WEC Energy Group Inc (WEC) — Q4 2021 Earnings Call Transcript

Well, good afternoon, everyone. Thank you for joining us today, as we review our results for calendar year 2021. First, I’d like to introduce as always the members of our management team who are here with me today. We have Scott Lauber, who’s now our President and Chief Executive; Xia Liu, our Chief Financial Officer; and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations. As you saw from our news release this morning, we reported full year 2021 earnings of $4.11 a share. This exceeded the upper end of our most recent guidance, which was $4.07 a share. Our positive results were driven by favorable weather, solid economic recovery in our region, and our continued focus on operating efficiency. Our balance sheet and cash flows remain strong. And as we’ve discussed, this allows us to fund a highly executable capital plan without issuing equity. I would also note that the earnings we’re reporting today are quality earnings with no adjustments. Now as you know, we’ve been very active in shaping the future of clean energy. Looking back on 2021, we set some of the most aggressive goals in our industry for reducing carbon emissions. Across our generating fleet, we’re targeting a 60% reduction in carbon emissions by 2025 and an 80% reduction by the end of 2030, all from a 2005 baseline. In fact, by the end of 2030, we expect our use of coal for power generation will be immaterial. And our plan calls for a complete exit from coal by the year 2035. Of course, for the longer term, we remain focused on achieving net zero carbon emissions from power generation by 2050. Now, we all recognize that advances in technology will be needed to decarbonize the economy by 2050 and hydrogen, of course, could be a key player, a key part of the solution in the decades ahead. To that end, we announced last week, one of the first hydrogen power pilot programs of its kind in the United States. We are joining with the Electric Power Research Institute to test hydrogen as a fuel source at one of our newer natural gas powered units located in the Upper Peninsula of Michigan. The project will be carried out this year, and the results will be shared across the industry to demonstrate how the use of hydrogen could materially reduce carbon emissions. Switching gears now, we’re driving forward on our $17.7 billion ESG progress plan, the largest five year plan in the company’s history. The plan is focused on efficiency, sustainability, and growth. One of the highlights is the planned investment in nearly 2400 megawatts of renewable capacity over the next five years, these renewable projects will serve the customers of our regulated utilities here in Wisconsin. Overall, we expect the ESG progress plan to support average growth in our asset base of 7% a year driving earnings growth, dividend growth and dramatically improved environmental performance. In summary, we believe we’re poised to deliver among the very best risk-adjusted returns our industry has to offer. And now let’s take a brief look at the regional economy. We saw a promising recovery throughout 2021, despite the prolonged pandemic. The latest available data show Wisconsin’s unemployment rate down at 2.8%; folks, that’s a record low and more than a full percentage point below the national average. Importantly, jobs in the manufacturing sectors across Wisconsin have returned to pre pandemic levels and major economic development projects are moving full steam ahead. Haribo, the gummy bear company is now recruiting workers at its brand new campus in Pleasant Prairie. Komatsu has begun relocating employees to its new state-of-the-art Milwaukee campus. Milwaukee Tools’ downtown office tower is set to begin operations this month. And we see more growth ahead. For example, ABB, a global industrial and technology company, and Saputo, a leading dairy products company, have announced plans for major expansions in our region. And finally, you’ve heard the phrase a rising tide lifts all boats? Well, I’m pleased to report that one of the most celebrated luxury boat makers in the world, Grand-Craft Boats is relocating its operations from Michigan to the Milwaukee region. You know, JLo, George Clooney, Robert Redford, they’re among the high profile clients of Grand-Craft, so it’ll be interesting to see who shows up, you know, below deck at our next Analysts Day. Bottom line, we remain optimistic about the strength of the regional economy, and our outlook for long-term growth. With that, I’ll turn the call over to Scott for more details on our utility operations and our infrastructure segment. Scott, all yours.

