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spk07: Good afternoon and welcome to WEC Energy Group's conference call for second quarter 2022 results. This call is being recorded for rebroadcast and all participants are in a listen-only mode at this time. Before the conference call begins, I remind you that all statements in the presentation, other than historical facts, are forward-looking statements that involve risks and uncertainties that are subject to change at any time. Such statements are based on management's expectations at the time they are made. In addition to the assumptions and other factors referred to in connection with the statements, factors described in WEC Energy Group's latest Form 10-K and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ material from those contemplated. During the discussions, referenced earnings per share will be based on diluted earnings per share, unless otherwise noted. After the presentation, the conference will open to analysts for questions and answers. In conjunction with this call, a package of detailed financial information is posted at wecenergygroup.com. A replay will be available approximately two hours after the conclusion of this call. And now, it is my pleasure to introduce Gail Klapa, Executive Chairman and WEC Energy Group.
spk09: Hot Town, Summer in the City. Good afternoon, everyone. Thank you for joining us today as we review our results for the second quarter of 2022. First, I'd like to introduce the members of our management team who are here with me today. We have Scott Lauber, our President and Chief Executive, Shao Liu, our Chief Financial Officer, and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations. Now as you saw from our news release this morning, we reported second quarter 2022 earnings of $0.91 a share. A warm start to the summer, solid results from our infrastructure segment, and continued execution of our capital plan were major factors that shaped yet another strong quarter. In light of this strong performance, we're again raising our earnings guidance for 2022, this time by $0.02 a share to a new range of $4.36 to $4.40 a share. We expect to reach the top end of this new range. This, of course, assumes normal weather for the remainder of the year. Our balance sheet and our cash flows remain strong, and as we've discussed, this allows us to fund a highly executable capital plan without any need for new equity. During the quarter, we continued to move forward on major initiatives across the enterprise, including investments in our $17.7 billion ESG progress plan. Our focus remains on building and maintaining a highly reliable infrastructure, delivering energy that's affordable, reliable, and clean. Scott will provide you with a project update in just a few moments. Now, you may recall our recent announcement about an adjustment that we made to our schedule of power plant retirements. We plan to extend the operating lives of the four older units at our Oak Creek site. The retirement of units five and six will be delayed by a year until May 2024. Units seven and eight will be delayed for about 18 months until late in 2025. These coal-fueled units have a total rated capacity of 1,100 megawatts. We base this decision on two critical factors. First, tight energy supply conditions in the Midwest power market and expected delays in the delivery of solar panels and batteries, delays that will clearly affect the in-service dates of renewable projects that are now going through the regulatory approval process in Wisconsin. Keeping the older units at Oak Creek Online a bit longer for capacity purposes makes great sense for our customers because we can avoid the need to purchase higher cost capacity in the MISO market. But even with the extension of the Oak Creek units, We remain committed to our aggressive environmental goals. Across our generating fleet, we're still targeting a 60% reduction in carbon emissions by the end of 2025 and an 80% reduction by the end of 2030. And by the end of 2030, we expect to use coal only as a backup fuel. And we're aiming for a complete exit from coal by the end of 2035. The capital investments we planned fully support this transition. Of course, for the longer term, we remain focused on the goal of net zero carbon emissions from power generation by 2050. And as you know, we're working to help shape the future of clean energy, engaging in policy discussions and on the ground, carrying out innovative projects that can drive decarbonization of the economy. For example, we've now finalized the test plans for blending hydrogen with natural gas at one of our modern gas fuel units in the Upper Peninsula of Michigan. We've teamed up with the Electric Power Research Institute for this leading-edge project. The fieldwork will take place this fall, and the results will be shared across our industry. Separately, for our natural gas distribution business, we're making great progress in securing supplies of renewable natural gas. Scott will update us shortly, but as a reminder, our plan is to achieve net-zero methane emissions from our gas distribution networks by the end of 2030. Switching gears now, let's take a brief look at the regional economy. The latest data show Wisconsin's unemployment rate at 2.9%, well, of course, below the national average. And we continue to see major investments from growing companies in our region. For example, Gulfstream Aerospace is expanding its operations at the Appleton Airport. That's in Wisconsin's Fox Valley, southwest of Green Bay. The company is planning to build a world class facility for painting and finishing aircraft exteriors. This expansion is expected to open in the third quarter of 2023 and it could add 200 new jobs to Gulfstream's existing workforce in Wisconsin. And just last month, Komatsu Mining celebrated the official grand opening of its new headquarters here in Milwaukee. The campus is already hosting about 600 employees. It includes offices, a training center, and state-of-the-art manufacturing space to build heavy mining equipment. During the second quarter, groundbreaking also took place for a major expansion of the Georgia Pacific paper mill in Green Bay. Georgia Pacific is investing $500 million in its new facility, which is expected to bring about 100 new jobs to the region. So with a wide range of developments in the pipeline, we remain very optimistic about the long-term future of the regional economy. And with that, I'll turn the call over to Scott for more information on our utility operations and our infrastructure segment. Scott, all yours.
