Q4 2023 Xcel Energy Inc Earnings Call
Hello, and welcome to XL Energy 2023 year end earnings Conference call. My name is Melissa and I will be your coordinator for today's event.
Note. This conference is being recorded and for the duration of the call. Your lines will be in a listen only mode. If you require assistance at any point. Please press star zero and you'll be connected to an operator, you will have the opportunity to ask questions at the end of the presentation.
This can be done by pressing star one on your telephone keypad to register your question.
Questions will only be taken from institutional investors reporters can contact media relations with inquiries and individual investors and others can reach out to Investor Relations I'll now turn the call over to Paul Johnson, Vice President Treasurer, and Investor Relations. Please go ahead.
Good morning, and welcome to Excel Energy 2023 fourth quarter earnings call. Joining me today are Bob Frenzel, Chairman, President Chief Executive Officer and <unk>.
Paul A. Johnson: Brian Van Abel Executive Vice President and Chief Financial Officer. In addition, we have other members of the management team in the room to answer your questions. If needed. This morning, we will review our 'twenty three results and highlights share recent business and regulatory updates and provide updates on our long term growth plans.
Slides that accompany today's call are available on our website as a reminder, some of the comments during today's call may contain forward looking information significant factors that could cause results to differ both anticipate are described in our earnings release and our SEC filings.
Paul A. Johnson: So they will discuss certain metrics that are non-GAAP measures information on the comparable GAAP measures and reconciliations are included in our earnings release.
Paul A. Johnson: In the fourth quarter excel implemented several workforce actions to streamline the organization ensure resource to ensure our resources are aligned with business and customer needs to ensure our long term success.
Paul A. Johnson: <unk> initiated a voluntary retirement program under which for 100 non bargained employees retired in addition, we eliminated 159 bargaining positions.
As a result, we recorded a workforce reduction expense of $72 million or nine cents per share in the fourth quarter of 'twenty three.
Paul A. Johnson: Also in 'twenty, three we recorded a charge of $35 million or five cents per share.
Benjamin G. S. Fowke: Related to a legal dispute between core and excel energy regarding prior year operations at the Comanche three coal plants.
Benjamin G. S. Fowke: Given the nonrecurring nature of these items both had been excluded from ongoing earnings as a result, our GAAP earnings were $3 21 per share.
Ongoing Earnings: Ongoing earnings, which exclude these nonrecurring charges were $3 35 per share.
Ongoing Earnings: I'll further discussion this earnings call will focus on ongoing earnings for more information on this please see the disclosures in our earnings release with that I'll turn the call over to Bob.
Robert C. Frenzel: Thanks, Paul and good morning, everybody.
Robert C. Frenzel: We had another successful year at XL energy continuing to provide our customers with safe.
Robert C. Frenzel: Clean reliable and affordable energy while delivering.
Robert C. Frenzel: The operational and financial performance.
Paul: 2023, we executed on the larger capital program of Nextel energy history investing approximately $6 billion.
To improve resiliency and enabling clean energy for our customers, while delivering economic growth and vitality.
Paul: Munis.
Paul: Our investments in operations enable the ongoing earnings of $3 35 per share representing the 19th consecutive year of meeting or exceeding our earnings guidance.
Paul: Meeting our financial commitments is critical to maintaining a competitive cost of capital, which benefits our customers as we access the capital markets to fund our operations.
Ongoing Earnings: In December we received approval for our groundbreaking clean energy portfolio with over 5800 megawatts of new generation resources.
Ongoing Earnings: This $4 $8 billion of new generation investment, which when coupled with the necessary transmission represents almost an $8 billion worth of commitments in Colorado could deliver a cleaner energy economy.
Ongoing Earnings: I'm proud of how our teams partner with so many stakeholders to deliver on these achievements.
And if I look back on the year, we accomplished so many other great outcomes.
Ongoing Earnings: While our final values aren't in yet our safety scores improved and we believe we believe we'll be in the top quartile of U S utilities for delivering reliable electricity to our customers.
Ongoing Earnings: Across our wind fleet, we continued to deliver strong net capacity performance and exceeded our corporate availability target for the third consecutive year.
Ongoing Earnings: We navigated a very busy regulatory calendar resolving multiple rate cases, and reached a pending settlement and our Texas electric rate case.
Ongoing Earnings: We thought our clean sheet plant in Colorado, and our natural gas innovation, playing a minnesota, providing a framework and both of those states to achieve net zero greenhouse gas emissions for our natural gas customers.
Ongoing Earnings: We've approved transportation electrification programs into Mexico, and in Wisconsin, along with updated transportation plans pending commission approval in both Minnesota and Colorado.
Ongoing Earnings: We were partners in over one and a half a billion dollars of awards by the department of energy to support the Heartland hydrogen hub.
Ongoing Earnings: While I'll fire and extreme weather resiliency.
Ongoing Earnings: Energy long duration energy storage pilots and additional transmission as part of the MISO SPP seams projects.
These grants will lower the cost of these clean energy and resiliency projects for our customers.
Ongoing Earnings: 2023, we signed agreements for data centers with meta in Minnesota and QTS in Colorado.
Ongoing Earnings: Data center, and AI, driven demand continued to be a low driver on our system with several gigawatts in our pipeline across our footprint.
Ongoing Earnings: In Minnesota, we received approvals for an additional 250 megawatts of solar in our 10 megawatt 100 hour form energy battery pilot, both at our retiring serco coal facility.
Ongoing Earnings: We have active rfps for over 2000 megawatts of renewable resources across our operating companies, which we expect resolution on later this year.
Ongoing Earnings: We also filed our resource plans in our S. T S company, which could add an additional 5000 to 10000 megawatts to our system by 2030.
Ongoing Earnings: In December we retired unit two at our Serco coal facility, while continuing the trend of no personnel layoffs at our retiring coal facilities over the past 15 years.
