Q1 2025 WEC Energy Group Inc Earnings Call
Speaker Change: Good afternoon and welcome to WEC Energy Group's conference call for first quarter 2025 results. This call is being recorded for re-broadcast and all participants are in a listen only mode at this time.
Speaker Change: A replay will be available approximately two hours after the conclusion of this call.
Speaker Change: 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.
Speaker Change: Such statements are based on management's expectations at the time they are made.
Speaker Change: In addition to the assumptions and other factors referred to in connection with the statements, factors described in WEC Energy Group's latest form, 10K, and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated.
Speaker Change: During the discussion, referenced earnings per share will be based on diluted earnings per share, unless otherwise noted. And now it is my pleasure to introduce Scott Lauber, President and Chief Executive Officer of WEC Energy Group. Please go ahead.
Scott Lauber: Good afternoon, everyone, and thank you for joining us today as we review a results for the first quarter of 2025. Here with me, our Shah Liu, our Chief Financial Officer, and Best Raka, Senior Vice President of Corporate Communications and Investor Relations.
Scott Lauber: As you saw from our news release this morning, we reported first quarter 2025 earnings of $2.27 a share. We're off to a solid start to the year.
Scott Lauber: We remain laser focused on reliability, financial discipline, and customer satisfaction.
Scott Lauber: And we're on track to deliver another year of strong results in line with our 2025 earnings guidance by $5.17 to $5.27 to share This, of course, assumes normal weather going forward [inaudible]
Scott Lauber: We continue to target a six-and-a-half to seven percent long-term compound annual growth rate supported by our robust capital plan driven by strong economic growth in our region.
Scott Lauber: In Wisconsin, the unemployment rate stands at 3.2 percent, continuing a long-running trend below the national average And as we've discussed, we're continuing to see significant economic development along the I-94 corridor between Milwaukee and Chicago
Scott Lauber: Microsoft is making good progress on its large data center complex in Southeast Wisconsin. Work has continued on the first phase of the project, and we have confidence in our five-year forecast of 1.8 gigawatts of demand growth in Southeast and Wisconsin.
Scott Lauber: As you recall from last quarter, just in the north of Milwaukee, Cloverleaf has announced plans to develop approximately 1700 acres for another large data center campus
Scott Lauber: We have not incorporated any of this investment related to cloverleaf in our capital plan just yet. So stay tuned for the updated capital plan on our third quarter earnings call.
Scott Lauber: And there is other notable growth in Wisconsin. As a reminder, Eli Lilly has announced a $3 billion expansion of its manufacturing facility in Wisconsin. And just recently, ULINE announced another expansion in Southeast Wisconsin.
Scott Lauber: The company plans to build a 1.2 million square foot warehouse and distribution facility.
Scott Lauber: We're also off to a strong start under our current capital plan. It's the largest five-year investment plan in our history, totally $28 billion dedicated to economic growth and reliability.
Scott Lauber: As we've discussed, it's based on projects that are low risk and highly executable.
Scott Lauber: On the tariff front, we're evaluating the impacts of tariff center supply chain and capital plan.
Scott Lauber: For our $28 billion capital plan, we estimate the tariff exposure is approximately 2% to 3% overall. As you can expect, we are actively engaged to mitigate efforts and mitigation efforts through our contracts and various suppliers.
Scott Lauber: Fortunately, we have diversity in our business mix capital plan and supply chain that should help to mitigate the overall effects on our customers.
Scott Lauber: Our company has successfully navigated past periods of uncertainty and challenges and you can certainly expect us to aim to do the same for this current environment.
Scott Lauber: Now let me give you a few updates on our projects. In early March, the Darian Solar Project went into service. This adds 225 megawatts of renewable generation to our regulated portfolio with an investment of approximately $427 million.
