CMS Energy Corporation

Good morning, everyone, and welcome to the CMS Energy 2022 first quarter results issued earlier today and the presentation used in this webcast are available on CMS Energy's website in the investor relations section. This call is being recorded. After the presentation, we will conduct a question and answer session. Instructions will be provided at that time. If at any time during the conference you need to reach an operator, please press the star followed by zero. Just a reminder, there will be a rebroadcast of this conference call today beginning at 12 p.m. Eastern Time running through May 10th. This presentation is also being webcast and is available on CMS Energy's website in the Investor Relations section. At this time, I would now like to turn the call over to Mr. Sri Matipati, Treasurer and Vice President of Finance and Investor Relations.

Thank you, Austin. Good morning, everyone, and thank you for joining us today. With me are Derek Rochelle, President and Chief Executive Officer, and Reggie Hayes, Executive Vice President and Chief Financial Officer. This presentation contains forward-looking statements which are subject to risk and uncertainty. Please refer to our SEC filings for more information regarding the risks and other factors that could cause our actual results to differ materially. This presentation also includes non-GAAP measures. For conciliations of these measures, the most directly comparable GAAP measures are included in the appendix and posted on our website. Now I'll turn the call over to Gary.

Thanks, Sri, and thank you, everyone, for joining our call today. I'm pleased to share the great progress we have made over the quarter and with our IRP. You've heard me speak about our simple investment thesis on many of these calls. It has withstood the test of time. And this quarter was no different. The industry leading net zero commitments. These aren't just words. They're evident in our actions and our results. Our IRP settlement paves the way to be out of coal by 2025. One of the first utilities in the nation to achieve such a milestone. Our recently announced net zero goal for our gas system is not just a dream, but evident and proof point in our net zero methane targets, and a 20% reduction in customer emissions by 2030. Excellent, says the EUA. I can't think of a more important time, given inflation and supply chain constraints, for our industry-leading cost management muscle to play out. Reggie will walk through specifics in his prepared remarks, but I continue to be confident in our ability to offset inflationary pressure and alleviate supply chain concerns. This means keeping customer bills affordable through our CE way lean operating system. Top tier regulatory jurisdiction. The IRP settlement once again demonstrates a constructive regulatory environment in Michigan, delivering important industry-leading outcomes for all. I'd be remiss if I didn't thank the Michigan Public Service Commission staff, the Michigan Attorney General, customer groups, environmental organizations, energy trade representatives, and the consumer's energy work team for the constructive dialogue that led to settlement and a 20-year blueprint to meet Michigan's energy needs while protecting the environment for future generations. All of this, along with the fundamentals of our simple but impactful investment thesis, leads to a consistent, premium, total shareholder return for you, our investors. At CMS Energy, we deliver for all our stakeholders and what you can count on. Now, let me get on with sharing the great news of the IRP and our quarter.

I'm thrilled with this settlement. It provides a 20-year plan for protecting the future, the environment for the future generations, and ensuring financial certainty. IRP is a win for everyone. And let me share with you why. Second savings, in addition to cleaner and more reliable energy. We're accelerating our ESG ambitions to decarbonize and lead the way to protect our planet. Exiting coal operations and achieving a 60% carbon emission reduction by 2025.

growing our solar bill to 8 gigawatts in Excel.

Our investors will see capital upside along with the purchase of the covert plant and economic incentives on demand-side programs, as well as the continuation of a financial compensation mechanism, FCM, on purchase power agreement, PPAs. We also received regulatory asset treatment at an ROE of 9%, closely aligned with our original filing. the purchase of CMS Enterprise assets.

Instead, we'll pursue long-term PPAs for 700 megawatts of Michigan-based capacity starting in 2025.

Well, we believe the purchase of the CMS Enterprise assets was a good value for customers.