Ongoing Earnings: We reduced carbon emissions for the electric utility by 53% as compared to a 2005 baseline on track with our goals for 2030 and 2050.
Ongoing Earnings: All the while our customer bills remain amongst the lowest in the country.
Ongoing Earnings: Over the past five years, the average XL energy residential electric and natural gas bills are 28% and 14% below the national average respectively and over the last 10 years, we've kept our annual residential electric and natural gas Bill increases to one eight and one 1% respectively, well below the rate of inflation.
Ongoing Earnings: We're actively involved in our communities, that's our employees contractors and retirees provided more than $11 million and volunteered over 40000 hours to support charitable Oregon organizations across our footprint.
Ongoing Earnings: We initiated 18 economic development projects for our communities, which are projected to create more of a $2 $4 billion in capital investments and fortune 500 jobs.
Ongoing Earnings: For the seventh consecutive year, we received the top score from human rights campaign Foundation's corporate equality index, the nation's foremost benchmarking survey measuring corporate policies and practices related to LGBTQ plus workplace equality.
Ongoing Earnings: And finally, we received several other recognitions, including being named a top military employer by multiple organizations and one of the world's most admired companies by Fortune magazine.
Brian: We're proud of these achievements, which reflect operational excellence and strong policy alignment, allowing XL energy to provide a valuable product with significant benefits to our customers our communities our employees and our shareholders with that I'll turn it over to Brian.
Brian Smith: Thanks, Bob and good morning, everyone.
Brian Smith: For the full year 2023, we had ongoing earnings of $3 35 per share compared to $3.17 per share in 2022.
Brian Smith: The most significant earnings drivers for the year include the following.
Brian Smith: Higher electric and natural gas margins increased earnings by <unk> 10 per share.
Bob: This reflects 10 cents of unfavorable weather as compared to last year.
Lower O&M expenses increased earnings by six cents per share, which reflects the impact of cost containment actions.
Bob: Lower conservation and DSM expense increased earnings by six cents per share, which was largely offset in lower margins.
Ongoing Earnings: Higher other income increased earnings by <unk> <unk> per share primarily due to Rabbi Trust performance, which was largely offset in O&M expenses.
Ongoing Earnings: Lower other taxes, primarily property taxes increased earnings by <unk> <unk> per share.
Ongoing Earnings: And in addition to other items combined to increase earnings by <unk> <unk> per share offsetting these positive drivers.
Brian Smith: Interest charges, which decreased earnings by <unk> 14 per share driven by rising interest rates and increased debt levels to fund capital investment.
Brian Smith: Higher depreciation and amortization expense, which decreased earnings by five cents per share, reflecting our capital investment program.
Brian Smith: Turning to sales full year weather adjusted electric sales increased by 1% consistent consistent with our guidance assumptions.
Brian Smith: For 2024, we expect electric sales to increase by 2% to 3%.
Brian Smith: Shifting to expenses.
Brian Smith: O&M expenses decreased $47 million or approximately 2% for the year. This is consistent with our annual guidance and reflects management actions to offset inflation and other challenges we face during the year.
Brian Smith: During the fourth quarter, we also made constructive progress on several rate case proceedings.
Brian Smith: In December we filed a settlement in our Texas electric rate case, which reflects a rate increase of $65 million.
Brian Smith: And acceleration of the top depreciation life to 2028, and the ROE of 955% an equity ratio of 54, 5% for <unk> purposes.
Brian Smith: A commission decision is anticipated in the first quarter of 2024.
In November, Wisconsin Commission approved electric rate increase of $1 million and the natural gas increase of $5 million based on an ROE of nine 8% an equity ratio of 52, 5%.
Brian Smith: The decision reflects adjustments for our residential affordability program.
Brian Smith: <unk> fuel and purchase power costs and other items.
Brian Smith: Which are earnings neutral rates were effective January 2024.
Brian Smith: In November we filed them in southern natural gas rate case, requesting a $59 million rate increase based on an ROE of 10, 2% equity ratio of 52, 5% and a forward test year.
Brian Smith: In December the commission approved our request for interim rates of $51 million subject to refunds. Starting this January final decision is expected later this year.
Brian Smith: As far as future filings, we plan to file a Colorado natural gas case in the next week or so.
In addition, we also anticipate filing a revised wildfire mitigation plan in Colorado in the first half of 2024.
Brian Smith: Updating our progress on production tax credit transferability.
Brian Smith: Executed multiple contracts in 2023 totaling $400 million.
We anticipate executing $500 million of PTC sales in 2024.
Brian Smith: Transferability reduces near term funding needs and most importantly, lowers the cost of our renewable energy projects for our customers.
Brian Smith: Moving to our capital forecast, we've updated our five year capital plan for the decision and the Colorado starts plan, which now reflects investment of $39 billion.
Brian Smith: This biggest capital plan supports investment in renewable generation.
Brian Smith: Transmission to deliver the clean energy and customer facing investments for a reliable and resilient advanced grid, the baseline, resulting in annual rate base growth of approximately 9%.
Brian Smith: Not included in our base plan was approximately $5 billion for renewables and firm capacity associated with Rfps at NSP and Sps in future filings in Colorado.
Brian Smith: Okay.
Brian Smith: We've updated our base financing plan, which reflects the incremental debt and equity financing needs for these investments.
Brian Smith: Please note that the guidance assumptions in our earnings release have also been updated to reflect changes to the capital forecast for this year.
Brian Smith: As a reminder, we anticipate any incremental capital investment will be funded by approximately 40% equity.
Brian Smith: It is important to recognize that we've always maintained the balanced financing strategy, which includes a mix of debt and equity to fund accretive growth, while maintaining a strong balance sheet and credit metrics.