Scott Lauber: And currently we have two solar projects in construction phase, Kashkanan, a 300 megawatt project in southern Wisconsin, and Renegade, a 100 megawatt project in the Upper Peninsula of Michigan. We expect both of these projects to be placed into service next year.
Scott Lauber: In addition, the Wisconsin Public Service Commission has approved our purchase of 90% of the high-new solar and battery project for approximately $883 million. Construction is expected to be completed in 2027.
Scott Lauber: Of course, we are closely monitoring the federal developments related to the Inflation Reduction Act, and we're actively seeking to safe harbor the projects in our capital plan.
Scott Lauber: At WEC Infrastructure, we closed on the Harden 3 Solar Project in February .
Scott Lauber: We invested at approximately $406 million for 90% ownership of the project, which has a total capacity of 250 megawatts. As a reminder, this project fulfills our five-year planned investment at WEC Infrastructure.
Scott Lauber: Overall, we have a lot of confidence and our ability to execute on our capital plan.
Scott Lauber: Now, turning to the regulatory front. As a reminder, we currently have no active ray cases.
Scott Lauber: In Wisconsin, at the end of March, we filed a new tariff proposal with the Public Service Commission to accommodate the economic growth we discussed.
Scott Lauber: The proposed, very large customer, or VLC tariff, would meet the needs of our very large load customers while protecting all of our other customers.
Scott Lauber: Our proposal would apply to customers with 500 megawatts or more of forecasted new load.
Scott Lauber: The customer commits to subscribing to a portion of one or more dedicated generation resources.
Scott Lauber: The terms of the agreements are 20 years for wind and solar and the depreciable lights for natural gas and battery storage assets.
Scott Lauber: As filed, the tariffs provide for a fixed return at equity of 10.48% and a equity ratio of 57%.
Scott Lauber: In addition, there are several other charges these customers are responsible for, administrative charges, energy charges, transmission charges, and distribution charges.
Scott Lauber: The proposed tariff is designed so that no cost to serve these very large customers would be subsidized by or shifted to other customers.
Scott Lauber: We work with these large customers in the design of the tariff, which included the financial parameters. We believe this tariff is a key component to help make Wisconsin a prime spot for data center investments.
Scott Lauber: We expect a decision by the commission by the second quarter of next year.
Scott Lauber: In Illinois, we receive the Illinois Comverse Commission's decision on our Safety Modernization Program in February .
Scott Lauber: The commission lifted the pause on our work in directed people's gas to focus on replacing all cast iron, inductile iron pipe that is a diameter under 36 inches by January 1st, 2035.
Scott Lauber: The commission also directed its staff to appoint a safety monitor to provide oversight by July of this year. Like other capital projects, our investments in pipe replacement will be reviewed in future rate proceedings.
Scott Lauber: Under this pipe replacement program, approximately 1100 miles of older pipe, some dating back to the mid-1800s will need to be replaced. We are currently developing engineering plans to execute the order.
Scott Lauber: We will factor the updated Pipe Line Replacement Program capital into our fall update.
Next up, Shaw will provide more details on our financials.
Xia: Thank you, Scott. Our first quarter 2025 earning of $2.27 per share reflects a 30 cent increase compared to the first quarter of 2024.
Xia: Our earnings packet includes a comparison of first quarter results on page 12. I'll walk through the significant drivers.
Xia: Starting with our utility operations, earnings were 28 cents higher versus the first quarter of 2024.
Weather, positively impacted quarter-over-quarter earnings by approximately $0.8.
Xia: Compared to normal conditions, we estimate that weather had a one-cent positive impact in the first quarter of 2025 compared to a 17-cent negative impact in the first quarter of 2024
Xia: Recall that our 2024 winter was the warmest in Wisconsin history on record
Xia: Rate-based growth contributed 20 cents more to earnings. This was driven primarily by the Wisconsin Rate Review Outcome that was accepted on January 1, 2025.
Tax and other items added another four cents
Xia: These positive drivers were partially offset by a total of 14 cents from ONM expense, depreciation and amortization and timing of fuel expense.
