Xcel Energy Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 25, 2024

There are 11 speakers on the call.

Operator

Hello, and welcome to Xcel Energy First Quarter 2024 Earnings Conference Call. My name is Melissa, and I will be your coordinator for today's event. Please note this conference is being recorded and for the duration of the call, your lines will be in a listen only mode. However, you will have the opportunity to ask questions at the end of the presentation. I'll now turn the call over to Paul Johnson, Vice President, Treasurer and Investor Relations.

Operator

Please go ahead.

Speaker 1

Good morning, and welcome to Xcel Energy's 2024 Q1 earnings call. Joining me today are Bob Frenzel, Chairman, President and Chief Executive Officer and Brian Van Abel, Executive Vice President and Chief Financial Officer. In addition, we have other members of the management team in the room to answer your questions if needed. This morning, we will review our Q1 results and highlights, discuss recent wildfires and our mitigation efforts, and share recent business developments. Slides that accompany today's call are available on our website.

Speaker 1

Please note that we've changed our presentation. As a result, we no longer to electric and natural gas margin. Instead, we will discuss changes in revenue and cost of goods sold from the income statement. Please note that these most fluctuations in cost of electric fuel and natural gas are recovered through regulatory mechanisms and are generally earnings neutral. As a reminder, some of the comments during today's call may contain forward looking information.

Speaker 1

Significant factors that could cause results to differ from those anticipated are described in our earnings release and SEC filings. Today, we'll discuss certain GAAP non GAAP certain measures that are non GAAP measures. Information on comparable GAAP measures and reconciliations are included in our earnings release. With that, I'll turn it over to Bob.

Speaker 2

Thanks, Paul, and good morning and welcome, everyone. It's been 2 months since wildfires impacted our Texas neighbors. And before Brian walks through our financial results, I'd like to discuss the actions we're taking to protect the public and to strengthen our systems resiliency in the states that we serve. In February, multiple wildfires were ignited in Texas. And from the outset of those fires, our focus has been on the people and the communities in the Panhandle and on the safety and the well-being of our coworkers and their families there.

Speaker 2

I want to thank all the first responders, emergency personnel, state and local employees and our own SPS employees who worked tirelessly in support of our customers and our communities during and after the event. They provided wildfire response, community assistance, relief services and worked tirelessly in the field to restore essential services. To bend to the Panhandle and I've witnessed the impacted areas and I can speak for the entire Xcel Energy team when I say that we are saddened by the losses and we will stand with the Panhandle community as we recover, rebuild and renew that area as we have for over 100 years. Xcel Energy has acknowledged that our distribution polls appear to have been involved in an addition of the Smokehouse Creek Fire and smaller Reaper fire, which quickly burned into the Smokehouse Creek Fire footprint. We assume claims that Xcel Energy acted negligently in maintaining an operating infrastructure.

Speaker 2

In addition, we do not believe that our facilities caused the Wigiduce or the Grapevine Creek fires and believe that their emissions are caused by distribution line owned by other companies. In an effort to expedite relief and recovery in the community, we've established a claims process for those who have property or livestock lost in the Smokehouse Creek fires and are actively settling a number of claims. So far, 46 claims have been submitted. And as on April 22, Xcel Energy and SPS have been named as defendants in 15 lawsuits. Based on the most current information, we believe it's probable that we incur a loss due to the Slocca Creek wildfire and accrued a liability $215,000,000 which is offset by an insurance receivable since it's lower than our approximately $500,000,000 insurance.

Speaker 2

Please note that the $215,000,000 loss of preliminary estimate, which reflects the low end of a range and is subject to change based on new information. For more information on Smokehouse Creek, please see our disclosures in our earnings release and our Form 10 Q. Like all utilities, we're experiencing profound changes in weather and climate related impacts on our operations. As a result, we must continue to evolve our operations for these unparalleled dynamics. Risk mitigation and system resiliency has long been a priority for Exel Energy and continue into the future.

Speaker 2

Our strategy consists of 3 phases: 1st, immediate and near term response second, regulatory activities needed to address comprehensive wildfire mitigation and resiliency plans 3rd, additional state and federal legislation that could be valuable. Part of our first phase, we've accelerated risk reduction initiatives across our system, including accelerating portfolio inspections and replacements, as well as operational actions such as proactive, de energizing the lines and adjusting recloser settings, known as power saving, power shutoffs and enhanced power line safety settings. While we've been operating under an approved wildfire plan in Colorado since 2020, As part of our 2nd phase strategy, we will file updated wildfire mitigation plans in our respective states beginning with an updated Colorado WMP later this quarter. The plans incorporate industry learnings that are tailored to our unique geographies and risk profiles. Newly expanded actions include increased vegetation management, accelerated polo inspections, hardening and replacements, distribution underground segmentation and covered conductor programs transition line hardening and or rebuilds enhanced recloser settings and proactive de energizing of lines and situational awareness programs, including weather stations, cameras and other monitoring software.