Thank you, Gale. Looking back, we made significant progress in 2021. I’ll start by covering some developments in Wisconsin. As Gale mentioned, we’re continuing to make progress on the transition of our generation fleet in our ESG progress plan. I am pleased to report that our Badger Hollow 1 Solar project is now providing energy to our customers. You’ll recall that we own 100 megawatts of this project in Southwest Wisconsin. We have also made progress on the construction of Badger Hollow 2. Currently, we expect an in service date in the first quarter of 2023. This factors in a delay of approximately three months, due to ongoing supply chain constraints. We do not expect a material change in the construction costs. In addition, the Public Service Commission has approved our plans to build two liquefied natural gas storage facilities in the southeastern part of the state. Construction has started and we plan to bring the facilities into service in late 2023 and mid-2024. We expect this project to save our customers approximately $200 million over time and help ensure reliability during Wisconsin’s coldest winters. And we recently signed our first contract for renewable natural gas or RNG for our gas distribution business. We’ll be tapping into the output of one of our large local dairy farms. The gas supplied each year will directly replace higher emission methane from natural gas that would have been entered our pipes. This one contract alone represents 25% of our 2030 goal for methane reduction. The Wisconsin-based company US Gain is planning to have RNG flowing to our distribution network by the end of this year. The Commission also approved the development of Red Barn, a wind farm in southwestern part of the state. We expect our Wisconsin public service utility to invest approximately $150 million in this project and for it to qualify for production tax credits. When complete, it’ll provide WPS with 82 megawatts of renewable capacity. And just this past Monday, we filed an application with the Commission for approval to acquire a portion of the capacity from West Riverside Energy Center. West Riverside is a combined cycle natural gas plant owned by Alliant Energy. If approved, Wisconsin Public Service would acquire 100 megawatts for approximately $91 million. That’s the first of two potential option exercises. We expect the transaction to close in the second quarter of 2023. Looking forward, we expect to file a rate review for Wisconsin Utilities by May. We have no other rate cases planned at this time. Turning now to our infrastructure segment. The 190 megawatt Jayhawk Wind Farm located in Kansas began service in December. We invested approximately $300 million in this project. Overall, we have brought six projects online in our infrastructure segment, representing more than 1000 megawatts of capacity. And as you’ll recall, we expect the Thunderhead Wind Farm to come online for the second quarter, and the Sapphire Sky by the end of this year. Including these two projects, we plan to invest a total of $1.9 billion in this segment over the next five years and we remain ahead of plan. And with that, I’ll turn things back to Gale.

Scott. Thanks so much. We’re confident that we can deliver our earnings guidance for 2022. We’re guiding, as you know, in a range of $4.29 a share to $4.33 a share. The midpoint for $4.31 represents growth of 7.5% from the midpoint of our original guidance last year. And you may have seen the announcement that our Board of Directors, at its January meeting raised our quarterly cash dividend by 7.4%. We believe this increase will rank in the top decile of our industry. This also marks the 19th consecutive year that our company will reward shareholders with higher dividends. We continue to target a payout ratio of 65% to 70% of earnings, and we are 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. Next up, Xia will provide you with more detail on our financial results and our first quarter guidance. Xia?

