Xcel Energy Inc (XEL) — Q3 2023 Earnings Call Transcript

Thank you. Good morning, and welcome to Xcel Energy's third quarter earnings 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 other members of the management team in the room to answer questions if needed. This morning, we will review our third quarter results and highlights, share recent business and regulatory developments, update our capital and financing plans and provide 2024 guidance. Slides that accompany today's call are available on our website. As a reminder, some of the comments 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'll discuss certain measures that are non-GAAP measures. Information on comparable GAAP measures and reconciliations are included in our earnings release. Early this week, a jury in Denver District Court found Xcel Energy liable in its dispute with Core Cooperative regarding prior year's lost power damages at our Comanche power plant. We intend to appeal the decision. For the third quarter of 2023, we recorded GAAP earnings of $1.19 per share, which includes a one-time nonrecurring tax charge of $34 million related to the ongoing legal dispute. As a result, we have taken a nonrecurring charge of $0.05 per share, which we don't consider part of ongoing earnings. All of the discussion in our earnings call will focus on ongoing earnings. For more information on this matter, please see the disclosure in our earnings release. I'll now turn the call over to Bob.

Thanks, Paul, and good morning, everybody. Let's start with the quarter. We had solid results recording ongoing earnings of $1.23 per share for 2023 compared to $1.18 per share in 2022. As a result, we're narrowing our 2023 ongoing earnings guidance to $3.32 to $3.37 per share. We're also initiating 2024 ongoing earnings guidance of $3.50 to $3.60 per share, which is consistent with our 5% to 7% long-term EPS growth rate. Consistent with past practices, we've reviewed our customer and operational needs and have updated our infrastructure plan for 2024 to 2028. This revised forecast reflects $34 billion of needed capital investment, an increase of $4.5 billion from our previous plan. This base infrastructure investment plan includes substantial resiliency investments in both transmission and distribution including additional upgrades required to support the Colorado Energy Plan. However, it does not include clean energy generation investments that could result from the resource plans in Colorado, Texas, New Mexico, or in the Upper Midwest. If approved by our commissions, these cost-effective clean energy generation investments could result in an additional capital need totaling $10 billion from 2024 to 2028 and dramatically reduced carbon emissions in various states. Xcel Energy's resource plans also demonstrate the benefits of the Inflation Reduction Act, our state's geographic advantages that enable high-capacity renewable generation and our operational expertise and commercial acumen can bring to our customers. In September, we filed our recommended plan in Colorado. This plan seeks to double the amount of renewable energy in the state, making it the largest clean energy transition ever in Colorado's history and demonstrates our strong alignment with the state's environmental goals. Our proposal contemplates the shutdown or conversion of our remaining coal units to replace them with approximately 6,500 megawatts of renewable energy and battery storage and 600 megawatts of dispatchable gas resources to ensure system reliability in times of low wind or solar conditions. These amounts include 4,800 megawatts proposed to be owned and operated by Xcel Energy for the benefit of our customers. Including the approximately $3 billion in required transmission investments to ensure deliverability and reliability, this Colorado energy plan represents nearly an $11 billion total investment by Xcel Energy. In addition, this portfolio also includes $10 billion in IRA savings to customers. It creates local jobs, promotes economic development and provides over $2 billion in tax benefits to local communities in the coming decades. At the same time, it will reduce carbon emissions by over 80% from 2005 levels in Colorado while having an expected annual rate impact of only 2.3%. This competitive portfolio provides our Colorado customers an industry-leading opportunity for a cleaner economy at a fraction of the cost most other states would incur. Moving to Minnesota. In September, the commission approved 350 megawatts of new renewable generation, including an additional 250 megawatts at our Sherco facility. This brings the total amount of company-built solar at Sherco to over 700 MW making it one of the largest solar facilities in the country. In October, we also issued an RFP seeking 1,200 megawatts of wind that will utilize our transmission interconnect at our retiring Sherco coal facility and we'll be issuing additional RFPs to fulfill the remainder of the approved Upper Midwest Resource Plan in 2024. Finally, in October, we filed a resource plan in New Mexico. Based on our filing, SPS could require an additional 5,000 to 10,000 megawatts of new generation by the end of the decade to accommodate increasing demand, plant retirements, and ensure resiliency and reliability of the grid. We've already proposed 418 megawatts of company-owned solar and battery projects that are pending commission approval. We anticipate