Xcel Energy Inc (XEL) — Q4 2021 Earnings Call Transcript

Good morning, and welcome to Xcel Energy's 2021 year-end conference call. Joining me today are Bob Frenzel, Chairman, President and Chief Executive Officer; and Brian Van Abel, Executive Vice President and Chief Financial Officer. In addition, we have others from our management team here to help answer any questions you might have. This morning, we will review our 2021 results and share recent business and regulatory developments. Slides that accompany today's call are available on our website. As a reminder, some of the comments made during today's call may contain forward-looking information. Significant factors that could cause results to differ from those anticipated are described in our earnings release and our SEC filings. Today, we will discuss certain metrics that are non-GAAP measures. Information on the comparable GAAP measures and reconciliations are included in our earnings release. And with that, I'll turn it over to Bob.

Thank you, Paul, and good morning, everyone. Before we walk through year-end results, I want to reflect on the devastating wildfires that tore through Boulder County, Colorado just before the New Year. It's been a long four weeks since this historic tragedy ravaged our communities, resulting in two people losing their lives and over 1,200 homes and buildings being destroyed or damaged. Our hearts and thoughts are with all members of these communities who lost their homes, suffered damage, or were displaced, including 17 of our own employees and their families. I'm truly grateful for our hundreds of employees, contractors, and partners who exercised incredible diligence in keeping each other and our customers safe while working around the clock to get the lights and the heat back on, especially over a holiday weekend with below-zero temperatures and more than a foot of fresh snow in some areas. More than 100,000 electric customers experienced a sustained outage, and service was largely restored within 48 hours. Our wildfire protocols required that we turn off natural gas service to over 13,000 customers as a safety precaution. And once it was safe, our employees with mutual aid assistance went door-to-door to manually relight pilot lights, restoring service within just three days. In addition to our crews, I want to extend my heartfelt thanks to our many employees and community members who volunteered alongside emergency responders, handing out space heaters and water bottles and collecting clothing donations. I'm so proud of how our team and partners led with compassion and delivered for our customers and communities in this extreme time of need. Officials continue to investigate the cause of the fire, but they confirmed that there were no down power lines in the ignition area. Our systems remain resilient even when 100-mile-per-hour winds propelled the fires due to our previously approved wildfire mitigation plan and our continued focus on operational excellence. As we always do, our team rallied to the call, guided by our four values: connected, committed, trustworthy, and safe. Moving on to our 2021 results, we had another very successful year, continuing to execute on our strategy while delivering strong financial and operational performance. First and foremost, throughout the pandemic, we continued to provide safe, reliable service to our customers and support to our employees and our communities. Financially, we delivered EPS of $2.96, representing the 17th consecutive year of meeting or exceeding our earnings guidance. We raised our annual dividend for the 18th straight year, increasing it by $0.11 per share. We reached constructive rate case settlements in Colorado, Texas, New Mexico, Wisconsin, North Dakota, and Michigan. We also reached constructive settlements in several additional regulatory proceedings in Colorado, including storm Yuri cost recovery, our resource plan, and the pathway transmission project, and we anticipate commission decisions on these settlements by the end of the first quarter. Our nuclear fleet remains the top-performing fleet in the country, achieving a capacity factor of over 92% last year. We also installed over 300,000 smart meters as part of our advanced grid program and plan to install more than 1 million in 2022. We continue to lead the country in carbon reduction; in 2021, our estimated carbon emissions were approximately 50% below 2005 levels, and we remain on track to achieve 80% carbon reduction by 2030. As planned, we completed four wind farms with 800 megawatts of capacity, which provides significant environmental benefits and cost savings for our customers. We also accelerated our timeline for transitioning out of coal and now expect to be coal-free by the end of 2034. In 2021, we extended our clean energy leadership to our natural gas business, committing to reduce greenhouse gas emissions by 25% by 2030 and deliver net zero natural gas service by 2050 for Scope 1, 2, and 3 emissions. We continue to execute on our electric vehicle vision, implementing 12 new programs for our customers, receiving approval for our New Mexico plan, and preparing for increased levels of electric vehicle adoption across our eight states. We're also recognized for our continued ESG leadership, named among the world's most ethical companies, the best veteran employers, and for disability inclusion in the workplace. And finally, we introduced a compensation-based diversity metric and earned a perfect score on the Corporate Equality Index for the 6th consecutive year. I'm proud to lead a team that can deliver on financial, operational, environmental, customer, and diversity goals simultaneously. Looking ahead, we're well-positioned for sustainable organic growth over the next decade, including affordable renewable additions in our proposed Minnesota and Colorado resource plans. The transmission needed to enable those carbon-free resources and responsible transitions as we retire our coal plants will enhance our portfolio. Together, our resource plans will add nearly 10,000 megawatts of renewables to our system and achieve an 85% carbon reduction by 2030. In December, we reached a settlement in our Colorado resource plan that will accelerate the retirement of our Comanche 3 coal unit to 2034 and advance our Pawnee plant conversion to natural gas to 2026 while maintaining plans to add approximately 4,000 megawatts of renewables and reduced carbon by 87% by 2030. We also reached a settlement in our $1.7 billion pathway transmission project in Colorado. The pathway will provide 560 miles of double-circuit 345 kV lines to enable 5,500 megawatts of new renewables in the state. The settlement includes a certificate of need, rider recovery, and a potential 90-mile line extension with an additional investment of $250 million to enable access to some of the richest wind resources in the region. We expect decisions on both the Minnesota and Colorado resource plans and the pathway transmission project in the first quarter of the year. As we've previously discussed, our capital investment plan is not dependent on changes in federal policy. However, the energy provisions that were included in the Build Back Better legislation would provide substantial customer benefits and help enable the clean energy transition. While that legislation has stalled, there is some discussion that a more modest version could potentially move forward this year. This could include new and extended tax credits for wind, solar, hydrogen, storage, nuclear, and transmission, along with a direct pay option for the tax credits. We continue to advocate for these provisions, which will be beneficial for our customers, and as President Biden has suggested, there may be congressional support for an energy and climate bill with a more modest price tag than the original Build Back Better bill. With that, I'll turn it over to Brian.

