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spk04: Good day and welcome to the Elite First Quarter 2023 Financial Results Call. Today's call is being recorded. Certain statements contained in this conference call that are not descriptions of historical facts are forward-looking statements, such as terms defined in the Private Securities Litigation Reform Act of 1995. Because such statements can include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially from those expressed or implied by such forward-looking statements include but are not limited to those discussed in filings made by the company with the Securities and Exchange Commission. Many of the factors that will determine the company's future results are beyond the ability of management to control or predict. Listeners should not put undue reliance on forward-looking statements which reflect management's reviews only as of the date hereof. The company undertakes no obligation to revise or update any forward-looking statements or to make any forward-looking statements, whether as a result of new information, future events, or otherwise. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, press star 11 again. I would now like to turn the call over to Bethany Owen, Chair, President, and CEO. You may begin.
spk02: Thank you, and good morning, everyone. We appreciate your joining us today. With me are Elite Senior Vice President and Chief Financial Officer Steve Morris, Jeff Sissons, Elite Clean Energy's Chief Financial and Strategy Officer, and Frank Fredrickson, Minnesota Power's Vice President of Customer Experience and Engineering Services. Corresponding slides for this morning's call are available on our website at Elite.com in the Investor section. We'll call out each page number as we go through today's presentation. This morning, Elite reported first quarter 2023 earnings of $1.02 per share on net income of $58.2 million. Last year's first quarter results were $1.24 per share on net income of $66.3 million. Although weather conditions in the quarter did affect our results, we are on track and reaffirming Elite's original full-year earnings guidance range of $3.55 to $3.85 per share. Steve will be providing additional details on our financial performance during the quarter in a moment. Please refer to slides three through five. We continue to be recognized as a leader in advancing clean energy. In fact, for the second year in a row, an independent study has ranked Elite as the number one investor in renewable energy relative to market capitalization among all U.S. investor-owned utilities. We're proud of that statistic, but Elite's strategy is not just about adding renewable energy. It's also about making important investments in projects to help ensure we get this clean energy transition right. right for our customers, our communities, and the climate. This is what we mean when we describe our purpose as leading the way to a truly sustainable clean energy future. On slide four, you can see some of the details of our sustainability in action strategy, which is designed to meet these critical goals while providing value and supporting long-term earnings and dividend growth for our shareholders. Our Minnesota Power Team is hard at work executing our more than $3 billion CAPEX plan. We're making significant progress on our HVDC modernization project, including selection of the technology provider and securing key land rights. And we expect to file the Certificate of Need application with the Minnesota Public Utilities Commission later this month. In addition, in the second half of this year, Minnesota Power will begin the initial phases of the RFPs for nearly all the 700 megawatts of wind and solar that were included in our recently approved Integrative Resource Plan. These RFPs will emphasize attributes such as meaningful reinvestment in host communities, the use of local labor, and a focus on increasing supplier and workforce diversity. All of this will help ensure these clean energy projects deliver the best overall value to customers while strengthening the communities we are privileged to serve. This is important to us at Elite because it will mean growing our company and advancing the energy transition in ways that are truly just and equitable. I'm looking forward to sharing additional information as these important projects progress. As we announced more recently, Elite Clean Energy has completed two of its build transfer projects, with the sale of its 100 megawatt Northern Wind project in Minnesota in January, and in early April, the sale of its 92 megawatt Red Barn Wind facility in Wisconsin to Madison Gas and Electric and Wisconsin Public Service Corporation. And last month marked the one-year anniversary of New Energy Equity joining the elite family of companies. New Energy is one of the nation's leading solar development companies and is the top solar development company in the states of Virginia, Illinois, and Minnesota. We're very proud that the talented New Energy team had a record first quarter of project closings, and they continue to grow their already strong pipeline of future projects. Now I'll turn it over to Steve for further details on our 2023 first quarter financial results. Steve?
