Good afternoon, welcome to WEC Energy Group's conference call for fourth quarter and year-end 2022 results. This call is being recorded for rebroadcast, all participants are in a listen-only mode at this time. Before the conference call begins, I will remind you that all statements in the presentation other than historical facts are forward-looking statements that involve risks and uncertainties that are subject to change at any time. Such statements are based on management's expectations at the time they are made. In addition to the assumptions and other factors referred to in connection with these statements, factors described in WEC Energy Group's latest Form 10-K and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated. During the discussions, referenced earnings per share will be based on diluted earnings per share, unless otherwise noted.
After the presentation, the conference will be open to analysts for questions and answers. In conjunction with this call, a package of detailed financial information is posted at wecenergygroup.com, and a replay will be available approximately two hours after the conclusion of this call. Now it's my pleasure to introduce Gale Klappa, Executive Chairman of WEC Energy Group.
Well, good afternoon, everyone. Thank you for joining us today as we re-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: favorable weather, solid performance from our infrastructure and transmission segments, and steady execution of our capital plan as we pave the way for an energy future that's affordable, reliable, and clean. On the regulatory front, as you may know, we saw balanced and credit-supportive results from our Wisconsin rate reviews in December, despite a little bit of noise in the process. New rates are now in effect for all of our Wisconsin utilities. Last month, on January 6th, we filed rate requests with the Illinois Commerce Commission for our gas utilities in Illinois. I would point out that home heating bills in Chicago are currently below those of other major U.S. cities like New York, Boston, Baltimore, and Philadelphia. We expect that to continue with this filing.
Scott will provide you with more detail in just a moment. Turning now to our ESG progress plan that we updated for you in November. It's the largest five-year investment plan in our history, totaling $20.1 billion for efficiency, sustainability, and growth. We expect the plan to drive compound earnings growth of 6.5%-7% a year over the period 2023 through 2027. A key part of the plan is a major commitment to renewable projects, both in our regulated business and in our infrastructure segment. In fact, earlier this week, we announced that our infrastructure group will acquire an 80% ownership interest in phase one of the Samson Solar Energy Center. Located in Northeast Texas, Samson I has a capacity of 250 MW.
It entered commercial service in May of last year and has a long-term power purchase agreement with AT&T. Pending final regulatory approval, we plan to invest approximately $250 million for our portion of Samson I. We expect to close the transaction late in the first quarter of this year. Samson I, as you may know, is the first of five phases being developed by Invenergy. Overall, Samson is the largest solar project under construction in the United States today, and we're pleased to take part in phase one. As you know, one of our goals is to help shape the future of clean energy. Today, we're announcing an important pilot project with the Electric Power Research Institute and a company called CMBlu Energy. CMBlu is a German designer of long-duration battery storage using common, low-cost, environmentally friendly materials.
In simple English, it's a green battery. This 1- 2 MWh pilot project will be one of the first of its kind on the United States electric grid. Our plan is to test the durability of this battery system. We believe it can store energy for up to twice as long as the typical batteries in use today. We plan to launch the project at our Valley Power Plant near downtown Milwaukee in the fourth quarter of this year when temperatures turn cold. The results will be shared in early 2024 across the industry. Now let's switch gears and take a brief look at the regional economy. Wisconsin added 52,000 private sector jobs in 2022. In December, the unemployment rate in the state dropped to 3.2%. That's well below the national average.
We believe the current strength and remarkable diversity of the Wisconsin economy positions us well as we move forward in 2023. 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.
Thank you, Gale. I'd like to start with some updates on the regulatory front. First, let's review where we stand for the Public Service Commission of Wisconsin's written orders this past December. The commission authorized a return on equity of 9.8% for all our Wisconsin utilities. It approved an increase in the equity component of our capital structure to 53%. We will also continue the earning sharing mechanism to provide benefits to Wisconsin customers if our performance exceeds our forecasts. As Gale mentioned, we now have rate filings under review in Illinois for Peoples Gas and North Shore Gas. At Peoples Gas, we are not seeking an extension of the automatic bill adjustment rider known as QIP after it expires at the end of this year.