Speaker 2

Later this year, we intend to file a system resiliency plan that will include wildfire mitigation at SBS contemplated under recent Texas law. And the 3rd component of our strategy is to continue to step up our efforts to innovate and plan for evolving climate wildfire risk. We know that our ability to enable a clean energy transition and to deliver affordable products to our customers is predicated on maintaining a reasonable cost of capital and we believe that proactive legislation at a state and federal level is a potential vehicle to ensure that our customers continue to receive affordable, reliable, sustainable and safe power service. We are doing this alone. We're working across the industry with peer utilities, industry groups such as EEI and EPRI, Department of Energy, federal, state and local agencies, first responders, our labor partners and countless others.

Speaker 2

While we need to reduce wildfire risk, our core operations remain strong and our investment opportunities robust. During the Q1, we made significant progress on our clean energy transition and resource plans. In February, we filed our resource plan for the NSP system. We propose to add 6,400 megawatts of new resources and extend the lives of our Prairie Island and Monticello Nuclear Facilities past 2,050. The proposed plan reduces carbon emissions by more than 80% while increasing customer bills by approximately 1% annually.

Speaker 2

We anticipate a decision on our proposal by the Minnesota Commission in 2025. In New Mexico, the commission accepted our resource plan and proposed approximately 5000 megawatts to 10000 megawatts of new generation by 2,030. We anticipate issuing an RFP for these resource needs this summer. And finally, the Minnesota Commission recently approved our updated transportation electrification plan and we filed an updated transportation electrification plan in New Mexico in April. We've also made continued progress with several economic and commercial development projects.

Speaker 2

In February, we announced the work with Microsoft to bring a new data center to our retiring Sherco coal facility. The proposed data center is positioned to be one of our large customers in Minnesota and is projected to bring jobs and investments to the community. In March, Meta broke ground on its previously announced data center that will be powered by MSP Minnesota. Meta will provide funding for new infrastructure upgrades, including transmission lines to support the project, and the facility is slated to open in late summer 2025. Exelon actually correctly works with data center developers, communities and stakeholders across our states to ensure that we can reliably and affordably serve this new demand, while providing benefits to our other customers.

Speaker 2

With several additional opportunities in the pipeline, we expect data centers to drive further growth

Speaker 3

for the

Speaker 2

foreseeable future. Our employees are at the heart of these many accomplishments. Our team is composed of dedicated, hardworking and courageous employees are committed to serving our communities with safe, clean, reliable and affordable energy. For the 11th year in a row, Xcel Energy was honored as one of the world's most admired companies by Fortune Magazine, placing 2nd overall amongst the most admired gas and electric companies in the country. And for the 5th year in a row, Xcel Energy has enabled one of the world's most ethical companies by Ethisphere.

Speaker 2

Xcel Energy is one of only 5 energy companies in the United States recognized this year. Xcel Energy also joined the Economic Opportunity Coalition, a public private partnership with the U. S. Government, where we committed to allocating 15% of our U. S.-based contract spending in the areas of energy supply, distribution, transition and clean energy, small and underserved businesses by 2025.

Speaker 2

With that, I'll turn it over to Brian. Thanks, Bob, and good morning, everyone. Turning to our financial results, Xcel Energy had earnings of $0.88 per share for the Q1 of 2024 compared to $0.76 per share in 2023. The increase in earnings reflects our investment of approximately $8,000,000,000 over the last 5 quarters to improve resiliency and enable clean energy for our customers while delivering economic growth and vitality for our communities. The most significant earnings drivers for the quarter included the following.

Speaker 2

The impact of electric and natural gas rated reuse to recover our capital investments increased earnings by $0.12 per share. Lower O and M expenses increased earnings by $0.06 per share, reflecting lower labor and benefit costs, lower bad debt expenses and gains from a land sale for a data center. Non dual riders recover capital investment increased earnings by $0.05 Offsetting these positive drivers were higher depreciation and amortization decreased earnings by $0.05 per share reflecting our capital investment programs. Higher interest charges decreased earnings by $0.05 per share. In addition, other items combined to decrease earnings by $0.01 per share.

Speaker 2

Turning to sales, year to date weather and leap year adjusted electric sales decreased by 0.3% and natural gas sales increased by 1.7% as compared to 2023. Please note that we have revised the projected electric sales growth to 1% to 2% for the year, largely due to declining use per customer and timing delays for expansions for some of our large C and I customers. However, we can certainly expect long term electric sales to grow 3% annually. During the quarter, we also made progress on the relatively light rate case calendar. In April, the Texas Commission approved our electric rate case settlement with all modification.