Thanks, Gale. Turning now to earnings. Our 2021 result of $4.11 per share increased $0.32 or 8.4% compared to 2020. Our earnings package includes a comparison of 2021 results on page 17. I’ll walk through the significant drivers. Starting with our utility operations, we grew our earnings by $0.10 compared to 2020. First, weather added $0.04, mostly driven by colder winter weather conditions compared to 2020. Second, continued economic recovery drove a $0.09 increase in earnings. This reflected stronger weather normalized electric sales as well as the resumption of late payment and other charges. Let me give you some highlights on our weather-normalized retail sales. Overall, retail delivery of electricity, excluding the iron ore mine was up 2.6% compared to 2020. We saw a continued economic rebound in 2021 in our service territory. Small commercial and industrial electric sales were up 4.4% from 2020 and large commercial and industrial sales, excluding the iron ore mine were up 5.1%. Natural gas deliveries in Wisconsin were relatively flat, excluding gas used for power generation. Lastly, rate relief and additional capital investment contributed $0.14 to earnings and lower day-to-day O&M drove a $0.03 improvement. These favorable factors were partially offset by $0.17 of higher depreciation and amortization expense, and a net $0.03 reduction from fuel costs and other items. Overall, we added $0.10 year-over-year from utility operations. Earnings from our investment in American Transmission Company decreased $0.02 per share year-over-year. The positive impact of additional capital investment was more than offset by two factors, a 2020 full quarter that benefited 2020 earnings and an impairment that we booked in the fourth quarter of 2021 on an investment outside of the ATC service territory. This substantially wrote off all of the goodwill on the project. Earnings at our energy infrastructure segment improved $0.06 in 2021. This was mostly related to production tax credit from the Blooming Grove and Tatanka Ridge Wind Farms. Finally, we saw an $0.18 improvement in the corporate and other segment. Lower interest expense contributed $0.07 year-over-year. Also, we recognized a $0.04 gain from our investment in the fund devoted to clean energy infrastructure and technology development. The remaining positive variance related to improved rabbi trust performance and some favorable tax and other items. In summary, we improved on our 2020 earnings by $0.32 per share. Looking now at the cash flow statement on Page 6, net cash provided by operating activities decreased $163 million. The increase in cash earnings was more than offset by working capital requirements, mostly related to higher natural gas prices. As we resume normal collection practices in the spring, we expect working capital to improve throughout the year. Total capital expenditures and asset acquisitions were $2.4 billion in 2021. This represents a $471 million decrease compared to 2020, due primarily to the timing of the in-service date of Thunderhead Wind Farm. Turning now to financing activities, we opportunistically refinanced over $450 million of holding company debt during the fourth quarter. This reduced the average interest rate of these notes from 4.5% to 2.2%. We continue to demonstrate our commitment to strong credit quality. Adjusting for the impact of voluntary pension contribution and the year-over-year increase in working capital, our FFO-to-debt was 15.7% in 2021. Finally, let’s look at our guidance for sales and earnings. For weather normalized sales in Wisconsin, we’re expecting 0.5% growth this year in both our electric and natural gas businesses, continued growth after a very strong year. In terms of 2022 earnings guidance, last year, we earned $1.61 per share in the first quarter. We project first quarter 2022 earnings to be in the range of $1.68 per share to $1.70 per share. This forecast assumes normal weather for the rest of the quarter. And as Gale stated, for the full year 2022, we are reaffirming our annual guidance of $4.29 to $4.33 per share.

Xia, thank you so much. Overall, we’re on track and focused on providing value for our customers and our stockholders. Operator, we’re now ready to open it up for the question-and-answer portion of the call.

Rock’n’roll Shar, how are you doing today?

How are you doing, Gale? All good.

We’re good. We’re good. Yeah.

Excellent. So just, Gale, I know this seems like a perennial topic at this point but any sort of thoughts on the potential end of QIP in Illinois, it seems like efforts to eliminate it are getting traction yet again with obviously piece of legislation. There was a press conference on Monday. It’s scheduled to expire, so what are your thoughts here? I mean, it’s a little bit noisy. Just high level will be great.

Thank you for the question, Shar. This is not new. Each year for the past five years, similar bills have been introduced late in the session. We do not anticipate any significant progress on this legislation, consistent with the past five years. You are right that under current law, the QIP rider, which allows us to start earning a return on new pipes after they are put into service, is set to expire at the end of 2023, so we still have some time. We continue our efforts to educate others, and I believe we have made significant strides in helping people understand two important points. First, the QIP rider is the most cost-effective way for our customers to support the necessary pipe upgrade program. Second, the Illinois Commerce Commission authorized an independent study last year that showed nearly 80% of the remaining gas distribution pipes in Chicago have a useful life of less than 15 years. Therefore, this work is essential, and we are pursuing it in the most cost-effective manner possible, without concern for any upcoming legislation.

