Xcel Energy Q1 2024 Earnings Call Transcript

Yes, certainly, if I touch on all the multiple parts of that question, just please be feel free to follow up. We're pretty excited about the upcoming RFP and SPS. We talked about it before seeking a range of generation between 5,000 and 10,000 megawatts combination of renewables and dispatchable firm capacity. And we'll look to launch that RFP in July. It's a little bit of a longer time line. So I'll help you understand in terms of how we launch in July. We do expect to file CPCNs in the summer of 2025. So summer of next year with decisions in Q1 of 2026. So that capital really will be kind of in the '27 to 2030 type of spend time frames. I think it was the long meeting, adding to the sum of the back end over five years but elongating our growth opportunities beyond what we're seeing there. So that's how I think about that capital, but really great opportunity and excited to get started on that. You touched a little bit on -- absolutely, we're looking to continue to invest in resiliency and risk mitigation spend. Just rewind to note, we have about $10 billion in our current capex spend around distribution and transition resiliency.

But as we look to file our Colorado WMP here later in Q2, there will certainly be incremental investment needs related to reducing wildfire risk. So we'll evaluate all of that within our kind of current normal cadence when we come back in October of this year to provide a kind of roll forward for a '25 to '29 plan, and think about competition for capital. I think as you sit here today, we're very comparable with -- I reiterated we'll be at or above the top end of the 5% to 7% range. I think those look at all the opportunities we have in front of us with a base so fast is above 9%. And we'll let the finance that as we always have been. I think it's important to maintain a strong balance sheet and important to keep that going forward. And so we'll look at it financing incremental growth with accretive equity at that kind of 60%, 40% range. [Indecipherable] touching everything you're asking about.

And I'll just add one thing on the broad comment. I think you asked about sort of relative competitiveness of the company. We would expect to offer our own development projects into the SPS proposal, and we've proven that we -- with our scale and utility-owned wind and our growing expertise in solar and storage, we think we'll be very competitive for some of the generation in Southwestern Public service RFP process.

Yes. So the way we think about it, obviously, like I said and reiterated where we expect to be within the growth range. And that takes into our lower multiple impacts over the past quarter, certainly. As I mentioned, we think about the significant investment opportunities going forward. And it's important to have a strong balance sheet. We try to maintain that strong balance sheet.

But obviously, you will look at what is that, that's balance sheet gives us some timing flexibility from an equity issuance perspective. And obviously, we'll evaluate that and obviously, we'll evaluate whether there's incidental timing flexibility our own capital in the near term. But I think overall, as we think fundamentally, everything is intact from a long-term perspective in terms of maintaining a strong balance sheet and funding the investment needs for the cleanest transition with equity as we need to maintain that balance sheet.

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. And I think the committee here were a pretty good example of getting all -- mostly all of the interested parties and participants in our [Indecipherable] proactively talking about the issues. And on balance, I think the sessions were productive, [Indecipherable] committee was looking to be prospective and gathering information for future solutions. And I think that's how I expect to report in May to come out. I think we'll see stuff on recommendations for utilities, emergency responders, proactive things that we're doing in the counties to mitigate fire risk. I think there's already attempt to [Indecipherable] for a service report on causation. I'm not certain we see something else from the committee on that. But, I think the report is going to be in line with the sessions themselves with constructive recommendations for how to proceed going forward.

Yes, Steve. I'll handle this one, and I'll give you [Indecipherable], obviously, we'll point to our disclosures. But I'll give you a little bit more color in terms of that $215 million in the lower end of.

And here's very large some of our package it includes residential properties and related losses, cattle and feed, agricultural structures and fencing, noneconomic damages and then a number of other items. So obviously, this is subject to changes in additional information since we're still early in the process.

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

That's a great question and conversation and Steve, and it's very topical, both inside the walls of the building as well as around the industry. On your specific questions with regard to the Sherco site, does the site get powered with grid energy? And as you know, we're the first company to commit to being a 100% carbon-free electricity. So we are a significant importance in the renewables [Indecipherable] the system, and they will benefit from all our system actions. More broadly, as we look across our footprint in the company, we think, depending on the operating company, we have really attractive dynamics for super scalers and other data center and high energy use customers. And whether it's very low-cost C&I energy in the Southwest or the [Indecipherable] weather and high renewables in Colorado or a similar footprint here in the Upper Midwest. I think that we're having conversations across our footprints. And I think we've got both access to water transition infrastructure, land and energy and clean energy that they find attractiveness. So we've got a significant amount of interest from super scalers and others and look forward to sharing more of that as we develop our forecast.

