Scott Lauber:

Good afternoon, everyone, and thank you for joining us today as we review our results for the second quarter of 2024. Here with me today are Xia Liu, our Chief Financial Officer; and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations. As you saw from our news release this morning, we reported second quarter 2024 earnings of $0.67 per share. We're firmly on track to meet the full-year 2024 guidance of $4.80 to $4.90 a share. This, of course, assumes normal weather for the balance of the year. We continue to see strong foundational growth in our regional economy. The unemployment rate in Wisconsin stands at 2.9%, continuing a long-running trend below the national average. The pipeline of economic activity is particularly strong in what we call the I-94 corridor between Milwaukee and Chicago. For example, just last month, WestRock broke ground on a new facility at the former site of our retired power plants. WestRock is a leading company in paper and packaging solutions with 50,000 employees and 300 plants worldwide. The company called the cutting-edge facility a super plant, stating it will be one of their largest and most advanced plants. And Microsoft is making good progress on the construction of a large data center complex in Southeast Wisconsin. In May, Microsoft announced a broad investment package to strengthen our region as a hub for AI economic activity, innovation and job creation. These investments include a planned $3.3 billion to be spent in cloud computing and AI infrastructure between now and the end of 2026. Microsoft has stated that it expects to bring 2,300 construction jobs to the area by 2025 and 2,000 permanent jobs over time. These developments highlights the strength and the potential of our local economy and underscores the need for the investments in our capital plan. During the second quarter, we continued to move forward on major projects in our capital plan. It's the largest five-year investment plan in our history totaling $23.7 billion for efficiency, sustainability and growth. As we've discussed, the plan is based on projects that are low-risk and highly executable. At the end of May, we closed on our second option at West Riverside Energy Center for $100 million. This adds a 100 megawatts of efficient combined-cycle natural gas generation to our portfolio. You'll recall that last year, we discussed several filings or last quarter we discussed several filings for major projects to support economic growth and reliability in Wisconsin. This includes approximately 1,200 megawatts of efficient natural gas generation at our Paris and Oak Creek sites as well as 2 billion cubic foot liquefied natural gas storage facility and a 33 mile gas lateral to serve the Oak Creek site. In total, these projects combined represent $2.1 billion of investment. Our proposals were submitted to the Wisconsin Commission in April and we expect a decision in approximately a year. Also under review, we filed an application in February to purchase a 90% ownership interest in High Noon Solar Energy Center in Southern Wisconsin. With an expected investment of approximately $580 million, the facility is expected to provide 300 megawatts of solar generation. We have asked the commission to make a decision before the end-of-the year. As a reminder, we expect these investments to earn AFUDC during the construction period after commission approval. And in our WEC Infrastructure segment, the Delilah I solar project is now expected to go into service at the end-of-the year, delayed from June due to a weather event. We plan to invest approximately $460 million for a 90% ownership interest in this project in Northeast Texas. And we still expect our Maple Flats solar project to be in service by the end-of-the year. As you recall, we're investing an additional $560 million this year in our Infrastructure segment. We reallocated away from our operations in Illinois a total of $800 million in our five-year capital plan. Overall, our plan fully supports our long-term earnings growth rate, which we project to be in the 6.5% to 7% range on a compound average annual basis. We're also on schedule with the development of our next five-year plan. And as usual, we expect to share the details with you in the fall. Now I have a few updates on the regulatory front. In Wisconsin, we filed new rate reviews for test year 2025 and 2026 on April 12th. Our request focused on addressing three major areas of need. First, improving reliability and reducing outages from increased storm activity. Second, supporting Wisconsin's economic growth and job creation through investments in new-generation and distribution projects. And lastly, continue the transition from coal generation to renewables and natural gas. Commission staff and intervenor testimony is scheduled for August 21st, we expect a decision by the end-of-the year with new rates effective January 1st, 2025. We have smaller rate reviews and progress at Michigan Gas Utilities and Upper Michigan Energy Resources. We also expect decisions on these reviews by the end of the year. And in Illinois, we've been engaged in three dockets. The Illinois Commerce Commission issued its decision on the first of these, a limited rehearing on the commission's rate order for Peoples Gas at the end of May. The commission had agreed to reconsider our request to restore $145 million for safety modernization program in 2024. This mostly related to emergency work, unfinished projects and work driven by public entities like the City of Chicago. The commission granted $28.5 billion concentrating on what they deemed emergency work. We have appealed this decision to the Illinois Appellate Court along with other items in the rate order, including the commission's previous disallowance of investments in new service centers. We are also actively involved in two remaining dockets. One is the review of the safety monetization program. Staff and intervener rebuttal testimony are expected by August 21st with a commission decision expected in the first quarter of 2025. The other docket is the evaluation of the future of natural gas in Illinois, which is expected to conclude in about a year. Of course, we'll keep you updated on any further developments. Across our business, we continue to make good progress towards our goals of reducing greenhouse gas emissions. In May, we retired units five and six at our Oak Creek power plant. Together, those made up over 500 megawatts of coal-fired generation. Including these units since 2018, we've retired nearly 2,500 megawatts of older fossil fuel generation. Finally, a quick reminder about the dividend. We continue to target a payout ratio of 65% to 70% of earnings. We're tracking in that range now and expect the dividend growth will continue to be in line with the growth of our earnings per share. Now, I'll turn it to Xia to provide you more details on our financial results and our guidance for the third quarter.

Scott Lauber:

Thank you, Xia. Overall, we're on track and focused on providing value for our customers and our stockholders. Operator, we're ready now for the question-and-answer portion of the call.

Shar Pourreza:

Hi guys, good afternoon.

Shar Pourreza:

Hi, Scott. Just -- starting off just on sort of the perennial Microsoft opportunity that always seems to be asked. It's obviously becoming even more kind of topical now. Just remind us on what portion of Microsoft's land acquisition and build is kind of layered in your current plan? And the reason why I ask is that it's obviously now kind of public that they bought a bit more land. And I guess, when do you see this hit your plan more materially? Thanks.

Shar Pourreza:

Got it. Okay, that's perfect. So more to come there. And then just lastly on the Delilah I solar project delay, it's roughly six months. I guess, can you just -- maybe a question for Xia is how to think about the offsets around the potential headwind there versus your kind of prior assumption? Thanks.

Shar Pourreza:

Okay. That's perfect. Thanks, guys. Appreciate it. And hopefully Gale is somewhere tropical listening to this earnings call. Thanks. Appreciate it.

Operator:

Our next question comes from the line of Julien Dumoulin-Smith with Jefferies. Your line is open.

Scott Lauber:

Yes, we can hear you fine. Welcome back, Julien.

Scott Lauber:

Sure. And we've been working with Microsoft on the needs for the area and Wisconsin has got a lot of development opportunities and we want to make sure we hit the capacity requirements we need for the area to support the growth, not just Microsoft, but all the other growth that we're seeing in the region. So that's why we've added the -- and you'll see more filings shortly on renewable projects in the next month or so that we're proposing to help beat the capacity and the energy needs in the region. So we think there's a lot of opportunity not only from generation of renewables, some capacity needs, some distribution needs also, but also American Transmission Company and investment in the transmission in the region. So we're factoring all that in as we pull together our five-year plan here.

Julien Dumoulin-Smith:

Yes, absolutely. Indeed. I know you're pursuing this on multiple fronts. Absolutely. And then team, just maybe to tackle on the regulatory front, a couple of questions here. How do you think about this -- the PSC's denial in the AFUDC? Is there anything to read into that here on the pre-construction costs? And just -- I know it's a little bit nit-picky, but I'm just curious if there's anything to tease out of that in terms of direction, strategically or financial?

Julien Dumoulin-Smith:

Yes, that seems pretty transparent as you say. And lastly, I'll just offer this. I traded in the dog, the equity, traded him in and I got a little boy now. So I appreciate you guys looking for it all along.

Julien Dumoulin-Smith:

Thank you. Absolutely. All right, guys. I'll see you soon, alright? Appreciate it.

Operator:

Our next question comes from the line of Michael Sullivan with Wolfe Research. Your line is open.

Scott Lauber:

Good afternoon, Michael.

Scott Lauber:

No, I think you got it right in line. I mean, of course, we'll put everything together and look at it, refresh it again, but similar to what Xia has been talking about, we'll just look at the equity needs in-line with the capital spend and be very excited about the long-term growth that we have available on the capital and the insights we have looking-forward on additional capital.

Scott Lauber:

Sure. So let's look at both of them. So the QIP Rider is from other years. Right now, 2016 Rider has been queued up I think for a decision hopefully I would expect by the end-of-the year. Decision will be made in that. As you know, it's 2016 Rider, so it's been a while. And then, of course, we have those other years under the QIP still to look at. So remember the requirements there is prudency and we think we've been very prudent specifically after the Integrys acquisition where we really took a look at the program and factored in a lot of information that we received from the audits of the Liberty Audit and staff recommendations from that audit. So those are still more to come on there. And then under the current S&P, remember, the S&P in our last rate case, no one requested a pause in the program at all during the rate case. And now in looking at the testimony for the first set of testimony that came through, there is no one also recommending a pause in the case. The range that our people are talking about that was in the testimony is from including emergency work to working with the City of Chicago and emergency work. There, the City of Chicago, I think he said he should lift the pause for at least two years with a cap of about $245 million all the way to the other extreme where I think staff recommending that you accelerate the program and actually get it done faster by 2030. So there's quite a range in the middle there. But once again, none of the interveners in the initial testimony, they all said they should lift the pause and get some work done specifically related to the emergency work and working with the City of Chicago as they do their capital work.

Scott Lauber:

Yes. And we're going to have to wait-and-see and see what they say. I think when you look at it from every intervener group though, they are saying we need to work with the City of Chicago, including the City of Chicago to help them with their capital programs and everyone even there on the rehearing talked about the emergency work. So on that low end, you're talking between $60 million and $100 million a year. So I don't think anyone is disputing that. And I understand what the commission is, but they're taking some time. And I think when you look at that last S&P case or the rehearing we asked for, they are concentrating on purely emergency and wanted to wait for this order to look at the entire program. So I wish I knew the answer, but that's why we're going to the case.

Scott Lauber:

Thank you.

Durgesh Chopra:

Hi, good afternoon.

Durgesh Chopra:

Hi, good afternoon, Scott and Xia. Thanks for giving me time. Hi, just on the safety modernization program review in Illinois. So obviously, you had a decision on the $145 million, you got $28 million. Can you just remind us what is baked into the plan '25 and forward on that -- on the safety program?

Xia Liu:

Yes, it's between $100 million to $120 million a year, Durgesh. And as Scott mentioned, we are in the process of refreshing the capital plan. So we're working with the team in Illinois to reflect the latest development from the commission's decision on the approval of the $28.5 million. So likely that number could potentially come down over the next five years, but we're still working through the details right now.

Scott Lauber:

Yes. We expect to hear a recommendation in the first quarter of 2025 from the commission.

Scott Lauber:

Yes, sure. There was -- and remember, we haven't purchased it yet. We have a commitment to, but it was during construction and there was a hail event there. So there was some hail damage. We want to work with the developer as they are repairing it to make sure the fields in full shape before we purchase it. We anticipate based on all the latest discussions that it will be in by the end-of-the year. And we get weekly updates on the progress going there. And right now that is still the plan to be in by the end-of-the year assuming no other events happen.

Scott Lauber:

Thank you.