Our primary concern was ensuring we secured sufficient capacity to meet our customers' needs. The proposed RFP, coupled with the purchase of the covert plant and a delayed retirement of the Karn 3 and 4 peaking units, will address this concern. DIG and the peakers and enterprises will have an opportunity to participate in this RFP, but will otherwise continue to sell capacity, as they've done in the past, in the attractive bilateral market. This is a win for everyone. In March, we announced plans to achieve net zero carbon emissions for our natural gas system by 2050, which includes both our customers and our suppliers' emissions. This adds to our long-term plan, both electric and natural gas, to further drive decarbonization and provides meaningful proof points along the clean energy transformation. Net-zero emissions across our natural gas system is certainly an ambitious target. However, we've modeled this extensively. We believe it is through existing infrastructure in a clean fuel network. It also acknowledges that there are thoughtful ways to reduce and mitigate greenhouse gas emissions across important home heating and thermal electric generation resources. Both are important in ensuring long-term affordability and reliability for our customers. As we've demonstrated across our electric system with this IRP, these aren't just words. They're evident in our actions and our results. The proof points are in both our net zero methane target and 20% reduction in gas customer emissions by 2030. And we're delivering on those plans in investment opportunities. This includes accelerating vintage main and service replacements, and adding renewable natural gas to our system, all included in our five-year capital investment plan. It also means carbon offsets and potential hydrogen blending to provide growth opportunities above our plan, strengthening and lengthening our investment.

It's good for our customers, our planet, and our investors. This is an important road ahead. We look forward to updating you on our progress.

Like I shared at the beginning of my remarks, we've had a great quarter. We're off to a strong start of the year on all fronts. In the first quarter, we delivered adjusted earnings per share of $1.20. This is up 11 cents per share from last year ahead of our plan in positions as well as we start the year, giving us confidence as we navigate the nine months ahead. We are reaffirming our 2022 adjusted full-year guidance of $2.85 to $2.89 per share. And we continue to guide to the high end of our long-term adjusted EPS growth range of 6% to 8%. The IRP strengthens and lengthens our ability to deliver on our earnings glide path going forward. Looking forward, we continue to see long-term dividend growth of 6% to 8%. to the target payout ratio of about 60% over time. Today, we are reaffirming our $14.3 billion five-year customer investment plan. As we've noted, the IRP does provide upside to our current plan, but will remain disciplined in our approach. You can expect to see that update as we report fourth quarter results early next year. As I often say, strong execution leads to strong results. And this quarter was another impressive example. We are confident in the full year guidance, and we are focused on delivering for our customers, the planet, and you, our investors. Now, I'll turn the call over to Reggie.

Thank you, Garrick, and good morning, everyone. As Garrick highlighted, we're pleased to report our first quarter results for 2022. we delivered adjusted net income of $346 million for $1.20 per share, up 10% off our 2021 first quarter results, largely driven by favorable weather and economic conditions in Michigan.

From a weather perspective, a relatively high volume of heating degree days in the first quarter, coupled with the absence of unfavorable weather during the same period in 2021,

provided $0.16 per share of positive variance, as noted on slide 7. And from an economic standpoint, we continue to see that the first quarter contributed $0.04 per share of positive variance versus a comparable period in 2021, and is either at or above pre-pandemic levels across each of our customer segments, particularly when excluding the effect of our energy efficiency programs which reduced customer load by about 2% per year. Another noteworthy driver of our financial performance for the quarter was rate relief net of investment-related expenses, which contributed $0.03 per share of upside as we continue to realize the residual effects of tax benefits from our 2020 gas rate settlement. These sources of positive variance were partially offset by increased operating and maintenance, or O&M, expenses at the utility, in support of key customer initiatives related to safety, reliability, and decarbonization, which equated to six cents per share of negative variance. We also realized two cents per share of negative variance for the quarter, largely related to annualized financing costs and the timing of tax expenses at the parent company. Looking ahead, we feel quite good about the remaining nine months of the year. As always, we plan for normal weather, which we estimate will have a negative impact of about $0.09 per share versus a comparable period in 2021. We expect the impact of weather will be offset by rate relief net of investments, which we estimate to be roughly $0.10 per share versus the comparable period in 2021, and is largely driven by our expectation of a constructive outcome in our pending gas rate case later this year. Closing out the glide path for the remainder of the year, as noted during our Q4 call, we anticipate lower overall O&M expenses at the utility, driven by the usual cost performance due by the CEA and other cost reduction initiatives, and a more normalized level of service restoration expense on the heels of record storm activity in 2021. Collectively, we assume O&M cost performance will drive 29 cents per share of positive bearing. Lastly, we're assuming normalized operating conditions at enterprises, given the extended outage it did last year, coupled with the usual conservative assumptions around whether normalize it. As we've said before, we'll continue to plan conservatively, like we do every year, to ensure we deliver on our operational and financial objectives irrespective of the circumstances, to the benefit of our customers and investors. Our ability to deliver The results you expect year in and year out is supported by Michigan's strong regulatory environment. As Garrick highlighted earlier, the multi-party settlement of our IRP provides more evidence of that. As noted, the IRP settlement that we recently filed includes a substantial near-term capital investment opportunity in the acquisition of the Covert gas plant, which strengthens and lengthens our financial glide path to the tune of about three to four cents per share with the assumption of reasonable parent funding costs and a 9% ROE on the retired coal assets. As we look ahead, we remain acutely focused on obtaining approval of our IRP settlement agreement and making progress on our pending rate cases, which are highlighted in the regulatory calendar on slide 8. As for the latter, just last week, we filed an electric rate case requesting a $272 million revenue increase with a 51.5% equity ratio and a 10.25% ROE.

