Xcel Energy Q2 2022 Earnings Call Transcript

Quartr
Provided by Quartr
July 27, 2022

There are 10 speakers on the call.

Operator

Good day, and welcome to Xcel Energy's Second Quarter 2022 Earnings Conference Call. Questions will only be taken from institutional investors. Reporters can contact media relations with inquiries and individual investors and others can reach out to Investor Relations. Today's conference is being recorded. At this time, I would like to turn the conference over to Paul Johnson, Vice President, Treasurer, Investor Relations.

Operator

Please go ahead, sir.

Speaker 1

Good morning, and welcome to Xcel Energy's 2022 Second Quarter Earnings Call. Joining me today are Bob Frenzel, Chairman, President and Chief Executive Officer and Brian Van Abel, Executive Vice President and Chief Financial Officer. In addition, we have other members of the management team in the room to answer your questions, if needed. This morning, we will review our 2022 results, share recent business and regulatory developments. Slides that accompany today's call are available on our website.

Speaker 1

As a reminder, some comments made during today's call may contain forward looking information. Significant factors that could cause results to differ from those anticipated are described in our earnings release and our SEC filings. Today, we will discuss certain metrics that are non GAAP measures. Information on the comparable GAAP measures and reconciliations With that, I'll turn it over to Bob.

Speaker 2

Thanks, Paul, and good morning, everybody. It was certainly an interesting 11th hour Twist in legislative news last evening, but we'll get to that in just a minute. Let's start with our financial results. We had another solid quarter recording earnings of $0.60 per share in 2022 compared with $0.58 per share in 2021. Our earnings are on track with expectations.

Speaker 2

As a result, we are reaffirming our 2022 earnings guidance of $3.10 to $3.20 per share. During the quarter, we made good progress on our clean energy plans achieving constructive regulatory outcomes. In June, the Colorado Commission approved our resource plan settlement, which includes approximately 4,000 megawatts of utility scale, renewable additions, The conversion of our Pawnee coal plant to natural gas by the end of 2025 and the early retirement of our Comanche 3 coal unit by the end of 2,030, which will be the final coal plant retirement in Colorado. We now have the approval of both our Minnesota and our Colorado resource plans, which together will add 10,000 megawatts of utility scale renewables to our system and achieve an 85% carbon reduction by 2,030. We anticipate issuing RFPs later this year, submitting our recommended portfolios by mid-twenty 23 receiving commission decisions in the second half of twenty twenty three.

Speaker 2

We expect the recommended portfolio of generation assets will include self build, build own transfers and power purchase agreements. Our plans are consistent with our Seal for Fuel strategy, which provides a valuable hedge for our customers against rising commodity prices. Our owned wind farms are projected to generate nearly $1,000,000,000 of fuel related customer savings in 2022 alone in a total of $2,700,000,000 since 2017. We're excited about our transmission expansion opportunity. MISO's long term planning approach identified projects in Futures 1 with an estimated investment of $30,000,000,000 that will be awarded in 4 discrete tranches.

Speaker 2

Earlier this week, the MISO Board approved TRONCH 1, which includes $10,000,000,000 in projects. Based on the most recent information from MISO, we anticipate A $1,200,000,000 investment opportunity for Xcel Energy within Tranche 1. Turning to electric vehicles, we're making progress on our goal Power 1,500,000 EVs by 2,030, supporting our states in achieving their electrification goals. We are excited to be the 1st U. S.

Speaker 2

Energy company to introduce all electric bucket trucks to our fleet, and we expect to file comprehensive Transportation plans in Minnesota and Wisconsin in early August. These state proposals include single and multifamily residential offerings, commercial customer programs as well as a school bus pilot. In addition, we're looking to accelerate EV adoption through the development High speed public charging infrastructure, a partner with our states and other organizations. The proposed programs will also foster customer affordability, providing significant fuel savings for EV drivers and helping to keep bills affordable for all customers through load growth and enabling more efficient utilization of distribution grid infrastructure. The Minnesota Wisconsin proposals reflect capital investment of approximately $325,000,000 from 20.24 to 2026, which does not include distribution investment needed to upgrade the grid.

