Xcel Energy Inc (XEL) — Q1 2024 Earnings Call Transcript

Good morning, and welcome to Xcel Energy's 2024 First 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 '24 first quarter results and highlights, discuss recent wildfires and our mitigation efforts and share recent business developments. Slides accompanying today's call are available on our website. Please note that we changed our presentation. As a result, we no longer refer to electric and natural gas margin. Instead, we'll discuss changes in revenue and cost of goods sold from the income statement. Please note that these fluctuations in the cost of electric fuel and natural gas are recovered through regulatory mechanisms and are generally earnings neutral. 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 SEC filings. Today, we'll discuss certain measures that are non-GAAP measures. Information on the comparable GAAP measures and reconciliations are included in our earnings release. With that, I'll turn it over to Bob.

Thanks Paul, and good morning, and welcome, everyone. It's been 2 months since wildfires impacted our Texas neighbors, and before Brian walks through our financial results, I'd like to discuss the actions we're taking to protect the public and to strengthen our systems' resiliency in the states that we serve. In February, multiple wildfires were ignited in Texas. And from the outset of those fires, our focus has been on the people, communities, and the Panhandle and on the safety and the well-being of our coworkers and their families there. I want to thank all of the first responders, emergency personnel, state and local employees, and our own SPS employees who worked tirelessly in support of our customers and our communities during and after the event. They provided wildfire response, community assistance, and relief services and worked tirelessly in the field to restore essential services. I've been to the Panhandle, and I've witnessed the impacted areas. I can see for the entire Xcel Energy team when I say that we are saddened by the losses, and we will stand with the Panhandle community as we recover, rebuild, and renew that area as we have for over 100 years. Xcel Energy has acknowledged that our distribution poles appear to have been involved in the ignition of the Smoke House Creek fires and smaller Reamer Fire, which quickly burned into the Smokehouse Creek Fire footprint. We assume claims that Xcel Energy acted negligently in maintaining an operating infrastructure. In addition, we do not believe that our facilities caused the Windy Deuce or the Grapevine Creek fires and believe that their ignitions are caused by distribution lines owned by other companies. In an effort to expedite relief and recovery in the community, we've established a claims processes for those who have property or livestock loss in the Smokehouse Creek fires and are actively settling a number of claims. So far, 46 claims have been submitted. As of April 22, Xcel Energy and SPS have been named as defendants in 15 lawsuits. Based on the most current information, we believe it's probable that we will incur a loss due to the Smokehouse Creek wildfire and accrued a liability of $215 million, which is offset by an insurance receivable since it's lower than our approximately $500 million insurance. Please note that the $215 million loss equivalent preliminary estimate, which reflects the low end of our range, is subject to change based on new information. More information on Smokehouse Creek can be found in our disclosures in our earnings release and our Form 10-Q. On all utilities, we're experiencing profound changes in weather and climate-related impacts on our operations. As a result, we must continue to evolve our operations for these unparalleled dynamics. Risk mitigation and system resiliency have long been a priority for Xcel Energy and will continue into the future. Our strategy consists of 3 phases: first, immediate near-term response; second, regulatory activities needed to address comprehensive wildfire mitigation and resiliency plans; third, additional state and federal legislation that could be valuable. Part of our first phase includes accelerating risk-reduction initiatives across our system, including accelerating portfolio inspections and replacements, as well as operational actions such as proactively de-energizing the lines and adjusting reclosure settings, known as power saving, power cells, and enhanced power line safety settings. We've been operating under an approved wildfire plan in Colorado since 2020. As part of our second phase strategy, we will file updated wildfire mitigation plans in our respective states, beginning with an updated Colorado WMP later this quarter. The plans incorporate industry learnings that are tailored to our unique geographies and risk profiles. Newly expanded actions will include increased vegetation management, accelerating pole inspections, hardening and replacements, distribution undergrounding segmentation, and covered conductor programs, transition line hardening and rebuilds, enhanced reclosure settings, and correctly energizing lines and situational awareness programs, including weather stations, cameras, and other monitoring software. Later this year, we intend to file a system resiliency plan that will include wildfire mitigation as contemplated under recent Texas law. The third component of our strategy is to prioritize our efforts to innovate and plan for evolving climate wildfire risk. We know that our ability to enable a clean energy transition and to deliver important products to our customers is predicated on maintaining reasonable capital costs. We believe that proactive legislation at a state and federal level is a potential vehicle to ensure that our customers continue to receive affordable, reliable, sustainable, and safe power service. We're not doing this alone. We're working across the industry with peer utilities, industry groups, federal, state, and global agencies, first responders, our labor partners, and countless others. While we need to reduce wildfire risk, our core operations remain strong and our investment opportunities robust. During the first quarter, we made significant progress on our clean energy transition and resource plans. In February, we filed our resource plan for the NSP system. We proposed to add 6,400 megawatts of new resources and extend the lives of our Prairie Island and Monticello nuclear facilities past 2050. The proposed plan reduces carbon emissions by more than 80% while increasing customer bills by approximately 1% annually. We anticipate a decision on our proposal by the Minister of Commission in 2025. In New Mexico, the commission accepted our resource plan, proposing to add approximately 5,000 to 10,000 megawatts of new generation by 2030. We anticipate issuing an RFP for the resource needs this summer. Finally, the Minnesota Commission recently approved our updated transportation electrification plan, and we filed an updated transportation electrification plan in New Mexico in April. We also made continued progress with several economic and commercial development projects. In February, we announced that we are working with Microsoft to bring a new data center to our retiring Sherco coal facility. The proposed data center is positioned to be one of our largest customers in Minnesota and is projected to bring jobs and investments to the community. In March, Meta broke ground on its previously announced data center that will be powered by NSP Minnesota. Meta will provide funding for new infrastructure upgrades, including transmission lines to support the project, and the facility is slated to open in late summer 2025. Xcel Energy proactively worked with data center developers, communities, and stakeholders across our states to ensure that we can reliably and affordably serve this new demand while providing benefits to our other customers. With several additional opportunities in the pipeline, we expect data centers to drive further growth for the foreseeable future. Our employees are at the heart of these many accomplishments. Our team is composed of dedicated, hardworking, and courageous employees committed to serving our communities with safe, clean, reliable, and affordable energy. For the 11th year in a row, Xcel Energy was honored as one of the world's most admired companies by Fortune Magazine, placing 2nd overall among the most admired gas and electric companies in the country. For the fifth year in a row, Xcel Energy has been named one of the world's most ethical companies by Ethisphere. Xcel Energy is one of only 5 energy companies in the United States recognized this year. Xcel Energy also joined the Economic Opportunity Coalition, a public-private partnership with the U.S. government, where we committed to allocating 15% of our U.S.-based contract spending in the areas of energy supply, distribution, transition, and clean energy to small and underserved businesses by 2025. With that, I'll turn it over to Brian.