And I'll note that even with this request, the typical first quarter of 2023, we also continue to work through our pending gas rate case

and recently filed a double test. We anticipate an order for the gas rate case by October of this year. The question we often get when we discuss capital investment opportunities and regulatory construct is whether we can manage our costs to minimize the rate impact for our customers. And I'm pleased to report that we remain hard at work on all aspects of our cost structure to preserve headroom for needed customer investments in the long term and to mitigate the challenging inflationary environment in which we live. Turning to slide nine, you'll see that several countermeasures have been implemented over the past several quarters to offset inflationary pressures. On the left-hand side of this slide, you'll note that the table highlights the cost categories that have had well-publicized atypical levels of inflation. specifically costs related to labor, materials, and commodities, and the corresponding risk mitigation efforts that we have employed. Starting with labor, our workforce is roughly 40% unionized, and in 2020, we renegotiated all three of our collective bargaining agreements with five-year terms, which provides cost and labor stability over the next few years. We have benefited from a strong retention rate which is an excess of 95%, and allows us to minimize hiring in a tight labor market. From a materials perspective, we're actively managing our supply chain to include leveraging market analysis to optimize terms and conditions with new and existing vendors where possible while broadening our vendor base. We're also deploying the CE way in our distribution centers to eliminate waste, and we're exploring those best practices with our suppliers to reduce their costs and maintain availability of key materials. It is also worth noting that approximately 90% of our material costs are capitalized, which reduces the income statement impact in the short term as those costs are incurred over time. Lastly, given the well-publicized tightening of solar equipment supply, it will remind you of the future and allows us to flex projects over the planned period. On the commodities side, we continue to run our electric generation fleet

in a cost-efficient manner to insulate our customers from market volatility when they are dispatched.

In fact, the heat rates of our natural gas plants are some of the lowest in the region, which means we can offer power at a cost lower than market, and that provides substantial value for our customers. As we manage inflation risk in the current environment, you'll note on the right-hand side of the slide that we still have substantial episodic cost reduction opportunities longer term, which we estimate will generate over $200 million through coal plant retirements and the expiration of high-price power purchase agreements. These cost savings are above and beyond what we'll aim to achieve annually through the CE way, which I'll remind you was a key driver in our achievement of over $150 million of cost savings in aggregate over the past few years. Sustainable and agile cost management has been one of the key pillars of our success and enabled us to deliver on our financial objectives, and there remain ample opportunities to reduce costs across the business going forward. Given our track record of reducing costs, we're highly confident that we'll be able to mitigate risk in the current environment and in the long run, execute our capital plan, delivering substantial value for our customers and investors as we always have. And with that, Austin, please open the lines for Q&A.

