Q3 2023 WEC Energy Group Inc Earnings Call

Good afternoon, and welcome to W. E C Energy group's conference call for third quarter 2023 results.

This call is being recorded for rebroadcast and all participants are in a listen only mode. At this time.

Before the conference call begins I remind you that all statements in the presentation other than historical facts are forward looking statements that involve risks and uncertainties that are subject to change at any time.

Statements are based on management's expectations at the time they are made.

In addition to the assumptions and other factors referred to in connection with the statements factors described in WEC energy group's latest Form 10-K, and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ material 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 C Energy group Dotcom.

A replay will be available approximately two hours after the conclusion of this call.

And now it's my pleasure to introduce Gale Clapper executive Chairman of W. E C Energy group.

From America's Heartland and good afternoon, everyone. Thank you for joining US today as we review our results for the third quarter of 2023 first I'd like to introduce the members of our management team who are here with me today, we have Scott <unk>, our president and Chief Executive Shortly our Chief Financial Officer, and Beth Straka Senior Vice.

Corporate communications and Investor Relations.

You saw from our news release. This morning, we reported third quarter 2023 earnings of $1 a share we delivered another solid quarter of growth and we remain on track for a strong 2023, our focus on executing the fundamentals of our business is creating real value for our customers and our stockholders.

Today, we're also reaffirming our earnings guidance for the year. The range is $4 56 to $4 and I'm, sorry, $4 58 to.

The $4 62, a share with an expectation of completing the year in the upper half of the range as always this assumes normal weather through the final quarter of 2023 switching.

Switching gears now our big news for the day is the rollout of our ESG progress plan for the period 2024 through 2028.

As you may have seen from our announcement. This morning, we expect to invest 23 4 billion.

With an ongoing focus on efficiency sustainability and growth.

This is the largest capital plan in our history, an increase of 3.3 billion above our previous five year plan, that's more than a 16% increase.

Several factors are driving the investment outline outlined in our updated ESG progress plan.

The first of these factors is the economic growth, we're seeing in the Milwaukee region, particularly in what we call. The I 94 corridor in the southeastern part of the state between Milwaukee and the Illinois State line.

From data centers to pharmaceuticals to micro Inverters for solar panels from even more gummy bears a massive new distribution and fulfillment centers and this growth is also spanning new commercial and residential development in the region.

And our new five year plan, we expect our asset base to grow at an average rate of 8.1% a year and as we fund this growth with an appropriate financing package. We project our earnings per share will continue to rise at a compound annual rate of six 5% to 7% a year.

As we've been discussing with you. Our plan will include growth equity in the form of programmatic equity, including our dividend reinvestment plan employee benefit plans and at the market plans. There is no need for block equity in the five year plan.

And we will start in 2024 by issuing 100 million to $200 million of new equity.

Sean will provide you with more details on the financing plan in just a few minutes.

I'd also like to point out a few other quick highlights for you over the next five years will continue to make great progress in transforming our power generation fleet and reducing carbon dioxide emissions.

And the plan for example, we're making a significant commitment to new solar wind and battery storage as well as modern efficient natural gas generation and LNG storage in.

In addition, we'll be adapting to the new seasonal capacity rules being put in place by MISO, the midcontinent mid continent independent system operator.

Erika and transmission company will be adding needed transmission capability and to help assure energy security for our customers. We will continue to harden our distribution networks.

On the environmental front, our plan still calls for reducing C. O two emissions from our power generation fleet by 80% by the end of 2030.

And I am pleased to report that assuming timely regulatory approvals, we now project a complete exit from coal three years earlier by the end of 2032. So the future is bright and the investment opportunity as long strong and highly executable and Scott will provide you with some specifics in just a few minutes.

And now a brief look at the regional economy unemployment rate in Wisconsin.

<unk>, 3.1%, continuing our long running trend below the national average and as we look inside the numbers, we see an encouraging upward trend in Wisconsin is labor force participation. This year.

As I mentioned growing companies are investing and expanding in our region. Microsoft is now moving dirt and moving full speed ahead to develop its new data center complex in that I 94 corridor, we mentioned south of Milwaukee Inerrable officially opened the doors of its new confectionary plant in July fast forward to today.

And horrible is already planning to double the size of its production capability, adding more capacity for gummy bears new technology add additional employees.

And so also south of Milwaukee, you align plans to open a 1 million square foot facility. This year you line in case, you're not familiar with the name as the leading distributor of shipping industrial and packaging materials for businesses throughout North America, and even more expansion as planned by your line for 2025.

These developments highlight the strength and the potential of the Wisconsin economy and underscore the need for the investments we're outlining in our five year plan.

With that I'll turn the call over to Scott for more specifics on our capital projects, our regulatory calendar and our operational highlights Scott All yours. Thank you Gael I.

I'd like to start with some of the specifics on our capital plan as Gail noted, we have identified $3 $3 billion of additional investments compared to our last five year plan.

Walk you through the changes between 2024 and 2028, we plan to increase our investment in renewables by $1.4 billion with that we expect to invest in 3800 megawatts of new renewable capacity.

In the plan at a billion dollar increase in transmission investment. This is our share of the ATC plant renewable project and regional growth among the driving factors.

To support reliable service for our customers, we expect to spend an additional $1 $3 billion of natural gas generation over the five year plan.

This includes both combustion turbines and reciprocating internal combustion engines or rice units.

We also have planned to invest an additional $800 million in liquefied natural gas capacity.

Which will be used for electric generation and for our natural gas operations on the coldest days of the year.

With these important investments for our utilities, we have reduced our planned investment in our energy infrastructure segment.

We'll be happy to share more details with you at the upcoming EI conference.

Now moving onto the regulatory front as you recall, we expect a decision from the Wisconsin Commission before the end of the year under limited Reopener filings.

We also have an update and our rate filings under review in Illinois for peoples gas and north shore gas.

Recently, the administrative law judge.

And the case issued a proposed order largely consistent with staff's recommendation.

The order recommends a 9.83% return on equity at both utilities and we expect a final decision by the end of November.

And moving to the other states I am pleased to report that both the Minnesota and Michigan commissions have recently approved settlements in our rate reviews.

Meanwhile, we're making progress on a number of regular regulated capital projects as you recall, we closed on our first option at the West Riverside Energy Center earlier, this year, adding 100 megawatts of efficient combined cycle natural gas generation to our portfolio.

Since our last call we filed a request to purchase another 100 megawatts of Riverside capacity under our remaining option.

Pending regulatory approval, we expect to invest $100 million to add this capacity in 2024.

Elsewhere in the state where it continues in the Badger Hollow II solar facility and the Paris, and Darien Solar battery Parks you may recall, we had solar panels waiting on final release from a bonded warehouse in Chicago.

I'm happy to report that those panels are being cleared the first hundred megawatts have been released and the trucks are rolling to our Badger Hollow II site we.

We expect all of our panels to be released and inner position by the end of this year.

We are on track for Badger Hollow tube to go into service late this year or early next year with the Paris Solar Park to follow in addition work is underway in the dairy and solar facility, which is planned to go into service by the end of 2024.

We will keep you updated on any future developments with that I'll turn things back to Gail Scott. Thanks, very much and now just a quick reminder, about our dividend our dividend growth continues to stand in the top decile of our industry. In fact, we were recently named one of the 10 best dividend stocks in America by Morningstar.

As usual I expect our board will assess our dividend plans for next year and our regularly scheduled meeting in December we continue to target a payout ratio of 65% to 70% of earnings we're positioned well within that range now so I expect our dividend growth will continue to be in line with the growth and our earnings per share next up.

<unk> will provide you with more information on our third quarter financials, and a good bit of detail on our upcoming five year financing plan Shah all yours.

Scale, our 2023 third quarter earnings of one dollar per share increased <unk> <unk> per share compared to the third quarter of 2022.

Our earnings package includes a comparison of third quarter results on page 15, I'll walk through the significant drivers.

Our earnings from utility operation or 18 cents above the third quarter of 2022.

First weather had an estimated one penny negative impact quarter over quarter.