Xia: Our day-to-day ONM for the year is still expected to grow 8-10% when compared to actual ONM in 2024.
Xia: As a reminder, this year over-year growth is largely driven by a few factors. Our continued focus on commission-approved vegetation management, new assets coming online, and measures we took last year to offset the mild weather impact.
Xia: And let me give you some color on our weather normal retail electric delivery excluding the iron or mine.
Xia: Compared to last Q1 and adjusting for leap year, we saw 7 tens of 1% growth this quarter led by the large commercial and industrial class which grew 2.3% in the quarter
This is right in line with our forecast.
Xia: Remember, we expect our weather normal annual electric sales growth to reach 4.5 to 5 percent, starting in 2027, and we're on track to reach that over the next couple of years.
Xia: At American Transmission Company, earnings increased two cents compared to the first quarter of 24.
Xia: One cent was related to continued capital investment and the other penny is related to a modest gain from selling-end interest in the past 15 transmission line in California in the first quarter this year.
Xia: Turning to our Energy Infrastructure segment, earnings increased 5 cents in the first quarter of 25 compared to the first quarter of 2024, largely from higher production tax credits.
Xia: Remember, we completed our investment in the Maple Flat and Delilah Solar Project in the fourth quarter of 2024, as well as the Harden 3 Solar Project this February .
Xia: Next, you'll see that earnings from the corporate and other segment decreased three cents. This was driven by higher interest expense, partially offset by favorable tax timing and other items.
Xia: Finally, there was two cents of dilution primarily associated with our common equity issuances.
Xia: We issued about $200 million in 2024 and about $140 million in Q1 this year.
Xia: Including the Q1 issuances, as a reminder, we expect to raise a total of seven to eight hundred million dollars of common equity in 2025 via our ATM program as well as the dividend reinvestment and employee-benefit plans.
Xia: This is a part of the $2.7 to $3.2 billion total common equity we expect to issue through 2029 to finance the capital investment.
Xia: As we refresh our capital plan this fall, we continue to expect any incremental capital will be funded with 50% equity content.
Finally, let me comment on earning skydain
Speaker Change: As Scott mentioned earlier, we are reaffirming our 2025 earning guidance of $5.17 to $5.27 per share assuming normal weather for the rest of the year.
Xia: We're also reaffirming our long-term EPS paper of 6.5% to 7%.
Xia: For the second quarter, we are expecting a range of 63 to 69 cents per share. This accounts for April weather and assumes normal weather for the rest of the quarter.
Xia: Overall, we're optimistic about continued growth in our region and our company's growth in future. Operator, we are now ready for question and answer portion of the call.
Xia: Thank you. 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 digit one on your phone. If you are using a speaker phone, turn off your mute function to allow your signal to reach our equipment. We will take as many questions as time permits.
Xia: Once again, press star and then one on your phone to ask a question.
Speaker Change: Your first question comes from Julien Dumoulin Smith of Jeffries. Your line is open.
Yai, it's Brian Weisel on for Julien.
Sounds good. How are you doing?
Speaker Change: Good, thanks. Hey, just on the recent mysocapacity auction results, can we get your thoughts on your base generation cat-back, spend, or any upside cat-backs, maybe before?
Speaker Change: Data Centers and then, you know, how that plays into the whole long-term strategy for the power of the future assets and port Washington and maybe also the nuclear PPA negotiations.
Speaker Change: Sure, there's a lot built into that. When you looked at the Meisel Auction, especially when you look at the summer part of the auction, it was really a tight auction.
Speaker Change: Overall, you know, we were long on one company and a little bit short on the other but nothing material all in the right kind of all in the right direction overall.
Speaker Change: You know, we build to make sure we have enough capacity to be their demand and that's why we've been working with our very large customers and looking at our forecast for several years now as we get orders in place to build new generation capacity.