Just add a little bit of color to that. I think you kind of hinted that, how do we think about it from a current customer perspective build. I think as we bring on new data centers and is something 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 continue to move forward with this significant opportunity. And I think there's an opportunity there to work with our policymakers and regulators, to help drive economic development within the right context and also ensuring that we can move quickly because you will need to build out infrastructure both on the generation side and the wire side that can serve some of these significant opportunities that we're seeing over the next five to 10 years.

Yes, I think -- I mean, as Bob mentioned, we're seeing data center interest across all our service territories. And so service are preferred to have maybe a little different attractiveness. And then you hit SPS as on the lowest C&I rates in the country. So interest there. But I would say the other significant growth that we continue to see in SPS, and this is really what you're seeing come through our numbers now when you look at the year-over-year growth from the C&I perspective is the oil and gas expansion in the Permian Basin are and everything they're doing from an electrification perspective.

So right now, that's the near-term group growth in SPS with longer-term data center -- some data centers down there. We also have a fantastic renewable resources down there from a wind and solar perspective, what leads to that. When we talk about that RFP coming out in SPS in our resource plan, those are the reason why we have a range of 5,000 to 10,000 megawatts in the range is ensure that we enable some of the growth that we're seeing.

Yes. Right now, there is no cap on noneconomic damages in Texas. There is a cap on punitive advantages this 2x economic damages falls up to 750 cap for noneconomic.

First, I'm really proud of what the team did in Colorado and executing on behalf of public safety during a volatile weather event. As you can imagine, the second file on our wildfire mitigation plan, is going to have a lot of continuation of the existing plan and probably incremental areas that we'd be looking for. But as I think about the big buckets of opportunity there, really early warning capabilities. We've already sold 21 panel cameras, but I think there's a real opportunity for increased early warning capabilities with AI-powered cameras as well as weather stations in and around our territories and our equipment. Obviously, we have opportunities to improve our operating capabilities in public safety power sets, as well as even the power line enhanced power ride safety settings. But we're executing those today, and we're doing a pretty good job. We have more work to do there. I think about the third bucket where your question leads to is asset resilience capabilities and we can continue to expect our poles and wires, replace stuff and maybe accelerating some of that. But I think we've also system resiliency, and this gets back to what your comment on sectionalizing. We've done some of that. We have a real opportunity to do that more, both our intelligence at a granular level of weather and what's happening in weather as well as our ability to control our system at a more micro level to mitigate customer impact is a real priority for us in this plan. And lastly, given as part of the plan is the public policy opportunity that we might have to protect our customers. So big buckets there, but hopefully, I got to your sectionalization question as well as asset parting like undergrounding, covered conductors and other pieces of both transmission and distribution systems as we think about protecting public safety is a priority for us.

Yes. And just I'll get on first, the Minnesota natural gas case because that's probably the one that spurred us along, given that we just received intervenor testimony and the Department of Commerce recommended a $44 million increase of a 9.4% ROE. We have hearings in mid-July, but we'll certainly look at an opportunity to engage with our stakeholders to see if we've reached settlement, which we did in the last Minnesota gas rate case. So we'll look to engage, like I said, here is our July. So from now until July, we'll look to engage there. On the Colorado side, we're still pretty early in the process. We haven't received interviewer testimony yet. The procedural schedule just came out. So for us, it will be the settlement -- we get intervenor testimony in mid-July. We get opportunity, there's settlement deadline at the end of August, and then we don't reach a settlement, we'll be hearing in mid-September for the decision in Q4. Our next question is from Carly Davenport with Goldman Sachs. Please go ahead.

As I said, we're just looking to put that filing together, it will be late in Q4. So from a timing perspective, you probably into Q3 of the following year for it to get approved. So I think from an overall perspective, I mean, if you look at some of our kind of just distribution spend in SPS and you look at our five-year capital plan, and what could be health report. Obviously, we're currently focus on the Colorado WMP and we'll take a lot of those programs and apply it to SPS, but tailored because SPS a very different geography than -- Texas is very in a geography when we think about what should we be doing to have risk mitigation from wildfire perspective, and so we'll tailor it. But I think we'll give you more color as we get further development of that resiliency plan later this year.

