Xcel Energy Inc (XEL) — Q4 2023 Earnings Call Transcript

Good morning, welcome to Xcel Energy's 2023 Fourth Quarter Earnings Call. Joining me today are Bob Frenzel, Chairman, President, 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 your questions if needed. This morning, we will review our '23 results and highlights, share recent business and regulatory updates, and provide updates on our long-term growth plans. Slides accompanying 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 metrics that are non-GAAP measures. Information on the comparable GAAP measures and reconciliations are included in our earnings release. In the fourth quarter, Xcel implemented several workforce actions to streamline the organization, ensure resources are aligned with business and customer needs to ensure our long-term success. Xcel initiated a voluntary retirement program under which 400 non-bargaining employees retired. In addition, we eliminated 159 bargaining positions. As a result, we recorded a workforce reduction expense of $72 million or $0.09 per share in the fourth quarter of '23. Also in '23, we recorded a charge of $35 million or $0.05 per share related to a legal dispute between CORE and Xcel Energy regarding prior year operations at the Comanche 3 coal plant. Given the nonrecurring nature of these items, both have been excluded from ongoing earnings. As a result, our GAAP earnings were $3.21 per share while ongoing earnings, which exclude these nonrecurring charges were $3.35 per share. All further discussions in this earnings call will focus on ongoing earnings. For more information on this, please see the disclosures in our earnings release. With that, I'll turn the call over to Bob.

Thanks, Paul, and good morning, everybody. We had another successful year at Xcel Energy continuing to provide our customers with safe, clean, reliable, and affordable energy while delivering an operational and financial performance. In 2023, we executed on the largest capital program in Xcel Energy history, investing approximately $6 billion to improve resiliency and enable clean energy for our customers while delivering economic growth and vitality for our communities. Our investments in operations enabled ongoing earnings of $3.35 per share, representing the 19th consecutive year of meeting or exceeding our earnings guidance. Meeting our financial commitments is critical to maintaining a competitive cost of capital, which benefits our customers as we access the capital markets to fund our operations. In December, we received approval for our groundbreaking clean energy portfolio with over 5,800 megawatts of new generation resources. This $4.8 billion of new generation investment, which when coupled with the necessary transmission, represents almost an $8 billion worth of commitments in Colorado to deliver a cleaner energy economy. I'm proud of how our teams partnered with so many stakeholders to deliver on these achievements. And as I look back on the year, we accomplished so many other great outcomes. While the final values aren't in yet, our SAIDI scores improved, and we believe we'll be in the top quartile of U.S. utilities for delivering reliable electricity to our customers. Across our wind fleet, we continue to deliver strong net capacity performance and exceeded our corporate availability target for the third consecutive year. We navigated a very busy regulatory calendar, resolving multiple rate cases and reached a pending settlement in our Texas electric rate case. We filed our Clean Heat Plan in Colorado and our natural gas innovation plan in Minnesota, providing a framework in both of those states to achieve net-zero greenhouse gas emissions for our natural gas customers. We've approved transportation electrification programs in New Mexico and in Wisconsin, along with updated transportation plans pending commission approval in both Minnesota and Colorado. We were partners in over $1.5 billion of awards by the Department of Energy to support the Heartland Hydrogen Hub, wildfire and extreme weather resiliency, Form Energy long-duration energy storage pilots, and additional transmission as part of the MISO SPPC's projects. These grants will lower the cost of these clean energy and resiliency projects for our customers. In 2023, we signed agreements for data centers with Meta in Minnesota and QTS in Colorado. Data center and AI-driven demand continued to be a low driver on our system with several gigawatts in the pipeline across our footprint. In Minnesota, we received approvals for an additional 250 megawatts of solar in our 10-megawatt, 100-hour Form Energy battery pilot, both at our retiring Sherco coal facility. We have active RFPs for over 2,000 megawatts of renewable resources across our operating companies, which we expect resolution on later this year. We also filed resource plans in our SPS company, which could add an additional 5,000 to 10,000 megawatts to our system by 2030. In December, we retired Unit 2 at our Sherco coal facility while continuing the trend of no personnel layoffs at our retiring coal facilities over the past 15 years. We reduced carbon emissions for the electric utility by 53% as compared to a 2005 baseline, on track with our goals for 2030 and 2050. All the while, our customer bills remain among the lowest in the country. Over the past five years, the average Xcel Energy residential electric and natural gas bills are 28% and 14% below the national average, respectively. And over the last 10 years, we kept our annual residential electric and natural gas bill increases to 1.8% and 1.1%, respectively, well below the rate of inflation. We're actively involved in our communities as our employees, contractors and retirees provided more than $11 million and volunteered over 40,000 hours to support charitable organizations across our footprint. We initiated 18 economic development projects for our communities, which are projected to create more than $2.4 billion in capital investments and 1,400 jobs. For the seventh consecutive year, we received the top score from Human Rights Campaign Foundation's Corporate Equality Index, the nation's foremost benchmarking survey in measuring corporate policies and practices related to LGBTQ+ workplace equality. And finally, we received several other recognitions, including being named a top military employer by multiple organizations and one of the World's Most Admired Companies by Fortune Magazine. We're proud of these achievements, which reflect operational excellence and strong policy alignment, allowing Xcel Energy to provide a valuable product with significant benefits to our customers, our communities, our employees, and our shareholders. With that, I'll turn it over to Brian.

