Q1 2024 WEC Energy Group Inc Earnings Call
Operator: Ladies and gentlemen, good afternoon, and welcome to WEC Energy Group's conference call for its first quarter 2024 results. This call is being recorded for rebroadcast, and all participants are in a listen-only mode at this time.
Ladies and gentlemen, good afternoon, and welcome to W. E C Energy group's conference call for first quarter 'twenty 'twenty four results.
Paul Patterson: Absolutely. I appreciate it. Once again, congratulations, and good luck.
This call is being recorded for rebroadcast and all participants are in a listen only mode. At this time.
Operator: After the presentation, the conference will be open to analysts for questions and answers. In conjunction with this call, a package of detailed financial information is posted at wecenergygroup.com. A replay will be available approximately two hours after the conclusion of this call.
After the presentation the conference will be open to analysts for questions and answers.
In conjunction with this call a package of detailed financial information is posted at W. E B Energy group Dotcom.
A replay will be available approximately two hours after the conclusion of this call.
Operator: Before the conference call begins, please note that all statements in the presentation, other than historical facts, are forward-looking statements that involve risks and uncertainties that are subject to change at any time. Such statements are based on management's expectations at the time they are made. In addition to the assumptions and other factors referred to in connection with the statements, factors described in WEC Energy Group's latest Form 10-K and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated. During the discussions, referenced earnings per share will be based on diluted earnings per share unless otherwise noted. And now it is my pleasure to introduce Gale Klappa, the Executive Chairman of WEC Energy.
Before the conference call begins please note that all statements in the presentation other than historical facts are forward looking statements that involve risks and uncertainties that are subject to change at any time.
Such statements are based on management's expectations at the time they are made.
In addition to the assumptions and other factors referred to in connection with the statements factors described in double U E. C energy group's latest Form 10-K, and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated.
During the discussions referenced earnings per share will be based on diluted earnings per share unless otherwise noted.
And now it is my pleasure to introduce Gale Clobber executive Chairman of W. E C Energy group.
Yeah.
Gale E. Klappa: Live from the Heartland. Good afternoon, everyone.
Gale E. Klappa: Thank you, Paul. You take care. All right. Well, folks, that concludes our conference call for today. Thank you so much for taking part. If you have more questions, feel free to contact Bess Strzoka. She can be reached at 414-221-4639. So long, everybody.
Gale E. Klappa: Live from the Heartland and good afternoon, everyone. Thank you for joining US today as we review our results for the first quarter of 2024 first I'd like to introduce the members of our management team who are here with me today, we have Scott Lauber, our president and Chief Executive <unk>, Our Chief Financial Officer, and Beth Straka, Senior Vice President of corporate.
Gale E. Klappa: Thank you for joining us today as we review our results for the first quarter of 2024. First, I'd like to introduce the members of our management team who are here with me today. We have Scott Lauber, our President and Chief Executive Officer, Xia Liu, our Chief Financial Officer, and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations.
Operator: And ladies and gentlemen, that concludes today's call, and we thank you for your participation. You may now disconnect. Please wait; the conference will begin shortly.
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<unk> and Investor Relations.
Gale E. Klappa: Now, as you saw from our news release this morning, we reported first quarter 2024 earnings of $1.97 a share. Throughout the warmest winter in Wisconsin history, we remain laser focused on financial discipline, operating efficiency, and customer satisfaction. And we're confident that we can deliver another year of strong results in line with our guidance for 2024. As a reminder, we're guiding to a range of $4.80 to $4.90 a share for the full year. This, of course, assumes normal weather as always going forward.
Gale E. Klappa: Now as you saw from our news release. This morning, we reported first quarter 2024 earnings of $1 97, a share throughout the warmest winter in Wisconsin history, we remain laser focused on financial discipline, and operating efficiency and customer satisfaction and we're confident that we can deliver another year of strong.
Gale E. Klappa: Results in line with our guidance for 2024.
Gale E. Klappa: As a reminder, we are guiding to a range of $4 80 to $4.90 a share for the full year. This of course assumes normal weather is always going forward.
Gale E. Klappa: Switching gears now, we're off to a strong start moving forward with our ESG progress plan. It's the largest five-year investment plan in our history, totaling $23.7 billion for efficiency, sustainability, and growth. And as we've discussed, the plan is based on projects that are low-risk and highly executable.
Gale E. Klappa: Switching gears now we're off to a strong start moving forward with our ESG progress plan. It's the largest five year investment plan in our history totaling $23 $7 billion for efficiency sustainability and growth.
Gale E. Klappa: We've discussed the plan is based on projects that are low risk and highly executable in the past few weeks alone we filed with the Wisconsin Commission more than $2 billion of projects that are needed to meet customer demand across the region. In addition, just a few days ago, we announced that we plan to purchase a 90% <unk>.
Gale E. Klappa: In the past few weeks alone, we filed with the Wisconsin Commission more than $2 billion in projects that are needed to meet customer demand across the region. In addition, just a few days ago, we announced that we plan to purchase a 90 percent ownership interest in the Delilah One solar project, which is a 300 megawatt solar park in northeast Texas.
Gale E. Klappa: Ownership interest in the Delilah, one solar project. The Leila is a 300 megawatt solar park in northeast, Texas. It will be the next addition to our work infrastructure segment, we expect to close under Leila with an investment of $459 million. When the project goes into service and Thats currently expected.
Gale E. Klappa: It will be the next addition to our WEC infrastructure segment. We expect to close on Delilah with an investment of $459 million when the project goes into service, and that's currently expected by the end of June. Since the beginning of the year, we also purchased an additional 10% interest in the Sampson Solar Project. Now that's part of the Sampson and Delilah development in Northeast Texas.
Gale E. Klappa: By the end of June.
Gale E. Klappa: Since the beginning of the year. We also purchased an additional 10% interest in the Sampson Solar project now that's part of the Samson and Delilah development in northeast, Texas.
Gale E. Klappa: And, as a reminder, Maple Flats is under development in South Central Illinois. It has an off-take agreement with a Fortune 100 company for all the energy it will produce. The project should be in service by the end of this year. So to sum it up, with Delilah and with the increase in ownership of Sampson and Maple Flats, we'll be investing an additional $560 million this year in our infrastructure segment.
Gale E. Klappa: And we plan to increase our ownership in the Maple flats Solar energy center from 80% to 90% just as a reminder, maple flats is under development in South Central Illinois. It is an off take agreement with a fortune 100 company for all the energy it will produce the projects should be in service by the end of this year.
Gale E. Klappa: So to sum it up with Delilah and with the increase in ownership of Samson and Maple flats, we'll be investing an additional $560 million this year in our infrastructure segment.
Gale E. Klappa: As you recall, we're reallocating, away from our operations in Illinois, a total of $800 million over the five-year period 2024 through 2028. These high-quality, zero-carbon projects clearly go a long way toward achieving that goal. And each of these projects meets our strict financial criteria. Overall, the building blocks of our capital plan show even stronger growth in our regulated electric business, and our plan fully supports our long-term earnings growth rate, which we project to be in the 6.5% to 7% range on a compound average annual basis. And now turning to the regional economy, the unemployment rate in Wisconsin stands at 3%, continuing a long-running trend below the national average.
Gale E. Klappa: As you recall, we're reallocating away from our operations in Illinois, a total of $800 million over the five year period 2024 through 2028. These high quality zero carbon projects clearly go a long way towards achieving that goal in each of these projects meets our strict financial criteria.
Gale E. Klappa: Area.
Gale E. Klappa: Overall, the building blocks of our capital plan show, even stronger growth in our regulated electric business and our plan fully supports our long term earnings growth rate, which we project to be in the six 5% to 7% range on a compound average annual basis.
Gale E. Klappa: And now turning to the regional economy, the unemployment rate in Wisconsin stands at 3% continuing our long running trend below the national average in.
Gale E. Klappa: In fact, Wisconsin recently reached a new record for employment, more people working than at any other time in state history. And that includes a record, folks, for the number of construction jobs. That's a great sign of the growth and the potential we're seeing, particularly in what we call the I-94 corridor. To give you just one example of the new economic activity in the region, just a few weeks ago, electronic components that are used in fiber broadband networks began rolling off the assembly line at a state-of-the-art facility developed by Sanmina Corporation. These components help form the backbone of high-speed Internet service.
Gale E. Klappa: In fact, Wisconsin recently reached a new record for employment more people working than at any other time in state history and that includes a record folks for the number of construction jobs. That's a great sign of the growth and the potential we're seeing particularly in what we call. The I 94 corridor to give you just one.
Gale E. Klappa: Example of the new economic activity in the region just a few weeks ago electronic components that are used in fiber broadband networks began a rolling off the assembly line at our state of the art facility developed by Sanmina Corporation. These components help form the backbone for high speed Internet service.
Gale E. Klappa: And we want to welcome Eli Lilly to our neighborhood. The pharmaceutical giant is purchasing a new production facility again in the I-94 corridor. And speaking of growth, Microsoft is moving full speed ahead with the construction of a massive data center complex on the I-94 corridor south of Milwaukee. In fact, in the next few weeks, Microsoft is planning an event here in the Milwaukee area to discuss its plans for new investments in Wisconsin. So stay tuned.