filing another RFP in 2024 for the additional generation resources. Shifting to our clean energy innovation projects. The Department of Energy recently announced nearly $1.5 billion in awards to support multiple Xcel Energy affiliated projects. Starting with the Heartland Hydrogen Hub, this estimated $5 billion initiative, which includes multiple projects from Xcel Energy and others, received an award of up to $925 million by the DOE. This game-changing funding will serve as a catalyst for a clean hydrogen ecosystem in the Upper Midwest and the foundation of our clean fuels efforts at Xcel Energy. Fortunately, the Western Interstate Hydrogen Hub in Colorado, New Mexico, Wyoming, and Utah were not successful in this round of DOE funding. That said, we remain committed to working with policymakers and federal offices in the hopes that our projects can progress to advance our shared clean energy goals. The DOE also awarded Xcel Energy up to $70 million to support two 10-megawatt 100-hour battery pilots with Form Energy. Combined with the grants from Breakthrough Energy's Catalyst Fund, we secured up to $90 million to support these long-duration energy storage pilots, a critical asset class to ensure cost-effective reliability in a high-renewable grid. With respect to DOE grid resilience and innovation partnerships program, Xcel Energy was selected as part of 2 different awards. First, the DOE awarded Xcel Energy a $100 million grant to support projects to mitigate the threat of wildfires and ensure resiliency of the grid through extreme weather. Projects include vegetation management, selective undergrounding, advanced infrastructure technologies, drones, and several additional resiliency projects. Xcel Energy was also partied to grid's $464 million grant to expand transmission as part of the MISO and SPP program to fund high-voltage transmission to improve interregional transfer capability, reliability, and resolve grid constraints. We're appreciative of the DOE support as well as many of our partners in these projects, including our state and regional transmission organizations. Funding support helps us accelerate critical carbon-free technologies, enhance safety and resiliency while keeping costs low for customers. Turning to our natural gas utility. In August, we filed our Clean Heat program in Colorado. This first-of-a-kind plan provides a framework to reduce greenhouse gas emissions consistent with state goals in our net-zero emissions target. The plan fast tracks solutions such as electrification, demand-side management, clean fuels, and certified natural gas. The proposed Clean Heat Plus portfolio reduces greenhouse gas emissions by 28% by 2030, ensuring customer reliability and choice while optimizing customer bill impact. We plan to file a natural gas innovation plan, a corresponding framework for our Minnesota gas utility, in the fourth quarter. In September, Meta announced construction of a $700 million data center in Minnesota, which eventually could be one of the largest customers in the state. We continue to evaluate a number of additional data center and commercial opportunities that will further support growth and economic development in our communities. Finally, there are not many new material developments with the Marshall Wildfire litigation. We currently have 14 complaints with 675 plaintiffs which have been consolidated into a single case. For the past four years, Xcel Energy has been operating under a commission-approved wildfire mitigation program in Colorado. We intend to file an updated wildfire mitigation plan next year which will include a wide range of options for stakeholder consideration, including the technologies, undergrounding, additional vegetation management, composite poles, selective use of covered conductor and preventative power system shutoffs. Let me wrap up with just a few summary comments before I turn it over to Brian. As we look forward across the next five years and beyond, we see a future that is bright for our communities, our customers, and our investors. Xcel Energy is committed to providing a clean energy economy in our regions and it will require meaningful investment to accomplish. For our customers, we have the potential to deploy 15,000 to 20,000 megawatts of new clean generation on our systems by 2030, dramatically lowering our emissions profile, affordably powering our customers' homes and businesses while ensuring 99.99% reliability that they come to expect from Xcel Energy. And through leveraging the benefits of the IRA and the IIJA, we are able to accelerate deployment of renewable resources in pairing them with affordable energy storage assets and other firm dispatchable clean fuel resources to provide reliability. We continue to invest and innovate our transmission and distribution systems to ensure reliability and resilience and provide for regional and interregional deliverability. We're laying the framework to achieve net zero greenhouse gas emissions on our natural gas system. All the while, our residential customer electric and natural gas bills are amongst the lowest in the country, 28% and 14% below the national average. And given that the regions where we serve customers are the most resource-rich in wind and solar, we believe that we can lead this clean energy transition for our customers more cost-effectively than almost any other company. With that, I'll turn it over to Brian.