Higher depreciation and amortization expense and interest expense added another 19 negative I mean.

These unfavorable variances were more than offset in the quarter.

Each base growth contributed 13.

This includes a base rate increase for our Wisconsin utilities as well as the interim rate increase our Minnesota energy resources.

Additionally, timing of fuel expense improved our earnings by 13 thing.

And lower day to day O&M resulted in a <unk> <unk> improvement.

Before turning to earnings at the other segments, let me briefly discuss our weather normalized sales for the quarter.

You can find the sales information on page 11 of the earnings package.

Retail electric deliveries when Wisconsin, excluding the iron ore mine were down eight tenths of a percent quarter over quarter.

This was driven by lower sales volumes to a large commercial and industrial customers.

So as eventual usage was up one 3% and is ahead of our forecast through the first nine months of the year.

Also sales to our small commercial and industrial customers were up four tenths of a percent and are tracking our forecast for the year.

Regarding our investment in American transmission company earnings decreased five point compared to the third quarter of 2022.

Recall that last year, we recorded a five pick up from a resolution of MISO R E appeal.

Earnings at our energy infrastructure segment decreased one penny in the third quarter of 2023 compared to the third quarter of 2022.

This was mostly driven by lower wind production, partially offset by tax credits and projects that we placed into service.

Finally, you'll see that earnings at our corporate and other segment decreased 8% largely due to higher interest expense.

As Gail noted we are reaffirming our annual guidance of $4 58.

$4 62 per share.

This includes October weather and assumes normal weather for the remainder of the year.

Now turning to our financing plan.

Joe and Scott have already discussed our new five year capital plan.

I'll provide details related to our anticipated financing activity to support the plan.

Can find this information.

On page 22 of the earnings packet.

As you can see on the chart over the next five years, we expect cash from operations to fund about 65% of our cash needs.

About 28% of the funding is expected to come from debt and the remaining 7% issuance of common equity.

As Gale mentioned earlier, we expect to utilize dividend reinvestment and employee benefit plans and at the market program to tap into the equity market.

Our common equity issuance is projected to be in a range of $100 million to $200 million for 2024, and 1.8 to two $2 billion over the next five year plan.

We call our equity ratios in our utilities are thicker, particularly at Wisconsin electric.

Supporting these thicker equity layers results in approximately $400 million of common equity raise.

The remaining equity raise represents approximately 50% of incremental capital spend.

As you know our equity issuances post 'twenty 'twenty four it will be tied to our capital plan ratably at approximately $450 million a year.

This financing plan not only supports our long term earnings growth rate, but also helps maintain our targeted credit metrics.

In addition, I'll quickly address our upcoming holding company refinancing needs.

Over the next three years, we have total maturity of about $2 $8 billion.

The 600 million that matures in 2024 carried a very low coupon.

However, the remaining $2 $2 billion scheduled to mature in 2025, and 2026 has a weighted average coupon of just under 5%, which represents lower refinancing risk.

In closing as shine on the last page of the earnings packet.

Through our capital allocation, we expect the percentage of assets invested in our regulated electric businesses to grow faster.

At the same time the percent of assets and gas distribution and in contracted renewables is expected to decline.

We are very excited about the investment opportunities ahead of us with that I'll turn it back to Dale Alright, Sean. Thank you very much overall, we're on track and the company continues to perform at a very high level. Operator, we're ready now for the question and answer portion of the call.

Now we will take your questions.

<unk> and answer session will be conducted electronically.

Operator: Good afternoon and welcome to WEC Energy Group's conference call for a third quarter 2023 results. This call is being recorded for re-broadcast and all participants are in a listen only mode at this time. Before the conference called again, I remind you that all statements in the presentation other than historical facts are forward-looking statements that involve risks and uncertainties that are subject to change at any time. Such statements are based on management's expectations at the time they are made.

Your question. Please press the star key Fob.

Slowed by the digit one on your phone.

If you are using a speaker phone turn off your mute function to allow your signal to reach our equipment.

We will take as many questions as time permits.

Once again press Star and then one on your phone to ask a question.

Your first question comes from the line of sharp <unk> with Guggenheim.

Your line is open rocket.

Rock'n'roll Shar how are you.

Mr. Clapper How're you doing.

Doing great.

Operator: In addition to the assumptions and other factors referred to in connection with the statements, factors described in WEC Energy Group's latest form 10K and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ material, materially from those contemplated. During the discussions, reference 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 WECenergygroup.com.

Excellent excellent. So obviously in <unk> prepared remarks, she hit on why the the equity guide was obviously somewhat larger than what would be dictated by the growth Capex increase.

It's obviously.

Does the higher equity layers I guess, how should we think about this in terms of the balance sheet capacity gives you how has the conversations with the current rating agency and.

And related are you done now through the trajectory or could incremental capex led to more equity I mean, you do tend to raise capex every year in the Microsoft opportunity still out there.

Yes, yes, great question Shar, well first of all kind of let me backup and reiterate a couple of things that <unk> mentioned I think you can look at.

Shall I touched on this.

$400 million of the equity raise at least in my mind I look at that as kind of a one time catch up because over the last rate case.

Operator: A replay will be available approximately two hours after the conclusion of this call.

Gale Klappa: And now it's my pleasure to introduce Gail Clappa, Executive Chairman of WEC Energy Group. From America's Heartland, good afternoon, everyone. Thank you for joining us today as we review our results for the third quarter of 2023. First, I'd like to introduce the members of our management team who are here with me today. We have Scott Lobber, our President and Chief Executive, Shalu, our Chief Financial Officer, and Beth Strockett, Senior Vice President of Corporate Communications and Investor Relations.

It comes we've received thicker equity layers.

Virtually in every situation so.

About $400 million of that really just goes to support.

Really strong credit metrics at all of our utilities. So I would look at that that particular $400 million chunk that Charles referred to Shar.

Gale Klappa: As you saw from our news release this morning, we reported third quarter 2023 earnings of $1 a share. We delivered another solid quarter of growth, and we remain on track for a strong 2023. Our focus on executing the fundamentals of our business is creating real value for our customers and our stockholders. Today, we're also reaffirming our earnings guidance for the year. The range is $4.56 to $4.58, $4.62 a share, with an expectation of completing the year in the upper half of the range. As always, this assumes normal weather through the final quarter of 2023.

A one time catch up.

And then.

To answer your question about further capital.

And yes, the Microsoft plan is still being developed.

We'll know a lot more in the next few months beyond what we've put in this plan related to Microsoft as they continue to refine their their plan for the large complex the third theyre going to develop here in southeastern Wisconsin, but I think the way to look at it is that incremental capital beyond what's in the plan.

<unk> equity is about 50% of that incremental capital sure any other thoughts.

You addressed it.

Gale Klappa: Switching gears now are big news for the day is the rollout of our ESG progress plan for the period of 2024 through 2028. As you may have seen from our announcement this morning, we expect to invest $23.4 billion with an ongoing focus on efficiency, sustainability, and growth. This is the largest capital plan in our history, an increase of $3.3 billion above our previous five-year plan. That's more than a 16% increase. Several factors are driving the investment outline in our updated ESG progress plan.

Charters that respond to your question.

Fantastic and then just the $3 3 billion.

Any sense on the profile of that of that Capex or that is like an EIA update.

Yeah, let's walk through all of that in detail at <unk> for you.

And we will have a very specific breakdown for you at EI.

But.

I think clearly theres going to be some some additional capital I mean, we mentioned generation and LNG.

As kind of large contributors to the capital plan, but so I think the outer years or the later years of the five year plan will be larger than the first couple of years I think the first the first couple of years, probably the increase will be more dominated by transmission in the first couple of years and then as we build generation and as we build the <unk>.

Gale Klappa: The first of these factors is the economic growth we're seeing in the Milwaukee region. Particularly in what we call the I-94 corridor in the southeastern part of the state between Milwaukee and the Illinois state line. From data centers to pharmaceuticals to microinverters for solar panels, from even more gummy bears to massive new distribution and fulfillment centers. And this growth is also spanning new commercial and residential development in the region. In our new five-year plan, we expect our asset base to grow at an average rate of 8.1% a year.