Thanks, Bob, and good morning, everyone. For the full year 2023, we had ongoing earnings of $3.35 per share compared to $3.17 per share in 2022. The most significant earnings drivers for the year include the following: higher electric and natural gas margins increased earnings by $0.10 per share. This reflects $0.10 of unfavorable weather as compared to last year. Lower O&M expenses increased earnings by $0.06 per share which reflects the impact of cost containment actions. Lower conservation and DSM expense increased earnings by $0.06 per share, which is largely offset by lower margins. Higher other income increased earnings by $0.05 per share, primarily due to rabbi trust performance, which is largely offset in O&M expenses. Lower other taxes, primarily property taxes, increased earnings by $0.04 per share. And in addition, other items combined to increase earnings by $0.06 per share. Offsetting these positive drivers, higher interest charges decreased earnings by $0.14 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 $0.05 per share, reflecting our capital investment program. Turning to sales. Full year weather adjusted electric sales increased by 1%, consistent with our guidance assumptions. For 2024, we expect electric sales to increase by 2% to 3%. Shifting to expenses. O&M expenses decreased $47 million or approximately 2% for the year. This is consistent with our annual guidance and reflects management action to offset inflation and other challenges we faced during the year. During the fourth quarter, we also made constructive progress on several rate case proceedings. In December, we filed a settlement in our Texas Electric Rate Case, which reflects a rate increase of $65 million; an acceleration of the Tolk depreciation life to 2028; and the ROE of 9.55% and equity ratio of 54.5% for AFUDC purposes. The commission decision is anticipated in the first quarter of 2024. In November, the Wisconsin Commission approved an electric rate increase of $1 million and a natural gas increase of $5 million based on an ROE of 9.8% and an equity ratio of 52.5%. The decision reflects adjustments for our residential affordability program, updated fuel and purchase power costs and other items, which are earnings neutral. Rates were effective January 2024. In November, we filed a Minnesota Natural Gas Rate Case requesting a $59 million rate increase based on an ROE of 10.2%, an equity ratio of 52.5% in a forward test year. In December, the commission approved our request for interim rates of $51 million, subject to refund starting this January. A final decision is expected later this year. As far as future filings, we plan to file a Colorado Natural Gas Case in the next week or so. In addition, we also anticipate filing a revised Wildfire Mitigation Plan in Colorado in the first half of 2024. Updating our progress on production tax credit transferability. We executed multiple contracts in 2023 totaling $400 million. We anticipate executing $500 million of PPC sales in 2024. Transferability reduces near-term funding needs and, most importantly, lowers the cost of our renewable energy projects for our customers. Moving to our capital forecast. We've updated our 5-year capital plan for the decision in the Colorado Resource Plan, which now reflects an investment of $39 billion. This base capital plan supports investment in renewable generation, transmission to deliver the clean energy and customer-facing investments for a reliable and resilient advanced grid. The baseline results in an annual rate base growth of approximately 9%. Not included in our base plan is approximately $5 billion for renewables and firm capacity associated with RFPs at NSP and SPS and future filings in Colorado. We've updated our base financing plan, which reflects the incremental debt and equity financing needs for these investments. Please note that the guidance assumptions in our earnings release have also been updated to reflect changes to the capital forecast for this year. As a reminder, we anticipate any incremental capital investment to be funded by approximately 40% equity. 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 metrics and favorable access to capital markets are critical to fund our clean energy transition, maintain a competitive cost of capital, and keep customer bills low, especially in a higher interest rate environment. Finally, we remain committed to our long-term EPS growth objective of 5% to 7%, which we believe is conservative. We now expect to deliver earnings at or above the top end of the range starting in 2025. In addition, we will rebase future annual guidance of actual results. As a result of the significant capital investment opportunities and equity funding needs, we now expect to grow the dividend at the low end of our current 5% to 7% dividend growth range with a target payout ratio of 50% to 60%. This will reduce our equity financing needs over time, lower financing risk, and give us even more financial flexibility in the future. Now I'll conclude with a brief update on the Marshall Wildfire Litigation. The statute of limitations ended in December, and as expected, we saw a significant increase in the number of claims. As of now, we are aware of 298 lawsuits with approximately 4,000 claims. In early February, there will be a hearing at which time a schedule may be determined. We believe the trial will likely begin in 2025. With that, I'll wrap up with a quick summary. We're executing on an ambitious investment plan for our customers to deliver clean, reliable energy that has enabled Xcel Energy to deliver ongoing earnings within our guidance range for the 19th year in a row. For the 20th consecutive year, we increased our dividend to investors. We resolved multiple rate cases and filed foundational plans for our natural gas utility to reach its net zero goals. We retired our Sherco Unit 2 coal plant early and reduced carbon emissions by 53% from 2005 levels. We received approval for our groundbreaking portfolio of clean energy resources in Colorado. We updated our base 5-year capital plan to $39 billion, which reflects 9% rate base growth. We have additional capital backlog in all of our jurisdictions. We have a strong line of sight to achieving earnings at or above the top end of our 5% to 7% long-term EPS growth rate. And finally, our electric and natural gas customers have some of the lowest bills in the country while continuing the safe and reliable service they expect from Xcel Energy. This concludes our prepared remarks. Operator, we will now take questions.

