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. Please note. This conference is being recorded and for the duration up 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.
I'll 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 questions.
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.
Paul Patterson: Good morning, and welcome to Excel Energy 2023 fourth quarter earnings call. Joining me today are Bob Frenzel, Chairman, President and Chief Executive Officer, and 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 2003 results and highlights.
Paul Patterson: 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.
Paul Patterson: 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 Patterson: Today, we'll discuss certain metrics that are non-GAAP measures information on the comparable GAAP measures and reconciliations are included in our earnings release.
Paul Patterson: In the fourth quarter <unk> implemented several workforce actions to streamline the organization ensure resource ensure resources are aligned with business and customer needs to ensure our long term success.
<unk> initiated a voluntary retirement program under which 400 non bargaining employees retired in addition, we eliminated 159 bargaining positions.
Paul Patterson: As a result, we recorded a workforce reduction expense of $72 million or <unk> <unk> per share in the fourth quarter of 'twenty three.
Paul Patterson: Also in 'twenty, three we recorded a charge of $35 million or <unk> <unk> per share related to a legal dispute between core and excel energy regarding prior year operations at the Comanche three coal plant.
Paul Patterson: Given the nonrecurring nature of these items both have been excluded from ongoing earnings as a result, our GAAP earnings were $3 21 per share while ongoing earnings which exclude these nonrecurring charges were $3 35 per share.
Paul Patterson: 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.
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.
In 2023, we executed on the larger capital program and XL energy history investing approximately $6 billion.
Robert C. Frenzel: To improve resiliency and enabling clean energy for our customers.
While delivering economic growth and vitale already from our communities.
Robert C. Frenzel: Our investments and operations enable the ongoing earnings of $3 35 per share representing the 19th consecutive year of meeting or exceeding our earnings guidance.
Paul Patterson: 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.
Paul Patterson: In December we received approval for our groundbreaking clean energy portfolio with over 500 megawatts of new generation resources.
Paul Patterson: 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 to deliver cleaner energy economy.
Paul Patterson: I'm proud of how our teams partner with so many stakeholders to deliver on these achievements.
Paul Patterson: And as I look back on the year, we accomplished so many other great outcomes.
Paul Patterson: While our final values arent and 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.
Paul Patterson: Across our wind fleet, we continued to deliver strong net capacity performance and exceeded our corporate availability target for the third consecutive year.
Paul Patterson: We navigated a very busy regulatory calendar resolving multiple rate cases, and reached a pending settlement and our Texas electric rate case.
Paul Patterson: We thought our clean heat plan in Colorado, and our natural gas innovation plan in Minnesota, providing a framework and both of those states to achieve net zero greenhouse gas emissions for our natural gas customers.
Paul Patterson: We've approved transportation electrification programs into Mexico, and in Wisconsin, along with updated transportation plans pending commission approval in both Minnesota and Colorado.
Paul Patterson: We were partners in over one 5 billion of awards by the Department of energy to support the Heartland hydrogen hub, while I'll fire and extreme weather resiliency form energy long duration energy storage pilots and additional transmission as part of the MISO SPP seams projects.
Paul Patterson: These grants will lower the cost of these clean energy and resiliency projects for our customers.
Paul Patterson: 2023, we signed agreements for data centers with meta in Minnesota and QTS in Colorado.
Data center, and AI, driven demand continued to be a low driver on our system with several gigawatts in our pipeline across our footprint.
Paul Patterson: 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.
Paul Patterson: We have active rfps for over 2000 megawatts of renewable resources across our operating companies, which we expect resolution on later this year.
Paul Patterson: And we also have our resource plans in our Sps company, which could add an additional 5000 to 10000 megawatts to our system by 2030.
Paul Patterson: 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.
Paul Patterson: We reduced carbon emissions for the electric utility by 53% as compared to a 2005 baseline on track with our goals for 2030 and 2015.
Paul Patterson: All the while our customer bills remain amongst the lowest in the country.
Paul Patterson: 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.
Paul Patterson: We're actively involved in our communities as our employees contractors and retirees provided more than $11 million and volunteered over 40000 hours to support charitable Oregon organizations across our footprint.
Paul Patterson: We initiated 18 economic development projects for our communities, which are projected to create more than $2 4 billion in capital investments and fortune 500 jobs.
Paul Patterson: 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.
Paul Patterson: 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: 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.