Thank you. As a reminder, if you'd like to ask a question, it is star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, it is star followed by 2. Again, to ask a question, press star 1. As a reminder, if you're using a speaker phone, please remember to pick up your handset before asking your question. We will pause here briefly, ask questions, or register. Our first question is from Michael Sullivan from Wolf Research. Michael, your line is open. Hey, good morning, everyone.

Good morning.

A little more clarity on what you mean by strengthen the 6% to 8% of that is putting you above the 8%.

Great here. This is a great settlement. There's an important regulatory process that we're.

And just like back in 2018 and 2019, there's a few parties that have contested settlement. That's pretty, pretty difficult. We anticipate that to occur over the next month in the regulatory month of May.

And then the commissioners will issue an order, which we anticipate in late June. It could drift into July, but we anticipate late June at this point.

So I do not want to be out in front of the commissioners on this and put the cart in front of the horse per se, but here's what I'll tell you on this. We feel good about the settlement and the ability, the number of parties are on and to be able to navigate that process. So what it means from a, plan perspective, as we've shared, that strengthen our ability to achieve the 6% to 8% toward the high end. And as we've shared, this is, again, upside to the plan. The IRP is upside to the plan. And here's how I'd think about it. We know, and we've certainly made it clear that in 2023, COBRA comes into plan in the May timeframe.

That's good from a planning perspective. But remember this important piece in the 68%.

We deliver each and every year, and then we rebase off of actuals. So that's an important piece. It's that compounding, that quarterly compounding image. It's the quality of earnings, which you've come to know and expect. And frankly, that allows... Okay, sorry.

If I could just pry a little more on that. I mean, are you trying to imply that... There may just be one outsized growth year, and then that's where you would rebase off of that?

No, we don't do sugar highs. We've got nearly 20 years of consistent financial performance, and we're going to deliver. So, again, I think there's strengthening and lengthening of that plan comes from the ability to be at 6 to 8 toward a high end, We've got great confidence in that, but also this rebasing. Each and every year, and then we rebase off actions. And that provides a nice opportunity to strengthen and lengthen the plan.

Okay, got it. Maybe going in a different direction, the electric rate case you just filed, maybe if you could just walk us through conviction level and getting a bigger portion. of the ask this time, given the orderly last year and maybe some differences this time around or lessons learned?

I feel really good about this rate case that we're filing, and I'm, again, confident in this regulatory construct. There's been a number of signals here over the last quarter that gives me confidence in the regulatory construct. Let me start there. We had a rehearing on our electric rate case. That was a positive for a small dollars, but a positive. Our gas rate case, we had staff's position. The initial volley was constructive and a great starting spot. And this IRP settlement with staff, with the Attorney General, provides another data point that speaks to the constructive nature of this. We took feedback after that last electric rate case. I shared that in the last earnings call. And we rewrote a lot of our testimony, specifically in the area of electric reliability, enhanced and bolstered our business cases. And so this is going to be a step change and is a step change in our filing.

And I'll just share that we have more work that we're working on to continuously improve that rate case process.

But I feel good about our filing. It's primarily made up of of electric reliability and resiliency work, important work to deliver for our customers. There's also the covert facility is in there. There's a little bit of work on economic development. We've seen a lot of growth here in the state to support that work and this water clean energy transformation.

And so I feel good about the case and the strength of the case and getting a good outcome.

Okay. Thanks a lot, Gary. Appreciate it.

Our next question is from Jeremy Toney from JP Morgan. Jeremy, your line is open.

Hi, good morning. Hi, thanks. Just wanted to go with the IRP a little bit more, and you talked about some of the earnings uplifts there, and just wondering if you might be able to share, I guess, financing needs that might be possible on the back of that, and then separately, Could you walk us through the RFP that was agreed to as an alternative to the DIG acquisition? And just wondering, there's been a lot of focus on the state and potentially extending Palisades. Do you think this could be an option here?

Reg, you will start with the financing piece, and then we can bounce back and forth on your other questions.