Speaker 2

The settlement reflects a rate increase of $65,000,000 based on a Black Fox settlement, which includes a ROE of 9.55 percent and an equity ratio of 54.5 percent for ABDC purposes. In our Minnesota natural gas rate case, we received interviewer testimony last week. Series were scheduled for July and expect the commission decision by year end or in the Q1 of next year. And in our Colorado natural gas rate case, procedural schedule has been established that reflects intervener testimony in July, hearings in September and a commission decision in the Q4. Please see our earnings release for more details on our regulatory proceedings.

Speaker 2

We are reaffirming our 2024 earnings guidance range of $3.50 to $3.60 per share, which is consistent with our long term EPS growth objective of 5% to 7%. In addition, we've updated our key assumptions to reflect the latest information which are detailed in our earnings release. With that, I'll wrap up with a quick summary. We are proactively enhancing our operational and wildfire mitigation actions, commanded to risk to our systems and protect our customers from extreme weather. We continue to expect to deliver 2024 earnings within our guidance range as we have for the past 19 years.

Speaker 2

We are executing on our capital investment plan, including clean generation, transmission and distribution to support reliability and resiliency and economic development to support our communities. And we remain confident we can deliver long term earnings growth at or above the top end of our 5% to 7% range starting in 2025, dividend growth at the low end of our 5% to 7% objective range. This concludes our prepared remarks. Operator, we'll now take questions.

Operator

Thank Our first question is from Nick Campanella with Barclays. Please go ahead.

Speaker 4

Hey, thanks for all the information today. I

Speaker 2

guess a couple of questions kick

Speaker 4

it off. You have a lot of resource plan activity going on across SPS and the RFPs seem like they're coming out this summer. Just how are you kind of thinking about competition for capital within the current CapEx plan now that you're seemingly accelerating

Speaker 2

some resiliency plans at SPS and PSCO. Maybe you can kind

Speaker 4

of remind us what's incremental versus not? And

Speaker 2

then also just touch on your financing plan and equity needs? Thanks. Yes, certainly, Nick and good morning. If I don't touch upon all the multiple parts of that question, just please feel free to follow-up. Absolutely, we're pretty excited about the upcoming RFP and SPS.

Speaker 2

We've talked about it before, seeking a range of generation between 5,000,101,000 megawatts of combination of renewables and dispatchable capacity. And we'll look to launch that RFP in July. It's a little bit of a longer timeline, so I'll help you understand in terms of how we launched that July. We would expect to file CPCNs in the summer of 2025, so summer of next year, with decisions in Q1 of 2026. So that capital really will be kind of in the 2,070 to 2,030 type spend timeframe.

Speaker 2

So I think a lot of the elongating adding to the some of the back end of our 5 year, but elongating our growth opportunities beyond their 5 year what we're seeing there. So that's how I think about that capital, but really great opportunity, excited to get started on that. You touched a little bit on absolutely we're looking to continue to invest in resiliency and risk mitigation spend. Just a reminder, we have about $10,000,000,000 in our current CapEx spend around distribution and transition resiliency. But as we look to file our Colorado WMP here later in the skew, Q2 there will certainly be incremental investment needs related to reducing overall wildfire risk.

Speaker 2

So we'll evaluate all of that within our kind of current normal cadence when we come back in October of this year to provide a kind of roll forward for a 25% to 29% plan. And as you think about competition for capital, I think as we sit here today, we're very comfortable with I reiterated we'll be at or above the 5% top end of the 5% to 7% range. I think that's looking at all the opportunities we have in front of us with rate base growth opportunities above 9%. And we will have to finance that as we always have been. I think it's important to maintain a strong balance sheet and important to keep that going forward.

Speaker 2

And so we'll look at it financing incremental growth with accretive equity at that kind of 60%, 40% range. So hopefully, I touched on everything you're asking about. And then I'll just add one thing on the Brian comments. I think you asked about sort of relative competitiveness of the company. We would expect to offer in our own development projects into the SPS proposal and we've proven that we with our scale and utility owned wind and our growing expertise in solar and storage, we think we'd be very competitive for some of the generation in Southwestern Public Service RFP process.

Speaker 4

Got it. That's really helpful. And then I guess just and you did hit all the points. To put a finer plan on the equity needs, I guess, do you just see really kind of no change to current plans even with the multiple a little bit lower here? Thank you.

Speaker 2

Yes. So the way we think about it, obviously, like I said and reiterated where we expect to be within the growth range. And that takes into account our lower multiple impacts over the past quarter, certainly. As I mentioned, we think about the significant investment opportunities going forward. And it's important to have a strong balance sheet.