We plan to return to the traditional rate-making process to recover the costs of necessary infrastructure improvements. Our rate requests would continue to support those key capital investments. Peoples Gas operates one of the oldest natural gas delivery networks in the United States. As you may recall, an independent engineering study found that over 80% of the iron pipes in the system are approaching the end of their useful life. We are modernizing the system to ensure safety and reliability and to reduce methane emissions.
With natural gas prices declining, we project customer bills will remain largely flat as the new rates take effect in 2024. You may also recall we filed a rate review at one of our smaller utilities, Minnesota Energy Resources, last November. We are seeking an overall increase of 8.1%, primarily driven by capital investments. Interim rates went into effect January 1st. Meanwhile, we're making good progress on a number of our regulatory capital projects.
Our Red Barn wind development is on track to come online within the next few months in Wisconsin with an expected investment of $160 million. This project will provide about 80 MW of renewable energy to our system. Work continues on the Badger Hollow II solar facility and the Paris Solar Battery Park. We still expect the solar parks to go into service this year, assuming timely release of the panels. We also received regulatory approval for our purchase of the Darie n Solar Battery Park with plans for 225 MW of solar capacity and 68 MW of battery storage. We expect this facility to go into service in 2024. Of course, we'll keep you updated on any future developments.
Just last month, with an investment of approximately $75 million, we closed our purchase of the Whitewater Cogeneration Facility, a 236 MW facility. As a reminder, we previously received energy and capacity from this natural gas unit under a purchase power agreement. In the natural gas business, we have been working to bring high-quality, renewable natural gas to our customers. We signed another contract in January, which brings us to a planned total of 1 billion cu ft of RNG that'll enter our system annually. We expect RNG to flow this year, supporting our aggressive goals to reduce methane emissions. Outside our utilities, we continue to make good progress on zero carbon projects in our WEC Infrastructure segment. The Thunderhead Wind Farm in Nebraska is now in service.
In addition, we expect to co-complete the acquisition of Sapphire Sky in Illinois in the coming weeks as commercial operations begins. As Gale noted, we're excited about our plans to add the Samson I Solar project in our infrastructure segment before the end of the first quarter. With that, I'll turn things back to Gale.
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-$4.62 a share. The midpoint, $4.60 a share, represents growth of 6.7% from the midpoint of our original guidance last year. As we've discussed, we expect to fund our capital plan without any need to issue equity. 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 twentieth consecutive year that our company will reward shareholders with higher dividends. We continue to target a payout ratio of 65%-70% of earnings.
We're right in the middle of that range now. 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.
Thanks, Gale. Turning now to earnings. Our 2022 earnings of $4.45 per share increased $0.34 per share or 8.3% compared to 2021. Our earnings package includes a comparison of 2022 results on page 17. I'll walk through the significant drivers. Starting with our utility operations, we grew our earnings by $0.19 compared to 2021. Weather drove a $0.04 increase in earnings compared to 2021. Rate-based growth contributed $0.41 to earnings, and lower day-to-day O&M expense resulted in a $0.02 improvement and achieved our goal for the year.
These favorable factors were partially offset by $0.12 of higher depreciation and amortization expense related to continued capital investment and a $0.12 increase in fuel expense, mainly driven by higher natural gas costs. In terms of sales, on a weather-normalized basis, retail electric deliveries in Wisconsin, excluding the iron ore mine, were up 0.1%. Small commercial and industrial sales increased 0.5%, while residential and large commercial and industrial sales stayed relatively flat. Overall, our sales mix was stronger than our forecast. Our sales projections for 2023 can be found on pages 13 and 14 of the earnings package. Overall, we are projecting relatively flat electric and gas sales year-over-year. Regarding our investment in American Transmission Company, earnings increased $0.07 compared to 2021.
If you recall, $0.05 related to the resolution of historical appeals that we discussed on our third quarter earnings call. As previously discussed, beginning with the third quarter of 2022 and going forward, we're recording ATC earnings at a 10.38% return on equity. Earnings at our energy infrastructure segment improved $0.14 in 2022 compared to 2021. This was mainly driven by production tax credits as a result of stronger wind production and the addition of our Jayhawk Wind Farm that went into commercial operation at the end of 2021. Recall that we recognized a $0.03 earnings contribution earlier in 2022 from the final resolution of market settlements in the Southwest Power Pool.