Carly Davenport:

Hi, good afternoon. Thanks for taking the questions.

Carly Davenport:

Just wanted to ask a quick one on transmission and ATC. We've obviously seen the sizing of MISO Tranche 2 moving higher here. So just curious how you're thinking about the opportunities around transmission there both from a size and a timing perspective.

Carly Davenport:

Great. I appreciate that color. I'll leave it there. Thank you.

Operator:

Our next caller comes from the line of Andrew Weisel with Scotiabank. Your line is open.

Andrew Weisel:

Hi, everybody. Hi. First question on Illinois. Just a question of timing. So you mentioned the uncertainty will last for about a year. At what point might you start to consider reallocating capital into this state? Could we see some CapEx go back into Illinois with the update in three months or would it be unlikely to show up until the fee update in the fall of 2025 when all of those dockets are wrapped up?

Andrew Weisel:

That makes sense. Next question for Xia. If I heard you right on the O&M, you're now projecting it to be up 2% to 3%. Last quarter, you said up 3% to 5%, originally it was up 6% to 7%. So this is really good progress. Can you just give us a little bit of detail on those moving parts? How is it that the outlook is getting better and better? What are some examples?

Andrew Weisel:

Okay. Relative to the original budgets, would you call most of these savings one time then or is some of it going to be sustainable?

Scott Lauber:

And also when you think about it, having a warm first quarter, you don't have like the number of leaks as you would in the gas system. So some things are naturally less now. So we've got a little bit less O&M in the gas system and we had some significant storms. So between the storms and the warmer weather, we've asked everyone across the business unit to really control cost and really kind of do some one-time things here. On the other hand, we are making sure we are actively responding to storms because the storms have had bigger and actually continuing to work on our forestry program because of some of the damage some of the storms have had to the system. So we want to really balance customer reliability along with our savings?

Xia Liu:

It would be slightly positive. If you think about the reason why we had a large timing -- tax timing in the first quarter and the opposite in the second quarter. Part of that is driven by the earnings pattern shift in Illinois, so tax dollars follow the earnings pattern. And two, we had a deferral -- I'm sorry, the delay of the Delilah. So part of that is reflected in the second quarter. But as we put Delilah online end-of-the year, we expect the tax dollars to follow.

Operator:

Our next question comes from the line of Neil Kalton with Wells Fargo Securities. Your line is open.

Scott Lauber:

Sure. And actually, thanks, Neil and thanks for the question. So we're actually -- between us and American transmission company, we're actually spending some money now on some of the substations and we have those orders in for some of the generation and it's to support the economic development across-the-board. So it's going to be '24, '25 and then even more in '26 as we get those orders released at the commission and approval for that generation. We're also -- in the next month or so, you'll see some filing on additional renewables that support the generation needs as we continue to add renewables to our portfolio. So that spending, it will be probably in that '26, '27 timeframe.

Scott Lauber:

Exactly, exactly. And remember, the growth that they provided us is really only through their capital plans through '26. I imagine once they get it in, they'll continue to ramp up. But we'll continue to work through it. And I think our plan is extremely long as we start adding 2029 to our five-year plan.

Scott Lauber:

Thank you.

Jeremy Tonet:

Hi, good afternoon.

Jeremy Tonet:

I just wanted to come back up to Wisconsin if I could with the recent commission vote here. Just wondering with the split vote, what you take from that, I guess, any thoughts on the direction of the commission at this point?

Jeremy Tonet:

Got it. That's helpful. I'll leave it there. Thanks.

Shar Pourreza:

Hi, guys. Thanks for taking my follow up. Scott, I know we're getting closer to the back-half of the year. Just on Point Beach PPA, I know you've talked about sort of this coming potentially too ahead as we're getting to the year-end. I guess how are sort of conversations going with NextEra and a new PPA or sort of another path forward there? Any updates?

Shar Pourreza:

Okay. I appreciate it. Thanks so much guys for taking my follow up. Appreciate it.

Operator:

Our last question comes from the line of Paul Patterson with Glenrock Associates. Your line is open.

Scott Lauber:

Hi, Paul.

Scott Lauber:

I apologize. It didn't come too clear on -- the future of gas?

Scott Lauber:

I anticipate it's going to take a year or two.

Scott Lauber:

All right. Thank you. Well, that concludes our conference call for today. Thank you for participating. If you have any questions, feel free as always to call Beth Straka at 414-221-4639. Thank you.

Scott Lauber:

Thank you, Gale. I'd like to start with some updates on the regulatory front. In Wisconsin, we filed new rate reviews for test years 2025 and 2026 on April 12. Our request focus on addressing 3 major areas of need. First, improving reliability and reducing outages from increased storm activity; second, supporting Wisconsin's economic growth and job creation through investments in new generation and distribution projects; and lastly, complying with the new EPA mission rules by continuing the transition from coal generation to renewables and natural gas. We expect the decision by the end of the year with new rates effective January 1, 2025.

Gale Klappa:

Scott, thank you very much. Now as you may recall, our Board of Directors at its January meeting raised our quarterly cash dividend by 7%. This marks, ladies and gentlemen, the 21st consecutive year that our company will reward shareholders with higher dividends. The increase is consistent with our policy of paying out 65% to 70% of our earnings in dividends and underscores our confidence in delivering a bright, sustainable future.

Liu Xia:

Thank you, Gale. Our 2024 first quarter earnings of $1.97 per share increased $0.36 per share compared to the first quarter of 2023. Our earnings package includes a comparison of first quarter results on Page 12. I'll walk through the significant drivers.

Operator:

[Operator Instructions]

James Kennedy:

It's actually James on for Shar. So the first -- the $400 million of the equity in your current 5-year plan was put there to true-up utility equity layers? In your current Wisconsin rate cases, you're asking for 53.5% equity or 50 basis points above where you indicate current levels to be. Could we see incremental equity being added to the current plan to true those utilities up that 50 basis points?

Liu Xia:

I mean, we filed for 53.5%. We hope to receive 53.5%. If that's the case, we'll look at the equity. But right now, we haven't changed the equity plan.

Gale Klappa:

No, but I wouldn't model in at this stage of the game or even after we get it. I wouldn't necessarily model in an increase in equity beyond that.

Gale Klappa:

Yes. Did that help, James...

Gale Klappa:

Very good. Well, a couple of thoughts on your questions about settlements and timing. First of all, I think that our current a new chair of the commission, Summer Strand, has publicly stated that she's very open to stakeholder input and would certainly be open to discussions on settlement.

Gale Klappa:

And of course, a final decision is not statutorily required until December in the case. So there's a window between the time of the staff audit and commission deliberations for all the appropriate stakeholders to get together. I hope that helps.

Steven Fleishman:

Gale, well, finally, the day came. Well, I appreciate all 87 of those calls, which I probably either listen to or read the transcript of all of them. So -- but wish you the best. But I'm not going to let you get away without answering some questions.

Gale Klappa:

Yes. Terrific. Great question, Steve. I mean, first of all, to answer your second question, yes, we will be the supplier for all of the energy that Microsoft will need at their site inside the Wisconsin Technology Park, which, as you know, is about 20 miles south of our headquarter city.

Steven Fleishman:

Yes. No, that's great. Just -- can you just remind me just for the first 315 acres, how much capital is in your plan to basically make the investment to serve that?

Steven Fleishman:

Okay. And then one other question just on Illinois. The -- obviously, the order late last year disappointing, but staff on rehearing kind of seemed okay. So just feeling that likely the commission will be reasonable there. And I guess, maybe more importantly, there's been a lot of labor pushback on the capital -- on the work reductions. And just is that making any impact on just how the state is looking at things for your business?

Gale Klappa:

And Steve, my gut tells me that there's an element of practicality, just Midwest practicality here as it relates to making sure that, that system stays safe.

Neil Kalton:

So anyway, a question just kind of following on, on some of the earlier conversation on the new generation that you're adding about 1,400 megawatts. I understand that's for what you see on the ground. At that point in time, what will the reserve margins look like? Basically, what I'm trying to get at is there seems like there's a lot of additional activity that could happen. And what would your -- what would be your ability to serve or would we be looking at new generation requirements if that were to come online?

Scott Lauber:

You're exactly correct, Gale. As we continue to look at it, and we did size our plan with the required reserve margins, looking at the seasonal capacity that's required from the Midwest operator here. So any additional load, we will need some generation to make sure we have that capacity available.

Operator:

We will take our next question from Durgesh Chopra with Evercore ISI.

Gale Klappa:

Just in terms of the amount of time it takes to get approvals. Is that what you're referring to, Durgesh?

Gale Klappa:

Yes. Good question. And I would kind of -- and Scott should give you his view as well. I would kind of break it down into 3 buckets. And the first bucket is obviously availability of equipment. And there we're fortunate in that we have already placed a number of orders for some of the key -- particularly key transmission and distribution pieces of equipment that will be needed.

Scott Lauber:

I agree, Gale. And I think the other key is we have the site selection at the Oak Creek site for a significant part of our assets. And we've done a lot of the filings already. So really, things are moving ahead very quickly. But we got a process in place in the orders placed, which is good.

Gale Klappa:

No, it can be a spend number anywhere in between. There really is in this limited rehearing process, if you will. There's really no avenue for settlement. But you're right, it's not a binary thing. It's not 0 or 145. The commissioners can use judgment on any number from 0 to 145 or in between.

Carly Davenport:

Maybe just to start, I wanted to just ask on the electric sales this quarter, you walked through some of the weather impacts, but anything else that you flag driving some of the C&I load for the quarter, particularly for the larger customers there? And then as you just think about some of these economic development opportunities, how you think about really that timing for an inflection in load growth?

Liu Xia:

Yes. So on Q1, so to your point, Carly, the weather normal LC&I electric sales was minus 1.8%, which was behind our forecast. But if you -- we looked pretty hard on the specifics. So it turned out that the underperformance was concentrated in really a couple of customers, one in primary metal, the other in the paper sector. And one of them actually is in the process of transition into a very -- a much bigger expanded presence in the region. So Q1 was kind of a transition period for them. So that's really just timing.

Carly Davenport:

Got it. Okay. That's super helpful. Maybe if I could just squeeze one more in. You referenced the new EPA rules in terms of some spend there in the Wisconsin rate cases just filed. I guess, do you expect those new rules to have any impact on the views on gas capacity additions going forward or the capital needs associated with that?

Scott Lauber:

No, our plan that we filed and the plan we have in our 5-year plan lines up right in line with the EPA rules that just came out were finalized. So I'm very happy to see that come together.

Anthony Crowdell:

Congratulations and best of luck and best of luck to Shar in the closet also. So great news all around. I guess also Neil and Steve's question, I apologize if you answered it, just I guess you talked about you have an adequate reserve margin in the service territory and if a large data center hyperscale that comes in, and they eat up that entire reserve margin and now the generations need to get back. Just on the allocation of cost for the data center moving in there and maybe eating up that reserve margin, does the rest of this jurisdiction bear the cost of now building back up the reserve margin?

Gale Klappa:

And then, Anthony, as you know well because you've been around a long time, when you have substantial kilowatt hour sales growth, that actually is helpful to your customer base. Because it spreads those additional costs over a much broader base of kilowatt hour sales. So there's also as we work our way through this, remember that 4.5% to 5% increase that we're projecting in annual kilowatt hour sales starting in '26. That's also going to be helpful as well to our overall customer base.