Speaker 2

We plan to maintain that strong balance sheet. But obviously, we'll look at what is that, that's our balance sheet gives us some time and flexibility from an equity issuance perspective. And obviously, we'll evaluate that. And obviously, we'll evaluate whether there's some potential timing flexibility around capital in the near term. But I think overall, as we think fundamentally, everything is intact from a long term perspective in terms of maintaining a strong balance sheet and funding the investment needs for the clean energy transition with equity as we need to maintain that balance sheet.

Speaker 4

Thanks a lot. Really appreciate the time.

Operator

Thank you. Our next question is from Steve Fleishman with Wolfe Research. Please go ahead.

Speaker 5

Hi, good morning. Thank you. So just on the Texas fire, you mentioned the legislative report coming out in May. Just what should we expect to be coming out in that? Is that who caused it or how should we think about what's going to come out in that report, what likely focus on?

Speaker 2

Thanks, Steve. Good morning. Look, at a macro level, I was pretty encouraged by the process we went through with the Texas House and the committee. I think one of the tenants of good risk mitigation is involving all the stakeholders who have a hand in doing that. And I think the committee hearings were a pretty good example of getting all or mostly all of the interested parties and participants in a room proactively talking about the issues.

Speaker 2

And on balance, I think the sessions were productive. The committee was looking to be prospective in gathering information about future solutions and I think that's how I'd expect the report in May to come out. I think we'll see stuff on recommendations for utilities, emergency responders, proactive things we can be doing in the counties to mitigate fire risk. I think there's already a Texas A&M Forest Service report on causation. I'm not certain we'll see something else from the committee on that.

Speaker 2

But I think the report is going to be in line with the sessions themselves with constructive recommendations for how to proceed going forward.

Speaker 5

Okay. And then just on the damage estimate that you took, as you've noted, I think in your release, a lot of kind of what's in there, what's not in there. One clarification just is, how about not punitive damages, but non economic damages? Is that in your estimate or not in your estimate?

Speaker 2

Yes, it's Steve. I'll handle this one. And I'll give you 1st, obviously, we'll point to our disclosures, but I'll give you a little bit more color in terms of that $1,000,000 is the lower end of that.

Speaker 5

Yes, that would be great.

Speaker 2

And here's the large some of the market buckets it includes. Residential properties and related losses, cattle and feed, agricultural structures and fencing, non economic damages and then a number of other items. So obviously, this is subject to changes again, additional information since we're still early in the process.

Speaker 5

That's helpful. Thank you. And then just on a follow-up on the question about equity, just given some of the overhang that's been caused by this, how are you kind of revisiting like other options of getting equity than just issuing it? Are there asset sales or other things that you might consider? Or is that just not as attractive as just funding with equity?

Speaker 2

Obviously, it's all you'd expect, Bob and I to evaluate in the normal course what other options are there. I think we've been what you've seen from us is that we were a pretty straightforward conservative financing plan from a company perspective. So I don't I think right now that's our current plan of action. And I think I've been on record about not only interested in minority interest sales and the like. So that's our current plan of action as we sit here today.

Speaker 5

Okay. And then last thing on the data center growth. So just on the facility at the old Sherco site, how is that being served? And then just Bob, you mentioned talking to a lot of others. Could you just talk to kind of how they're viewing your territory and just making sure you're able to kind of do this in a way that is kind of good for the broader customer base?

Speaker 5

Yes.

Speaker 2

No, that's a great question and conversation, Steve, and it's very topical both inside the walls of the building as well as around the industry. On your specific questions with regard to the Shurtland site, those sites get powered with grid energy. And as you know, we're the 1st company to commit to being 100% carbon free electricity. So we already had a significant importance in the renewables of all the system and they'll benefit from all our system actions. More broadly, as we look across our footprint as a company, we think depending on the operating company, we have really attractive dynamics for super scalars and other data center and high energy use customers and whether it's very low cost C and I energy in the Southwest or benign weather and high renewables in Colorado or similar footprint here in the upper Midwest.

Speaker 2

I think that we're having conversations across our footprint and I think we've got both access to water, transition infrastructure, land and energy and clean energy that they find attractive. So we've got a a significant amount of interest from super scalars and others and look forward to sharing more of that as we develop our forecast. Yes. And Steve, I just wanted to just add a little bit of color to that. I think you kind of hinted that, how do we think about it from a current customer perspective.

Speaker 2

I think no, as we bring on new data centers and this is something we did with Meta and approval of Meta in Minnesota, we made sure it's a win win for our existing customers. That's really important as we continue to move forward with this significant opportunity. And I think there's an opportunity there to work with our policymakers and regulators to help drive that economic development within the right context. And then also ensuring that we can move quickly because you will need to build up infrastructure both on the generation side and the wider side that can serve some of these significant opportunities that we're seeing over the next 5 to 10 years.

Speaker 5

Great. Thank you.