Finally, you'll see that earnings at our corporate and other segment decreased $0.06, primarily driven by Rabbi Trust performance and lower gains recognized on our investment in the Clean Energy Fund. Remember, Rabbi Trust performance is largely offset in O&M. Overall, we improved on our 2021 performance by $0.34 per share. Looking now at the cash flow statement on page six of the earnings package, net cash provided by operating activities increased $28 million, and total capital expenditures and asset acquisition were $2.7 billion in 2022, a $324 million increase as compared to 2021. As you can see, we have been executing well on our capital plan. Finally, let's look at our earnings guidance.
In terms of first quarter 2023 earnings guidance, we project to earn in the range of $1.68 per share-$1.72 per share. This forecast takes into account the fourth warmest January on record since the 1880s and assumes normal weather for the rest of the quarter. Remember, last year we earned $1.79 per share in the first quarter, which included $0.02 of favorable weather, $0.03 from the Southwest Power Pool settlement, and $0.03 from our investment in the Clean Energy Fund. For the full year 2023, we're reaffirming our annual guidance of $4.58-$4.62 per share.
We're also reaffirming our long-term earnings growth of 6.5%-7% a share, 7% a year over the next five years. With that, I'll turn it back to Gale.
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.
Thank you. We will now take your questions. The question-and-answer session will be conducted electronically. To ask a question, please press the star key followed by the digit one on your telephone. If you are using a speakerphone, turn off your mute button to allow your signal to reach our equipment. We will take as many questions as time permits. Once again, everyone, it's star one. We'll take our first question from Shar Pourreza with Guggenheim Partners.
Hey, guys.
Rock and roll, Shar. You ready? You ready for the West Coast?
I am ready for the West Coast. I'm packing my bag.
All right.
Gale, just two quick ones for you. Just on the transmission CapEx with ATC, which obviously just saw a pretty healthy uptick in the past, and I know you've said you were seeing increases as early as 2025 for Tranche One with LRTP and additional investments even earlier in 2024. I guess can you maybe talk about the cadence of this current increase as we're thinking about the spending profile? Do you see more opportunities, any sense in how you're thinking about Tranche Two?
Yeah, great question, Shar. Let me unpack the second piece of the question first, if that's, if that's satisfactory.
Yeah.
On the second piece of the question, really about Tranche Two. Again, just to level set everyone, I know MISO is going through a very thorough and rigorous long-term planning process for transmission investment in the region. They have been through and have now completed Phase One, Tranche One. I'm sorry, Future One, Tranche One. Now we're into Future One, Tranche Two. It's a little too early to tell you precisely what we're seeing in the planning for Tranche Two, but I can tell you that what we're seeing so far in the stakeholder discussions at MISO is that there's, I think, a good probability that the amount of investment opportunity for American Transmission Company in Tranche Two is potentially greater than what we're even seeing in Tranche One. We're optimistic about that.
I would expect that we will be able to give you more detail before the end of this year on kind of the broad numbers as they emerge in the planning process. Scott, would you like to handle kind of the cadence question?
Sure. And we'll hear at the end of this year or the beginning of next year is tranche 2. We'll just see how fast that process goes.
Mm.
When you look at the projects, you know, it's starting to ramp up really in 2024 and 2025, and that's related to tranche 1. Also, we saw a lot of increase here at American Transmission Company just looking at connecting renewables on the state. That was about, you know, half of our increase from the prior year along with tranche 1. I expect we're gonna see more of that as we look forward over the next 5-10 years too.
Okay. Perfect.
Scott, Char, Scott's making a good point. Not only are we seeing the need for additional transmission related to these longer term projects that are part of the MISO planning, but just to hook in the significant number of renewable projects being built in Wisconsin, that's an additional uptick, if you will, in our plan from just the Wisconsin connections for many renewable projects under development here.
Got it. Perfect. Just lastly, just Gale, on the current five-year plan, I know you guys budgeted roughly $1.9 billion in the infrastructure segment. You know, 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 at this business? 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, we certainly could open it up to other technologies, but the big likelihood, given what we're seeing in the pipeline of projects that we're doing due diligence on, the big likelihood is they will largely be solar and wind. You're referring to the announcement we just made a couple of days ago, the Samson I Solar Energy Center in North Texas. That project we're very pleased to be a part of. It is coming in a little earlier. I think internally we all thought that we would probably add another solar project toward the end of 2023. That's actually good news that it's coming in a little earlier. As I mentioned, we hope to close on that transaction final given final regulatory approval late in the first quarter. I hope that helps, Shar.
