1/30/2020

speaker
Operator
Conference Call Host

Good afternoon and welcome to WEC Energy Group's conference call for fourth quarter and year-end 2019 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 materially 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 be 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 of WEC Energy Group.

speaker
Gail Klapa
Executive Chairman

Good afternoon, everyone. Thank you for joining us today as we review our results for calendar year 2019. First, I'd like to introduce the members of our management team who are here with me today. We have Kevin Fletcher, President and CEO, Scott Lauber, Chief Financial Officer, Bill Gutt, our Comptroller, Peggy Kelsey, Executive Vice President and General Counsel, Tony Reese, Treasurer, and Wes Straka, Senior Vice President of Corporate Communications and Investor Relations. Scott will discuss our financial results in detail in just a moment, but as you saw from our news release this morning, we reported full-year 2019 earnings of $3.58 a share. And I'm pleased to report that we delivered a record year on virtually every meaningful measure of performance, from customer satisfaction to a swift recovery from severe July storms that caused extensive damage to our system. As we review our financial results, our balance sheet continues to strengthen. In fact, our ratio of holding company debt to total debt now stands at 28%. That beats our 30% goal. In 2019, we also eliminated a regulatory asset for transmission costs, and we continue to leverage the benefits of tax reform for both customers and shareholders. In addition, we worked effectively to settle our Wisconsin rate reviews. which represent approximately 70% of our regulated assets. We also took our environmental efforts a step further. We set a new goal in 2019 to reduce the rate of methane emissions from our natural gas distribution system by 30% per mile by the year 2030. Our ongoing work to modernize Chicago's natural gas delivery network is key to achieving this goal. And we continue to analyze our climate-related risks and opportunities. In fact, a recent Moody's report focused on the risk exposure of regulated utilities to heat stress, water stress, and extreme rainfall. I'm pleased to note that WEC Energy ranked among the lowest risk companies in our sector. During 2019, we also reached a number of significant milestones in our infrastructure segment. The Coyote Ridge Wind Farm is now in service in South Dakota and will contribute a full year of earnings in 2020. As you may recall, Coyote Ridge consists of 39 turbines with a capacity of roughly 97 megawatts. We invested approximately $145 million for our 80% share of the wind farm, and we're entitled to 99% of the tax benefits. As you know, a significant portion of our earnings from this facility come in the form of production tax credits. This project has a 12-year offtake agreement with Google Energy LLC for all of the energy produced. We also announced back in September that we will acquire an 80% ownership interest in the Thunderhead Wind Energy Center for $338 million. Invenergy is developing this project in Nebraska, and we expect it to be in service at the end of 2020. The site will consist of 108 GE wind turbines with a combined capacity of 300 megawatts. The project has a long-term offtake agreement with AT&T, for 100% of the energy produced. We expect Hunterhead will qualify for production tax credits and 100% bonus depreciation. Then earlier this week, folks, we announced plans for another new development. We've agreed to acquire an 80% ownership interest in the Blooming Grove wind farm for $345 million. Invenergy is developing this project in Illinois, with commercial operation expected to begin by the end of this year. The site will host 94 wind turbines with a total capacity of 250 megawatts. Blooming Grove has a 12-year offtake agreement with affiliates of two multinational companies that are investment grade. We expect that Blooming Grove will be eligible for 100% bonus depreciation as well as production tax credits. Overall, we're very encouraged about these investments in renewable energy, which will serve strong businesses for years to come. We expect the return on these investments to be higher than our regulated returns. Of course, we're being very selective as we vet future projects. We're only interested in projects that achieve our financial return metrics and do not change our risk profile. Now let's take a brief look at the regional economy that's supporting our company's longer-term growth. Wisconsin's unemployment remains near record lows for the state, and we continue to see strong economic development projects in the pipeline. Foxconn is moving forward with its plan to create a high-tech campus in Racine County, south of Milwaukee. Work on a Generation 6 fabrication plant for liquid crystal display screens is progressing. The fab, which spans about 1 million square feet, is now enclosed and work is beginning on the internal structures. Foundations are also in place for a high-capacity data center. In addition, Foxconn has announced plans for a smart manufacturing facility. construction crews began lifting the exterior walls into place for the smart manufacturing plant earlier this week. Based on public data, we estimate that Foxconn's investment in Wisconsin over the past two years has risen to approximately $500 million. Turning a bit further south in the Kenosha area, Uline has announced plans to invest $130 million in two new facilities and bring approximately 350 new jobs to the area. Uline, as you may know, is a leading distributor of shipping, industrial, and packaging supplies with headquarters here in Wisconsin. In addition, Milwaukee Tool has announced another expansion. Milwaukee Tool will invest $100 million in a large multi-purpose campus northwest of the city in Menomonee Falls. The company also committed to adding 870 jobs in Wisconsin by the year 2025. These are exciting times. We look forward to more economic development and opportunity across the region. Now I'll turn the call over to Kevin for more insight on our operations and our regulatory calendar. Kevin, all yours.

speaker
Kevin Fletcher
President and CEO

Thank you, Gail. First, I'd like to share some good news. Our largest subsidiary, WeEnergies, was named the most reliable electric utility in the Midwest for the ninth year running. Wisconsin Public Service also was recognized for the first time for outstanding reliability performance. Now I'll briefly review where we stand in our four state jurisdictions. As you'll recall, in March of last year, we filed a proposal with the Public Service Commission of Wisconsin to set customer rates for We Energy's and Wisconsin Public Service. And in August, we entered into settlement agreements with the Citizens Utility Board of Wisconsin, the Wisconsin Industrial Energy Group, and Clean Wisconsin. On December the 19th, the commission issued its written order affirming those settlement agreements and setting rates for the next two years. New rates went into effect on January 1st. During 2019, we also continued to make progress in developing solar generation for our regulated businesses in Wisconsin. You may recall that in Wisconsin, we're planning a total of 300 megawatts of utility-scale solar capacity, the first facilities of this size in the state. We've broken ground on two solar projects for Wisconsin Public Service, two creeks and Backer Hollow 1. Our share will total 200 megawatts with an expected investment of approximately $260 million. Both projects are scheduled to begin producing energy by the end of this year. And this past August, at WeEnergies, we filed with the Wisconsin Commission for approval to acquire 100 megawatts of capacity at the Badger Hospital 2 solar park. The projected investment would be $130 million. We expect to receive the Commission's decision this spring. We also see efficient natural gas storage, another important part of our regulated business strategy. In particular, Wisconsin needs more natural gas peaking capacity at the highest demand times on the coldest days. We're continuing to evaluate site plans for two liquefied natural gas facilities to help meet our customers' needs during the winter peak. We expect to invest approximately $370 million in these projects. If approved by the Wisconsin Commission, Construction is expected to begin in the summer of 2021. Turning to Illinois, we continue making progress on the People's Gas System Modernization Program. This program is critical to providing our Chicago customers with a natural gas delivery network that is modern, safe, and reliable. We're approximately 28% complete with our replacement of outdated, corroded natural gas piping, some of which was installed more than a century ago. We continue to project an investment of $280 to $300 million per year on average in this program. Now we'll turn to Michigan. In 2019, we completed our new natural gas-fired power plants in Michigan's Upper Peninsula on time and on budget. These plants are now providing a cost-effective, long-term power supply for our customers in the Upper Peninsula. With these new units operating, we were able to retire our older, less efficient coal-fired plant at Presque Isle. This resulted in significant operations and maintenance savings and reduced CO2 emissions. Taking a broader look across our business, we continue to focus on operating efficiency and financial discipline. As a whole, we exceeded our 2019 goal to reduce our day-to-day operation and maintenance costs. Our goal was a reduction of 4%, and we actually achieved a 7% reduction. We have set a goal to further reduce our O&M by an incremental 2% to 3% in 2020 as well. And with that, I'll turn it back to Gail.