spk00: Thanks, Bethany, and good morning, everyone. I would like to remind you that we filed our 10-Q this morning, and I encourage you to refer to it for more details. Please refer to slides 6 and 7 for significant variances and other items for comparison consideration. Today, Elite reported first quarter 2023 earnings of $1.02 per share on net income of $58.2 million. Earnings in 2022 were $1.24 on net income of $66.3 million. Net income in the first quarter of 2023 included $4.7 million after tax or 9 cents per share due to the timing of reserves for interim rates resulting from Minnesota Power's 2022 general rate case. As you may recall from our year-end earnings call in February, the entire 2022 interim rate reserve was recorded in the fourth quarter of 2022 So you will see similar timing differences in the second and third quarters and fully reversing in the fourth quarter this year. Interim rates will continue to be collected until final rates are implemented, which is expected to occur in the third quarter this year. Overall weather conditions also impacted Elite's consolidated earnings by approximately 10 cents per share versus last year. Elite's regulated operation segment recorded first quarter 2023 net income of $40.6 million compared to $51.5 million in 2022. Earnings for 2023 reflect lower net income at Minnesota Power primarily due to the timing of interim reserves previously mentioned and lower kilowatt-hour sales due to milder winter weather conditions as compared to last year. Also impacting 2023 was higher operating and maintenance expense. Elite Clean Energy recorded first quarter 2023 net income of $8.5 million compared to $16.5 million in 2022. Net income in 2023 reflects lower wind resources and availability across much of the fleet and higher operating and maintenance expense compared to 2022. Net income last year also included earnings from the legacy northern wind facilities, which were decommissioned in April 2022 as part of Elite Clean Energy's repower and sale of the Northern Wind project. We do expect some of the negative weather impacts in the first quarter to be offset by the profitable sale of the Red Barn project in the second quarter this year. Our corporate and other businesses, which include New Energy, BNI Energy, and our investments in renewable energy facilities, recorded net income of $9.1 million compared to a net loss of $1.7 million in 2022. The first quarter of this year included $4.1 million of net income from New Energy and had record closings of over 30 megawatts. 2022 included transaction costs of $1.4 million after tax related to the acquisition of New Energy, which was acquired in April of 2022. We also had We also recorded earnings from Minnesota solar projects placed into service in late 2022. Earnings per share dilution in the first quarter was approximately $0.08 due to additional shares of common stock outstanding as of March 31, resulting from our secondary offering completed in April of last year. Next, a few comments on our outlook and 2023 guidance. Overall, regulated operations were in line with internal expectations for the quarter, as higher taconite margins offset negative weather impacts on other regulated sales. Our taconite customers began the year with production levels similar to where they were the last half of 2022, and with Cleveland Cliffs' announcement last week that it had restarted part of its North Shore mining operation and strong nominations from other taconite customers through the summer months, We now expect full-year taconite production will be higher than our initial sales forecast estimates of approximately 33 million tons. Another positive announcement came last week when Synovus announced they have completed the rebuild of the refinery in Superior, Wisconsin and have restarted operations and plan to be at full production by mid-year. Elite Clean Energy was below our expectations for the quarter by approximately $0.05 per share primarily due to weather impacts causing more wind resources and availability across much of the fleet. However, the $160 million profitable sale of the Red Barn to Build Transfer project in April will be a positive impact to our second quarter financial results. Also, we are quite pleased that New Energy had another record quarter of project closings and has a growing and robust pipeline of over two gigawatts further provides confidence for strong project closings in the coming quarters. As such, New Energy is on track to achieve full-year earnings of $16 million to $17 million as reflected in our initial guidance. Considering these items in total, we remain on track to achieve our full-year 2023 earnings guidance of $3.55 to $3.85 per share. Finally, Elite's financial position is supported by a strong balance sheet that includes cash and cash equivalents of $30 million, $230 million in available consolidated lines of credit, and our debt-to-capital ratio was 37% as of March 31, 2023. In addition, in April, Elite Clean Energy received approximately $160 million in proceeds from the sale of the Red Barn project, and Elite issued $125 million in first mortgage bonds last month, at an interest rate of less than 5%. And I'll turn it back to Bethany for additional comments. Bethany?