Brian Smith: Maintaining solid credit metrics and favorable access to capital markets are critical to fund our clean energy transition.
Brian Smith: And a competitive cost of capital and keep customer bills low, especially in a higher interest rate environment.
Brian Smith: Finally, we remain committed to our long term EPS growth objective of 5% to 7%, which we believe is conservative we now expect to deliver earnings at or above the top end of the range in 2025, starting in 'twenty or 'twenty five.
Brian Smith: In addition, we will rebase future annual guidance of actual results.
Brian Smith: As a result of the significant capital investment opportunities in equity funding needs.
Brian Smith: We now expect to grow the dividend at the low end of our current 5% to 7% dividend growth range with a target payout ratio of $50 to 60%.
Brian Smith: This will reduce our equity financing needs over time, lower financing risk and give us even more dry powder and financial flexibility in the future.
Brian Smith: Now I will conclude with a brief update on the Marshall Wap or litigation the.
Brian Smith: The statute of limitations ended in December and as expected we saw a significant increase in the number of claims.
Brian Smith: As of now we are aware of 298 lawsuits with approximately 4000 claims.
Brian Smith: In early February there'll be hearing at which time unscheduled may be determined we believe the trial will likely begin in 2025.
Brian Smith: Okay.
Brian Smith: With that I'll wrap up with a quick summary.
Brian Smith: We're executing on an ambitious investment plan for our customers to deliver clean reliable energy.
Brian Smith: That investment enabled <unk> to deliver 2023 ongoing earnings within our guidance range for the 19th year in a row.
Brian Smith: For the 20th consecutive year, we increased our dividend to investors.
Brian Smith: We resolved multiple rate cases in the volatile foundational plans for our natural gas utility to reach its net zero goals.
Brian Smith: We retired our <unk> unit, two coal plant early and reduce carbon emissions by 53% from 2005 levels.
Brian Smith: We received approval for our groundbreaking portfolio of clean energy resources in Colorado.
Brian Smith: We've upgraded our base five year capital plan to $39 billion.
Brian Smith: Which reflects 9% rate base growth, we have additional capital backlog in all of our jurisdictions.
Brian Smith: We have a strong line of sight to achieving to achieve earnings at or above the top end of our 5% to 7% long term EPS growth rate.
Brian Smith: And finally, our electric and natural gas customers have some of the lowest bills in the country.
While continuing the safe and reliable service they expect from Excel energy.
Ongoing Earnings: This concludes our prepared remarks, operator, we will now take questions.
Thank you very much.
Ongoing Earnings: First question comes from Julien Dumoulin Smith from Bank of America. Please go ahead.
Ongoing Earnings: Hey, guys nicely done congratulations on a variety of different metrics here, but you guys had already been tracking above the midpoint of your five to seven and then given that the rate base growing up say, one 5%, even with kind of incremental dilution. How do you think about that adding up right. I mean, you know I'm going to put a put it back to you a bit.
Ongoing Earnings: Like how do you think about doing the math there if you will and just setting expectations, obviously every year might be slightly different here.
Ongoing Earnings: Hey, Julien good morning.
Ongoing Earnings: I like the phrase doing the math I think I might have heard that before.
Julien: Look we're really excited about our investment profile over the next five years across our eight states multiple asset categories clean generation transmission advanced grid electric vehicles everything in support of our customers, obviously, the EPS growth rate.
Julien: <unk> the rate base growth with some amount of dilution for financing costs at the parent level.
Julien: The new updated capital plan is accretive.
Brian Smith: We expect during this five year period to be at or above the top end of our 5% to 7% range, but we think five years to seven is still a good long term growth rate for the company and that's our that's.
Brian Smith: That's our guidance right now.
Brian Smith: Yeah, and Julian I'd, just add that you know, we do expect that as a conservative growth rate and as I noted in my remarks, you know going forward, we will rebase off of actual earnings so important things to note in our script and overall as Bob said, we're really excited about it we're.
Brian Smith: We're excited about our opportunities in our steel for fuel and the clean energy transition.
Bob: And I think we were one of the fastest transition utilities in the country and our electric bills are 28% below the national average. So I think we're in a great place for our investors and our customers.
Julian: Yes, I appreciate being able to rebase, the actuals that certainly a sign of strength as you say.
Brian Smith: Now, maybe just to come back to the timing of equity here.
Brian Smith: How do you think about that vis vis the updated plan and updated needs and perhaps just to clarify this just for the time being at least this year no change in that 5% to seven for the current plan here.
Brian Smith: Yes.
Brian Smith: No no change.
Brian Smith: Our guidance assumptions for this year still $3 50 to 360 now there is an increase in Capex. If you look kind of plan over plan this year, but thats whats really backend loaded as we work through some of the regulatory <unk> regulatory approval processes.
From an equity perspective.
Brian Smith: We have we've said we've been we've talked about doing at least 500 million annually annually through our ATM and expect that ratable over the five years and then we do have some drip.
Brian Smith: The amount is about $1 billion $5 above that we will be opportunistic.
Brian Smith: And we will look at it but I think it kind of follows with how our incremental capex follows.
Speaker Change: Got it excellent and then Minnesota Commissioner you have experience with it.
Paul A. Johnson: Your relationship and maybe a little bit of a brief comment here on where we stand in Minnesota, If you will.
Paul A. Johnson: Yes, no we've got a long standing relationship the new Commissioner comes out of an apartment and we've been working with him very proactively over years. So we expect a continued strong relationship with the Minnesota Commission.
Brian Smith: Excellent alright ill leave it there guys. Thank you.
Brian Smith: Thanks.
Brian Smith: Thank you very much. Our next question is from Jeremy Tonet with J P. Morgan. Please go ahead.
Brian Smith: Good morning, Jeremy Good morning.
Rich Sunderland: It's actually rich Sunderland on for Jeremy can you hear me.
