Xcel Vitality Inc. (NASDAQ:XEL) This fall 2022 Earnings Name Transcript

Xcel Vitality Inc. (NASDAQ:XEL) This fall 2022 Earnings Name Transcript January 26, 2023

Operator: Good day, girls and gents, and welcome to right this moment’s Xcel Vitality 12 months Finish 2022 Earnings Convention Name. On your data, right this moment’s convention is being recorded. Questions can be taken from institutional traders, reporters can contact media relations with inquiries and particular person traders and others can attain out to Investor Relations. Right now, I flip the convention over to your host right this moment, Mr. Paul Johnson, Vice President, Investor Relations and Treasurer. Please go forward, sir.

Paul Johnson: Good morning, and welcome to Xcel Vitality’s 2022 fourth quarter earnings name. Becoming a member of me right this moment are Bob Frenzel, Chairman, President and Chief Govt Officer; Brian Van Abel, Govt Vice President and Chief Monetary Officer. As well as, we’ve got different members of the administration workforce within the room to reply questions if wanted. This morning we are going to evaluate our 2022 outcomes and highlights and share latest enterprise developments and regulatory developments. Slides that accompany right this moment’s name can be found on our web site. As a reminder, a few of our feedback throughout right this moment’s name might comprise forward-looking data. Important elements that might trigger outcomes to vary from these anticipated are described in our earnings launch and our SEC filings.

Right now, we will even focus on sure metrics which are non-GAAP measures. Info on the comparable GAAP measures and reconciliations are included in our earnings launch. I will now flip the decision over to Bob Frenzel.

Bob Frenzel: Thanks Paul, and good morning, everybody, and welcome to our fourth quarter name. We had one other very profitable 12 months at Xcel Vitality, persevering with to execute on our technique whereas delivering sturdy monetary and operational efficiency. For our traders, we delivered EPS of $3.17 representing the 18th consecutive 12 months of assembly or exceeding our preliminary earnings steerage. In February, we raised our annual dividend for nineteenth straight 12 months growing at $0.12 per share or 6.6%. Extra lately, in November, we prolonged our long-term funding plan which includes a 10-year capital outlook with an approximate 7% charge base development. We ranked within the high quartile in buyer reliability or CAIDI and a residential electrical payments are greater than 20% beneath the nationwide common.

And amidst the backdrop of great commodity will increase this 12 months, Xcel Vitality’s 4,500 megawatts of owned wind farms continued to be an industry-leader in internet capability issue efficiency, generated roughly $1 billion of fuel-related buyer financial savings in 2022 and nearly $3 billion since 2017. Our nuclear fleet stays the highest performing fleet within the nation and achieved a capability issue of 96% final 12 months. We had an lively regulatory 12 months and resolved a number of charge instances in Uri storm value restoration proceedings. Commissions in Minnesota and Colorado authorized useful resource plans that may add almost 10,000 megawatts of utility scale renewables to our techniques by means of this decade. The Minnesota Fee authorized our 460 megawatts Sherco Photo voltaic challenge, the Colorado Fee authorized our $2 billion Energy Pathway transmission challenge and MISO awarded us $1.2 billion of transmission tasks and we accelerated our timeline for transitioning out of coal and now anticipate to be coal free by the top of 2030, all of which contribute to our management in clear power transition for our clients.

We proceed to steer in carbon discount as nicely. 2022, our estimated carbon emissions had been roughly 52% beneath 2005 ranges and we stay on monitor to realize 80% carbon discount throughout the corporate by 2030. The passage of the Inflation Discount Act will cut back the price of renewables for our clients, improves money stream and credit score metrics for the corporate and enhances the competitiveness of our renewable choices. Proceed to execute on our electrical car imaginative and prescient, implementing a number of new applications for our clients. We additionally filed complete transportation plans in Minnesota and Wisconsin which are pending fee approval. We have superior our ESG management and have been acknowledged by a number of entities, together with an upgraded ranking by MSCI from AA to AAA.