spk02: Thanks for that update, Steve. Just a few additional comments before we open the line for your questions. Minnesota Power leads the state in providing renewable energy to our customers, and we're the only utility to exceed Minnesota's energy conservation goals for 13 consecutive years. Our team has done all of that while continuing our long track record of providing safe and reliable service to our customers and keeping rates as low as possible. And because constructive regulatory outcomes are critical to our ability to continue the clean energy transition while maintaining the financial health of Minnesota Power, we plan to file our next rate case in November of this year. In addition to transforming our generation fleet, an important part of Minnesota Power's strategy includes significant but prudent investments in our transmission and distribution, which we believe will enable us to meet our clean energy goals while maintaining and strengthening the reliability and resiliency of our system and the regional grid. As we make these investments, we're always focused on our customers and providing the best value. and the Inflation Reduction Act and Infrastructure and Jobs Act are providing opportunities to help reduce costs for our customers. So we recently filed requests for state and federal funding to support two innovative Minnesota Power projects to expand transmission and add energy storage. Also on the transmission front, the Northland Reliability Project is a $970 million, 345 kV transmission line from the Iron Range in northern Minnesota to central Minnesota, which we'll jointly own with Great River Energy. This project, which is part of MISO Tranche 1, is moving forward, and we expect to file the certificate of need and route permits with the Minnesota Public Utilities Commission later this summer. And our engagement with Grid United also continues as we make progress on the first-of-its-kind North Plains Connector project to enhance interregional reliability and transfer capacity between the middle of the country and energy markets to the west. We look forward to sharing more with you on this exciting project in the coming quarters. These are just a few examples of the progress we're making and how the very foundation of our growth strategy at Elite is sustainability in all of its forms, people, planet, and prosperity. As always, we're committed to doing everything in the absolutely right way. Slide 8 contains links to information on this important work, including our recently updated Corporate Sustainability Report. Finally, but importantly, our people are the very reason for Elite's success, and I couldn't be more proud of our innovative, talented, strategic, diligent, and resilient team. Our team and our culture at Elite are unique, and just one example is the fact that Elite was recently recognized in the 2022 Minnesota Census of Women in Corporate Leadership as one of only two public companies in the state with gender parity on our board of directors and in our senior executive team. This is unique and special not only in our state, but in the entire energy industry. I'm proud of this track record, and we're continuing our work to advance diversity in all forms. But this important work isn't about numbers or statistics. It's about creating and strengthening a culture where individuals are valued for their whole selves, and our team, our communities, and our company are more innovative and even stronger as a result. As you can hear, we're pleased with our execution and positioning here in early 2023 as we're setting the stage for strategic and significant growth. and we look forward to updating you on our progress throughout the year. Thank you for your interest and your investment in ELITE. At this time, I'll ask the operator to open the line for your questions.
spk04: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from Richard Sunderland with JP Morgan. Your line is open.
spk06: Hi, good morning, and thank you for the time today.
spk04: Morning, Rich.
spk06: Starting with the guidance, it sounds like the industrial strength on 1Q offset the weather headwinds, and then trying to parse the North Shore and Synovus refinery language with the ramp there That all sounds incremental to 2Q, 3Q, and 4Q. Is that the right read here, meaning at least on the regulated side, net of those impacts, you're ahead of plan? How would you frame all of those factors relative to the midpoint of the guidance currently?
spk00: Yeah. Hi, Rich. Steve Morris here. So we did expect the other entities that you talked about, ST Paper, Synovus, and also CLISP. to start up roughly when they did. So, it's really factored in our guidance this year.
spk06: Okay, got it. So, the 1Q impacts, in terms of those offsets, those are separate from these items. Could you speak to that a little bit more in terms of what trends you saw on 1Q that leave you offsetting the weather for regulated?
spk07: Morning, Rich. This is Frank Fredrickson here. I'll jump in a little bit. As Steve mentioned, we did expect ST Paper and Synovus to come online this year, and that was also factored into the recent outcome of our rate case in terms of that sales forecast. On the taconite side, we have seen a little stronger demand than what we budgeted, and we're pleased to see, as we mentioned with North Shore, starting up for Cleveland Cliffs as well. So there has been a little bit more robust than we budgeted taconite demand as we've seen steel markets pick back up automotive sales and a little bit of confidence from our customers with steel pricing coming back up from lows at the end of last year. So that's really where we've seen that offset come and a little bit stronger in the taconite area expecting, you know, Relatively what we expected and in terms of coming back online with synovus and husky Refinery as well as a paper.
spk06: Yeah, got it. That's that's very helpful. I guess turning away from from the regulated side In terms of the ace impact secure very clear on red barn as the offset how do you think about the ace fleet overall in terms of the performance more recently and Is there anything operationally that you're focused on in terms of driving improvement, or is it really just a matter of seeing the resource availability and how that comes in?
spk01: Good morning, Rich. This is Jeff. Thanks for the question. I think operationally we see the fleet being strong. We were impacted by some icing events that are somewhat out of our control and difficult to budget. What we've mentioned previously is the focus on the SPP market and our projects in there and and that continues to be a high area for us. So we do have some exposure to the energy markets, and they continue to be volatile, and so we'll continue to pace you on the performance.
spk06: Understood. And just one last one from me. You referenced some North Plains conductor updates in the coming quarters. Could you outline what the near-term priorities are there and what you might be in a position to announce over the next few quarters?
spk02: Yeah, this is Bethany Rich. So we are in the process of meeting with other entities to garner interest in the project itself, and we're having kind of great conversations, initial conversations with those. So we're just beginning that process and really looking forward to updating more in coming quarters.
spk06: Understood, understood. Thank you for the time today.
spk03: Thanks, Rich. Thank you. One moment. Our next question comes from Darius Lozny from Bank of America.
spk04: Your line is open.