Gale E. Klappa: And we want to welcome Eli Lilly to our neighborhood.
Gale E. Klappa: The pharmaceutical giant is purchasing a new production facility again in the I 94 corridor.
Gale E. Klappa: And speaking of growth Microsoft is moving full speed ahead on the construction of a massive data center complex in the I 94 corridor South of Milwaukee in fact in the next few weeks Microsoft is planning an event here in your in the Milwaukee area to discuss its plans for new investments in Wisconsin. So.
Gale E. Klappa: They tune.
Scott J. Lauber: And looking broadly across the landscape, I can tell you that the number of prospects looking at expanding or locating in the Milwaukee 7 region is stronger, literally, than at any time in the past two decades. And with that, I'll turn the call over to Scott for more specifics on our regulatory calendar, our capital plan, and our operational highlights. Scott, all yours. Thank you, Gale.
Gale E. Klappa: And looking broadly across the landscape I can tell you that the number of prospects looking at expanding or relocating in the Milwaukee seven region is stronger literally than at anytime in the past two decades.
Gale E. Klappa: And with that I'll turn the call over to Scott for more specifics on our regulatory calendar, our capital plan and our operational highlights Scott all yours. Thank you Gail.
Scott J. Lauber: I'd like to start with some updates on the regulatory front. In Wisconsin, we filed new rate reviews for test years 2025 and 2026 on April 12. Our requests focus on addressing three major areas of need. First, improving reliability and reducing outages from increased storm activity. Second, supporting Wisconsin's economic growth and job creation through investments in new generation and distribution projects. And lastly, complying with the new EPA emission rules by continuing the transition from coal generation to renewables and natural gas. We expect a decision by the end of the year, with new rates effective January 1st, 2025.
Scott J. Lauber: Like to start with some updates on the regulatory front.
Scott J. Lauber: In Wisconsin, we filed new rate reviews for test years, 2025, and 2026 on April 12.
Scott J. Lauber: Ah requests focus on addressing three major areas of need.
Scott J. Lauber: First improving reliability and reducing outages from increased storm activity second supporting Wisconsin, economic growth and job creation through investments in new generation and distribution projects.
Gale E. Klappa: And lastly, complying with the new EPA, Michigan rules by continuing the transition from coal generation to renewables and natural gas.
Gale E. Klappa: We expect a decision by the end of the year with new rates effective January one 2025.
Scott J. Lauber: Last month, we submitted filings to the Wisconsin Commission for significant developments to support our electric generation. Our proposed projects include two new sources of natural gas generation. The first request is for approval to construct 1,100 megawatts of modern, simple-cycle combustion turbines at our existing Oak Creek power plants. The expected investment is $1.2 billion. To support that generation, we are proposing to build a 33-mile lateral with an expected investment of approximately $180 million. This lateral would provide firm reliability of natural gas to the Oak Creek site for those units as well as our Power of the Future units that we're converting to natural gas.
Gale E. Klappa: Last month, we submitted filings to the Wisconsin Commission for significant developments to support our electric generation business.
Gale E. Klappa: Our proposed projects include two new sources of natural gas generation. The first request is for approval to construct 1100 megawatts of modern simple cycle combustion turbines at our existing Oak Creek power plant site the.
Gale E. Klappa: The expected investment is $1 2 billion.
Gale E. Klappa: Yes.
Gale E. Klappa: To support that generation, we are proposing to build a 33 mile lateral with an expected investment of approximately $180 million.
Gale E. Klappa: This lateral would provide firm reliability of natural gas to the Oak Creek site for those units as well as our power the future units that were converting to natural gas.
Scott J. Lauber: And to help assure reliability, we are proposing a new storage facility at Eto'o Creek. With a planned investment of approximately $460 million, this facility would have the capacity to store 2 billion cubic feet of liquefied natural gas to support both our generation and our gas distribution system. In addition, we requested approval to add 128 megawatts of state-of-the-art generation using reciprocating internal combustion engines, or as we call them, race units. We expect to invest approximately $280 million in that project near our Parrish Generation Station. As a reminder, these investments are expected to earn AFUDC during the construction period. We also have smaller rate reviews in progress at our two Michigan utilities. Michigan Gas Utilities and Upper Michigan Energy Resources.
Gale E. Klappa: And does it help to share reliability, we are proposing a new storage facility at <unk> Creek with a planned investment of approximately $460 million. This facility would have the capacity to store 2 billion cubic feet, a liquefied natural gas to support both our generation.
Gale E. Klappa: And our gas distribution system.
Gale E. Klappa: In addition addition, we requested approval to add 128 megawatts of state of the art generation using reciprocating internal combustion engines or as we call them race units, we expect to invest approximately $280 million in that project in Europe, Paris generate.
Gale E. Klappa: <unk> station.
Gale E. Klappa: As a reminder, these investments are expected to earn a F O D C. During the construction period.
Gale E. Klappa: We also have smaller rate reviews and progress at our two Michigan utilities.
Gale E. Klappa: Michigan gas utilities, and upper Michigan Energy resources. These applications are primarily driven by our capital investments supporting reliability and safety.
Scott J. Lauber: These applications are primarily driven by our capital investments supporting reliability and safety. And you recall our discussion last quarter on the recent developments in Illinois. There are three dockets we're actively engaged in at this time. First, the Illinois Commission granted us a limited rehearing focused on the request to restore $145 million for the Safety Modernization Program in 2024. This mostly relates to emergency work, work that was already in progress, and work driven by public entities like the City of Chicago.
Gale E. Klappa: And you'll recall our discussion last quarter on the recent developments in Illinois.
Scott J. Lauber: This limited rehearing is now underway, and we expect to receive a final commission order by June 1st. The other two outstanding dockets are expected to span at least a year, and we are actively involved. One is a full review of the Safety Modernization Program, and the other is an evaluation of the future of gas in Illinois.
Gale E. Klappa: There are three dockets were actively engaged in at this time.
Gale E. Klappa: First the Illinois Commission granted US a limited rehearing focused on their request to restore $145 million for the safety modernization program in 2024.
Gale E. Klappa: This mostly relates to emergency work work that was in progress and work driven by public entities like the city of Chicago.
Gale E. Klappa: This limited rehearing is now underway and we expect to receive a final commission order by June one.
Gale E. Klappa: The other two outstanding Dockets are expected to span at least a year and we are actively involved.
Gale E. Klappa: One is a full review of the safety modernization program and the other is an evaluation of the future of gas in Illinois.
Scott J. Lauber: Of course, we'll keep you updated on any further developments. Now, turning to our capital plan, we're making good progress on a number of regulated projects in support of affordable, reliable, and clean energy. Our Xonia LNG storage facility is now in service. This additional one BCF of storage will be necessary during the extreme weather events we see here in Wisconsin. Also, the Wisconsin Commission has approved our purchase of 100 megawatts of additional capacity at WISP's Riverside Energy Center.
Gale E. Klappa: Of course, we will keep you updated on any further developments.
Gale E. Klappa: Now turning to our capital plan, we're making good progress on a number of regulated projects in support of affordable reliable and clean energy.
Gale E. Klappa: Our <unk> LNG storage facility is now in service. This additional one bcf of storage will be necessary during the extreme weather events, we see here in Wisconsin.
Gale E. Klappa: Also the Wisconsin Commission has approved our purchase of 100 megawatts of additional capacity at West Riverside Energy Center.
Scott J. Lauber: We expect to invest approximately $100 million to add this capacity to our electric business in the second quarter. At the same time, we're continuing efforts to phase out older, less efficient coal generation. In fact, I'm happy to report that we're on track to retire Unit 5 and 6 of our Oak Creek power plant later this month. These changes support our goals to reduce greenhouse gas emissions.
Gale E. Klappa: We expect to invest approximately $100 million to add this capacity to our electric business in the second quarter.
Gale E. Klappa: At the same time, we're continuing the efforts to phase out older less efficient coal generation in fact, I'm happy to report that we're on track to retire unit five and six of our Oak Creek power plant later this month.
Gale E. Klappa: These changes support our goals to reduce greenhouse gas emissions, it's a busy and strong start to the year. Our capital plan is robust and highly executable and we continue to focus on the fundamentals of our business with that I'll turn things back to Hal Scott. Thank you very much now.
Scott J. Lauber: It's been a busy and strong start to the year. Our capital plan is robust and highly executable, and we continue to focus on the fundamentals of our business. With that, I'll turn things back to you. Scott
Gale E. Klappa: Now, as you may recall, our Board of Directors, at its January meeting, raised our quarterly cash dividend by 7 percent. This marks, ladies and gentlemen, the 21st consecutive year that our company will reward shareholders with higher dividends. The increase is consistent with our policy of paying out 65 to 70 percent of our earnings in dividends and underscores our confidence in delivering a bright, sustainable future. Next up, Shah will provide us with more details on our financial results for the quarter and our guidance for Q2.