Yes, good question. I think from our perspective, really have, as you kind of noted, we haven't changed our guidance for the year-end even though we had a significant quarter-over-quarter change. So I look at it more from where we are from a budget perspective. which you don't see. And we're slightly as our budget for the first quarter. But from where we sit, I think it's early in the year, our goal is just to land within that 1% to 2% O&M guidance range as we sit here. Our next question is from Anthony Crowdell with Mizuho. Please go ahead.

Anthony. Yes, that's a good question as we think about it. So I assume you're asking specifically wildfire insurance or excess liability. I think yes, all our other programs, I would say, are relatively stable or don't have significant challenges. And I think about wildfire insurance and just let's lot of our insurance versus the overall access liabilities there are two different things. I think this is a very key industry issue, both at the state and federal level. And if you've been following with EEI, this is one of their top priorities this year from a federal perspective. In terms of how we think about getting a focus on damage limitations? Is there insurance backstop or solution at a federal level and think about specific criteria of law firm mitigation plans in exchange for liability protection. So those are some of the broad buckets EEI, you think about. Obviously working from a state perspective as we look forward -- our legislation sessions are wrapping up here or have already wrapped up this year. So what we will do is we'll look to work with our policymakers in our states from here for as we think about next last session to see if there's any state level solutions as we think about it. Now specific from a company perspective or a commercial insurance perspective, even prior to Smokehouse Creek, we were seeing or understanding that from some of the commercial carriers, they were already looking to reduce their capacity and not just for us but overall, their exposure from a wildfire insurance perspective. And so that's going into the next policy cycle. These are annual renewals. So our renewal is in tele Q4. So we'll give more visibility into it, but I'll give you some -- a little bit of a sense of where we sit today as we have above $500 million of coverage, and we're paying a lot of $40 million premium for that coverage, and that's total excess liability, including wildfire. But I would expect that covers that capacity to come down and I expect premiums to be pressured, absolutely, like I said, we're still a ways away from our renewal. So again, we'll provide more color as we close to, but that's where we sit today.

As Brian said, this is a big and emerging national issue. And we've seen pressure both on the retail side of insurance, homeowners struggling to get homeowner insurance that protects from wildfire risk, and you're seeing it in the commercial side on the wholesale side as well. So we've been active at the federal level, particularly talking about sort of the national opportunity we might have here. I think about there are precedent at the federal level, you see something like where going are really important for everybody like the FDIC or FEMA for flood insurance or other type programs or even nuclear backstop insurance from the price standard connect. So there's several precedents around protecting national goods like banking access, like access to affordable electricity. So as I think about where the federal government could help, is this probably applies to the state level, too, which is having approved wildfire mitigation plan that can be reviewed by an agency of a same or federal level.

And then if you're in compliance and current on that plan, then you have access to some form of basop insurance program that provides protection and maybe access that data cursocarriers are providing at an attractive or an affordable cost, as that group of entities comes up to speed on risk and risk mitigation. So I think those are the big parameters that I would think about. And certainly, there's state precedents, you can take tall or Nevada or California laws and seen programs where companies along with their regulators and legislators are coming up with programs that provide more cost-effective backstop for companies to bring down the risk. And as I said in my prepared remarks, at the end of the day, we have an enormous energy transition that we need to fund and making sure that our cost of capital is attractive to fund that keeps the transition affordable for our customers and for the country. And so I think it's important that we manage this risk, we manage the financial cost of this risk, and those some of the areas that I would think are most important for us to go after.

Yes. Just to add a little bit to that. I think as Bob talked about importance of insurance tax stop and filling a WMP, I think there's also an aspect there is if you following in times [Indecipherable] which I think is important, too, and also looking at a lipid on liability or lipid on damages.

First of all, I'll talk about the claims process and still early, but we obviously encourage people to submit claims. We was 46 so far. But how it once is anyone can submit a claim, and when they submit that claim, they don't waive their right to pursue a lawsuit. But if there is a claim settlement, then that absolves or release any other potential lawsuits that they could file. So that's how it could work, but also from a -- if someone files a lawsuit, it certainly could be an opportunity to settle through that lawsuit too. So -- but like I said we are encouraging people to enter the claims process, and we've settled a couple already that are in active [Indecipherable] discussions with others.