spk11: Thank you, Gail. As Gail mentioned, we're making good progress on our capital plan. Construction is underway on a number of regulated projects. We have started work on the reciprocating internal combustion engines, or as we call them, GRACE units, at our Weston site in northern Wisconsin. These units are expected to provide 128 megawatts of dispatchable capacity with an estimated cost of $170 million. Also, work on our liquefied natural gas storage is underway. As you recall, the Commission approved two LNG units in southeastern Wisconsin. This $370 million investment will provide needed peaking capacity for our gas distribution business. On the renewable front, We've deployed $155 million toward refurbishing projects at two of our regulated wind farms. When completed, these projects will enhance reliability and performance at these farms. These investments will qualify those sites for production tax credits for an additional 10 years. Also, we expect our Red Barn Wind Park development in southwestern Wisconsin to come online around the end of the year. It will provide about 80 megawatts of renewable energy to our Wisconsin public service customers. On the solar and battery front, work continues on the Badger Hollow 2 solar facility and the Paris solar battery park. We still expect these solar projects to go into service next year, supplying more clean energy to our Wisconsin customers. However, We've informed the Wisconsin Commission that the battery portion of the Paris project is expected to be delayed until 2024. As you may recall, we have filed for approval of two other solar battery projects, Darien and Kashkanon. We initially planned to add these to our fleet in 2023 and 2024. We now project them to enter service in 2024 and 2025, respectively. In addition, we now expect the retirement of Columbia Energy Center to take place in 2026. As you know, Alliant Energy operates the Columbia facility and we are part owner. Of course, we'll keep you updated on any further developments. As you recall, we filed a rate review last quarter with the Public Service Commission for our Wisconsin utilities. Our proposed rate increase would support important capital investments and grid hardening projects. Recently, we provided an update to our filing. We factored in the extended operating lives of the older Oak Creek units and the Columbia units. This update also reflects other variables, including higher interest rates and costs associated with the completion of our solar projects. We expect final orders by the end of the year with new rates effective in January 2023. We have no other rate reviews pending at this time. In our gas business, we've discussed plans to bring high quality, renewable natural gas to our customers. The Wisconsin Commission recently approved our pilot project for this initiative. Just last month, we signed our third RNG contract, which will connect our distribution system to a large dairy farm in northeast Wisconsin. The three contracts in place are projected to bring us 80% of the way toward our goal of net zero methane emissions. We plan to have RNG flowing in our system by the end of this year. Outside of our utilities, our WEC infrastructure segment was once again a positive driver for the quarter. The Thunderhead Wind Farm, located in Nebraska, will be the next project to go into service, scheduled for later this year. We also expect the Sapphire Sky Wind Project in Illinois to come online by year end. Together, the two projects represent approximately $800 million of investment, keeping us well ahead of our five-year capital plan. As you know, MISO, the Midwest Grid Operator, has set out a long-range plan to address transmission needs across the Midwest. And last week, the MISO Board approved the transmission projects for Tranche 1. At this time, American Transmission Company estimates that its investment opportunity in Tranche 1 is approximately $900 million. That's in today's dollars. Investment in these long-dated projects are expected to start as early as 2027. And with that, I'll turn things back to Gail.
spk09: Scott, thank you very much. Now, as you may recall, our Board of Directors at its January meeting raised our quarterly cash dividend by 7.4%. We believe this ranks us in the top decile of our industry. We continue to target a payout ratio of 65% to 70% of earnings, and therefore I expect our dividend growth will continue to be in line with the growth in earnings per share. And today we are reaffirming our projection of long-term earnings growth at 6% to 7% a year. Next up, Shaw will provide you with more details on our second quarter financials and she'll touch on the likely impact of the reconciliation bill that appears to be headed for a vote in the U.S. Senate. We view the legislation as broadly positive for customers, for the energy transition, and for our future investment opportunities. Sha?
spk00: Thanks, Gail. Our 2022 second quarter earnings of $0.91 per share increased $0.04 per share compared to the second quarter of 2021. Our earnings package includes a comparison of second quarter results on page 17. I'll walk through the significant drivers. Starting with our utility operations, the impact of weather was flat quarter over quarter. On a weather normalized basis, retail electric deliveries in Wisconsin, including the iron ore mines, were up three-tenths of a percent, led by our small commercial and industrial customers. Overall, retail demand for electricity is tracking our forecast. Across our regulated business, we grew our earnings by $0.05 compared to the second quarter of 2021. Rate-based growth contributed $0.09 to earnings. This is partially offset by $0.03 of higher depreciation and amortization expense and a $0.01 increase in day-to-day O&M. At our investment in American Transmission Company, Earnings increased one penny compared to the second quarter of 2021, driven by continued capital investment. Earnings at our energy infrastructure segment improved four cents in the second quarter of 2022 compared to the second quarter of 2021. This was mainly driven by production tax credits related to stronger wind production across our portfolio as well as our Jayhawk wind farm that went in commercial operation at the end of last year. Finally, you'll see that earnings at our corporate and other segments decreased six cents, primarily driven by Rabbi Trust's performance and a gain last year on our investment in a clean energy fund that we recognized in the second quarter last year. Remember, Rabbi Trust is largely offset in O&M. Overall, we improved on our second quarter performance by $0.04 per share compared to last year. Looking now at the cash flow statement on page 6 of the earnings package, net cash provided by operating activities increased $536 million. Cash earnings and a normal recovery of commodity costs contributed to this increase. And total capital expenditures were $1 billion during the first half of 2022. As you can see, we have been executing well on our capital plan. Before I turn it back to Gail, I'd like to give a bit of color on the recently proposed Inflation Reduction Act. I'll also provide our guidance for the third quarter. We're still analyzing the details of the proposal. From what we understand now, we believe the proposal would provide additional benefits to our customers from investments in renewables. An option to choose production tax credits for solar projects and the ability to transfer tax credits would provide more flexibility for future renewable investments. This would apply both at our utilities and at the WEC infrastructure segment. So overall, we see benefits to customers, future investment opportunities, and stronger credit metrics. Now, let me give you the guidance for the third quarter. We are expecting a range of 82 to 84 cents per share. This accounts for weather and storm recovery costs in July and assumes normal weather for the rest of the quarter. As a reminder, we earned $0.92 per share in the third quarter last year, which included $0.05 of better-than-normal weather. And as Gail mentioned earlier, we're raising our full-year guidance to a range of $4.36 to $4.40 per share, with an expectation of reaching the top end of the range. With that, I'll turn it back to Gail.