Rich Sunderland: Yes, we can.
Rich Sunderland: Great. Thank you.
Rich Sunderland: Just picking up the last point on equity appreciate opportunistic in terms of timing can you speak a little bit more in terms of format.
Rich Sunderland: How you might address that.
Rich Sunderland: I guess the gap from the HCM, so the total needs anything.
Rich Sunderland: Being on the table at this point or any guardrails to that.
Rich Sunderland: No.
Rich Sunderland: The way well.
Rich Sunderland: A pretty plain vanilla.
Rich Sunderland: Way, we finance our company so kind of the base case to beta as a block issuance. So I mean, you can obviously look at doing a four just something we'd look at mandatory converts, but our base cases, just doing blocks above the level that we.
Rich Sunderland: We feel comfortable with on the ATM.
Understood very helpful.
Rich Sunderland: And then.
Rich Sunderland: Where are you at a high level in terms of O&M outlook, and then parsing that relative to the.
Rich Sunderland: A workforce reduction announcements could you speak a little bit more to the savings there over the near to medium term how that factors into your overall O&M trajectory and how youre speaking about that O&M outlook I guess over the long term as well relative to the work you've accomplished over the past few years.
Brian Smith: Yes, let me hit the workforce reduction question first then I'll transition to longer term O&M outlook for us.
Rich Sunderland: I think from a workforce production workforce reduction perspective.
Rich Sunderland: Just like everyone else face some significant cost challenges and pressures over the past few years and so we as Paul said, we undertook that to streamline the organization.
Ongoing Earnings: And in terms of some of our resources are aligned with our customer needs are and our growth opportunity itself as Paul said for approximately 400 employees through that work through the voluntary retirement program and another 150 positions were eliminated so as we look forward that generates approximately 2% O&M savings on a run rate basis, but we will.
Paul: Look to reinvest some of that as I said into the growth areas of the company as we look to support our customer needs.
But overall sets us up into 24 of that that is included and incorporated into our 2020 for guidance.
As I think about 2024, our guidance is that were up 1% to 2% relative to 23, but it's really flat to 'twenty. Two when you look what happened in 2023 now longer term.
Brian Smith: You asked about kind of what our longer term expectations are now we've been managing our O&M.
Brian Smith: <unk>.
Brian Smith: With a laser focus on operational efficiency I think you can look in our IR deck from Q4, one of three utilities that have O&M flat or down since 2015 on the electric operation side, So something we're really proud of.
Ongoing Earnings: And while we look longer term, we have some tail winds of coal plant shutdowns, we expect the shutting down of coal plants, roughly a coal unit roughly a year.
We spend a lot of time on technology and looking at how we can leverage technology in our operations and the corporate areas and I think most importantly, we haven't talked about this that much as we launch something that we call one excel energy way, which is our continuous improvement engine engine, we deployed it last.
So we're in a year or two of it we're really focused on the lean principles and being a transformation engine that is looking at waste reduction and waste elimination and so thats something were putting a lot of effort and focus on that team reports directly to me. So I'm very involved in it. So we think longer term our goal is to absorb inflation absorb the call it.
Rich Sunderland: Areas, we need to invest in from a growth perspective and maintained O&M roughly flat.
Rich Sunderland: To ensure that we can keep our customer bills low for long term. So we're pretty excited about it obviously, it's not easy.
Brian Smith: But something we spent a lot of time on so I appreciate the question.
Brian Smith: Great. Thanks for the color.
Brian Smith: Thank you. Our next question is from Turkish Chopra with Evercore ISI. Please go ahead.
Durgesh Chopra: Hey, good morning, Hey, good morning, Bob Congrats solid quarter here.
Durgesh Chopra: Well, Brian the rest of the team Hey, just.
Durgesh Chopra: I thought the dividend.
Durgesh Chopra: Trajectory growth trajectory change was interesting.
Brian Smith: You're now, saying low end of the five to seven because you have higher growth rates, maybe just just.
Brian Smith: Through your thinking there.
Brian Smith: You were kind of going faster. So that gives you more flexibility on the financing side, just a little bit more color there would be helpful.
Brian Smith: Yeah, absolutely and good morning to dish.
As we look at it given our significant growth.
Brian Smith: In our base plan and we just added $5 billion of capital to it.
Brian Smith: And the fact that we're guiding to the top end or above our conservative 5% to 7% EPS growth, we thought it was prudent and the right decision to lower our.
Ongoing Earnings: And growth still within our dividend growth guidance of 5% to 7%.
Ongoing Earnings: But as you think over the long term.
That helped us reduce the equity we needed for this $5 billion of capital, but even longer term. When you look at the compounding impact of a lower dividend with significantly higher capital needs that it feels like a prudent decision gives us longer term financial flexibility and dry powder and reduces financing risk over long term. So we feel.
Ongoing Earnings: Really good about it we feel really good that we have a very good total.
Ongoing Earnings: Shareholder return proposition for investors and we'll continue we expect to deliver here and in Europe for them.
Ongoing Earnings: Got it and Brian just as.
Brian Smith: There's obviously a ton of Capex opportunity you I outlined 5 billion. Additional Capex you expect is that 5% of the floor or could you could the dividend growth before they are lowered and in case you have.
Brian Smith: You're adding more capital to the to the plan.
Brian Smith: So I think we'll assess it every time, if we have a significant chunk of capital or update our plan says we do regularly.
Brian Smith: We obviously evaluate all parts of our total shareholder return.
Brian Smith: That's fair, Okay, and then just one last one for me is just a thank you for the color on Marshall fire, the additional compliance and other things and maybe just what are the key steps for us to watch there and when could we expect updates.
Brian Smith: Hey, congrats thanks, Bob Thanks, Thanks for the support as always.
Brian Smith: With the fire I think the next sort of milestone I would say is as we have a sort of a trial planning period of meeting.