Speaker 2

Xcel Energy's clean energy leadership, including our long standing track Record of carbon reduction is a direct result of the passion that our dedicated employees bring to serve our customers and our communities. Earlier this month, we received another exemplary rating from the Institute of Nuclear Power Operators for our Prairie Island Nuclear Power Plant. We've continued to improve performance and cost efficiencies, demonstrating sustainable excellence in operations. I want to congratulate and thank all of our nuclear employees, support teams, contractors and suppliers for their commitment Nuclear remains a very important source of reliable carbon free energy. We're proud to be one of the top operators in the nation.

Speaker 2

Yesterday, it was announced that Senators Schumer and Manchin had reached agreement on the Inflation Reduction Act of 2022. While we still need to analyze the details to understand all of the nuances of the Act, it appears to include nearly all the broader clean energy tax credits, including new and extended tax credits for wind, solar, hydrogen, storage and nuclear. While it doesn't include direct pay for all taxpayers for all tax credits, it does include tax credit transferability as an option when direct pay is unavailable. As we previously discussed, our capital investment plan is not dependent on changes in federal policy. However, the energy provisions included in the act would provide substantial customer benefits and help enable our clean energy transition while keeping our customer bills affordable.

Speaker 2

There's still a lot of twists and turns that can happen in Washington, but we're optimistic that the bill could become long. This past quarter, we were honored to be among the 1st companies inducted into the Climate Leadership Hall of Fame, which recognizes different organizations across the country for exemplary leadership in response to climate change. We're also recognized with the Hubert H. Humphrey Public Leadership Award for our groundbreaking sustainability goals in Minnesota. And finally, we received the EEI National Key Accounts Award for Outstanding Customer Engagement, which recognizes companies and their account executives for providing excellent support and offerings to corporate customers.

Speaker 2

Our customers are at the heart of everything we do, And it's great to be recognized for our work in helping them achieve their goals. I want to thank these organizations for the recognition along with our employees, partners and stakeholders who make it possible. And with that, I'll turn it over to Brian. Thanks, Bob, and good morning, everyone. We had another solid quarter recording earnings of $0.60 per share for the Q2 of 2022 compared with $0.58 per share in 2021.

Speaker 2

The most significant earnings drivers for the quarter included the following: Higher electric and natural gas margins increased earnings by $0.25 per share, primarily driven by riders and regulatory outcomes to recover our capital investments. In addition, a lower effective tax rate increased earnings by $0.06 per share. Now keep in mind, production tax credits lower the ETR. However, PTCs are flowed back to customers through lower electric margin and are largely earnings neutral. Offsetting these positive drivers were Increased depreciation expense, which reduced earnings by $0.15 per share, reflecting our capital investment program and the recognition of previously deferred costs related to the Texas Electric rate case.

Speaker 2

Higher O and M expense, which decreased earnings by $0.02 per share, Higher interest expense and other taxes, primarily property taxes, decreased earnings by $0.08 per share. And other items combined introduced earnings by $0.04 per share. Turning to sales. Weather adjusted electric sales increased by 3.1% for the 1st 6 months of 2022, largely due to higher C and I sales driven by strong economic activity in our service territories. In addition, Our unemployment rate is 80 basis points below the national average.

Speaker 2

As a result, we have revised our assumption for 2022 sales growth to 2%. O and M expenses increased $14,000,000 for the 2nd quarter, primarily driven by the recognition of Previously deferred expenses related to the Texas Electric rate case, additional investments in technology and customer programs and increased costs for storms and vegetation management. Like other businesses, we are facing inflationary pressures and now expect an annual O and M increase of approximately 2%. In addition to the Colorado Resource Plan approval, we also made strong progress on a number of other regulatory proceedings. The Colorado Commission approved our Erie storm settlement, including full recovery of all costs with the exception of $8,000,000 dislams, primarily related to conservation messaging.