speaker
Gail Klapa
Executive Chairman

Kevin, thank you very much. As you'll recall, ladies and gentlemen, our 2020 guidance is in a range of $3.71 a share to $3.75 a share. This translates to an earnings growth of between 6% and 7.1% of our 2019 base of $3.50 a share. Recall that $3.50 a share was the midpoint of our original guidance for 2019. And finally, a word about our dividend policy. At its January meeting, our Board of Directors raised the quarterly cash dividend to 63.25 cents a share for the first quarter of 2020. That's an increase of 7.2%. The new quarterly dividend is equivalent to an annual rate of $2.53 a share. This marks the 17th, count them, 17th consecutive year that our company will reward shareholders with higher dividends. We continue to target a payout ratio of 65% to 70% of earnings. We're right in the middle of that range now, so I expect our dividend growth will continue to be in line with the growth in our earnings per share. And now with details on our 2019 results and our outlook for 2020, here's our CFO, Scott Lauper. Scott.

speaker
Scott Lauber
Chief Financial Officer

Thank you, Gail. Our 2019 earnings of $3.58 per share increased 24 cents per share compared to 2018, a 7.2% increase. In 2019, we benefited from additional capital induction, reduction tax credits, and continued emphasis on cost control. While all of our utilities met their financial goals, our Wisconsin utilities earned their fully allowed ROE, and customers will see the benefit going forward through the sharing mechanism. We posted the earnings packet to our website this morning, and it includes a comparison of fourth quarter and full year results. My focus will be on the full year, beginning with operating income by segment, and then other income, interest expense, and income taxes. Referring to page 10 of the earnings packet, our consolidated operating income for 2019 was $1,530,000,000 as compared to operating income of $1,470,000,000 in 2018, an increase of $63,000,000. Recall that as part of our previous rate settlement in Wisconsin, we agreed to apply the benefits of tax repairs to offset the growth of certain regulatory assets. The plan continued through year end, and as we expected, the transmission escrow asset balance at WE Energies was eliminated. My update will focus on changes in operating income by segment, excluding the impact of tax repairs and our adoption of the new lease accounting rules. Starting with the Wisconsin segment, operating income increased $42 million net of these adjustments. Lower operation and maintenance expense resulted in approximately $105 million increase in operating income, driven by efficiencies and effective cost control across the enterprise. This positive impact on operating income was largely offset by a few items. First, lower sales volume due to primarily cooler summer weather conditions accounted for approximately $26 million decrease in operating income. Second, depreciation and amortization increased $35 million as we continue to execute on our capital plan. And finally, operating income was reduced by a $22 million tax item that flowed through operating income. This was fully offset by a reduction in tax expense. In Illinois, operating income increased by $36 million, primarily as a result of our continued investment in the safety and reliability of the people's gas system. Operating income at our other state segment decreased $3.5 million. Turning now to our energy infrastructure segment, operating income at this segment was up $800,000, driven by additional investment in our Power of the Future plants. As expected, The Bishop Hill, Upstream, and Coyote Ridge wind farms do not have a material impact on operating income. Recall that a significant portion of earnings from these wind farms come in the form of production tax credits, which are recognized as an offset to income tax expense. These production tax credits contributed approximately $0.08 per share to our earnings for the year, compared to $0.01 in 2018. The operating loss at our corporate and other segment increased by $12 million. This variance reflects a $5.3 million gain that we recorded in 2018 related to the sale of a legacy business, as well as an impairment recorded in the fourth quarter of 2019 on assets that we inherited from the Integra's acquisition. Combining these variances and excluding the impact of tax repairs and the new lease rules Consolidated operating income increased $62.8 million. Earnings from our investment in American Transmission Company totaled $128 million, a decrease of $9.1 million as compared to 2018. Our earnings from ATC decreased by $19 million as a result of the recent BIRC order addressing the MISO complaints. Going forward, we are recording ATC earnings assuming a 10.38% return on equity. This includes a 50 basis point adder for our participation in MISO. Other income net increased by $32 million, given by investment gains associated with our benefit plans. Note that these investment gains partially offset the benefit expense included in our operating segment. The remaining increase relates to the non-service cost component of our pension and benefit plans. Our net interest expense increased by $53 million, mostly due to higher long-term debt balances to fund the capital investment. This excludes the impact of the new lease guidance. Our consolidated income tax expense net of tax repairs decreased by $42 million. The major drivers were production tax credits from our wind investments and the 2018 tax reform item that I mentioned earlier. our 2019 effective tax rate was 9.9%. Excluding the benefits of tax repairs, our 2019 effective tax rate would have been 20.6%. Looking forward, we expect the 2020 effective tax rate to be in the range of 16 to 17%. This includes the effects of the unprotected tax benefits that are being refunded to customers following our recent Wisconsin rate decision. Excluding these benefits, we expect our 2020 effective tax rate to be between 20 and 21%. At this time, we expect to be a modest taxpayer in 2020. Our projections show that we'll be able to efficiently utilize our tax position with our capital plan. Turning to our cash flow statement, our FFO to debt was 18.5% in 2019. Looking ahead, We expect FFO to debt to be in the range of 16 to 18%. We're using cash to satisfy any shares required for our 401k plans, options, and other programs. Going forward, we do not expect to issue any additional shares. Total capital expenditures and asset acquisitions were $2.5 billion in 2019, a $112 million increase from 2018. Turning now to sales, we continue to see customer growth across our system. At the end of 2019, our utilities were serving approximately 10,000 more electric and 14,000 more natural gas customers compared to a year ago. Retail electric and natural gas sales volumes are shown on page 13 and 14 of the earnings packet. Overall, retail deliveries of electricity, excluding the iron ore mine, were down 2.8% compared to 2018, and on a weather-normal basis, deliveries were down 1.7%. Natural gas deliveries in Wisconsin increased 2.6% versus 2018, and by 1.8% on a weather-normal basis. This excludes gas used for power generation. And now I'll briefly touch on our 2020 sales forecast for our Wisconsin segment. We are forecasting a slight decrease of one-half of 1% and weather-normalized retail electric deliveries, excluding the air and ore mine. We project the Wisconsin weather-normalized retail gas deliveries to increase by 7 tenths of 1%. This excludes gas use for power generation, and of course, both of these projections are adjusted for leap year in 2020. Finally, let's look at our guidance for the first quarter of 2020. Last year, we earned $1.33 per share in the first quarter. As you recall, This included approximately 4 cents related to the colder than normal weather in 2019. Factoring in this and the 16% warmer than normal January, we project first quarter 2020 earnings to be in the range of $1.32 per chair to $1.34 per chair. This assumes normal weather for the rest of the quarter. And with that, I'll turn things back to Gail. Scott, thank you very much.