This reflects 10 cents of unfavorable weather as compared to last year.
Brian Smith: Lower O&M expenses increased earnings by six cents per share, which reflects the impact of cost containment actions.
Brian Smith: Lower conservation and DSM expense increased earnings by six cents per share, which was largely offset in lower margins.
Paul Patterson: Higher other income increased earnings by <unk> <unk> per share primarily due to Rabbi Trust performance, which is largely offset in O&M expenses.
Brian Smith: Lower other taxes, primarily property taxes increased earnings by <unk> <unk> per share.
Brian Smith: And then in addition to other items combined to increase earnings by <unk> <unk> per share offsetting these positive drivers.
Paul Patterson: Interest charges, which decreased earnings by <unk> 14 per share driven by rising interest rates and increased debt levels to fund capital investment.
Paul Patterson: 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%.
Speaker Change: Shifting to expenses.
Speaker Change: 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 faced during the year.
Speaker Change: During the fourth quarter, we also made constructive progress on several rate case proceedings.
Speaker Change: In December we filed a settlement in our Texas electric rate case, which reflects a rate increase of $65 million.
Speaker Change: And the acceleration of the choke depreciation life to 2028.
Speaker Change: And the ROE of 955% an equity ratio of 54, 5% for <unk> purposes.
Speaker Change: A commission decision is anticipated in the first quarter of 2024.
Speaker Change: In November, Wisconsin Commission approved an 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%.
Paul Patterson: The decision reflects adjustments for our residential affordability program.
Paul Patterson: <unk> fuel and purchase power costs and other items.
Paul Patterson: Which are earnings neutral rates were effective January 2024.
Paul Patterson: In November we filed in Minnesota, a natural gas rate case, requesting a $59 million rate increase based on an ROE of 10, 2% an equity ratio of 52, 5% and the 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.
Brian Smith: 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.
Executing multiple contracts in 2023 totaling $400 million.
Brian Smith: 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.
Moving to our capital forecast, we've updated our five year capital plan for the decision and the Colorado Resorts plan, which now reflects investment of 39 billion.
Brian Smith: This biggest capital planning supports investment in renewable generation transmission to deliver the clean energy and customer facing investments for a reliable and resilient advanced grid base.
Brian Smith: The baseline resulted 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 a 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: Gain 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 2025.
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.
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: Yeah.
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 and follows the foundational plans for our natural gas utility to reach its net durables.
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 updated 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.
Brian Smith: While continuing the safe and reliable service they expect from <unk> energy.
Brian Smith: This concludes our prepared remarks, operator, we will now take questions.
Brian Smith: Thank you very much.
Brian Smith: First question comes from Julien Dumoulin Smith from Bank of America. Please go ahead.
Brian Smith: Hey, guys nicely done congratulations on a variety of different metrics here, but you guys had already been tracking above the midpoint of your 5% 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, I'm going to put a put it back to you a little bit.
Brian Smith: 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.
Brian Smith: Hey, Julien good morning.
Brian Smith: 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.
Julien: We expect during this five year period to be at or above the top end of our 5% to 7% range, but we think 5% to seven minutes are still a good long term growth rate for the company and.
Brian Smith: That's our guidance right now.
Julien: Yeah, and Julien just just add that we do expect that as a conservative growth rate and as I noted in my remarks 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.
Julien: We're excited about our opportunities in our steel for fuel and the clean energy transition.
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.
Julien Smith: Yes, I appreciate being able to rebase, the actuals that certainly a sign of strength as you say.
Julien Smith: Now, maybe just to come back to the timing of equity here.
Julien Smith: How do you think about that vis vis <unk>.
Julien Smith: 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.
Julien Smith: Yes.
Julien Smith: No no change.
Julien Smith: Our guidance assumptions for this year is still $3 50 to 360 now there is an increase in Capex. If you look kind of plan over plan this year, but thats really backend loaded as we worked through some of the regulatory regulatory approval processes.
Julien Smith: From an equity perspective.
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.
Julien Smith: The amounts above the $1 billion $5 above that and it will be opportunistic.
Julien Smith: And we will look at it but I think it kind of follows with how our incremental capex follows.
Julien Smith: Got it excellent and then Minnesota Commissioner you've experienced whats your relationship and maybe a little bit of a brief comment here on where we stand in Minnesota, If you will.
Minnesota Commissioner: Yes, no we actually we got a long standing relationship the New Commission that 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.