Bob: First week of February given the.
Bob: The change in cases and plaintiffs.
Bob: That schedule got moved back a little bit to give new claimants more time.
Bob: We will get a better trial calendar as Brian said, we expect the trial sometime in 'twenty five.
Alex: Alex we are that after that we go into discovery and there's not much to do past that so we'll update everybody when we know more.
Alex: But there's not much to say other than you know the facts remain the same on the case and while the calendar probably early next month.
Thank you so much.
Yeah.
Alex: Thank you. Our next question is from Steve Fleishman with Wolfe Research. Please go ahead.
Alex: Yes.
Steven Isaac Fleishman: Yes, hi, good morning, everyone.
Steven Isaac Fleishman: So I just wanted to clarify all your grocery commentary is that based on the base plan.
Steven Isaac Fleishman: The updated based upon.
Steven Isaac Fleishman: Yes, Steve the update it at $39 billion plan, yes.
Steven Isaac Fleishman: Okay.
Steven Isaac Fleishman: And on the could you just talk to.
Steven Isaac Fleishman: The pins in Colorado, and just how youre feeling about being able to manage.
Steven Isaac Fleishman: Any I guess it could be good or bad, but just any rich.
Rich Sunderland: Rich risk exposure from that.
Speaker Change: Yeah, certainly Steve and for the folks that haven't.
Speaker Change: Been close to that preceding we really have two pens, which the commission asked to propose a couple pins. So we have a cost to construct Pam and think of that just has a capital what's our what's our budget for the project stem and we've operated under those types of things for a long time weather in Minnesota, Texas, New Mexico, We've had those in.
Speaker Change: So.
So we proposed to pin the commission modified a little bit so, it's a plus or minus 5% dead band and then customer sharing.
Durgesh Chopra: <unk> and sharing was a penalty or incentive above that 5% overall, but we're comfortable with managing within that Pam we feel like we've put forward good budgets for our projects and knew going in that that would be held to what we propose given that was a competitive process. So I feel comfortable that on the operational perm.
Durgesh Chopra: Again, it's the commission modified it slightly but generally adopted what we proposed.
Durgesh Chopra: And overall.
Think of it a LLC OE pay them on a three year Rolling average was up plus or minus 5% dead band.
Ongoing Earnings: And the first 5% to 10% above its <unk>.
Ongoing Earnings: 80% of the cost savings or the customers of the company bears 20%. So you can look at it we feel thats.
Ongoing Earnings: Very manageable.
Ongoing Earnings: And.
Ongoing Earnings: Appreciative that the commission adopted the pins that we are that our structure that <unk> put forward. So we look forward to working through the.
Durgesh Chopra: The <unk> with the Commission and then we have the just transition planning coming up which is additional opportunities as we think about transitioning our generation fleet in Colorado.
Durgesh Chopra: Okay, Great and then lastly, just some.
Durgesh Chopra: Washington questions.
Durgesh Chopra: I guess timeline, if any on the nuclear PTC.
Durgesh Chopra: Your thoughts on the proposed hydrogen rules and what that means for your project.
Durgesh Chopra: If you want to take up any thoughts on election risk.
Bob: Dave It's Bob.
Dave: The last one it seems like a lot of fun to talk about but I'll, probably pass on that fast ball.
Dave: On the Washington in particular, the hydrogen production tax credit we were very active.
Dave: We've been very solid in our position that we believe that clean fuels and clean molecules are going to be needed as part of a broader cleaner.
Dave: Cleaner energy economy.
Dave: We felt that hydrogen was probably the most attractive molecule that we could produce a cleaning greenway.
Rich Sunderland: We are really proud to be considered for a heart of hydrogen hub and our upper Midwest proposal the heartland hub.
Rich Sunderland: But I got to tell you the 40 <unk> tax credit draft guidance out of the Treasury was disappointing.
Rich Sunderland:
It doesn't feel.
Rich Sunderland: As if we're trying to support a hydrogen economy in the United States, it's going to make it more expensive for our customers harder to develop an electrolyzed our industry and in industrial basis in the country.
Rich Sunderland: And will slow or stall clean fuel deployments in the United States, we expect to make comments.
Rich Sunderland: The comment period, we expect <unk> to make comments, we expect other customers to make comments. So I think the treasury is going to have a lots of balance here I mean strict additionality and hourly matching.
Rich Sunderland: It's just going to make it more challenging to produce hydrogen at a cost competitive basis with other fuels.
Rich Sunderland: So yes, that's kind of where we are on hydrogen and I think he asked about nuclear.
Durgesh Chopra: Our math.
Durgesh Chopra: Brian.
Brian Smith: I can just chime in on nuclear alright. So we expect guidance here in Q2 is our current thinking obviously the guidance. We're looking for is how do you calculate the gross receipts, meaning how do you calculate the value.
We've advocated for the use of <unk>, obviously, given that we're in and RTL.
Brian: We certainly if you look at our earnings guidance, we have not incorporated that into our ETR, but when we look at kind of the forward curve, we would expect to north of $100 million benefit for our customers. So something that we're that we've provided our comments.
Brian Smith: And hopeful that treasury comes out in favor us because it's a great benefit for our customers.
Brian Smith: So looking for that Q2, just to follow up on Bob's comments about hydrogen I mean disappointing now the analysis I've seen as green hydrogen now structurally more expensive than blue hydrogen for the next decade and significantly more expensive than gray hydrogen and so it will depress the development of the green hydrogen market.
Bob: And so hopeful we get some changes.
Bob: To the final rules.
Okay. Appreciate it thank you.
Bob: Thank you. Our next question is from Anthony crowd, all with Mizuho. Please go ahead.
Anthony Crowdell: Hey, good morning, Bob.
Brian Smith: Brian just hopefully two quick ones, if I could follow up on <unk>.