Speaker Change: So as we think about it looking forward, you know, we are looking forward to some of the decisions by the commission in we expect.
Speaker Change: Oh, end of June , early July here on some of the additional gas generation needs that we have.
Speaker Change: from the Combustion Turbans and the Race Units that are at the Commission to help us build that needed capacity.
Speaker Change: to meet this large customer load along with the other economic development in the region. So we are actively working to procure and we're already started talking about 2030-2031 and how we look at the capacity needs.
Speaker Change: As you start thinking about our part of the future assets and some of the other assets that we have
Speaker Change: We are looking at and we have successfully tested gas at about 30% blend.
Speaker Change: The Power of the Future Coal Units, and we're looking at our plans to make that 100% gas by 2029, and the same thing looking at the West and four units converting it to gas. So we're looking at how do we strategically have the capacity in the region, which also includes the capacity we'll get from batteries and wind and solar.
Speaker Change: We are planning and we're looking to the future to make sure we're ahead of that capacity auction.
Set. Help you.
Yes, it does. Thank you very much.
Andrew Wiesel: The next question comes from Andrew Weisel with Scotia Bank. Your line is open.
Okay, Andrew.
Hey, good afternoon.
Good afternoon. First question...
Andrew Wiesel: But might represent some upside to the CapEx. God, I know you mentioned that we'll have to wait for the CapEx to refresh this fall.
Andrew Wiesel: But my question is, any early thoughts on roughly how big of an opportunity that might be and how quickly you might be able to get those efforts going? I know you have to re-higher, retrain and redeploy, I think thousands of employees so you can't just do it immediately, but when might that work start to resume?
Andrew Wiesel: Excellent question, and we can give you a little color what we're looking at now, so we're going through the process
Andrew Wiesel: And we had a couple projects that of course were stale that were going running it back through some of the permitting process as you have to go through the permitting process and we're going through to see if we can you know kick off a few of them this year, but of course we're going through that hiring process.
and our planning.
We'll see the program ramp up in 26 and 27
Andrew Wiesel: and get to what we think will be a full run rate and we're still pulling the numbers together in 28.
Andrew Wiesel: But we expect that will probably be a little over $500 million a year going forward.
Andrew Wiesel: I remember our old program was about $280 to $300 million, but in order to get this program completed by, you know,
Andrew Wiesel: Beginning of 2035, we really have a lot of spending to do because we were expecting it to be closer to that at 2040 time frame. So, it'll be ramped up over 26 and 27 with hopefully we get to that run rate in 2028.
Okay, great [inaudible]
Um...
Speaker Change: Next on Microsoft, I think you briefly mentioned that things are going smoothly there. Can you just elaborate on that maybe what you're hearing and seeing from the company? I know there's a lot of questions among investors about...
Speaker Change: Pauzes of various phases and potential global slowdown, all those types of questions. Maybe if you could just tell how your latest conversations with them have been going both around the current phase one that goes through 26 and what the company is doing and seeing around those future phases in your neck of the woods.
Sure, and Microsoft. Microsoft.
Speaker Change: You know, we've been working with them for a couple of years now and
They reiterated to us that...
Speaker Change: The economic development and the demand that we have in our forecast over the five-year period.
Speaker Change: That supports that Southeast Wisconsin, that 1.8 gigawatts is still solid. We have worked with them on building substation ourselves as an American transmission company and that work progressives.
Speaker Change: So I have no concerns that that site is still going to be very, very strong in a very core part of Microsoft development.
Speaker Change: You know, and I learned, you know, a lot just listening to the Microsoft conference call because they talk about
You know, timing and...
Speaker Change: Going in and out of some of their build cycles and how they manage it, it just sounds like now with AI and all the hyper-skillers being to talk and how it affects the electric utilities people are talking about it a lot more, but I think they've always managed it so I encourage you to listen to Microsoft conference call.