Thanks, Bob, and good morning, everyone. We had another strong year, booking $2.96 per share for 2021 compared with $2.79 per share in 2020. The most significant earnings drivers for the year include the following: higher electric and natural gas margins increased earnings by $0.41 per share, primarily driven by riders and regulatory outcomes to recover our capital investments. In addition, a lower effective tax rate increased earnings by $0.17 per share. Production tax credits lowered the ETR; however, PTCs are flowed back to customers through lower electric margin and are largely earnings neutral. Offsetting these positive drivers were increased depreciation expense, which reduced earnings by $0.24 per share, reflecting our capital investment program. Lower AFUDC decreased earnings by $0.10 per share, largely due to placing several large wind farms into service last year. Higher other taxes, primarily property taxes, decreased earnings by $0.03 per share, and other items combined reduced earnings by $0.04 per share. Turning to sales, weather-adjusted electric sales increased by 1.7% in 2021 as the economy recovered from the pandemic. We anticipate weather-adjusted sales growth of approximately 1% in 2022. Shifting to expenses, our O&M spend was flat in 2021. This continues an existing trend as we kept our O&M flat since 2014, while adding significant renewables and capital investment. We expect O&M to increase 1% to 2% in 2022, driven by wind farm additions, increased spending on electric vehicle programs, and other customer initiatives. Turning to regulatory matters, we reached an unopposed settlement in our Colorado electric case, which will provide a net rate increase of $177 million based on an ROE of 9.3%, an equity ratio of 55.7% in the 2021 test year. Every settlement is based on compromises, and we feel this is a constructive outcome for all parties. Hearings were completed last week, and we expect the commission decision in March. We also reached a black box settlement principle in our Texas Electric case, which provides a rate increase of approximately $89 million. The agreement also accelerates the depreciation life of the coal plant to 2034. The commission decision is anticipated later this year. Moving to Minnesota, in December, the commission approved interim rates of $247 million for electric customers and $25 million for natural gas customers. The commission granted interim rates as requested for our natural gas operations but lowered our electrical request by $41 million due to the lingering impacts of the pandemic on residential customers. They made similar adjustments for CenterPoint and Minnesota Power. The schedules for both cases are included in the earnings release, and we expect commission decisions in mid-2023. Earlier this week, we filed a natural gas case in Colorado, seeking a net rate increase of $107 million in 2022 with incremental step increases of $40 million in 2023 and $41 million in 2024. The request was driven by significant capital investments for customer growth, safety, reliability, and resiliency and is based on a 10.25% ROE, an equity ratio of 55.6%, in the 2022 current test year. Our average Colorado residential customer's natural gas bill was 24% below the national average in 2020, among the lowest in the country. We anticipate a commission decision later this year and final rates to be implemented in November 2022. Shifting to earnings, we've updated our 2022 guidance assumptions largely to reflect 2021 actual results. Details are included in our earnings release. In addition, we are reaffirming our 2022 earnings guidance range of $3.10 to $3.20 per share, which is consistent with our long-term 5% to 7% EPS growth objective. With that, I'll wrap up with a quick summary. We delivered 2021 earnings guidance within our guidance range, the 17th consecutive year, and increased our dividend for the 18th consecutive year. We continue to execute on our steel-for-fuel strategy by adding 800 megawatt wind to our system. We remain on track to achieve 80% carbon reduction by 2030 and plan to be coal-free by 2034. We reached constructive rate case settlements in Colorado, Texas, New Mexico, Wisconsin, North Dakota, and Michigan. We also reached constructive settlements and several additional regulatory proceedings in Colorado, including storm Yuri cost recovery, our resource plan, and the pathway transmission project. We've kept our O&M expenses flat since 2014. We reaffirmed our 2022 earnings guidance, and we remain confident we can deliver long-term earnings and dividend growth in the upper half of our 5% to 7% objective range. We continue leading the clean energy transition and delivering results for our customers. This concludes our prepared remarks. Operator, we will now take questions.