Congratulations on a variety of different metrics here. But you guys had already been tracking above the midpoint of your 5% to 7% and given the rate base going up say, 1.5% even with kind of incremental dilution, how do you think about that adding up, right? I mean I'm going to put it back to you a little bit, like how do you think about doing the math there, if you will? And just setting expectations. Obviously, every year might be slightly different here.

I like the phrase doing the math. I think I might have heard that before. Look, we're really excited about our investment profile over the next 5 years, across our 8 states, multiple asset categories, clean generation, transmission, advanced grid, electric vehicles, everything in support of our customers. Obviously, the EPS growth rate follows the rate base growth with some amount of dilution for financing costs at the parent level. The new updated capital plan is accretive. We expect during this 5-year period to be at or above the top end of our 5% to 7% range. But we think 5% to 7% is still a good long-term growth rate for the company, and that's our guidance right now.

Yes. And Julien, I'd just add that we expect a conservative growth rate. As I mentioned in my remarks, moving forward, we will base our projections on actual earnings. It's important to highlight our strategy. Overall, as Bob noted, we are really excited about our opportunities and our role in the clean energy transition. I believe we are one of the fastest transitioning utilities in the country. Additionally, our electric bills are 28% below the national average. This positions us well for our investors and customers.

Yes. I appreciate being able to rebase off the actuals. That's certainly a sign of strength, as you say. Now maybe just to come back to the timing of equity here. How do you think about that vis-a-vis the updated plan and updated needs? And perhaps just to clarify this, just for the time being, at least this year, no change in that 5% to 7% at least for the current plan here?

Yes, Julien, there is no change in our guidance assumptions for this year, which remain at $3.50 to $3.60. There is an increase in capital expenditures compared to last year, but that is largely back-end loaded as we navigate some regulatory approval processes. From an equity standpoint, we have stated that we aim to raise at least $500 million annually through our ATM and expect that to be consistent over the next five years. Additionally, we have some drip equity. The amount exceeding the $1.5 billion will be approached opportunistically, and we'll assess it accordingly, but it aligns with our incremental capital expenditures.

Got it. Excellent. And then on the Minnesota commissioner you've experienced, what's your relationship and maybe a little bit of a brief comment here on where we stand in Minnesota, if you will?

Yes. No, we've got a long-standing relationship. The new commissioner comes out of the department, and we've been working with him very proactively over the years. So we expect a continued strong relationship with the Minnesota Commission.

It's actually Rich Sunderland on for Jeremy. Can you hear me?

Yes, we can.

Great. Just picking at the last point on equity. I appreciate opportunistic in terms of timing. Can you speak a little bit more in terms of format of how you might address that I guess, the gap from the ATM to the total needs. Anything on the table at this point or any guardrails to that?