Gale Klappa:

Anthony, it's very hard to tell. I mean, incrementally one way or the other. But I will say this, labor has and will continue to have, I believe, a strong voice in Illinois, and they are passionate about the need for us to continue the safety modernization program.

Operator:

And we will take our next question from Paul Patterson with Glenrock Associates.

Gale Klappa:

A long time. What is going on right now and started a couple of months ago is really what they would call a scoping phase. So they're having almost weekly meetings to identify and get broad input on all the different sub subjects or sub subject matters that should have broad discussion from all the stakeholders going forward. So the scoping itself, I think, is going to take until mid-summer. Our guess is probably when do you think Scott, at least a year.

Gale Klappa:

I did notice, Paul yesterday or day before that one of the environmental groups and again -- multiple stakeholders taking place in the scoping process but one of the environmental groups on the record did say that they believe there would have to be a very long transition and that natural gas would play a significant role for a long period of time, which I thought was both practical, accurate and encouraging.

Gale Klappa:

I think that's reasonably -- yes, that's reasonably accurate, Paul. Yes.

Gale Klappa:

Well, early days, Paul, but my sense -- and we'll get Scott for you as well, my sense is probably the first application maybe in transmission. What do you think, Scott?

Gale Klappa:

In near term, as Scott has mentioned the dynamic line ratings, I think, pay attention to that because I think that could be very helpful. But there's a lot -- as you know, there's a lot of R&D underway to try to enhance both reliability and stability. So I hope that gives you at least a broad answer to the question, Paul.

Gale Klappa:

Thank you, Paul. You take care.

Operator:

And ladies and gentlemen, that concludes today's call. We thank you for your participation. You may now disconnect.

Gale Klappa:

Well, good afternoon, everyone. Thank you for joining us today as we review our results for calendar year 2023. First, I'd like to introduce the members of our management team who are here with me today. We have Scott Lauber, our President and Chief Executive, Xia Liu, our Chief Financial Officer, and Beth Straka, our Senior Vice President of Corporate Communications and Investor Relations. Now, as you saw from our news release this morning, we reported full year 2023 adjusted earnings of $4.63 a share. This excludes a one-time noncash charge of $0.41 a share. You may recall that the Illinois Commerce Commission in November disallowed the construction costs for the modern service centers and facilities that we built in Illinois to improve employee safety and productivity. We firmly believe that the investments were necessary and prudent, and at the appropriate time, we will appeal the decision in court. Despite the setback in Illinois, I'm pleased to report that we delivered another year of solid results on virtually every meaningful measure, from customer satisfaction to financial performance to steady execution of our capital plan. Xia Liu will provide you with more detail on our financial metrics for 2023 in just a few moments. Turning to other regulatory matters, the Wisconsin Commission approved our limited reopener filings in December, new rates are now in effect for all of our Wisconsin utilities. And in Illinois a limited rehearing has been scheduled for a portion of our safety modernization program. As a reminder, the Illinois Commerce Commission ordered a pause in that program for at least one year. We've been systematically replacing old leaking cast iron pipes under the streets of Chicago. This long running project is approximately 38% complete today. We had plan to invest approximately $265 million in these safety upgrades during 2024. Given the Commission's order, we will not be carrying out the program as envisioned. We honestly do not believe that stopping the work is in the best interests of our Chicago customers. But we will have another opportunity to make our case in the coming months through this limited rehearing. In addition, the Illinois commission will open a new docket this month to examine the future of gas across the state of Illinois. This review is expected to take at least one year to complete. Switching gears now, let's look at the investment needs of our broader enterprise. We continue to refine our ESG progress plan our roadmap if you will for the period 2024 through 2028. As you'd expect, we're lowering our plan capital investment in Illinois. But the bigger picture is strong and growing. And today we're increasing our five-year plan by $300 million. What was a $23.4 billion plan, the largest in our company's history, is now a five-year plan totaling $23.7 billion. The increase is focused on two categories, electric distribution to support the strong economic growth we're seeing in Wisconsin and WEC Energy's projects that are in our due diligence pipeline. That's our WEC infrastructure projects. In fact, we're in the final stage now of vetting another major project for our infrastructure portfolio, a 300-megawatt solar investment for approximately $460 million. Closing and commercial operation could take place in the second quarter of this year, we'll keep you informed. Overall, the building blocks of our updated capital plan clearly support our long-term growth rate. Growth from our five-year plan on a compound average annual basis remains in the 6.5% to 7% range. As always, we're starting with the midpoint of our 2023 guidance. However, we expect earnings for 2024 to come in at or below the current consensus estimate. The reason is simple. As we redeploy capital, at least temporarily away from Illinois, the majority of the quality projects we're investing in will not be in service for the full year 2024. So for this year, for 2024, we projected earnings to be in the range of $4.80 to $4.90 a share and Xia Liu will provide you with more detail in just a moment or two. One final but important point about our capital plan. As a percentage of the total enterprise, our regulated electric business will be larger five years from now than it is today. Economic development and reliability and decarbonization are driving that growth. We plan to continue our investment in the infrastructure segment as well. But five years from now, we expect the infrastructure segment will be only 6% of our asset base. And now turning to the regional economy, the unemployment rate in Wisconsin stands at 3.3%. That continues a long running trend below the national average. And as we've discussed, we're seeing some really exciting developments here on the state. You've heard about Microsoft's plans in the Wisconsin Innovation Park South of Milwaukee. That investment continues to build. Microsoft has now purchased a total of 1345 acres of property, and construction is already underway on a major data center complex. Of course, Microsoft didn't alone in what we call the I-94 corridor, companies like [indiscernible] and Uline are expanding their footprints as well. For example, Uline just announced plans for a third office building in Pleasant prairie. Uline expects to complete construction by 2025, creating additional space for more than 700 workers. Uline in case you're not familiar with the name is the leading distributor of shipping, industrial and packaging materials to businesses throughout North America. And just last week, West Rock a fortune 200 company that produces sustainable paper and packaging materials, announced plans to build a 587,000 square foot manufacturing facility on the former site of our Pleasant Prairie power plant. These developments highlight the strength and the potential of the Wisconsin economy and underscore the need for the investments we're outlining in our five-year ESG progress plan. And with that, I'll turn the call over to Scott for more specifics on our regulatory calendar, our capital plan, and our operational highlights. Scott, all yours.

Gale Klappa:

Scott, thank you very much. Now, as you may have seen, our board at its January meeting, raised the quarterly dividend to $0.835 a share. That's an increase of $0.055 a share or 7%. This will mark the 21st consecutive year that our shareholders will be rewarded with higher dividends. The increase is consistent with our policy of paying out 65% to 70% of our earnings in dividends and underscores our confidence in delivering a bright, sustainable future. One other quick note on our track record of dividend growth. We learned last week that WEC Energy is being added to S&P's high dividend Aristocrat Index. This index is made up exclusively of companies that have raised their dividends for at least 20 consecutive years. Next up Xia will provide you with more detail on our financial results, our financing plan, and our 2024 guidance. Xia?

Gale Klappa:

Xia, thank you very much. Operator, we're ready now for the question-and-answer portion of the call.

Shar Pourreza:

Gale, just a quick one on, so the 4.80 to 4.90 guidance for '24, I mean that obviously about 5.4% growth year-over-year. And you obviously have a very tight EPS growth range and the debit this year is clearly from the CapEx timing. As we kind of bridge into '25, let's just say can you kind of grow at that top end or above the EPS growth range to keep you within the 6.5% to 7% target? Or should we assume kind of bottom end in the near term and step up at the back half given the pace at which you may not be able to deploy capital?

Shar Pourreza:

Okay. Got it. Perfect. And then, just Gale on the $800 million reduction in Illinois. Was that all related to S&P or what was the amount that was above that? And then just that concurrent shift into sort of the infrastructure segment, I guess, can you just talk about the profile of that spend and whether sort of there's any earnings accretive opportunities from this shuffle, especially since you do target returns on an adjusted basis anyway, for the infrastructure segment that is higher than the regulated side?

Shar Pourreza:

Okay, got it. Okay, perfect. And then just lastly, for me, it's just an obviously the S&P program. Obviously, there's a new docket out there and there's an investigation, but there was sort of this independent engineering study that was recently conducted by the Commission that already sort of proved out that the S&P needed to be carried out. How does that kind of play into this new docket? Thanks, guys.

Shar Pourreza:

Got it. Perfect. Thank you, guys. I will see you in a couple of weeks Gale. Bye.

Operator:

Thanks, Shar. And our next question comes from the line of Neil Kalton with Wells Fargo Security. Neil, please go ahead.

Gale Klappa:

That's a great question, Neil. And I'm going to ask Scott to give you his view on this as well. I would say first of all, it wouldn't be surprising, at least to me if some of the capital that is currently on pause in Illinois would come back simply because of the need to continue safety. So looking at it a little more broadly, Neil, our view is the sweet spot of growth is still 6.5% to 7% a year. So I think we have to see Scott, where we stand in terms of additional infrastructure investments that we have in the pipeline. But as Scott said we have several 100 million dollars of those projects now that are in final due diligence stages. Scott?

Gale Klappa:

Yes, actually, Scott's making a great point. I mean, you can't just turn it on a dime. So if indeed just thinking out loud with you Neil, if indeed, the commission investigation of the program or their review of the need for the program lasts a year, which the order yesterday suggested a year but also said if it could be expedited with all the proper information, they would welcome that. But I wouldn't think that it can be turned on to back to its full level, even if authorized to do so this year.

Gale Klappa:

Yes, Neil. As we continue to get more detailed and granular information about the need to support the economic growth, and particular in the I-94 corridor that we talked about. Clearly, there's going to need to be some additional distribution investment, no question about that. And then there's also some additional renewable need. So those were the two things all regulated all Wisconsin, but really driven by the continued expansion and location and I just mentioned in the script as you may recall, another major investment by a company based in Atlanta called West Rock, with a 587,000, corrugated box production plant. So the economic growth is just amazing. I would encourage anybody. In fact, we are going to invite all of you to come see what we're seeing on the ground here in the not-too-distant future, the economic growth, expansions that we're seeing in that I-94 Corridor are just literally amazing.

Jeremy Tonet:

Just wanted to kind of come back to Illinois overall here, given the lower-than-expected rate case outcomes from ICC, I think you expected? What's the current view, I guess, in Illinois, as a regulatory jurisdiction here? And how have conversations with stakeholders been trending regarding the longer term outlook for Illinois and gas Illinois?

Scott Lauber:

No, I agree. It just, it'll be good to get the facts on the table and everyone be able to talk about the issues and work through it. So we have a lot of good information and willing to provide it.

Gale Klappa:

Well, I think probably the most significant change, obviously, is Chairman Valcq deciding that she would like to retire from a position and Summer Strand, who was appointed last year by the governor, becoming the new chair. And I would just simply repeat what we've said before about the qualifications that Summer Strand has, in her background and energy policy, her background in construction and engineering, very, very well suited to a position like this. So we're looking forward to working even more closely with Summer. And then the other most recent appointment is a person who's been at the commission and has headed up divisions and staffs at the Commission for I believe, more than a decade. So a good bit of experience to join Summer Strand. And Scott, I think we feel like both of these appointments are very balanced.

Jeremy Tonet:

Got it. Thank you for that. And maybe just the last one, if I could just thoughts about the energy infrastructure segment in general, versus the regulated utilities. There was a pivot kind of a way before and then back towards it. And so just wondering how you think about I guess, investments and the two different sides and are you targeting higher returns on the infrastructure business in excess of the authorized ROEs, just wondering, kind of how you see the gives and takes there given the shifts in CapEx in recent years.