Scott J. Lauber: As you May recall, our board of directors at its January meeting raised our quarterly cash dividend by 7%. This marks ladies and gentlemen, the 20 <unk> consecutive year that our company will reward shareholders with higher dividends. The increase is consistent with our policy of paying out 65% to 70% of our earnings in dividends.
Gale E. Klappa: And underscores our confidence in delivering our bright sustainable future next up Shah will provide us with more details on our financial results for the quarter and our guidance for Q number two Shah.
Shah: Thank you Gail.
Shah: Our 2024 first quarter earnings of $1.97 per share increased 36 cents per share compared to the first quarter of 2023. Our earnings package includes a comparison of first quarter results on page 12. I'll walk through the significant drivers. Starting with our utility operations, our earnings were $0.28 higher compared to the first quarter of 2023. The weather had an estimated 7-cent negative impact quarter-over-quarter. As noted earlier, this past winter was the warmest in Wisconsin history.
Shah: 2024 first quarter earnings of $1 97 per share increased 36 cents per share compared to the first quarter of 2023.
Shah: Our earnings packet includes a comparison of first quarter results on page 12, I'll walk through the significant significant drivers.
Shah: The milder weather, along with 9 cents from higher depreciation and amortization interest expense and day-to-day O&M expense, were more than offset by the following positive variances. Timing of fuel expense was a nine cent increase quarter over quarter. Our fuel was in a positive recovered position at the end of Q1 this year, compared to an under-recovered position at the end of Q1 last year, and Rate Based Growth contributed $0.35 to earnings quarter over quarter. This includes rate increases from Wisconsin, Illinois, and Michigan.
Shah: Starting with our utility operations, our earnings were 28% higher compared to the first quarter of 2023.
Shah: Weather had an estimated seven cents negative impact quarter over quarter.
Shah: As noted earlier this past winter was the one in Wisconsin history.
Shah: The milder weather, along with <unk> from higher depreciation and amortization interest expense and day to day O&M expense were more than offset by the following positive variances.
Shah: Timing of fuel expense with a 9% increase quarter over quarter.
Shah: Our fuel and a positive recovery position at the end of Q1 this year compared to an under recovery position at the end of Q1 last year.
Shah: And they today's growth contributed 35 cents to earnings quarter over quarter.
Shah: This includes the rate increases from Wisconsin, Illinois, and Michigan.
Shah: One thing to note, as I mentioned on our year-end call, with the rate design changes at People's Gas, base revenues are even more concentrated in the first and fourth quarters when natural gas usage is the highest, and this earnings shift is a significant driver for the quarter. Looking ahead, we'll see the opposite shift in Q2 and Q3. Before I turn to earnings at the other segment, let me briefly discuss our weather-normal sales. You can find our sales information on page 9 of the earnings package.
Shah: One thing to note as I mentioned on our year end call with the rate design changes at peoples gas base revenues are even more concentrated in the first and fourth quarters when natural gas usage is high.
Shah: And this earnings shift is a significant significant driver for the quarter.
Shah: Looking ahead, we will see the opposite a shift in Q2 and Q3.
Shah: Before I turn to earnings at the other segments, let me briefly discuss our weather normal sales.
Shah: You can find our sales information on page nine of the earnings package.
Shah: While weather was historically mild in the quarter, our weather-normal gas and electric deliveries were both relatively flat and overall in line with our forecast. However, on the electric side, our residential and small commercial and industrial segments are currently ahead of forecast. Now, in our energy infrastructure segment, earnings increased 2 cents in the first quarter of 24 compared to the first quarter of 23. Production tax credits were higher quarter over quarter, resulting from production at our Sampson and Sapphire Sky Renewable Generation Projects, both of which were acquired in February 2023.
Shah: While weather was historically mild in the quarter, our weather normal gas and electric delivery were both relatively flat and overall in line with our forecast.
Shah: However, on the electric side, our residential and small commercial and industrial segments are currently ahead of forecast.
Shah: Now at our energy infrastructure segment earnings increased <unk> <unk> in the first quarter of <unk> 24, compared to the first quarter of 'twenty three.
Shah: Production tax credits were higher quarter over quarter, resulting from production at our Samson and Sapphire Sky renewable generation project, both of which were acquired in February 2023.
Shah: Finally, you'll see that earnings at our corporate and other segments rose $0.06, primarily driven by timing of tax. In closing, as Gale mentioned earlier, we are reaffirming our 24 earnings guidance of $4.80 to $4.90 per share, assuming normal weather for the rest of the year. To offset the mild first quarter weather impact, we're implementing a variety of initiatives. For example, we now expect our 24 day-to-day O&M to be 3-5% higher than 23, versus our previous expectation of 6-7% higher.
Shah: Finally, you'll see that earnings at our corporate and other segment rose 6%.
Shah: Primarily driven by timing of tax.
Shah: In closing as Gil mentioned earlier, we are reaffirming our 24 earnings guidance of $4 80 to $4 90 per share assuming normal weather for the rest of the year.
Shah: To offset the mild first quarter weather impacts were.
Shah: Implementing a variety of initiatives.
Shah: For example, we now expect our 24 day to day O&M to be 3% to 5% higher than 23 versus our previous expectation of 6% to 7% higher.
Shah: The lion's share of the reduction is expected to come in the second half of the year. For the second quarter, we're expecting a range of $0.60 to $0.64 per share. This accounts for April weather and assumes normal weather for the rest of the quarter. As a reminder, we earned $0.92 per share in the second quarter last year. While the Q2 guidance range is lower, if you combine Q1's actual results and Q2 guidance, we expect to be $0.04 to $0.08 ahead of the first quarter of 2023. With that, I'll turn it back to Gale.
Shah: The lion's share of the reduction is expected to come in the second half of the year.
Shah: For the second quarter, we're expecting a range of 60 to 64 cents per share.
Shah: This accounts for April weather and assumes normal weather for the rest of the quarter.
Shah: As a reminder, we earned 92 per share in the second quarter last year.
Shah: While the Q2 guidance range is lower if you combine Q1, actuals and Q2 guidance, we expect to be four to eight.
Shah: Head of the first quarter of 'twenty three.
Shah: With that I'll turn it back to Gale.
Gale E. Klappa: Great. Thank you, Shah. And now a final note. We did some quick math this morning, and today marks the 87th time that I've had the privilege of hosting an analyst call, starting back in the day at Brand X and then continuing through the past 21 years here at WEC. Together, we've covered a lot of history and made a ton of progress. I can tell you that your thoughtful questions and your thorough analysis have helped us to build and sustain a premier company on a mission that truly matters.
Gale E. Klappa: Great. Thank you sure.
Gale E. Klappa: Now a final note we did some quick math this morning, and today marks the 87th time that I've had the privilege of hosting an analyst call starting back in the day at brand X and then continuing through the past 21 years here at WEC together, we've covered a lot of history and a.
Gale E. Klappa: China progress.
Gale E. Klappa: I can tell you that your thoughtful questions and your thorough analysis have helped us to build and sustain a premier company.
Speaker Change: That truly matters and for that I'm grateful going forward on these calls you'll be hearing from Scott and sure there already and it's their time to shine and operator, we're now ready for the question and answer portion of the call.
Gale E. Klappa: And for that, I'm grateful. Going forward on these calls, you'll be hearing from Scott and Shah. They're ready, and it's their time to shine. Operator, we're ready for the question and answer portion of the call.
Operator: Thank you. And now we will take your questions. The question and answer session will be conducted electronically. To ask a question, please press the star key followed by the number one on your telephone. If you are using a speakerphone, please turn off your mute function to allow your signal to reach our equipment, and we will take as many questions as time permits. Once again, press star 1 to ask a question. And we will take our first question from Shahriar Pourreza of Guggenheim Partners. Your line is open.
Scott J. Lauber: Thank you and now we will take your questions.
Scott J. Lauber: The question and answer session will be conducted electronically to ask a question. Please press the star key followed by the number one on your telephone.
Scott J. Lauber: If you are using a speaker phone. Please turn off your mute function to allow your signal to reach our equipment.
We will take as many questions as time permits.
Scott J. Lauber: Once again press star one to ask a question.
Scott J. Lauber: And we will take our first question from Shar <unk> with Guggenheim Partners. Your line is open.
Operator: Rock and roll, Shahriar.
Shar: Rock and roll.
Gale E. Klappa: Hi Gale, it's actually Jameson on for Shahriar. How are you?
Shar: Hi, Gail its actually Jason on for Shar, how are you.
Gale E. Klappa: Terrific. What have you done with Shahriar? Is he in a closet somewhere?
Jason: Terrific what have you done with showers in a closet somewhere.
Unknown Attendee: Oh, the weather got to him. He's on the road, as always, busy as ever, traveling and, uh... Storm Gautam. I mean, it's only a force of nature that's going to hold them back.
Jason: The weather got to him he's on the road as always busy as ever.
Jason: Yeah.
A storm got them I mean, it's only a force of nature thats going to hold them. So.
Unknown Attendee: So, we have a couple of questions for you. Thank you. So the first... 400 million of the equity in your current five-year plan was put there to true up utility equity layers. In your current Wisconsin rate cases, you're asking for 53.5% equity, or 50 basis points above where you indicate current levels to be. Could we see incremental equity being added to the current plan to true those utilities up to that 50 basis points?