Thanks, Bob, and good morning, everyone. We had ongoing earnings of $1.23 per share for the third quarter of 2023, compared to $1.18 per share in 2022. The most significant earnings drivers for the quarter included the following: Lower O&M expenses increased earnings by $0.03 per share, which reflects the impact of cost containment actions, lower effective tax rate and conservation and demand-side management expenses, which increased earnings $0.03 per share. Note that these items are partially offset in lower margins and are earnings neutral. In addition, other items combined to increase earnings by $0.04 per share. Offsetting these positive drivers were higher interest charges, which decreased earnings by $0.03 per share, driven by rising interest rates and increased debt levels to fund capital investment and higher depreciation and amortization expense, which decreased earnings by $0.02 per share, reflecting our capital investment program. Turning to sales. Year-to-date, weather-adjusted electric sales increased by 1.1%, largely driven by strong C&I sales. As a result, we now expect annual electric sales growth of 1% to 2% in 2023. Shifting to expenses. O&M decreased $25 million for the third quarter, reflecting management actions to lower costs. We now expect our annual O&M expenses to decline by 1% to 2%. During the third quarter, we also made progress in several regulatory proceedings and we are getting close to wrapping up a busy regulatory year. 2024 will be much lighter from a rate case perspective. In our Colorado electric rate case, the commission approved our settlement that reflects a $95 million rate increase based on an ROE of 9.3% and an equity ratio of 55.7%. Rates were effective in September. In October, the New Mexico Commission approved our electric rate case settlement that reflects a rate increase of $33 million, based on an ROE of 9.5%, an equity ratio of 54.7%, a forward test year, and an acceleration of total depreciation to 2028. Rates were effective in October. In our pending Texas electric rate case, we reached a settlement in principle on revenue requirements. We're hopeful the parties will reach agreement on class cost allocation and rate design so that we can file the settlement this year. We expect a decision in the implementation rates in the first quarter of 2024. And as a reminder, we have a relate-back date to July 13. In Wisconsin, we continue to work through the regulatory process for our electric and natural gas rate cases and expect the commission decision by year-end. With regards to future rate cases, we plan to file a natural gas rate case for Minnesota in the order and the potential Colorado natural gas rate case in the first quarter of next year. Updating our progress on production tax credit transferability, we recently executed 2 contracts totaling $250 million. We anticipate further PTC sales in the fourth quarter, consistent with our plan totaling $300 million to $400 million for the year. Transferability lowers the cost of our renewable energy projects for our customers and reduces near-term funding needs. Moving to our updated capital forecast. We've issued a robust $34 billion 5-year base capital plan with annual rate base growth of 7.6%. The base plan reflects commission-approved renewable projects, including over 700 megawatts of new solar at Sherco. The base plan also reflects significant rate and resiliency investments, including our Colorado Power Pathway transition to support our Colorado preferred plan, MISO transformer investments, as well as other system investments to maintain asset health and reliability. In addition, we have additional capital investment opportunities for our renewables and firm capacity associated with the Colorado preferred plan, 418 megawatts of proposed self-built solar and Solar SPS and further RFPs in NSP and SPS. We'll update our base capital plan after our various commissions complete their review and finalize their decisions regarding our proposals. These opportunities, if approved, could translate to $10 billion of additional investment through 2028, resulting in annual rate base growth of 10.7%. We've updated our base financing plan, which reflects $15 billion of debt and $2.5 billion of equity. We anticipate that any incremental capital investment would be funded by approximately 40% equity and 60% debt. It is important to recognize that we've always maintained a balanced financing strategy which includes a mix of debt and equity to fund accretive growth while maintaining a strong balance sheet and credit metrics. Maintaining solid credit ratings and favorable access to capital markets are critical to fund our clean energy transition, deliver strong shareholder returns and keep customer bills low, especially with rising interest rates. Shifting to our earnings, we've updated our 2023 guidance assumptions to reflect the latest information. We're also narrowing our 2023 ongoing earnings guidance range to $3.32 to $3.37 per share. We have a long history of delivering on our financial objectives and expect to continue that trend in 2023. As a result, we anticipate strong earnings in the fourth quarter that will result in achieving our earnings guidance. Key drivers include incremental revenue from the Colorado and New Mexico electric rate cases, deferral of certain O&M depreciation and interest expenses as part of the Texas electric rate case, strong O&M cost management, and better-than-expected sales growth. Finally, we are initiating our 2024 ongoing earnings guidance range of $3.50 to $3.60 per share, which is consistent with our long-term EPS growth objective of 5% to 7%. Key assumptions are detailed in our earnings release. With that, I'll wrap up with a quick summary. We continue to execute on our clean energy plans, leveraging the benefits of the IRA to reduce costs for our customers. We proposed a game-changing preferred plan in Colorado, which results in one of the most aggressive renewable bill loads in the country. We secured DOE grants for our Heartland hydrogen hub, wildfire mitigation plans, long-duration energy storage pilots, and transmission expansion, which will accelerate breakthrough technology and reduce risk at a lower cost for our customers. We resolved rate cases in Colorado and New Mexico while reaching a settlement in principle in Texas. We're nearing our 2023 ongoing earnings guidance and continue to expect to deliver within our guidance range as we have for the past 18 years. We announced a robust, updated capital investment program and initiated 2024 guidance that provides strong, transparent rate base growth and customer value. And finally, we remain confident we will continue to deliver long-term earnings and dividend growth within the upper half of our 5% to 7% objective range as we lead the clean energy transition and continue to keep bills low for our customers. This concludes our prepared remarks. Operator, we will now take questions.