spk09: Hey, guys. Good morning. Thank you for taking my question. Maybe just wanted to start off on the new energy results that you reported. It seems like they're right in line with your full year guidance. Should we assume that results for the balance of the year would be more or less ratable. In other words, not too much seasonality. And the part B of the question is your comments around sort of how that business is developing since you acquired it, I think have been consistently rather positive. It sounds like it's exceeding expectations. So could there be a bit of conservatism based into your full year guidance on earnings for new energy?
spk01: Good morning, Darius. This is Jeff. We are extremely pleased with the performance of the New Energy Group, and as Bethany mentioned, the talented team has been a great add to the elite family. There will be some seasonality. It's the timing of the close of projects, Darius, so it's not necessarily equitable across the year, but we are confident in their ability to meet the guidance that's been laid out. That market does continue to grow, but it does face some headwinds as well that you're aware of on the supply chain side and others. So I would say that they continue to perform, that that acquisition continues to be a success story for us, and we see their value. But that's as far as we're going right now. Excellent.
spk09: And if I could just add, like, this is like a housekeeping or point of clarification question. Is there a specific reason why new energy is reported in the corporate and other line and not in elite clean energy? It just seems somewhat incongruent with the fact that it's obviously a key and growing part of your business now.
spk00: Yeah, so good question, Darius. We do get that a lot. They are two different businesses, and we just didn't want to bury it in elite clean energy. We think you will get better clarity by keeping them separate. And at one point in time, if new energy gets big enough, it could be its own segment. Right now, it doesn't meet the threshold from accounting standpoint. So by default, everything that doesn't meet the guidance from a GAAP standpoint ends up in corporate and other. But a conscious effort not to bury it in elite clean energy, two really different businesses.
spk09: Excellent. Okay. Thank you for clarifying that. If I could ask just now moving over to the elite clean energy side of things, we've seen some of your larger cap peers in the last 18 months or so divest of non-regulated renewable generation assets. Is some kind of portfolio recycling or otherwise re-evaluating your portfolio? Is that something that's on the table at all? Or otherwise, perhaps any opportunities around repowering that you're looking at specifically for the wind portfolio?
spk01: This is Jeff again, Darius, and we do continuously evaluate the portfolio. You know, recently the Northern Wind project was a repower expansion and a sale. We've got what we call the legacy assets, which are strong You know, they were developed 15 to 20 years ago, and they have strong wind resources. Some of the clarification of the IRA has helped, whether it's been energy community or other opportunities around domestic content. So we continue to work on the redevelopment of those assets, and we'll evaluate all different methods, whether long-term PPAs or bill transfers like we've proven in the past. We're certainly aware of what some of our larger cap peers, but continue to believe that it's a strong strategic fit with elite. As you see, the sustainability and actions across all businesses and the clean energy platforms provide a lot of value to the overall lead organization. So we will always continue to evaluate and consider it along with the elite strategy, but again, seeing the value of the platform.
spk09: Okay, excellent. And sorry, just one last one. If you could just remind us, what is the approximate impact from the red barn sale that's embedded in your 23 EPS guidance?
spk01: Yeah, there is. We haven't called it out specifically last quarter. Steve mentioned that it was in the budget for a couple million dollars and and we still have a few punch list items outstanding, but we would say that it's it's in line or or working towards making it potentially a little bit better.
spk08: OK, thank you very much for the color. I will leave it here.
spk04: Thanks serious. Thank you. Our next question. comes from Brian Russo with Sedoti. Your line is open.
spk05: Hi, good morning.
spk04: Good morning, Brian.
spk05: Hey, so just to follow up on the ACE portfolio optimization efforts, if I recall, there's approximately 400 megawatts of legacy wind assets that, you know, either need to be recontracted or repowered. And I'm just wondering if that's still the case and, you know, are you leaning one way or the other towards, you know, uh, recontracting it or, uh, under a PPA or, uh, you know, doing some of these, uh, which seem profitable build on transfers.
spk01: Morning, Brian, this is Jeff. And I would say still evaluating all of the above at this point. Um, you're, you're accurate that there's over 400 megawatts of what we call the legacy fleet, uh, and that, uh, we will continue to look at what the market what the market will provide for PPAs and evaluate the repowering opportunities. So some of the update on the energy communities, we were pleased to see Armenia Mountain as one of our prized assets included in energy community, as was Condon out in Oregon. And so those provide enhanced competitiveness regardless of what direction we go. So there's more to come. and we'll provide those updates, but I expect to be a combination of both.
spk05: Okay, got it. And then just on new energy, I think your full year guidance also assumes about 100 megawatts of project closings. Is that accurate? So clearly you're already one-third of the way there. Is that the way to kind of frame it?