Jason: So.
Speaker Change: That's true.
Jamie: All right Jamie.
Jamie: Thank you.
Jamie: So the first.
Jamie: The $400 million of the equity in your current five year plan was put there to true up utility equity layers.
Jamie: In your current Wisconsin rate cases, youre, asking for 53, 5% equity or 50 basis points above where you indicate current levels to be could we see incremental equity being added to the current plan to true those utilities up about 50 basis points.
Gale E. Klappa: I think the short answer is no, Shahriar. I'm thinking of you in a closet somewhere. Shahriar, go ahead.
Jamie: No.
Speaker Change: The short answer is no shar.
Speaker Change: Yes, sorry, I'm thinking of short in a closet somewhere shall go ahead.
Gale E. Klappa: I mean, we filed for 53.5. We hope to receive 53.5. If that's the case, we'll look at the equity, but right now, we haven't changed the equity plan.
Speaker Change: Alright.
Speaker Change: We filed for $53 five.
Speaker Change: Hope to <unk> 53, five if that's the case, we'll look at the equity, but right now we haven't changed the equity.
Unknown Attendee: Got it. So no change now. But if you were to get it, there's the possibility it's not already included in the plan, I guess, is really Unknown Attendee No, but I wouldn't model in at this stage of the game or even after we get I wouldn't necessarily model in an increase in equity beyond that. I think I think when you
Speaker Change: Planned got it alright.
Speaker Change: <unk> now, but if you were to get it there is the possibility. It's not already included in the plan I guess is really.
Speaker Change: And what you've just clarify now but.
Speaker Change: I wouldn't model in at this stage of the game or even after we get I wouldn't necessarily model and increase in equity beyond that but I think I think when you look at it and you look at the details of our filing and when you look at the details of the filing and the regulatory ratio. It's about the same as it has this year.
Unknown Attendee: I think when you look at it and you look at the details of our filing, and when you look at the details of the filing and the regulatory ratio, it's about the same as it is this year right now. You've got to look at the financial and the regulatory ratio.
Speaker Change: Right now you've got to look at the financial and the regulatory ratios.
Unknown Attendee: Perfect. Thank you very much. Absolutely.
Speaker Change: Perfect does that help Jerry.
Gale E. Klappa: And then we have one more on the rate cases. In your last set of Wisconsin cases, the settlements that you negotiated didn't quite hold up as filed, even though those in prior cases had. Given that precedent, but also that you have a new slate of commissioners in office, how should we think about settlements in Wisconsin today and kind of what are some of the pushes and takes, and maybe how should we think about potential timing for a settlement, if any, in these cases?
Jerry: Absolutely and then we have.
Jerry: One more also on the rate cases in your last set of Wisconsin cases, the settlements that you negotiated didnt quite hold up as filed even though those in prior cases had.
Jerry: Given that precedent, but also that you have a new slate of commissioners in office.
Jerry: Should we think about settlements in Wisconsin today, and kind of what are some of the pushes and takes and maybe how should we think about potential timing.
Jerry: First settlement if any in these cases.
Speaker Change: Thats all I got.
Gale E. Klappa: Very good. Well, I have a couple of thoughts on your questions about settlements and timing. First of all, I think that our current and new chair of the commission, Summer Strand, has publicly stated that she's very open to stakeholder input and would certainly be open to discussions on settlement. So I think essentially the door is open to negotiations at the appropriate time. And then, in terms of timing itself, historically, the best time for really candid and thorough discussions comes after the staff audit is complete.
Speaker Change: Very good well a couple of thoughts on your questions about settlements and timing.
Speaker Change: First of all I think.
Speaker Change: But our current and new chair of the Commission. Some restraint has publicly stated that.
She is very open to stakeholder input and would certainly be open to discussions on settlement.
Speaker Change: So.
Speaker Change: I think essentially the door is open for negotiations at the appropriate time, and then in terms of timing itself.
Speaker Change: Historically.
Speaker Change: The best the best time for really candid and thorough discussions comes after the staff audit is complete and Scott when would you expect on this particular case the staff audit to come out mid summer, maybe it'd probably be the end of summer this summer.
Gale E. Klappa: And Scott, when would you expect in this particular case the staff audit to come out? Midsummer, maybe? It'd probably be near the end of summer. And, of course, a final decision is not statutorily required until December in the case. So there's a window between the time of the staff audit and, you know, commission deliberations for all the appropriate stakeholders to get together. I hope that helps.
Scott J. Lauber: And of course, the final decision is not statutorily required until December in the case. So there is a window between the time of our staff audit.
Speaker Change: And commission deliberations for all the appropriate stakeholders to get together I hope that helps.
Unknown Attendee: It does. Thank you very much, everyone. I appreciate it. And best of luck, Gale, in your future endeavors.
Speaker Change: It does thank you very much I appreciate it.
Speaker Change: Thanks Al in your future endeavors.
Gale E. Klappa: Thank you so much.
Speaker Change: Well thank you so much.
Operator: And we will take our next question from Steve Fleischman with Wolf Research. Your line is open.
Speaker Change: And we will take our next question from Steve Fleishman with Wolfe Research. Your line is open.
Speaker Change: Okay.
Steven Isaac Fleishman: Nathaniel. Wow. Finally. The day came. Well, I appreciate all 87 of those calls, which I've probably either listened to or read the transcript of all of them. But I wish you the best. But I'm not going to let you get away without answering some questions.
Steve Fleishman: Hey, Danielle well finally.
Steve Fleishman: Today came well I appreciate all.
Steve Fleishman: All 87 of those calls, which I, probably either listen to or read the transcripts of all of them. So.
Steve Fleishman: Sure.
Steve Fleishman: But appreciate it best.
Speaker Change: But I'm not going to let you get away without answering some questions. So.
Gale E. Klappa: So you brought up the Microsoft announcement potentially coming soon. I guess there's already kind of been announcements, but just could you give a little more color, kind of what? What else might they be talking about? Is it kind of an expansion of, Maybe the build out that they're looking at, and just how do we think about just, Are you from a supply standpoint, are you basically the supplier for all their electricity, and are you kind of how are you making sure that you're kind of doing it at the right margins, and just how we should think about both, you know, the tariff margin, and CapEx potential? Yeah.
Speaker Change: Just you brought up the Microsoft announcements potentially coming soon.
Speaker Change: There is already kind of been announcements, but just could you give a little more color kind of what.
What else they might be talking about is it is there is quite a bit.
Speaker Change: Fair enough.
Speaker Change: The build out that Theyre looking at and just.
How do we think about just.
Speaker Change: Alright.
Speaker Change: Are you from a from a supply standpoint are you basically the supplier for all there.
Speaker Change: Electricity.
Speaker Change: Are you kind of how are you, making sure that youre kind of.
Speaker Change: Doing it at the right margins and just how we should think about both.
Speaker Change: The tariff margin rate capex potential yes.
Gale E. Klappa: Terrific. A great question, Steve. First of all, to answer your second question, yes, we will be the supplier for all of the energy that Microsoft will need at their site inside the Wisconsin Technology Park, which, as you know, is about 20 miles south of our headquarters city. In terms of what's changed, what's different, I mean, Microsoft early on in its whole process here in Wisconsin acquired 315 acres of property adjacent to the area that Foxconn is developing in that technology park.
Terrific: Terrific Great question, Steve I mean first of all to answer your second question, Yes, we will be the supplier for all of the energy that Microsoft will need at their site inside the Wisconsin Technology Park, which as you know is about 20 miles south of our headquarter city.
Terrific: In terms of what's changed what's different.
Terrific: Microsoft.
Terrific: Early.
Terrific: On in there and there's a whole process here in Wisconsin.
Terrific: Wired 315 acres of property.
Adjacent to the area that Foxconn is developing in that technology Park. So what you see in our current five year capital plan.
Gale E. Klappa: So what you see in our current five-year capital plan is the generation that we expect to need to add to essentially serve what is being built, and it's being built quickly. My gosh, there are like 10 to 12 cranes active.
Terrific: As.
Terrific: The generation that we expect to need to add to essentially serve what is being built and it's being built quickly.
Speaker Change: Gosh, Theyre like 10 to 12 cranes.
Gale E. Klappa: The construction site's incredibly active right now, but it's active on the first 315 acres Microsoft has developed. So we're thinking about that pending ongoing discussions with Microsoft as kind of the first phase because Microsoft has now acquired substantial additional acreage. In fact, they control 1,345 acres now in that technology park, and they're clearly working very hard and having discussions with our folks every single week as they develop their plans for the rest of that development.
Speaker Change: Active the construction sites incredibly active right now, but it's active on the first 350 million acres. Microsoft has developed so we're thinking about that pending.
Speaker Change: Ongoing discussions with Microsoft is kind of the first phase because Microsoft has now acquired.
Speaker Change: Substantially additional acreage in fact, they control 1345 acres now in that in that Technology Park.
Speaker Change: And there are clearly working very hard and have discussions with our folks every single week as.