Nicely done. Got to say, what a set of updates quarter-over-quarter here. So maybe just to pick things up here real quickly, on the credit side, I mean, I appreciate the commentary about 60-40. Can you comment a little bit about the latest monetization policies for the credit rating agencies and thoughts about monetizing in terms of flowing tax credits through FFO? To what extent does that change or impact your financing plan at all? Just to come back to that a bit.

Yes. So we met with the credit rating agencies in September. And as we are sitting right now, we've included tax credit transferability in our financing plan, and we expect that they will include it in the way they look at our credit metrics. And for us, we use the income tax election method, so it will flow through our cash from operations in our financial statements. So all of that is included in our baseline as we think about it.

Excellent. And then separately, just as you think about the upside plan here, I mean, just incredible numbers here. I mean, and I know there's a lot of fixation here in Colorado. Can you walk through a little bit of just the timing here in some of the other jurisdictions in terms of coming to fruition, especially through 2020, it's practically around the corner. Do you want to talk a little bit about the specific timelines to getting some of that full 10 reflected in the plan here just as it goes to aligning against the full update with 4Q or beyond?

Yeah. Hey, Julien, it's Bob. We're really excited about the Colorado Energy Plan. It's great to see it sort of nearing conclusion and approval milestones. We've been working on this for two years. We've actually been working with the counterparties on the bids for over six months. I recognize that it might be quick timing for the external world, but we've been working with these people for a while and we're really excited about what we've done here. We've been working with stakeholders very collaboratively and the PUC over the past two years to bring this plan to life for our Colorado customers. Obviously, a great wrinkle, right in the middle of it with the IRA, right? And so we've basically been able to double the renewable portfolio, have the fossil portfolio increase and our storage component dramatically. So we think the plan meets the policy guidelines. The process from here is relatively quick in the grand scheme of things. So we received the independent engineer's report that validated our proposal last week -actually Monday of this week I think. We get comments -external comments in early November. We apply to those comments late November and then we turn it over to the commission for deliberations. We think that happens in December and early next year and probably early Q1 of next year we'd expect a decision from the commission. So pretty quick given the long time frame of the process in total.

And Julien, a couple of the other pieces in that Steel for Fuel 2.0 plan is the SPS Solar plus Storage, we should get the decision in Q2 of next year. And then we just launched a sort of 1200 megawatt wind RFP. Bids are due in December, should get a shortlist in Q2 of next year on that. And then not in any in our Steel for Fuel 2.0, but really looking forward to working with our stakeholders in SPS. Bob mentioned this in his opening remarks of our New Mexico resource plan. We'll launch an RFP in mid-next year and that's 5,000 to 10,000 megawatts of potential generation resources and should get a project selection in call it early to mid-2025 for that. So nowhere in the $10 billion is a great opportunity as we look forward to transitioning to SPS's generation outage.

Yes. It's incredible, again, update. With that, though, and then given the timing early 1Q for at least a good chunk of that. I mean, 4Q could we see an update to your earnings CAGR outlook and/or any other related metrics as you get that clarity affirmed here, at least on the preponderance of it?

Yes, Julien. I mean, certainly we'll wait until we get through the commission approvals. But if that timing aligns, then yes, it would be fair to think through that.

I have a couple of questions. Regarding Colorado, as you incorporate that into the next financing plan, and considering the 40% rule, will equity remain programmatic over the next five years? Or will that create a greater need in the earlier years of the plan?