Yeah, Jeremy, so thanks for the question. I'd say with respect to the financing needs coming out of this IRP settlement agreement, We'll be obviously focused on, assuming we get approval, the acquisition of the covert facility. And so that would take place around mid-2023, call it the May timeframe. And so we would plan to fund that with debt at the utility, given our rate-making capital structure. You can see about half of it's funded that way. So call it roughly $400 million or so, based on an $815 million purchase price. And then we fund the balance at the parent. And we still feel quite good about the commitment to avoid issuing equity prior to 2025. And so we would assume that the parent financing would likely include the sort of equity credit-like securities that we've done in the past, either hybrids or preferred, which we have really executed at optimal levels over the last several years. So that would be the financing plan as we sit here today. And we'll keep an eye on how market conditions evolve over that time frame. Derek, I'll hand it to you for the RFP and Palisades.

Yeah, from an RFP perspective, what we agreed to in the settlement is equivalent to 700 megawatts of, you know, a portion of it, 700 megawatts of load out there, capacity out there. 500 megawatts is dispatchable, and that's the nature of that, an available, reliable generation in the state. And then 200 megawatts is right in the category of renewables and, again, purchase power agreements. For those purchase power agreements that are not associated with the affiliate, there's the opportunity to earn the financial compensation mechanism on those. And enterprise has the opportunity to bid into that 700 megawatts, primarily in the 500 megawatts that are dispatchable in nature. And so that's the nature of the RFP. In terms of Palisades, It's important to remember we're not the owner or operator of Palisades. We've not been involved in any conversations with the Department of Energy. And if there's specific questions in this call on Palisades, I'd really direct them to Entergy, specific to the plant. Now, our governor has came out in support of keeping Palisades operational. We're certainly supportive of our governor and the administration. And in even a broader context, we believe in nuclear energy as part of the solution here for reliable, dispatchable, and clean energy across our nation and in Michigan. Our PPA on that facility expires here at the end of May. It is an expensive purchase power agreement. And as we've shared in the course of this call, we're laser focused on reducing costs for our customers. And so that is front and center for us. We'd certainly entertain a long-term purchase power agreement, a new purchase power agreement with the facility, entertain discussions and conversation about that, but it does have to be at a competitive price. That'll be an important factor. And then also we expect to receive an FSTM on that new PPA as well.

Got it. That's very helpful there. Thank you. And maybe pivoting a bit here, towards decarbonization, what investment opportunities are you seeing in support of decarbonization for the gas system? And maybe thinking about RNG a bit more, how much regulated capex do you think this could translate into?

Well, in our five-year plan, there's a hefty amount. There's about $5 billion, a little more that's aimed at decarbonization of our natural gas system. Again, it's You get multiple benefits. You're out there replacing old pipe, vintage pipe, as we call it, in services. It makes the system safer, improves reliability in the natural gas system, also eliminates methane emissions, one of the leading causes of climate change. And so we've got a target of net zero by 2030. So those investments are being made right now over the course of the five years and will extend into the 10-year plan as well. We see our renewable natural gas is also part of that solution. It is part of this gas rate case that's underway right now. If you get into the details of staff's position, they were not supportive of that renewable natural gas. However, they left an opening in there, which we think we can mitigate in the course of rebuttal and move that into the utility. There's some work to be done there in our gas case.

Got it. That's helpful. I'll leave it there. Thanks.

Thanks, Jeremy.

Our next question is from Andrew Weissel from Squisha Bank. Andrew, your line is open.

Good morning, Andrew. Thank you. Good morning. First question, I want to ask a little bit more about the inflationary pressures. I appreciate all the details you gave. In the past, I think you've talked about limiting bill increases to, say, 2% or 3%, if I remember correctly. My question is, how confident are you about your ability to stick to that in, say, 2022 and maybe 2023? I assume widespread inflation won't be as big of a concern after that, but in the near term, do you still feel comfortable with those past targets?

Everyone in this sector, and even outside the sector, is seeing inflation. To me, the bigger question is, Who do you think is best at managing that? And I would put us up to the top of the list. Our ability to leverage the CE way and to provide cost savings for our customers is certainly, again, we talk about it's flexing our muscle here. We've got great examples of that in 2020. We saw sales drop. We found $100 million of savings in the organization. We've got in 2021, in August, we had 16 cents of impact as to storms. We offset that. We have an amazing ability to be able to leverage the tools, the CE way, and then plus automation, I would add, to be able to mitigate costs. And so Reggie went through a number of examples of the way we're managing that across the system. And so long-term, when we look at our five-year plan, And even in the short term, there's a nice ability to manage rates and keep them affordable for our customers. In line with kind of traditional inflation, you might say, but I feel confident in our plan to be able to mitigate much of the impact of inflation going forward.