spk09: Sure. Thank you. Overall, we're on track and focused on delivering value for our customers and our stockholders. Operator, we're ready now for the question and answer portion of the call.
spk07: 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 1 on your phone. If you're using a speakerphone, turn off your mute function to allow your signal to reach our equipment. We will take as many questions as time permits. Once again, press star and then the number one on your telephone keypad to ask a question. Your first question comes from the line of Char Parisa with Guggenheim Partners. Your line is now open.
spk10: Rock and roll, Char.
spk09: Hey. Good morning, Char.
spk02: Hey, guys. Good afternoon, guys. How are you doing?
spk09: Doing great.
spk02: How about you, Char? Not too bad. Not too bad. Um, let me just, if we can, you know, touch on MISO policy for a second and maybe more specifically the generation backdrop following the PRA earlier this spring and kind of your own retirement modifications, or like you highlighted delays, just Gail from your position, do you envision any structural changes to the auction in the coming years? And could we be in a position? where we see WECC undertake maybe additional retirement extensions because of the supply-demand dynamic, which could present maybe a possible O&M headwind, or is this a definitive timeline at this point?
spk09: That's a great question, Char. Based on everything we're seeing today, I don't sense that we're going to enter into any other significant extensions of plants. The dates we gave you we feel pretty good about in terms of the retirement of the older Oak Creek units. And I think really what's going on here, and MISO has said this, I think, fairly clearly, that there's been so much retirement up to date of older coal-fired units that really they found themselves in a couple of regions in really, really tight capacity situations. Luckily, we've had the diverse supply here. We've been well prepared. We were basically unaffected by the big increase in capacity costs in the last auction, but it was very prudent for us to make sure that we have that capacity online. And remember, Char, these plants that we're extending, these older Oak Creek units, they're not projected to run a great deal. We need them for capacity purposes at high demand times. And this protects our customers from from continuing high auction costs in future capacity markets. But as we continue to bring the units online that Scott talked about, I think our current plan is likely to hold in terms of the retirement dates. I hope that answers your question.
spk02: No, it does. And I appreciate that. And then, you know, I think Shaw kind of mentioned a little bit on sort of the IRA or the Inflation Reduction Act, but there's obviously some linkages to your capital program and and taxes as well. As you kind of work to finalize the roll forward this fall, could we see additional spend from the program, especially as we're heading into the EI conference? How do we think about that? And then there's obviously that counteracted force, which is the minimum tax that will probably be bared by the customer, right?
spk09: Yeah, and we're working through all of that in our models. I will say this, right now, based on everything we're seeing in shock and comment further, based on everything we're seeing, some of the other benefits of that piece of legislation really kind of offset the minimum tax issues. So we actually think, as Shaw mentioned, and Shaw, you might want to expand on this a little bit, that this likely will be a credit positive or an FFO metric positive for us. Shaw?
spk00: Yeah, exactly. Like Gail mentioned, we see very manageable impact from AMT. I think in general, probably $20, $30 million of increasing cash tax payment. But like Gail mentioned, we see quite a bit of sources of credit metrics benefits from either the monetization of tax credits or a lower, you know, just offset by the lower debt balance, financing costs, and so forth. So I think overall, if you take into consideration all the all the moving pieces, we actually see a benefit to the credit metrics.
spk09: And a benefit also, Char, one other, I think, point that we'll continue to emphasize, we talk about investment opportunities here expanding with this piece of legislation, not only at the utilities, but also at the infrastructure segment. But one of the things that comes through clear to us, this is good for our customers. I mean, this can help reduce the cost, investment cost, that our regulated customers have to cover. So there's some broad positives here, Char.
spk02: Okay, got it, got it. And then just real quick, lastly, if I may, just the rate case, the procedural schedule was obviously issued last week. You guys are great at settling. So as we're thinking about potential settlement options, should we be looking at maybe the end of September, early October for that?
spk09: yeah it's hard to place an absolute time frame uh you know on the pace of settlement discussions right now we're still pretty early in the process the staff is continuing to we continue to interact with the staff on their data requests which are very normal and very good so that part the staff audit part which is kicked off by our filing that's going smoothly going well going on time and as you say the the administrative law judge in the case has proposed a schedule which I think the interveners would like a little more time in between some of the dates. So I'm not sure the schedule is final, but it's certainly close to final. And I would say steady as she goes. And just a reminder, I mean, this case is very straightforward. It's really all about investment in grid hardening, investment in renewables, investment in reliability. And over half of the capital projects in this case have already been approved and And our O&M that we proposed is actually lower than what was approved in the last order. So the backdrop is still very positive, and right now it's steady as she goes.
spk02: All right. Terrific execution. Thanks, guys. Appreciate it. See you soon.
spk10: Thank you, Char. Take care.
spk07: You too. Your next question comes from the line of Julian Dumoulin-Smith with Bank of America. Your line is now open.
spk10: Hey, Julian.