The way we look at it, the base capital plan is pretty programmatic as we think about it, most likely in ATM with the base capital plan. When you look at the - not just in Colorado, but the $10 billion of the Steel for Fuel 2.0 opportunities, this is really kind of the '25, '26, '27 timeframe or the heavy spend. So I would look at it as that's in the timeframe that would align with the spend for that incremental and additional opportunities.

Got it. I have one more question about the Colorado plan. I understand the commission is considering a risk-sharing mechanism for the renewable assets. Can you clarify if this type of proposal could modify the plan in any way? Are you actively collaborating with the commission on this? How might this develop over the rest of the year?

Yes. Consistent with past practice, Nick, we would expect some forms of customer protection, capital costs or energy cost providers. We've submitted some proposals to the commission that they are purview. It will go along with their overall decision. And on the portfolio side, of course, there's always a chance to look at it, but we've looked at this sideways, back ways, front ways. I think we've put together a great plan that complements the geographic diversity in the state where the wind and solar physically come into the grid to provide high resilience and reliability from the renewable resources. And so always a chance to move it around a little bit, but we think substantial changes coming from the plan.

If I could ask one more question, you mentioned the data centers in your prepared remarks. Your weather-normalized load for 2024 is increasing by 2% to 3%, which is an improvement of 100 basis points compared to last year. What factors are contributing to this change in demand? How are you viewing the long-term forecast, particularly regarding potential upward pressure within your 5% to 7% range?

Thank you, Nick. I'll address that. My perspective is that we're beginning to observe several factors influencing our long-term sales forecast. We have revised our sales forecast for 2024 to reflect a growth of 2% to 3%. However, we believe that over the next five years, this compound annual growth rate might remain at 2% to 3%, which could be seen as conservative considering the potential growth from data centers. Currently, data centers account for less than 1% of our sales, but we believe there is an opportunity for that to increase to 5% within the next five years. Looking at the upcoming year, we expect significant electrification in the oil and gas sector, particularly in the Permian Basin and the Delaware Basin. We are collaborating closely with our major clients in those areas, focusing not just on more drilling but on the electrification of their pumps and compressors as they work towards their net-zero targets in the Permian Basin and comply with the ambitions set by the state of New Mexico. Additionally, we are beginning to see an increase in residential demand and penetration in the electric vehicle market. Overall, the trends we are observing are positive, not just for next year, but also in the longer term concerning electrification and the potential for data centers.

Nick, just to add on to that, this is Bob. When I think about some of the comments I made in the opening remarks, about the ability to deliver clean energy more cost-effectively in our regions of the country than other parts. I think over the long term, that should absolutely accrue to our state's benefits in terms of economic development. Energy and energy-intensive resources are going to come back onshore in the United States. We should be a very attractive destination for them as we can deliver renewable energy and clean energy much more cost-effectively. We serve customers where the wind blows and the sun shines and that translates to high capacity factors and lower energy costs to our customers, which should lead to long-term economic development in our states.

You guys have been sort of the leader in transferability. I mean you were kind of one of the first ones to introduce the concept and start working on it. It seems like you're making great strides here. The target for the year, if I recall this, if I have this correctly, it was increased from $200 million to $300 million to $400 million. I just wanted to see if I'm thinking about that correctly. And then what does that do to the prior point had $1.8 billion in total amount raised from transferability? What does that number look like in the current plan?

Yes, you are understanding it correctly. At the start of the year, before the market was fully established, we took a cautious approach by stating a target of around $200 million. We've already secured two contracts worth $250 million and are working on more. Therefore, we are optimistic about reaching a total of $300 million to $400 million for the remainder of the year. Additionally, with the approval of the Sherco solar projects, we have included them in our baseline. This results in an annual run rate of over $500 million from PTC credits, totaling approximately $2.7 billion in our five-year forecast from 2024 to 2028.

That's really helpful. I didn't see this in your prepared remarks on the slide deck, but could you provide any update on the gas price risk management plan that you have to file in Colorado? I believe that's due next month.