Thanks, Bob, and good morning, everyone. Turning to our financial results. Xcel Energy had earnings of $0.88 per share for the first quarter of 2024 compared to $0.76 per share in 2023. The increase in earnings reflects our investment of approximately $8 billion over the last 5 quarters to improve resiliency and enable clean energy for our customers while delivering economic growth and vitality for our communities. The most significant earnings drivers for the quarter included the following: the impact of electric and natural gas rate reviews to recover our capital investments increased earnings by $0.12 per share. Lower O&M expenses increased earnings by $0.06 per share, reflecting lower labor and benefit costs, lower bad debt expenses, and gains from a land sale for a data center. Non-fuel riders that recover capital investment increased earnings by $0.05. Offsetting these positive drivers, higher depreciation and amortization decreased earnings by $0.05 per share, reflecting our capital investment programs. Higher interest charges decreased earnings by $0.05 per share. In addition, other items combined to decrease earnings by $0.01 per share. Coming to sales, year-to-date weather and leap year adjusted electric sales decreased by 0.3%, and natural gas sales increased by 1.7% as compared to 2023. Please note that we have revised our projected electric sales growth to 1% to 2% for the year, largely due to declining use per customer and timing delays for expansions for some of our large C&I customers. However, we can certainly expect long-term electric sales to grow 3% annually. During the quarter, we also made progress on a relatively light rate calendar. In April, the Texas Commission approved our electric rate case settlement without modification. The settlement reflects a rate increase of $65 million based on the black box settlement, which includes an ROE of 9.55% and an equity ratio of 54.5% AFUDC process. In our Minnesota Natural Gas rate case, we received intervenor testimony last week. Hearings were scheduled for July, and we expect the commission decision by year-end or in the first quarter of next year. In our Colorado natural gas rate case, a procedural schedule has been established that reflects intervenor testimony in July, hearings in September, and a commission decision in the fourth quarter. Please see our earnings release for more details on our regulatory proceedings. We are reaffirming our 2024 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%. In addition, we've updated our key assumptions to reflect the latest information, which are detailed in our earnings release. With that, I'll wrap up with a brief summary. We are proactively enhancing our operational and wildfire mitigation actions, managing risk to our systems, and protecting our customers from extreme weather. We continue to expect to deliver 2024 earnings within our guidance range as we have for the past 19 years. We are executing on our capital investment plan, including clean generation, transmission, and distribution to support reliability and resiliency and economic development to support our communities. We remain confident we can deliver long-term earnings growth at or above the top end of our 5% to 7% range starting in 2025 and dividend growth at the low end of our 5% to 7% objective range. This concludes our prepared remarks. Operator, we will now take questions.