LNG facilities Youll see kind of a rise in that five year capital I will say this there is no white space in that five year capital plan I mean, we have just tremendous opportunity in front of us.

Got it and Thats, how we should think about the profile of the equity right.

Gale Klappa: And as we fund this growth with an appropriate financing package, we project our earnings per share, we'll continue to rise at a compound annual rate of 6.5% to 7% a year. As we've been discussing with you, our plan will include growth equity in the form of programmatic equity, including our dividend reinvestment plan, employee benefit plans, and at-the-market plans. There is no need for block equity in the five-year plan. And we'll start in 2024 by showing $100 million to $200 million of new equity.

Isn't that just with the Capex.

Absolutely, yes, we will match.

The equity issuance with the capital investment each year.

Got it and then lastly, just moving to the infrastructure segment, it's a pretty big reduction Gale and spending there is that a function of a lack of opportunities. Despite our IRI or is it more about making sure you kind of stay within that business risk profile and credit metrics are somewhat appease the agencies I guess how.

Should we think about that segment on a go forward basis. Thanks.

Yes sure Great question, Let me just first say.

There is no lack of opportunity as we see it in the infrastructure segment.

Gale Klappa: Shaw will provide you with more details on the financing plan in just a few minutes. I'd also like to point out a few other quick highlights for you. Over the next five years, we'll continue to make great progress in transforming our power generation fleet and reducing carbon dioxide emissions. In the plan, for example, we're making a significant commitment to new solar, wind, and battery storage, as well as modern efficient natural gas generation and LNG storage.

But what we're doing here is simply reallocating capital and resources to the tremendous growth opportunity that's evolving here in our regulated business driven by Microsoft driven by the.

Gale Klappa: In addition, we'll be adapting to the new seasonal capacity rules being put in place by myself, the mid-continent independent system operator. American transmission company will be adding needed transmission capability, and to help assure energy security for our customers will continue to harden our distribution networks. On the environmental front, our plan still calls for reducing CO2 emissions from our power generation fleet by 80% by the end of 2030. And I'm pleased to report that assuming timely regulatory approvals, we now project a complete exit from coal three years earlier by the end of 2032.

The other Amit growth that we've described to you. So this is not really any comment at all in terms of the potential the returns or the opportunity in the infrastructure segment is just we have a tremendous opportunity here now to reallocate capital to our regulated enterprise.

Got it perfect all right I'll pass it to someone else will see you in about a week thanks, guys alright.

Take care Sir Thank you.

Your next question comes from the line of Ross Valor with UBS. Your line is open.

Hey, Ross how are you.

Good afternoon.

Just before we get into what I've got.

November 22nd already circled on the calendar for box I would think so.

We will get there quicker than you're correct.

It really well it will be fascinating.

Yes.

So just a couple from me I mean, I know you've talked about sort of the drip in the past you never really turned it off to my understanding you've just been sort of buying back those shares what's what's kind of been the traditional uptake of that drip program as they try to scale.

Gale Klappa: So the future is bright. The investment opportunity is long, strong, and highly executable, and Scott will provide you with some specifics in just a few minutes.

Gale Klappa: And now a brief look at the regional economy. The unemployment rate in Wisconsin stands at 3.1% continuing along running trend below the national average. And as we look inside the numbers, we see an encouraging upward trend in Wisconsin's labor force participation of this year. As I mentioned, growing companies are investing and expanding in our region. Microsoft is now moving dirt and moving full speed ahead to develop its new data center complex in that I-94 corridor we mentioned south of Milwaukee.

The equity equity didn't plan to just sort of what is drip internal and what might be ATM.

Well, it's a good question and I will look to shot to make sure my numbers are right, but it has varied over the years the drip program, but generally it's about a $100 million to $150 million.

<unk> 200 over the on average over the past four years. So it's not just grab his trip and the employee benefit plans and.

So we call that programmatic plans, so an average of $100 million to $200 million, a year and Russia right. We have we have been buying shares off the market.

Gale Klappa: Inheritable officially opened the doors of its new confectionery plant in July. Fast forward to today, Inheritable is already planning to double the size of its production capability, adding more capacity for gummy bears, new technology, and additional employees. And so also south of Milwaukee, ULINE plans to open a 1 million square foot facility this year. ULINE, in case you're not familiar with the name, is the leading distributor of shipping, industrial, and packaging materials for businesses throughout North America. And even more expansion is planned by ULINE for 2025. These developments highlight the strength and the potential of the Wisconsin economy and underscore the need for the investments we're outlining in our five-year plan.

To satisfy both the drip plan and the employee benefit plan. So this simply kind of puts us back in a position where I think everybody else in the industry.

It is.

Right got it got it and then just.

Been some confusion in the market maybe.

You changed sort of your coal retirement.

Deadlines here in this plan and push those into the end of <unk>.

Bringing this forward actually I should say to the end of 32.

Just just remind me how the power the future works and then confirm for me that I'm right in thinking that if you do natural gas conversion that those units at that fits into that mechanism as well.

Scott Lauber: With that, I'll turn the call over to Scott for more specifics on our capital projects, our regulatory calendar, and our operational highlights. Scott, all yours.

Ross, you're absolutely right it does fit into the mechanism of.

One way to look at it as all of the arrangements and all of the all of the legal.

Scott Lauber: Thank you, Gale. I'd like to start with some of the specifics on our capital plan. As Gale noted, we have identified $3.3 billion of additional investments compared to our last five-year plan. I'll walk you through the changes. Between 2024 and 2028, we plan to increase our investment in renewables by $1.4 billion. With that, we expect to invest in 3,800 megawatts of new renewable capacity. In the plan is a billion-dollar increase in transmission investment.

All of the legal situations related to power the future and all the regulatory situation related to the power of the future is fuel agnostic.

So theres really no regulatory approval required.

For us to do the major activity that were already underway with which is beginning a transition of the new coal fired units at our Oak Creek site from coal to natural gas.

And again, we're already making modifications at the plant itself, we're already testing.

Scott Lauber: This is our share of the ATC plan. Renewable projects and regional growth are among the driving factors. To support reliable service for our customers, we expect to spend an additional $1.3 billion on natural gas generation over the five-year plan. This includes both combustion turbines and reciprocating internal combustion engines or race units. We also have planned to invest in additional $800 million in liquefied natural gas capacity, which will be used for electric generation and for our natural gas operations on the coldest days of the year. With these important investments for our utilities, we have reduced our planned investment in our energy infrastructure cycle.

Burn of natural gas.

Up to certain levels, we're planning to bring in larger meter sets et cetera. So the work is underway to continue the transition of coal to natural gas at our new Oak Creek units.

Other power the future units are already natural gas fired.

So, but there is no.

There really is no.

Legal or regulatory requirement related to.

Related to the concept of transitioning from coal to natural gas.

Okay.

And so that investment would earn that higher ROE and then.

Go through that same sort of.

Mortgage.

Amortization process, if I'm thinking about that right.

That is exactly correct Ross yes.

Scott Lauber: We'll be happy to share more details with you at the upcoming EEI conference.

Okay.

Great I'll leave it there and pass it onto the next.

Scott Lauber: Now moving on to the regulatory front. As you recall, we expect a decision from the Wisconsin Commission before the end of the year on our limited re-opener filings. We also have an update on our great filings under review in Illinois for people's gas and North Shore gas. Recently, the administrative law judge on the case issued a proposed order largely consistent with staff's recommendation. The order recommends a 9.83% return on equity at both utilities and we expect a final decision by the end of November.

Terrific. Thank you Ross.

Your next question comes from the line of Michael Sullivan with Wolfe Research.

Your line is open.

Afternoon, Michael.

How are you.

We're good we're good all right by the way Michael There is no truth to the rumor that youre addressing up as Taylor Swift Tonight for Halloween is there.

Now I've had enough.

At this point.

Or maybe you're dressing up as Travis Kelsey I'm not sure.

Yes.

Anyways.