Yes. So we'll file it by November 1, absolutely right. So due next week, working with the stakeholders are working on the plan, and we've seen compounded in a couple of different veins. One is this idea of the smoothing mechanism where we can reduce volatility by using our balance sheet. And so if commodity prices spike to a certain level, we would take that on our balance sheet and spread it over 1, 2, 3, 4 years and get a carrying cost on it or really reduce that volatility that our customers experienced last year. So that's important because we need to maintain a good balance sheet, strong product quality to be able to use our balance sheet to help our customers out. The second part is really focused on what are the proposals we can make to reduce volatility and that's whether there's additional physical storage, potential for fixed physical contracts or additional financial hedging. So you see all our proposals here coming up next week and look forward to working with the commission and the stakeholders and helping reduce the volatility for our customers in Colorado.

Durgesh just to add on to that, one of the best things we've done for our customers is our renewables portfolio. We have lowered our reliability on fossil fuels dramatically over the past five years and the customers have accrued over $4 billion of fuel savings and tax benefits from that since 2017. So as we continue to look forward obviously the Colorado Energy Plan and our Upper Midwest Energy plans certainly derisk our customers from commodity volatility on the electric side. And as we lean into clean fuels, you start to see that on the gas LDC side as well.

And just to clarify, we meant that we've reduced our reliance on fossil fuels, not the reliability of our fossil fuels.

Maybe just a quick follow-up on your comments on tax credit transferability, the color that you've done already, kind of $250 million of contracts. Can you just talk a bit about how the market's been evolving relative to your initial expectations and how you kind of think about the competitiveness of that space?

Thank you, Carly, for your question. The market has developed closely to our expectations this year, and we are seeing bilateral transactions aligned with the pricing we anticipated. There is a significant demand which surpasses our supply of PTCs. We are still awaiting the Treasury to activate their portal and fulfill additional administrative requirements. Consequently, we feel confident in executing contracts. Our strength as a major market player, complemented by our excellent tax department and solid balance sheet, allows us to effectively identify these credits, facilitating smoother business interactions. As the situation evolves, we are engaging in longer-term discussions beyond 2023 and 2024, exploring multi-year agreements with single counterparties. We are pleased with the progress and the interest shown by potential counterparties. Additionally, having nearly 20 Fortune 500 companies located in Minneapolis enhances our relationships at the C-suite level, which helps drive these initiatives.

Got it. That's super helpful. And then maybe to follow up just on the Hydrogen Hub process now that that's been awarded. I guess, how should we be thinking about the timeline there? And is there any dependence on that investment cadence going forward on how the tax credit structure looks for hydrogen once we get that from the treasury?

Sure, Carly, it's Bob. We're really excited about our clean fuels program, but it has a long timeline. We are currently in discussions with the DOE regarding the upper Midwest Hydrogen Heartland hub. The negotiations and final engineering processes are expected to take around two years. I wouldn't anticipate starting capital deployment until the end of our 5-year plan, which extends through the end of the decade. Some parts of the hub might be operational by 2028 or 2029. It's a long-term investment cycle with a total project cost of $5 billion. Approximately half of that relates to the projects we've proposed, including about $2 billion from the company and $0.5 billion in federal funding. None of this is included in our financial plan, and that reflects the expected timeline. We will continue to work on this, and it does not factor in any investments related to some appealing projects in Colorado that were part of our hub application. We still aim to collaborate with federal offices and state partners to see if we can advance those projects as well. Again, none of this is part of our base case or Steel for Fuel portfolio.

And Carly, the second part of your question, you asked about kind of the guidance around. Obviously, we're still waiting for the guidance from Treasury unless we provided our comments, industry's driver comments. One of the things important to us is on the nuclear qualifying for hydrogen PTC. So hopeful that we get guidance here, rumor sometime in November, but it could push a little bit.

Clearly, an incredible update in Colorado here and just wanted to dive in a little bit more, if I could. Just given the rate base growth as you outlined there, how should we think about, I guess, the EPS growth relative to the rate base growth, given the higher interest rate environment here, thinking about potentially greater than 10% rate base growth, do you see the gap kind of widening at that point? Or how should we think about that at a high level?

Jeremy, that’s a great question. We are certainly in a higher interest rate environment and facing challenges with equity financing for our growth initiatives, but we remain confident in our approach. Maintaining a solid balance sheet is crucial, and we have consistently outlined how we plan to finance additional growth. While there may be some differences between rate base growth and EPS growth, it’s straightforward to calculate, and I trust that everyone has already done that.

Got it. Yes. No, good math to do there. So that makes sense. And just wanted to kind of come in on the O&M side for the guidance there. And I think it's been kind of flat to down, if I recall correctly, but targeting a little bit of an uplift in '24 here. I'm just wondering if you could provide a bit more color on the increase here and how this O&M, I guess, impacts how '24 guidance could fall out, particularly given Minnesota being a bit lighter than expected?