Just first question, maybe for Brian, touching on your O&M growth forecast comment now 1% to 2% versus 1% that you had given in the third quarter earnings. Could you elaborate a little bit more on what's driving this, whether it's more demand-driven or are we seeing some impact of cost inflation that's getting impacted here? And also how confident do you think some of those other offsets that you've included in the drivers could get you to keep you on pace?

Good morning, Insoo. Yes, I will start with the updates on the guidance changes. Most of the updates are reflecting actual figures when comparing the end of 2020 to the guidance provided in Q3 for 2022. This is true for our O&M as well. The O&M figure for 2022 remained unchanged, but the actual O&M at year-end was lower than anticipated. Therefore, what you're seeing is simply an update based on actual performance. We experienced lower benefits costs in Q4 of 2021 and effectively managed some of the weather challenges we encountered in 2021. Thus, we are confident in our O&M guidance for 2022, which is projected at 1% to 2%, as this is influenced by where 2021 concluded.

Yes, I did see that. And I think the '21 levels were still below the 2019 level. So that makes sense. Okay. Second question, it seems like in the fourth quarter, you did a pretty healthy amount of ATM equity, $350 million or so. How does that fit into your five-year plan of up to $800 million that you've laid out? And just out on the front loading, it seems a lot of equity up-front, especially given we don't know what will happen with Build Back Better or any of the energy-related provisions, but you have said in the past that the direct pay provision could meaningfully reduce your equity needs. Thanks.