spk15: Hey, afternoon, Tim. Hey, pleasure. So just coming back to a couple details here, if I can. Normalized sales for a large C&I, again, I get that that doesn't move the needle as much on margin, but obviously through 630, there's a wide delta versus what you guys had forecasted on the year. Do you want to talk about what you're seeing there? I know you highlighted a number of industrial trends at the outset here that bode well, but are you expecting that to reverse in the second half, or what's the setup there, if you can?
spk09: Great question, Julian. And by the way, I've got a question for you when I'm done answering. The small decrease that we saw in large CNI as we kind of remember we serve industrial customers in 17 different sectors of the economy. So it's a very broad gauge of what's going on. We saw three sectors in the first half and in the second quarter that really showed a bit of a decline. Food processing, food and food processing, Some of that is related to one of our very large customers that is switching product lines. So they had an outage that's going to extend a little bit. And actually, I think they're going to make more chocolate, which is a good thing, according to my wife. But anyway, so electronics, food processing, and printing were the three categories that showed some decline. Primary metals was up, but long story short, the rebound in small commercial customers, the rebound in the commercial sectors of our economy was very strong and very good. So we'll see where industrial moves in the second half. We're not at all concerned about it, but clearly what we're seeing is a very, very strong recovery in the commercial side of the business. I mean, every commercial area we looked at is up from entertainment to hotels to restaurants to you name it. There's a really very active backdrop right now in the Wisconsin economy. So when you put it all together and take a look at it holistically, as Shaw said, we feel like we're very much on track with our sales forecast for the year.
spk15: Nice. Okay. Back half of this. Excellent. And before you ask your question, I was just going to ask one more here. Shaw, if I can put you on the spot a little bit here, do you want to quantify a little bit as best even a range on what that credit metric, that net credit metric impact is, as well as if you test this Point Beach methodology shift on, I think, $600 million of debt, give or take, if you can talk to that and how that might impact anything?
spk00: Sure. We really don't have a number yet because there's so many moving pieces. As you know, that qualification of production tax credit versus investment tax credit could change the dynamics among just the regulated businesses. So we really haven't quantified a number for you, but more to come on that. You're talking about the supplemental filing that we made in Wisconsin related to a methodology change related to S&P. They recently updated their methodology to calculate the imputed debt related to purchase power agreements. So we updated the calculation based on the new methodologies, nothing more than that. And they're applying the same methodologies across the industry. So we're not alone there.
spk15: Right. And presumably the recovery there.
spk11: Right. It's pretty formulaic. Yeah. It's a pretty standard type of thing.
spk09: Yeah. So, Julian, I'm just going to check. How's my life going?
spk15: It's going great. We bought a house. We're keeping going. All right.
spk12: All right. There we go.
spk15: Step two.
spk10: Take care. You guys appreciate it. Talk soon.
spk07: Your next question comes from the line of Durgesh Chopra with Evercore. Your line is now open.
spk06: Hi, Durgesh. Hello, Durgesh. Hey, good afternoon, Gail. Congratulations on yet another solid quarter. Just I wanted to sort of, sorry, Shah, but I'm going to put you on the spot again. And this is just knowing how well you know this topic. Just on the concept of this, the monetization of the tax credits and transferability. So obviously this bill doesn't include direct pay, which is part of the Build Back Better. How are you viewing that as an opportunity? Is transferability really sort of an opportunity for utilities like yourself to monetize those credits? Or what might be those other options when you think about monetizing PTCs, ITCs, et cetera, et cetera?
spk00: Yeah, I think that, like I touched in the formal remarks, we see this overall bill with benefits for customers, for future investment opportunities and credit metrics. So in terms of the sources of customer benefits, obviously PTCs versus ITCs from solar projects would be one. The flow through of ITC benefits on standalone batteries versus normalization could provide a customer benefit. You touched the marketing of tax credits, so that could be beneficial for customers. Extension of tax credits, those are the sources of customer benefits. And then, like Gail touched, in terms of future investment opportunities, WETI, for example, right now we're looking at the tax appetite to try to, to match our investment opportunities with our tax appetite. Obviously, with marketability of tax credits, that goes away. So that could open up for additional opportunities, and we could potentially consider investment opportunities beyond wind. And then I touched already the credit metrics. So I think overall, I think we see this as a potential positive. Having said that, our current capital plan isn't built on any of these. So I think we would see some tailwind from this if this was passed. If not, we're just fine.
spk09: I'd just like to add on to something Shaw said. She's exactly right. The $17.7 billion five-year capital plan that we've outlined for you doesn't envision any of these potential benefits. So that's why we think this is broadly positive. I would say just personally, and this is just my own view, the idea of the transferability of tax credits basically creating a market I think is actually a superior solution than direct pay, frankly. It's much simpler. It gets rid of – we don't need tax equity, but it gets rid of a tax equity structure that's complicated and time-consuming. I think this is actually a pretty ingenious approach in terms of the transferability of tax credits in the bill. I hope that helps.
spk06: That helps tremendously. Just so I understand, Gail, am I right in thinking about this transferability as that you don't need ownership, unlike tax equity where you actually need an ownership in the project, you don't need ownership as an investor or buyer of these tax credits, so essentially the market or interest in these tax credits is going to be much larger than just those select banks or those specific tax equity investors. Is that the right way of thinking about it?
spk09: Yeah, I think you're right on. I think you're dead on, Dragesh. And in fact, a little bit of background. I know some of the background of how this came to be in terms of discussions with Senator Manchin. And the idea that this really opens a much broader opportunity for these tax credits, you know, not just with a tax equity investor, that was a major selling point. So I think a major selling point, period, to all of those who are crafting the bill. So I think you really analyzed it well.