Brian Smith: Stephen Julians math class question.
Brian Smith: When you think of the five to seven year at or above the high end.
Brian Smith: And Thats all on the base capital.
Brian Smith: What what would cause you to get to 6% growth.
Brian Smith: Yeah.
Brian Smith: I mean at or above the high end implies that we're above 6% growth right now, but I take your question now what would cause us to go to 6% to 8% if I could I can interpret it look we evaluated we feel 5% to 7% is the right long term growth rate its conservative and re basing off of actuals and signaling that we're going to be.
Brian Smith: The top end or above is the right place to be long term.
Ongoing Earnings: Great and then I think you mentioned you are filing a Colorado wildfire mitigation plan later this year I believe just could you give us.
Durgesh Chopra: Look into that I mean does that also have potential for.
Durgesh Chopra: Additional capital Capex, and then or any changes in operation you are thinking once you make that filing.
Durgesh Chopra: Yes.
Today, it's Bob good that's good to hear you this morning, and thanks for the questions.
Durgesh Chopra: We're operating under an existing wildfire mitigation program in Colorado, right now and I'd say that that plan includes asset hardening and replacement it's got pilots for Berry.
Bob: <unk> solutions.
And risk modeling embedded within that I think the updated plan that we're anticipating for Colorado would be a continuation of a lot of those existing programs and maybe moving from more pilot to more scale develop or scale deployment.
Durgesh Chopra: Of everything from coatings on Poles to.
Durgesh Chopra: Covered conductor analysis and deployment to enhanced re closers settings, and re closer installations across the business potential for.
Durgesh Chopra: Incremental under grounding in various areas and probably some operational opportunities around enhanced power line settings and <unk> mechanisms.
Durgesh Chopra: Still working on finals.
Durgesh Chopra: So I don't think it's going to be a material driver in terms of our capital deployment, but I do think it'll be a enhancements to our risk reduction in our Colorado company.
Bob: And Bob just lastly, do you does that plan I have to get approved or just accept it just a procedure that goes on in Colorado, and our wildfire mitigation plan.
Bob: Yes, it goes to a regular way proceeding with with intervenor testimony in our testimony and approval by the PUC.
Bob: Great. Thanks for taking my questions I appreciate it.
Bob: You bet. Thank you.
Bob: Yeah.
Bob: Thank you. Our next question is from Carly Davenport with Goldman Sachs. Please go ahead.
Carly Davenport: Hey, good morning, Thanks, so much for taking the questions.
Carly Davenport: Just two quick ones for me on some of the resource plan opportunities that you've highlighted so first.
Carly Davenport: On Colorado, obviously strong results on that plan in 2023.
Should we think about just the next milestones to Washington, Colorado, whether that's around the CPC and process for the transmission or the just transition filing and then just second on Sps, We started a load growth come in close to 5% overall and 23. So just in that context can you talk a little bit about the Sps opportunity.
Carly Davenport: Around the future RFP, there to sort of accommodate that level of potential growth going forward.
Carla: Yeah, absolutely Carla and good morning related to Colorado will begin so the marker will begin to file <unk> for all of our projects and transmission starting likely late February and then Youll just see them kind of filter in probably over Q2, and then those will be regular way <unk>.
Carla Colorado: Probably eight to nine month type approval processes on each of those filings. So those are the next markers at least on the projects coming out of the Colorado plant that was just approved and then we're working on filing our just transition plan in June.
Carla Colorado: No that was originally focused on the replacement of the Comanche three assets was a little bit of the commission approving a no regrets portfolio. In this December I think there is opportunity to bring the incremental resources. We do think we need additional resources that we propose and even the commission acknowledged that that there may be in.
Carla Colorado: Opportunity or they believe that we may need those resources so.
Carla Colorado: That'll be all part of the just just transition plan filing and again Thats follows the typical Colorado timeline in terms of nine nine months or so to work through that proceeding so that pushes that into 2025, but overall excited those are kind of looking at 28% to 2030 type clean generation opportunities and how do we.
Carla Colorado: And our fleet in Colorado as it will be completely out of coal by the end of 2013, Colorado.
Carla Colorado: On SBS.
Carla Colorado: Really great loan growth opportunities and SPL, So you can order or.
Carla Colorado: Sales growth there in 2023.
Carla Colorado: Expect to continue to see significant sales growth.
Carla Colorado: In that region I think that is really the driver of our Sps resource plan.
Carla Colorado: We provided a range from 5000 megawatts up to 10000 megawatts at.
Carla Colorado: 10000 megawatts is really working with our large customers are on their electrification forecast. So I think it's a significant opportunity we do not have that anywhere in our capital plans. So we will make we will work through that filing in the New Mexico Commission will it won't officially approve it but they accept to the resource plan.
Carla Colorado: And then we will look to launch of the RFP in the summertime.
Carla Colorado: And then we will get get our results later in 2024 and likely started working on selection early in 2025, so pretty excited about that plan excited about supporting the benefits or electrification down in Sps and making sure that we can serve our customers. So overall like I said really great steel for fuel.
Carla Colorado: Low growth steel for fuel opportunities and serving the low growth in our territories.
Carla Colorado: Currently it's Bob I'd, just add on to what Brian said is probably remiss if we didn't comment on the Minnesota and Wisconsin Rfps that are in the Sps RFP. That's in flight right now, which represents 2000 megawatts of new clean energy in the upper Midwest and the southwest we expect resolution of those as I said in my prepared.
Paired remarks, this year and they are included in our incremental capital opportunities in our investor deck.
And then just one more thing data will be filing a resource plan in Minnesota in February 1st.
Which is a continuation of the transition of our generation fleet as we shut down all the coal plants in Minnesota by 2030.
Carly Davenport: We're pretty excited about just all of the opportunities across our service territories.