Minnesota Commissioner: Excellent alright ill leave it there guys. Thank you.
Minnesota Commissioner: Thanks.
Minnesota Commissioner: Thank you very much. Our next question is from Jeremy Tonet with J P. Morgan. Please go ahead.
Minnesota Commissioner: Good morning, Jeremy Good morning.
Rich Sunderland: It's actually rich Sunderland on for Jeremy can you hear me.
Rich Sunderland: Yes, we can.
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: On the table at this point or any guardrails to that.
Rich Sunderland: No.
Rich Sunderland: The way it will work.
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 affords or 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 TN.
Rich Sunderland: Understood very helpful.
Rich Sunderland: <unk>.
Rich Sunderland: Then.
Rich Sunderland: Looking at a high level in terms of the O&M outlook, and then parsing that relative to the.
Rich Sunderland: Workforce reduction announcements could you just 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 we've accomplished over the past few years.
Rich Sunderland: 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.
Paul: 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.
Paul: And Im sure some of our resources are aligned with our customer needs are and our growth opportunity yourself.
Paul: 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 look to reinvest some of that as I said into the growth areas of the company as we look to support our customer.
Her needs.
Paul: But overall sets us up into 24 of that that is included and incorporated into our 2020 for guidance.
Paul: 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.
Paul: You asked about kind of what our longer term expectations are now we've been managing our O&M.
Paul: With a laser focus on operational efficiency I think you can look in our IR deck from Q4 were 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.
Paul: And while we look longer term, we have some tail winds of coal plant shutdowns. We expect we've shut down a coal plant 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 launched something we call <unk>, which is our continuous improvement engine engine, we deployed last year.
So we're in a year or two of it 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 <unk>.
Paul: Areas, we need to invest in from a growth perspective, and maintain O&M roughly flat.
Brian Smith: Sure 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 spend a lot of time on so I appreciate the question.
Brian Smith: Great. Thanks for the color.
Thank you. Our next question is from Turkish Choker with Evercore ISI. Please go ahead.
Brian Smith: Hey, good morning.
Turkish Choker: Hey, good morning, Bob Congrats solid quarter here.
Robert C. Frenzel: Well, Brian the rest of the team.
Robert C. Frenzel: I thought the dividend.
Robert C. Frenzel: Projected growth trajectory change was interesting.
Brian Smith: Now, saying low end of the 5% to seven because you have higher growth rate, 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: Yes, absolutely and good morning to dish.
Brian Smith: As we look at it given our significant growth.
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 10% EPS growth. We thought it was prudent and the right decision to lower our <unk>.
And growth still within our dividend growth guidance of $5 to 7%.
Brian Smith: But as you think over the long term.
Brian Smith: 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 high capital needs that it feels like the prudent decision gives us longer term financial flexibility and dry powder and reduces financing risk over the long term. So we feel.
Brian Smith: Really good about it and we feel really good that we have a very good total.
Brian Smith: Shareholder return proposition for investors and we will continue we expect to deliver here in the New York for them.
Got it and Brian just as.
Brian Smith: There's obviously a ton of capex opportunity like 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 plans as we do regularly.
We obviously evaluate all parts of our total shareholder return.
That's fair, Okay, and then just one last one for me is just 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.
Bob: Hey progression Bob Thanks, Thanks for the support as always.
Bob: With the fire I think the next sort of milestone I would say is 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.
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.
Bob: After that we go into discovery and there's not much to do past that so we'll update everybody when we know more.
Bob: There is not much to say other than the facts remain the same on the case and wild calendar probably early next month.
Thank you so much.
Bob: Thank you. Our next question is from Steve Fleishman with Wolfe Research. Please go ahead.
Bob: Yes.
Bob: Yes, hi, good morning, everyone.
Stephen Byrd: So I just wanted to clarify the all your grocery commentary is that based on the base plan.
Stephen Byrd: The updated based upon.
Stephen Byrd: Yes, Steve the update you had $39 billion plan, yes.
Stephen Byrd: Okay.
Stephen Byrd: And on the could you just talk to.
Stephen Byrd: Depends in Colorado, and just how youre feeling about being able to manage.
Stephen Byrd: Any I guess it could be good or bad, but just any risk.
Stephen Byrd: Risk exposure from that.
Stephen Byrd: Yeah, certainly Steve in for the.