spk06: Thanks, Cale. Appreciate the update.
spk10: You're welcome. Thank you.
spk07: Your next question comes from the line of Jeremy Tonnet with J.P. Morgan. Your line is now open.
spk10: Hi, Jeremy.
spk05: Hi. Thanks for having me.
spk10: You survived your conference?
spk05: I did. I did. Thank you. Thank you for attending. The fireside chat was great. Just wanted to come back to the coal retirements a little bit, if I could, as it relates to the Wisconsin rate case. And just what have reactions been so far? And do you see any potential implications on settlement talks from this?
spk09: The short answer is, and I'm going to ask Scott to give you some detail, but the short answer is we don't see any implications in terms of the rate case. And the reaction has been uniformly positive. Certainly the governor's office, which we communicated well with prior to the announcement, was very supportive. The staff at the Public Service Commission obviously taking its responsibility to help ensure reliability was very positive. The industrial customers were positive. And overall, Scott, this really is not a big factor in changing the revenue requirement.
spk11: No, not at all, Gail. And we factored everything in, factoring in keeping these units running a little bit longer, extending those lives, factoring in. the delay and remember we delayed these due to some you know supply chain challenges building the solar and the batteries factoring those delays in it was relatively revenue requirement neutral and remember for this particular case then just in this case you're avoiding those additional capacity costs so it was well received adding that reliability until we can get these renewables built and some of the other capacity online so It was well received across the board from my conversations with individuals across the board, like Gail said.
spk09: And in addition to that, Jeremy, we were able to reassure, as I mentioned in the script, we were able to reassure everyone that our commitment to really aggressive environmental improvement is unchanged by this action. So it just made a ton of sense, both from a customer reliability and customer cost standpoint.
spk05: Got it. That's very helpful there. And just wanted to come back, if I could, to Ira and tax credits and what's possible there. You talked about the investment opportunity set for WEC infrastructure being larger. I imagine it's larger than a breadbox, but just wondering if you could give us any breadcrumbs as far as what the scale of opportunity might possibly be.
spk09: At this point in time, Jeremy, it's probably too early to give you how much bigger than a breadbox answer, but I will say this. Right now, Our significant investments that we've made, which, as we've reported to you, are performing very well in the infrastructure segment, those have all been wind projects. I think we have eight wind projects that we're committed to and some of them operating already, a number of them operating already. What this does do, and Shaw pointed to it, which is giving companies like ours the option of production tax credits for solar, that could open up an entire avenue of investment in the infrastructure segment for solar simply because of the way the economics work today. So that just gives you an idea. They're all wind right now in the infrastructure segment. We continue to see opportunities with wind, but it could also open up a whole different technology investment with solar.
spk00: I will add, though, we have the 10% total investment as the portfolio from WECI, so we don't see that change even with this bill passing.
spk09: Yeah, that's a good point. But the opportunity continues because our regulated business is growing as well. But yes, we intend to keep the infrastructure segment at around 10% of earnings going forward.
spk05: Got it. That's very helpful. Thank you.
spk10: Thank you.
spk07: Your next question comes from the line of Michael Sullivan with Wolf Research. Your line is now open.
spk09: Hi, Michael.
spk13: Hey, Gail. Good afternoon.
spk09: Good afternoon.
spk13: I wanted to start with the – I know it's a shoulder quarter for the gas business, but sales trends remain pretty strong there looking at the first half of the year. Really, really strong? I guess any color on what's driving that and how sustainable you think that is?
spk09: So your question is, how strong is it, right? Actually, you're asking an interesting question. The other day, as we were reviewing all of the data, we were asking ourselves, oh, this is really interesting. What are we seeing here? What are the trends? And two answers, and Scott and Josh should add their viewpoint, but two answers. One is, and you've heard me say this a gazillion times, weather normalization is more precise than accurate. So I'm not sure that our weather normalization techniques picked up all of the weather impact that we saw, particularly in Q2. April started out as an abnormally cold month. in Wisconsin. And I think that drove some sales and perhaps our weather normalization techniques didn't quite pick up that fully. But the other thing that we're seeing, and this is not surprising, but positive, a big chunk of the increase that we're seeing, and it is a strong increase, is in industrial processes for gas. When you look at the segments of our gas customers, Actually, the biggest increase in Q2 is coming from industrial process use for gas. And again, that reflects back on the strength of the economy, and we see that as pretty positive. So I hope that's helpful. It has been a very strong six months, no question about that. We'll see what continues here, but the biggest driver in Q2 in terms of the increase we saw was a cold April where residential customers used more gas, and throughout the quarter, the increased use of gas by our large industrial customers for process purposes.
spk13: Okay, very helpful. Thanks. And then in terms of the pending renewables projects on the regulated side of the business that you're building. I think there's been a little bit of a cost pickup on some of the nearer term stuff, whereas the longer term has been pretty steady thus far. Are those numbers still good, or do you think there's ultimately going to be some upward pressure there as well?