Operator

Thank you. Our next question is from Jeremy Tonet of JPMorgan. Please go ahead.

Speaker 2

Hi, good morning. Hi, Jeremy.

Speaker 6

Hi, thanks. Just want to continue with the data center question with one more finer point here, I guess. As it relates to SPS, just given the need for power and given the very cheap natural gas in that area, I wouldn't necessarily think of SPS as a place that data centers would target, but just wondering if what you're seeing there if cheap power is a draw, just any thoughts in general?

Speaker 2

Yes. Hey, Jeremy. I think as Bob mentioned, we're seeing data center interest across all of our service territories. And Eastern service territory have maybe a little different point of attractiveness. And then you hit it at SPS as one of the lowest C and I rates in the country.

Speaker 2

So interest there, but I would say the other significant growth that we continue to see in SPS and this is really what you're seeing come through our numbers now when you look at the year over year growth from the C and I perspective is the oil and gas expansion in the Permian Basin there and everything they're doing from an electrification perspective. So right now, that's the near term growth in SPS with longer term data center opportunity or discussions with some data centers down there. We also have fantastic renewable resources down there from a wind and solar perspective. It really leads to that when we talk about that RFP coming out in SDS in our resource plan. There's a reason why we have a range 5000 to 10000 megawatts at upside in the range is ensure that we enable some of the growth that we're seeing.

Speaker 6

Got it. Certainly, New Mexico, the low end of the cost curve for production in North America there. So maybe continuing with Texas a little bit more and following up on the wildfires. Just wondering if Texas caps non economic damages or just any other details you could provide there?

Speaker 2

Yes. Right now, there is no cap on non economic damages in Texas. There is a cap on punitive damages, there's 2 times economic damages, plus up to 750 ks cap for non economic.

Speaker 6

Got it. Thank you for that. And then looking forward to the Colorado wildfire mitigation plan filing, there's been some press in the state around recent de energization in Colorado. Can you speak to the opportunity for sexualization or other efforts to reduce customer impact? Any other nuances to the filing you could share with us?

Speaker 2

Yes. Hey, Jeremy, it's Bob. Thanks for the question. First, I'm really proud of what the team did in Colorado in executing on behalf of public safety during a volatile weather event. As you can imagine, the second filing of our wildfire mitigation plan is going to have a lot of continuation of the existing plan and probably incremental areas that we'd be looking forward.

Speaker 2

As I think about the big buckets of opportunity there, really early warning capabilities, we've already installed 21 panel cameras, but I think there's a real opportunity for increased early warning capabilities with AI powered cameras as well as weather stations in and around our territories and our equipment. Obviously, we have opportunities to improve our operating capabilities in public safety power shutoff as well as even the power line enhanced power line safety settings. But we're executing those today and we're doing a pretty good job. We have more work to do there. I think on the 3rd bucket, kind of where your question leads to is sort of asset resilient capabilities and we can continue to inspect our poles and wires, replace stuff and maybe accelerate some of that.

Speaker 2

But I think about the system resiliency, this gets back to your comment sectionalizing. We've done some of that. We have real opportunity to do that more, both our intelligence at a granular level of weather and what was happening in weather as well as our ability to control our system at a more micro level to mitigate customer impact is a real priority for us in this plan. And lastly, given as part of the plan, there's other public policy opportunities that we might have to protect our customers. So a big bucket there, but hopefully I got to your sectionalizing question as well as asset hardening like undergrounding, covered conductors and other pieces of both transmission and distribution systems as we think about protecting public safety is a priority for us.

Speaker 6

Got it. Very helpful there. And just a last one if I could as it relates to gas cases in Minnesota and Colorado. Any updates there that we should think about or conversations with stakeholders and regulators on those cases and how you feel about those cases?

Speaker 2

Yes. And just like I'll get on first the Minnesota Natural Gas case because that's probably the one that's further along given that we just received intervener testimony and the Department of Commerce recommended about $44,000,000 increase of the 9 point 4% ROE. We have hearings in mid July, but we'll certainly look at this as an opportunity to engage with our stakeholders to see if we can reach a settlement, which we did in the last Minnesota Gas Rate Case. So we'll look to engage that. Like I said, hearings are July.

Speaker 2

So from now until July, we'll look to engage there. On the Colorado side, we're still pretty early in the process. We haven't received intervenor testimony yet. The procedural schedule just came out. So for us, it will be there's a settlement.

Speaker 2

We get intervenor testimony in mid July. We get opportunity. There's a settlement deadline at the end of August and then we don't reach a settlement. There'll be hearings in mid September for the decision in Q4.

Speaker 6

Got it. Very helpful. Thank you.

Operator

Thank you. Our next question is from Carly Davenport with Goldman Sachs. Please go ahead.