speaker
Gail Klapa
Executive Chairman

Overall, we're continuing to perform at a high level, on track, and focused on delivering value for our customers and our stockholders. Operator, we're ready now to open it up for the question and answer portion of the call.

speaker
Operator
Conference Call Host

Thank you. 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 are 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 one on your phone to ask a question. Your first question comes from Shar Pureza with Guggenheim Partners. Your line is open.

speaker
Shar Pureza
Analyst at Guggenheim Partners

Rock and roll, Shar. Hey, good morning, guys. How are you doing? We're good. How are you? Oh, good. Not too bad. So, just a couple questions here. You guys are backfilling this infrastructure capital budget relatively fast, especially with last week's acquisition. What's the spending shape look like given sort of these recent opportunities, i.e., is there any opportunity to provide upside to your current guide, or is this just kind of an acceleration of that spend? And then, Scott, I know you mentioned on the cash tax position being a partial payer of Does that include last week's acquisition? Just wanted to get a little bit of clarity there.

speaker
Gail Klapa
Executive Chairman

Well, sure, we'll be happy to answer those questions. First, I would view our announcement this week on Blooming Grove as basically an acceleration of the five-year plan. If you kind of look at what we've accomplished so far, what we believe are very high-quality projects, we're almost – we're about 38% already – in terms of the projects that we've agreed to acquire, we're at about 38% of the spending we projected in our five-year plan. But I would view it as an acceleration, and I will tell you why. Our five-year plan, which projected about $1.8 billion in this particular segment of capital spending, essentially was a happy marriage of the high-quality projects that we saw that we really had a strong interest in coupled with our ability to utilize all of the tax benefits. You put all that together, and it kind of shook out at $1.8 billion. So, Scott, I would view this as an acceleration. Right.

speaker
Scott Lauber
Chief Financial Officer

It's just the timing. And when you look at the tax position, and we say a very small taxpayer, it's going to be under $15 million, $20 million. But because of the tax rules, there are still some tax payments that are made. But as you know, we're slowly starting with the PTCs working to 2021. So that'll not be a full taxpayer in 2021. But still, when you look at our five-year plan, a lot of capacity on our tax side.

speaker
Gail Klapa
Executive Chairman

And, Charles, remember, this particular wind farm doesn't come into service until the very end of 2020. Right. Got it. Okay.

speaker
Shar Pureza
Analyst at Guggenheim Partners

And then just on the regulated renewables issue, You know, there's obviously a lot that you do in there. Can I just get a sense on how this could impact your decision to exercise the West Riverside option to purchase maybe up to 200 megawatts of that plant? Is there sort of a read-through on that option and whether you would exercise it?

speaker
Gail Klapa
Executive Chairman

No, I wouldn't do any read-through on that. That is still something that we're analyzing, still something we're taking a look at. As we continue to review our demand forecasts, our needs, the impact of renewables, but that is still something that's on the table, Char.

speaker
Shar Pureza
Analyst at Guggenheim Partners

Got it. And then just lastly, Gail, it's a little bit more of a policy question. I mean, obviously, you know, we had a commissioner announcement a couple weeks ago around a resignation. So we're obviously likely going to see a bit of a democratic shift with an Evers appointment. Is there kind of any read-throughs that we should be thinking about from a policy standpoint, as it looks like the majority may change? Business as usual, or could this kind of accelerate some of the solar decarbonization plans that are out there?

speaker
Gail Klapa
Executive Chairman

My own sense is I would look at any additional appointments of the commission largely as business as usual. But I will say and remind everyone that the governor has appointed a climate task force. He's announced an aspirational goal late last year to basically – have carbon-free electricity by 2050. And this task force on which our company is represented had its actual first meeting just a week or so ago. So during this year, I think you will see some policy recommendations related to decarbonization coming out of this task force. In many ways, the Public Service Commission would in all probability need to implement some of those policy changes if they were adopted. but the policy shift that I would see coming, if there is one, would really come through the governor's task force on climate change, if that makes sense to you.

speaker
Operator
Conference Call Assistant

It does. That's what we thought. Well, congrats, guys, on continued execution.

speaker
Operator
Conference Call Assistant

Terrific. We'll see you soon.

speaker
Operator
Conference Call Assistant

We'll see you soon.

speaker
Operator
Conference Call Host

Your next question comes from Greg Gordon with Evercore ISI. Your line is open.

speaker
Operator
Conference Call Assistant

Go Bucks. Hey, good afternoon.

speaker
Greg Gordon
Evercore ISI

Good afternoon. All right, Greg. I'm good. Your stock hit par today. Congratulations. Thank you. Greg, does that mean we're looking for a bogey, or what does that mean? We'll talk about an over-under on the end of the year offline, Gail. I'm happy to wager with you. Can we unpack the O&M performance a little bit? Because it really is quite impressive. If I look at page 8 of your release, I think what you're telling me, I should be looking at the O&M as adjusted for impact of the flow-through of tax repairs, right? That's like the clean number. Yeah, that's correct. And it's down dramatically, and all the more so, I think, because when I look at the rabbi trust activity, That's basically offset in O&M by an offsetting adjustment in O&M. So if I adjusted for the rabbi trust activity, the O&M comparison would be even better than it looks. I think that's correct. And if so, can you unpack for us what the sort of structural savings are that are now flowing through on a full year basis from the activities you pursued that are sort of permanent benefits and And I think there's more to come with the investments you've made in your investment in technology and things like that. So I'm just wondering, A, what's the structural improvement in O&M? Where do they come from? And, B, what's the follow-on from continued activities on that front?