And eventually, we stay among the many world’s most moral, admired and accountable corporations and we’re acknowledged for being the perfect veteran employer as nicely for our incapacity inclusion within the office. I am actually proud to steer a workforce that may ship on operational, monetary, environmental and variety targets, all concurrently. Trying forward, we’re well-positioned for sustainable natural development over the subsequent decade, together with inexpensive renewable additions in our useful resource plans, the transmission wanted to allow these carbon-free assets and accountable group transitions as we retire coal crops. We have lately issued a requests for proposals in Minnesota, Colorado and at SPS in search of roughly 6,000 megawatts of recent renewable era, a portion of the ten,000 megawatts which were authorized in our jurisdiction.

We’ll submit our really helpful portfolios of era property to our commissions by the center of this 12 months and anticipate choices within the second half of this 12 months. We additionally anticipate to difficulty extra RFPs in Minnesota and Colorado this 12 months and subsequent 12 months for the rest of our authorized wants. As we have mentioned up to now, we consider that we’ve got a geographical benefit within the clear power transition as a result of sturdy wind and photo voltaic assets in our service territory. This entry to low value renewable power must also give us additional benefit in growing inexperienced hydrogen and different clear gasoline tasks, which have gotten extra possible because of federal help from the Infrastructure and Jobs Act and the IRA. Late final 12 months, we submitted hydrogen hub idea papers for each the Rocky Mountain and the Higher Midwest areas to the Division of Vitality to compete for awards from the $8 billion hydrogen hub program.

In December, we obtained favorable discover from the DOE for our ideas and we’re inspired to submit full purposes in April. As well as, our pink hydrogen manufacturing pilot at our Prairie Island nuclear producing station is predicted to be operational this 12 months. Lastly, we anticipate to carry ahead alternatives this 12 months to make the most of clear fuels and inexperienced hydrogen mixing at each our gas-fired era stations and in our fuel community for Residence and Constructing heating. As we proceed to make the most of revolutionary applied sciences to decarbonize our enterprise, we’re well-positioned to make the most of probably important hydrogen capital funding alternatives sooner or later. Because the penetration of renewable property in our states will increase, we’re additionally considering pursuing superior storage alternatives to steadiness our electrical system wants.

Right now, we’re excited to announce a brand new partnership with Type Vitality to develop two long-duration power storage pilot tasks. Type Vitality’s 100-hour battery know-how may very well be a vital part to our decarbonization technique offering the resiliency and reliability that we’d like on the system to help our important renewable portfolio. We plan to deploy a ten megawatts multi-day storage system at a retiring coal plant in each Minnesota and Colorado. These tasks are anticipated to be on-line as early as 2025. And as we wrap up, I wish to thank the 1000’s of workers who labored in beneath zero temperatures, sustained excessive winds in a number of toes of moist, heavy snow, hold the lights on and the homes heat throughout our latest winter storms.

Your efforts exemplify our firm values of linked, dedicated, reliable and protected, and I consider that our devoted workers and companions are what distinguishes Xcel Vitality with our clients. With that, I will flip it over to Brian.

Picture by David Thielen on Unsplash

Brian Van Abel: Thanks Bob. Good morning, all. We had one other sturdy 12 months recording earnings of $3.17 per share for 2022 in contrast with $2.96 per share in 2021. This represents EPS development of seven.1%, barely above our long-term development charge goal of 5% to 7%. Essentially the most important earnings drivers for the 12 months included the next; increased electrical and pure fuel margins elevated earnings by $1.05 per share, primarily pushed by regulatory outcomes and riders to get well capital investments. As well as, a decrease efficient tax charge elevated earnings by $0.15 per share, however take into account, manufacturing tax credit lowered the ETR, PTCs are flowed again to clients by means of decrease electrical margin are largely earnings impartial. Offsetting these constructive drivers had been elevated depreciation expense which diminished earnings by $0.40 per share reflecting our capital funding program, increased O&M expense which decreased earnings by $0.24 per share, increased curiosity expense and different taxes, primarily property taxes, decreased earnings by $0.23 per share and different objects mixed to scale back earnings by $0.12 per share.