Scott Lauber:

That's exactly right, Gale. So when these PPAs, lying down at the end, 10, 15 years, we'll have the ability, then perhaps the either repower them, find another off taker, or especially in the MISO footprint, move them into the regulated utility here as we continue to decarbonize. So I think there's a lot of opportunities here. And when we look at these projects, we also look at getting all the cash back within10 years, and for sure, in the time of the PPA. So we're really looking at it is good cash flow, but also opportunities here in the regulated long-term.

Jeremy Tonet:

Yes, that's helpful. I'll leave it there. Thank you very much.

Durgesh Chopra:

I'll take you up on that invite. I'm ready to come and bring a bunch of guys and gals with me. So let me know when.

Durgesh Chopra:

So just clarification on 2024 EPS guidance, does that include the 300 megawatt project that you might be executing on or rather, buying in I think you said the first half the solar project?

Durgesh Chopra:

Got it. So in that 4.80 to 4.90 range, we should be modeling like, half a year plus contribution from that project?

Durgesh Chopra:

Okay. And then maybe just, Xia just can you update us on the timing of equity. I think you're targeting a small amount this year. And then sort of pro rata going forward setting the numbers were 100 million, 200 million this year, and then 450 million a year, starting in 2025. How should we think about that with a slightly higher equity number now.

Durgesh Chopra:

So just to be clear, though, the total equity issuance amount doesn't -- it should still be in that 100 million or 200 million, or I guess what I was really asking is the incremental equity. I know it's small. That's going to be just going to 2025 and beyond.

Operator:

Thanks, Durgesh. And our next question comes from the line of Michael Sullivan with Wolfe research. Michael, please go ahead.

Gale Klappa:

We'll let Xia give you the breakdown. But the solar project that we're in final due diligence on would be PTCs. Not ITCs, PTCs. So to your point, we're not playing accounting games. We're not trying to take some giant one time, leap forward here. It would be the standard approach that we've used on all of our other infrastructure projects. Xia?

Michael Sullivan:

Okay. And then just sticking with 24, the O&M increase? How much of that was kind of known, I guess, through most of last year? And how much of it popped up more recently? Like, I don't know if you could piece out this January storm? And then these projects that sounds like there's a little bit of lag on, what was kind of like known versus more recent development of the O&M uptick?

Xia Liu:

Yes. And that's it. So about 1%, I call it out 5% of those we already knew, 1% of that was related to storm, the rest would be the O&M related to assets in the rate cases, as well as additional WEC infrastructure projects.

Gale Klappa:

No, I was just going to say if you just think about it broadly, as we add assets, you add O&M to basically operate those assets. And we added a considerable, I mean, we added a considerable number of renewable assets, infrastructure projects, et cetera. But if you look at core O&M, I mean, core O&M is very, very under control.

Gale Klappa:

Scott, I think we're talking the January storm, 8 million –

Michael Sullivan:

$0.02, okay. Okay, and then, thanks for all that. And then kind of just shifting to this upcoming Wisconsin rate case. Any like high level sense of the size of the rate increase we should be anticipating there.

Scott Lauber:

So we're currently pulling all those numbers together. As you can tell, we've been working on filling in the hole from the Illinois capitol, but we're currently working on those numbers, you know, we got these asset additions that we're putting in this year. And of course, there'll be some inflation as we look at O&M. So we don't have a final number yet. But we should know by the end of the first quarter here when we file something. But everything seems reasonable if you're pulling stuff together.

Gale Klappa:

Yes. I doubt it to be higher than that. It'll be in that ballpark or a little less. I would think. We're still pulling those together, though. We got to factor a lot of stuff in and look at like the production tax credits. We're getting on the solar that just went into service and factoring that all in. You'll see the filing in the second quarter.

Andrew Weisel:

Two quick follow ups on the commissioners in Wisconsin, so obviously some new faces their. First question just to confirm that turnover won't have any impact on the timing or outcome of the rate case, or well, I shouldn't say outcome. It won't impact the timing right.

Andrew Weisel:

Okay, great. The other question I had relates to former commissioner Kyler Huebner, he was ousted if you will by the Republican led Senate, and a lot of the media reports make it sound like a lot of the pushback from that Senate was around his support for renewables and solar in particular. So my question is, do you worry that the state's commitment to renewables might potentially be changing politically? And if so, would that impact your spending strategy at all?

Andrew Weisel:

Okay, great. That's reassuring. Then just a very quick follow up on equity, I understand the slightly higher equity related to the higher CapEx. What about the write down following the Illinois rate case in disallowances? Are you not expecting that to lead to additional equity? Or are you awaiting results of rehearings or potential court cases before you decide?

Gale Klappa:

So we've already baked it into the five year plan.

Paul Fremont:

I guess my first question is, does when you look at sort of the 28 outlook for the company, the 5% decrease in the natural gas distribution segment? What does that assume in terms of outcomes in Illinois?

Scott Lauber:

Right. So it assumes that we will still be doing emergency work and work for the city, and some of those real reliability needs. But for assuming the status, until they get through the system, they'll have a safety modernization program and review that neighborhood program. We don't have any of that in there.

Paul Fremont:

And presumably, I mean, if the outcome were favorable in Illinois, would that potentially change upward?

Scott Lauber:

Late at the end of next year, the same time this year, it's going to take a while to get through, which is the only one to be thorough, so that's good.

Paul Fremont:

Right. And then, can you discuss what comprises the added infrastructure investment? Is that all essentially renewable investment?

Paul Fremont:

Great. And any update on the tender or and where are you in the tender because the early period, I think expired. When does the tender expire?

Xia Liu:

Yes. The early tender has expired. We expect to tender, a little over $120 million out of the 500 million, all that is coming together.

Xia Liu:

Correct. But given the expiration of the early tender, we don't expect much pickup after the early expiration date.

Xia Liu:

We have that in the 10-K. So we'll issue the 10-K in February, and then we have a February investor deck, which will give you the details for the next three years.

Julien Dumoulin-Smith:

Hey, look, let's bring it back to your neck of the woods. Super quick. There's been a lot of conversation on all sides of legislation in Illinois, and a lot of different parties coming to the table obviously doesn't seem entirely ripe or obvious where that's going. But, how do you see that kind of meshing up against these various dockets with a future gas? Or, frankly, your own rehearing? We just kind of getting a cohesive set of policies maybe aligning with the governor round, or what have you. I mean, how do you see that possibly coming together? Like, what venue, even if you will?

Scott Lauber:

No, nothing additional. I agree with you. We'll probably go through that process.

Gale Klappa:

Well, I think it's a great question. I think the short answer is really to be found in the docket that now is being authorized. And we'll come to a conclusion by June 1, or we expect early June at the latest. So there were under that safety modernization program, you call it QIP, which was the piece of legislation that authorized a rider to recover these investments a bill rider. There were several buckets of activity that were included in that legislation and recovered through that rider. One of the buckets, we feel just has to continue, as Scott mentioned earlier, it's the emergency work. And it's the work that, for example, we do in conjunction with the city of Chicago, they are actively replacing aging water mains, and it doesn't make a lot of sense to rip up the streets twice. So we work together. And we work together very well, to accomplish what we need to accomplish as they were doing their work. That bucket also got paused in the Commission's order, as well as the big piece of the plan, which is the neighborhood work, going neighborhood by neighborhood based on risk, to upgrade the safety and put a new modern state-of-the-art piping. So the piece that we're saying to them, that look, we really need to continue and get appropriate recovery for is $134 million. It's that bucket of work, relating to emergencies, things that we have to do and to work, for example, like with the city of Chicago. So that piece is what we're asking for recovery on. And we should get an answer, Scott, I believe by early June.

Gale Klappa:

I was just going to say watch the space. There'll be a lot of activity over the course of the next 12 months.

Operator:

Thanks, Julian. And our final question today comes from the line of Paul Patterson with Glenrock Associates. Paul, please go ahead.

Gale Klappa:

Yes, be happy to. And as you ask the question, there are two specific things that really come to my mind. The first is that, I mean, we're obviously only going to make investments that follow public policy, and public policy of a safety modernization program on the future of gas in Illinois are going to be decided in the next 12 months. Having said that, I believe there's a certain amount of investment that's simply going to have to take place for the safety of Chicagoans. What amount that is, I don't know, in terms of what decision might be made. But I can't imagine the Safety Modernization Program. Maybe it's changed, maybe it's not, but I can't imagine that investment going to zero. Just from a pure practical standpoint, I don't think that's feasible in terms of protecting the City of Chicago, or preparing the City of Chicago for an energy future that could include renewable natural gas, hydrogen, or any other type of fuel. So that's kind of piece one. Piece two, just remember that under normal circumstances, Illinois as a future test period, their rate cases have a one year future test period, which does help to mitigate any kind of issue related to regulatory lag on a normal ongoing basis. And then I guess the other thing that I would add is, you look at just the adjustments we've made since November 16, in our capital plan. I mean, I mentioned earlier, three mega trends are driving the kind of investment opportunity that we have in front of us, which is robust. And those three mega trends are basically reliability, the incredible economic growth that we're seeing in terms of expansion and attraction here of businesses, and industrial customers, and in the third and these are all important decarbonization. So I don't see regardless of the outcome in Illinois, any type of really diminished opportunity, Scott, in terms of the broad, broad avenues that we have for productive investment that support those trends.

Gale Klappa:

Paul, does that respond?

Gale Klappa:

All right. Well, I think we wore you guys out today. So that concludes our conference call for this afternoon. Thank you so much for your questions and for participating as always, and if you have any additional thoughts or questions, Beth Straka is happy to pick up the phone. She can be reached at 414-221-4639 Thanks, everybody. See you along.

