
Good.
Some misalignments or two like <unk>.
About <unk>.
Perhaps make things.
Perhaps.
Broadly more affordable.
In the past it was always the industrial select customers subsidize residential and it always used to be the thing to want to work it back to the true cost of service. So I'm just wondering I'm wondering if you could kind of give us your thoughts on that and secondarily.
The other thing is about.
The fixed charge versus variable and weather.
It's been a trend mostly.
Towards a much larger fixed charge and way from being volume metrically exposed is there any Dod Oregon.
Duration or philosophy around perhaps using that as a means to them.
Yes.
Okay.
Things more balanced in terms of affordability.
Okay, well I'll ask Scott to give his view on this as well let me start off with one thing that immediately comes to mind.
We have been having.
Pretty innovative in trying to help on the whole affordability issue in fact.
In the prior rate case, and then it will be actually.
Proved coming out of this rate case, we started something called the lift program.
For low income individuals where if you stayed on a payment plan there was actually some forgiveness of billary ears, and thats been actually.
An example, again of how we're trying to help and work on the whole affordability issue. So that's that's one thing that comes to mind and the other is I'm sure as we continue to see adoption of Evs.
Across the footprint that we will be looking at time of use rates.
And things that can be helpful in terms of.
In terms of not adding to the peak demand and therefore, not adding to our investment costs.
Because of the prevalence of as we continue to grow the prevalence of Bvs Scott No Youre exactly right looking at like time of use rates has been very helpful, especially as people are starting to get the evs.
Charge at night.
We're always looking at other opportunities and we had.
We've added in the past year has some real time market pricing programs due to encourage economic development. So we really continue to evaluate what's what's good for the state of Wisconsin and our customers.
Hope that's helpful.
Appreciate it thank you.
Youre welcome.
Alright folks well I think that concludes our conference call for today. Thanks, So much for taking part always enjoy the discussions with you and if you have any additional questions feel free to call Beth Straka at 4142 to 14639. Thank you everybody so long.
Thank you everyone for your participation you may now disconnect.
Please wait the conference will begin shortly.
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