Yes, that's a good question, Insoo. I view our capital and financing plans for 2022 to 2026 as a five-year strategy. We've been clear that the incremental capital will generally be financed on a 50-50 basis. Looking back at our previous five-year plan from 2021 to 2025, we added approximately $2.5 billion in capital. I see this as us being strategic in issuing some equity in addition to the $800 million equity target we have today, considering that the Dividend Reinvestment Plan was consistent in both plans, contributing about $1.15 billion. The $2.5 billion of added capital aligns well with our approach to financing incremental capital. Hopefully, that clarifies the comparison between the plans. You’re correct that with potential clean energy legislation, we could significantly decrease our equity needs if it is passed. Alternatively, this could allow us to accelerate our investments without requiring additional equity, providing us with more flexibility moving forward if it comes to fruition.

Congrats on continued progress here, especially in Colorado. I just wanted to bring up this pathway project, kudos on pending a deal there. I'm just curious if you could elaborate here on how that fits into the potential upside that you guys articulated earlier, the $0.5 billion to $1 billion that potential incremental for '22 to '26. And also, if you could clarify, the settlement seems like, it's 1.7, it's what you asked for, but you also alluded to this potential further network upgrades. Is that something else that we should be looking for to come out of the settlement or what have you?

Julien, it's Bob, great to hear you this morning. Appreciate the interest in the Colorado Pathway Project. It's obviously very strategic for us as we look to transition that state to an 87% carbon reduction and greater than 80% renewables by the end of the decade. If you look back at the filings, what we asked for was a base plan of about $1.7 billion of capital to enable that almost 600-mile project. That $1.7 billion also had in the original filings a conditional approval based on whether or not we have projects that show up in our RFP in that region and whether we'll build it or not. When I think about the incremental capital we laid out, there are a couple of pieces in the pathway program that would take that $1.7 billion, somewhere higher. The first one is this $250 million extension. And we have to, at some point, interconnect all of the assets that get proposed to us in the RFP. Those interconnections come with additional upgrades on the transmission system to enable voltage support and stability. Depending on the ultimate locations of the projects that are picked, those could happen out in the Eastern plains of Colorado or more in the Metroplex. We don't know exactly where that's going to happen until the final projects are picked. That’s where the incremental capital comes from, but we expect it to be needed.

Maybe just to clarify that...

I would say just in terms of timing and visibility in the incremental spend, like Bob said, we know what needs to happen. We just don't know the timing and type of it yet. However, once we get through the RFP process later this year and have identified the actual resources and where they're going to be located, whether it's wind or solar, then we'll have a really good visibility into what the transmission upgrades will be needed and when they'll be needed, probably in the latter half of this five-year plan early in kind of the second five.

But maybe to clarify that further, you talked about this $0.5 billion to $1 billion transmission upside in the current five-year plan. It sounds like you're edging towards the higher end of that incremental piece. And then ultimately, if I can push you a little bit on this, you've alluded to this in the remarks, I mean, whether it's Colorado or the Minnesota or Colorado IRPs, when do we get a more fully baked view on your CapEx? I know you said that's coming in the first quarter here, but it sounds like considering the RFPs, et cetera, that may be more of an EEI or even next year at this time, kind of update to get a more fully fleshed view?

Yes. I think let me answer your first question around, well, that call it, in the transmission settlement, the conditional approval of that extension of $250 million certainly is helpful when we look at that $0.5 billion to $1 billion. That goes to a very resource-rich wind region that would be beneficial for our customers. The parties just want to make sure that we get projects appearing there, and that's why it's conditional approval. If you assume that's already part of the $500 million to $1 billion, you can see how there will be incremental opportunities that will push that number closer to the midpoint or higher. Regarding timing, after we get decisions in both Minnesota and Colorado on the resource plans from the commission in Q1, we will move into the RFP phase, likely going to be two, three, four months beyond those decisions, and then we have to work through that process. Colorado could move a bit quicker in terms of clarity, while Minnesota might be a little bit later. There will be opportunities as we work through it and get through the RFP phase and make filings with the commission, where there'll be more visibility throughout the process.