No, we have a straightforward approach to financing our company. The basic strategy involves block issuances, and we may also consider forward sales. We are looking into mandatory conversions, but our primary focus is on executing block trades at levels we are comfortable with using the ATM.

Understood. Very helpful. And then looking at a high level in terms of the O&M outlook and then parsing that relative to the workforce reduction announcements. Could you speak a little bit more to the savings there over the near to medium term? How that factors into your overall O&M trajectory and how you're thinking about that O&M outlook, I guess, over the long term as well relative to the work you've accomplished over the past few years.

Yes. I will start with the workforce reduction question and then discuss our long-term O&M outlook. Like many others, we have faced significant cost challenges in recent years. As Paul mentioned, we made this decision to streamline our organization and ensure that our resources are aligned with customer needs and growth opportunities. So as Paul said, approximately 400 employees are through that voluntary retirement program, and another 150 positions were eliminated, so that we look forward that generates approximately 2% O&M savings on a run-rate basis. But we will look to reinvest some of that, as I said, into the growth areas of the company as we look to support our customer needs. But overall, sets us up into '24 that is included and incorporated into our 2024 guidance. As I think about 2024, our guidance were up 1% to 2% relative to '23, but it's really flat to '22 when you look at what happened in 2023. Now longer term, you asked about kind of what our longer-term expectations are, we've been managing our O&M with a laser focus on operational efficiency. I think if you look at our IR deck from Q4, we're one of three utilities that have O&M flat or down since 2015 on the electric operations side. So something we're really proud of. And while we look longer term, we have some tailwinds of coal plant shutdowns. We expect we'll be shutting down a coal plant roughly a coal unit roughly a year. We spend a lot of time on technology in looking at how we can leverage technology in our operations in the corporate areas. And then I think most importantly, we haven't talked about this that much as we launched something that we call One Xcel Energy Way, which is our continuous improvement engine. We deployed it last year, so we're in the year 2 of it. Really focused on the lean principles and being a transformation engine that is looking at waste reduction and waste elimination. So that's something we're putting a lot of effort and focus on it, and that team reports directly to me, so I'm very involved in it. So we think longer term, our goal is to absorb inflation, absorb the areas we need to invest in from a growth perspective and maintain O&M roughly flat and ensure that we can keep our customer bills low for the long term. So we're pretty excited about it. Obviously, it's not easy but something we spend a lot of time on. So I appreciate the question.

Bob, congrats, a solid quarter here to you as well Brian and the rest of the team. Just I thought the dividend growth trajectory change was interesting. You're now saying low end of the 5% to 7% because you have high growth rate. Maybe just talk through your thinking there. You were kind of growing faster, so that gives you more flexibility on the financing side. Just a little bit more color there would be helpful.