Okay, perfect. And then maybe just shifting over to the infrastructure segment, it seems like it’s been a bit of a longer time, since your last acquisition like Sapphire Sky, versus, I guess, your prior cadence. Just curious, is this sort of a symptom of anything in particular is, is there fewer opportunities or just a lot of competition supply chain, returns? Are you seeing projects maybe getting pushed out a little bit ahead of federal policy, clarity? Just maybe some thoughts there would be great.

No, I’m happy to answer that questions, Shar. First of all, as Xia mentioned and Scott, we’re way ahead of plan.

Right. Right.

So Jayhawk came into service a bit early on budget. Sapphire Sky, which we announced late last year is under construction, and I expect Sapphire Sky to begin commercial operation at the end of this year. We don’t have anything particularly in the plan for this year, not because there’s a paucity of projects, as we have a robust pipeline that we’re looking at. I think some of the uncertainty over federal tax credits maybe slowing things down here, but we’re way ahead of plan. We didn’t have anything specific in this year’s plan but we continue to look, we have a robust pipeline of projects and you will see some continuing effort here. We can be, as you know, very selective because we’re so far ahead of plan.

Got it. Got it. And just one real quick modeling question, is the ATC Holdco goodwill impairment that’s in the driver slideshow? Just align me what that is?

Yeah, I’m happy to. It’s an outside of the service area investment that years ago, the joint venture of Duke and ATC made in California, and will let Xia give you the detail.

We jointly own a transmission project that we acquired in 2013. After conducting a normal goodwill assessment, we deemed it prudent to write down the majority of the goodwill. This resulted in a non-cash accounting adjustment made in the fourth quarter of 2021.

Got it. Perfect. Thanks, guys. I appreciate it. And Gale, hopefully the “no adjustments” comment in your prepared remarks was understood well by the audience. Appreciate it. Thanks, guys.

Thank you, Shar.

Bye.

Good afternoon, Julien.

Hey, good afternoon. Thank you for your time. I appreciate it. To clarify the last question about people in Illinois, when you mention the CapEx spending from 2022 to 2026, which obviously includes the end of the current program, are you suggesting that if that program were to be discontinued, that overall number would remain the same?

The most straightforward answer to your question is that ongoing work is essential for safety and reliability. We would either assume that the rider continues through legislation after 2023 or revert to annual rate cases. In Illinois, for instance, the Commission utilizes forward-looking test periods. Regardless, this work must continue, and the investment is projected to be between 280 million and 300 million annually, depending on the year.

Got it. Excellent, thank you. And then just pivoting on the transmission side here, just Cardinal-Hickory, obviously, the developments in the course last week. Just how are you thinking about options given the federal wildlife preserve, just in terms of alternate routes, timing, CapEx recovery, anything you could share there?

Sure, happy to and for those who might not have been following Cardinal-Hickory, there is some activity in the courts with an environmental group challenging the permits that were issued by the US Fish and Wildlife Service, by the Iowa Public Service Commission, by the Wisconsin Public Service Commission. So there have been multiple permits that would allow this more than 100 mile line to be built, coming out of Iowa into Southwestern Wisconsin, and then working its way over to the Madison area. So that’s essentially a little more than 100 mile line. And to show you how long these projects take, that project was first envisioned and first discussed in 2011, so construction has been underway, essentially, in the Iowa portion. The portion in question where the permits are being challenged is in the southwestern part, it’s an environmentally sensitive part of the southwestern section of the state of Wisconsin. It’s called the Driftless Area. American Transmission Company, and again, this is partially owned, this line will be partially owned by ITC, ATC and the Dairyland Power Cooperative. The ATC portion, no one has questioned of the permits for that section of the line. So we’ll see how all of this works out in court. But long story short, the Wisconsin Commission has reiterated the need for the line and reiterated their belief that the approval was appropriate and needed. We’ll see how all this works out in court. At the end of the day, that line is an important part of moving renewable energy across the Midwest and into Wisconsin. So at the end of the day, I’m confident something positive will come out of this, maybe a bit delayed, but we’ll see what happens in the courts. I hope that helps, Julien.