Scott Lauber: And moving to the other states, I'm pleased to report that both the Minnesota and Michigan commissions have recently approved settlements on our rate reviews. Meanwhile, we're making progress on a number of regulated capital projects. As you recall, we closed in our first option at the West Riverside Energy Center earlier this year, adding a hundred megawatts of efficient combined cycle natural gas generation toward portfolio. Since our last call, we filed a request to purchase another hundred megawatts of Riverside capacity under our remaining option.

At this point, where we're at on the Illinois case.

It's fair to say, we're going to a final order in those cases or is there still.

A change something can be worked out here.

Time will tell obviously my sense is we will probably end up with a final review and a final decision by the Illinois Commission Scott Your view, Yeah, I expect I think theres some oral arguments going on in the next couple of weeks and I expect something by the end of November here.

Yes.

Okay great.

And then I just wanted to ask on terms of timing I know a lot of people don't ask on this scale just your kind of <unk>.

Scott Lauber: Pending regulatory approval, we expect to invest a hundred million dollars to add this capacity in 2024. Elsewhere in the state, work continues on the Badger Hollow 2 solar facility and the Paris and Darien solar battery parks. You may recall we had solar panels waiting on final release from a bonded warehouse in Chicago. I'm happy to report that those panels are being cleared. The first hundred megawatts have been released and the trucks are rolling to our Badger Hollow 2 site.

Timeline for <unk>.

Being in the current roll that you are in I think the last update there was through May of 'twenty four just any sense of when you'll update us on that front are you are you tying yourself to honest with us extension or.

Well the problem is I asked our board for an extension at the honest as pay level I'm not sure they're going to buy that.

Scott Lauber: We expect all of our panels to be released and in our possession by the end of this year. We are on track for Badger Hallotue to go into service late this year or early next year, with the Paris Solar Park to follow. In addition, work is underway on the Derriant Solar Facility which is planned to go into service by the end of 2024.

With men.

And I. Appreciate the question you are correct. My current agreement goes to May of 2024.

We're having some really good discussions with the board in Wisconsin, and we'll have an announcement here in the next in the next very short period of time.

Okay, great. Thanks, Thanks very much.

Thank you Michael take care.

Scott Lauber: We'll keep you updated on any future developments. With that, I'll turn things back to you. Scott, thanks very much.

Okay.

Your next question comes from the line of Julien Dumoulin Smith with Bank of America. Your line is open.

Gale Klappa: And now just a quick reminder about our dividend. Our dividend growth continues to stand in the top desial of our industry. In fact, we were recently named one of the 10 best dividend stocks in America by Morningstar. As usual, I expect our board will assess our dividend plans for next year and our regularly scheduled meeting in December. We continue to target a payout ratio of 65 to 70% of earnings. We're position will within that range now. So I expect our dividend growth will continue to be in line with the growth in our earnings per share.

Hey, Julien.

Okay. Good I got you now have a name I now have a name for your new dog.

Gulf War I'm all ears.

Equity.

Yeah.

Fair enough.

There's a lot of it Darius Scott dairy has got his second I'm still here without it yet so I gotta catch yes, that's all I got to say.

There you go.

Yes.

Alright, he addressed in his dog up for Halloween and I still whatever it's all good.

Shaw: Next up, Shaw will provide you with more information on our third quarter financials and a good bit of detail on our upcoming five year financing plan.

Oh, okay.

You always have but I always got to say I mean.

Shaw: Shaw, all yours. Thanks, Gail. Our 2023 third quarter earnings of a $1 per share increased 4 cents per share compared to the third quarter of 2022. Our earnings package includes a comparison of third quarter results on page 15. I'll walk through the significant drivers. Our earnings from utility operations were 18 cents above the third quarter of 2022. First, weather had an estimated one penny negative impact quarter over quarter. Higher depreciation and amortization expense and interest expense added another nine cents of negative variance.

Yeah.

Still haven't found though in the role though right.

And the last question.

Still haven't still having fun.

Okay excellent.

Good to hear look more seriously though.

Maybe just to follow up on this on.

On the Microsoft responses, just like what's embedded in the outlook versus what's incremental I get that there's no white space I mean really the question is how soon and how much further can you go to the extent to which that they give clarity on their plans. Obviously things are actively rolling in their front. In addition to some of these other announcements that you articulate I just wanted to understand.

How fully baked or how much.

Obviously, it's fully baked how much further you could go and how soon that could be just given how meaningful the plan sizes are that are contemplated.

Shaw: These unfavorable variances were more than offset in the quarter. Rate-based growth contributed 13 cents to earnings. This includes the base rate increase for our Wisconsin utilities as well as the interim rate increase for Minnesota energy resources. Additionally, timing of fuel expense improved our earnings by 13 cents and lower day-to-day ONM resulted in a two-cent improvement.

Yes, great question, Julien So, let's put a couple of numbers around it.

In this five year plan and this new five year plan. We've included about 1400 megawatts of additional capacity.

To support the Microsoft Data Center development and some of the broad based economic growth that we've described to you.

And that new capacity is really going to be needed for energy security.

And for us to continue to Decarbonize, but in the current plan to support the Microsoft development and some of the other that I 94 corridor development that we've talked with you about.

Shaw: Before I turn to earnings at the other segment, let me briefly discuss our weather-normalized sales for the quarter. You can find this sales information on page 11 of the earnings package. Retail electric deliveries in Wisconsin, excluding the iron or mine, were down 8 cents of a percent quarter over quarter. This was driven by lower sales volumes to large commercial and industrial customers. Residential usage was up 1.3 percent and is ahead of our forecast through the first nine months of the year.

We're seeing the need for roughly 1400 megawatts of additional capacity that's embedded in that $3 $3 billion increase in our capital plan.

And we'll see where it goes.

But obviously, we are beginning the process of.

Looking at ordering equipment and starting work on.

Identifying sites et cetera et cetera.

So much of that.

Much of that capital for the capacity of the generating capacity will be in Europe, three four and five.

Shaw: Also, sales to our small commercial and industrial customers were up 4 cents of a percent and are tracking our forecast for the year. Regarding our investment in American transmission company, earnings decreased 5 cents compared to the third quarter of 2022. Recall that last year we recorded a five-cent pick-up from a resolution of myso-ROE appeal. Earnings at our Energy Infrastructure Segment decreased one penny in the third quarter of 2023 compared to the third quarter of 2022.

Got it excellent and just on the other side of the Capex update if I can.

First off.

LNG versus more gas storage, obviously, you guys have done a number of those announcements over the years thoughts.

<unk> about further acquisitions on that front or just how you think about the fungibility of its one between LNG and the other and then related here also big update on the HFC front is that just all MISO Trust one does that have white space in it.

The big step forward on that front too it's overshadowed here by the generation, but I just wanted to come to come and address that too.

Shaw: This was mostly driven by lower wind production, partially offset by tax credits from projects that we placed into service. Finally, you'll see that earnings at our corporate and other segment decreased eight cents, largely due to higher interest expense. As Gale noted, we are reaffirming our annual guidance of $4.58 to $4.62 per share. This includes October weather and assumes normal weather for the remainder of the year.

No they're again no white space at all Scots on the ATC Board will let S got to respond to your question on the transmission Yeah. When you look at when you look at the transmission and that's up significantly as you noted its a combination of the economic development that Gail talked about getting transmission to the region also the renewables where.

Putting on the system and the other utilities in the state of putting on the system and then just regular system renewal.

In Atc's footprint. So you put it all together and it's about $1 billion more than I think you maybe saw their 10 year capital plan just came out and it was also a significant increase from the prior ones. So yes.

Shaw: Now, turning to our financing plan, Gale and Scott have already discussed a new five-year capital plan. I'll provide details related to our anticipated financing activities to support the plan. You can find this information on page 22 of the earnings package. As you can see on the chart, over the next five years, we expect cash from operations to fund about 65% of our cash needs. About 28% of the funding is expected to come from debt and the remaining 7% from issuance of common equity.

Good growth just good executed the capital also as American transmission company and were 60% of that and Scott from your ear in my discussions with some of that capital is really upgrading aging transmission facility exactly it's renewing some of those older older facilities or put in years ago.