Yes, absolutely. As we assess the situation, our substantial growth in our base plan, supported by an additional $5 billion in capital, allows us to guide toward the high end or even surpass our conservative EPS growth forecast of 5% to 7%. We believe it is a wise decision to reduce our dividend growth while still maintaining our guidance within that range. In the long run, this approach helps us minimize the equity required for the $5 billion in capital. Additionally, the compounding effect of a reduced dividend in light of our significant capital needs seems like a sensible choice, offering us greater financial flexibility and reducing financing risks over time.

Got it. And Brian, there's clearly a lot of CapEx opportunity with the additional $5 billion in capital spending. Do you consider the 5% dividend growth as a minimum, or could it potentially decrease further if you're investing more capital into the plan?

Durgesh, I think we'll assess it every time if we have a significant chunk of capital, update our plans as we do regularly, we obviously evaluate all parts of our total shareholder return.

It's Bob. Thanks for the support as always. Following the fire, the next milestone is our trial planning period, which is scheduled for the first week of February. The timeline has been adjusted due to the change in cases and plaintiffs, allowing new claimants more time. We'll have a clearer trial calendar soon. As Brian mentioned, we anticipate a trial in '25. After that, we enter the discovery phase, and there isn't much to do beyond that. We will keep everyone updated as we receive more information, but for now, the situation remains the same regarding the case, and we will likely roll the calendar to early next month.

Yes. So I just wanted to clarify, all your growth rate commentary is that based on the base plan? The updated base plan?

Yes, Steve, the updated $39 billion plan. Yes.

Could you discuss the PIMs in Colorado and your thoughts on managing any risk exposure associated with them?

Certainly, Steve. For those not familiar with the proceedings, we have proposed two Performance Incentive Mechanisms, or PIMs, as requested by the commission. One of these is a cost to construct, which serves as our project budget. We've been following this approach for a while in states like Minnesota, Texas, New Mexico, and Colorado. The commission made some adjustments to our proposal, introducing a plus or minus 5% deadband, with customer savings and sharing applied as a penalty or incentive beyond that range. Overall, we are confident in our ability to manage within this PIM. We believe we have presented solid budgets for our projects and were aware that we would be accountable for our proposals, given the competitive nature of the process. We are confident about this. Regarding the operational performance incentive mechanism, the commission made slight modifications but generally accepted our proposal. You can think of it as a levelized cost of energy performance incentive based on a 3-year rolling average with a 5% deadband. For costs or savings that exceed the initial 5% to 10%, customers receive 80% of the benefits while the company covers 20%. We believe this is quite manageable and appreciate that the commission adopted our proposed performance incentives. We look forward to collaborating with the commission on the Certificate of Public Convenience and Necessity process, and we also have the Just Transition plan ahead, which presents further opportunities as we consider the shift in our generation fleet in Colorado.

Okay. Great. And then lastly, just some Washington question. The, I guess, timeline, if any, on the nuclear PTC. Your thoughts on the proposed hydrogen rules and what that means for your project. And if you want to take up any thoughts on election risk to IRA.

Steve, it's Bob. The last one seems like a lot of fun to talk about, but I'll probably pass on that fastball. On Washington, in particular, the hydrogen production tax credit, we were very active, we've been very stalwart in our position that we believe that clean fuels and clean molecules are going to be needed as part of a broader, cleaner energy economy. We felt that hydrogen was probably the most attractive molecule that we could produce in a clean and green way. We are really proud to be considered for a Hydrogen Hub in our Upper Midwest proposal, the Heartland Hub. But I got to tell you, the 45V tax credit draft guidance out of the treasury was disappointing. It doesn't feel as if we're trying to support a hydrogen economy in the United States. It's going to make it more expensive for our customers, complicate the development of an electrolyzer industry on an industrial scale in the country, and will slow or stall the deployment of clean fuel in the United States. We anticipate providing comments during the comment period, and we expect EEI and other customers to do the same. Therefore, the treasury will have a lot to consider regarding strict additionality and hourly matching if it wants to make it more difficult to produce hydrogen at a cost-competitive level compared to other fuels. That's our current stance on hydrogen. You also inquired about nuclear; I'll let Brian continue.