speaker
Gail Klapa
Executive Chairman

I'd be happy to. Let me frame all of this for you, and then we're going to let Scott and Kevin weigh in on some of the details. Okay. we did have an exceptional quarter in terms of continued efficiencies across the business. And there are a couple of factors that I think are important here. The first is that during 2019, we saw essentially pretty much a full year benefit of the implementation of our ERP system across the entire enterprise. So that was helpful. And we're continuing as people get used to that new system. We're continuing to see efficiencies and benefits that we thought we would. And then compared to Q4 of a year ago, compared to Q4 of 2018, for example, there were significant O&M savings related to the closure of coal-fired power plants. Remember, we've basically, over the last several months and year and a half or so, we've retired three older, less efficient coal-fired power plants. The units at Presque Isle up in the Upper Peninsula of Michigan were the latest to be retired in the spring of 2019. We had the Pulliam plant near Green Bay retired, and we had Pleasant Prairie retired. So we're seeing in the fourth quarter, we saw O&M benefits flow through from no longer having to incur O&M for the operation of those plants. Then we had some of our technology investments continue to kick in. And as Kevin said, we're projecting additional O&M savings that we think we're going to gain here, and we're on track to gain in 2020. So, Scott, Kevin, anything you'd like to add?

speaker
Kevin Fletcher
President and CEO

You mentioned the ERP, but if you look at the common platforms across our system, the fourth quarter of this year, we'll complete our customer information system to have that across all of our companies. We have already seen, even this past year, some some savings from what we had in place already. But in addition to that, through last year and focusing on the future, just looking at process improvements. As we look across our jurisdictions, do benchmarking, we're looking at common standards and where it makes sense to have proactive and similar approaches across our system. That has produced some positive results for us on O&M reduction and will continue to.

speaker
Scott Lauber
Chief Financial Officer

I don't think there's anything else. It is across the enterprise, though. Everyone has O&M takeout. opportunities and efficiencies to gain.

speaker
Gail Klapa
Executive Chairman

And we're doing that, Greg, which I'm very pleased about, and I thought we would be able to. We're doing that while increasing customer satisfaction. So that's one of the reasons I mentioned earlier in my remarks. As we track our operational and financial performance, we had a record year across virtually every meaningful measure of performance.

speaker
Greg Gordon
Evercore ISI

Right. So there is an incremental improvement on run rate O&M as you get to the sort of fully baked savings from the coal plant closures. And then there's incremental O&M benefits that you think you'll get from the ERP and also from the rollout of the CIS, amongst other things. You've nailed it. That's exactly right. Thank you very much, guys. Congrats.

speaker
Gail Klapa
Executive Chairman

Thank you, Greg. Appreciate it.

speaker
Operator
Conference Call Host

Your next question comes from Julian Dumoulin-Smith with Bank of America. Your line is open. Hey, howdy.

speaker
Julian Dumoulin-Smith
Bank of America

How you guys doing?

speaker
Scott Lauber
Chief Financial Officer

What's shaking?

speaker
Julian Dumoulin-Smith
Bank of America

Too much. So, just following up on Greg's question here, I think that's really germane. Can we dig in a little bit further as to the prospects to sustain these levels of cost reductions? I mean, they're really quite dramatic. I mean, I think Greg emphasized it enough, but the point being, how sustainable are these just given how outsized they appear to be? relative to the balance of the sector, not just on a trailing basis, but prospectively for 20 here, if you think through the balance of your planning period. And maybe even to push the point a little bit further, how identified is it just not just in 20, but through the balance of your financial period that you're forecasting in terms of these levels of reduction?

speaker
Gail Klapa
Executive Chairman

Well, I'll take a stab at that. Certainly Scott can add anything he would like to, and Kevin as well. Let me say this. We believe, and I think our track record demonstrates, that the kind of cost savings that you saw, that we continue to believe are going to continue on a downward path, those are very sustainable. We wouldn't be publicly committing to them if we didn't think we could absolutely sustain them. So, again, we took 7% of the day-to-day O&M out of the business in 2019, another 2% to 3% projected reduction in 2020. And, again, we're doing this, I think, in a very highly planned and deliberate way. And a good chunk of it is coming really from two areas. One we mentioned before that we're getting the full benefit of now, and that's the O&M takeout from the closure of less efficient coal-fired power plants. But the other is the investment in technology. So my view, guys, would be highly sustainable.

speaker
Kevin Fletcher
President and CEO

Gail, I would agree. We just mentioned a couple of things that we're doing, but let me add one more on the customer service side. We have and are investing in our AMI infrastructure, and we've seen savings from having that in place to reduce the roles of truck. That will continue, and we'll see those opportunities ahead in the coming years. Also, leveraging technology like mobile apps as an example. As we get that out into our customers, we'll be able to have more interaction with our customers, and give them opportunities to pay their bills online, minimize paper billing, things of that nature. So I would agree that sustainability of that is built into a lot of what we're doing, customer service side, especially with the things that I just mentioned.

speaker
Julian Dumoulin-Smith
Bank of America

If I can, please, to jump in a little further, what about the compounding nature of that trajectory? Two to three percent is impressive, but through your forecast period, do you anticipate compounding of that trajectory? And then perhaps the really relevant second question is you've done it before, How do we think about the cadence of rate cases? And I know we're getting out a little bit, but just given the scale of cost reductions here, certainly the question doesn't seem too early in terms of across, you know, any one of your jurisdictions, given the enterprise-wide cost reductions that are contemplated here. I mean, i.e., pushing them out.

speaker
Gail Klapa
Executive Chairman

I'm chuckling because we just got through the rate reviews for 70% of our regulated assets. I know. I recognize it. But then the cost reductions are incredible. Well, we appreciate that. Let me say this. Historically, as you know, in Wisconsin, the Commission has liked and has really requested an every-two-year cadence for rate reviews. Now, that's not to say that's set in concrete. We'll take a look at it as we go forward and see where we are, see where the Commission's sentiment is, et cetera. But long story short, you know, we feel very good about our ability to execute and And, again, do so in a way that maintains high reliability and high levels of customer satisfaction.

speaker
Operator
Conference Call Assistant

Okay. Too early to tell. Too early to tell. Got it. Excellent. I'll leave it there.

speaker
Gail Klapa
Executive Chairman

Thank you. Okay. Thank you, Julian.

speaker
Operator
Conference Call Host

Your next question comes from Michael Sullivan with Wolf Research. Your line is open.

speaker
Gail Klapa
Executive Chairman

Afternoon, Michael.

speaker
Michael Sullivan
Credit Suisse

Yeah. Hey, everyone. Just one more on the O&M. What do you guys assume for earned ROEs now that you've got this kind of different sharing ban where you could over-earn a little bit before you give back to customers? Where does these O&M savings targets put you on an earned ROE basis?