Speaker Change: I thought it was really interesting how they describe some of the things, but I have no concerns in Salthicia, Wisconsin here.
Speaker Change: Okay, great. Appreciate the confidence on there. One last one, if I may, if I could squeeze one in for Shah on equity 140 million in the quarter obviously that's a bit less than 25% of the full-year guidance you mentioned that 700 to 800 million. How should we think about that? Is that any kind of reflection on the market uncertainty in Paris? Yes, yes, yes, yes.
Speaker Change: View on your stock price, or maybe a function of cash needs ramping up as a year goes on, any thoughts on the timing there?
Speaker Change: Yeah, Andrew is all of the above. We're targeting seven to eight hundred million dollars and so
Speaker Change: Stock price plays a role in that through the access to the ATM program. Our cash needs plays a role, so we're managing it very very tightly, but we feel very confident that through our ATM and the employee benefits plans, we could access the $7 to $800 million.
Fairly easily throughout the rest of the year.
Great, thank you very much everybody.
Speaker Change: Thank you. The next question comes from Jeremy Tonet with JP Morgan. Your line is open.
Hi, good afternoon, Jeremy.
Good afternoon.
Speaker Change: The IRA has been in focus for the market for some time here in tax credit transferability as well. Just wondering, any updated thoughts you could provide here if transferability or other parts of the IRA were to be repealed and how you think about this, would impact on the plan or offsets that you could offer?
Speaker Change: Sure, and I'll start and then in shock and walk you through a little bit more than numbers, but when you think of the IRA and a lot of projects that we have in our plan, you know, we've been anticipating the IRA benefits.
Speaker Change: And I think a lot of our customers are anticipated to remember all the PTCs and ITCs for the projects going forward, go back to our customers.
Speaker Change: So, I can see that there would be a phase out of the IRA and PTCs and ITCs in the future.
Speaker Change: But, you know, it's pretty well integrated in a lot of the projects that people have assumed going forward. In transferability, you know, there's other ways to look at moving those tax benefits to others, whether it's tax equity or transferability.
Speaker Change: Our transferability has been very clean and easy to execute and actually we've been able to benefit some of our local companies too with the benefits of those tax benefits.
Speaker Change: So, hopefully there's a transition period and transferability stays for a while because I think it's really beneficial to our customers and Shaw can give you a little more detail on some of the numbers.
Absolutely, so the on the…
Speaker Change: Phase-out point, like Scott mentioned, we're actively seeking safe hovering the upcoming renewable projects, so once we do that, we could, hopefully we could qualify the project for 100% of PTCs through at least 20-29.
Speaker Change: So we're actively seeking that. In terms of the transferability, as you knew that we have been able to transfer about 200 million dollars of TTCs annually to third parties over the past several years.
Speaker Change: And as we build more projects, that number ramped up slightly in the plan. However, if you think about the projects, we have almost 80% of the planned.
Speaker Change: PTC transfer from projects already in service from 2025 and prior.
Speaker Change: So, as we all know, we don't believe Congress likes to change the economics of projects already placed in service.
Speaker Change: Assume that, depending on the law, obviously, but assume that transferability were to only impact projects put in service from 2026 or 2027 or later, we would have very limited credits that we would not be able to sell.
Speaker Change: So we think the impact would be pretty limited and also like Scott mentioned for the utility projects, if transferability were repealed it would make renewable projects more costly for the customers [inaudible]
Speaker Change: So, I think we would have to take a step back and think about the optimal generation project mix from a customer affordability standpoint. So, I think all in all, we're managing it, but watching the development and also managing very actively. We're not concerned at this point.
Speaker Change: Okay, got it. So the FFO impact is something that you think would be, I guess, manageable in the grand scheme of things, everything you talk about.
Speaker Change: Yeah, depending on the law, yeah, absolutely. We're all anxiously waiting to see you at the final line.
Yeah.