Gale Klappa:

From America's Heartland, good afternoon, everyone. Thank you for joining us today as we review our results for the third quarter of 2023. First, I'd like to introduce the members of our management team who are here with me today. We have Scott Lauber, our President and Chief Executive; Xia Liu, our Chief Financial Officer; and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations. As you saw from our news release this morning, we reported third quarter 2023 earnings of $1 a share. We delivered another solid quarter of growth, and we remain on track for a strong 2023. Our focus on executing the fundamentals of our business is creating real value for our customers and our stockholders. Today, we're also reaffirming our earnings guidance for the year. The range is $4.56 to $4 -- I'm sorry -- $4.58 to $4.62 a share with an expectation of completing the year in the upper half of the range. As always, this assumes normal weather through the final quarter of 2023. Switching gears now, our big news for the day is the rollout of our ESG progress plan for the period 2024 through 2028. As you may have seen from our announcement this morning, we expect to invest $23.4 billion with an ongoing focus on efficiency, sustainability and growth. This is the largest capital plan in our history, an increase of $3.3 billion above our previous five-year plan, that's more than a 16% increase. Several factors of driving the investment outlined in our updated ESG progress plan. The first of these factors is the economic growth we're seeing in the Milwaukee region, particularly in what we call the I-94 corridor in the southeastern part of the state between Milwaukee and the Illinois state line, from data centers to pharmaceuticals to micro inverters for solar panels from even more gummy bears to massive new distribution and fulfillment centers. And this growth is also spanning new commercial and residential development in the region. In our new five-year plan, we expect our asset base to grow at an average rate of 8.1% a year. And as we fund this growth with an appropriate financing package, we project our earnings per share will continue to rise at a compound annual rate of 6.5% to 7% a year. As we've been discussing with you, our plan will include growth equity in the form of programmatic equity, including our dividend reinvestment plan, employee benefit plans, and at the market plans. There is no need for block equity in the five-year plan, and we'll start in 2024 by issuing a $100 million to $200 million of new equity. Xia will provide you with more details on the financing plan in just a few minutes. I'd also like to point out a few other quick highlights for you. Over the next five years, we'll continue to make great progress in transforming our power generation fleet and reducing carbon dioxide emissions. In the plan, for example, we're making a significant commitment to new solar, wind and battery storage, as well as modern efficient natural gas generation and LNG storage. In addition, we'll be adapting to the new seasonal capacity rules being put in place by MISO, Midcontinent Independent System Operator. American Transmission Company will be adding needed transmission capability and to help assure energy security for our customers will continue to harden our distribution networks. On the environmental front, our plan still calls for reducing CO2 emissions from our power generation fleet by 80% by the end of 2030. And I'm pleased to report that assuming timely regulatory approvals, we now project a complete exit from call three years earlier by the end of 2032. So the future is bright, the investment opportunity is long, strong, and highly executable. And Scott will provide you with some specifics in just a few minutes. And now a brief look at the regional economy. The unemployment rate in Wisconsin stands at 3.1%, continuing a long running trend below the national average. And as we look inside the numbers, we see an encouraging upward trend in Wisconsin's labor force participation of this year. As I mentioned, growing companies are investing and expanding in our region. Microsoft is now moving dirt and moving full speed ahead to develop its new data center complex in that I-94 corridor, we mentioned south of Milwaukee. And Haribo officially opened the doors of its new confectionary plant in July. Fast forward to today, and Haribo is already planning to double the size of its production capability, adding more capacity for gummy bears, new technology and additional employees. And so -- also south of Milwaukee, Uline plans to open a 1 million square foot facility this year. Uline, in case you're not familiar with the name, is the leading distributor of shipping, industrial and packaging materials for businesses throughout North America and even more expansion is planned by Uline for 2025. These developments highlight the strength and the potential of the Wisconsin economy and underscore the need for the investments we're outlining in our five-year plan. With that, I'll turn the call over to Scott for more specifics on our capital projects, our regulatory calendar, and our operational highlights. Scott, all yours.

Gale Klappa:

Scott. Thanks very much. And now just a quick reminder about our dividend. Our dividend growth continues to stand in the top decile of our industry. In fact, we were recently named one of the 10 best dividend stocks in America by Morningstar. As usual, I expect our Board will assess our dividend plans for next year and our regularly scheduled meeting in December. We continue to target a payout ratio of 65% to 70% of earnings. We're positioned well within that range now, so I expect our dividend growth will continue to be in line with the growth in our earnings per share. Next up, Xia will provide you with more information on our third quarter financials and a good bit of detail on our upcoming five-year financing plan. Xia, all yours.

Gale Klappa:

All right. Xia, thank you very much. Overall, we're on track and the company continues to perform at a very high level. Operator, we're ready now for the question-and-answer portion of the call.

Gale Klappa:

Rock and roll, Shar. How are you?

Gale Klappa:

Doing great.

Gale Klappa:

Yeah. Yeah, great question, Shar. Well, first of all, kind of let me back up and reiterate a couple of things that Xia mentioned. I think you can look at, and Xia touched on this, about $400 million of the equity raise. At least in my mind, I look at that as kind of a one-time catch up because over the last rate case outcomes, we've received thicker equity layers virtually in every situation. So about $400 million of that really just goes to support, really strong credit metrics at all of our utilities. So I would look at that particular $400 million chunk that Xia referred to, Shar, as kind of a one-time catch up. And then to answer your question about further capital. And yes, the Microsoft plan is still being developed. We'll know a lot more in the next few months beyond what we've put in this plan related to Microsoft as they continue to refine their plan for the large complex that they're going to develop here in southeastern Wisconsin. But I think the way to look at it is that incremental capital beyond what's in the plan, probably equities about 50% of that incremental capital. Xia, any other thoughts?

Gale Klappa:

Okay. Shar, does that respond to your question?

Gale Klappa:

Yeah. Let's walk through all of that in detail at EEI for you. We'll have a very specific breakdown for you EEI. But I think clearly there's going to be some additional capital. I mean, we mentioned generation and LNG as kind of large contributors to the capital plan. So I think the outer years or the later years in the five-year plan will be larger than the first couple of years. I think the first, the first couple of years probably the increase will be more dominated by transmission in the first couple of years. And then as we build generation and as we build the LNG facilities, you'll see kind of a rise in that five-year capital plan. I will say this, there is no white space in that five-year capital plan. I mean, we have just tremendous opportunity in front of us.

Gale Klappa:

Absolutely. Yeah. We will match the equity issuance with the capital investment each year.

Gale Klappa:

Yeah. Shar, great question. Let me just first say, there's no lack of opportunity as we see it in the Infrastructure segment. But what we're doing here is simply reallocating capital and resources to the tremendous growth opportunity that's evolving here in our regulated business driven by Microsoft, driven by the other economic growth that we've described to you. So this is not really any comment at all in terms of the potential, the returns or the opportunity in the Infrastructure segment. It's just -- we have a tremendous opportunity here now to reallocate capital to our regulated enterprise.

Gale Klappa:

All right. Take care, Shar. Thank you.

Gale Klappa:

Hey, Ross. How are you?

Gale Klappa:

It really will. It'll be fascinating.

Gale Klappa:

Well, it's a good question and I will look to Xia to make sure my numbers are right, but it's varied over the years, the DRIP program, but generally it's about $100 million to $150 million.

Gale Klappa:

And Ross, you're right, we have been buying shares off the market to satisfy both the DRIP plan and the employee benefit plan. So this simply kind of puts us back in a position where I think everybody else in the industry already is.

Gale Klappa:

Ross, you're absolutely right. It does fit into the mechanism. One way to look at it is all of the arrangements and all of the legal situations related to power of the future and all the regulatory situation related to power of the future is fuel agnostic. So there's really no regulatory approval required for us to do the major activity that we're already underway with, which is beginning a transition of the new coal-fired units at our Oak Creek site from coal and natural gas. And again, we're already making modifications at the plant itself. We're already testing burn of natural gas, up to certain levels. We're planning to bring in larger meter sets, et cetera. So the work is underway to continue the transition of coal and natural gas at our new Oak Creek units. The other power of the future units are already natural gas fired. So -- but there is no -- there really is no legal or regulatory requirement related to the concept of transitioning from coal to natural gas.

Gale Klappa:

That is exactly correct, Ross. Yes.

Gale Klappa:

Terrific. Thank you, Ross.

Gale Klappa:

Afternoon, Michael.

Gale Klappa:

We're good. We're good. By the way, Michael, there's no truth to the rumor that you're dressing up as Taylor Swift tonight for Halloween, is there?

Gale Klappa:

Or maybe you're dressing up as Travis Kelsey. I'm not sure.

Gale Klappa:

Time will tell. Obviously, my sense is we will probably end up with a final review and a final decision by the Illinois Commission. Scott, your view.

Michael Sullivan:

Okay. Great. And then I just wanted to ask, in terms of timing. I know a lot of people have been asking on this, Gale, just your kind of timeline for being in the current role that you're in. I think the last update there was through May of 2024. Just any sense of when you'll update us on that front. Are you tying yourself to [indiscernible] with his extension or?

Michael Sullivan:

Okay. Great. Thanks very much.

Operator:

Your next question comes from the line of Julien Dumoulin-Smith with Bank of America. Your line is open.

Gale Klappa:

I'm good. I got -- I now have a name for your new dog.

Gale Klappa:

Equity.

Gale Klappa:

There you go.

Gale Klappa:

Still having fun.

Gale Klappa:

Yeah. Great question, Julien. So let's put a couple of numbers around it. In this five-year plan, in this new five-year plan, we've included about 1400 megawatts of additional capacity to support the Microsoft data center development and some of the broad based economic growth that we've described to you. And that new capacity is really going to be needed for energy security, and for us to continue to decarbonize. But in the current plan to support the Microsoft development and some of the other that I-94 corridor development that we've talked with you about, we're seeing the need for roughly 1400 megawatts of additional capacity that's embedded in that $3.3 billion increase in our capital plan. And we'll see where it goes. Obviously, we are beginning the process of looking at ordering equipment and starting work on identifying sites, et cetera, et cetera. So much of that capital for the capacity, the generating capacity will be in years three, four, and five.

Gale Klappa:

No. There -- again, no white space at all. Scott's on the ATC board. We'll let -- ask Scott to respond to your question on the transmission.

Gale Klappa:

And Scott, from your -- here in my discussions, some of that capital is really upgrading aging transmission facility.

Julien Dumoulin-Smith:

Awesome.

Julien Dumoulin-Smith:

Okay. Thank you.

Gale Klappa:

Yeah. Scott's exactly right. And just to add onto that. We don't ever want to go through another Christmas Eve like we went through last Christmas Eve. I mean, as you know, there was a very significant cold snap. And many parts of the country had rolling blackouts. We did not, but a major transmission gas pipeline into Wisconsin lost about 40% of its capacity to bring gas in. If we hadn't had LNG storage right here that we could direct eject into our gas distribution networks, we would've had some real issues. So there's no doubt in our mind that for energy security, particularly at times when it gets to 20 and 30 degrees below zero, we need to have that capacity to keep gas flowing, to keep the heat on, and to keep the lights on in Wisconsin. So that's a big rationale, a big part of what we're accomplishing with this investment that we've outlined.

Gale Klappa:

Thank you.

Neil Kalton:

Hi, guys.

Neil Kalton:

It is going well. It's Halloween, fun day. So all is well down here. Just one quick question for you. So in the EPS CAGR, I think you affirmed the 6.5% to 7%. And just curious, are you assuming any changes to the allowed earned ROEs in that forecast over five years?

Neil Kalton:

Okay. That was my question. That is all. Thank you.

Operator:

Your next question comes from the line of Jeremy Tonet with JPMorgan. Your line is open.

Jeremy Tonet:

Hi. Good afternoon. Happy Halloween there.

Jeremy Tonet:

Thanks. I was just looking maybe to quantify transferability a little bit more. And if you could walk us through the role of IRA track -- tax credit transferability in your financing plans, specifically, kind of with the $16.5 billion to $17.5 billion in cash from operations, how much is tax credit there? And any sense as to how much incremental debt this allows you to take on?

Xia Liu:

Yeah. So in the five-year plan, we expect between $1.6 billion to $1.8 billion tax credits either we will use for our own tax appetite or sell to a third -- to some third-party. And that's part of the -- to your point, that's part of the FFO.

Gale Klappa:

Getting stronger by the day.

Jeremy Tonet:

Got it. Thank you for that. And then maybe just a real quick last one and kind of better than expected results, as we look forward into to 4Q here, how we think about, I guess, O&M? Should we expect you to realize the full $40 million in nonrecurring O&M expenses from 4Q 2022 as we lap that, I guess that positive variance there, and how does this impact your O&M outlook into 2024?

Xia Liu:

Yeah. Not much to add. I think we have a little bit of -- last fourth quarter, a little bit unfavorable weather, so hopefully that's a tailwind. We have rate base increase. We have fuel upside. We have a very large O&M upside in the fourth quarter, so we feel very good about the fourth quarter projections.