Yes, I can provide input on nuclear. We anticipate sharing guidance in Q2. The key aspect of this guidance is how to calculate the gross receipts and their respective value. We have advocated for the use of Locational Marginal Prices since we are operating in a Regional Transmission Organization. While our earnings guidance does not currently reflect this in our Effective Tax Rate, we believe that based on the forward curve, our customers could see a benefit exceeding $100 million. We have shared our perspectives on this matter and remain hopeful that the treasury will support us, as it would greatly benefit our customers. So looking for that Q2. Just a follow-up on Bob's comments on hydrogen. I mean disappointing, the analysis I've seen is green hydrogen now structurally more expensive than blue hydrogen for the next decade and significantly more expensive than gray hydrogen. And so it will depress the development of the green hydrogen market. And so hopeful to get some changes to the final rules.

Just hopefully two quick ones if I could follow up on Steve and Julien's math class question. When you think of the 5% to 7%, you're at or above the high end, and that's all in the base capital. What would cause you to get to 6% growth?

Well, I mean, at or above the high end implies that we're above 6% growth right now. But I take it your question, what would cause us to go to 6% to 8%, if I can interpret it? Like we evaluate it, we feel 5% to 7% is the right long-term growth rate. It's conservative and rebasing off of actuals and signaling that we're going to be at the top end or above is the right place to be long term.

Great. You mentioned that you're filing a Colorado Wildfire mitigation plan later this year. Can you provide some insights on that? Is there potential for additional capital expenditures or any operational changes you're considering once that filing is made?

Yes, Anthony, it's Bob. It's nice to hear from you this morning, and I appreciate the questions. We are currently implementing an existing wildfire mitigation program in Colorado. This plan involves asset hardening and replacement, as well as pilot programs for various technology solutions and risk modeling. The updated plan we expect for Colorado will likely continue many of these existing programs and shift from pilot projects to larger-scale implementations. This includes everything from coatings on poles to analyzing and deploying covered conductors, enhancing recloser settings and installations throughout the business, and exploring opportunities for incremental undergrounding in certain areas. Additionally, there are potential operational improvements related to enhanced power line settings and PSP mechanisms. Still working on finals. So I don't think it's going to be a material driver in terms of our capital deployment, but I do think it will be an enhancement to our risk reduction in our Colorado company.

And Bob, lastly, does that plan need approval or just acceptance as part of the procedure for the wildfire mitigation plan in Colorado?

Yes. It goes through a regular way of proceeding with intervenor testimony and our testimony approved by the PUC.

Just two quick ones for me on some of the resource plan opportunities that you've highlighted. So first, on Colorado, obviously, strong results on that plan in 2023. How should we think about just the next milestones to watch in Colorado, whether that's around the CPCN process for the transmission or the Just Transition filing?

Yes, certainly, Carly. In Colorado, we will start filing Certificates of Public Convenience and Necessity for our transmission projects, likely beginning in late February. These will be submitted progressively, with most filings anticipated to occur during the second quarter. The approval process for these will typically take about 8 to 9 months for each filing. These are the upcoming milestones related to the projects stemming from the recently approved Colorado Resource Plan. Additionally, we plan to submit our Just Transition Plan in June, which will focus on replacing the Comanche 3 assets, following the commission's approval of the No Regrets Portfolio this December. I think there's an opportunity to bring the incremental resources. We do think we need additional resources that we propose and even the commission acknowledges that there may be an opportunity or they believe that we may need those resources. So that will be all part of the Just Transition Plan filing. And again that follows a typical Colorado timeline in terms of 9 months or so to work through that proceeding. So it would - pushes that into 2025. But overall, excited those are kind of looking at '28 to '29, '30 type clean generation opportunities and how do we transition our fleet in Colorado as it will be completely out of coal by the end of 2030 in Colorado. On SPS, really great low growth opportunities in SPS. And you noted our sales growth there in 2023, we expect to continue to see significant sales growth in that region. I think that is really the driver of our SPS resource plan. We provided a range from 5,000 megawatts up to 10,000 megawatts. That 10,000 megawatts is really working with our large customers on their electrification forecast. So I think it's a significant opportunity. We do not have that anywhere in our capital plans. We will work through that filing, and the New Mexico Commission will accept the resource plan, even though they don't officially approve it. We plan to launch the RFP in the summertime and expect to receive results later in 2024, aiming to start the selection process early in 2025. We're excited about this plan and supporting the benefits of electrification in SPS, ensuring we can serve our customers. Overall, we see great opportunities in serving the low growth in our territories.