spk09: We'll let Scott give you his view on this. I will say this. The nearer term cost changes are
spk11: we fully anticipated uh and had communicated with our our regulatory folks yeah so we we anticipated it and talked to them about it i don't think it's a surprise uh to anyone when we file the incremental increases and what we've been saying is you know we're going to see cost increases in that 20 to 30 percent in fact the last filing on the solar you know the first project we came in were about thirteen hundred dollars a kw a kilowatt hour uh a kilowatt and then You know, now it's about 1540. I think the last one was about 1640. So they're moving up a little bit, still in line with what we're seeing across the country. In the future, we'll have to see where things go. But we said it could be, you know, 30 to 40 percent. But once again, there's a lot of supply chain here. You're looking multiple years out. So right now, they're the cost we did see go up, but really in line, in fact, a little bit lower than what we see across the country.
spk13: Okay, thanks. And last one real quick. Any plans to file a people's gas case anytime soon?
spk10: No time soon. No.
spk13: Okay, great.
spk10: Thank you. Thank you, Michael.
spk07: Your next question comes from the line of Anthony Crowdell with Mizuho. Your line is now open.
spk09: Greetings, Anthony.
spk10: How's it going, Gail? Hope all is well.
spk09: Same here.
spk03: Married life is going well for me also, if you're just checking. But hopefully, just in case my wife sees someone at the EI, I don't want any problems. Hopefully, two easy questions. One is, I guess, guidance is 6% to 7%. In one of the slide decks, I think from the July presentation, historically, it's been 9% CAGR. there's really, you know, you highlighted between gap and non-gap, which there's no difference. I'm just curious with all the tailwinds that you've mentioned on the previous questions, what has to happen for you to hit the 6% number?
spk10: What has to happen for us to hit a 6% growth trajectory? Yes.
spk09: Downsides that I really don't, don't anticipate that would be kind of out of the blue right now. Remember, our projection is six to seven. And certainly what we have in the pipeline in terms of approved capital investments and simply our continuing, our continued efficiency in driving best practices through our operations it would take something that I don't anticipate. Scott?
spk11: No, I agree, Gail. We have really good value-added customer projects we're putting in. When I think about grid hardening, the storms that we've seen this summer and last summer, it makes a lot of sense as we do that. The additional transition to renewable. So we feel really comfortable at where we are to be able to execute. It's a very executable capital plan also. With no need for equity. Exactly. So... But we will continue to evaluate our growth, and as we look at the fall and we pull into the capital projects, we'll continue to look at it.
spk09: And, Anthony, when I see your wife at EEI, I'll just say what goes on in Boston stays in Boston.
spk03: How's that? Thanks. I appreciate that. I appreciate that. If I look on the cost side, so far, first half of the year, O&M is down 4% roughly when I look at the slide you put out. What is the more challenging part of maintaining the cost in O&M in this inflationary environment? What do you think is the biggest challenge? What part of your O&M budget?
spk09: Well, I can give you an initial thought on that. Well, certainly, Scott and Char are very close to the numbers as well, so we'll ask for their view. I would say the... When you think about our own, I mean, the first thing that comes to mind actually may not be the biggest cost factor in our array of costs that we have to operate the enterprise day to day, but you just think about the gasoline that our fleet, our trucks, our service trucks, our bucket trucks, when you think about the cost of gasoline having more than doubled, that's certainly a big factor and we got you know we we are rolling as few trucks as possible but when you have a storm you've got to roll trucks when you have an outage you got to roll trucks that's one big factor that has been largely out of our control and i would just point to that one first scott shaw yeah no you're exactly right gail you really have to kind of pull yourself behind the numbers here um and when you look at the o m
spk11: Just to correct where we're at here, some of those decreases that we're seeing on the top level of the income statement are some of the items that we had in our rate review last year for transmission. There's a little detail breakdown in a few additional pages in our packet. So some of that's related to transmission reductions that we agreed to. So Wisconsin actually was up a little bit year to date. So that's because it's reaction to storms and some of these inflationary pressures that Gail talks to. But Overall, when we look at our forecast, we're still projecting to be down about 1%, flat to 1% in total O&M. Shaw, anything you'd like to add?
spk00: No, I think you covered it very well.
spk09: Okay, terrific. Anthony, I hope that's responsive to your question.
spk03: Perfect. Thanks so much. NFL schedule is out, and I think my Jets may finally win one in Green Bay in October. Thanks for taking my questions.
spk09: Yeah, I'll take the over-under on that one for you. Take care.
spk07: Your next question comes from the line of Sophie Karp with KeyBank. Your line is now open.
spk10: Greetings, Sophie. How are you doing today?
spk01: I am doing great. Thank you. Thank you for taking my questions. Great discussion so far. Just if I may ask you a little bit more on the IRA provisions, right? There's more there than just wind and solar. We have basically a lot of incentives for EVs, for technology agnostic PTCs at some point, right? How do you think about maybe moving beyond wind and solar and branching out to other areas, right? Could you do, for example, modular nuclear or have you looked into fleet electrification opportunities like some of your peers are doing your own fleet? We mentioned gasoline prices or maybe municipal fleets, et cetera. If you could just elaborate on what is beyond, I guess, wind and solar.
spk09: Yeah, I'm happy to. And of course, And Sean mentioned this as well, but batteries, the battery inclusion in this act is also important in terms of the credits. So batteries certainly, and that's in our plan already and probably will be even more greatly in our plan going forward. So batteries is one area that can be beneficial to all of us given what's in this piece of legislation. We do have, and we probably don't talk about it enough, but we do have goals for electrification of our fleet No doubt about that. So that's coming. We have now a pilot program in place in Wisconsin that the Wisconsin Commission approved a few months ago where we are approaching commercial and some residential customers about installing individual chargers at their locations where we would own the asset. And that is off to a really good start. Uh, so those two things come to mind immediately as, as far as small modular reactors. I mean, we're, we're tracking, we're tracking the progress. No question about that. Um, you know, our, our, uh, our strategy folks on the generation side of the business, uh, have had regular contact with the developers of SMR. Uh, I will say this, we are, we are not in the business of serial number one. Um, but certainly down the road, particularly if this kind of tax credits apply, that certainly could be an option down the road, not in our five-year plan, probably not in the next five-year plan, but certainly down the road. Shaw, anything you'd like to add?