Awesome, Okay to answer your question George.

Hello, and thank you for the gas storage, yes, the LNG and gas storage. The LNG is really making sure we have the capacity and putting those units in the state of Wisconsin just like.

Christmas Day weekend, there was gas supply challenges, having the LNG tank that we had.

Shaw: As Gale mentioned earlier, we expect to utilize dividend reinvestment and employee benefit plans and at the market programs to top into the equity market. Our common equity issuance is projected to be an arrange of $100 to $200 million for 2024 and $1.8 to $2.2 billion over the next five-year plan. Recall our equity ratios in our utilities are thicker, particularly at Wisconsin Electric. Supporting these thicker equity layers results in approximately $400 million of common equity rates.

At our South Oak Creek plant actually really helped the system that particular day, so having that in the state of Wisconsin is going to be very helpful. And it was very cold days, when we need that capacity.

Yes, Scott's exactly right and just to add onto that.

We don't ever want to go through another Christmas Eve like we went through last Christmas Eve.

As you know there was a very significant cold snap.

And many parts of the country had rolling blackouts, we did not.

But our major transmission gas pipeline into Wisconsin lost about 40% of its capacity to bring gas. If we hadn't had LNG storage right here that we could direct object into our gas distribution networks. We would have had some real issues. So there is no doubt in our mind that.

Shaw: The remaining equity rate represents approximately 50% of incremental capital spend. As you know, our equity issuances post 2024 will be tied to our capital plan, rateably at approximately $450 million a year. This financing plan not only supports our long-term earnings growth rate but also helps maintain our targeted credit metrics. In addition, our quickly address our upcoming holding company refinancing needs. Over the next three years, we have total maturities of about $2.8 billion.

For energy security, particularly at times when it gets to 20 to 30 degrees below zero.

We need to have that capacity to keep gas flow and to keep the heat on it.

To keep the lights on in Wisconsin, So that's a big rationale a big part of what we're what we're accomplishing with this investment that we've outlined.

Excellent. Thank you again, good luck guys.

Shaw: The $600 million that maturities in 2024 carries a very low coupon. However, the remaining $2.2 billion schedule to mature in 2025 and 2026 has a weighted average coupon of just under 5%, which represents lower refinancing risk.

Thank you.

Your next question comes from the line of Neil Kelton with Wells Fargo. Your line is open hi, guys Hi.

Hey, Neal housing.

We're good how's it going Neal.

It is going well as Halloween.

Monday, So all is well down here.

One.

One quick question for you so in the EPS CAGR I think you affirmed the six 5% to 7% and just curious are you assuming any changes to the allowed earned ROE in that forecast over five years.

Shaw: In closing, as shown on the last page of the earnings package, through our capital allocation, we expect the percent of assets invested in our regulated electric businesses to grow faster. At the same time, the percent of assets in gas distribution and in contracted renewal is expected to decline. We are very excited about the investment opportunities ahead of us.

No, we're basically assuming status quo.

Okay that was my question that is all thank you.

Terrific, Thanks, Neil hanging there.

Yeah.

Your next question comes from the line of Jeremy Tonet with J P. Morgan Your line is open.

Afternoon Jeremy.

Gale Klappa: With that, I will turn it back to Gale. All right, Shah, thank you very much. Overall, we are on track and the company continues to perform at a very high level.

Hi, good afternoon, and happy Halloween.

Happy Halloween to you.

I was just looking maybe to quantify transferability of little bit more and if you could walk us through the rollover IRA attract tax credit transferability and your financing plan, specifically kind of with the.

Operator: Operator, we are ready now for the question and answer portion of the call. Now, we will take your questions. The question and answer session will be conducted electronically. To ask the question, please press the star key followed by the digit one on your phone. If you are using a speaker phone, turn off your mute function to allow your signal to reach our equipment. We will take as many questions as time permits. Once again, press star and then one on your phone to ask a question.

65% to $17 5 billion in cash from operations, how much is tax credit there in <unk>.

Any sense as to how much incremental debt. This allows you to take on.

Sure well last shot to give you the details I will say that there's a significant amount of cat of cash coming in from from transferability of the tax credits.

Shahriar Pourreza: Your first question comes from the line of Shahra Pourreza with Guggenheim. Your line is open. Rock and roll, Shahra, how are you? Mr. Klappa, how are you doing? Doing great. Excellent, excellent. So Gail, obviously, in Shah's prepared remarks, she hit on why the equity guide was obviously somewhat large and what would be dictated by the growth catbacks increase. It's obviously, you know, because of the higher equity layers. I guess, how should we think about this in terms of the balance sheet capacity it gives you?

It's a very positive thing overall for our cash sources sure. Yes. So in the five year plan, we expect between one six to $1 $8 billion Tam.

<unk> credits, either we would we will use for our own tax appetite or sell to a third to some third party.

Yeah.

And Thats part I think to your point, that's part of the SFO.

Got it.

That's helpful. There. Thank you for that and then just kind of continuing on I guess with well with equity funding in general.

Shahriar Pourreza: How is the conversations with the current rating agency and related? Are you done now for the trajectory or could incremental catbacks lend to more equity? I mean, you do tend to raise catbacks every year and the Microsoft opportunity is still out there.

For all the color that you provided here earlier.

But just wondering as you look forward to the plan or your balance sheet metrics getting stronger or the metrics sustained is this kind of looking to offset higher rates. Just wondering how this all comes together.

Gale Klappa: Yeah, great question, Char. Well, first of all, kind of let me back up and reiterate a couple of things that Shah mentioned. I think you can look at, in Shah touched on this, about 400 million of the equity raise, at least in my mind, I look at that as kind of a one-time catch-up, because over the last rate case outcomes, we've received thicker equity layers virtually in every situation. So about 400 million of that really just goes to support really strong credit metrics at all of our utilities.

Getting stronger by the day.

Yes, we feel good about hitting.

Hitting the target credit metrics, we are looking forward to sitting down Scott and I are visiting the rating agencies next week, we look forward to the conversation with them.

Got it.

Thank you for that and then maybe just a real quick last one given kind of better than expected results.

Forward to for Q here, how do we think about I guess.

Should we expect to realize the full $40 million in nonrecurring O&M expenses from <unk> 2022 as we lap that I guess that that positive variance there and how does this impact your O&M outlook into 'twenty four.

Gale Klappa: So I would look at that particular $400 million chunk that Shah referred to Shah as kind of a one-time catch-up. And then to answer your question about further capital, and yes, the Microsoft plan is still being developed. We'll know a lot more in the next few months beyond what we've put in this plan related to Microsoft as they continue to refine their plan for the large complex that they're going to develop here in Southeastern Wisconsin.

Well Jeremy.

Let Scott shall give you their view Q4 of last year.

A lot of moving pieces that won't be repeated in Q4 this year.

I think you've got to look at it as a whole there were close to $70 million of one time or.

Different initiatives are different levers that that came to pass in Q4 of 2022.

Gale Klappa: But I think the way to look at it is that incremental capital beyond what's in the plan, probably equities about 50% of that incremental capital. So Shah, any other thoughts? No, you addressed it. Sure, does that respond to your question? Fantastic, and then just a 3.3 billion, any sense on the profile of that of that CAP-X or does that is like an EEI update? Yeah, let's walk through all of that in detail at EEI for you.

We're already in 2023 year folks.

So again I would look at I mean, I think the O&M numbers were a bit distorted because of things that happened that deliberately as actions that we took in the fourth quarter last year. So again I would look at it a little bit more holistically, we've been projecting all year, a very strong fourth quarter and in our minds, that's still very much intact.

Yeah, not much to add I think we have a little bit of.

Last fourth quarter, a little bit unfavorable weather, so hopefully that's it.

Gale Klappa: We'll have a very specific breakdown for you to EEI. But I think clearly there's going to be some additional capital. I mean, we mentioned generation and LNG as kind of large contributors to the capital plan. So I think the outer years or the later years in the five-year plan will be larger than the first couple of years. I think the first couple of years probably the increase will be more dominated by transmission in the first couple of years.