Turning to gross sales, our weather-adjusted electrical gross sales elevated by 1.8%, largely on account of increased C&I gross sales pushed by sturdy financial exercise in our service territories. We anticipate a modest slowing of our gross sales with development of 1% in 2023. Shifting to expense, O&M bills elevated $170 million for the 12 months, pushed by value associated to know-how and buyer applications, storms, vegetation administration inflation and extra actions on account of climate. We additionally invested in our workers, guarantee we retained our high expertise. Whereas we anticipate inflationary pressures to stay, we proceed to deal with our steady enchancment applications, which we anticipate to drive elevated productiveness and effectivity. Because of this, we anticipate O&M bills will decline roughly 2% in 2023.

We made progress on a lot of regulatory proceedings. Within the Minnesota Pure Gasoline charge case, the ALJ really helpful the fee approve our settlement which displays a charge improve of $21 million, an ROE of 9.57% and fairness ratio of 52.5%, the decoupling mechanism and a property tax tracker. We anticipate a fee resolution later this 12 months. Within the Minnesota electrical charge case, the fee accepted our proposal to scale back our requests from MISO capability income and set up our tracker. Hearings had been accomplished in December and we proceed to fulfill with the events to see if we are able to attain a constructive settlement. Nevertheless, we’ve got a powerful case and are comfy with a totally litigated end result absent this settlement. We anticipate a fee resolution later in 2023.

In November of 2022, we filed an electrical charge case in Colorado in search of a internet improve of $262 million primarily based on an ROE of 10.25% and fairness ratio of 55.7% in a 2023 ahead check 12 months. We anticipate a fee resolution and implementation of ultimate charges within the third quarter. We additionally filed a New Mexico electrical charge case in search of a charge improve of $78 million primarily based on an ROE of 10.75%, fairness ratio of 54.7%, the forecast contact right here within the early retirement of the Tolk coal plant. We anticipate a fee resolution and implementation of ultimate charges within the fourth quarter. So far as future filings, we plan to file our Texas charge case later within the quarter and Wisconsin within the second quarter. As we’ve got mentioned up to now, the Inflation Discount Act gives important buyer advantages, key parts embody the next; tax credit score transferability will present $1.8 billion of liquidity growing money stream and lowering fairness wants.

We have met with corporations in our service territory and anticipate to enter into bilateral tax credit score sale contracts later this 12 months. Our FFO to debt metrics improved by 100 foundation factors throughout the forecast interval, the photo voltaic PTC and tax credit score transferability enhance the competitiveness of our renewable bids and we anticipate pricing will decline in photo voltaic tasks by 25% to 40% in wind tasks by 50% to 65% as a result of new and prolonged tax credit, which is nice for our clients as we embark on this clear power transition. Lastly, we do not anticipate any materials affect from AMT because of makers’ depreciation and current tax credit on our steadiness sheet. We’re reaffirming our 2023 earnings steerage vary of $3.30 to $3.40 per share, which is in step with our long-term EPS development goal of 5% to 7%.

We’ve up to date our key assumptions to mirror precise year-end outcomes that are detailed in our earnings launch. With that, I will wrap up with a fast abstract. We had a powerful operational and monetary 12 months in 2022. We delivered 2022 earnings inside our steerage vary, the 18th consecutive 12 months and elevated our dividend for the nineteenth consecutive 12 months. We obtained approval of our analysis plans in Colorado and Minnesota, which leads to roughly 10,000 megawatts of recent renewables. The Inflation Discount Act has handed a big advantages for our clients within the firm. We’re reaffirming 2023 steerage, in step with our long-term earnings development charge. We stay assured we are able to proceed to ship long-term earnings and dividend development throughout the higher half of our 5% to 7% goal vary as we lead the clear power transition and hold payments low for our clients.

This concludes our ready remarks. Operator, we are going to now take questions.

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