Speaker 2

In Minnesota, NLJ recommended full recovery of all urea related fuel costs. We anticipate a commission decision later this summer. In Texas, the commission approved our electric rate case settlement, which provides a rate increase of $89,000,000 Rates were effective back to March 2021, which is why you see some year to date true ups in revenue and various lines of the income statement. The agreement also accelerates the depreciation life of the Tocke coal plant to 2,034. We have a pending natural gas case in Colorado seeking a rate increase of approximately $175,000,000 over 3 years based on ROE of 10.25 percent and an equity ratio of 55.7%.

Speaker 2

In June, intervenor testimony was filed. The staff recommended a ROE of 9% and equity ratio of 55% in the historic test year, While the UCA recommended a 9% ROE, an equity ratio of 51.5% in the historic test year. In July, we filed rebuttal testimony providing additional support for our file position. Hearings are scheduled for late August. We Commission decision later this year with final rates implemented in November of this year.

Speaker 2

We recently filed our 1st electric rate case in South Dakota since 2014. We are seeking a $44,000,000 revenue increase Based on ROE of 10.75 percent, an equity ratio of 53% in the historic test year. We expect a decision and final rates implemented in the Q1 of We also have pending electric and natural gas rate cases in Minnesota. We are in the discovery phase and expect intervenor testimony this fall, followed by commission decisions in 2023. Details on these cases and schedules are included in our earnings release.

Speaker 2

Shifting to earnings. We've updated our 2022 guidance assumptions to reflect the latest information. Details are included in our earnings release. We are reaffirming our 2022 earnings guidance range of $3.10 to $3.20 per share, which is consistent with our long term 5% to 7% EPS growth objective. With that, I'll wrap up with a quick summary.

Speaker 2

The Colorado Commission approved our resource plan and storm Yuri cost recovery settlement. We received an ALGA recommendation in Minnesota Full recovery of fuel costs related to winter storm Yuri, we'll be filing our Midwest EV plan shortly. The Texas Commission approved our rate case settlement. We are reaffirming our 2022 earnings guidance, and we remain confident we can continue to deliver long Earnings and dividend growth within the upper half of our 5% to 7% objective range as we lead the clean energy transition and keep bills low for our customers. This concludes our prepared remarks.

Speaker 2

Operator, we will now take questions.

Operator

Thank you. All right. And our first question will come from Nicholas Campanella with Credit Suisse. Please go ahead.

Speaker 3

Hey, good morning. Thanks for taking my questions.

Speaker 2

Good morning.

Speaker 3

So I guess, hey, yes, good morning. I guess just thanks for the upfront color on the Inflation Reduction Act, helpful. Just

Speaker 2

if there

Speaker 3

is an alternative minimum tax, Can you just remind us how your business is positioned there?

Speaker 2

Hey, Nick. Good morning. This is Brian. Yes, it's a good question. So we think about that book AMT is we look at it in a couple of different ways.

Speaker 2

First is we have credits available where you can offset 75% of that book AMT impact. And then also when we look at the transferability that's included in the legislation that ultimately when we put those 2 together that we see this as cash flow accretive for us. Now I'll caveat that this came out yesterday and it's 700 pages of legislative text. So we're still working through it, but that's our view on the book AMT.

Speaker 3

Okay, great. That's helpful. And then I guess on sales, this is like the second time I think this year that your electric sales forecast for the near year has changed to the positive. So just maybe kind of talk about what type of trends you're seeing for this year, how that kind of compares to your long term forecast? And are you kind of starting to see structurally higher demand going forward?

Speaker 3

And is that a long term tailwind for you? Thanks.

Speaker 2

So that's a good question. And we've seen you're right, both in Q1 and Q2, we've increased our sales guidance for the year. And I would say there's probably some more opportunity there as we look into the balance of the year. Now certainly, the dependence on the macro Impacts that could occur with what the Fed is doing, but we see strong C and I sales and it's even better if you look at Where Colorado is, the C and I sales in Colorado, that's there's an adjustment there when you normalize for this large solar farm that we helped With the major customer behind the meter, C and I sales in Colorado are strong too. So we're seeing that across our service territories with that C and I strength.