And we have a rate base.

Increase we have feel upside and we have a very large O&M upside in fourth quarter. So we feel very good about the fourth quarter projections.

Yes.

Helpful. I'll leave it there thank you.

Terrific take care Jeremy.

Thanks.

Your next question comes from the line of Anthony <unk> with Mizuho your.

Gale Klappa: And then as we build generation and as we build the LNG facilities, you'll see kind of a rise in that five-year capital plan. I will say this, there is no white space in that five-year capital plan. I mean, we have just tremendous opportunity in front of us. That's how we should think about the profile of the equity, right? As a match with the CapEx. Absolutely. Yep, we will match the issuance with the capital investment each year. Got it.

Your line is open.

Anthony Rock'n'roll.

Rocket real happy Halloween.

Happy Halloween.

Have you got your dog dressed up a name for for the Halloween night here.

Deferred asset, yes, no no no no cat four daughters overwhelmingly enough.

So just I guess, maybe just a quick housekeeping.

Gale Klappa: And then lastly, just moving to the infrastructure segment, it's a pretty big reduction, Gale, and spending there. Is that a function of a lack of opportunities, despite our IRA, or is it more about making sure you kind of stay within that business risk profile and credit metrics to somewhat appease the agencies? I guess, how should we think about that segment on a go-forward basis? Thanks. Yeah, Shar, great question. Let me just first say there's no lack of opportunity as we see it in the infrastructure segment.

Slide 21 in great detail.

Just curious.

Footnote excludes ATC capital when we think of the growth going on at ATC capital to Scott's comments earlier is that self funded or does that also require funding.

<unk>, Wisconsin by work.

So it's more than self funded so we excluded the past the $3 billion.

Usage in the sources, we also netted out.

Cash they send us versus what we send down to them. The net net is a net positive.

Gale Klappa: But what we're doing here is simply reallocating capital and resources to the tremendous growth opportunity that's evolving here in our regulated business driven by Microsoft, driven by the other economic growth that we've described to you. So this is not really any comment at all in terms of the potential, the returns, or the opportunity in the infrastructure segment is just we have a tremendous opportunity here now to reallocate capital to our regulated enterprise. Got it. Perfect.

So there are self.

Self funding, but more than self funding themselves.

We get cash distributions back.

From ATC, So John is exactly right.

Self funding plus cash back to the owners.

Great.

I'm sure you are not looking to front run your meeting with the rating agencies, but if I could focus on I think S&P right now has you on negative outlook.

Is your assumption that the current plan will resolve their concerns.

Shahriar Pourreza: I'll pass it to someone else. We'll see you in about a week. Thanks, guys. All right. Take care, Shar. Thank you.

I'm, assuming so I just wanted to double check with you there.

Well a couple of things first of all just to clarify the parent is on negative outlook. The utilities are stable.

Ross Fowler: Your next question comes in line of Ross Fowler with UBS. Your line is open. Hey, Ross, how are you? After good afternoon. So, Gale, just before we get into it, I've got I've got the November 22nd already circled on my calendar for bucks, Celtics, so we'll we'll get there quick with anything. He had really well. It will be fascinating. Yes, just a couple for me. I mean, I know Gale's we talked about sort of the drip in the past.

So I just wanted to make sure everybody remembers that and then secondly.

We think and we'll let Shaun Scott give you their view, but we think the fact that we're going to be issued issuing equity to support this growth plan.

Be viewed quite favorably.

Again, we've not issued any new shares since 2015, when we did the acquisition of Integra Scott your thoughts.

Exactly right Gale and we'll sit down with them next week. They haven't seen the plan yet. So we just thought it made sense when we rollout the plan then and walk them through it year by year and until they actually see it is hard to judge the decision, but I think we'd really complement it well with our capital to growth and the credit metrics overall Shah.

Ross Fowler: You never really turned it off to my understanding. You've just been sort of buying back those shares. What's kind of been the traditional uptake of that trip program as I try to scale that equity equity in the plan to sort of what is drip internal and what might be ATM? Well, it's a good question and I will look to to shall to make sure my numbers are right, but it's varied over the years, the drip program, but generally it's about a 100 to 150 million.

Nothing more to add.

We appreciate the opportunity to sit down with them and talk to the detail.

Yes.

Well, great looking forward to seeing you guys in Phoenix, Thanks for the time.

Alright, Thank you take care.

Ross Fowler: 100 to 200 over the on average over the past four years is not just drip is drip and the employee benefit plans and so what we call the programmatic plans the on average is 100 to 200 million dollars a year. And Russia, right, we have we have been buying shares off the market to satisfy both the drip plan and the employee benefit plan. So this simply kind of puts this back in a position where I think everybody else in the industry already is.

Your next question comes from the line of off remark with Lindenberg. Your line is open.

Ratings offering.

Yes.

Not to beat a dead horse, but roughly were.

With the new investment program and the additional equity do you land in terms of assets out of data are you sort of in that 14% to 15% range.

You've targeted.

No.

Part of the.

Gale Klappa: Right, got you going and then just there's been some confusion in the market maybe as you change sort of your coal retirement deadlines here in this plan and push those into the end of bring us forward access and say to the end of 32. Just remind me how the power of the future works and then confirm for me that I'm right in thinking that if you do natural gas conversion that those units that that fits into that mechanism as well.

The package I think we included so we're targeting 15% to 16%.

By S&P and Moody's.

Right. So do you fall within that range then in terms of.

With the additional equity and the additional investment.

Yes, absolutely Yep Yep.

Okay.

That's the whole idea.

Great I, just wanted to sort of confirm that.

And then.

In terms of the.

In terms of the coal exit even though it's.

It's not sort of in your power the future contracts.

It likely will have a bill impact on customers. So what sort of communication do you need to have.

Gale Klappa: This fuel agnostic, so there's really no regulatory approval required for us to do the major activity that we're already underway with, which is beginning a transition of the new coal fired units at our old creek site from cold and natural gas. And again, we're already making modifications at the plant itself. We're already testing, burn of natural gas up to certain levels. We're planning to bring in larger meter sets, etc. So the work is underway to continue the transition of coal and natural gas at our new old creek units, the other power of the future units are already natural gas fired.

With with the with the existing commissioners.

Well go ahead, and then we look at it we really don't see much of a bill impact because when you look at it we're going to get the same output from the plant you just won't have the O&M associated with running that the coal right. So the real change is going to be eliminate coal, but what is the.

Price of natural gas natural gas or go up to $10 Thats a whole different game, but that's more of a fuel issue. The same thing with coal. So when you look at the operations I don't think theres not a lot of capital investments that we're doing to do the conversion there are smaller capital projects to just put a new burners in fact, we're doing some <unk>.

Gale Klappa: But there really is no legal or regulatory requirement related to the concept of transitioning from cold and natural gas. And so that investment would earn that higher R.E, and then go through that same sort of mortgage monetization process if I'm thinking about that right. That is exactly correct, Ross. Yes. Okay. All right.

This fall and next spring we are putting in some new burners also.

And just to add onto what Scott mentioned to you.

This planned to convert from coal to natural gas at our newer Oak Creek units is one that's been in the making for at least a couple of years now. So we've had extensive ongoing discussions with the commissioners. They understand what we're trying to achieve they understand the importance of continuing to cost effectively reduced <unk>.

Emissions and remember our goal, which we're on track to achieve its an 80% reduction in <unk> by the end of 2030. So this is not a new concept to any one of the states.

Ross Fowler: I'll leave it there and pass it on to the next. Terrific. Thank you, Ross.

Michael Sullivan: Your next question comes from the line of Michael Sullivan with more research. Your line is open.

When you think about the EPA rules going forward. If it was on coal you would have to put in carbon capture or do something with hydrogen and carbon capture would be extremely expensive and where do you put the carbon budget capture so we looked at what's efficient long term.

Michael Sullivan: Afternoon, Michael. Hey, Gail. How are you? We're good.