Stephen Byrd: Folks that haven't.
Stephen Byrd: Been close to that preceding we really have two pins.
Stephen Byrd: The commission asked to propose a couple pins. So we have a cost to construct and think of that just has a capital what's our what's our budget for the project and we've operated under those types of things for a long time weather in Minnesota, Texas, New Mexico, We've had those in Colorado.
Stephen Byrd: So we proposed to pin the commission modified a little bit so, it's a plus or minus 5% band and then customer sharing savings in schering's without penalty or incentive above that 5% overall, but we're comfortable with managing within that P. M. We feel like we've put forward good budgets for our <unk>.
Stephen Byrd: <unk> and knew going in that that would be held to what we propose given that was a competitive process. So we feel comfortable that on the operational perm.
Stephen Byrd: Again, it's the commission modified it slightly but generally adopted what we proposed.
And overall think.
Rich Sunderland: Think of it <unk> pay them on a three year rolling average with a plus or minus 5% dead band.
Rich Sunderland: And the first 5% to 10% above its.
Rich Sunderland: 80% of the cost savings or other customers of the company <unk> was 20%. So you can look at it we feel that's very manageable.
Rich Sunderland: And.
Rich Sunderland: Sure.
Minnesota Commissioner: Appreciative that the commission adopted the pins that we are that our structure of the pins up.
Minnesota Commissioner: So we look forward to working through.
Minnesota Commissioner: The <unk> with the Commission and then we have the just transition plan coming up which is additional opportunities as we think about transitioning our generation fleet in Colorado.
Okay, Great and then lastly, just some.
Minnesota Commissioner: Washington question.
Minnesota Commissioner: I guess timeline, if any on the nuclear PTC.
Minnesota Commissioner: Your thoughts on the proposed hydrogen rules and what that means for your project.
Minnesota Commissioner: If you want to take up any thoughts on election risk.
Minnesota Commissioner: Sure.
Bob: Steve It's Bob.
Bob: The last one it seems like a lot of fun to talk about but I'll, probably pass on that fast ball.
Bob: Yeah.
On the Washington in particular.
Bob: The hydrogen production tax credit.
Bob: We were very active.
Bob: 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.
Bob: Cleaner energy economy.
Bob: We felt that hydrogen was probably the most attractive molecule that we could produce a cleaning greenway.
Bob: 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:
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: Within 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 lot to balance here I mean, constrict 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.
Julien Smith: Our math.
Julien Smith: Yes, I can just chime in on nuclear right. 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.
Julien Smith: And we've got advocated for the use of <unk>, obviously, given that we're in and our T O.
Brian Smith: You 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 a 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 so significantly more expensive than gray hydrogen and so it will depress the development of the green hydrogen market.
Brian Smith: And so hopeful we get some changes.
Bob: To the final rules.
Bob: 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>.
Speaker Change: Stephen Julians math class question.
When you think of the five to seven year at or above the high end.
And Thats all on the base capital.
Speaker Change: What what would cause you to get to 6% growth.
Speaker Change: Okay.
Speaker Change: 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.
Speaker Change: The top end or above is the right place to be long term.
Speaker Change: Great and then I think you mentioned you're filing a Colorado wildfire mitigation plan later this year I believe just could you give us.
Speaker Change: Look into that I mean is that also a potential for.
Speaker Change: Additional capital Capex, and then or any changes in operation Youre thinking once you make that filing.
Speaker Change: Yes.
Speaker Change: Anthony It's Bob Good that's good to hear you this morning, and thanks for the questions.
Anthony Crowdell: We're operating under an existing wildfire mitigation program in Colorado, right now and I'd say that that plan includes a.
Anthony: Asset hardening and replacement, it's got pilots for <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 scale deployment.
Anthony: Everything from coatings on Poles to.
Anthony: Covered conductor analysis and deployment to enhanced <unk>.
We closer settings, and re closer installations across the business potential for <unk>.
Incremental under grounding in various areas and probably some operational opportunities around enhanced power line settings and <unk> mechanisms.
Anthony: Still working on finals.
Anthony: 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 enhancement 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 accepted 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 you.
Bob: You bet. Thank you.
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 watch in Colorado, whether that's around the CPC and process for the transmission or the just transition filing and then just second on Sps I always thought of 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 the 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 with 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: <unk>. They believe that we may need those resources, so that will be all part of the just just transition plan filing and again Thats follows a 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%.