Speaker 2

Good economic rebound. We're seeing it on the residential side, we expected that call reduction. And when we look at our budget, We're actually higher on residential than we expected. So structurally, I think we've seen a strong economy in the first half of the year And certainly in the energy sector and the manufacturing sector across the board. So as I think about longer term, Obviously, you could have some potential headwinds if there's a recession or what happens and how big of an impact interest rates have.

Speaker 2

But I think we're bullish longer term when we start to think about the electrification opportunities, when we start to see EV penetration, when we start to see Electrification of industrial processes. So I think there's a longer term tailwind, as I look at our service territories. And just another example, down in the Permian Basin, we've seen extremely strong growth, but longer term, we're talking with our customers about They have their own ESG goals and net zero goals in the Permian. And so we're in discussions with how you electrify Pumps and rigs and compressors and ensuring that we have the capacity and the investments in our distribution and transmission systems on there So I think there are tailwinds longer term and it's great to see the rebound that we have in the C and I sector.

Speaker 3

That's great. I appreciate it.

Speaker 4

I'll get back in the queue.

Operator

All right. And our next question will come from Jeremy Tonet with JPMorgan. Please go ahead.

Speaker 3

Hi, good morning.

Speaker 2

Good morning, Jeremy. Hey, how are you?

Speaker 4

Good, good. Thanks. Just want to dive into MICE a little bit here now that we have some more developments and Touching on your $1,200,000,000 just wondering if you could characterize a bit more in terms of greenfield versus brownfield. And I guess this is just a preliminary estimate, but what's the scope, I guess, of what could possibly fall in Incremental to this, is this some competitive processes that still could make their way in? Just trying to feel our way through what this could mean.

Speaker 2

Yes, good morning. This is Bob. Look, first of all, let me just comment on transmission broadly. We feel Very confident and excited about the transmission build out opportunities we have. And as you think about where we've been this past quarter Between the Colorado Power Pathway, the transmission needs from the Minnesota Resource Plan and now the MISO and TEP Tranche 1, That's about $3,500,000,000 of large scale transmission projects that we've identified and in some cases have approved.

Speaker 2

So the class is important to us. It's certainly going to enable our ability to add the 10,000 megawatts of renewables that we need from the Minnesota and the Colorado resource Particularly with regard to the MISO, MTEP process, I think we've put our best estimate out in terms of the investment opportunity Around $1,000,000,000 in a quarter for about 6 different portions of 6 different projects. We've got We wrote for legislation in Minnesota, North Dakota, South Dakota and feel pretty confident about what we've put forward in terms of the opportunity in MTEP. And Jeremy, I'll just add to that. Like Bob said, we feel good about our point Smith and Wisconsin projects were deemed upgrades, so they're not expected to be competitively bid.

Speaker 2

So what you see as we put in our earnings presentation are what we expect We are and owned it and that's our good estimate right now.

Speaker 1

And the estimate does not include any competitive bid. So if we choose to be to competitively bid and we're Successful, that would be incremental to the 1.2.

Speaker 4

Got it. So this 1.2 replaces the 1 to 2 range, but there's still potentially competitive That could add to this is fair way to think about it.

Speaker 2

Yes.

Speaker 4

You got it. Thanks. And Thanks for all the comments on the climate policy so far and noting that this is hot off the press. But just wondering If there's any particular items in there, if we peel back the onion more, what do you see as the largest potential impact and points of opportunity to your plan near and Long term, I mean, could CCS be something that's thought about more now?

Speaker 2

Great question. Again, as Brian said, you kind of have to absorb about a page, a minute since it came out last night to get through all the text. But We've been talking about a lot of these broad strokes since the Q3 call in EEI Financial Conference last fall. Some really interesting things in here as we've seen production increases in solar, the PTC for solar is really interesting relative to an ITC and you might see some Regional differentiations on people using PTCs versus ITCs. I think the transferability piece is really interesting as we think about not just for our account, but for everybody who builds renewable assets and the friction costs that are embedded with financing some of those things, particularly with tax equity.