spk00: No, I think the only thing is we are going through the hydrogen test process to learn more on that, and As part of this IRA, there's new clean hydrogen production credit. So that's something that if it indeed is making sense, that would be something we would be happy to look into.
spk11: Very good point. Scott? And I think the other point, you mentioned EVs. And we really see it more as not only that, but the adoption of EVs. How does that even expand our grid hardening as more and more EVs come onto the system? And like Gail said, we've got a robust program already. We've seen a lot of traction already. But remember, we didn't put any of this in our future five-year forecast that we talk about it in our third quarter call. So we have nothing in our long-term plans related to EVs. So adoption there could be a nice little tailwind there for some sales.
spk09: Yeah, and Sophie, you probably heard our rule of thumb that for every two new EVs put onto our system, it's probably the equivalent, the energy equivalent of a single new household. So when you think about, and we just saw some statistics the other day from the state of Wisconsin projecting the trajectory of EV adoption in the state, if it's even close to right, Scott's point will be borne out really, really fully. Because we only have a few thousand, a couple thousand EVs in the state today, and they're projecting just huge numbers by 2030. We'll see if that's right. But behind that would have to be a very significant investment particularly with our rule of thumb estimate about two new EVs on our system equal to the energy demand of a single household.
spk01: Terrific. Carlos, thank you so much. That's all for me.
spk10: Thank you. Have a good day.
spk07: Your next question comes from the line of Michael Lapettis with Goldman Sachs. Your line is now open.
spk04: Hey, y'all. Thank you for taking my question. Much appreciated, Gail and team.
spk10: You're welcome, Michael. Hope you're doing well.
spk04: I have an easy one for you. Actually, I have two questions. I'll do sequentially. The first one, and it follows on the easy question that just came. Can you talk about what you think is a long-term role of the utility, the electric utility is, in the potential ownership of charging stations? relative to kind of the various market models we have today in this country where the utility is generally not the owner of charging stations or the very small component of that. How do you just think about that from a public policy standpoint?
spk09: Well, that's a great question, Michael. I would say this. I don't think there's a one size fits all answer. I think you've hit on it earlier. There's a lot of different models floating around the country. state by state, even the federal government now with a charging plan. So we're very, as you know, very, very early in the development of the whole infrastructure that would support a massive transition to electric vehicles. So I think that the jury is still out and time will tell in terms of how much of the actual charging equipment that utilities will own. But And so I really can't, I don't think anybody can give you a really clear answer on that question today. I will say this though, when you think about, and it goes back to Scott's comment on grid hardening, if you think about a neighborhood, let's say a cul-de-sac with, I don't know, eight homes, for example, if two or three of those homes adopt EVs, well, we're going to have to put in a much larger transformer in that neighborhood. So there are incredible investment requirements in terms of our basic infrastructure. Forget the charging equipment itself for a moment. There are very significant investment needs that are going to come with the adoption of EVs. And that, I think, will open up again a tremendous capital opportunity for a company like ours, but also the need to be able to have the grid that really supports that kind of transition to a massive, massive number of EVs. So again, none of that's in our forecast. We will wait and see how the EV adoption moves forward. But I can tell you it's beginning to gain momentum here in Wisconsin. I don't think there's any question about that. So I hope I hope that answers your question to some extent. I just don't think there's a good single answer about who owns what to what extent going forward. There's just too many models and too much discussion and development right now to give you a much more specific response.
spk04: No, totally understand. And then my second question is another kind of policy one, which is, When you go meet, you and the team go meet with Governor Evers or go meet with folks in the state legislature or some of the leaders or some of the large business groups. What is it that the utilities in the state are not doing today or have in their next one or two or three year plans that they'd still like to see you guys do?
spk10: That we would still like to see or that Governor Evers would like to see?
spk04: that the governor and other both elected officials and business leaders?
spk09: It all comes down to one word, reliability. Affordability, yes, but reliability is the key. I mean, whenever we have discussions with legislative people, with the public service commissioners, with the governor's office, it is really all revolving around reliability. They want to make sure that what happened in Texas does not happen here and that we're going to have the capability to continue to support the energy transition. Scott?
spk11: It's reliability not only on electric but also on natural gas, keeping the houses warm here in this cold environment in Wisconsin. So that's also key. So we just don't want to look at it from one side.
spk09: which again led to us talking with them and making the decision to briefly extend the lives of the older Oak Creek units. Again, it was all about assuring reliability.
spk04: Got it. And then finally with the changes in the time in the in-service dates for the storage and solar projects, how should we think about what this does to the CapEx forecast for the next two to three years?
spk09: Very little. It might shift from year to year, but I mean, We have so much flexibility in that capital budget that, Scott, I don't see any major impact.
spk11: No, we're really looking at the numbers, but every year there's a few things that we have to move around a little bit, so it's not going to be a substantial change as we flow through our next iteration here.
spk04: Got it. Thank you, guys. Much appreciated.
spk10: Take care, Michael.
spk07: Your next question comes from the line of Andrew Wazel with Scotia Howard Whale. Your line is now open.