Speaker 7

Hey, good morning. Thanks for all the detail so far. Maybe just on the resiliency plan filing at SPS that you expect in late 2024. Can you just remind us of the timing to getting that ultimately approved and when that spend would come into play? And then I guess any early views on kind of the sizing of that potential filing?

Speaker 7

Or in addition to the wildfire mitigation piece that you flagged, what other buckets of spend do you think will be important there?

Speaker 2

Hey, Carly, it's Brian. As we said, we're just looking to we're looking to put that filing together late in Q4. So from a timing perspective, you're probably into Q3 of the following year for it to get approved. So I think from an overall perspective, I think you look at some of our kind of just distribution spend in SPS and you look at our 5 year capital plan and what could be held before. Obviously, we're currently focused on the Colorado WMP.

Speaker 2

We'll take a lot of those programs and apply it to SPS, but tailored because SPS is a very different geography than Caltex is a very different geography when we think about what should we be doing to have risk mitigation from a wildfire perspective. And so we'll tailor it. But I think we'll give you more color as we get further development of that resiliency plan later this year.

Speaker 7

Got it. Okay, that's helpful. Thank you. And then the follow-up is just on O and M, nice benefit during the quarter there. Is that just a function of kind of year over year timing?

Speaker 7

Or is there a potential downside to that annual guidance on O and M being up 1% to 2% for the year?

Speaker 2

Yes. Good question. I think from our perspective, we haven't as you kind of noted, we haven't changed our guidance for the year end even though we had a significant quarter over quarter change. So I look at it more from where we are from a budget perspective, which you don't see. And I think we're slightly ahead of our budget for the Q1.

Speaker 2

But from where we sit, I think it's early in the year, and our goal is just to land within that 1% to 2% O and M guidance range as we sit here.

Speaker 7

Got it. Great. Thanks so much for the color.

Operator

Thank you. Our next question is from Anthony Krowdell with Mizuho. Please go ahead.

Speaker 8

Hey, good morning. Just two quick ones. One is, any major change in the company's cost to ensure the company's operations?

Speaker 2

Anthony, yes, that's a good question as we think about it. So I assume you're asking specifically about wildfire insurance or excess liability. Yes, I think, yes, all our other programs, I would say, are relatively stable or don't have significant challenges. And I think about wildfire insurance and just let's say, probably wildfire insurance versus overall excess liabilities, they're 2 different things. I think this is a very key industry issue, both at the state and federal level.

Speaker 2

And if you've been following EEI, this is one of their top priorities this year from a federal perspective. In terms of how do we think about getting a focus on dams limitations, is there an insurance backstop or solution at a federal level and think about specific criteria for law firm mitigation plans in exchange for liability protections. So some of those on the broad buckets EEI is thinking about. Obviously, we're thinking about from a state perspective, as we look forward. Our legislative sessions are wrapping up here or have already wrapped up this year.

Speaker 2

So what we'll do is we'll look to work with our policymakers in our states, kind of from here forward as we think about next year's live session to see if there's any state level solutions as we think about it, not specifically from a company perspective or a commercial insurance perspective, even prior to Smokehouse Creek, we were seeing or understanding that from some of the commercial carriers, they were already looking to reduce their capacity and not just for us, but overall their exposure from a wildfire insurance perspective. And so that's going into the next policy cycle. These are annual renewals. So our renewal is in Intel Q4. So we'll give more visibility into it, but I'll give you some little bit of a sense of where we sit today as we have above $500,000,000 of coverage and we're paying about $40,000,000 premium for that coverage, and that's total excess liability, including wildfire.

Speaker 2

But I would expect that, that covers that capacity to come down and I expect premiums to be pressured, absolutely. So but like I said, we're still a ways away from our renewal. So again, we'll provide more color as we get closer, but that's where we sit today.

Speaker 8

Great. And then just one last one. I think Bobby had mentioned pursuing some proactive legislation for wildfire risk. Would you be willing to let us like, hey, maybe top three things or what are your goals in getting the legislation passed? Like what's would you like to be included in your maybe first wave of legislation passed, whether it's limits on non economic liability?

Speaker 8

Or I'm just curious any color on that you would provide?

Speaker 2

Yes. Hey, good morning, Anthony. Thanks for the question. As Brian said, this is a big and emerging national issue and we've seen pressure both on the retail side of insurance, homeowners struggling to get homeowner insurance that protects from wildfire risk and you're seeing in the commercial side and the wholesale side as well. So we've been active at the federal level, in particular talking about sort of the national opportunity we might have here.