Speaker Change: As they develop their plans for the rest of that development and I think we will hear more from Microsoft.
Gale E. Klappa: And I think we'll hear more from Microsoft on their broader plan for Wisconsin in the next few weeks, so I hope that helps. And how are we planning to make sure we're serving their needs? I mean, literally, their technical folks and ours are in weekly discussions. Very encouraged. Hope that responds, Steve.
Speaker Change: Our broader plan for Wisconsin here in the next few weeks, so I hope that I hope that helps and how are we planning to make sure we're serving their needs I mean literally.
Speaker Change: Their technical folks and ours are in weekly discussions very encouraging.
Speaker Change: Hope that response Steve.
Steven Isaac Fleishman: Yeah, no, that's great. Just, uh, can you just remind me, just... For the first 315 acres, how much capital is in your plan to... to basically make the investment to serve that?
Steve Fleishman: Yeah, No that's great just to can you just remind me just.
Steve Fleishman: For the first 315 acres, how much capitals in your plan.
Steve Fleishman: Basically make the investment to serve that.
Gale E. Klappa: Yeah, well, essentially, there's other, as we've talked about, there's other significant economic growth in that area as well. So in the capital plan, to meet what we see on the ground, this is not speculation about future economic growth; this is what we see on the ground, what we knew from Microsoft back in November, what we're actually seeing from Haribo now, from Eli Lilly, and others. We added 1400 megawatts of dispatchable capacity to the plan.
Steve Fleishman: Yes, essentially.
Steve Fleishman: Theres other as we've talked about there's other significant economic growth in that area as well.
Steve Fleishman: So in the cat in the capital plan for to meet what we see on the ground. This is not speculation about future economic growth is what we see on the ground what we knew from Microsoft back in November what we're actually seeing from HERA Boe from.
Steve Fleishman: Now from Eli Lilly and others, we added 1400 megawatts of dispatch full capacity to the plan.
Steve Fleishman: Okay.
Gale E. Klappa: And then one other question, just on Illinois, the... You know, obviously, the order late last year was disappointing. Unknown Speaker But staff on re-hearing kind of seemed okay. So just a feeling that the commission will likely be reasonable there, and I guess maybe more importantly, there's been a lot of labor pushback on the capital on the work reductions, and just is that making any impact on just how the state is looking at things for your business.
Speaker Change: And then one other question just on Illinois.
Speaker Change: Obviously the order.
Speaker Change: Late last year disappointing.
Speaker Change: But.
Staff on rehearing kind of seemed okay. So just you're feeling that likely if the commission will be.
Speaker Change: Reasonable there and I guess, maybe more importantly, there's been a lot of labor pushback on that.
Speaker Change: Capital on the work reductions and just is that making any impact on just <unk>.
Speaker Change: How the state is looking at things for your business.
Speaker Change: Yeah.
Gale E. Klappa: Well, I'll ask Scott to give his view on this as well. From my observation, Steve, I would say that every intervener has taken a position. As you say, the staff is supportive of the work that we asked to be continued and to be recovered. Virtually all of the interveners have suggested that at least some amount of work should continue. But this is the first time in every hearing that this particular commission is going to make a decision. So time will tell, but we won't have to wait long. Scott, I believe we're looking at probably the end of May.
Speaker Change: Well I'll ask Scott to give his view on this as well from my observation, Steve I would say that.
Speaker Change: Every intervenor has taken a position.
Scott J. Lauber: As you say the staff is supportive of the work continuing that we asked to have allowed to be continued to endeavor and to be recovered.
Scott J. Lauber: <unk>.
Scott J. Lauber: Virtually all of the intervenors have suggested that at least some amount of work.
Continue.
Scott J. Lauber: But this is the first time on a rehearing that this particular commission is going to make a decision. So time will tell but we won't have to wait long Scott I believe we're looking at probably the end of May yes. It should we should hear something here by the end of May early part of June and a decision here and I know safety and reliability is at their forefront and we.
Scott J. Lauber: Yeah, we should hear something here by the end of May or early part of June on the decision here, and I know safety and reliability is at their forefront, and we hear a lot of that in the future of natural gas, that they talk about safety and reliability in those cases too. So, I'm looking forward to a good decision, but we'll see what happens.
Scott J. Lauber: Here a lot of that in the future of natural gas that they talk about safety and reliability.
Those cases too so.
Scott J. Lauber: Looking forward to a good decision, but we'll see what happens.
Gale E. Klappa: And Steve, my gut tells me that there's an element of practicality, just Midwest practicality, here as it relates to making sure that that system stays safe.
Scott J. Lauber: And Steve My Gut tells me that there is an element of practicality just Midwest practicality here as it relates to making sure that that system stays safe.
Steven Isaac Fleishman: Great. Thank you very much and best to you, Gale and the team.
Speaker Change: Great. Thank you very much and best you Gael my team. Thank you.
Speaker Change: Thank you Steve.
Operator: Operator, and we will take our next question from Neil Kalton with Wells Fargo Securities. Your line?
Speaker Change: And we will take our next question from Neil Carlton with Wells Fargo Securities. Your line is open.
Neil Andrew Kalton: Yeah, hi everyone. Hi Neil, how are you doing? Good. I'm going to miss you. I'm doing really well. We're going to miss your soothing voice at one o'clock central in the afternoons during the rainy season.
Neil Andrew Kalton: Hi, everyone. How are you doing.
Neil Andrew Kalton: Good how are you doing now I'm going to Miss here I'm doing really well, we're going to Miss your choosing.
Neil Andrew Kalton: Using voice at one o'clock central in the afternoon.
Operator: This meeting is now adjourned.
Neil Andrew Kalton: Yes.
Neil Andrew Kalton: Sure.
Gale E. Klappa: Thanks Neil, and I'll just put in a plug, you can still listen to Courtside with the Bucks anytime you want, on demand. Absolutely, absolutely.
Speaker Change: Thanks Neil.
Speaker Change: Just put in a plug you can still you can still listen to court side with the Bucks anytime you want on demand.
Unknown Attendee: Absolutely not. Absolutely not.
Speaker Change: Absolutely absolutely. So anyway, a question just kind of following on on some of the earlier conversation.
Neil Andrew Kalton: So anyway, a question just kind of following on from some of the earlier conversation on the new generation that you're adding, about 1,400 megawatts, and I understand that's for what you see on the ground. At that point in time, what will the reserve margins look like? Basically, what I'm trying to get at is, you know, there seems like there's a lot of additional activity that could happen, and what would your ability to serve, or would we be looking at new generation requirements if that were to come online?
Speaker Change: Generation that youre, adding about 1400 megawatts I understand that.
Speaker Change: Thats for what you see on the ground at that point in time, what will the reserve margins look like based on what Im trying to get at is there seems like there's a lot of additional activity that could happen and what would your what would be your ability to serve or would we be looking at new generation requirements, if that were to come online.
Speaker Change: Okay.
Gale E. Klappa: Well, the 14, based on the demand forecast we had when we put the five-year plan together, remember we rolled that out in November. Basically, the five-year plan took us to what we call a balanced reserve margin, meeting the capacity requirements that we're expected to have and to be accredited by MISO. So anyhow, I think the bottom line for, at least from my view, and we'll ask Scott to give you his, but the bottom line from my view is, if we see as we roll forward here in the next few months, which I think we are seeing, I mean additional economic development and projects going in, then that's going to mean we have to build more, Scott.
Speaker Change: Well the 14th based on the demand forecast, we had when we put the five year plan together, where remember we rolled that out in November.
Speaker Change: Basically the five year plan took us to what we call a balanced reserve margin meeting the capacity requirements that were expected to have and to be accredited by MISO. So any I think the bottom line for at least for my view and we'll ask Scott to give you his but the bottom line from my view is if we see as we roll forward here in the next few months, which.
Speaker Change: I think we're series, which we're seeing.
Speaker Change: Additional economic development and projects going in then that's going to mean, we have to build Morris.
Scott J. Lauber: You're exactly correct, Gale, as we continue to look at it, and we did size our plan with the required reserve margins, looking at the seasonal capacity that's required from the Midwest operator here. So any additional load, we will need some generation to make sure we have that capacity available.
Scott J. Lauber: Youre exactly correct Yale as we continue to look at it and we did size our plan with the required reserve margins looking at the seasonal capacity that's.
Scott J. Lauber: Thats required from the Midwest operator here, so any additional load.
Scott J. Lauber: We will need some generation to make sure we have that capacity available.
Neil Andrew Kalton: So stay tuned; there will be a new update coming in the fall. Thank you very much.
Speaker Change: So stay tuned.
Speaker Change: There'll be a new update coming in the fall.
Speaker Change: Yes, thank you very much.
Neil Andrew Kalton: Thanks, Neil.
Speaker Change: Thanks Neil.
Operator: And we will take our next question from Durgesh Chopra with Evercore ISI. Your line is open.
Durgesh Chopra: And we will take our next question from <unk> Chopra with Evercore ISI. Your line is open.
Durgesh Chopra: Okay.
Speaker Change: Andrew Geis.