Carly, it's Bob. I just add on to what Brian said is probably remiss if we didn't comment on the Minnesota and the Wisconsin RFPs that are in the SPS RP that's in flight right now, which represents 2,000 megawatts of new clean energy in the Upper Midwest and in the Southwest. We expect resolution of those, as I said in my prepared remarks, this year, and they're included in our incremental capital opportunities in our investor deck.

And just one more thing to add. We'll be filing a resource plan in Minnesota on February 1, which is a continuation of the transition of our generation fleet as we shut down our coal plants in Minnesota by 2030. And pretty excited about just all the opportunities across our service territories.

So I noticed that you showed the Colorado, I guess, earned ROE like sub 8%, if I'm reading this correctly. Just given how much capital you're going to be investing in the state, do you see a path to improve that? And what is that?

Yes. Sophie, thanks for the question. Certainly, in Colorado, we've had a pretty significant gap between our authorized versus earned ROE. As we think of all the capital that we're deploying on the clean energy transition, that will flow through timely recovery from a rider perspective. Also, all the transmission that we need to invest to be able to deliver that clean energy to our customers will flow through the TCA. So the incremental capital should get more timely recovery. I mean, it's important as we think about longer term to ensure that we have a financially healthy utility because it allows us to have a competitive cost of capital, which in the long term is most beneficial to our customers as it delivers the lowest cost of customers.

So the problem, so to speak there was just a timing lag with capital, which you expect to improve with more contemporaneous mechanisms. Am I getting this right?

Yes. And as we mentioned, yes, it is the regulatory lag, the capital lag. We had a historic test year in Colorado gas. And as we mentioned in my opening remarks, we'll be filing a Colorado Natural Gas Case here in the next week or so. And so we'll be working through that.

I have a quick question about tax credit transfers. Are you adjusting the expected level throughout the plan due to the increased CapEx? Did that have any impact? I noticed the cash flow from operations improved compared to the previous slide deck, and I'm curious if that was a factor.

We include the transferability in the cash from operations. However, transferability is not a key driver of cash flow for our planning purposes. All transfer tax credits were accounted for in both the previous and current plans. Cash flow from operations has risen by approximately $1.5 billion, going from a $34 billion plan to a $39 billion plan. Our net income, which influences book depreciation and deferred taxes, is driven by a combination of several projects. Some of these projects are set to begin service midway, contributing positively as cash-generating assets. This is why we observe that level of cash flow. From a transferability perspective, we now include that in our 5-year forecast. Previously, I mentioned we were around $2.5 billion of transferability. Now we're approaching about $3 billion of transfer tax credits over the next 5 years, with roughly $500 million this year, growing to about $700 million by the end of the forecast period. We see the demand and actually have much more demand than our supply.

I'm disappointed, we don't get to hear your election thoughts. But aside from that, wonder if you could talk a little bit more after you've added this capital and the impact that's going to have, obviously, on financing needs and the impact on the dividend growth, how do you go into these next set of RFPs and any kind of other capital investment opportunities. Does that change your thinking in terms of pursuing some of those projects?