Speaker 2

This could overall bring the cost of both owned and PPA assets down. Again, real benefits for our As we continue to make this transition, standalone storage credit is interesting. There's some really challenges with the pairing of solar and storage, we've made them work, but this makes standalone storage pretty interesting. And then obviously our North Dakota company is The governor there has put a very aggressive carbon neutral goal on the table and CCS is really important to North Dakota. So I think As we look across the country and across our portfolio, you're going to find bits and pieces of all of this to be interesting.

Speaker 2

And notwithstanding all that, there's great stuff around energy security, Electric vehicles and resiliency all built into this that we really haven't even dug into. But I think it's a terrific piece of legislation for us as a company and we're excited to dig in and hopefully see this pass the House and the Senate before the end of the fiscal year. Yes. And I'll just add to that, Bob. I mean, as we're in the middle of developing our clean heat plans for our Gas LDCs in Colorado and Minnesota and they have a hydrogen PPC, so you couple that with a long term PPC for wind or solar, It really gives should give Green Hydrogen a jump start.

Speaker 2

And so we're excited about that. So I think there's a number of great things in this bill. And ultimately, we look at it. It really looks and feels similar to what I talked about on Q3 of last year in terms of the impacts to us, but ultimately, now we look as cash flow accretive And slightly there are some slight rate based reductions from we become more tax efficient, but slightly EPS beneficial. Now again, that's with a caveat we're digging into and make sure we understand everything, particularly around transferability.

Speaker 2

But when we look at this whole package, as we talked about, Our current plan is not built on this, right? Our current 5 year plan and long term plan, our resource plans were approved with current tax law. This just makes Our plans even better for our customers and that's the important point. Long run great for our customers as we make this clean transition even more affordable. So we're excited about this and optimistic that it gets passed.

Speaker 4

Got it. That's Super helpful. If I could just circle back to MISO real quick, real quick last one here. Of the $10,300,000,000 of capital there, do Would you be willing to share any thoughts on how much of that you think could go through a competitive process?

Speaker 1

I think the estimates I've seen are about $1,000,000,000

Speaker 4

Got it. Thanks so much. I'll leave it there.

Operator

All right. Our next question will come from Julien Dumoulin Smith with Bank of America. Please go ahead.

Speaker 2

[SPEAKER JULIEN

Speaker 5

DUMOULIN SMITH:] Hey, good morning, team. Thanks for the time So I'm going to keep going on this on the same front. Let's talk a little bit more on the legislative. How does your prior FFO to debt improvement target under BBB with direct pay compare To your first take of the provisions under the IRA factoring in the transferability elements, right, you specifically called that out a moment ago in your prepared remarks.

Speaker 2

Hey, Julien. Good morning. And like I said, it was and Bob said, it's hot off the press and 700 pages of legislative text, Making sure we understand it in our nuances. So there's absolutely caveats as we think about it. But I think the best way to think about it, if you remember what we Talked about on Q3 is maybe 175 to 100 basis Points are higher improvement in FFO to debt, CFO to debt as we look at it, which gives us financing flexibility down the road, potential capital headroom.

Speaker 2

But again, right, there's a lot to unpack around transferability and how that ultimately work. But ultimately, Our initial take is a little bit in line with what we talked about Q3. So really good for us, but ultimately great for our customers as we think about how we can make this Energy transition even more affordable for our customers.

Speaker 1

It's also noted that Brian didn't go to bed last night. So he's doing all The math on this, so take that with a grain of salt.

Speaker 5

Yes, totally. In his delirium though, nonetheless, he's broadly affirming Your expectation that the math is not too different from the what you described with Q3?

Speaker 2

Correct. With the caveat that we're still understanding this year. Totally, completely. With that asterisk, but also

Speaker 5

what does that do for your equity needs, Right. Let's just take that a step further if we can start to unpack that.