speaker
Gail Klapa
Executive Chairman

We're assuming, as we have in the past, that we earn the allowed rates of return in each one of our retail jurisdictions.

speaker
Michael Sullivan
Credit Suisse

Okay. Sorry, just to clarify, is that like at the electric utilities, the 10% or up to the 10 and a quarter that you can do before sharing?

speaker
Gail Klapa
Executive Chairman

Right now we're assuming 10. Okay.

speaker
Michael Sullivan
Credit Suisse

Okay. And then over to the sales growth. So I think for 2020 electric, you're forecasting down a little bit. And if we go back to some of your EEI slides, there's supposed to be a tick up there. in the next couple of years and more so as you get into 22, 23, can you just give us some color around key milestones that we should be looking for on economic growth that's gonna bridge that from down a little bit to up closer to a percent?

speaker
Gail Klapa
Executive Chairman

Yep, happy to, Michael. First of all, the uptick that we continue to project, it's a pretty slight uptick, but the uptick that we're projecting in the 2022-2023 timeframe is really driven by the amazing economic development projects that I talked about a little earlier in our remarks. We have not seen any slowdown in terms of the number of economic development projects, the amount of new construction, just the continuing economic growth and the pipeline of projects that are being announced here in southeastern Wisconsin in particular. So we still feel pretty confident about the uptick in the longer term. The shorter term, meaning for 2020, is really driven by, like, for example, the large industrial segment. It's really driven by the interviews that our people have with our key account customers and feedback into our projections. It's also driven a bit by weather normalization. Remember, we had two warmer-than-normal summers back-to-back, So you look at weather normalization, you look at conservation, you look at real-time feedback from our major industrial customers, and you put it all together, and it's like ragu. It's in there. That's what comes out. And so in total, a very modest decline. I believe it's got one-half of 1% is what we're projecting on retail, absent the mines.

speaker
Scott Lauber
Chief Financial Officer

Correct. So a very modest decline. And once again, the projections that we have in the investor book, are really the only projects that we know. It doesn't include the residential and secondary that we expect to come from it. It's just the known projects that have actually started turning dirt already. So it just takes a while to build a building and start using it, so we expect those that are still on track to be coming. And like Gail said, our forecast is really out there talking to our customers and really fine-tuning it, and the information we have here is the best information we have.

speaker
Gail Klapa
Executive Chairman

And we're still projecting, even with a modest half a percent decline, we're still projecting 6% to 7% EPS growth.

speaker
Operator
Conference Call Assistant

Great. Appreciate all the color. That's all I have. Thank you.

speaker
Operator
Conference Call Host

Your next question comes from Prayful Meta with Citigroup. Your line is open.

speaker
Michael LaPese
Goldman Sachs

Good afternoon.

speaker
Operator
Conference Call Host

How are you?

speaker
Michael LaPese
Goldman Sachs

Very good. Congratulations on the quarter.

speaker
Gail Klapa
Executive Chairman

Thank you very much.

speaker
Michael LaPese
Goldman Sachs

Thanks. So maybe just I guess the O&M point has been already debated and answered, so appreciate that. I think on the energy infrastructure side, the $1.8 billion that was planned, you said you accelerated it with this latest acquisition. Do you expect with the tax appetite being what it is further down the road, do you expect that size to increase through the 2024 timeframe, or do you expect the $1.8 to still be the cap? Sure.

speaker
Gail Klapa
Executive Chairman

At the moment, again, we'll continue to look at this, but at the moment, I would view this as an acceleration, and the $1.8 billion for the five years is still what we are looking at.

speaker
Michael LaPese
Goldman Sachs

Gotcha. And then when we think about the tax appetite, and you said that you'd be a small taxpayer, how should we think about that taxpaying capacity in the 2023-2024 timeframe? Is that you're still a small taxpayer at that point, or is that capacity increasing over time?

speaker
Scott Lauber
Chief Financial Officer

Well, when you still look and you work everything in, we would still be a small taxpayer getting into that, being out in that frame of time if we execute on all these capital projects, largely because of some of the tax rules that are out there. You still have to be a minimal taxpayer for some of the reasons, but we need to execute on all these capital projects to get to that level.

speaker
Gail Klapa
Executive Chairman

Given the tax rules, as Scott said, it's highly unlikely that we'll ever, in a sustained period of time, get to absolute zero So when we say modest taxpayer, for example, I think Scott mentioned 15 to 20 million this year. So I hope that puts things in context for you.

speaker
Michael LaPese
Goldman Sachs

Yeah, no, it does. I appreciate that. And then just finally in terms of credit and the whole code debt side, I think you started by saying you've got improving credit and your whole code debt is now down to 28%. Is there any target we should be thinking about around the holdco debt level and also the effort for the debt kind of credit that we should be thinking more longer term?

speaker
Gail Klapa
Executive Chairman

We'll let Scott answer that. We do have an internal cap on where we want to go and where we don't want to go with holdco debt.

speaker
Scott Lauber
Chief Financial Officer

So we look at that holdco, the total debt, it's down to 28%. Our target is to keep it below 30%. Now, if there's an opportunity, one year it may pop up or down, And we feel comfortable with those ranges in our forecast here. And the FFO did that in that 16 to 18 range. Now, last year we hit 18.5. But remember, we were at a sharing opportunity at Wisconsin Utilities, and that money will go back eventually to customers. So, you know, next year maybe on the lower end of that range, but still within that 16 to 18 range.

speaker
Gail Klapa
Executive Chairman

And that range, as you know, well supports our current credit ratings.

speaker
Michael LaPese
Goldman Sachs

Yep, got it. All right, really appreciate it, guys. Thanks so much.

speaker
Gail Klapa
Executive Chairman

You're more than welcome.

speaker
Operator
Conference Call Host

Our next question comes from Andrew Weasel with Scotiabank. Your line is open.

speaker
Gail Klapa
Executive Chairman

Good afternoon, Andrew. How are you doing today?

speaker
Andrew Weasel
Scotiabank

Hey, I'm okay. Good afternoon. Just want to elaborate on the contracted infrastructure projects. So as of now, what percent of 2020 EPS will come from that segment? And let's assume the five-year plan stays at 1.8. It seems like the bias might be to the upside. What percent of earnings would be coming from that segment in five years?

speaker
Gail Klapa
Executive Chairman

Well, I can give you the number for this year, and obviously we can do a little bit of public math here. But long story short, we got in 2019 about $0.02 a quarter of earnings from our infrastructure investments that Given the addition this year of full-year earnings for Coyote Ridge, which went into service at the end of 2019, I would expect about $0.0325, Scott. Correct.