No, absolutely. It’s good color. Well, I’ll leave it there guys. Thank you again, and best of luck and hope to see you guys soon.

Sounds good. Thanks, Julien.

Greetings, Jeremy.

Hi, it’s actually Rich Sunderland on for Jeremy. Can you hear me?

I can. What have you done with Jeremy?

Jeremy is sorry to miss but I’m happy it is time for me today. Just may be starting around the load growth expectation for 2022. You’re curious on the key drivers there and really how you think about realized recovery from the pandemic in 2021, maybe how much conservatism is baked in there for the ‘22 outlook.

We’ll have Scott take care of that for you. He and Xia have a good handle on those details. However, I want to point out that we are coming off a very strong recovery in 2021, and we expect continued growth in 2022. I was particularly impressed by the numbers for the small commercial and industrial segment.

You’re exactly right, Gale. In fact, when Xia and I review our forecasts compared to what occurred in 2021, we were spot on with residential; it hit precisely as expected. The positive surprise came from both small commercial and large commercial sectors. Our original forecast was around 1.3% growth, but we actually achieved 2.5% at retail excluding certain factors. We are very pleased with this growth. Looking ahead to 2022, we anticipate that as more people return to work, residential growth will decrease slightly. However, small commercial is expected to continue expanding, and large commercial is projected to see nearly 2% growth. We are witnessing excellent growth, and as we consider our long-term strategy, we observe significant economic growth, which Gale mentioned during the call, contributing positively to our outlook.

Thanks, appreciate the color there. And then maybe pivoting to this new pilot program in Michigan, what’s the long-term target for blending and how do you think about this program in the context of your entire fleet?

You’re speaking, I believe, of the hydrogen pilot program that we’re going to undertake in the Upper Peninsula of Michigan at one of our newer RICE units. And just to put all of that in context for everyone, the RICE units, it’s a technology that’s been well proven, fueled by natural gas modular technology, if you will, does not require water permit. I mean, these are really advanced state-of-the-art power generation facilities and the project is really a pilot project. It’s being designed right now. We will actually test burn hydrogen in a mix with natural gas up to 25% hydrogen, 75% natural gas and this project will actually be in the field in the fourth quarter of 2023. We with the Electric Power Research Institute will then analyze the results and, as I mentioned in the prepared remarks, the results will be shared across the industry. We’re optimistic that this pilot program is the first of its kind in the US will demonstrate that hydrogen, with that particular technology, the RICE unit technology could be a major player going forward in decarbonizing the economy.

Great. Thank you for the time today.

You’re welcome.

Greetings, Neil.

Hi, everybody. Hello.

Neil, are you getting snow or ice? Where you are?

We’re getting a lot of it and I’m watching all my neighbors, and my wife and son shoveling the driveway right now, so I’m feeling pretty good about this. I am wining.

I just got a text from your wife, it said, you dog.

I have a bad back and I can’t do things like I used to. Anyway, I have a question about the solar aspect. Of course, Badger Hollow has faced some challenges, which is understandable given the various supply chain issues. However, you have a significant amount of solar planned for the upcoming years. I'm curious if you have any concerns at this point regarding costs or timing related to the additional 1300 megawatts you're planning to implement over time.

Yeah, great question, Neil. I think the short answer is with what we’re seeing for 2022 and what we have under contract, no significant issues, perhaps some timing. Down the road, Scott, your thoughts?

We are definitely monitoring steel prices related to infrastructure and solar panels. As for natural gas prices, even if they rise, the economics remain favorable. While we do anticipate some cost increases and are keeping a close eye on them, I don’t believe it will alter your plans.

Okay, I agree with Scott. And, Neil, one other point, the drive to decarbonize the economy is not abating in any way, shape, or form. So, we continue to see those investments as both needed and expected, as we go down the road.

Perfect. Thank you.

Thank you, Neil.

Greetings, Durgesh. How are you doing?