Hi, good morning. Just wanted to start off with the MISO MTEP process here. Can you share any other thoughts on the timeline? And what is the potential for the process to bear fruit for the current plan? Or where could that come in, in the future?

Jeremy, it's Bob. Thanks for the question. Similar to Colorado, we're really excited about the opportunity for transmission expansion in all of our regions as it will enable additional renewable penetration that we can deliver to our customers. In particular, in MISO, we've been very active with the MISO steering committee and the MISO transmission owners. Recently, we've agreed to cost allocation mechanisms across MISO and new proposed tariffs, which we expect to deliver next month, putting us on a schedule for MISO to release what they would say is MTEP 2021 by, I'll call it, midyear. Our expectation for MTEP21 is a subset of the projects that are included in MISO's future ones. If you go back to the original source document, MISO released three futures of the world. We've been largely talking about future one and future three. Future one was about a $30 billion transmission expansion in the Upper Midwest or throughout the MISO region. Future three was about a $100 billion investment needed to enable significant carbon reduction across all of MISO's footprint. Our expectation is that as a company, we're probably likely to get about 20% of the transmission opportunities that are included in future one. We expect MTEP21 to be a subset of future one, so a smaller subset than the $30 billion worth of projects.

And Jeremy, it's probably important to point out, too, that we don't have any material MISO transmission in our first five-year forecast.

Got it. That's very helpful. Thank you for that. And then, maybe just pivoting over to Minnesota and the yearly proceeding there, I was wondering if you might provide any comments or thoughts there? And does this provide any indications or takeaways related to the Minnesota rate case?

Yes, it's Bob. I'm not certain I would put a lot of linkage between those two proceedings. As I think about the storms in Minnesota, I consider that as an unprecedented event that happened last February. It's not unexpected to have parties question the investments that we made to enable our system reliability at the time. In Minnesota, in particular, working through that regulatory proceeding, we filed what I would say is extensive testimony, and just last week, we filed rebuttal testimony. We obviously disagree with the positions of the OAG and the department on the disallowances they proposed. We will continue to work with the commission through the proceeding, but I wouldn't put a lot of linkage between the storm proceedings and the Minnesota electric or gas cases.

Got it. Understood. Just a last one for me here. Can you provide more color on the process for converting Pawnee to natural gas by 2026? What are the potential costs for conversions, and over what time frame should we expect this to occur?

I expect the conversion cost to be relatively small, which is one of the reasons we proposed converting Pawnee instead of Comanche, due to the lower costs involved. I anticipate that the conversions will take place in the latter half of this five-year forecast. This is contingent upon receiving approval, but we believe it's the right approach to maintain system reliability by converting Pawnee to gas. Overall, the conversion is not expected to be significant.

Good morning, team. Thank you for taking my question. Bob, to start, I have two questions. First, regarding the macro situation, I appreciate your comments on Build Back Better. I apologize if I missed it, but you didn't mention the Alternative Minimum Tax. I'm curious if you think this is something that might come up during negotiations, or what are your current thoughts on the matter?

Good morning, Durgesh, and thank you for your question. The outcome really depends on the size of the package, assuming something can be finalized and there’s support for the clean energy provisions. The key questions are what it will cost and the magnitude of those provisions. You may have heard about a proposed climate package valued at over $500 billion. There appears to be solid backing for changes to Medicare and prescription drugs, which could raise about $300 billion. From what we have noted, the Alternative Minimum Tax is still a possibility. Ultimately, it hinges on the support for the size of the package. We would definitely benefit if the climate provisions are approved, as Bob mentioned in his opening remarks, and we are strong advocates of those clean energy initiatives. They greatly assist our customers in transitioning to cleaner options more affordably. If the Alternative Minimum Tax were not included, it would be advantageous for us, considering the overall effects of the clean energy provisions and the tax. Without the AMT, our cash flow metrics would likely improve by about 15 basis points, which is relatively minor. In summary, we will have more information as we evaluate how this will unfold and how they plan to fund a potentially smaller package.