speaker
Scott Lauber
Chief Financial Officer

I'll give you about $0.0325. And remember, the other projects we announced are in December of next year, so some impact but not a lot.

speaker
Andrew Weasel
Scotiabank

Okay. And then bigger picture, how big are you willing to let that segment be? Obviously, they're high-quality contracted assets, but they're – not the regulated rate-based construct. So do you have sort of a mental feeling of how big that could be as far as earnings mix?

speaker
Gail Klapa
Executive Chairman

Yeah, we do. At the moment, I would say that our internal plan would hold that segment of our business down to about 10% of our earnings.

speaker
Andrew Weasel
Scotiabank

Okay, very good. Then just one last one on that same topic. You said you've accelerated the spending, but you're not increasing it. What's the limiting factor of why you're not increasing it? Is it balance sheet opportunity for specific projects? Is it that 10% ceiling you just mentioned? How do you balance those?

speaker
Gail Klapa
Executive Chairman

It's the happy marriage between the quality projects that we see in the pipeline that we are very interested in and our tax appetite. You put it all together and the $1.8 billion shakes out to something that we think we can both add quality projects to achieve and maximize our tax position. Okay, very good. Thank you. You're welcome. Thank you.

speaker
Operator
Conference Call Host

Your next question comes from Michael Weinstein with Credit Suisse. Your line is open.

speaker
Gail Klapa
Executive Chairman

Afternoon, Michael. How are you?

speaker
Michael Weinstein
Credit Suisse

Afternoon, Gail. I'm doing great. Hey, just on that last line of questioning, is there a reason why you won't or you aren't considering tax equity for continued expansion, you know, considering the tax upside?

speaker
Gail Klapa
Executive Chairman

No. I mean, certainly we would be open to something like that in the future if the economics worked out. Right now, the economics favor exactly what we're doing. Gotcha.

speaker
Michael Weinstein
Credit Suisse

And... On ATC, has there been any impact on long-term planning from FERC's action on ROE in MISA?

speaker
Operator
Conference Call Assistant

Short answer, no.

speaker
Gail Klapa
Executive Chairman

Not yet, because as you know, it's now all up in the air again. So, you know, these are, as you know very well, transmission projects have a long gestation period. So I wouldn't expect there to be some kind of a knee-jerk reaction in the first 30 or 60 days, particularly with all the appeals going on and the uncertainty of what the final result will be.

speaker
Scott Lauber
Chief Financial Officer

Exactly, Gail. And we're recording at 10-3-8. Remember our long-term plan, we were assuming 10-2. So 10-3-8 is a little north of that. Gotcha.

speaker
Michael Weinstein
Credit Suisse

And I may have missed this before, but where do you guys stand in terms of dividend payout ratio targets? And, you know, what's the future growth rate for dividends? Is it just going to track along with EPS at this point?

speaker
Gail Klapa
Executive Chairman

Yeah, so our policy is to pay out in a range of 65% to 70% of earnings. So a dividend payout ratio that is 65% to 70% of earnings. As I mentioned earlier, we're right smack dab in the middle of that range right now, so we would project that dividend growth would be in line with the growth in earnings per share.

speaker
Operator
Conference Call Assistant

Gotcha. That's all I got for now. Thank you. All right. Thank you.

speaker
Operator
Conference Call Host

Your next question comes from Michael LaPese with GS. Your line is open.

speaker
Michael LaPese

Hey, guys. Thanks for coming. Hey, Gail. Thank you for taking my question. Congrats on a great quarter. I actually have several. They're all gas related. And I'll just kind of rattle them off. First of all, your gas demand forecast of I think it's 0.7%. Can you remind me when the last time you did sub 1% gas demand growth in Wisconsin? That's the first question. The second question is, where do you stand on the permitting and regulatory approval for the gas LNG facility in Wisconsin? that you talked about a couple of months ago or a while ago. And then finally, any incremental thoughts on the need for new gas fire generation, either as property transformation or just to meet the need for it?

speaker
Gail Klapa
Executive Chairman

All right. We'll be happy to try to take those off one by one. I think weather normal, we were at 1.8 on retail gas. So we had a 1.8% growth. in retail gas consumption on a weather-normal basis in 2019, you could probably go back in terms of when were we last below 1%. Whatever year that natural gas prices got to double digits, I think we did not grow meaningfully at all in terms of natural gas demand from the retail side of the business. Scott?

speaker
Scott Lauber
Chief Financial Officer

Yeah, exactly. When you think about it, yes, we've had 3% to 4% growth. Last year it was 1.8%. But now what we're really forecasting is really the customer growth aspect, not assuming any more conservation, but also assuming that people don't turn their houses from 69 to 74. People are going to stay comfortable. We've also seen a lot of conversions the last couple of years from industrial or their own environmental goals to go convert from coal and oil to natural gas. So you only convert once. So basically our forecast now is based on customer growth.

speaker
Kevin Fletcher
President and CEO

And, Michael, on the LNG, as far as the approval process, it's underway. And as I said in my prepared comments, we expect approval, and we would begin construction in the summer of 2021 for operational in 2023.

speaker
Michael LaPese

Got it. And then on the gas generation side and kind of thinking about the mix of gas versus coal-fired generation. Mix of gas versus coal-fired? Yeah, just in terms of thinking about new gas generation needs.

speaker
Gail Klapa
Executive Chairman

Well, as you know, we have an option with Alliant to buy into, at some point between now and, say, 2024, a portion of their new gas-fired combined cycle that's being built right now. That option is still on the table. We haven't made a final decision. Beyond that, we don't have any plan to propose any construction of new gas-fired generation. And, of course, regardless of whether we add gas-fired generation or not, the percentage of gas fire generation in our total mix will be going up and coal will be coming down, because we've already retired about 40% of our existing coal fire generating capacity.

speaker
Michael LaPese

Got it. Thank you, guys. Much appreciated. Congrats on a great quarter. Great execution. Thank you. Thank you so much, Michael.

speaker
Operator
Conference Call Host

Your next question comes from Greg Gordon with Evercore ISI. Your line is open.

speaker
Greg Gordon
Evercore ISI

I'm already losing the bet so far this year, Gail. You know, it's one of those bets, in truth, I'd be happy to lose. But anyway, I just wanted to go back to the comment on what your expectations are as they sort of bake into your earnings growth aspiration, the five to seven. You know, you said that you're targeting the authorized ROE without – and not assuming that you maximize your opportunity to get into the higher end of the range. Should we assume that the midpoint of your guidance represents earning the authorized return and sort of like the high end represents the ability to achieve other factors like earning that extra 25 basis points? Or if I'm not thinking about it correctly, can you give us some guidance as to how you're thinking about that opportunity and what it might mean for your earnings outlook?