Thanks for all the information today. I guess a couple of questions to kick it off. You have a lot of resource plan activity going on across SPS and the RFPs seem like they're coming out this summer. Just how are you kind of thinking about competition for capital within the current CapEx plan now that you're seemingly accelerating some resiliency plans at SPS and NIPSCO? Maybe you can kind of remind us what's incremental versus not? And then also just touch on your financing plan.

Yes, certainly, Nick. If I address all the various aspects of that question, please feel free to follow up. We are quite excited about the upcoming RFP in SPS that we previously discussed, aiming for a generation range of 5,000 to 10,000 megawatts, which will include a mix of renewables and dispatchable capacity. We plan to launch that RFP in July with a longer timeline. We anticipate filing CPCNs in the summer of 2025, with decisions expected in the first quarter of 2026. Therefore, the associated capital will likely fall in the 2027 to 2030 timeframe. This extends our growth opportunities beyond the usual five-year period, and that's how I view that capital. It's a great opportunity, and I’m eager to get started. You mentioned this as well. We are committed to investing in resiliency and risk mitigation. Currently, we have about $10 billion allocated for our CapEx related to distribution and transition resiliency. As we prepare to file our Colorado WNP in the second quarter, there will be additional investments needed to mitigate wildfire risks. We will assess all of this during our routine review in October of this year, where we'll provide a forward-looking plan for 2025 to 2029 and consider capital competition. As we stand today, we are very confident that we will be at or above the upper end of our 5% to 7% range. We have numerous opportunities ahead with a rate base exceeding 9%. Financing will proceed as it has in the past. It's crucial to maintain a strong balance sheet moving forward. We aim to finance incremental growth using accretive equity in a 60% to 40% ratio. I hope I covered everything you were inquiring about.

I think I'll just add one thing to Brian's comments. You asked about the company's relative competitiveness. We expect to be able to offer significant value in our development projects for the SPS proposal, and we have demonstrated that with our scale in utility-owned wind and our growing expertise in solar and storage, we believe we will be very competitive in the generation aspect of the Southwestern Public Service RFP process.

Got it. That's really helpful. To clarify the equity needs, do you anticipate any changes to current plans, even with the multiple being slightly lower now?

Yes. So the way we think about it, obviously, as I said, we expect to be within the growth range. That takes into account our lower multiple impacts over the past quarter, certainly. As I mentioned, we think about the significant investment opportunities going forward. It's important to have a strong balance sheet. We try to maintain that strong balance sheet. Obviously, you will look at what is on the balance sheet, which gives us some timing flexibility from an equity issuance perspective. We'll evaluate that and whether there's potential timing flexibility for our own capital in the near term. Overall, as we think fundamentally, everything is intact from a long-term perspective in maintaining a strong balance sheet and funding the investment needs for the clean energy transition with equity as we need to maintain the balance sheet.

Regarding the Texas fire, you mentioned a legislative report expected in May. What can we anticipate will be included in that report? Will it address the cause of the fire, or is there another focus we should consider?