Speaker 2

Look, so we talked about it gives us more flexibility. I think how we're going to unpack all this We'll roll and forward our capital plans and we'll release those in Q3, in our October earnings release. We'll know whether or not this passes by then, we should know a lot sooner, whether this passes or not, and we can provide you a full update because that'll include Updated capital plans and how we're going to finance that. So but it certainly does give us more financing flexibility.

Speaker 5

Got it. Excellent. All right. And then a super quick last one here. I know on transmission, we talked a bit already.

Speaker 5

What about these ROFR challenges at FERC? Again, I know that's more recent here, but any thoughts perspective on the FERC angle here? Again, I guess this States versus FERC and then also timeframe?

Speaker 2

Yes. Hey, Julien, it's Bob. I think these have been challenged in both state and federal court and the ROFRs have held up And we expect them to. Got it. All right.

Speaker 5

Plain and simple. Excellent, guys. Thank you.

Operator

Our next question comes from Insoo Kim with Goldman Sachs. Please go ahead.

Speaker 6

Hey, guys. Thanks for the question. Thanks for taking my questions. My first one, just regarding the inflation Yes, on impacting the O and M and higher financing costs there. Like as we look, I guess, beyond 2022 into 2023 And you try to get ahead of it.

Speaker 6

What are some options you have that you could do now and any levers, I guess, To get ahead and position for 2023.

Speaker 2

Hi, good morning, Insoo. Certainly, we're Continually looking to offset inflationary pressures and this is no different than any other year. Like we've had O and M flat since 2014 and we're very proud of that because it has a direct impact on customer bills. Now like everyone else, Set up next year in terms of how it's looking. We have a continuous improvement team that is regularly Working with our business areas, we're investing in technology this year, what we have something called the digital operations factory that helps drive Technology in the business areas to reduce O and M costs and make us more efficient.

Speaker 2

So that's just part of our DNA and part of our culture that we've stood up, And you can see it how we've managed O and M over the long term. So that's really our focus in terms of what we see now. We do expect some inflationary pressures to continue through the balance of the year and that's a bit why we increased our guidance. But I think You should expect more of the same as, right? We're going to deliver for our customers, we're going to deliver operationally and we'll deliver financially this year and in the future.

Speaker 6

Got it. My second one and I think I know the answer to this one, but just given what could be Here on the legislative front for nuclear, does that change your thoughts on, yes, over the next 5 to 10 year plan on building more, maybe it's the small module with nuclear or others?

Speaker 2

Hey, Ed Hsu, It's Bob. Look, I think the legislation as it starts is really beneficial for the Existing nuclear owners and in our case, the customers who would receive any benefits from production tax credits associated with the existing nuclear embedded within the new legislation. I think longer term, we've been pretty stalwart in saying that we as a country need to identify new Clean energy resources that can be dispatchable and carbon free to enable a transition to a carbon light Economy or carbon neutral economy. And I think new nuclear has to play a role in that. I don't think it's a this decade role, certainly not for Xcel Energy.

Speaker 2

But we are active at NEI. We are active in the development process. We've been working diligently with NuScale as They've been trying to stand up their and get permission to build their first new nuclear reactor. So we're we watch Very closely, we're engaged in the dialogue. I think it's a next decade or beyond issue an opportunity for us as a company.

Speaker 6

Got it. It's what I expected. Thank you. Thank you both.

Operator

All right, moving on, we'll take our next question from David Arcaro with Morgan Stanley. Please go ahead.

Speaker 7

Hey, good morning. Thanks so much for taking my question.

Speaker 2

Hey, David.

Speaker 4

Hey, let's see. I I had a

Speaker 7

quick question on the Colorado Pathway and the potential upside opportunity there. Is that something that could crystallize We have to get the RFPs done and you get a sense of when and where the projects are coming into place there that we get a sense of whether that could be added to the plan at some point in 2023.

Speaker 2

Yes. David, yes, you're exactly right. Once we kind of see where these Projects are located and call it the mix of projects. We'll be able to come out at the same time with what we expect to call the network upgrades, voltage And also the commission did conditionally approve that, call it, that leg, that $250,000,000 leg, basically a radio. And we fully expect projects to show up there too.