I’m doing… I’m doing well. Thanks for asking. Thank you for taking my question also. Xia, just this is a modeling question, the $0.04, the gain on clean energy fund, can you just elaborate on that? And then what quarter was that gain? And then I’m assuming you’re not sort of modeling anything for 2022? That’s a multi-part question, I’m sorry.

That's fine. During the second quarter call, I noted that we recorded a $0.03 gain in the second quarter and added another penny in the fourth quarter, totaling $0.04 for the entire year. When creating the financial plan, we don't factor in expectations for similar investment gains. However, if the market trends positively and we experience additional gains, we will gladly acknowledge those, though we do not rely on them in our future projections.

Sounds right, we’d be delighted to book more gains. I believe this was due to a revaluation of a specific investment in the fund that is focused on clean technology. Some of these funds succeed while others do not. This one performed exceptionally well, and with the new round of funding and the valuation, it was completely appropriate to adjust our investment value.

Awesome, thank you for that color. And then just maybe, your peers on a call today talked about, just want to sort of be interested in your progress and actually your execution and your capital plan for ‘21. Your peers mentioned some supply chain concerns and that to put some of their newer projects out. Just wondering, are you seeing any of those pressures and how do you actually do in 2021 versus your targeted CapEx plan?

Well, I will ask Scott to give you his view as well. The one impact we had was really more from COVID than it was from supply chain. And that was a large solar farm, a large solar field called Badger Hollow 1 and that got delayed. It’s now in service. That got delayed several months and it was a decision that we helped to make. At the point where we were deep in the pandemic and 2021, to continue the construction apace, we would have had to bring in about 150 crew people from outside the state to continue the construction at that point in time. In the middle of the pandemic, we thought that was really not a very good idea. So we agreed to a schedule delay, but Scott, no significant cost delay at all and that’s now behind us.

No, that’s exactly correct. And everything else for 2021, our supply chain worked with our vendors to get everything in line. And we’ve had a practice here for several years that we are ordering some of the long lead time materials a year, year and a half at a time for some of these major projects to make sure we have it, so. And then the only other item was just what we mentioned in our prepared remarks, whereas Badger Hollow 2, we see about a three month delay right now, but no significant cost at this time.

Excellent. Thank you guys. Much appreciate the time.

You’re welcome. Thank you, Durgesh. Take care.

Michael, how’s your IT department?

Oh, yes. Fantastic.

You might kind of reiterate no change in your rating, right, Michael?

Yeah. Yeah, for sure. He got to go. Yeah the first question maybe just, if you could give us a sense of what the clean O&M savings number was for 2021 and what you’re embedding in ‘22 guidance.

Happy to do and Xia has got it right in front of her. Xia?

So for the full year 2021 we ended with 1.6%, down year-over-year compared to 2020. So we guided earlier in the year 2% to 3% and we’re right in that range. And what was – you had a second part of your question.

Yeah. What are you assuming in ‘22?

Yeah, for 2022, we guide flat to 1% reduction from 2021.

And Michael, I’m sorry, I’m sure you recognize this, but in light of the general inflation in the economy, we think that’s really, really strong performance, we’re very pleased about the plan we have in place to deliver what Xia is discussing.

Got it. Okay. And just curious if you could give any latest thoughts on where you think things might go with the pending issue at FERC as it relates to the RTO adder.

My own guess, and this is just a guess, but my own view is the RTO rider is probably history, but to be replaced by something else, perhaps an incentive type mechanism. I’m guessing that the RTO rider, as we’ve known, it probably won’t survive. However, very important point, we have not assumed the continuation at all of the RTO rider in our forecast for 2022 earnings.

Okay. That’s great. Thanks and sorry, just one last question. It seems the FFO-to-debt metric decreased slightly year-over-year. Should we consider that as stabilizing around the 15% to 15.7% range as we move forward?

Xia, your view?

Yeah, we target the 15% to 16% measured by Moody’s and S&P, so this is right in that neighborhood and as I said in the prepared remarks, the dip is really driven by year-over-year change of working capital and then that’s largely attributed to higher natural gas prices, so we expect that to recover. And we also made a voluntary pension contribution in 2021. So overall, I think we’re right in the target range for FFO to debt.