Look, at a macro level, I was pretty encouraged by the process we went through with the Texas House and the committee. I think one of the tenets of good risk mitigation is involving all the stakeholders who have a hand in doing that. The committee hearings were a good example of getting most of the interested parties and participants in a room, proactively talking about the issues. On balance, the sessions were productive. The committee was looking to be prospective and gather information for future solutions. I think that's how I expect the report in May to come out. We will see recommendations for utilities, emergency responders, and proactive measures we're doing in the counties to mitigate fire risk. I don't think we'll see something about causation from the committee, but the report will probably focus on constructive recommendations for how to proceed going forward.

Okay. And then just on the damage estimate that you noted, there's a lot of kind of what's in there, what's not in there. One clarification just is how about not punitive damages, but noneconomic damages. Is that in your estimate or not in your estimate?

I think, yes, Steve. I'll handle this one and I'll provide some additional details regarding the $215 million at the lower end of our estimate. This amount includes losses related to residential property and associated issues, cattle and feed, agricultural structures and fencing, non-economic damages, and various other items. This estimate may change based on new information since we're still early in the process.

That's helpful. I want to follow up on the question regarding equity. Given some of the overhang caused by this situation, are you revisiting options for equity beyond just issuing it? Are you considering asset sales or other alternatives, or do you find that funding with equity is more attractive?

Obviously, it's something you'd expect Bob and me to evaluate in the normal course, what other options are there. I think what you've seen from us is that we have a conservative financing plan from a company perspective. I don't think right now, that's our current plan of action. I've been on record about not being interested in minority interest sales in the line. So that's our plan of action as we sit here today.

Okay. And then last thing on the data center growth. Just on the facility at the old Sherco site, how is that being served? And then, Bob, you mentioned talking to a lot of others. Could you just talk about how they're viewing your territory and just making sure you're able to do this in a way that's good for the broader customer base?

That's a great question. Both within the company and throughout the industry, it's a hot topic. Regarding the Sherco site, it is powered by grid energy. We are the first company to commit to using 100% carbon-free electricity, highlighting our critical role in the renewable energy system, which will benefit from our actions. Looking at our overall presence, we have appealing opportunities for super scalers and other data centers. Whether it’s the very low-cost commercial and industrial energy in the Southwest or the favorable weather and high renewable resources in Colorado or a similar situation in the Upper Midwest, we are engaging in discussions across our regions. We have access to water, necessary infrastructure, land, and clean energy that these clients find appealing. We are experiencing significant interest from super scalers and look forward to providing more details as we develop our projections.

Steve, I just want to add a little bit of color to that. I think you're hinting at how we think about it from a current customer perspective. As we bring on new data centers, as we did with Meta and the approval of Meta in Minnesota, we make sure it's a win-win for our existing customers. That's really important as we move forward with this significant opportunity. There's an opportunity to work with our policymakers and regulators to help drive economic development within the right context and to ensure we can move quickly because we will need to build out infrastructure on the generation side and the wire side to serve significant opportunities this coming 5 to 10 years.

Just want to continue with the data center question with one more finer point here, I guess, as it relates to SPS. Given the need for power and given the very cheap natural gas in that area, I wouldn't necessarily think of SPS as a place that data centers would target, but just wondering what you're seeing there if cheap power is a draw. Just any thoughts in general?

Yes, Jeremy. I mean, as Bob has mentioned, we're seeing data center interest across all our service territories. Service areas that are preferred have different points of attractiveness. SPS has the lowest C&I rates in the country, so there is interest there. The other significant growth we continue to see in SPS is the oil and gas expansion in the Permian Basin and electrification efforts there. That will be the near-term growth in SPS, with a longer-term data center opportunity we're discussing with some data centers down there. We also have fantastic renewable resources from a wind and solar perspective. When we talk about that RFP coming out in SPS in our resource plan, that's the reason we have a range of 5,000 to 10,000 megawatts. We want to ensure we enable some of the growth we're seeing.

Got it. Certainly, New Mexico is at the low end of the cost curve for production in North America there. So maybe continuing with Texas a bit more and following up on the wildfires. Just wondering if Texas caps noneconomic damages or any other details you could provide there?

Yes. Right now, there is no cap on noneconomic damages in Texas. There is a cap on punitive damages; it's 2x economic damages, up to $750,000 cap for noneconomic damages.

Got it. And then looking forward to the Colorado Wildfire Mitigation Plan filing, there's been some press in the state around recent de-energization in Colorado. Can you speak about the opportunity for sectionalization or other efforts to reduce customer impact? Any other nuances to the filing you could share with us?