Durgesh Chopra: Hey, Gale. Just like Neil said, I'm going to miss hearing your voice as well. Good luck to you.
Andrew Marc Weisel: Hey, Gale.
Andrew Marc Weisel: Like Neil said I'm going to Miss.
Andrew Marc Weisel: Hearing your voice as well good luck to you.
Gale E. Klappa: Thank you, Durgesh. I appreciate it. And are you pulling for the 76ers?
Gale E. Klappa: Thank you guys I appreciate it.
Gale E. Klappa: Are you pulling for the 70 Sixers.
Durgesh Chopra: I am for every every silly team. Excellent. So, listen, Gail, do you, I guess, just from your perspective and the team's perspective, do you worry about the base? at which the data center deployment is projected to kind of occur? I'm thinking about how fast they're building. You just alluded to, you know, they're, you know, you're in active conversations versus sort of your construction cycle, getting approvals, and all the sort of the roadblocks or the milestones that you need to kind of check to get the generation there. Is that something that concerns you?
Speaker Change: I am for every every affiliate <unk>.
Speaker Change: Okay.
Speaker Change: Uh huh.
Speaker Change: Terrific.
Speaker Change: So listen so Gil deal.
Speaker Change: I guess just from your perspective, and the team's perspective do you worry about the base.
Speaker Change: Which the data center deployment.
Speaker Change: <unk> to kind of a car.
Gil: Thinking about how fast they're building you just alluded to you.
Gil: You are in active conversations versus sort of your construction cycle getting approvals.
Gil: And all this sort of the roadblocks or the milestones that you need to kind of check to get the generation there is that something that.
Concerns you.
Durgesh Chopra: Just in terms of the amount of time it takes to get approvals, is that what you're referring to, Durgesh?
Gil: Just in terms of the amount of time it takes to get approvals is that is that what you're referring to there gosh, yes.
Durgesh Chopra: Yeah, just, you know, the generation, whatever distribution assets you need, the approvals, and just the expedited timeline for these hyperscalers.
Gil: The generation whatever distribution assets, you need the approvals and the.
Gil: The expedited timeline of these hyperscale.
Gale E. Klappa: Yeah, good question. And I would kind of, Scott should give you his view as well, I would kind of break it down into three buckets. In the first bucket is obviously availability of equipment, and there, we're fortunate in that we have already placed a number of orders for some of the key, particularly key transmission and distribution, you know, pieces of equipment that will be needed. Secondly, very positively so, in this particular technology park, we're allowed to build certain distribution assets and transmission assets that do not have to take a year of approval.
Speaker Change: Yes, good question.
Speaker Change: And I would kind of Scott should give you his view as well I would kind of break it down into three buckets in the first bucket is obviously availability of equipment.
Speaker Change: There.
Speaker Change: We're fortunate in that we have already placed a number of orders for some of the key particularly key transmission and distribution.
Speaker Change: <unk>.
Speaker Change: He says of equipment that will be needed.
Speaker Change: Secondly.
Speaker Change: Very positively so in this particular technology Park.
Speaker Change: We're allowed to build certain distribution assets and transmission assets.
Speaker Change: That do not have to take a year or approval.
Gale E. Klappa: So that's really already underway. And then the other piece would be just the regulatory approval, and in Wisconsin, to get what we call a CPCM, you know, basically approval to build a power generation facility, the CPCN can take up to a year. I will say this, I think the staff and the commissioners here in Wisconsin are very aware of the need for speed here, and the governor has himself promised Microsoft that the state would do what's necessary to help them be successful here.
Speaker Change: So that's really already underway.
Speaker Change: And then the other piece would be just the regulatory approval and in Wisconsin to get what we call the CPC.
Speaker Change: Basically approval to build generation.
Speaker Change: The CPC and can take up to a year.
Speaker Change: I will say this I think the staff and the commissioners here in Wisconsin are very aware of.
Speaker Change: The need for speed here.
Speaker Change: And the Governor has himself promised Microsoft the state will do what's necessary to help them be successful here. So clearly.
Gale E. Klappa: So clearly this is major, I mean clearly there's a lot of work to be done, but right now, we're off to a really good start, and I think the backdrop here and the regulatory support will be very strong to make sure that we meet the need and serve Foxconn for all of the folks there, but not only Foxconn but Microsoft as well. Scott.
Speaker Change: This is a major I mean, clearly theres a lot of work to be done, but right now we're off to a really good start and I think the I think the backdrop here and the regulatory support will be very strong to make sure that we meet the needs.
Speaker Change: And serve spot for all.
Speaker Change: All of the folks there, but not only Fox con, but Microsoft well, Scott I agree Gail and I think the other key is we have the site selection that they had all creek site for a significant part of our assets and we've done all the we've done a lot of the filings already so really things are moving ahead very quickly, but we've got a process in place in the orders.
Scott J. Lauber: I agree, Gale, and I think the other key is we have the site selection at that Oak Creek site for a significant part of our assets, and we've done a lot of the filings already, so really things are moving ahead very quickly. But we've got a process in place and the orders placed, which is good.
Gale E. Klappa: Yeah, Scott's actually making a very good point about site selection. I mean, we've had a power generation campus at Oak Creek literally for the last 70 years. We have buffer property there. We have property that will easily, easily house, particularly the combustion turbines that Scott talked about earlier, the 1100 megawatts of combustion turbines that will be an important part of the next, the next edition of assets that we need to have.
Speaker Change: <unk>, which is good.
Speaker Change: Yes, Scott, it's actually making a very good point about site selection I mean, we've had a power generation campus at Oak Creek literally for the last 70 years, we have buffer property. There we have property that will easily.
Speaker Change: Italy House, particularly the combustion turbines that Scott talked about earlier, the 1100 megawatts of combustion turbines that will be an important part of the next.
Speaker Change: Addition of assets that we need to have hope that response to <unk>.
Durgesh Chopra: That is very, very helpful. I appreciate all the color there.
Scott J. Lauber: That is very very helpful. I appreciate all the color there.
Durgesh Chopra: Thank you. Maybe, can I just quickly follow up on Illinois, the limited rehearing. Is there a potential for a settlement there? Can you settle with the parties, potentially, those in Part A and Part B? Does it have to be zero or 145, or can it be sort of a spending number which is in between?
Speaker Change: Maybe can I just quickly follow up on Illinois, Didnt limited rehearing is there a potential for Huron Linda.
Speaker Change: Can you can you settled with the parties potentially.
Speaker Change: But in fact it does.
Speaker Change: Does it have to be zero or $1 45 or can it be.
Speaker Change: Spend number which is in between.
Gale E. Klappa: Oh no, it can be a spend number, anywhere in between. There really is, in this limited rehearing process, if you will, there's really no, there's really no avenue for settlement.
Linda: It can be a spend number anywhere in between there really isn't this limited rehearing process. If you will there's really no. There's really no avenue for settlement, but you are right. It's not a binary thing, it's not zero or $1 45, the commissioners can use judgment.
Gale E. Klappa: But you're right, it's not a binary thing. It's not zero or 145. The commissioners can use judgment on any number from zero to 145 or in between.
Linda: Any number from zero to 145 are in between.
Durgesh Chopra: All right. Thanks so much. I appreciate the time.
Got it thanks, so much I appreciate the time.
Gale E. Klappa: You take care, Durgesh.
Linda: You take characteristics.
Operator: We will take our next question from Carly Davenport with Goldman Sachs. Your line is open.
We will take our next question from Carly Davenport with Goldman Sachs. Your line is open.
Carly S. Davenport: Hey, good afternoon. Thanks so much for taking the questions. You're welcome, Carly. Carly, you're not old enough to have heard the first of the 75 calls, but we appreciate you calling in on this one. I'm glad that I made it just in time. We appreciate it.
Carly Davenport: Hey, good afternoon. Thanks, so much for taking the questions.
Carly Davenport: Youre welcome Carlos Carlos Charlie you're not old enough to have heard the first of the 75 calls, but we appreciate you calling out on this one.
Carly Davenport: Now that I've made a just in time.
Carly S. Davenport: Maybe just to start, I wanted to just ask about the electric sales this quarter. You know, we walked through some of the weather impacts, but anything else that you'd flagging driving some of the CNI load for the quarter, particularly for the larger customers there? And then as you just think about some of these economic development opportunities, you know, how do you think about the timing for, you know, an inflection in load growth?
Carly Davenport: I appreciate it.
Carly Davenport: Maybe just just just start wanted to just ask on the electric sales this quarter. When you walked through some of the weather impacts, but anything else that you'd flag driving some of the C&I load four for the quarter, particularly for the larger customers. There and then as you just think about some of these economic development opportunities. How do you think about really that timing for.
Carly Davenport: And inflection in load growth.
Gale E. Klappa: Well, we've already, and we will ask Shah to give you, she has a couple of very good, important details, particularly about the large industrial activity that we saw in Q1. Let me just say two quick things.
Well, we've already and we will last shot to give you a she's got a couple of very good important details, particularly about the large industrial activity that we saw in Q1 here. Let me just say two quick things first of all.