Gale Klappa:

Terrific. Take care, Jeremy.

Operator:

Your next question comes from the line of Anthony Crowdell with Mizuho. Your line is open.

Anthony Crowdell:

Good afternoon. Rock and roll. Happy Halloween.

Anthony Crowdell:

Deferred asset. No, no, no, no, no pets. The four daughters are overwhelmingly enough. So just -- I guess maybe just some quick housekeeping. Slide 21, great detail. And just curious, the footnote excludes ATC capital, when we think of the growth going on at ATC capital to Scott's comments earlier, is that self-funded, or does that also require funding by Westcon -- by WEC?

Gale Klappa:

Yeah. We get cash distributions back from ATC. So Xia is exactly right, it's self-funding plus cash back to the owners.

Gale Klappa:

Well, a couple things. First of all, just to clarify, the parent is on negative outlook. The utilities are stable, so I just wanted to make sure everybody remembers that. And then secondly, we think, and we'll let Xia and Scott give you their view, but we think the fact that we're going to be issuing equity to support this growth plan, will be viewed quite favorably. Again, we've not issued any new shares since 2015 when we did the acquisition of Integrys. Scott, your thoughts?

Gale Klappa:

Xia?

Anthony Crowdell:

Well, great. Looking forward to seeing you guys in Phoenix. Thanks for the time.

Operator:

Your next question comes from the line of Ofri Mott [ph] with Ladenburg. Your line is open.

Unidentified Analyst:

Yes. Not to beat a dead horse, but roughly where -- with the new investment program and the additional equity, do you land in terms of FFO to debt? Are you sort of in that 14% to 15% range that you've targeted?

Unidentified Analyst:

Right. So do you fall within that range then in terms of -- with the additional equity and the additional investment?

Gale Klappa:

Yep.

Gale Klappa:

That's the whole idea.

Gale Klappa:

Well, go ahead Scott.

Gale Klappa:

And just to add on to what Scott's mentioned to you, this plan to convert from coal to natural gas at our newer Oak Creek units is one that's been in the making for at least a couple of years now. So we've had extensive ongoing discussions with the commissioners. They understand what we're trying to achieve. They understand the importance of continuing to cost effectively reduce CO2 emissions. And remember, our goal, which we're on track to achieve, is an 80% reduction in CO2 emissions by the end of 2030. So this is not a new concept to anyone in the state.

Gale Klappa:

And one more fact, I think it's very important to remember how critical an asset those new Oak Creek units are on most days in the Midwest operator footprint, because of the efficiency of those units and because of their incredible connection to the transmission network, those units help keep the lights on, not only in Wisconsin, but across the Midwest. So very important asset. We're on track to do what we need to do to continue with the life of that asset for a long period of time with much lower emissions.

Gale Klappa:

You're welcome. Thank you.

Gale Klappa:

Greeting, Paul.

Gale Klappa:

Not really, but let's kind of take it state by state. In Illinois, what we're proposing in our current rate review is really no change in the level of investment in upgrading the pipe system, the natural gas pipe delivery system under Chicago. So we've been averaging about $280 million a year of investment in upgrading that aging corroding pipe network. We're about 35%, 36% complete with the upgrades, and we're proposing to continue at about $280 million a year. That's about the pace that we can do to get work done inside the city of Chicago. So -- and remember in our current rate review proposal in Chicago, even with the rate increase if fully approved, coupled with the decline in commodity costs of natural gas, we're expecting flat customer bills for this coming winter in Illinois. So essentially this plan really doesn't change the underlying fact pattern in Illinois. And with the load growth, the demand growth that we expect to see in Wisconsin, again, we've been saying we think inflation related rate increases in Wisconsin and -- that's, at least to me, seems to still be the case.

Gale Klappa:

Hope that responds, Paul.

Operator:

This concludes today's conference call. You may now disconnect.

Gale Klappa:

Well, good afternoon, everyone. Thank you for joining us today as we review our results for the second quarter of 2023. First, I'd like to introduce the members of our management team who are here with me today. We have Scott Lauber, our President and Chief Executive; Xia Liu, our Chief Financial Officer; and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations. As you saw from our news release this morning, we reported second quarter 2023 earnings of $0.92 a share. After a down first quarter marked by one of the warmest winters on record, we delivered solid results in the second quarter and we're firmly on track for a strong 2023. Today, we're reaffirming our guidance for the year. The range is $4.58 to $4.62 a share. This, of course, assumes normal weather going forward. As always, we're focused on the fundamentals of our business

Gale Klappa:

Scott thanks very much. As you may recall, our Board of Directors at its January meeting raised our quarterly cash dividend by 7.2%. We believe this continues to rack our dividend growth in the top decile of our industry. We’re targeting a payout ratio of 65% to 70% of earnings. We’re right in the middle of that range now, so I expect our dividend growth will continue to be in line with the growth in our earnings per share. Next up, Xia will provide you with more detail on our financial results and unveil our third quarter guidance. Xia, all yours.

Gale Klappa:

Great, Xia. Thank you. Overall, we’re on track and focused on providing value for our customers and our stockholders. And operator, we’re ready now for the question and answer portion of the call.

Gale Klappa:

Julien, before we start, I know – before we start, I know a great puppy trainer, so just let me know. Julien, are you still with us?

Julien Dumoulin-Smith:

Can you hear me now? Darius, go for it.

Gale Klappa:

I thought I heard a dog barking in the back there, Julien.

Gale Klappa:

I was just saying Julien – Julien, I was just saying that I know a great puppy trainer, so let me know.

Gale Klappa:

Okay. Appreciate the questions Julien, very much. Tackle the first one first and that’s any potential or possibility for a rate settlement in our Peoples Gas and North Shore Gas cases in Illinois. So, as many of you know, the way the process really unfolds during normal rate reviews in Illinois, historically settlement windows really don’t occur or really don’t open until the administrative law judge has prepared a draft order. And if I remember correctly, the schedule for that administrative law judge draft order probably looks like late October, early November. Scott is agreeing that that’s the case. So if there’s a settlement opportunity, I think those discussions would take place probably in the November timeframe. So we’ll see. Again, as Scott mentioned in his prepared remarks the staff has reiterated its position with a 983 return on equity recommendation and an equity layer higher than what we have at Peoples Gas today. So I hope that responds to your question. And then as far as legislation related to gas in Illinois, we’ll just have to see what takes place. But first things first, we continue to work on a positive resolution of the cases currently pending before the Illinois Commerce Commission. Hope that helps, Julien?

Gale Klappa:

Yes. Well, as we look at our financing package that will be needed to support our new five-year capital plan, I mean, we’ll look at it, it could be part of the mix, but again, I think it really depends upon the circumstances at the time. We haven’t ruled it out. We’ve followed the companies that have used this particular financing and I think you saw one announce today as a matter of fact. So, we haven’t ruled it out. We haven’t ruled it in but it certainly will be part of what we look at going forward.

Gale Klappa:

Sounds good. Thanks Julien.

Gale Klappa:

Shar you didn’t do any permanent damage to those Porsches, did you?

Gale Klappa:

Well, I noticed they’re taking a charge this quarter, so I was a little worried about what you did down there.

Gale Klappa:

Well, great question, Shar. And first off, I don’t think really just given the magnitude of the construction that Microsoft seems to be planning, my own belief is we won’t see the Microsoft campus in operation in 2024. I think that’s just too much of a stretch. My guess, although the company is still very much in its – refining its plans my guess is fourth quarter 2025, early 2026 would be my guess for the first element of the plan that Microsoft is putting together to be operational. And then secondly to your question about would the Microsoft investment that we need to make to support their energy needs and reliability, would that investment be incremental to the plan? Absolutely incremental to the plan. There’s no question about that because it was not in our current five-year plan. Although there are many moving pieces at this stage of the game. But I would just say this is a really positive exciting opportunity for a major new high tech investment in our state.

Gale Klappa:

No, absolutely. I mean, think about, it’s a great question, Shar, but I would think about it this way. I mean, clearly with the way our customer rates are set demand from Microsoft, I mean essentially, I mean, given the rate charges that Microsoft would receive, they will pay their fair share of whatever additional capacity and energy is needed. So it wouldn’t be a crowd out type of a type of a factor at all, in my opinion.

Gale Klappa:

I think it’s both. I mean, certainly if we need to add significant capacity to support Microsoft’s operation here, but there are other things going on. The other economic developments that have occurred, for example, I mean we talk a lot about Haribo, but they are now up and running and they’ve told us they will produce 132 million pounds of gummy bears in the next 12 month period. So there’s a good bit of economic activity going on. So if you think about transmission, and we’re going to start to see in the next five-year plan the impact of tranche one from the MISO planning process, so I think we’re going to see an uptick in transmission investments. I think we’re going to see clearly some additional capacity need. We need to continue to harden our distribution networks. There are a lot of moving pieces and all of them moving in a direction of a stronger capital budget. And as Scott and I have talked about stronger for longer in terms of our continuing growth projections.

Gale Klappa:

Rock and roll, Shar.

Gale Klappa:

Hi, Durgesh. How you doing?

Gale Klappa:

Xia told me it was superior management, but she probably has a more granular answer.

Durgesh Chopra:

Got it. So I guess in terms of the guidance for back half of the year, I’m just thinking about like how are you positioned versus your guidance there. I mean, is better O&M versus your plan, correct?

Gale Klappa:

And Durgesh, just to add on to what Xia is saying, if you recall, there were a number of very significant items in Q4 last year that will not repeat in Q4 this year. So there’s a very major difference as we compare the comps for Q4 of 2022 and what we expect to happen in Q4 of this year.

Durgesh Chopra:

Understood. Thanks for all that additional color. Maybe just – Xia, just – I know we recently talked about transferability and the implications to FFO and there was a lot of discussion amongst your peers on how that needs to be – how that should be treated. Maybe just any additional color or thoughts there or progress you’re making with other stakeholders on how are you going to treat the transferability as cash flow?

Xia Liu:

Yes. We – I developed a very comprehensive white paper. Really outlined the views from FASB from the big four accounting firms, from the – over, like Gale said, the industry. So they shared the white paper with the rating agencies and all that is to say, I think everybody is aligned in terms of we plan to follow GAAP and the transferability will go through income tax provision on income statement, therefore, would be picked up as FFO. So we are looking forward to continuing to work with the rating agencies on this issue. I will say, though, is we would not issue equity just to address that transferability item. So that's something we'll continue to work with rating agencies.

Gale Klappa:

Take care, Durgesh.

Anthony Crowdell:

Good afternoon, Gale, Xia and Scott, No dogs, no Porsches, but plenty of gummy bears here. Just maybe two housekeeping items I had on the PDF Page 12 of your release. Just curious if you could give us some more color. The decline in large commercial industrial sales, and maybe I have the wrong view, I typically view them as maybe like weather agnostic, but yet they've come in 3%. Just thoughts on that?

Xia Liu:

Yes. Just to put it in perspective, in Q1, we saw a minus 3.9% quarter-over-quarter. Q2, that number became better to minus 3.1%, like you pointed out, Anthony. I think if you look at Q2 by month, June was fairly close to the forecast. If you look at the last four weeks compared to the last 13 weeks or even the prior four weeks, we're seeing lots of green. Actually, everything was picking up. So we are very cautiously optimistic that the large C&I will come back in the second half of the year, so nothing to worry too much about. And I would just say that on residential, it's pretty flat year-over-year, and – but it's fairly better than prior to COVID and that's the sticky point on the residential usage. Small C&I, actually year-to-date, is on par with last year. So those are higher margin segments.