Speaker Change: Got it. Thank you for that. And then just want to pivot towards the BLC tariff. And, you know, I think it's key that customers were involved in the creation here, right? Just wondering.
You know, as it...
Speaker Change: How do you think that impacts Wisconsin? How does Wisconsin stand relative to other states and trying to win this business with this tariff? Just wondering if you could expand on that.
Speaker Change: You know, I think the key is you hit it. We worked with our very large customers with
Speaker Change: with the basic understanding that we cannot have this very large load get subsidized at all by any other customers.
Speaker Change: So we worked on the fundamentals and that's how we came up on the tariff [inaudible]
I think it's a fair tariff for our customers for…
Speaker Change: Very large customers and for our shareholders, so we try to be a very balanced approach [inaudible]
I think, and what we've heard from...
Speaker Change: Some of the developers is that it's a very fair and straightforward and clean tariff, so...
Speaker Change: I'm very happy with it. I think our team did a great job and really appreciate both sides as we balance it through with the large customers and our internal team.
So, I'm really optimistic with it.
Got a great thank you for that.
Thank you.
Speaker Change: The next question comes from Anthony Crowdell with Mizzouho. Your line is open.
Hey, good afternoon team!
Good afternoon.
Speaker Change: Hey, just two quick questions. One is a really strong residential electric load growth there. I think five and a half percent. Just one thing if you go through some of the drivers, or was that mainly driven by weather?
Speaker Change: Yeah, and Shah looked at these numbers, but remember last year was such a warm first quarter?
Speaker Change: So the growth, I think, is just getting back to normal weather. I'm happy to see normal.
Speaker Change: And I think when you look at the normalization for the the quarter...
Speaker Change: That is also anomaly of how that weather affected last year's normalization because it was so extreme as the warmest we had in like 134 years. So we're seeing good customer growth, good customer connections.
Xia: You know, I don't think there's anything to read one way or the other than some pretty extreme weather between last year and this year Shall anything bad? No, it's all right mostly weather driven [inaudible]
Xia: Great. And then, if I could just follow up on Cloverleaf, just gave some acreage and maybe projected about a one-giggle out of demand. Just curious, would that mostly be met with gas or a combination of gas and renewables or any type of clarity you could provide on the generation needs there?
Xia: Sure. So a couple of things is one, yeah, it's about 1700 acres of developing. They talked initially about one gigawatt of load. We exit back.
Xia: They also say that they can hold up to probably about three and a half gigawatts of load, so...
Xia: Total Relief is in the process of marketing the land and the location .
Xia: We expect in the next couple of months to see who potentially is a longer term purchaser of that spot or a purchaser of that location and then we'll work on the details of the generation.
Xia: Mix of that that will hopefully factor in then to our fall update in the third quarter call of the capital plan So things are moving along very well there I think it'll be a combination of course
Xia: of gas and renewables, just because you need that firm capacity ability, but I also think they'll have some renewables in there too, just to help with the energy part of the bill too. So I think it'll be a combination, but more to come as we continue to work with that and whoever purchased that location.
Xia: In the timing of when maybe that load would come online, that would be something we'd get more of that third quarter call.
Xia: Correct, correct. And they're trying to move very fast to get that purchaser in the next couple of months and then we'll have more clarity as we work with them to develop their plans. But we've been working with the potential purchasers of the sites. I can't mention any names.
Xia: Of course, but all high quality companies and they're just reviewing the plans that we would have to serve those sites.
Great, thanks for taking my questions.
Absolutely, thank you.
Xia: The next question comes from Michael Sullivan with Wolf's research. Your line is open.
Hey, good afternoon.
Speaker Change: Good afternoon, Michael, how are you? Hey Scott, too well, thanks soo
Speaker Change: If it's primarily around the renewables, just remind us kind of what the process is for updating costs on that run as you seek to recover.