Thank you for the question, Tavis. We aim to own and manage the infrastructure that supports our customers, as it's a key strength of our company. We believe we are competitive and can offer favorable pricing to our customers. Over the past 5 or 6 years, we have demonstrated our ability to deliver value through our clean energy investments. While it wasn't part of our initial projections, we estimate that over the last 5 years, we've realized nearly $5 billion in tax credits and avoided fuel costs by integrating wind energy into our system, which was not factored into our forecasts when we developed those wind farms. So there's real customer benefit for us owning and passing that stuff through to our customers. As we look to the future, obviously, we want to own and operate the infrastructure. It's important in the regulatory mechanisms, as you said, making sure that we get timely recovery of the new investment assets is really important for us as we think about installing new generation into our areas. But I think our position would be that we continue to want to own and operate generation assets, recognizing that there are going to be likely competitive processes, and we have to prove value to our customers and we've been good at that.

Yes. To add to what Bob mentioned, we need to show that we are competitive with our commissions, which we have been and plan to maintain going forward. This will allow us to continue providing low-cost electricity to our customers. From a financial perspective, we have been clear that we will support accretive capital growth through a balanced approach involving equity, debt, and cash flow from operations. Overall, we are very comfortable with our position and believe we are well-placed to meet the needs of both our customers and shareholders in the long run.

Okay. Great. That makes sense. And then one other different subject. Assuming you get the Tolk accelerated depreciation approval in Texas, are there any remaining steps, either regulatory or other procedural steps necessary to hit that 2030 goal of closing your entire coal fleet?

No. No. That was the last one outstanding. So we're pretty excited about it assuming we get PUCT approval of the settlement. That's the last one.

A couple of quick questions. In terms of the Marshall fire, I appreciate the clarifications and updates. Is there any opportunity for settlement there outside of the formal court process?

Ryan, look, it's still very early in the process. But as we've said from the beginning, we strongly disagree with the conclusion of the sheriff's report, and we intend to vigorously defend ourselves sitting here today.

Okay. And given the balance sheet, operator challenges and needs to raise capital over the coming years. Are there any M&A opportunities in terms of asset sales that you'd contemplate to derisk your funding plans?

Yes. First, I guess I'd disagree with the balance sheet challenges. I think we have one of the stronger balance sheets in the industry. So I don't necessarily agree with that characterization. But now from an M&A standpoint, now we're comfortable with where we sit in the assets we own. Obviously, we're aware of everything that is going on in the industry.

Just a quick question on the Marshall fire. Is there any update on the dollar amount of the claims at this point?

Paul, it's Bob. Thanks for the question. No, no update. I mean the insurance commissioner said that the property damage was in excess of $2 billion. But as far as the total amount of suits, they haven't claimed any liability in the suits or from the plaintiffs.

Just one of my questions has been asked. But to follow up on Steve Fleishman's question about the PIMs, it seemed that there was an expectation of looking into additional PIMs, and there was an interest in performance-based regulation in general. I was wondering how you feel about this. I know it's early to tell, and it hinges on what the PIMs are. However, since they seem to be more aligned with performance-based regulation, how do you think you are positioned to handle this? Do you see not just penalties but also incentives, and is there a chance that you could perform well under performance-based regulation?

Paul, you were breaking up a little bit, but let me see if I understand the question. Given the recent PIMs in Colorado, how do you feel broadly about performance-based ratemaking and things like that? Look, I think that it's natural. And as Brian indicated earlier, that we've had capital cost caps on various projects broadly throughout the portfolio. I think the setup PIMs that we worked through with interveners and stakeholders and the commission as part of the CEP in Colorado, I think the process was productive. We have an opportunity to propose. I think they appreciated our proposal. I don't think it's a material move in a certain direction. I think it's probably appropriate and on a project basis probably less so for an entity-wide basis.

Yes, Paul, in the written orders, certainly there's a discussion. We'll work with the staff as we work on the Just Transition plan in terms of looking at well-designed PIMs. And there's also a PIM around potential kind of the emissions achievement. So we look forward to working with staff on that as we move through time.

Well, thank you all for participating in our earnings call this morning. Please contact our Investor Relations team with any follow-up questions. Have a great day.