Carly Davenport: Awesome, Thanks for that detail and then congrats on the updates.
Carly Davenport: Thank you.
Carly Davenport: Okay.
Carly Davenport: Thank you. Our next question is from Sophie Karp with Keybanc. Please go ahead.
Sophie Karp: Hi, Good morning, guys and thank you for taking my question.
So three questions here.
Sophie Karp: So I noticed that you showed the Colorado I guess.
Sophie Karp: He like sub 8% primary didn't thats correctly.
Sophie Karp: And just given how much capital you are going to be investing in the state.
Sophie Karp: Do you see a path to improve that.
Sophie Karp: What is that.
Sophie Karp: Hey, Sophie Thanks for the question yes.
Certainly in Colorado, we've had a pretty significant gap between our authorized versus earned ROE as we think of all the capital that we're deploying on the clean energy transition.
Sophie Karp: We will flow through timely recovery from a rider perspective also all the transmission, we need to invest to be able to deliver that clean energy to our customers will flow through the TCA. So the incremental capital should get more timely recovery I mean, it's important as we think about longer term to ensure that we have a phy.
Sophie Karp: Actually healthy utility because it allows us to have a competitive cost of capital, which in the long term is.
Sophie Karp: Most beneficial to our customers as it delivers.
Sophie Karp: The loss cost of customers' loss cost to our customers. So something that we're certainly aware of and working on.
Sophie Karp: Our stakeholders and policymakers around.
Sophie Karp: Ensuring that we are aligned with the clean energy policy in Colorado, and how we can ensure that we.
Keep that alignment and improve it over time.
Sophie Karp: So the problem so to speak there was just a timing lag with capital, which you expect to improve with more contemporary and it's my opinion My guess right, yes, and as we mentioned, yes. It is the regulatory lag the capital lag we had a historic test year in Colorado gas and as we mentioned in my opening remarks will be fine.
Carla Colorado: Colorado Natural gas case here in the next week or so.
And so we'll be working through that.
Carla Colorado: Okay.
Carla Colorado: Alright, and my other question was on your volume growth overall for the company was something like 1% or a policy.
<unk> in your guidance on 215% and 24.
Carla Colorado: So I'm wondering where do you expect to see this acceleration and what.
Carla Colorado: What's the underlying assumption there.
Carla Colorado: So as we think about it.
Carla Colorado: <unk> tier is 2% to 3% in 2024, the biggest driver continues to be in Sps and the electrification and growth. We're hearing from our customers. Obviously, we worked very closely with our largest large industrial customers down there. So have a good sense of of what their loan growth forecasts are in 2020.
Carla Colorado: And even beyond we're starting to see some large C&I growth in Colorado with the data center coming online a couple of other large customers coming online so really driven by C&I loan growth in 2024, we do continue to have.
Carla Colorado: Customer residential customer growth of roughly 1% so that contributed some but overall, it's driven by our C&I growth, particularly in Sps.
Sophie Karp: Awesome. Thank you so much that's all for me.
Sophie Karp: Thank you. Our next question is from David Arcaro with Morgan Stanley. Please go ahead.
Sophie Karp: Hey, good morning, Thanks, so much.
Sophie Karp: I had a quick question just on tax credit transfers.
David Arcaro: Let's see are you changing kind of the anticipated level over the course of the plan given the increased capex here and did that contribute I saw that the cash flow from ops increased versus the prior slide deck I'm wondering if that was part of it.
David Arcaro: Hey, David.
David Arcaro: Incorporate the transferability into the cash from operations, but froth transferability isn't really in.
Cash flow driver when we go look plan over plans, we've incorporated all of the transfer tax credits in the previous plan and the transfer tax credits in this new plan certainly cash flow cash flow from ops increased by about a billion and a half when you look at it from the 34% to $39 billion plan really the projects.
David Arcaro: That didn't come to driver book depreciation and some deferred taxes, it's kind of combination of all three.
David Arcaro: These projects do go in service in the middle and so their cash wrong assets as we think about it and so that's why you see that there.
David Arcaro: From a transferability perspective now we do include that now in our five year forecast.
Carla Colorado: Prior I would talk to but we're somewhere around $2 $5 billion of transferability now we're approaching about $3 billion of transfer tax credits over the five years.
Carla Colorado: $500 million this roughly $500 this year growing to about $700 million at the end of the five year forecast so.
Carla Colorado: We see the demand and have actually have much much more demand than our supply.
Carla Colorado: Got it great that all makes sense, that's all I had thanks, so much I appreciate it.
Carla Colorado: Thank you our next question from Travis Miller with Morningstar. Please go ahead.
Carla Colorado: Good morning, everyone.
Travis Miller: I'm disappointed we don't get to hear your election thoughts, but aside from that.
Travis Miller: I Wonder if you could talk a little bit more after you have added this capital and the impact that's going to have obviously on financing needs and the impact on the dividend growth.
Travis Miller: How do you go into these next set of Rfps in any kind of other capital investment opportunities does that change your thinking.
Travis Miller: In terms of pursuing some of those projects.
Hey, Travis it's Bob Thanks for the question.
Bob: We really want to own and operate the infrastructure that serves our customers I think since core skill set of the company. We think we're competitive we think we can do a price competitively for our customers.
Bob: We've proven that over the last five or six years.
Bob: And delivering value to our customers from our clean energy investments I think.
And it wasn't in our original pro forma estimates, but I think our total over the last five years is close to $5 billion worth of tax credits and avoided fuel costs from installing wind into our system for the benefit of our customers, which was never included in.
Bob: Our forecast when we put those wind farms and so there's real customer benefit for us owning in passing that stuff through to our customers as we look to the future. Obviously, we want to own and operate the infrastructure. It's important in the regulatory mechanisms as you said.
Bob: Making sure that we get timely recovery of the new investment assets is really important for us as we think about.