Yes. Jeremy, it's Bob. Thanks for the question. First, I'm really proud of what the team did in Colorado in executing on behalf of public safety during a volatile weather event. The wildfire mitigation plan will have a lot of continuation of the existing plan and probably incremental areas we'd be looking for. The big buckets of opportunity will focus on early warning capabilities. We've already sold 21 panel cameras, but I see a real opportunity for AI-powered cameras and weather stations around our territories and our equipment. We also have opportunities to improve our operating capabilities in public safety power shutoffs and enhanced safety settings for power lines. We're executing these plans today and doing well, but we have more work to do. System resiliency is a priority for us in this plan.

Got it. Very helpful. As for my last question, regarding gas cases in Minnesota and Colorado, any updates or conversations with stakeholders and regulators on those cases and how you feel about them?

Yes. I'll first address the Minnesota natural gas case since that's the one that pushed us along given that we just received intervenor testimony. The Department of Commerce recommended a $44 million increase with a 9.4% ROE. We have hearings in mid-July and are looking to engage effectively with our stakeholders to reach a settlement, as we did in the last Minnesota gas rate case. On the Colorado side, we're early into the process. We haven't received intervenor testimony yet. The procedural schedule just came out. The intervenor testimony will be due in mid-July, and we're looking to reach a settlement by the end of August, otherwise we'll have hearings in mid-September for a decision in Q4.

Thanks for all the details so far. Maybe just on the resiliency plan filing at SPS that you expect in late '24. Can you remind us of the timing to getting that ultimately approved and when that spend would come into play? Any early views on the sizing of that potential filing or what buckets of spend you think will be important?

Carly, it's Brian. We're just looking to finalize that filing, expected late in Q4. From a timing perspective, you probably expect it to get approved in Q3 of the following year. If you look at some of the distribution spending in SPS and review our 5-year capital plan, obviously, we're focusing on the Colorado WNP and will apply those programs to SPS, but tailor them to the unique geography of SPS. We will provide more color as we develop that resiliency plan later this year.

Got it. Okay. That’s helpful. The follow-up is just on O&M; nice benefit during the quarter there. Is that just a function of kind of year-over-year timing, or is there potential downside to that annual guidance on O&M being up 1% to 2% for the year?

Yes, good question. From our perspective, we haven't changed our guidance for the year even though we had a significant quarter-over-quarter change. We've had our budget for the first quarter slightly lower than our estimates. But we're early in the year and our goal is to land within that 1% to 2% O&M guidance range.

Just two quick ones. One is any major change in the company's cost to ensure the company's operations?

Yes, Anthony. That’s a good question as we think about it. I assume you're asking specifically about wildfire insurance or excess liability.

Yes, I do. Yes.

I would say all our other programs are relatively stable and don't have significant challenges. As I think about wildfire insurance, this is a key industry issue, both at state and federal levels. If you've been following EEI, it's one of their top priorities this year from a federal perspective, focusing on damage limitations and looking for solutions at the federal level for wildfire mitigation plans in exchange for liability protection. We're working with our policymakers at the state level too as our legislative sessions wrap up this year. Overall, our commercial insurance perspective shows that, even prior to Smokehouse Creek, carriers were reducing their capacity exposure to wildfire insurance. This influences our renewal cycle in Q4. We have about $500 million of coverage, and we're paying about a $40 million premium for that coverage, which includes wildfire. I expect premiums will be pressured. We are a ways away from our renewal, so we'll provide more visibility closer to that time.

Great. One last one. Bob, you mentioned pursuing proactive legislation for wildfire risk. Would you be willing to name the top three things? What would you like to see included in your first wave of legislation, whether it’s limits on noneconomic liability or something else? I'm just curious about any color you could provide.

Anthony, thanks for the question. As Brian said, this is a big and emerging national issue. The pressure is evident both on the retail side, with homeowners struggling to get homeowner insurance that protects from wildfire risk, and you see it in the commercial space as well. We've been active at the federal level discussing how we might have national opportunities. For example, we see precedents like the FDIC and FEMA programs providing insurance backstops for national goods. If federal legislation were to provide approved wildfire mitigation plans that can be reviewed by an agency, we could access desirable insurance coverage. Similar solutions exist at the state level, like the laws in UTA, Nevada, or California where companies and regulators work on cost-effective backstop programs. It’s important we manage this risk financially to ensure the attractiveness of our cost of capital for the energy transition funding our customers expect, so these areas are crucial to pursue.