Speaker 2

So we'll give be able to give color both on the Call it, our renewable opportunity at that point in time plus the incremental transmission investments we expect to make, which will be probably if we play this out probably middle of next year once we see the final portfolio.

Speaker 7

Yes, that makes sense. Okay, thanks. And on the Minnesota rate case, I was wondering when does the Window kind of open for a potential settlement and any thoughts on prospects of a settlement given the focus areas and what you've proposed here?

Speaker 2

Yes. Thanks, David. It's Bob. We look, the cases are progressing through the regulatory process. I think when I look at the cases, they reflect a lot of the investment categories in alignment with our policy and stakeholders.

Speaker 2

So we don't expect any contentious issues there. Typically, we don't start talking settlement with counterparties until after their testimony has been received. So on the gas case, That's expected at the end of August. And in the electric case, that's early October. So Probably more right for discussions in late Q3 or into Q4.

Speaker 7

Okay, great. Sounds good. Thanks so much.

Operator

Our next question will come from Sophie Karp with KeyBanc. Please go ahead.

Speaker 8

Hi, good morning. Thank you for taking my question. If I may follow-up on the MISO, right, Tranche 1, How much of the $1,200,000 is sort of low hanging fruit here where you have right of ways and Basically shovel ready, if you will. And then the same question for your competitive opportunities in that that could potentially come behind it?

Speaker 2

Yes. So, look, I think we're in early innings in In terms of the developments of those lines, I think that some of them are concluded to existing substation, But most of the lines themselves are going to be greenfield and require local siting and permitting processes. I think that this is an area of strength and execution for the company as we do this. We did the CapEx 2020 plans up in the upper Midwest. We did the MVP plans.

Speaker 2

And so we've got a really strong team and a good partnership with the GridNorth Partners Group that we think that from an execution perspective, this is something that's right in our wheelhouse. And I'll just add, Sophie, is we'll go through the regulatory processes, Certificate of need processes with our commissions. And so that will take a year, year and a half to get through those processes where we'll determine We're kind of final routing and permitting everything.

Speaker 8

Right, right. And so is that how much of that is already baked into your long term Capital plan, if anything, can you remind us?

Speaker 2

So we had some a little bit in our 5 year plan, but when we look at it, right, these in service dates are It's expected to be called by 2,030. So we'll start what you'll start to see as we roll forward our 5 year plan is that Spend will kind of be baked in that new 5 year plan that we roll forward is how you'll see it in October. And we'll include it in our 10 year plan as we bring roll forward our 10 year plan We did have some

Speaker 1

of it captured in the 2nd 5 years of our forecast. So not the first not materially for the 1st 5 years, but in the second piece.

Speaker 8

Got it. Thank you. And another question I had is on the ROEs, right? So kind of seeing 9s and low 9s Right across the board in your territories, interest rates keep going up. ROEs are kind of sticky at this level.

Speaker 8

And I can appreciate the fact that they were sticky on the way down too, right? But with the rates being higher and Arguments being made that the construction would be higher in the next decade. Do you see this trend kind of reversing a little bit and maybe they are always picking up? Or is that Pretty much not something that we should look forward to.

Speaker 2

Sophie, that's a good question. I think the way we look at it, we kind of look at some recent data points There's a couple of data points in Minnesota. One was ROE decision late last year for Otter at a 948 and then there's a and we have a 906 in our Minnesota electric business right now. And then in the gas side, CenterPoint has a settlement pending in Minnesota with a 9.39 and our Minnesota Gas ROE is a 9.04. So no, I think as we see Inflationary pressures, interest rates go up that they were still going to go down, but I think we do have below the national average authorized ROEs Across most of our jurisdictions, I mean, we'd like to work to get those closer to that national average.

Speaker 2

We do think we are a very good operator. We are Policy aligned with our commissions, policy aligned with our states in terms of helping them achieve their decarbonization goals and hopefully it can be Reflective in some of the outcomes we see in the future.

Speaker 8

Great. Thank you. That's all for me.