spk01: That's correct, Brian. This is Jeff, sorry. We would say that 100 megawatts is is a guideline, and not every megawatt is the same, you know, depending on different region. They have different profiles, but roughly 100 megawatts, and that's – we are off to a good start.
spk05: Okay, great. And then on the utility, could you just give us some more detail on the competitive RFPs that you plan for later in this year? Is it going to be one RFP for all 700 RFPs? megawatts of wind and solar or are these going to be numerous rfps and then you know what would be the timeline to uh you know get final bids and then psc approval that will line up with what i assume is the unchanged five-year capex that you disclosed in the last quarterly call
spk07: Morning, Brian. Frank Fredrickson here. On the RFPs, what we're looking at is likely to be two separate RFPs as we have both a tranche of solar to get done as well as a tranche of wind. And as we spelled out, we're going to be getting those out this fall, winter time period, second half of the year. And, you know, regulatory process then gets into 2024, and it's all consistent and aligned with our CapEx table that we shared in February.
spk05: Okay, great. And then just lastly on the industrial sales, like you said, it seems to be tracking better than expected. I'm curious, so the 6.5 million megawatt hours that's in your utility guidance report, you're tracking better than that, and that's based on better than 33 million tons of taconite production?
spk07: Yes, that's correct, Frank, here again. We came out of winter strong, and with the restart at North Shore, it puts us north of that 33 million ton budget and north expectations right now, north of that 6.5 million megawatt hours that you quoted
spk05: Okay. So, and remind me, is that what's embedded in the final Minnesota power rate order?
spk07: So, so we are, you know, we are coming up with the, you know, restarted North shore and with some of the strength we are getting, like we'll, we are seeing stronger than 33 million tons of production and, and the rate order is, had assumed taconite production in the high 35, close to 36 million ton area. So it is getting as closer to that.
spk05: Okay, got it. And then can you just remind us, I think the nominations for the large power customers were due in April for the forward four months. Is that near full production as well?
spk07: Yeah, that's correct. Yes, we have nominations through the summer months and we're near full production there and won't will know more about the fall come August.
spk05: OK, great, thank you very much.
spk04: Thanks Brian. Thank you. My next question comes from Alex Mortimer with Mizuho. Your line is open.
spk10: Hi, good morning. Thank you.
spk04: Good morning, Alex.
spk10: I was hoping, can you touch on the dynamics of how you recognize earnings from New Energy? Are they recognized upon closing of projects or as a percentage of completion as you work through them? Just a little bit on sort of how those work through.
spk00: Hi, Alex. Steve Morris. Yeah, you're right. On these projects here, typically notice to proceed is recognized upon close.
spk10: Okay, understood. And then Slipping back to the utility, given the historically warm weather we've seen kind of across the industry, we've seen others state that they've used much of their contingency for the year with regards to weather and are looking for sort of normal to favorable weather for the balance of the year to be able to hit guidance. Can you touch on how much of your contingency you've run through on the weather front to still have confidence in your ability to hit your guidance for the full year?
spk00: Yeah, so the way we look at it, Alex, the first quarter, as we talked about, we had some weather impacts on the utility. It was about five cents, so it wasn't terribly material. But as I mentioned, it was made up by higher TACNA. We assume normal weather the rest of the year, on track with our guidance for the year.
spk10: Okay, understood. And then just on the industrial side, given you have a larger share of your load coming from large customers as compared to many others in the industry. How do you think about your exposure to a potential decrease in CNI load if we were to enter an economic slowdown in the second half of this year?
spk07: Thanks, Alex. Frank Fredrickson here. So we're pleased, as we mentioned, that we're starting off strong with sales in the taconade industry, and as well as steel is continuing, and Cliff's announced a restart of North Shore. So seeing automotive sales and production pick up, which is driving a lot of that steel production, we're all, just as our customers, watching the back half of the year, but it does very helpful that we're starting off stronger than anticipated for the first half. I don't know. Steve, do you have anything else to add on that?
spk00: No. We'll know more when we get August 1st nominations thereabout, which we will have by the time we have our second quarter conference call.
spk10: All right. Look forward to the update then, and congrats again on the quarter. Thank you very much.
spk04: Thanks, Alex. Thank you. And I'm showing no other questions in the queue. I'd like to turn the call back to Bethany Owen for closing remarks.
spk02: Thank you. Steve, Jeff, Frank, and I thank you again for being with us this morning and for your investment and interest in a lead. We look forward to speaking to many of you at other investor venues throughout the year, and we hope you enjoy the rest of your day.
spk04: This concludes today's conference call. Thank you for participating. You may now disconnect.
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