Sure, sure, and-
As you think about it,
Speaker Change: As we look at our capital plan, a lot of the electric and gas distribution is mainly domestically sourced [inaudible]
Speaker Change: When you start thinking about some of the remaining part of a planned largely in the generation, a lot of its labor, probably 50 to 60% is labor, but then the remaining are the materials. [inaudible]
Speaker Change: And of course, we have to see final clarity on the tariffs. The solar for the near term projects, if you're very comfortable, those are in flight, we got processes and manufacturing and panels lined up.
Speaker Change: The challenge, of course, is where do you get the polysilicon and the wafers, the cells, etc. So we've been working with everyone to get that.
Speaker Change: and then go through a prudency review process which we've done on other projects for force-roger situation. So at this time we don't have anything that notable to talk about. On the other aspect, probably the last item are the batteries. Remember, we have...
Speaker Change: The smallest part of our generation plan is probably the batteries a little about a little under a billion dollars. In fact, we have our first battery installation going in the end of this month about a hundred megawatts of that.
Speaker Change: Those batteries are a little more tricky across the industry and we'll just manage the batteries as we get some more clarity on the terrace and of course we're working with vendors.
Speaker Change: on those batteries. And, of course, working with some of the very large customers. Also, we could see them looking at renewables and batteries too, as they look at PCAs and long-term generation needs. So, we're kind of looking at all of the above, but probably the biggest potential.
Speaker Change: Charge is coming from the terrace. Could you relate to batteries or the solar projects?
Speaker Change: Appreciate the color there, very helpful. And then I wanted to ask also on the reconciliation bill potential impacts of a lower corporate tax rate. Can you give us any sense there if that were to happen.
Sure, and shock and walk you through the details.
Chuck: Basically, the same that we kind of went through several years ago at the lower tax rate, right?
Um...
Chuck: So, in general, you know, you're going to get a lot of the benefits, we'll go back to our customers, but that lower tax rate through the regulatory model.
Chuck: And in general, then there will be a little less of a tack shield.
Chuck: at the parent company, for some of the deductions up there in the interest expense. That's kind of a high-level story. I don't think, remember last time, there's a little bit bigger change in taxes, so I don't think it's going to be that big of effect.
But Shah, any additional? [inaudible]
Xia: Keller? Yeah, I think Michael and Steve published a report which really correctly stated the potential impact, like Scott mentioned.
Xia: Long-term benefit for customers, because customers would pay less under that situation. It would have some earnings impact, particularly for the tax shield earnings benefit.
Xia: from the non-customer deductions at the holding company that would decrease over the longer term, but the earnings would...
Increase at the utility, because your rate base would be higher. [inaudible]
over the longer term.
Xia: So in terms of the cash flows, obviously the lower the corporate tax rate you would collect less from the customer so everything else being equal there will be slightly less cash flow for the company for the for the company overall.
Xia: So I think we're watching that very closely and in case that we went that way we would be ready to handle and deal with it.
Okay, great. Appreciate the shout out. Take care.
Thanks, Mike.
Speaker Change: The next question comes from Carly Davenport with Goldman Sachs. Your line is open.
Good afternoon, thanks for taking the questions.
Speaker Change: The commentary on the data center front in terms of your conversations with customers was super clear. Could you talk a little bit about conversations with other large load customers outside of the data center industry? Anything changing there in terms of their plans to progress on new projects, either from a timing or a magnitude of their power needs perspective and then any sort of dispersion across the diverse set of industries? [inaudible]
that you serve would be helpful.
Speaker Change: Sure, and thanks for the question, Carly, as we look at it and as you know, we are tracking customers in about 16-17 sectors.
Speaker Change: And we have a relationship that we talk to our large customers, I'd say right now.
Speaker Change: The most of the customers are cautious on what's going on with the tariffs and what kind of clarity, so I think people are cautious before they overreact one way or the other.