Shah: First of all, as mild as the weather was and as far from normal as it was, I would suggest that you take the actual weather normalized sales numbers with a bit of a grain of salt. Some of you have heard me say this forever, but our weather normalization techniques that are used in our industry just don't bear up well when you get one and a half, two standard deviations away from normal. So read our numbers for Q1 on weather normal as more precise than accurate.
Carly Davenport: As mild as the weather was and is far from normal as it was.
Carly Davenport: I would suggest that you take the actual weather normal sales numbers with a bit of a grain of salt.
Speaker Change: Some of you heard me say this forever, but.
Our weather normalization techniques that are used in our industry, just don't bear up well when you get one and a half two standard deviations away from norm. So read our numbers for Q1 on weather normal is more precise and accurate.
Shah: Secondly, we've already shown, as you probably saw, as we went through some of our plans, we've already shown a nice uptick in annual projections of energy sales starting in 2026. You remember, we basically, for the past decade or so, have been growing at half a percent, seven-tenths of a percent in terms of annual kilowatt hour sales. Based on everything we were seeing last November on the ground, we moved that up to four and a half to five percent starting in 2026.
Speaker Change: Secondly.
Speaker Change: We've already shown as you probably saw.
Speaker Change: As we've gone through some of our plans we've already shown up.
Speaker Change: This uptick in annual projections of energy sales starting in 2026.
Speaker Change: If you remember, we basically for the past decade, or so have been growing it.
Half a percent seven tenths of a percent.
Speaker Change: In terms of annual kilowatt hour sales, we moved that up based on everything we were seeing last November on the ground, we moved that up to four 5% to 5% starting in 2026.
Shah: I'm guessing that you'll see that number grow when the plan gets updated as we normally do in the fall. I mean, just from everything else that seems to be occurring here since when we put the plan together last fall. And then, in terms of specifics on Q1, in terms of industry, Shah?
Speaker Change: I'm guessing that Youll see that number grow when the plan gets updated as we normally do in the fall I mean, just from everything else that seems to be occurring here post when we put the plan together last fall and then in terms of specifics on Q1 in terms of industrial <unk> Shah.
Shah: Yes, in Q1, so to your point, Carly, weather-normal LC&I electric sales were minus 1.8%, which was behind our forecast. But we looked pretty hard at the specifics, and it turned out that the underperformance was concentrated in really a couple of customers, one in primary metals, the other in the paper sector, and one of them is actually in the process of transitioning into a much bigger expanded presence in the region.
Speaker Change: Yes.
Shah: Q1, so to your point clearly the weather normal L. C&I electric sales was minus one 8%.
Speaker Change: Which way.
Speaker Change: Behind our forecast, but if you we look pretty hard on the specifics so it turned out that the underperformance.
Shah: And trade it in really a couple of customers one in primary metal or the other in the paper sector and one of them actually.
Shah: Is in the process of.
Shah: Of transitioning into it very much bigger expanded presence in the region. So Q1 was kind of a transition period for them. So that's really just timing.
Shah: So Q1 was kind of a transition period for them, so that's really just timing. If you excluded those customers, LC&I sales would have been 0.4% higher compared to Q1 last year. So we're not worried about LC&I sales.
Shah: <unk> excluded those customers <unk> sales would have been 4% higher compared to Q1 last year. So we're not worried about the C&I sales trend.
Carly S. Davenport: Got it. Okay, that's really helpful for that detail. Yeah, no, that's thank you, Carly. That's super helpful. Maybe if I could just squeeze one more in. You referenced the new EPA rules in terms of some spending there in the Wisconsin rate cases just filed. I guess, do you expect those new rules to have any impact on the views on gas capacity additions going forward or the capital needs associated with that?
Speaker Change: Got it okay. That's currently most at risk to that detail.
Speaker Change: Yes, Thank you Charlie.
Speaker Change: Super helpful. Maybe if I could just squeeze one more in you referenced the new EPA rules.
Speaker Change: In terms of some spend there in the Wisconsin rate cases, just filed I guess do you expect those new rules to have any impact on the views on gas capacity additions going forward or the capital needs associated with that.
Gale E. Klappa: Now, it's a good question, and the short answer is no, compared to what we filed. And I will say a real shout out to our generation and environmental planning folks. They've done a great job of anticipating the new EPA rules, and Scott, based on everything we've seen that's come out in the last couple of weeks, we're right on track. Now, our plan that we filed and the plan we have in our five-year plan lines up right in line with the EPA rules that just came out. So I'm very happy to see that come together.
No. It's a good question and the short answer is no compared to what we filed and I will say, a real shout out to our generation and environmental planning folks they've done a great job of anticipating the new EPA rules and Scott based on everything we've seen that's come out in the last couple of weeks we're right.
Speaker Change: On track our plan that we filed in the plan we have in our five year plan lined up right in line with the EPA rules that just came out were finalized so.
Speaker Change: Very happy to see that come together.
Carly S. Davenport: Great, thank you so much for that color!
Speaker Change: Great. Thank you so much for that color.
Gale E. Klappa: Take care, Carly.
Speaker Change: Take care currently.
Operator: Operator, and we will take our next question from Anthony Crowdell with Mizuho. Your line is open.
Speaker Change: We will take our next question from Anthony <unk> with Mizuho. Your line is open.
Anthony Christopher Crowdell: Greetings, Anthony. How are you? Good.
Speaker Change: Greetings Anthony how are you.
Gale E. Klappa: Good congratulations and best of luck, and best of luck to Shahriar in the closet also. So great news all around. I guess off of Neil and Steve's question, I apologize if you answered it, just I guess if you talk about having an adequate reserve margin in the service territory and if a large data center hyperscaler comes in and they eat up that entire reserve margin, and now the generations need to get back, just on the allocation of cost for, you know, The data center moving in there may be eating up that reserve margin. Does the rest of this jurisdiction bear the cost of now building back up the reserve margin?
Congratulations and best of luck and best of luck to shower in the closet also so great news all around.
Speaker Change: Yes.
Anthony: I guess I'll give neal and Steve's question I apologize if you answered it.
Anthony: Just I guess, if you're talking about you have an adequate reserve margin in the service territory and if a large data set our hyperscale it comes in.
Anthony: And they eat up that entire reserve margin and now the generation is needed to get back just on the allocation of cost.
Anthony: Sure.
Anthony: The data is kind of moving in there and maybe eating up that reserve margin does the rest of this jurisdiction bear that cost is now building back up the reserve margin.
Gale E. Klappa: Now, I'm glad you asked the question, actually, because we should be very, very clear about that. First of all, Microsoft has said time and time again that they want to and will pay their fair share, and we're working on a specific rate for them that will have several components. It will have, essentially, a component for generation capacity; basically, they'll have to pay for their fair share of the generation that's needed. They will have to pay a small amount, there'll be a little bit of distribution, but they will pay for the distribution investment that serves them.
Anthony: No.
I am glad you asked the question actually because we should be very very clear about that first of all Microsoft have said time and time and again that.
Anthony: They want to and will pay their fair share.
Anthony: We're working on a specific rate for them that will have several components. It will have essentially a a component for generation capacity.
Anthony: Basically they will have to pay for their fair share of the generations of that's needed.
Anthony: They will have to pay a small amount there'll be a little bit of distribution, but they will pay for it they will pay for the distribution investment that serves them.
Gale E. Klappa: Energy will be a pass through as it is for many, many of our large industrial customers that we have on what we call real-time pricing. And so essentially, we're working on very specific components of a rate. It's not hugely, Scott, it's not hugely dissimilar from what we're doing for other large industrial customers.
Anthony: Energy will be a pass through as it is for as it has for many many of our large industrial customers that we have on what we call real time pricing.
And.
Anthony: So essentially we're working on very specific components of our rate. It's not hugely it's got it's not hugely dissimilar from what we're doing for other large industrial customers now.
Anthony: We're laying out a plan for that like Gale said, they wanted to pay their fair share I wouldn't characterize it as them eating into reserve margins.
Anthony: Some of this build is support that so.
Anthony: We always look at our plan and make sure we have the appropriate reserve margin and we look at this economic development. Once again, that's what drove some of the generation here. So I don't think they ate into anything it's all additive for everybody here and there.
Anthony: Then Anthony as you know well because you've been around a long time when you have substantial kilowatt hour sales growth that actually is helpful to your customer base because it spreads those additional costs over a much broader base of kilowatt hour sales.
Anthony: So there is also as we work our way through this.
Remember that four 5% to 5% increase that we are projecting an annual kilowatt hour sales starting in 2006, that's also going to be helpful as well to our overall customer base.
Anthony: Got it and then if I could just.
One follow up.
Anthony: Steve's question earlier about maybe some of the pushback.
Anthony: Pushback in Illinois from the Labor group I'm just wondering.
Leaves labor still has may be the same.
Anthony: I don't know political leverages, the right term, but the same maybe sway that they've had in years past you think its more or just kind of the same.
I'll leave it there.
Speaker Change: Anthony it's very hard to tell I mean.
Speaker Change: Incrementally one way or the other but I will say this labor has and will continue to have I believe a strong voice.
Speaker Change: In Illinois, and they they are passionate about the need for us to continue the safety modernization program.