Okay, great. Next question is at Enterprise. You mentioned that DIG and the peakers will likely bid into the upcoming RFP. I don't expect anything too specific for obvious competitive reasons, but can you qualitatively talk about how you think of the tradeoff between, say, price certainty and stability that would come with a long-term contract versus the potential for lower revenues given the competitive nature of bidding?

I think Reggie and I will tag team this one. Bottom line is it's something that enterprises is going to consider. Again, I'm not certain we'll participate in that. We have the potential to participate in that RFP, and we'll make that evaluation. The capacity market is certainly, as we've seen across MISO, an opportunity as well and upside with our enterprise assets. And so there's an evaluation we'll participate in and take a look at the impact of how DIG participates either in the bilateral market or our bid into this longer-term PPA with the utility.

Andrew, the only thing I would add to that is, philosophically, we've always had the mindset that we try to run our non-utility businesses like a utility in as low a beta fashion as possible. You know, if we have an opportunity to get attractive levels for energy and capacity, and we can do that over the long term, you know, that's generally been our bias, and we've done that on the energy and capacity side at DIG for some time now. And when we own the bank, that's how we ran the bank as well, is just trying to lock in as much revenue as possible and run it on a lower basis. And so we'll see. I think it's a function of where the market is at the time and how long the PPAs are in the bilateral market versus what might be offered in this RFP. So we'll see what the fact pattern looks like, and we'll run the business accordingly.

Okay, that makes sense. And just lastly, what's the timing of the RFP and when you'll communicate if DIG is in fact participating or not, DIG and the PQRS?

I would anticipate, at least initially here, that our RFP would be issued within the fiscal year 2022. Okay.

Our next question is from Insu Kim from Goldman Sachs. Insu, your line is open.

Hey, thank you. First question. Hey, Derek. On the solar, you know, you've talked about just the modular nature of it and kind of shift the timing and whatnot. But just holistically, I guess, whether it's, you know, the megawatts that's kind of a bill and transfer or the PPAs that are expected to come online, I guess, over the next couple years that will earn the financial compensation mechanism, just your broad level of confidence, I guess, in terms of, you know, being able to mitigate any impact from what's going on in the solar space.

I'll start with the punchline or the bottom line. No material impact to the five-year plan. Continued confidence in our 2022 guidance and then continued confidence in the longer-term plan, the five years and the 6% to 8% and being toward the high end. That's the punchline. Let me tell you why. This IRP is eight gigawatts. It's not eight gigawatts tomorrow or even in the five-year plan. We have 15 to 20 years to build this out. There's considerable amount of flexibility to be able to construct that. And just like everyone else in the industry, the Department of Commerce in this investigation slowed things up in some of our projects. These are megawatts that are going to get built. These are renewable projects that are going to get built because they're part of our broader IRP in nature. But, again, let me try to offer some context from a size perspective. We're building out of owned generation here about 150 megawatts per year. So we're talking about two projects. In 2024, we go up to 250 megawatts per year. And so this annual capital spend is around $200 to $250 million. This is manageable, easily manageable. And in fact, this is, you know, I've been in operations for 20 years. This is work that happens every year. There's stuff that goes in and out of the plant based on a lot of different variables. And so easily manageable from a capital perspective. In fact, It's just as a reminder, we've got $3 to $4 billion of capital backlog in things like electric reliability, investments in our gas system. Eighty percent of those projects are less than $200 million. So there's the ability to put them into the plan and offer real value for our customers. The other important part of this clean energy journey, as well as a reminder here, and although solar has been impacted, we're still progressing with wind in the state of Michigan. And we're investing a lot in the space of our hydro facilities. We have 15 hydro facilities. There's smart, thoughtful investments occurring there as well. And those are on progress, are on target. And so I feel good about that from where we're headed from a clean energy perspective. And the last piece that I'll also point to, and I think this is important from a capacity perspective, and I noted it in my prepared remarks, is current three and four continues to operate to 2031. Current three and four we originally proposed retiring in 2023. And so this settlement offers some additional flexibility from a capacity build perspective. And so, again, we've got some flexibility to weather things and be able to meet all our customers' needs. So, again, feel good about the capital plan, confident in our earnings guidance both in the year and in the long term.