Gale Klappa: By the way, Michael, there's no truth to the rumor that you're dressing up as Taylor Swift tonight for Halloween, is there? Now, now I've had enough with these at this point. Or maybe you're dressing up as Travis Kelsey. I'm not sure. Yeah.

And one more fact.

It's very important to remember.

How critical and asset those new Oak Creek units are.

On most days.

The Midwest, operator footprint because of the efficiency of those units and because of their incredible connection to the transmission network. Those units helped keep the lights on not only in Wisconsin, but across the Midwest. So very important asset we're on track to do what we need to do to.

Michael Sullivan: Anyways, at this point where we're at on the Illinois case, is it is unfair to say we're going to a final order in those cases, or is there still a chance something could be worked out here? Time will tell, obviously, my sense is we will probably end up with a final review and a final decision by the Illinois Commission.

To continue with the life of that asset for a long period of time with much lower emissions.

Great. Thank you very much.

Scott Lauber: Scott, your view. Yeah, I expect I think there's some oral arguments going on in the next couple of weeks and I expect something by the end of November here. Okay. Great.

Youre welcome. Thank you.

Your last question today comes from the line of Paul Patterson with Glen Rock Associates. Your line is open.

Michael Sullivan: And then I just wanted to ask on terms of timing. I know a lot of people have been asked on this. Gail, just your your kind of timeline for being in the current role that you're in. I think the last update there was through May of 24, just any sense of when you'll update us on that front. Are you are you tying yourself to Janus with his extension or?

It's pretty small.

Greetings.

Just <unk>.

Back to the whole.

Back to the rate question, I guess with the new with the new outlook that you guys have.

Regarding rate base growth.

Obviously interest rates inflation et cetera.

What is your expectation.

And in Illinois in terms of what.

No base rate changes.

Gale Klappa: Well, the problem is I asked our board for an extension at the Honest's pay level, and I'm not sure they're going to buy that. I mean, I appreciate the question. You're correct. My current agreement goes to May of 2024, and we're having some really good discussions with the board and with Scott. And we'll have an announcement here in the next very short period of time. Okay, great. Thanks very much. Thank you, Michael. Take care.

Customers might see.

Has it changed.

Not really but lets kind of taken a state by state.

In Illinois.

We are proposing and our current rate review is really no change in the level of investment in upgrading the pipe system natural gas pipe delivery system on our Chicago, So we've been averaging about $280 million a year of investment.

And upgrading that but that aging corroding pipe network. We're about 35, 36% complete with the upgrades and we are proposing to continue at about $280 million a year, that's about the pace that we can do.

Julien Dumoulin Smith: Your next question comes from the line of Julian Dumoulin Smith with Thank of America. Your line is open. Hey, hey, how you doing? Hey, I got you. I now have a name. I now have a name for your new dog. Go for it. I'm all yours. Equity. It's a fair enough true story. Love it. You know, Darius Scott, Darius got his second. And I'm still here without a yet. So I got to catch up.

To get work done inside the city of Chicago, So and remember in our current rate review proposal in Chicago.

Even with the rate increase fully approved cup.

Coupled with the decline in commodity cost of natural gas, we're expecting flat customer bills.

Julien Dumoulin Smith: That's all I got to say. There you go. So he's dressing his dog up for Halloween and then I still, whatever, it's all good. You always have fun. I always got to say, I mean, you know, I am. You're still having fun though in the role, though, right?

For this coming winter in Illinois, So essentially this plan really doesn't change the underlying fact pattern in Illinois.

And with the load growth the demand growth that we expect to see in Wisconsin.

And we've been saying, we think inflation related rate increases in Wisconsin and Scott.

Gale Klappa: I was as a follow up to the last question. In brief, still having still having fun. Okay, excellent. Well, that's, that's good to hear.

That leads to me it seems to still be the case and we'll see as we continue to rollout rollout plans here and look at the timing of it.

Gale Klappa: Look, more seriously, though. I am, I'm maybe just to follow up on this on the Microsoft response and just like what's embedded in the outlook versus what's incremental. I get that there's no white space. I mean, really the question is, how soon and how much further can you go to the extent to which that they give, you know, clarity on their plans. Obviously, things are actively rolling on their front and addition to some of these other announcements that you articulate.

So I think it will be inflation approximately inflation as you go forward.

I hope that responds Paul.

Okay.

That's helpful. Okay I appreciate it thanks, so much.

Alright, thank you.

Alright sports fans will this concludes our conference call for today. Thanks, So much for your questions. Thanks for participating if you have any additional questions feel free to contact Beth straka. She can be reached at 4142 to 14639, and we look forward to seeing you all in Phoenix and just a couple of weeks take care everyone.

Gale Klappa: I just want to understand, you know, how fully baked or how much, well, obviously fully baked, how much further you could go and how soon that could be. Just given how meaningful the plan sizes are that are contemplated. Yeah, great question, Julian. So let's put a couple of numbers around it in this five-year plan and this new five-year plan. We've included about 1400 megawatts of additional capacity to support the Microsoft data center development and some of the broad based economic growth that we've described to you.

This concludes today's conference call you may now disconnect.

Please wait the conference will begin shortly.

[music].

Okay.

Yes.

Gale Klappa: And that new capacity is really going to be needed for energy security and for us to continue to decarbonize. But in the current plan to support the Microsoft development and some of the other that I 94 corridor development that we've talked with you about, we've, we've seen, we're seeing the need for roughly 1400 megawatts of additional capacity. That's embedded in that $3.3 billion increase in our capital plan. And we'll see where it goes.

[music].

Gale Klappa: But obviously, you know, we were beginning the process of, you know, looking at ordering equipment and starting work on identifying sites, et cetera, et cetera. So much of that, much of that capital for the capacity, the generating capacity will be in yours three, four and five. Got it. Excellent.

Yes.

Okay.

Yes.

Okay.

Yes.

[music].

Scott Lauber: And just on the other side of the cap except that if I can, first off, you know, LNG versus more gas storage. Obviously, you guys have done a number of those announcements over the years. Thoughts about further acquisitions on that front or just how you think about the fungibility between LNG and the other. And then related here also big update on the ATC front. Is that just all my so trance one?

Scott Lauber: Is that have white space in it? I mean, just the big step forward on that front too. It's overshadowed here by the generation, but I just want to come to come and address that too. Now, again, no white space at all.

Gale Klappa: Scott's on the ATC board will let Scott to respond to your question on the transmission. Yeah, when you look at, when you look at the transmission, and it's up significantly as you noted, it's a combination of the economic development that Gale talked about getting transmission to the region. Also the renewables were putting on the system and other utilities in the state are putting on the system. And then just regular system renewal.

Gale Klappa: In ATC's footprint, so you've put it all together and it's about a billion dollars more. And I think you maybe saw there 10 year capital plans just came out and it was also a significant increase from the prior one. So, you know, good growth, just good executable capital also at American transmission company. And we're 60% of that. And Scott, I'm from you're not here in my discussions some of that capital is really upgrading aging transmission facility.

Gale Klappa: Exactly. It's renewing some of those older, older facilities are put in years ago. Yeah, the gas storage. Yeah, the LNG and gas storage. The LNG is really making sure we have the capacity and putting those units in the state of Wisconsin, just like, you know, over Christmas day weekend, there was gas supply challenges, having the LNG tank that we had. At our South Oak Creek plant actually really helped the system that particular day.

Gale Klappa: So having that in the state of Wisconsin is going to be very helpful on those very cold days when we need that capacity. Yeah, Scott's exactly right and just to add on to that, we don't ever want to go through another Christmas Eve like we went through last Christmas Eve. I mean, as you know, there was a very significant cold snap. And many parts of the country had rolling blackouts. We did not.

Gale Klappa: But, but a major transmission gas pipeline into Wisconsin lost about 40% of its capacity to bring gas in. If we hadn't had LNG storage right here that we could direct eject into our gas distribution networks, we would have had some real issues. So there's no doubt in our mind that for energy security, particularly at times when it gets to 20 and 30 degrees below zero, we need to have that capacity to keep gas flowing to keep the heat on and to keep the lights on in Wisconsin. So that's a big rationale, a big part of what we're what we're accomplishing with this investment that we've outlined. Excellent.