Carla Colorado: <unk> 30 type clean generation opportunities and how do we transition 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 in Sps. So you can order to our sales growth there in 2023.
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.
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 of 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, just thought that under 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 and the upper Midwest and the southwest we expect resolution of those as I said in my prepared.
Rich Sunderland: Third remarks, this year and they are included in our incremental capital opportunities in our investor deck.
Carly Davenport: And then just one more thing data will be filing a resource plan in Minnesota in February 1st.
Robert C. Frenzel: Which is a continuation of the transition of our generation fleet as we shut down our coal plants in Minnesota.
Robert C. Frenzel: 2030.
Robert C. Frenzel: We're pretty excited about just all the opportunities across our service territories.
Robert C. Frenzel: Awesome, thanks for that detail and congrats on the updates.
Robert C. Frenzel: Thank you.
Yeah.
Robert C. Frenzel: Thank you. Our next question is from Sophie Karp with Keybanc. Please go ahead.
Robert C. Frenzel: Hi, Good morning, guys and thank you for taking my question.
Robert C. Frenzel: So the question here.
Robert C. Frenzel: So I noticed that you showed the Colorado I guess.
Robert C. Frenzel: 8% I'm reading this correctly.
Robert C. Frenzel: And just given how much capital you are going to be investing in the state.
Robert C. Frenzel: Do you see a path to improve that.
Robert C. Frenzel: What is that.
Hey, Sophie Thanks for the question yes.
Robert C. Frenzel: Certainly in Colorado, we've had a pretty significant gap between our authorized versus earned ROE as we think about the capital that we're deploying on the clean energy transition that will flow through timely recovery from a rider perspective also all the transmission that we need to invest to be able to deliver that clean energy to our customers.
Robert C. Frenzel: We 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 financially 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.
Sophie Karp: Keep that alignment and improve it over time.
Sophie Karp: So the problem so to speak there was just a timing lag with capital that you expect to improve with more contemporary and it's my opinion my guess.
Sophie Karp: Right, Yeah, and as we mentioned it is the regulatory lag the capital lag.
Paul Patterson: Historic test year in Colorado gas and as we mentioned in my opening remarks will be filing a Colorado natural gas case here in the next week or so.
Paul Patterson: And so we'll be working through that.
Paul Patterson: Okay Alright.
Paul Patterson: Alright, and my other question was on.
Paul Patterson: Your volume growth overall for the company was something like 1% or about when you say in your guidance down to 15% growth.
Paul Patterson: Sure.
Paul Patterson: I'm wondering.
Paul Patterson: Or do you expect to see this acceleration.
Paul Patterson: What's the underlying assumption there.
Paul Patterson: So as we think about it.
Paul Patterson: Our guidance here 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 work very closely with our largest large industrial customers down there. So have a good sense of of what their loan growth forecasts are in 2000.
Paul Patterson: 24, 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.
Paul Patterson: Customer residential customer growth of roughly 1% so that contributed some but overall, it's driven by our C&I growth, particularly in Sps.
Awesome. Thank you so much that's all for me.
Paul Patterson: Thank you. Our next question is from David Arcaro with Morgan Stanley. Please go ahead.
Paul Patterson: Hey, good morning, Thanks, so much.
Paul Patterson: I had a quick question just on tax credit transfers.
David Arcaro: Let's see are you changing kind of anticipated level over the course of the plan given the increased capex here and do that.
David Arcaro: 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 for us transferability isn't really in.
David Arcaro: Cash flow driver and we'd go look plan Overplaying as we've incorporated all of the transfer tax credits in the previous plan. The transfer tax credits in this new plan certainly cash flow.
David Arcaro: 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. There is net income the driver book depreciation and some deferred taxes, it's complementation all three some.
David Arcaro: Some of these projects do go in service in the middle and so they're good cash flowing assets as we think about it and so that's why you see that there.
Sophie Karp: From a transferability perspective now we do include that now in our five year forecast I think prior I'd 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.
$500 million this roughly $5 million this year growing to about $700 million at the end of the five year forecast so.
Sophie Karp: We see the demand and have actually have much much more demand than our supply.
Got it great that all makes sense, that's all I had thanks, so much I appreciate it.
Sophie Karp: Thank you our next question from Travis Miller with Morningstar. Please go ahead.
Sophie Karp: Good morning, everyone.