speaker
Gail Klapa
Executive Chairman

Great question, Greg. Everybody in the room is nodding their head. You've got it. If we were modeling it, as we know you would be, we would assume fully authorized rate of return gets us to the midpoint of the guidance, and then upside from there if we were to get into sharing.

speaker
Operator
Conference Call Assistant

Thank you. Thank you very much. Bye-bye. You're welcome.

speaker
Operator
Conference Call Host

Your next question comes from Michael Weinstein with Credit Suisse. Your line is open.

speaker
Gail Klapa
Executive Chairman

You lost the bet last year, Mike.

speaker
Michael Weinstein
Credit Suisse

One last question. I forgot to ask this. This is more of a strategic question, but around the country, you're seeing some cities ban improvements on the natural gas distribution systems and going for full electrification of heating and everything else. Obviously, the view from the upper Midwest winter is a little bit different than places like California, but do you have any view on where this is all going? in terms of natural gas infrastructure, spending, and you guys are kind of the experts at the turnaround business there.

speaker
Gail Klapa
Executive Chairman

Well, it's a very good question, and I think you are correct. In the warmer climates and the more temperate climates, there's clearly a push by some of the more active environmentalists to not only move away from coal, but now we have a beyond gas campaign that we're seeing. For us, I think, Michael, it comes back to pure practicality and the recognition that if it's 40 below in the Upper Peninsula of Michigan, a heat pump is simply not going to keep your house warm, or even if it did, it would be so incredibly expensive that you simply couldn't deal with it. So for our Upper Midwest area, And with the market share that we have for home and commercial heating with natural gas, I just don't see a major turn away from that for many, many years to come. I think the other piece of it is natural gas heating, natural gas furnaces continue to get even more efficient. And there are better ways, I think, in terms of running the economy and continuing to reduce CO2 emissions. And if you look now across the U.S. and in the upper Midwest, the number one contributor to CO2 emissions is no longer power generation, for example. It's transportation. I think the low-hanging fruit here in terms of continuing to decarbonize the economy, particularly in a region like the one we serve, is not moving away from natural gas home heating. It's actually electrification for vehicles. Kevin, I don't know if you have any view on that.

speaker
Kevin Fletcher
President and CEO

Gil, I think you summed it up very well. The other thing that I just will add is as technology continues to evolve on the gas side, we'll continue to be a part of that and looking at it. But I think you summarized our position and our philosophy very well.

speaker
Gail Klapa
Executive Chairman

Hope that responds to your question, Michael.

speaker
Michael Weinstein
Credit Suisse

Yeah, great. Thank you very much. Talk to you soon.

speaker
Operator
Conference Call Host

Your next question comes from Vidula Murty with Avon Capital. Your line is open.

speaker
Operator
Conference Call Assistant

Oh, yeah, Vadula, how you doing? Well, apparently not so well.

speaker
Vadula

Vadula Murty, your line is open.

speaker
Operator
Conference Call Assistant

Good afternoon. Hi, Vadula.

speaker
Vidula Murty
Avon Capital

One item I wanted to make sure I understood, because, you know, this is a line item, and I just wanted to make sure you could explain it to me. Can you explain to me what kind of how the Rabbi Trust works, kind of how it's funded, its duration and kind of how, you know, it replicates itself over its life?

speaker
Gail Klapa
Executive Chairman

Sure. We'll be happy to take a stab at it. I'm going to let Scott do that. I will say this. We have to make sure that all of you don't look at the Rabbi Trust in isolation because in many ways the Rabbi Trust is – the earnings in the Rabbi Trust offset – the cost of some of our benefit plans. And I think conceptually that's an important point to remember, Scott.

speaker
Scott Lauber
Chief Financial Officer

Yeah, that's exactly it, Gail. So the Rabbi Trust is really set up by Integris, and we inherited that investment vehicle. And that is related to some of the deferred compensation that individuals from Integris had earned through the years. So what the Rabbi Trust does is what we do is we try to match the best we can with the expense of the deferred comp that's in the utilities with the investments in this rabbi trust. So if the rabbi trust goes up a dollar, usually the deferred comp expense goes up a dollar or vice versa. So it's really trying to match that. We have those funds. They're tied up specifically for the deferred comp, so there's nothing else we can use for them. So we have to do it, and we thought the best thing to do was try to mirror and match the hedging as much as possible. Like Gail said, though, you can't look at it in isolation. Just for accounting purposes, it has to be on this line, how it's recorded.

speaker
Gail Klapa
Executive Chairman

And, Vidula, so far, and again, we inherited that in 2015 with the Integris acquisition. So far, our strategy, our matching strategy, if you will, has worked exceptionally well.

speaker
Vidula Murty
Avon Capital

So, as I think about this, is the variance here tied to stock market performance, performance of Wisconsin Energy's equity specifically, or what creates the variances both up and down in this?

speaker
Gail Klapa
Executive Chairman

All right. And again, we'll let Scott give you more detail, but long story short, we know what investment options our people who've got the deferred comp are in. In other words, we know what investment options they've selected. We can blend that with our investment options in the Rabbi Trust.

speaker
Scott Lauber
Chief Financial Officer

Yeah, and a lot of the investment options are dealing with equities in the deferred comp, and that's what we're trying to match it the best we can. It's not perfect, but the best we can with equities in the rabbi trust, and so far the correlation has been pretty high, like 99%. It's been really good.

speaker
Vidula Murty
Avon Capital

And so this is a static thing going forward? There's no, you know, new participants or, you know, incremental, you know?

speaker
Scott Lauber
Chief Financial Officer

No, no new participants. It's static and it slowly goes down as participants withdraw from the old Integris deferred account. So it's slowly going down.

speaker
Vidula Murty
Avon Capital

Okay. And I guess also, I guess in the other thing, obviously, you know, this is clearly part of strategies in terms of the, you know, on the income tax expense line in terms of the wind credits and everything like that. Clearly, if we take a look at... Page 10, you know, is a major – that's a very important, you know, positive factor. And, you know, year over year is a very large increase. How should we be thinking about that in terms of, you know, within the, you know, our earnings guidance range about the variance going forward there?

speaker
Gail Klapa
Executive Chairman

We can certainly give you the comparison of what we achieved in terms of – the infrastructure segment earnings in 2019 versus our projection in 2020. As I mentioned earlier, the infrastructure segment gave us about two cents a share uptick in earnings each quarter during 2019. And with the addition of Coyote Ridge Wind Farm in South Dakota, which went commercial at the end of last year and will give us a full year this year, we would expect three cents a quarter from the infrastructure investments in wind.

speaker
Scott Lauber
Chief Financial Officer

Yeah, and I think overall, when you look at it, including the unprotected we're giving back in the credits to our customers, that effective tax rate is in that 16% to 17% range.