Xia Liu:

I think the first and foremost is we're still developing the capital plan. So the numbers are – we're still developing it. But like Gale said in his prepared remarks, if growth, capital growth is significantly higher, we wouldn't mind turning on the employee benefit plans, the dribble plans and rely on maybe ATM, but we don't see any block sales at this point, number one. Number two, we are very confident in our long-term EPS growth forecast. We don't expect any equity sales to dilute the long-term EPS growth. And I'll also say that we're very mindful about the rating agencies and we want to work with them, but the equity would be to support growth.

Xia Liu:

That's the transferability. That's transferability. Yes.

Gale Klappa:

Thank you. Good to see you.

Gale Klappa:

Rock and roll, Michael. How you doing?

Gale Klappa:

Yes. Great question, Michael. Let me just phrase it this way. I think we will certainly know by the fall and certainly in time for our new five-year capital plan, what the next – what the time period between now and say, 2030 will look like in terms of Microsoft's capacity and energy needs. I mean they are – I mentioned in my prepared remarks, they are full speed ahead. I mean they purchased the 315 acres in a very short period of time in that technology park, earthwork has already begun, they are still refining their plans. But everything we're hearing from Microsoft would indicate that they're planning a very major investment here, and they need to do it in a relatively short time frame. So there's really no question in our minds about how strong the intention and how strong the momentum is from the Microsoft development. As it relates to Foxconn, well, back in 2017, they announced a long-term, very, very significant plan. They were talking about 10,000 jobs over 10 to 12 years or 10 to 13 years. They were talking about $10 billion of investment. At this stage of the game, Foxconn, which is working in Area 1 of that park, Foxconn has invested over $1 billion and has over 1,000 employees. So while they have been slower to ramp up and their business plan has changed almost completely from the original thinking, they are still growing in that area. But Microsoft, I think they're really not talking at the moment about a long-term 10 to 15 year plan like Foxconn was. They're talking about, at least at the beginning here, they've called it an initial investment that they really want to get moving on, and that would affect our next five-year capital plan. Does that respond to your question, Michael?

Gale Klappa:

Well, that's a great question, and we're looking at all of that. I'll let Scott give you his view on that.

Gale Klappa:

Scott has made a really good point that we shouldn't gloss over though, and that is as MISO has looked at its responsibility to ensure reliability, they really are changing their capacity rules that all of us need to abide by. And it will have a – we believe it will have a particular effect on our winter capacity reserves. That's all being factored into our new five-year capital plan.

Gale Klappa:

Take care, Michael.

Gale Klappa:

Terrific. Well, that concludes our conference call for today. Thanks so much for being with us. If you have any additional questions, feel free to call Beth Straka. She can be reached most days, no, everyday at (414) 221-4639. Thanks, everybody. Take care.

Gale Klappa:

Thank you very much. Live from the Heartland. Good afternoon, everyone. Thank you for joining us today. As we review our results for our first quarter of 2023. First, I'd like to introduce the members of our management team, who are here with me today. We have Scott Lauber, our President and Chief Executive; Xia Liu, our Executive Vice President and Chief Financial Officer; and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations. Now as you saw from our news release this morning, we reported first quarter 2023 earnings of $1.61 a share. Weather was a major factor in our lower results for the quarter. We saw one of the mildest winters in the history of the upper Midwest. For example, it was the second warmest first quarter in Milwaukee since 1891. However, we're confident in our plan for the remainder of the year and we're reaffirming our guidance for 2023. As a reminder, we're guiding to a range of $4.58 to $4.62 a share for the full-year. This assumes normal weather going forward. And as always, we remain focused on the fundamentals of our business, financial discipline, operating efficiency and customer satisfaction. Switching gears now, the work on our ESG progress plan continues at a steady pace. It's the largest five-year investment plan in our history totaling $20.1 billion for efficiency, sustainability and growth. The plan is based on projects that are low-risk and highly executable. And as we look to the future, it's clear that the megatrend of decarbonization and the need for even greater reliability will drive investment plans that are lost and strong. Scott will provide you with more detail on several specific projects in a moment, but I'm pleased to report that just since last December, the Wisconsin Commission has approved more than $1 billion of new capital investment by our companies. As we've discussed, we project that our ESG progress plan will drive compound earnings growth of 6.5% to 7% a year from 2023 through 2027 and we fully expect to fund our capital plan without any need for new equity. Now let's take a brief look at the regional economy. We have good news from the latest data in Wisconsin. In March, the unemployment rate came in at 2.5%, that's a record low for the state and well below the national average. And we continue to see major developments in the area. Just a few weeks ago, in fact, Microsoft announced that it plans to create a new data center campus in our region with an initial investment of $1 billion. This data center complex will be built South of Milwaukee in the technology park that is also being developed by Foxconn. Microsoft will purchase a 315 acre parcel in area three of the park. Local approvals have been received and we expect Microsoft to close on the land purchase on or before the 31st of July. In the meantime, Microsoft is moving full speed ahead with planning and design work. The decision by Microsoft underscores the strength and the potential of the Wisconsin economy and positions us very well for more growth in the technology sector. And with that, I'll turn the call over to Scott for more information on our regulatory developments, our operations and our infrastructure segment. Scott, all yours.

Gale Klappa:

Scott, thank you very much. Now as you may recall, our Board of Directors at its January meeting raised our quarterly cash dividend by 7.2%. This marks the 20th consecutive year that our company will reward shareholders with higher dividends. We continue to target a payout ratio of 65% to 70% of earnings. We're right in the middle of that range now, so I expect our dividend growth will continue to be in line with the growth in our earnings per share. Next up, Xia will provide you with more details on our financial results and our second quarter guidance. Xia?

Gale Klappa:

Xia, thank you. Overall, we're on track and focused on providing value for our customers and our stockholders. Operator, we're ready now for the Q&A portion of the call.

Gale Klappa:

Good afternoon, Shar. Are you still using those pillowcases?

Gale Klappa:

We're fine. How about you?

Gale Klappa:

Yes. A good question, Shar. And clearly, there are a number of companies in the sector even too today announced that have announced the use of this cash pay convert product. We've taken a good hard look at it and let me just say this, if we found -- as we go through the course of the remainder of 2023, if we found that it was really advantageous for us, we would certainly take a hard look. But we're more than halfway, Shar, through our debt issuance plan for 2023 and doing very well against our budget. Xia?

Shar Pourreza:

And then just Xia, I don't want to front-run the queue, but is there -- will there be any language around looking at hybrids potentially as an option to fund the plan or not?

Shar Pourreza:

These cash pay converts or hybrids or whatever you want to call them at this point?

Xia Liu:

No, we haven't planned that at this point.

Gale Klappa:

Yes. Way, way too early to even think about or contemplate settlement in the process in Illinois. The process was going along very smoothly. I think the next steps, as Scott mentioned in his prepared remarks, the next step will be staff and intervenor testimony on May 9. But so far, we're responding to data requests. The process in Illinois is going exactly as historically they've gone. And to your point about commodity costs moving in our favor, they moved even more in our favor since we filed the case. But long story short, even with the base increase that we're seeking, you combine that with much lower commodity costs, and we expect customer bills to be flat even granting a full base rate increase for 2024 -- for bills in 2024. So, again, we think that's very good news. And when you look at just the basic facts of what we're -- what we filed, this will be, as you may recall, the first base rate increase for Peoples Gas since we acquired the company, first base rate increase actually in nine years. And our O&M is about $60 million a year lower than when we actually acquired the company in 2015. So, a pretty good story.

Gale Klappa:

Thank you, Shar.

Julien Dumoulin-Smith:

Hey. How are you doing? Gale, no dog yet, but we'll be able to -- we're in the mix.

Julien Dumoulin-Smith:

Trying to free up some air, you know. Lies to you. Listen, let me follow-up where Shar was going with that. So, with respect to the Peoples case here, I'm just talking a little bit about the future of gas, but also just the CapEx and just some of the scrutiny on bill pressures. How do you think about moderating bills? I mean, obviously gas has rolled over. Any mitigating items, circumstances that we should be thinking about on that front? And then separately, how do you think in response to some of the -- it has been some OpEx out there, et cetera., any thoughts as to how you tackle, sort of, the longer-term versus the here-and-now of investing without the QIP in place in the traditional sense?

Julien Dumoulin-Smith:

Absolutely does. Thank you, Gale. I appreciate it. I will give you naming rights indeed. If I can, though -- you bet you. With respect to the process, I want to come back to this super quickly. We've got a new ICC in place, et cetera., I mean, to the extent to which that you're looking for direction here, I mean, this rate case should be the right venue to think about the pace and the sort of the new vision on where things are going, right? There's not some other avenue, I'm just trying to think through the -- how the ICC wants to articulate a response to your proposed spending, if you will? It will [Technical Difficulty]

Julien Dumoulin-Smith:

Right. Yes, thank you for color. [Technical Difficulty] and we’ll look next week, right? You take care. Thank you.

Operator:

Your next question comes from the line of Jeremy Tonet with JPMorgan Chase. Please, go ahead.

Jeremy Tonet:

Nothing to say there.

Jeremy Tonet:

Just wanted to kind of come back, I guess, to the weather impacts as you -- as happened in the quarter and the offsets there. Should we think about this as just kind of O&M being the main tool to -- for offset over the balance of the year? And just wondering if you could quantify or give any more color there and how that might shape up across the year. I think you said in the back half, it kind of lightens up a bit. So, any more color there could be helpful.

Xia Liu:

Sure. So, Q1 weather was about $0.12 deficit as I mentioned in the prepared remarks. So, we've identified O&M reduction target that can offset $0.04, $0.05, $0.06 of that. We also built some conservative financing assumptions in the plan. So, in terms of issuing debt at rates lower than the plan or continued execution later this year, we expect the financing savings to be $0.05 to $0.06 also. So, between those two items, we could offset the Q1 weather deficit. But we also have other initiatives we're looking at beyond those two items.

Gale Klappa:

And to Scott's point, we obviously don't see ourselves into the sharing bands with customers this year. So, I think in terms of basically $54 million of costs that won't reappear in the third and fourth quarter of 2023, compared to the second-half of 2022.

Gale Klappa:

Well, my understanding is that President Biden said he would veto any effort to undo that particular initiative. So, I'm not sure that one's going anywhere, but in the meantime, as Scott indicated in his prepared remarks, for our Badger Hollow II solar project in Wisconsin for our regulated utility, and for our Paris Solar Battery project, again, for our Wisconsin utilities, Scott, we got all the solar panels we need hanging in warehouse in Chicago?

Gale Klappa:

Jeremy, Scott and I went down to that warehouse one night, but the Doberman wouldn't let us in. So, we know all of those panels are there.

Gale Klappa:

Don't see much of any progress on permitting reform at this stage of the game. But again, as MISO works its way through all of the stakeholder process, on Tranche 2 Phase 1, the early indications are quite favorable in terms of the investment opportunity being even greater than what we saw in basically Tranche 1. And then in addition to that, I mentioned the major economic development project that was just announced with Microsoft, any particular upside on transmission or generation needs related to that Microsoft project would be incremental to the plan and not in the current plan. And I'm guessing, there may be some additional transmission need coming out of that project. Scott?