Sophie Karp: I'm disappointed we don't get to hear your election.
Sophie Karp: But aside from that.
Sophie Karp: 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.
Sophie Karp: How do you go into these next set of Rfps in any kind of other capital investment opportunities does that change your thinking.
Sophie Karp: In terms of pursuing some of those projects.
Bob: Hey, Travis it's Bob Thanks for the question.
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.
Bob: And it wasn't in our original pro forma estimates, but I think our total over the last five years of 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.
Bob: 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.
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.
Bob: Our 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, great that makes sense and then one other different subject.
Bob: Assuming you get the.
Bob: <unk> accelerated depreciation approval in Texas.
Bob: Are there any remaining <unk>.
Bob: See the regulatory other procedural.
Steps necessary to hit that 2030 goals closing your entire coal fleets.
Bob: No no.
Bob: The last one outstanding so.
Bob: We're pretty excited about it assuming we get PUC approval of the settlement.
Bob: That's the last one.
Bob: Okay no transmission operator.
Bob: Agreement necessary or anything like that.
Bob: No.
Bob: Okay, great. Thanks, so much.
Bob: Thank you. Our next question is from Brian <unk> with Citi. Please go ahead.
Bob: Hi couple of quick questions quick questions in terms of the Marshall fire I appreciate the clarifications and updates is there any opportunity for settlement there.
Bob: Outside of the formal court process.
Ryan: Hey, Ryan.
Brian Smith: But 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.
First I guess I would disagree with the balance sheet challenges I think we have one of the stronger balance sheets in the industry.
Ryan: 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 own obviously, we're aware of everything that was going on in the industry.
Ryan: Okay. Appreciate the color. Thanks.
Ryan: Yeah.
Ryan: Thank you. Our next question is from Paul Fremont with Ladenburg. Please go ahead.
Ryan: Thank you very much just a quick question on the Marshall fire is there any update on the dollar amount that.
Paul Patterson: Of the claims at this point.
Paul Patterson: 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 suits. They haven't claimed any liability in the suits are in.
Paul Patterson: Yes.
Paul Patterson: Great.
Paul Patterson: That's it for me thank you.
Paul Patterson: Yeah.
Paul Patterson: Thank you our last question is from Paul Patterson.
Paul Patterson: Please go ahead.
Paul Patterson: Hey, good morning.
Paul Patterson: Can you hear me Hey, good morning, Paul.
Paul Patterson: Yes.
Paul Patterson: One of my questions have been.
Paul Patterson: But.
Paul Patterson: On the to follow up on Steve placements a question on the pins.
Paul Patterson: It seemed like reading the order and stuff that there was a.
Paul Patterson: Okay.
Paul Patterson: Basically anticipated looking at additional pins and sort of were intrigued with through PBR General.
Paul Patterson: And I was wondering just sort of how you Plano its early to say and it depends obviously, what the pins are but given that they seem to be sort of more performance based.
Paul Patterson: Sure.
Paul Patterson: Directionally driven.
Paul Patterson: How do you think you.
Paul Patterson: You are positioned to do to deal with that and do you see perhaps not only.
Paul Patterson:
Paul Patterson: Sticks, but also carrots is there a potential perhaps that you could.
Paul Patterson: Good.
Paul Patterson: Well under PBR, if you follow me.
Paul Patterson: Paul when you break it up a little bit, but let me see if I understand the question given the recent turns in Colorado, How do you feel broadly about performance based ratemaking and things like that.
Brian Smith: 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 hands that we worked through with intervenors and stakeholders and the commission.
Brian Smith: As part of the CDP in Colorado, I think the process was productive.
Brian Smith: The opportunity to propose I think they appreciated our proposal.
Brian Smith: I don't think it's a material move in a certain direction I think it's probably appropriate in on a project basis.
Brian Smith: Less so for an entity wide basis.
Brian Smith: 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.
Brian Smith: Paul.
Paul: In the written orders and there is a discussion we will work with the staff as we work on to just transition plan.
Paul: Terms of.
Paul: Looking at well design pins and there's also.
Paul: Pam around potential kind of the emissions achievement. So we look forward to working with staff on that as we move through time.
Paul: Okay. Thanks, a lot guys.
Paul: Thank you very much I'd like to hand, it back over to CFO, Brian Van Abel for any closing remarks.
Paul: Yes.
Paul: 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.