Wait, wait below the national average. [inaudible]
Speaker Change: And the large significant projects outside of the data centers are still progressing and people are, you know, the Eli Lilly, etc. There's still a lot of expansion and housing development, Southeast Wisconsin so...
Speaker Change: As you drive around, it still looks very positive and constructive. I think the question is going to be as people see more clarity and what's going on with tariffs, etc.
Speaker Change: That'll be a question that people's mind, but cautiously optimistic, I would say. And I think Shah has analyzed the first quarter on where we're seeing so let's Shah walk you through what we're seeing on the large group in the first quarter.
Xia: So, Carly, we are all over that, so as you know, we follow about 16 different sectors in the state. It covers from food, paper, printing, all the way to health services and education.
Xia: So out of the 16, 10 of those had quarter of a quarter positive growth.
Xia: Sectors that experience some negative roles, I think they're not driven by macro environments mostly driven by the individual decisions made by those customers. So, overall, we think we remain very optimistic about the...
They long-term growth in our region.
Speaker Change: Great, thanks so much for the comprehensive answer there. And then just a quick follow-up on the conversation earlier on Illinois, just on the future of gas, anything that you fly from the most recent series of workshops there that you think could impact the final outcome early next year.
Speaker Change: I would say, right now, I haven't seen anything that has gone one way or the other. I mean, the workshops, as you know, it got postponed now, not the workshops but the final decision to next year. I think everyone's looking at the economic development and what's needed for gas.
Speaker Change: They've approved our pipe replacement program for these very large pipe. I think that's that's positive so I don't I'm not expecting anything that I've seen recently to change that momentum.
Great. Thank you so much for the time.
Absolutely, thank you.
Speaker Change: Your final question comes from Durgesh Chopra with Evercore ISI. Your line is open.
Weisel, Nicholas Campanella,
Thank you.
Speaker Change: Hey, good afternoon, team. Thanks for taking my questions. Just Scott, a lot of eyes on the terrifying and a response in the ELT filing.
Speaker Change: Maybe just a little bit cutter on the higher ROE, how do you come up with 70 basis points higher than the current authorized and the customer feedback on that higher ROE? Just any color or thoughts there would be really appreciated.
Speaker Change: Sure, and remember, so we worked with the customers at coming out with this agreement on the ROEs and the equity layers.
Speaker Change: You know, we think the ROEs when you look at interest rates over a long period of time or you know near one of the lower [inaudible]
Speaker Change: Spots now at that 9.8, so having something locked in for a longer period of time.
Speaker Change: We came up with that 10.48 and thought it was reasonable for both of us to lock into that number but remember this is you know for 20 to 30 years so it's a long it's a long investment but it also gives them certainty on what they're putting into their models.
Speaker Change: Thank you so much, that's helpful. Yeah, it does. Thank you. And then maybe just quickly in it Illinois, it can just remind us to the higher.
Speaker Change: 500 million per year rate, which you get to in 20, 20, 20, that is not, that is not going to be recovered by a track of correct, that's part one. And if not, what's the, what's the rate case strategy on undercovering that higher level of spending because it is indeed wrapping up quite a bit.
Correct.
Speaker Change: Correct, so you are correct. It's not covered under a tracker. In Illinois, we'll have to file for looking test years on the rate case. We're evaluating right now when our next test year filing will be, but you'll of course we'll have to forecast that into the test year. That'll, you know.
Speaker Change: It's for looking test year but it also gives us a chance that the Commission and the ICC will be able to review.
Speaker Change: What are plans are, again, along with having that safety monitor on site to actually review our projects too as they go in. So I think it adds a lot of color and a lot of opportunities to prove the prudency on a front end basis also as we go through these...
Speaker Change: Please capital project, so it'll be more of an ongoing annual rate case in the future.
Thank you.
Speaker Change: All right, everybody, that concludes our conference call for today. Thank you for participating. If you have any more questions, please feel free to reach out to Best Rock at 414-2214-639
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