Yeah. We take everything that happened in this year from a regulatory perspective and rate case perspective taking into account as we give 2024 guidance. When we think about O&M, we're down for this year our guidance for this year is down 1% to 2%. So as we think about next year up 1% to 2% we did some management actions in this year. And so really when I put the 2 years together it's about essentially maintaining flat O&M. It's a big focus from a long-term perspective is investing in technology to improve processes and take cost out of the business. We have innovation and transformation arm focused on eliminating waste and improving processes. We call it One Xcel Energy Way that we've deployed at the start of this year. And also, as you go longer term, we start to see tailwinds from coal plant shutdowns as we start to shut down a unit of the year almost. So next year is just a little bit of a balance in this year and next year but over flat is how I'd look at it overall.

Got it. That makes sense. On the other side of the coin, as it relates to the sales outlook, you talked about the data center opportunity in supporting the 2% to 3% growth. Is that kind of like the right base to think about beyond '24? Do you anticipate some further acceleration over the 5-year plan? Just trying to calibrate if the environment is just different now given some of the tailwinds as you talked about. And clearly, as well, oil and gas, a Delaware Basin really click on all cylinders here, a lot of activity that we see on the pipeline side. So just, I guess, curious for those drivers and how that could carry out over time.

Yes. Next year, in the Permian Basin, we expect significant growth in SPS as we support electrification and collaborate closely with our major customers there. From a data center perspective and considering long-term growth, our projected 5-year sales growth is between 2% and 3%. Looking ahead to 2024, we anticipate this trend will continue over the next five years. Additionally, there may be opportunities beyond that as we consider the impact of generative AI on load and data centers. We are excited about investment opportunities that could help us manage customer bills effectively and keep them affordable as we make substantial investments in our system.

Just to add on to that, this is Bob. When I think about the comments I made in the opening remarks about the ability to deliver clean energy more cost-effectively in our regions of the country than other parts. I think over the long term that should absolutely accrue to our state's benefits in terms of economic development. Energy and energy-intensive resources are going to come back offshore in the United States. We should be a very attractive destination for them as we can deliver renewable energy and clean energy much more cost-effectively. We serve customers where the wind blows and the sun shines and that translates to high capacity factors and lower energy costs to our customers, which should lead to long-term economic development in our states.

What's your current thought on PPAs buy-ins in light of some of the tax tenability dynamics and some of the developments that you're having?

We currently have no plans for PPA buy-ins or buyouts. These opportunities could arise through the RFP processes as we collaborate with our developers to identify potential options. One possibility includes buying out a wind farm and repowering it, which has been successful for us in the past. However, we view these opportunities as incremental and unpredictable, which is why they aren't included in our capital plans. Nonetheless, we do maintain close communication with our developers to explore occasional opportunities.

Okay. And then regarding the looks like $100 million DOE grant or wildfire mitigation, that's been awarded more recently. As you go into a lot of wildfire mitigation plan and look at more spending, is there opportunities to receive digital brands? Are you pursuing any capital to automate your plan?

Ryan, it's Bob. I don't know if there's more dollars in the DOE bucket in the grid resiliency program. Obviously, we're going to take these dollars and continue to do additional work. Those were discrete projects that were approved with the DOE and are earmarked across our various states. Some of which is for wildfire. Some of it is in technology development. So we're excited about partnering with the DOE. It's about a 60-40 split in terms of their funding versus our capital, and our piece is embedded within our forecast. So it's not going to be a big upside in terms of capital investment opportunities. But as we look to the long term, on wildfire mitigation plan. We're going to work with all of our stakeholders in our various states, but the wildfire mitigation plan in Colorado should get filed late this year or early next and look to be very proactive in how we handle system hardening, new technology to bring to bear to minimize the risk of ignition for our customers in the state, obviously, protecting their assets and their health is our priority.

And just to take a step back, we're proud of the 4 grants that we've received really focusing on how can we help lower the cost of our customers, others for new technology around and specifically on the long-duration battery. And not only do we get $70 million in deal funding for that, but we also got $20 million from Breakthrough Energy Ventures. So, $90 million for those 2 pilots. So really a great story and looking forward to working with our commissions on all the DOE funding that we've received so far. And certainly, we'll look for other opportunities out there.

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