Bob: Installing new generation into our areas, but I think our position would be that we continue to want to.
Bob: Owned and operate.
Bob: Generation assets, recognizing that theyre going to be likely competitive processes and you have to prove value to our customers, but we've been good at that and I think our plan would be to continue to target ownership of some amounts of those generation assets and.
Bob: I would just add that Bob is absolutely right. We have to demonstrate that we are competitive with our commissions and we have been and we expect to continue to be so going forward and so we can continue to deliver low cost electricity to our customers, but I think just from a purely financial standpoint, we've been very open about.
Bob: We will fund accretive capital growth and we'll fund that with a balanced mix of equity and debt and cash flow from operations. So overall, we're very comfortable with it and think we're in a great place to be both to deliver for our customers and our shareholders for the longer term.
Bob: Okay, Alright that makes sense and then one other a different subject.
Bob: Assuming you get the.
Sophie Karp: <unk> accelerated depreciation approval in Texas.
Sophie Karp: Are there any remaining steps either regulatory other procedural.
Sophie Karp: So necessary to hit that 2030 goal of closing your entire closely.
Sophie Karp: No no.
Sophie Karp: The last one outstanding so.
Sophie Karp: We're pretty excited about it assuming we get PUC approval of the settlement.
Sophie Karp: The last one.
Sophie Karp: Okay no transmission operator.
Sophie Karp: Agreement necessary or anything like that.
Sophie Karp: No.
Great. Thanks, so much.
Okay.
Brian J. Van Abel: Thank you. Our next question is from Brian <unk> with Citi. Please go ahead.
Brian J. Van Abel: Hi couple of quick questions quick questions in terms of the Marshall fire appreciate the clarifications and updates is there any opportunity for settlement there.
Brian J. Van Abel: Outside of the formal court process.
Brian J. Van Abel: Hey, Ryan.
Brian J. Van Abel: Well, it's still very very early in the process, but as we've said from the beginning.
Ryan: We strongly disagree with the conclusion of the Sheriff's report and we intend to vigorously defend ourselves sitting here today.
Ryan: Okay, and given the balance sheet.
Ryan: There are challenges and needs to raise capital over the coming years are there any M&A opportunities in terms of asset sales.
Ryan: That you'd contemplate de risks your funding plans.
Carla Colorado: First I guess I would disagree with the balance sheet challenges I think we have one of the stronger balance sheets in the industry.
Carla Colorado: So I don't necessarily agree with that characterization, but no from an from an M&A standpoint, we're comfortable with where we sit in the assets. We owned obviously, we're aware of everything that was going on in the industry.
Carla Colorado: Okay I appreciate the color. Thanks.
Carla Colorado: Thank you. Our next question is from Paul Fremont with Ladenburg. Please go ahead.
Carla Colorado: Thank you very much just a quick question on the Marshall fire is there any update on the dollar amount that.
Paul Fremont: Of the claims at this point.
Bob: Hey, Paul it's Bob Thanks for the question no no updates I mean, the insurance Commissioner said that the property damages in excess of $2 billion, but as far as the total amount of students. They haven't claimed any liability in the suits are in.
Bob: Yes.
Bob: Great.
Bob: Is it for me thank you.
Bob: Yeah.
Bob: Thank you our last question is from Paul Patterson.
Bob: <unk>.
Paul Patterson: Please go ahead.
Paul Patterson: Hey, good morning.
Paul Patterson: Can you hear me Hey, good morning, Paul Yes.
Paul: Yes, yes.
Paul: Sure.
Paul: One of my questions have been.
Paul: But.
Paul: On the to follow up on Steve placements a question on the pins.
Paul: It seemed like reading the order and stuff that there was a.
Paul: But.
Paul: They basically anticipated looking at additional pins and sort of we're intrigued with through P. B our general.
Paul: And I was wondering just sort of how you play new it's really to say and it depends obviously, what the pins are but given that they seem to be sort of more performance based P. B U R.
Sophie Karp: Directionally driven how you think you're positioned to do to deal with that.
Sophie Karp: And do you see perhaps.
Sophie Karp: Not only you know ste.
Sophie Karp: Sticks, but also carrots is there a potential perhaps that you could.
Sophie Karp: Good.
Sophie Karp: Could do well under PBR, if you follow me.
Paul when you break it up a little bit, but let me see if I understand the question given the recent terms in Colorado, how do you feel broadly about performance based ratemaking and things like that.
Paul Patterson: Okay, I think that it's natural when we as Brian indicated earlier that we've had capital cost caps on various projects broadly throughout the portfolio I think the setup pans that we worked through with intervenors and stakeholders and the commission.
Paul Patterson: As part of the CET in Colorado, I think the process was productive.
Brian Smith: We have the opportunity to propose I think they appreciated our proposal.
Paul: I don't think it's a material move in a certain direction I think it's probably appropriate in on a project basis.
Paul: Less so for an entity wide basis.
Paul Patterson: I don't see a lot I don't read a lot into where we've been with Colorado or with other jurisdictions in terms of of incentive mechanisms around capital deployment, Yes, Paul.
Paul Patterson: In the written orders or if there is a discussion we will work with the staff as we work on to just transition plan.
Paul Patterson: In terms of.
Paul Patterson: Looking at well designed pens and Theres also.
Paul Patterson: Pam around potential kind of the emissions achievement. So we look forward to working with staff on that as we move through time.
Paul Patterson: Okay. Thanks, a lot guys.
Paul Patterson: Thank you very much I'd like to hand, it back over to CFO, Brian Van Abel for any closing remarks.
Okay.
Paul Patterson: Well. Thank you all thank you all for participating in our earnings call. This morning, Please contact our Investor relations team with any follow up questions have a great day.
Paul Patterson: Thank you very much that concludes today's conference you may now disconnect.
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