Great. Thank you very much.

Thank you, Michael. Take care.

Good afternoon, Andrew.

Hey, thanks for taking my question. Most of them have been answered. I just want to follow up a little bit on the upcoming Wisconsin rate case. Two quick ones. First is do you see any potential for yet another stakeout or agreement to keep rates unchanged. I don’t mean to be greedy, you’ve done a great job managing the customer bills, just wondering strategically if you want to extend the stay out or if you feel it’s time to have a conversation with regulators and intervenors, like you do every so often?

It’s a great question, Andrew, and I think we all agree it’s time for a reset. There are several factors in our consideration. First, as you may recall, we’ve announced the retirement of four older coal-fired units at our Oak Creek site, which date back to the 1960s. We’ve started the retirement process with the first two units in 2023, and the other two will follow in 2024. This will result in retirements and cost savings. Additionally, we’ve been out of a rate case for quite some time, making it an appropriate moment to step back and reassess. I believe everyone involved, including the commission staff and the intervenors, agrees it’s time for a comprehensive review, and we’re looking forward to that. Scott?

It’s going to be a very straightforward rate case. I mean, when you look at our capital investments that we’ve made, the capital investments, and the majority of them, I think, when you look at what’s already been approved and at commission right now, that’s about 60% or a little over 60% of the rate base. And then you even add in new services and other reliability capital, almost all of this has been approved or great capital additions for reliability or decarbonizing the environment. So, it’s going to be a pretty straightforward rate case, as you see us pull the final numbers together here in the next couple of months.

Okay. And not to get ahead of that, but are you able to give us any kind of high level guess of what it might do to rates, directionally or qualitatively?

Stay tuned. We’re pulling everything together, the filing is due by May 1, so we’ll certainly have a good conversation with you in advance of that. Yeah.

And I think the other thing to remember is, this is a place where you do two-year forward-looking rate cases. So a lot of our capital projects and you see that capital spending, it’s going to come in over two years, just like Gale mentioned, the retirement of those plants are over two years. So we’ll factor that into, so it will be a multi-year filing we do here.

Very straightforward case, though. We wouldn’t expect of being to have anything as dramatic in terms of it. It is not a case about higher O&M. As Scott said, this is a case about capital, much of which will have already been approved capital needed for reliability and for decarbonization.

Very good. And just a quick follow up. Is it too early to talk about performance base rate making in this upcoming case?

I'm glad you asked. For those who may not be very familiar, the Commission held an informational hearing focused on the concept of performance-based rate making. This hearing was the result of over a year of work by the Governor's task force, which examined climate change, decarbonization, and potential initiatives the state might implement. It's clear from the hearing that any changes in the process of establishing rates in Wisconsin will be methodical and well-considered, and I do not anticipate any impact on our upcoming rate review.

Okay, very helpful. Thank you.

You’re welcome. Before we move to the next caller, I just received a text from one of your brother, asking an important question regarding your performance: Will Aaron Rodgers return to Green Bay next year? I don't know the answer, but the team is still working hard.

Michael, how’s your IT department?

Oh, yes. Fantastic.

You might kind of reiterate no change in your rating, right, Michael?

Yeah. Yeah, for sure. He got to go. Yeah the first question maybe just, if you could give us a sense of what the clean O&M savings number was for 2021 and what you’re embedding in ‘22 guidance.

Happy to do and Xia has got it right in front of her.

So for the full year 2021 we ended with 1.6%, down year-over-year compared to 2020. So we guided earlier in the year 2% to 3% and we’re right in that range. And what was – you had a second part of your question.

Yeah. What are assuming in ‘22?

Yeah, for 2022, we guide flat to 1% reduction from 2021.

And Michael, I’m sorry, I’m sure you recognize this, but in light of the general inflation in the economy, we think that’s really, really strong performance, we’re very pleased about the plan we have in place to deliver what Xia is discussing.