Look, we've got a number of gas proceedings in Colorado over the last year. I think you're referring to our clean heat plan. And we think that was an industry leading or very unique filing and proactive on the company and the commissions part to move forward that big pasture, I think they're sitting there looking at the gas system as an effective delivery of energy but making sure that if we've got capacity needs from a growing customer base out there that we're looking at something other than pipeline alternatives. And we're actively engaged in that and something we've always as the company looked at. But I don't think it's going to affect necessarily us going forward in terms of significant changes in capital forecast for where we sit today, but maybe a more proactive approach with stakeholders and communities about finding maybe different types of solutions to solve the similar issues, whether that's more beneficial electrification, more powering of homes for home heating and other needs. And we're certainly engaged in that process with them.

Yes. So actually, you bring up increasing compression station, certainly an opportunity. I think generally it's thought of -- what are the electrification opportunities saying, there's going to be a new neighborhood build. What is the old protos, it's okay, [Indecipherable] gas and expansion pipeline or what are the alternatives from a electrification perspective. So that's probably the best way to think about it. I see that [Indecipherable] out there, and it's a very important project for the governor and the geothermal [Indecipherable] at a district level or a residential level or community level, exploring the possibilities of geothermal in the state are something we're willing to work with or we're going to work with our customers and our stakeholders in the same. So it's not necessarily just electrification. It could be more different forms of heat for homes and communities. Our next question is from Ryan Livine with Citi. Please go ahead.

Ryan, it's Bob. Certainly, we think of PSPS as a tool of last resort. But public safety is our priority in making sure that our communities are protected in volatile wind events and wildfire risk case is really important to us as well. Are there opportunities for us to gain more public support, of course, there are. And there's ways that we can improve our own performance as we, hate to say gain more muscle here, because it's something that I don't love to do. But when we have to do it, I think there's areas of improvement that we as a company have identified and are working with our Colorado Commission to do so. And that includes early notification, excellence in outage maps, something I talked about earlier on segmentation. So all this comes as a function of our wildfire mitigation plan if we have better early warning devices like cameras, weather stations, our ability to effect on a more localized level where the risk is and where the outage would need to be can get better. But that's going to take some time, some effort some partnership with our agencies and stakeholders in Colorado for sure.

Ryan, I think a little bit as the color I provided before is obviously, overall, we believe our growth plans from an investment perspective, a long-term EPS growth perspective impact and same in our sand and maintaining a strong balance sheet. What I talked about not necessarily in avoidance, but how do we look at the timing of equity and the timing of capital, particularly on the timing of the equity, given that we have a strong balance sheet, is we can look at being flexible there. But I would expect that when we're investing $39 billion of capital at a 9% rate base growth. That does come with the financings. And generally, our prior financing year in and year out, that's aligned with the capital spend. So that's the best way to think about it. But obviously, we'll understand what happened to the cost of equity here. And also with the cost of that we have gone off [Indecipherable] the short term in terms of our chain rates have gone. So but that's factored into all of our plans, as I sit here today and talk about reiterating being at or above our 5%, 7%.

Yes. Ryan, it's Bob. Look, I think as we see reindustrialization, we see data center build-out certainly, there can be cost pressures that come from basic materials and construction materials like concrete, steel and things like that. I think we take our best estimates when we put our capital forecast out, but something we watch pretty closely. Labor is another area of opportunity there. I think that one of the things we're very focused on as we see an energy sector transition, making sure that there's a pipeline of talent starting early on in trade schools and partnering with our labor unions and business partners there, to make sure that the pipeline of linemen and pipe fitters and welders are capable of keeping up with the demand. So we try to send early demand signals to them and it help them recruitment processes across our territories and really partner on a national level to make sure that we're seeing enough trade come into the business broadly that we don't see a an immense amount of labor pressure.

You're referencing the resource plan that we just filed here in Q1 related to the extension on cell once, we already extended to 2040, and we've recognized that depreciation in terms of lower customer bills. So we're looking to extend money from 2040 to 2050. And then Prairie Island both units two years, so we'll go a little from the early 2030s to the early 2050s. We have not recognized those 3, call it, lower depreciation rates in the customer [Indecipherable] rate case. We'll wait until we get through this proceeding to get approval and like we wrap it into our next rate case. So this proceeding is probably going to take 18 months ago at the very least. So it's going to be held before we can plow that back into customer rates in terms of lower depreciation.

No, this would likely just be captured either how to defer here or likely if we're in a multiyear plan to have a true mechanism part.

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