spk10: Greetings, Andrew.
spk14: Hi, good afternoon, everyone. A couple of quick ones on coal first. So first, in terms of the O&M impact between delays to solar and battery and the decision to move some retirement dates around, you've talked about the benefits of non-fuel O&M savings in the future. What does that impact look like as you think about these fundamentally changing from operating as baseload units to becoming capacity resources that won't run very often?
spk09: Well, I think we basically said there'd be about a $10 million uptick in the O&M to use these older Oak Creek units as capacity machines offset by the other factors that Scott mentioned. Right.
spk11: So that's as you look at it as compared to what we had in the Ray case here. But when you think of ongoing, when you go back a couple years, you know, when they were really full-blown baseload plants, probably the O&Ms come down maybe $10 million when you think about it overall. So we're still trying to, you know, about $10 million, still looking at the efficiencies. You're not running them quite as much. You can utilize the staff in a variety of projects, trying to make the workforce as efficient as possible. But, you know, it's a lot cheaper than going out and buying that capacity in the markets.
spk14: Right, that makes sense. Okay, and then how will that transition look for the coal units? Will they gradually decrease their capacity factors over a few months or seasons, or will it flip like a switch on a predetermined day that all of a sudden they're only for backup now?
spk09: No, it all depends. I mean, as you know, in the MISO market, we basically let the Midwest grid operator know what units we have available and at what marginal cost. All the time. I mean, day ahead, hour ahead, et cetera. Those units will run based on efficiency and demand in the MISO market. But we anticipate, just looking at our modeling, we anticipate they will be used really seasonally at the highest demand times, winter and summer. Probably not online very much during the non-higher demand times. Scott?
spk11: No, that's exactly right. And it's not going to be a switch. We'll continue to look at the forecast and do the strategy as we do every other type of asset.
spk14: Okay, but dispatch is ultimately determined by MISO, right?
spk09: Yep, absolutely. Yep, just like every other unit. So basically, this just becomes an asset in our portfolio that we offer to MISO every day.
spk14: Okay, great. And one separate question. If I can attack the O&M question from a different perspective, Given the strength of the year-to-date results, are you thinking about or have you started pulling forward expenses from 23 and beyond to better position yourself? I know you're in the midst of a rate case and you talked about pressures from inflation, from storms. Just wondering how to think about those puts and takes.
spk09: Well, the short answer is we have had, particularly in July, we've had some pretty serious storms. So we've had some additional operating costs in July that you're not seeing in our numbers yet, obviously. And we have a number of maintenance projects already scheduled in our normal plan for the second half of the year, power plant maintenance, other maintenance. So we're not planning on pulling forward any additional O&M because we've got plenty of things to do in our normal plan. John?
spk00: I think that's exactly right.
spk10: Okay. That's very helpful. Thank you again. Thanks. Take care.
spk07: Your final question today comes from the line of Paul Patterson with Glenrock Associates. Your line is now open.
spk08: What are you up to, Paul? Last but not least, hopefully, but good talking to you.
spk10: Good talking to you.
spk08: So just to follow up on the coal plant thing, what I'm a little bit confused by is the impact of the supply chain issues At least from what I've been reading in the local press, it seems like they're associated with renewables. I'm just trying to understand what projects that were delayed. Is it storage? Is it transmission components? I'm just wondering what actually caused the pushback on the plant retirements.
spk09: That's a great question. There are really two elements to it, and we'll let Scott cover the details, but the first is one of the major solar battery park investments that we're making that have already been approved, which is what we call the Paris Battery Solar Park. The batteries there are going to be delayed, so that's a piece of it. And then I think, Scott, you mentioned during the prepared script, there are two solar projects that we're now going through the regulatory process on, and they're not going to come in on the original dates.
spk11: Correct. They're not going to come in. So we had several solar projects, and those additional solar projects also had batteries attached to them. And with that uncertainty in the capacity, you know, it just did not make sense to pull the trigger on those retirements.
spk09: Paul, just to kind of put all that in perspective, remember We're going to be running those older Oak Creek units over the next couple of years here as we extend their lives just a little bit. We're going to be running them as capacity machines. The solar that we were putting into the batteries were also for capacity. So that's really the trade-off we're making here.
spk08: Got it. And then we're seeing around different parts of the country sort of constraints, transmission constraints impacting wind production. I'm wondering, are you seeing any of that in Wisconsin or anywhere else that you guys are associated with? Are you seeing any impact on curtailment of wind production?
spk09: So far in Wisconsin, very little. However, in our infrastructure segment, we've seen some lengthy transmission maintenance outages. In the Dakotas, for example, we've seen some transmission issues that seem to now be resolved in Kansas with our Jayhawk wind farm. So sporadically, yes, we have seen some transmission issues, and there's no question that we have got to, as a nation, move forward with transmission projects. We've just got to do it to maintain reliability of the grid, without a doubt. And that's why we're pleased that MISO has gotten to the point where they've gotten to, and you probably heard Scott, actually it's $100 million higher than we thought originally. So the MISO Trunch One for American Transmission Company is now up to a $900 million investment.
spk08: Awesome. Thanks so much, guys.
spk09: Thank you, Paul. Take care. All right, sports fans. Well, I think that concludes our conference call for today. Thanks so much for participating. Always enjoy talking with you. If you have any more questions, feel free to contact Ms. Straka. She can be reached at 414-221-4639. Thanks, everybody. So long.
spk07: That concludes today's conference call. Thank you for attending. You may now disconnect.
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