Speaker 2

I think about there are precedents at the federal level. You see stuff like where goods are really important for everybody like the FDIC or FEMA or for flood insurance or other type programs or even nuclear backstop insurance from the price standards and exit. There's federal precedence around protecting national goods like banking access, like access to affordable electricity. So as I think about federal where the federal government could help and this probably applies at the state level too, which is having approved wildfire mitigation plan that can be reviewed by an agency of a state or federal level. And then if you're in compliance and current on that plan, then you have access to some form of backstop insurance program that provides protection and maybe access that maybe the currency carriers are providing at an attractive or an affordable cost as that group of entities comes up to speed on risk and risk mitigation.

Speaker 2

So I think those are the big parameters that I will think about. And certainly, there are state precedents. You can take Utah or Nevada or California laws and see programs where companies along with their regulators and legislators are coming up with programs that provide more cost effective backstop for companies to bring down the risk. And as I said in my prepared remarks, at the end of the day, we have an enormous energy transition that we need to fund and making sure that our cost of capital is attractive to fund that keeps the transition affordable for our customers and for the country. And so I think it's important that we manage this risk, we manage the financial cost of this risk and those are some of the areas that I would think are most important for us to go after.

Speaker 2

Yes. Thanks for my questions. Yes. Just to add a little bit to that, I think it's possible to report some kind of insurance tax stop and file a WMP, but I think there's also an aspect there is now if you're following in compliance with the WMP to the presumption of RUTs, which I think is important too. And also looking at a limit on liability or limit on damages.

Speaker 2

Great. Thank you.

Operator

Thank you. Our next question is from Sophie Karp with KeyBanc. Please go ahead.

Speaker 3

Hi, good morning. Thank you for taking my question. I have a couple of questions today. So on the Texas fire, can you clarify how, I guess, the claims system and the litigations that's been filed against you are going to, well, work together, for lack of a better word? Like, are people who are litigating, not filing claims?

Speaker 3

So can they do both? Like how does it work?

Speaker 2

Hey, Sophie. Good morning. Yes, I mean, so first of all, I'll talk about the claims process and still early, but we actually encourage people to submit claims. We received 46 so far. But how it works is anyone can submit a claim.

Speaker 2

And when they submit that claim, they don't waive their right to pursue a lawsuit. But if they if there's a claim settlement, then that absolves or relieves any other potential lawsuits that they could file. So that's how it could work, but also from a if someone files a lawsuit, it certainly could be an opportunity to settle through that lawsuit too. So but like I said, we're encouraging people to enter the claims process and we've settled with a couple already and are in active settlement discussions with others.

Speaker 3

Got it. Got it. Thank you. And then my other question was on Colorado and like sort of gas, got this clarification from the commission there that they want the utilities to pursue non pipeline alternatives, I guess, for gas in Colorado. Could you comment on that and just sort of how that will impact your investment in that state, particularly with gas?

Speaker 2

Hey, it's Toby, follow-up. Look, we've done a number of gas proceedings in Colorado over the last year. I think you're referring to our clean heat plan. And look, we think that, that was an industry leading or very unique filing and proactive the company and the commission's parts to move forward with that. Big picture, I think they're sitting there looking at the gas system as an effective delivery of energy, but making sure that if we've got capacity needs from a growing customer base out there that we're looking at something other than pipeline alternatives and we're actively engaged in that.

Speaker 2

It's something we've always as a company looked at. But I don't think it's going to affect necessarily us going forward in terms of significant changes in capital forecast from where we sit today. But maybe a more proactive approach with stakeholders and communities about finding maybe different types of solutions to solve the similar issues, whether that's more beneficial electrification, more powering of homes for home heating and other needs, and we're certainly engaged in that process with them.

Speaker 3

So the non pipeline alternative is basically a word for electrification or could that be something like increasing like compression station output or something like that? Like just kind of what is that?

Speaker 2

It's yes, Paul, answer Eddie. Actually, you bring up increasing compression stations, certainly an opportunity. I think generally it's thought of what are the electrification opportunities, say there's going to be a new neighborhood built. What is the alternatives, it's okay, sort of that neighborhood with gas and expansion of the pipeline or what are the alternatives from a large vacation perspective. So that's probably the best way to think about.

Speaker 2

I'd say just by one other bucket out there and it's a very important project for the governor and it's geothermal, whether at a district level or a residential level or community level, exploring the possibilities of geothermal in the state are something we're willing to work with or we're going to work with our customers and our stakeholders in the state. So it's not necessarily just electrification. It could be more different forms of heat for homes and communities.

Speaker 3

Got it. Thank you so much. That's all from me.

Operator

Thank you. Our next question is from Ryan Levine with Citi. Please go ahead.

Speaker 9

Good morning. What role do you see PSPS having in terms of your wildfire mitigation plans? And are there any initiatives that you can take proactively to gain more stakeholder support to be able to implement that on a go forward basis?