Yes, just to add to that. There is the aspect of reviewing the plans of the WMP; presumption of compliant plans will lead to liability limits or damage limits.

I have a couple of questions today. On the Texas fire, can you clarify how the claims system and the litigations filed against you will work together? Can people who are litigating also file claims, or do they have to choose one?

Sophie, yes. I'll first describe the claims process, and while it's still early, we encourage people to submit claims. It's 46 so far. Anyone can submit a claim, and when they do, they don't waive their right to pursue a lawsuit. However, if there is a claim settlement, that would absolve or release them from other potential lawsuits they could file. But we encourage people to enter the claims process, and we've settled a couple that are in active discussions with others.

Got it. And then my other question is regarding Colorado and the commission's recent clarification that they want utilities to pursue non-pipeline alternatives for gas. Can you comment on that and how it will impact your investment in that state?

Sophie, it's Bob. We've had several gas proceedings in Colorado over the last year. I think you're referring to our clean heat plan. It was proactive from the company and the commission's perspectives. They’re assessing if we've got capacity needs from a growing customer base while considering other alternatives besides pipeline solutions. We're engaged in that process, but I don’t foresee significant changes to our capital forecasts. However, we’ll proactively work with stakeholders to find different types of solutions, such as beneficial electrification for home heating and other needs.

So non-pipeline alternatives basically mean electrification? Or could that also involve increasing compression station output, or something else?

Yes, Sophie. The non-pipeline alternatives certainly mean electrification opportunities. For example, when a new neighborhood is built, we look to the electrification alternatives rather than expanding the pipeline. Additionally, there's potential for geothermal energy solutions at district, residential, or community levels. So it’s not limited to electrification but encompasses various forms of heating.

What role do you see PSPS having in terms of your wildfire mitigation plans? Are there any initiatives to gain more stakeholder support for implementing it going forward?

Ryan, it's Bob. We see PSPS as a tool of last resort. Public safety is our priority; we need to protect our communities during volatile wind events and wildfire risks. There are definitely opportunities to gain public support, and we can improve our performance. We've identified areas for improvement that we're working on with the Colorado Commission, like early notification systems and enhanced outage maps. This aligns with our wildfire mitigation plan. With better early warning devices like cameras, weather stations, and localized control of our systems, we can better mitigate customer impact.

Shifting gears on the financing plan as security prices continue to move, how do you assess timing for potential capital raises? I think earlier you suggested avoiding asset sales, but any color around responding to different security prices and their impact on your financing plan?

Ryan, as I mentioned earlier, we believe our growth plans from an investment perspective align with our long-term EPS growth targets. We're maintaining a strong balance sheet throughout all this, factoring in costs of equity and planning for our financing timing. We expect $39 billion of capital at a 9% rate base growth, which is aligned with our capital spending cycle. However, we will monitor increased costs and churn rates.

Just one last question regarding CapEx outlook. Given the accelerated infrastructure build-out in North America, are you seeing indications that costs might rise for what’s slated to be built in the coming years?

Yes, Ryan. With reindustrialization and data center build-out, costs could rise for basic materials and construction. We remain vigilant on these issues as we build our capital forecast. Labor is another factor we’re focused on through trade school partnerships and recruitment process support with labor unions to ensure enough tradespeople come into the business and meet demand.

I apologize if you’ve gone over this. Regarding the NUC life extension, could you remind me what the financial impact is? Various companies recognize depreciation differently; could you quickly review that for me?

Paul, you're referencing the resource plan we filed in Q1 related to the extension of Monticello. We've already extended Monticello to 2040 and recognized that depreciation, which lowers customer bills. We're looking to extend Monticello to 2050 and Prairie Island units for 20 years, pushing their timelines to early 2050s. We haven't recognized these lower depreciation rates yet in the customer rate case. Approval will take approximately 18 months, so it will be held before we can incorporate that back into customer rates.

Okay, great. But is there potential for regulatory positive lag? Will it impact customer rates immediately?

No, this will likely be captured either through deferral here or likely in a multi-year plan through a true-up mechanism.

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