Operator

And next we'll take a question from Paul Patterson with Glenrock Associates. Please go ahead.

Speaker 5

Hey, good morning. Hey, Paul.

Speaker 9

So just and I know like I can completely relate to the 700 pages of Late night experience. But you mentioned how affordability could be potentially beneficial from the bill. Do you have any sense as to what the potential rate impact might be from the bill?

Speaker 2

So, this is longer term when we look at it and this is some of the analysis We haven't done a very long term model. We modeled it a while ago and we were looking at the earlier provisions. We saw about a 1% benefit to our customers over the long term on a CAGR basis, as we thought about. Now there's a lot of caveats there in terms of what type of Renewable deployment we have, but we are looking at inflationary radar target is long term customer bill impacts at inflation and this helped us Drive below that. So I think that's kind of the magnitude.

Speaker 2

Now certainly it will depend on the nuclear PTC and some of the nuances in terms of Hydrogen, but I think longer term we see a significant benefit to that. And I would just add that We're really well positioned for this type of long term credit extension because I don't believe there's IOU that has a better combination of wind and solar in our backyard than we do. And so our commissions approved our plans Without any extension of tax credits, now to have this on top of it just puts us in a really good position to deliver on this clean energy transition for customers even more affordably. And our view is long term customer bills matter. And for us to make this transition More affordably for our customers is great and we look forward to working through with our commissions.

Speaker 2

Yes. Paul, I'll just add on to what Brian said and I Agree with Tim completely. I think the opportunity here is really interesting because if we can make the energy transition more cost Effective that becomes an economic driver engine. Businesses are attracted to places that have clean energy and low cost clean energy and reliable Clean Energy. When I think about a transition to clean fuels and green hydrogen with the production capability that we have and the Wind and the solar resources we've got in and adjacent to our footprint should make the production of clean fuels More cost effective in the middle of the country, in the Midwest and in the Southwest than other parts.

Speaker 2

And you've seen that as we've located wind and solar across They've been concentrated in those areas and we'd expect those continued economic development drivers to drive our business long term. Yes. And then just to clarify, when I talk about 1 person, that's on a CAGR basis. So as you accumulate that over time, it becomes very significant for our customers. So like I said, no, Optimistic this gets passed, but our plans are

Operator

not built on it. But if

Speaker 2

it does, we look forward to driving forward our plans even faster.

Speaker 9

Awesome. And then there was a local article about curtailments of wind production in Southern Minnesota. And I know you guys are pretty well positioned and what have you, but you guys are also very large footprint and you guys are very familiar With the situation around you, do you see any well, are there any issues potentially that you're seeing? But also more significantly perhaps, are there any Situations that you're seeing with specific wind farms and curtailment occurring with other parties in your jurisdiction. I mean, the story sounds pretty significant in terms of how some counties were being impacted from tax revenue perspective in the southern part of Minnesota.

Speaker 9

So I just was wondering if you had any insight on that.

Speaker 2

Yes. Look, I think that we have seen curtailment in Southwestern Minnesota. It was a Source of a significant amount of wind build out over the last decade for us and for the region. And so one of the great things about the MTEP program is that It's identifying the need and locating transmission resources to move that 0 cost resource to the load. In the short term, it's led to curtailment and congestion.

Speaker 2

In the longer term, we think that frees up and is able to get to the load and deliver. I don't think that it's concentrated in any one entity In terms of the owners of the farms, but I think it's out there and as we think about The impact for our customers, some of that just is driven by the desire and the need for clean energy. Tailwind's built into a lot of our plans and we recognize that sometimes that has implications for local communities on property taxes or wind production payments. But I think it's certainly manageable and something we're in conversations with our stakeholders as well.

Speaker 9

Awesome. Thanks so much guys.

Operator

We have no additional questions. I'll turn the call back to CFO, Ryan Van Ael, for closing remarks.

Speaker 2

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

Operator

And this does conclude today's call. We thank you again for your participation. You may now

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Earnings Conference Call
Xcel Energy Q2 2022
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