Durgesh, I'd just add one more thing to what Brian said. One, I think we've concluded that the AMT in and of itself isn't all that impactful for Xcel Energy as it allows the use of existing renewable credits to fund it. The other thing that we look to, though, as an industry in mitigating the AMT is, on one hand, the federal government is giving you a lot of tax credits to incentivize the development of renewable assets. On the other hand, if you have an AMT funding requirement, you're almost nullifying some of the incentives that come with those tax credits. Where I think the discussion would go with lawmakers is this: Can we use tax credits funded in the clean energy provisions to offset the AMT provisions? Ultimately, if you think about AMT and our industry, it's paid for by our customers. It's just an increase in tax to our existing customers. I think that would be an area that we would negotiate with lawmakers as well. It's still included in the provisions in the Build Back Better plan, but all subject to negotiation.

Got it. Thank you for that color. And then just one quick clarification, if I may. On the MISO process, you mentioned mid-2022. I think we've sort of seen some bids around May. Did that move, or are we still expecting some sort of CapEx announcement, project announcements in May?

I believe May is likely the target. I may have been cautious by suggesting it could move into June, but I think we're looking at around a month. I'm not indicating that it will be delayed; I just wanted to qualify my previous comments.

It's Dave Arcaro on for Stephen. Thanks so much for taking my question. I was wondering in Colorado, have your views of fire risk changed in light of the catastrophic fires we saw? Are there adjustments that you might consider making to your wildfire mitigation plans in the state?

Hey, Steve, thanks for the question. Obviously, a tragedy in Colorado with the Marshall Fire and everything related to it. We learned from it. We've been focused as a company on climate-driven resiliency for a long time, and we followed in Colorado our wildfire mitigation program back in 2019, and we're executing under that program. There are always ways that we can learn from these strategies and improve the risk for the customers for sure. The commission opens a proceeding, and we're going to actively participate with them on exploring your exact question on things that are in the approved wildfire plan and things we might want to consider in the future, but we're in early stages in that.

Understood. Thanks for that color. I was curious about sales growth in the quarter; I saw weather-normal residential sales down a decent amount. I was wondering if you might be able to comment around that and just your comfort level with the 2022 sales growth outlook where you sit today?

Yes. I kind of look at it over the balance of the year of 2021. If you recall, going into the year, we thought sales growth was going to be about 1%. We ended up at 1.7% on a weather-normalized basis. Our C&I forecast was pretty close, while what was higher than expected was on the residential side. What we saw was residential stickiness through most of 2021. You saw some of that give back in Q4, a little bit of weakness when you look at the Q-over-Q numbers. As I think about 2022, that was our expectation even going into 2020, continued C&I strength. Our economies, our service territories have stronger forecasted GSP than the national GDP. We have strong job growth forecasted. I feel good on the C&I side. We expect residential numbers to decline a little bit as we return to a more normal state. So, we feel comfortable with where we're sitting for 2022 on an overall basis with stronger C&I sales offsetting some of the residential decline.

The other point to make too is that we did have some pretty extreme weather in the fourth quarter. While we feel comfortable with our weather normalization process, when the weather extremes become more pronounced, it makes it a little more difficult to determine the weather versus the sales impact. So, there could be a little noise there.

Great. I just wanted to look at the additional equity issuance. Is it fair to infer that with that additional equity issuance, you would at least be somewhat into the incremental CapEx spend that you've identified on a go-forward basis?