Jeremy Tonet:

Got it. That's helpful. I'll leave it there. Thank you.

Operator:

Your next question comes from the line of Michael Sullivan with Wolfe Research. Please, go ahead.

Michael Sullivan:

Hey, Gale. How are you?

Michael Sullivan:

Okay, yes. No, doing great. Maybe just back to the O&M. So, understand, it was going to tick up a little bit this year. Now you're kind of pulling that back to help offset the weather. As we think beyond 2023, how should we think about the trajectory? I know you have a track record of bringing it down, and this year was kind of the first time in a while it was set to the step up?

Scott Lauber:

No, you're exactly right. As we put on those retirements, O&M will go down. But remember, the driver for the O&M increases this year was -- as we put in new plants into the system. We added a lot of capital over this last year and to run those new plants including the new rice units that we're putting in service and also the plants and the wacky infrastructure, all that's additional O&M. So, really supporting capital investments.

Michael Sullivan:

Okay. That's very helpful. I appreciate the detail. And just related to that, to the extent that we see any shifting in timing of the solar with supply chain issues and the panels and the warehouse and all that, how do you kind of react to that? Is the risk that -- are you tying that to the coal shutdown retirement in terms of just earning on those assets and rate base, or are there other things you have to move around? Just what are kind of the other implications across the business to the extent that your solar projects get pushed down a little bit?

Scott Lauber:

Correct. And we're continuing to the construction, so they are site-ready when the solar panels get released. So, Paris and Badger Hollow II construction is pretty well done. And Badger Hollow II, we just need the solar panels, and Paris is moving along nicely. So, those panels are ready, it won't take long to pop them up.

Gale Klappa:

Take care, Michael.

Gale Klappa:

Wow. You've got the Jersey number eight on, Durgesh?

Gale Klappa:

I know. I know. Still die-hard Eagle fan, right?

Gale Klappa:

I'm sorry.

Gale Klappa:

Sure. I will ask Scott to help out as well. So, you are correct. This limited reopener, as defined in the rate order, does not -- I mean, the ROE and the equity layer are set and they're not up for reconsideration. There's roughly -- and yes, you are correct, all of the projects that we will be filing for recovery in this limited reopener have already been approved by the commission. So, that is absolutely correct. And Scott, it's about $1 billion of capital that will be coming in, if I recall correctly, into that reopener?

Gale Klappa:

And LNG, one of our LNG projects.

Durgesh Chopra:

Got it. Thanks, Scott. And then you've previously talked about O&M savings to be included as part of that request. Is that also part of this limited reopener filing or could be a part of the limited reopener filing?

Gale Klappa:

And, Durgesh, the largest O&M reduction -- Scott is exactly right. The largest O&M reduction from the closure of the Oak Creek units really will come when all four units are retired, because we won't be retiring the environmental control operation at that site for those older units until all for are offline.

Gale Klappa:

You're welcome. Take care, Durgesh.

Gale Klappa:

Greetings, Andrew.

Xia Liu:

Andrew, this is Xia. We -- that's purely timing. We expect that to recover in the second quarter and throughout the third and fourth quarter. Remember that last year, like Gale mentioned, we booked quite a bit of fuel expense, because of the sharing band and we don't expect that to happen. So, we see a pickup in fuel in in terms of impact on earnings.

Andrew Weisel:

Okay. Thanks. And then on usage. Xia, if you could elaborate a little bit on the demand trends. I think you said residential gas came in better than expected adjusting for weather. But on the electric side, all customer classes were down. How much of that is just the noise around the extreme weather, or do you see any notable changes in demand trends?

Gale Klappa:

Yes, Andrew, just to build on what Xia is saying, when you look at the temperatures across Q1, they were basically two standard deviations away from normal. And I can just tell you, not only for our company, but for the industry as a whole, and for those of you who followed us a long time, you've heard me say this a gazillion times, I mean, the weather normalization techniques are far more precise than accurate and the further you get away from in terms of standard deviations from the norm, the less reliable the weather normalization techniques are. So, again, just as a general caveat, as Xia said, wouldn't read too much into Q1 numbers.

Gale Klappa:

No, thank you.

Gale Klappa:

Hey, Anthony.

Gale Klappa:

We've got a dog to name?

Gale Klappa:

Hey, not a bad idea. I'll take all of your input on naming the dog for Julien. But, go ahead, Anthony.

Gale Klappa:

Yes, that's a great question, Anthony. And I do think there will be an epiphany moment. Don't know exactly when that epiphany moment will occur, but here are a couple of thoughts. The first is if you think you can electrify completely by, let's say, 15-years from now, you then have to take the next step and say, how are we going to build the generation that would be needed to replace gas heating. And what kind of generation would that be? Well, think about when gas heating is needed the most. It's the heavy cold winter days in January and February, right? So, how much solar could you count on particularly in the Midwest in January and February? How much wind could you count on in January and February? And guess what, you end up clunking into the plan a tremendous amount of gas-fired power generation. When people start working through that equation, I think there will be quite an epiphany moment. I think that's part of it. And then the other is, as we continue to see the evolution of hydrogen hubs and as we continue to see more and more cost effectiveness from hydrogen under the IRA, I mean, some gas utilities are already beginning to blend hydrogen with natural gas. We're beginning to blend -- in fact, this summer, we will begin blending RNG, renewable natural gas, into our network. So, I think as people begin to think through past-the-bumper sticker. Yes, you're going to see an epiphany moment about how valuable having that resource will be as we transition to a low or no-carbon future. I mean, think about it another way. We have got to get this transition right to a no-carbon future. And if we sacrifice reliability on that transition, it will delay the transition for many, many, many years. So, we're back to all of the above and we're back to, I think, we will have a moment where everybody recognizes the practical approach to this and the safe approach to this.

Gale Klappa:

Thank you, Anthony.

Ashar Khan:

Hi. How are you guys doing? Most of my questions have been answered. I just had a small one. Xia, why are we down quarter-over-quarter in the second quarter? Could you just help me with the variances which you expect in the second quarter?

Ashar Khan:

Okay. Thank you so much.

Operator:

I'll now turn the call back over to you, Mr. Klappa, for any concluding remarks.

Operator:

Thank you for joining today's meeting. You may now disconnect.

Gale Klappa :

Good afternoon, everyone. Thank you for joining us today, as we review our results for calendar year 2022. First, I’d like to introduce the members of our management team who are here with me today. We have Scott Lauber, our President and Chief Executive; Xia Liu, our Chief Financial Officer; and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations. Now, as you saw from our news release this morning, we reported full year 2022 earnings of $4.45 a share. Xia will provide you with more detail on our financial metrics in just a few minutes. But I’m pleased to report to you that we delivered an exceptional year on virtually every meaningful measure from employee safety and customer satisfaction to growth in earnings per share. Three major factors really shaped our strong results for 2022

Gale Klappa:

Great, Scott. Thank you very much. We’re confident that we can deliver on our earnings guidance for 2023. As you recall, we’re guiding to a range of $4.58 to $4.62 a share. The midpoint $4.60 a share represents growth of 6.7% from the midpoint of our original guidance last year. And as we’ve discussed, we expect to fund our capital plan without any need to issue equity. And you may have seen the announcement that our Board of Directors at its January meeting raised our quarterly cash dividend by 7.2%. This marks the 20th consecutive year that our company will reward shareholders with higher dividends. We continue to target a payout ratio of 65% to 70% of earnings. We’re right in the middle of that range now, so you can expect our dividend growth will continue to be in line with the growth in our earnings per share. Next up, Xia will provide you with more detail on our financial results and our first quarter guidance. Xia, all yours.

Gale Klappa:

Xia, thank you. Overall, we’re on track and focused on providing value for our customers and our stockholders. Operator, we’re ready now for the question-and-answer portion of the call.

Gale Klappa:

Rock and roll. Shar, you’re ready for the West Coast?

Shar Pourreza:

Just two quick ones for you. Just on the transmission CapEx with ATC, which obviously just pretty healthy uptick. In the past, I know you’ve said you were seeing increases as early as 25 for Tranche 1 with LRTP and additional investments even earlier in ‘24. I guess, can you maybe talk about the cadence of this current increase as we’re thinking about the spending profile? And do you see more opportunities? Any sense on how you’re thinking about Tranche 2?

Scott Lauber:

Sure. So, when you look at -- and we’ll hear the end of this year or the beginning of next year as Tranche 2, we’ll just see how fast that process goes. When you look at the projects, starting to ramp up really in ‘24 and ‘25, and that’s related to Tranche 1, but also, we saw a lot of entries here at American Transmission Company just looking at connecting renewables on the state. So, that was about half of our increase in the prior year along with Tranche 1. So, I expect we’re going to see more of that as we look forward over the next 5 to 10 years, too.

Shar Pourreza:

Got it. Perfect. And then, just lastly, just Gale, on the current 5-year plan. I know you guys budgeted roughly $1.9 billion in the Infrastructure segment. Obviously, you had two recent announcements with investing in sort of PTC eligible solar projects, I think, for the first time, obviously, in this segment. How are you sort of thinking about the remaining $1.1 billion of capital, I think you plan to deploy in this business? And should we expect more solar, more wind, or perhaps can you open it up to other technologies, which are obviously now PTC eligible post IRA? Thanks.

Shar Pourreza:

It always does. And Scott always makes good points, by the way. I appreciate it, guys, and I’ll see you soon.

Operator:

Our next question comes from Julien Dumoulin-Smith with Bank of America.

Julien Dumoulin-Smith:

Oh, my God. Just you wait, just you wait. I’ll give you the update next quarter. Oh, my God. So, just coming back to Wisconsin really quick. Just reopen your filing, if we can talk about super quickly. Obviously, there’s been a lot of attention of late. Perhaps just at the outset, any comments and reactions of what’s transpired here and just how to think about that reopener? And then within that, just a couple of subpoints, just West Riverside, how confident are you that you’ll be able to submit data to prove the benefits for WEC are greater or at least equal to LNC? And then with respect to Oak Creek, some of the same considerations around what are the unrecovered balances of scrubbers and other plant? And do you see any specific obstacles around Oak Creek retirement and recovery on that front?

Scott Lauber:

Yes. It’ll be very specific. For example, the liquefied natural gas plants we have going on in our gas system, some of the renewable projects I talked about in the prepared remarks, and some of the new RICE units that we have going in, in Weston. So, it’s very specific projects. For instance, LNG goes in at the end of the year, we’ll just factor that in for a full year then. So, those -- that should be very straightforward as we do that filing.

Julien Dumoulin-Smith:

A lot there. Just lastly, super quick. On Oak Creek, just the current unrecovered balance of scrubber and plant, just as far as getting recovery there and any obstacles in that end? That was the last one.

Scott Lauber:

And remember, when we look at those retirements. We also -- when they do retire, when all 4 of them retire, that’s like $30 million to $35 million of reduced O&M expense along with less fuel cost. So, we’ll be looking at them. I think our current date is May of ‘24. So potentially, we’ll be analyzing it, but we’ve got to look at our capacity situation. But right now, that is the plan. So, maybe part of the limited reopener. When you look at the whole picture, it reduces O&M costs, it reduces fuel cost. And remember, we’re replacing a lot of this capacity, some of it’s with renewables and get that production tax credits there in the front end. It’s going to be very good for customers.

Operator:

We’ll take the next question from Jeremy Tonet with JPMorgan.