Understood. My second question, on those enterprise assets, the non-regulated ones like DIG, you know, given won't be going to rate base here with the settlement, and, you know, depending on, you know, what you decide on the RFP, whether you'll participate or not, how do you just think about strategically these assets now going forward as part of your portfolio?

The enterprise assets are an important part of our portfolio. It's small but important. It makes about 4% of our earnings mix. And, again, this goes back a little bit. We used to talk about the Ferrari in the garage, and then it was the Tesla in the garage. It's probably the new electric Corvette in the garage. I don't know how you want to say it, but with capacity prices, there's some certain upside here in some of our dig and some of the peakers. By and large, this business is about renewables and customer-focused renewables, and it's small in nature, and we deliver strategic solutions for our customers. It hasn't changed, but it continues to be a consistent performer for our business.

Understood. It's been a while since we've heard that reference, but I get to hear it again. Thanks.

I wanted to bring that back. You know, it's a great asset for us.

Our next question is from Char Parraza of Guggenheim Partners. Char, your line is open. Hey, good morning, guys.

Hi, Char. How are you? Great. So just one follow-up on Palisades, Garrett. Can you remind us how many megawatts could be potentially re-PPA'd under the assumption the plant can remain viable here? And obviously the government highlighted that there is a potential owner that's interested in acquiring the asset. Are you having sort of any discussions right now in recontracting, assuming Can you keep the acid viable, which timing seems a little bit tight, but just curious on if there's any dialogue.

It's roughly 800 megawatts, a little shy of 800 megawatts. I think it's around 780 megawatts for Palisades. In line with the governor's letter, we're certainly open to conversations and discussions. We've had some conversations more just – just to understand the complexities of the situation, understand what's going on. But nothing that's really got to any level of seriousness on a long-term purchase power agreement. Okay, got it.

And then just real quick, Reggie, as you're sort of thinking about financing needs, can you just remind us,

on the preferred options and do you see a potential to lean more on credit metrics just given nearly a fully regulated business mix and potentially accretive capex updates in the near term yeah thanks for the question char so um you know we have been targeting uh that sort of mid-teens ffo to debt um for the rating agencies for some time now and certainly the sale of enterbank gave us a nice uplift at least in the case of s p and so while we do have funding strategy. We've worked very hard to get to the level that we're at today. We've worked very hard to get the ratings we have today, and so our intent is not to stress those metrics some. And so we like the fact that we've got a little cushion on those metrics, and if that allows us to continue not to issue equity through 2025, we'll look to do that. And if we can extend beyond 2025, we'll look to do that, but not to the detriment of our metrics or ratings. So we still like that mid-teens area. That's where we are. We have a little cushion there, and we'll continue to plan the business that way.

Okay, Trevor, that's all the questions I have. Thanks, guys. Thanks, Char.

Our next question is from Jonathan Arnold of Vesico Research. Jonathan, your line is open. Good morning.

Good morning, guys. Quick one on just Palisades, were it to be extended, I guess whether or not that was with the PPA, how would you think about that in the context of your overall IRP plan and this kind of capacity needs.

Two pieces there. It's really, really important. And it does have to be a competitive purchase power agreement. So we emphasize that component of it as well. And if we were to consider that and have those conversations, again, we would expect a financial compensation mechanism on those as well. Again, it just provides additional flexibility for us in clean energy. And so it will be a little bit long from a capacity perspective, but there's opportunities to think about different investments and give us a little more flexibility, even further flexibility in our solar build-out.

Okay. And then just to go back a bit, I think it was early last year that you last gave the slide on DIG and the PECUS, you know, showing, you know, you know,