Speaker 2

Hey, Brian, it's Bob. Certainly, we think of PSPS as kind of a tool of last resort. But public safety is our priority and making sure that our communities are protected in volatile wind events in wildfire risk days is really important to us as well. So are there opportunities for us to gain more public support? Of course, there are.

Speaker 2

And there's ways that we can improve our own performance as we I hate to say gain more muscle here because it's something that I don't love to do, but we have to do it. I think there's areas of improvement that we as a company have identified and are working with our Colorado Commission to do so. And that includes early notification, excellence in outage maps, something I talked about earlier on segmentation. So all this comes as a function of our wildfire mitigation plan of if we have better early warning devices like cameras, weather stations, our ability to affect on a more localized level where the risk is and where the outage would need to be, can get better. But that's going to take some time, some effort, some partnership with our agencies and stakeholders in Colorado for sure.

Speaker 9

And then shifting gears on the financing plan as security prices continue to move. How do you look at maybe assessing a time to come to market for capital raises? I think an earlier question you suggested avoidance of asset sales, but any color around response to maybe different security prices and how that can impact your financing plan?

Speaker 2

Hey, Ryan. I think a little bit as the color I provided before is obviously, overall, we believe our growth plans from an investment perspective, a long term EPS growth perspective impact and same in our sense of maintaining a strong balance sheet. What I talked about not necessarily an avoidance, but how do we look at the timing of equity and the timing of capital, particularly on the timing of equity, given that we have a strong balance sheet is we can look at being flexible there. But I would expect that when we're investing $39,000,000,000 of capital at a 9% rate base growth that does come with the financings. In general, you'll require the financing year in and year out that's aligned with the capital spend.

Speaker 2

So that's the best way to think about it. But obviously, we'll look to understand what happened to the cost of equity here and also with the cost of debt rate that's gone up over the short term in terms of our trading rates have gone. So but that's factored into all of our plans that I've seen here today and talk about reiterating reiterating on being at or above our 5%, 7%.

Speaker 9

Okay. And then just last question in terms of CapEx outlook, given maybe acceleration of infrastructure build out in North America, Are you seeing any indications that maybe costs will come higher for what's already slated to be built in the coming years? Any color you could share on that?

Speaker 2

Ryan, it's Bob. Look, I think as we see reinvesturalization, as we see data center build out, certainly there can be cost pressures that come from basic materials and construction materials like concrete, steel and things like that. I think we take our best estimates. We put our capital forecast out. Something we watch pretty closely.

Speaker 2

Labor is another area of opportunity there. I think that one of the things we're very focused on is we see an energy sector transition, making sure that there's a pipeline of talent starting early on in trade schools and partnering with our labor unions and business partners there to make sure that the pipeline of wind and pipe fitters and welders are capable of keeping up with the demand. And so we try to send early demand signals to them and help them in recruitment processes across our territories and really partner on a national level to make sure that we're seeing enough trade come into the business broadly that we don't see immense amount of labor pressure.

Speaker 9

Great. Thanks for taking my questions.

Operator

Thank you. Our next question is from Paul Patterson with Glenrock Associates. Please go ahead.

Speaker 10

Hey, good morning.

Speaker 2

Hey, good morning, Paul.

Speaker 10

Just I apologize if you guys have gone over this, but just on the nuke life extension, could you remind me what the impact financially is? Have you guys already it varies from company to company how the depreciation impact is when it's recognized, etcetera. And I was just wondering if you could review that for me quickly if it's not a problem.

Speaker 2

Hey, Paul, I'll answer this. Yes. You're referencing the resource plan that we just filed here in Q1 related to the extension of MonCell. So MonCell, we already extended to 2,040 and we recognize that depreciation in terms of lower customer bills. So we're looking to extend money from 2,040 to 2,050 and then Prairie Island, both units 20 years, so it will go from the early 2030s to the early 2050s.

Speaker 2

We have not recognized those 3, call it, lower depreciation rates in the customer available into a rate base. We'll have we'll wait until we get through this proceeding to get approval and likely we wrap it into our next rate case. So this proceeding is probably going to take 18 months to play out at the very least. So it's going to be a couple years before we can flow that back into customer rates in terms of lower depreciation.

Speaker 10

Okay, great. Just is there any potential for regulatory sort of positive regulatory lag? Or does it meet or are you guys planning on having it immediately impact customer rates?

Speaker 2

No. This isn't likely just be captured either have a deferral here or likely if we're in a multi year plan, we have a drug mechanism for it.

Speaker 10

Okay. Awesome. Thanks so much, guys.

Operator

Thank you. As we have no further questions in the queue, I'd like to turn it back over to CFO, Brian Van Ael, for any closing remarks. Yes.

Speaker 2

Thank you all for participating in our earnings call this morning. Please contact our Investor Relations team with any follow-up questions.

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Earnings Conference Call
Xcel Energy Q1 2024
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