Got it. Okay. And just curious if you could give any latest thoughts on where you think things might go with the pending issue at FERC as it relates to the RTO adder.

My own guess, and this is just a guess, but my own view is the RTO rider is probably history, but to be replaced by something else, perhaps an incentive type mechanism. I’m guessing that the RTO rider, as we’ve known, it probably won’t survive. However, very important point, we have not assumed the continuation at all of the RTO rider in our forecast for 2022 earnings.

Okay, that’s great. Thanks, and sorry, just one last question. It seems that the FFO-to-debt metric decreased slightly year-over-year. Should we consider that as stabilizing around the 15% to 15.7% range where it has emerged as a forward target?

Xia, your view?

Yeah, we target the 15% to 16% measured by Moody’s and S&P, so this is right in that neighborhood and as I said in the prepared remarks, the dip is really driven by year-over-year change of working capital and then that’s largely attributed to higher natural gas prices, so we expect that to recover. And we also made a voluntary pension contribution in 2021. So overall, I think we’re right in the target range for FFO to debt.

Great. Thank you very much.

Thank you, Michael. Take care.

Good afternoon, Andrew.

Hey, thanks for taking my question. Most of them have been answered. I just want to follow up a little bit on the upcoming Wisconsin rate case. Two quick ones. First is do you see any potential for yet another stakeout or agreement to keep rates unchanged. I don’t mean to be greedy, you’ve done a great job managing the customer bills, just wondering strategically if you want to extend the stay out or if you feel it’s time to have a conversation with regulators and intervenors, like you do every so often?

It's a great question, Andrew, and we all believe it's time to reset. There are several factors to consider. First, we have announced the retirement of four older coal-fired units at our Oak Creek site, which are from the 1960s. The first two will be retired in 2023 and the latter two in 2024. This will lead to retirements and cost savings. Additionally, since we have been out of a rate case for a long time, it is necessary to step back and reset. I think everyone, including the commission staff and intervenors, agrees that it’s time to conduct a thorough review, and we are looking forward to that. Scott?

It’s going to be a very straightforward rate case. I mean, when you look at our capital investments that we’ve made, the capital investments, and the majority of them, I think, when you look at what’s already been approved and at commission right now, that’s about 60% or a little over 60% of the rate base. And then you even add in new services and other reliability capital, almost all of this has been approved or great capital additions for reliability or decarbonizing the environment. So, it’s going to be a pretty straightforward rate case, as you see us pull the final numbers together here in the next couple of months.

Okay. And not to get ahead of that, but are you able to give us any kind of high level guess of what it might do to rates, directionally or qualitatively?

Stay tuned. We’re pulling everything together, the filing is due by May 1, so we’ll certainly have a good conversation with you in advance of that. Yeah.

And I think the other thing to remember is, this is a place where you do two-year forward-looking rate cases. So a lot of our capital projects and you see that capital spending, it’s going to come in over two years, just like Gale mentioned, the retirement of those plants are over two years. So we’ll factor that into, so it will be a multi-year filing we do here.

Very straightforward case, though. We wouldn’t expect of being to have anything as dramatic in terms of it. It is not a case about higher O&M. As Scott said, this is a case about capital, much of which will have already been approved capital needed for reliability and for decarbonization.

Very good. And just a quick follow up. Is it too early to talk about performance base rate making in this upcoming case?

I'm glad you asked. For those who may not have been following closely, the Commission recently held an informational hearing on the idea of performance-based rate making. This hearing was the result of over a year of work by the Governor's task force, which focused on climate change, decarbonization, and potential state initiatives. It is clear from the hearing that any changes to the rate-setting process in Wisconsin will be carefully considered and methodical, and I do not anticipate any impact on our upcoming rate review.

Okay, very helpful. Thank you.

You're welcome. Before we move on to the next caller, I received a text from your brother, and he mentioned that given your performance, no one is asking the most important question: Will Aaron Rodgers be back in Green Bay next year? I don't have an answer to that, but we still have [indiscernible] with us for the bucks and rock and roll.