Gale Klappa: Thank you again. Good luck guys. Thank you.

Neil Kalton: Your next question comes from the line of Neil Calton with Wells Fargo. Your line is open. Hi, guys. Hi, Neil. How are you? We're good. How's it going, Neil? It is going well. It's Halloween, you know, one day. So all is well down here. Just one quick question for you. So in the EPS Kager, I think you affirm the six and a half to seven percent and just curious. Are you assuming any changes to the allowed earned our weeds in that forecast over five years? No, we're basically assuming status quo. Okay, that was my question.

Neil Kalton: That is all. Thank you. For Rubik. Thanks, Neil. Hang in there.

Jeremy Tonet: Your next question comes from the line of Jeremy Tonet with JP Morgan. Your line is open. Afternoon, Jeremy. Hi, good afternoon. Happy Halloween there. Happy Halloween to you. Thanks. I was just looking maybe to quantify transfer ability a little bit more. And if you could walk us through the role of IRA, tax credit transfer ability in your financing plan, specifically with the 16.5 to 17.5 billion cash from operations, how much is tax credit there?

Jeremy Tonet: Any sense as to how much incremental debt this allows you to take on? Sure, we'll ask Shaw to give you the details. I will say that there's a significant amount of cash coming in from transfer ability of the tax credits. And it's a very positive thing overall for our cash sources, Shaw. Yeah, so in the five-year plan, we expect between $1.6 to $1.8 billion tax credits, either we will use for our own tax appetite or sell to some third parties. And that's part of the, to your point, that's part of the FFO. Got it. That's a helpful there. Thank you for that.

Shaw: And then just kind of continuing on, I guess, with equity funding in general. Thank you for all the color that you provided here earlier. But just wondering as you look forward to the plan, are your balance sheet metrics getting stronger or the metrics the same? Is this kind of looking to offset higher rates? Just wondering how this all comes together. Getting stronger by the day. Yeah, we feel good about the hitting the target credit metrics. We're looking forward to sitting down, Scott and I are visiting the ready agencies next week. We look forward to the conversation with them. Got it. Thank you for that.

Scott Lauber: And then maybe just a real quick last one given kind of better than expected results, as we look forward to 4Q here, how we think about, I guess, ONM should be expected to realize the full 40 million non-recurring ONM expenses from 4Q 2022. As we lap that, I guess, that positive variance there and how does this impact your ONM outlook into 24? Well, Jeremy, and we'll let Scott and Shaw give you their view.

Scott Lauber: Q4 last year. We had a lot of moving pieces that won't be repeated in Q4 this year. So I think you've got to look at it as a whole. There were close to $70 million of one time or different initiatives or different levers that came to pass in Q4 of 2022. We're already in 2023 year folks. So again, I would look at, I think the ONM numbers were a bit distorted because of things that happened that deliberately actions that we took in the fourth quarter last year.

Scott Lauber: Again, I would look at it a little bit more holistically. We've been projecting all year a very strong fourth quarter in our minds that still very much intact. Yeah, not much to add. I think we have a little bit of last fourth quarter a little bit on favorable weather. So hopefully that's a tailwind. We have rate-based increase. We have seal upside and we have a very large ONM upside in the fourth quarter. So we feel very good about the fourth quarter projections. That's helpful.

Jeremy Tonet: I'll leave it there. Thank you. Terrific. Take care, Jeremy. Thanks.

Anthony Crowdell: Your next question comes from the line of Anthony Crowdell with Mizuho. Your line is open. Anthony Rock and Roll.

Gale Klappa: Happy Halloween. Have you got your dog dressed up in name for, you know, for the Halloween night here? [inaudible] no, no, no, no, no, no, no, no, no no, no, no, no, no, no, no, no no, no, no, no, no, no, no no, no, no, no[inaudible] no, no, no, no, no, no, no, no, no, no, no, no, no,[inaudible] no, no, no sort of in that 14-15% range that you've targeted? No, it's part of the package I think we included, so we're targeting 16-16% by S&T and Loody.

Gale Klappa: Right, so do you fall within that range then in terms of with the additional equity and the additional investment? Yes, absolutely. Yep. Okay. That's the whole idea. Great, I just wanted to sort of confirm that. And then in terms of the in terms of the co-legs that even though it's not sort of in your power of the future contract, it likely will have a bill impact on customers, so what sort of communication do you need to have with the existing commissioners?

Gale Klappa: Well, go ahead, Scott. So when we look at it, we really don't see much of a bill impact because when you look at it, we're going to get the same output from the plant. You just won't have the ONM associated with running with the coal. Right. So the real change is going to be eliminate coal, but what is the price of natural gas? You know, fresh natural gas would go up to $10 at the whole different gain, but that's more of a fuel issue in the same thing with coal.

Gale Klappa: So when you look at the operations, I don't think there's not a lot of capital investments that we're doing to do the conversion. They're smaller capital projects to just put in new burners. In fact, we're doing some this fall and next spring we're putting in some new burners also. And just to add on to what Scott mentioned to you, this plan to convert from coal to natural gas at our newer Oak Creek units is one that's been in the making for at least a couple of years now.

Gale Klappa: So we've had extensive ongoing discussions with the commissioners. They understand what we're trying to achieve. They understand the importance of continuing to cost effectively reduce CO2 emissions. And remember our goal, which we're on track to achieve, is an 80% reduction in CO2 emissions by the end of 2030. So this is not a new concept to anyone in the state. Yeah. And when you think about the EPA rules going forward, if it was on coal, you'd have to put in carbon capture or do something with hydrogen.

Gale Klappa: Carbon capture would be extremely expensive and where do you put the carbon, much a capture? So we looked at what's efficient to long term. And one more fact, I think it's very important to remember how critical an asset those new Oak Creek units are. On most days in the Midwest operator footprint because of the efficiency of those units and because of their incredible connection to the transmission network, those units help keep the lights on, not only in Wisconsin, but across the Midwest. So very important asset, we're on track to do what we need to do to continue with the life of that asset for a long period of time with much lower emissions.

Gale Klappa: Oh, great. Thank you very much. You're welcome. Thank you.

Paul Patterson: Your last question today comes from the line of Paul Patterson with Glenrock Associates. Your line is open. Just back to the whole, back to the rate question, I guess with the new, with the new outlook that you guys have, regarding rate-based growth, obviously interest rates, inflation, etc. What is your expectation in Wisconsin and Illinois in terms of what, you know, base rate changes customers might see?

Gale Klappa: Not really, but let's kind of take it state by state. In Illinois, what we're proposing in our current rate review is really no change in the level of investment in upgrading the pipe system, the natural gas pipe delivery system under Chicago. So we've been averaging about $280 million a year of investment in upgrading that aging, corroding pipe network. We're about 35, 36% complete with the upgrades, and we're proposing to continue at about $280 million a year.

Gale Klappa: That's about the pace that we can do to get work done inside the city of Chicago. So, and remember in our current rate review proposal in Chicago, even with the rate increase fully approved, coupled with the decline in commodity costs of natural gas, we're expecting flat customer bills for this coming winter in Illinois. So essentially, this plan really doesn't change the underlying fact pattern in Illinois, and with the load growth or the man growth that we expect to see in Wisconsin.

Gale Klappa: Again, we've been saying we think inflation related rate increases in Wisconsin and Scott. That's the least to me seems to still be the case. Yeah, and we'll see as we continue to roll out roll off the plans here and look at the timing of it. So I think it'll be inflation and approximately inflation as you go forward. I hope that response falls. That's helpful. Okay, I appreciate it. Thanks so much. Right. Thank you.

Operator: All right, sports fans. Well, this concludes our conference call for today. Thanks so much for your questions. Thanks for participating. If you have any additional questions, feel free to contact Mastraka. She can be reached at 414-221-4639, and we look forward to seeing you all in Phoenix in just a couple of weeks. Take care, everyone. This concludes today's conference call. You may now disconnect. Please wait.

Operator: The conference will begin shortly. Thank you.