speaker
Gail Klapa
Executive Chairman

And to clarify, it would be an incremental penny a quarter in 2020 in terms of the earnings.

speaker
Vidula Murty
Avon Capital

Yeah, so given the fully diluted share count, it would appear then that that variance should be something similar, not as dramatic earlier.

speaker
Gail Klapa
Executive Chairman

Yeah, that's exactly right.

speaker
Vidula Murty
Avon Capital

Okay. And it's only about three weeks of pitchers and catchers, so how are the brewers?

speaker
Gail Klapa
Executive Chairman

Brewers are interesting. They're kind of reshuffling the deck a little bit. Just signed a pitcher yesterday, but I'm more focused right now on 41 and 6 for the Bucs. Okay. Well, good luck there. Thank you. Thank you, Padula.

speaker
Operator
Conference Call Host

And your last question, Tom. I'm sorry, your next question comes from Andrew Levy with Exodus Point. Your line is open.

speaker
Andrew Levy
Exodus Point

Yep, that Greek freak. Hey, Andy, how are you? I'm doing great. Love watching him play. I'm sure you do, too. And you've got a big game tomorrow against Denver.

speaker
Gail Klapa
Executive Chairman

We do, we do. Yep, yep, and I think Janos will be back in the lineup.

speaker
Andrew Levy
Exodus Point

Yep, I hope so. So just kind of following Michael Weinstein's questions and just on kind of natural gas, I guess, and you've kind of answered it already, but just in the context of ESG and obviously ESG seems not to be favoring natural gas, so maybe just explain how you deal with that. And then separately, I agree with everything that you had said earlier about NatGas. Just kind of looking at kind of the landscape and, you know, if you look at LDCs or companies that are very heavy natural gas, their stocks have not done as well of late and the multiples have come down. And so I'm just wondering kind of where your head is at and, you know, at the right price, would you add gas distribution customers? your mix, you know, beyond what you have already? Obviously, you have a large LDC in Illinois and a smaller one in Wisconsin.

speaker
Gail Klapa
Executive Chairman

Well, good question, Andy. You know, you never say never, but let me put it this way. At the right price, obviously, fitting the three criteria that we've talked about for acquisitions, I mean, we would always take a hard look. I would, though, because you recognize if you're making an acquisition of any kind of company, LDC or not, you're basically making a very long-term bet. Our assets, as you know, are very long-lived assets. So, you know, would – and I'm saying this just theoretically – if an LDC in northern North Dakota came up for sale at the right price, we probably would be a lot more interested in that than if it was in – San Diego.

speaker
Andrew Levy
Exodus Point

I understand. And just as far as ESG and how you kind of, you know, do you think maybe, obviously, it's an evolving idea or, you know, investment basis. Do you think as far as natural gas, they've gone, or not they, but it may not be the right way to look at it, and there are other things to focus on on the ESG side?

speaker
Gail Klapa
Executive Chairman

Well, again, a good question, Andy. My sense, and we've done dozens of ESG visits, right now, and I think for the foreseeable future, the ESG focus for infrastructure companies like ours seems to be heavily, heavily focused on CO2 emissions and what your plan is to basically decarbonize the generation fleet. That swamps any other kind of discussion. that we've had with any ESG-oriented investor. And, again, we've had hundreds of these discussions over the course of the last couple of years. In fact, everyone now, whether you are ESG-focused or not, everyone is beginning to ask ESG questions. But I would say that in 99 out of 100 meetings, the real focus is really on CO2 emissions. And there we've got a great story to tell. The other thing that I would point out, we're one of the first utilities in the country to set a methane reduction goal. And I think you're going to be seeing, because the climate scientists, as you know, really believe that methane emissions are far, far more potent, perhaps 25 times more potent than CO2 as a greenhouse gas. I think you're going to be seeing some increasing focus on methane emissions. And there, the kind of upgrade work we're doing to modernize the natural gas distribution network, particularly in Chicago, is really important. So that's the flavor of what we're hearing in our ESG visits today, Andy.

speaker
Andrew Levy
Exodus Point

Okay. Thank you, Gail. You're welcome. Thank you.

speaker
Operator
Conference Call Host

And your last question comes from the line of Paul Patterson with Glenrock Associates. Your line is open.

speaker
Paul Patterson
Glenrock Associates

Paul, you're last but not least. I hope not. So let me ask you something here. Just to follow up on Padula's question, the rabbi trust, if I understand your answer, basically is offset by deferred comp expense, so there really isn't any net income benefit of any significance you see driving earnings going forward or in terms of results for 2019. Am I understanding it correctly?

speaker
Scott Lauber
Chief Financial Officer

Correct. You know, 2019 may have been an anomaly because we had so much O&M coming out of the utility that we were into the sharing, but for the most part, there's no benefit from that at all. But it would have been a small amount.

speaker
Gail Klapa
Executive Chairman

And nothing, Paul, that we're planning on in terms of benefit for 2020. Okay.

speaker
Paul Patterson
Glenrock Associates

And then in terms of Foxcom, there's some local articles about the Evers administration looking at renegotiating the tax benefits because of, I guess, the way the Foxconn thing has been sort of rolling out. And I was just wondering if you had anything to share on that or, you know, what does that mean in terms of the outlook for the Foxconn economic development contributions that you guys have been expecting?

speaker
Gail Klapa
Executive Chairman

Good point. And let me just reiterate first what I mentioned in our prepared remarks. in that over the past two years, Foxconn has invested already over $500 million in Wisconsin. I can tell you, again, I've said before, focus on what's going on on the campus rather than the media reports. But I can tell you, I was actually with the governor yesterday. He and I appeared together at an economic development conference here in Milwaukee. And he went out of his way to say that he believes his responsibility is to help make Foxconn successful in Wisconsin. So again, that's as of 9.30 yesterday morning and a very definitive comment from the governor himself.

speaker
Paul Patterson
Glenrock Associates

Okay, great. And then just finally on the wind transaction with Google as the offtake, that's for the life of the project, is that correct? That would be a 12-year offtake agreement. 12 years, okay. And then just generally speaking, Given the credit quality of Google and stuff, just to make sure I understand this, that's a better rate of return than you're getting. You guys expect to get a better return associated with that project than what you're getting in your regulated business. Do I understand you guys right on that?

speaker
Gail Klapa
Executive Chairman

You understand this absolutely correctly. And the experience that we've had so far with the other infrastructure investments that are operational is, The experience in 2019 is proving that out. Okay. Awesome. Thanks so much. You're welcome. Thanks for the call. All right. Well, folks, that concludes our long conference call for today. Thank you so much for participating. If you have any other questions, we're always available. Please contact Nostraka at 414-221-4639. Take care, everybody.

speaker
Operator
Conference Call Host

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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