Speaker Change: Great. Thanks, again and again congratulations.
Speaker Change: Alright. Thank you appreciate it very much Anthony you take care.
Speaker Change: Okay.
Speaker Change: And we will take our next question from Paul Patterson with Glenn <unk> Associates. Your line is open.
Paul Patterson: Hi, Paul.
Paul Patterson: How're you doing congratulations.
Paul Patterson: Thank you Paul and whatever.
Paul Patterson: <unk> seen them.
Paul Patterson: So I guess my question is the future of gas you brought it up.
<unk>.
Paul Patterson: I know, it's kind of early procedurally, but.
Paul Patterson: <unk>.
Paul Patterson: Any sense as to when that might be wrapped up.
Paul Patterson: In Illinois.
Paul Patterson: Oh.
Paul Patterson: A long time.
Paul Patterson: What is going on right now and started a couple of months ago.
Paul Patterson: Is really what they would call the scoping phase.
Paul Patterson: So, they're having almost weekly meetings to identify and get broad input on all the different sub subjects are a sub subject matters that should have broad discussion from all the stakeholders going forward. So the scoping itself I think is going to take till mid summer.
Speaker Change: Our guess is probably one of the things got at least a year yes.
Speaker Change: It as opposed to the scope is going to go to about the end of August and then it'll be another year after that that the ability of the investigation and the policy that may have to come out of it.
Speaker Change: But one of the things the ICC is really doing though is making sure. They hear everybody's voice in this so they are getting a lot of people involved which is good to get all the different issues and circumstances on the table. So theyre trying to be a real robust process here.
Speaker Change: I did notice Paul yesterday or day before that one of the environmental groups and again multiple stakeholders, taking place in the scoping process, but one of the environmental groups on the record did say that they believe there would have to be a very long transition and that natural gas would play a significant role for a long period.
Speaker Change: At a time, which I thought was both practical accurate and encouraging.
Speaker Change: Yes, I guess it also considering that so much of your capex and safety oriented.
Speaker Change: Yes.
Speaker Change: I would assume that.
Speaker Change: It doesn't really the idea that this is going on.
Speaker Change: It doesn't really probably impact your <unk>.
Speaker Change: Your current.
Speaker Change: Our current investment in the business.
I think thats another reasonably.
Speaker Change: Yes.
Speaker Change: Yeah, that's a reasonably accurate Paul yes.
Speaker Change: Hey.
Speaker Change: And then.
Speaker Change: Just.
Speaker Change: One of the things that we've been seeing a lot of officials talking about recently are per commissioner about.
Speaker Change: A lot of it is.
Speaker Change: Enhanced.
Speaker Change: Good enhancement technologies.
Speaker Change: And I was just wondering how you guys are as an industry leader I was sort of thinking about.
About the deployment of this and how it might impact the industry as you are.
Speaker Change: As you guys are thinking about.
Speaker Change: Sort of longer term.
Do you guys see this as being how it might be playing a role or not in your business.
Speaker Change: While early days Paul but.
Speaker Change: My sense, and we will get Scott's view as well my sense is probably the first application may be in transmission, what do you think Scott.
Speaker Change: Yes.
Scott J. Lauber: We're going to have a lot of technology on the system. So it's hard to decide what exactly new technology will be coming but we have a lot of automation that we put on the system that you can really see our very effective when there is a storm that rolls through so I think the technology will continue to improve.
Scott J. Lauber: And I think transmission M&A do dynamic line ratings and stuff youre going to continue to see the benefits of technology and I think just like anything else. It continues to evolve here and we get better and better at it.
Scott J. Lauber: And near term Scott mentioned, the dynamic line ratings I think pay attention to that.
Scott J. Lauber: I think that could be that could be very helpful.
Scott J. Lauber: But theres a lot as you know theres a lot of R&D underway to try to enhance.
Scott J. Lauber: Both reliability and stability. So I hope that gives you at least a broad answer to the question Paul.
Speaker Change: Absolutely I appreciate it and once again, congratulations and good.
Speaker Change: Good luck.
Speaker Change: Thank you Paul you take care.
Speaker Change: All right well folks that concludes our conference call for today. Thank you. So much for taking part if you have more questions feel free to contact Beth Straka. She can be reached at 4142 to 14639, so long everybody.
Speaker Change: And ladies and gentlemen that concludes today's call and we thank you for your participation you may now disconnect.
Scott J. Lauber: Now, we're laying out a plan for that. Like Gale said, they want to pay their fair share. I wouldn't characterize it as them eating into reserve margins. Some of these builders support that. So, we always look at our plan and make sure we have the appropriate reserve margin, and we look at this economic development.
Scott J. Lauber: Now, the
Speaker Change: Please wait the conference will begin shortly.
Anthony Christopher Crowdell: Once again, that's what drove some of the generation here. So, I don't think they ate into anything. It's just all additive for everybody here.
Speaker Change: [music].
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[music].
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Speaker Change: Okay.
Speaker Change: Okay.
Gale E. Klappa: And then, Anthony, as you know well because you've been around a long time, when you have substantial kilowatt hour sales growth, that actually is helpful to your customer base because it spreads those additional costs over a much broader base of kilowatt hour sales. So there's also, as we work our way through this, remember that four and a half to five percent increase that we're projecting in annual kilowatt-hour sales starting in 26. That's also going to be helpful to our overall customer base.
Anthony Christopher Crowdell: And then, if I could just one follow-up on Steve's question earlier about maybe some of the pushback in Illinois from the labor group. I'm just wondering, do you believe labor still has maybe the same, I don't know political leverage is the right term, but the same maybe sway that they've had in years past? Do you think it's more or just kind of the same? And I'll leave it there.
Speaker Change: Okay.
Gale E. Klappa: Anthony, it's very hard to tell, I mean, incrementally, one way or the other, but I will say this. Labor has, and will continue to have, I believe, a strong voice in Illinois, and they are passionate about the need for us to continue the safety modernization program.
Anthony Christopher Crowdell: Great. Thanks again. And again, congratulations.
Speaker Change: [music].
Gale E. Klappa: Thank you. I appreciate it very much, Anthony. You take care.
Operator: And we will take our next question from Paul Patterson with Glenrock Associates. Your line is open.
Paul Patterson: How are you doing? Congratulations. Thank you, Paul. So I guess my question is the future of gas. You brought it up, and I know it's kind of early procedurally, but any sense as to when that might be wrapped up?
Gale E. Klappa: Oh, yeah, a long time. What is going on right now, and it started a couple of months ago, is really what they would call a scoping phase. So they're having almost weekly meetings to identify and get broad input on all the different sub-subjects or sub-subject matters that should have broad discussion from all the stakeholders going forward. So the scoping itself, I think, is gonna take till mid-summer. Our guess is probably, what do you think, Scott? at least a year.
Scott J. Lauber: Yeah, it's supposed to, the scoping is going to go until about the end of August, and then it'll be another year after that that they'll go through the investigation and the policy that may have to come out of it. One of the things the ICC is really doing, though, is making sure they hear everybody's voice in this, so they're getting a lot of people involved, which is good to get all the different issues and circumstances on the table. So they're trying to be a real robust process here.
Gale E. Klappa: I did notice, Paul, yesterday or the day before, that one of the environmental groups, and again, multiple stakeholders taking part in the scoping process, but one of the environmental groups on the record did say that they believe there would have to be a very long transition and that natural gas would play a significant role for a long period of time, which I thought was both practical, accurate, and encouraging.
Paul Patterson: Yeah, and considering that so much of your CapEx is safety-oriented, I would assume that it doesn't really, the idea that this is going on, doesn't really impact your current investment in the business.
Gale E. Klappa: I think that's reasonably... Now that's reasonably accurate, Paul, yes.
Scott J. Lauber: Yeah, you know, we're gonna have a lot of technology on the system. So it's hard to decide what exactly new technology will be coming. But we have a lot of automation that we put on the system that you can really see is very effective when there is a storm that rolls through. So I think the technology will continue to improve. And I think transmission and when they do dynamic line ratings and stuff, you're going to continue to see the benefits of technology. And I think, just like anything else, it continues to evolve here, and we get better and better at it.
Paul Patterson: Okay, um, and then, um, one of the things that we've been seeing a lot of officials talking about recently, a pro-commissioner about, a lot of it is, um, Enhanced Grid Enhancement Technologies. And I was just wondering how, you know, you guys as an industry leader are sort of thinking about the deployment of this and how it might impact the industry as you're. As you guys are thinking about just sort of the longer term, what do you see this as being, how it might be playing a role or not in your business?
Gale E. Klappa: In the near term, as Scott mentioned, the dynamic line ratings, I think. Pay attention to that because I think that could be very helpful. But there's a lot, as you know, there's a lot of R&D underway to try to enhance both reliability and stability. So, I hope that gives you at least a broad answer to the question, Paul.
Gale E. Klappa: Well, early days, Paul, but my sense, and we'll get Scott's view as well, is that probably the first application may be in transmission. What do you think, Scott?
Okay.
Speaker Change: [music].
Speaker Change: Yeah.