Paul, regarding the ATM we executed in Q4, I view it as part of the '22 to '26 plan, which outlines the equity needed for that period. The equity raised last year was associated with our previous five-year plan. As we moved forward with our new five-year plans, we allocated an additional $2.5 billion in capital. Credit quality and balance sheet strength remain crucial for us, and we've consistently indicated our approach of funding incremental capital with approximately 50% equity. Looking at our actions at the end of Q4 alongside the $800 million, we are just under 50% in equity funding when considering both plans. We feel confident about this. Credit quality and strength are vital for Xcel and our operating companies, and having access to capital is essential. For our upcoming five-year plan, the equity financing principles still apply. If any changes occur with the federal clean energy provisions, we will reassess our strategies as this would provide us with greater financing flexibility.

Okay. In the past, you guys have talked about contract buyouts. There seems to be less focus on that. Can you give us any update on contract buyout opportunities? Or do you see any within that '22 to '26 period?

I wouldn't characterize it as any less focus. The corporate development team reports directly to me, and we're in constant discussions with developers. This is often assessed through our resource plans in our two major jurisdictions, and working through those proceedings and then having RFPs coming up could be avenues for developers to bid in. I think our commissions, given those RFPs coming up, would prefer to see projects in those RFPs. We focus on it, and it will be opportunistic as it has to work for our customers. We won't bring forward an opportunity to our commissions if it doesn't save our customers' money.

Paul, we've been successful with this strategy. I think we've deployed more than $0.5 billion in capital in this strategy. I see another $0.5 billion to $1 billion more opportunities for us, but as Brian said, they are very opportunistic, likely to occur as we go through the resource planning processes and Colorado over the next year or so.

Great. My last question. When you talk about sales growth of 1% this year, on a normalized basis, what would be a more normalized expectation for the outer years?

I think longer term, it's beyond this year, as we continue to recover, with our sales still below where we were pre-COVID levels. I think longer term, it's relatively flat, with the exception that EV adoption may start to increase, and we'll start to see some sales growth. We see our EV goal of 20% of EVs in our service territory by 2030, adding about 7/10 of a percent over a decade. So, I think it's relatively flat until we start to see more EV penetration in larger numbers over the longer term.

Good morning, everyone. Thank you. You answered my question on the Colorado wildfires. Just one quick follow-up to that. Have you heard or been involved in discussions that give more momentum to the whole clean energy transition, I mean, climate change and such, following the wildfires? Is that accelerated or enhanced some of the clean energy discussion?

Travis, it's Bob. Look, our stakeholders in Colorado, including the Company, have aggressively pushed for a clean energy transition. In fact, our goals in Colorado have us reducing our carbon footprint by 87% by the end of the decade on the electric side. In November, we committed on the natural gas side to reduce emissions in our gas business by the end of the decade and then be net zero by mid-century. The conversations in Colorado continue with that backdrop. I've seen articles in the paper talking about climate change and such. However, the path we're on is aligned with policyholders and stakeholders in Colorado. So, there may be increased discussion, but I think our trajectory is the right one.

Sure. Okay. Great. And then second question, the earned ROEs for the year were in the low 8% range. Once you get that electric rate case in there, call it, in the first quarter or early second quarter, can that jump up? Does that get you to a 9% type range closer to the allowed, or is there something in Colorado's rate structures, etc., that makes it very difficult for you to get to the nine-plus percent?

Travis, I don't see significant improvement into 2022. Rates won't be effective until April on the electric side. You saw us file a gas case very recently, and we do face regulatory lag on the electric side with the test year really being midyear '21. We'll continue working with our stakeholders and the commissions on that side, but I don't see earned ROE improving significantly in 2022.

Okay. Is it the historical test year that just makes a big difference, 100 basis points or so?

I haven't done that math, but the historical test year, particularly when you're investing significant capital into the system, helps drive the clean energy transition, and that historical test year put some pressure on your earned ROEs.

Yes. Thank you all for participating in our earnings call this morning. Please contact our Investor Relations team with any follow-up questions.