Oh, it always does. Scott always makes good points, by the way. Appreciate it, guys, and I'll see you soon.
Sounds good. Great. Thank you, Shar.
Our next question comes from Julien Dumoulin-Smith with Bank of America.
Afternoon, Julien.
Hey, hey. Afternoon to you, Gale.
Hey, Julien. Hey, Julien, are you and your wife buying a dog yet?
Oh my God. Just you wait. Just you wait. I'll give you the update next quarter. I'll take that. Oh my gosh. Oh, man. Just coming back to Wisconsin super quick, just the reopener filing, if we can talk about it 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. Then within that, just a couple sub points. Just West Riverside, you know, 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 LNT?
You know, with respect to Oak Creek, some of the same considerations around, you know, 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?
Okay. let's kind of start-.
All right. Sorry. Laid it all out.
...with this then. No, I'm glad you got it all out. Let's try to kind of walk through that. If I forget, Scott and Shar, any of the elements of the question, Scott and Shar will help remind me. First, I think you were asking about the quote-unquote limited reopener that was part of the rate decision in December. The limited reopener is for 2024, and it truly is a limited reopener relating to the investment cost of several projects that will be coming into service over the course of 2023. All of them regulated projects. I think virtually all of them are really the renewable projects, Scott, that we're-
Yeah
...that, you know, that we are underway with here. The, the limited reopener is simply to reopen and put into rates, recovery of the investment costs for projects that have already been approved and are under development, Scott, by the commission.
Yeah. It'll be very specific. For example, the liquified 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. It's very specific projects. For instance, you know, LNG goes in at the end of the year. We'll just factor that in for a full year then. That should be very straightforward as you do that filing.
Yeah, exactly. There's no reopener related to the equity layer or the ROE. This is simply related to capital investments in projects already approved. I hope that answers that question. In terms of The general backdrop, I think one of the things, and I believe, Julien, you actually did an interview with the Chairperson of the Wisconsin Commission. I would just encourage everyone to listen and read through some of the additional comments that she has made related to her view of the future of regulation in Wisconsin, wanting very much to be credit supportive as the decision was of our Wisconsin utilities, and, you know, wanting to maintain the reputation of the Wisconsin Commission as very professional and certainly carrying out day-to-day the concept of gradualism.
I hope that's helpful. Secondly, on Riverside, we have already provided on time all of the additional modeling data that the Commission asked for in terms of modeling the impact of us exercising the Riverside option. To level set everyone, Riverside is a natural gas combined cycle plant that Alliant built. During the construction process, we agreed with Alliant that we would have two options, each for 100 MW per option, to essentially acquire at book value those MW over a certain period of time. This particular question that you have relates to the first option.
The modeling data that the commission asked for is in their hands right now, and we expect sometime in the next 45 to certainly no more than 60 days for the commission to take up the matter. I hope that responds, and I hope we didn't miss anything.
It's 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.
Well, okay. Great. Thank you for reminding us. The current book balance for the older Oak Creek units, remember there are four older Oak Creek units. They're labeled Oak Creek five, six, seven, and eight. Those units went into service, I mean, literally, I think the oldest one was 1959, and the others are 1960s vintage units. The base plant itself, there's almost no book value left. The major part of the book value is in the emission controls, the modern emission controls that we built and put on those units at least a decade ago now. That is roughly about $400 million. I would remind everyone that that's not a subject for the limited reopener in Wisconsin in 2024 because the retirement dates have been pushed out a bit given the tight capacity market.
Scott, anything you'd like to add?
Remember, when we look at those retirements, we also, when they do retire, when all four of them retire, that's like $30 million-$35 million of reduced O&M expense, along with less fuel costs. We'll be looking at them. I think our current date is May of 2024, so it potentially we'll be analyzing it, but we got to look at our capacity situation. Right now, that is the plan, so it may be part of the limited reopener. You know.
Actually, guys, yeah. Sorry.
Yeah. When you look at the whole picture and it reduces O&M costs, it reduces fuel costs, and remember, we're replacing a lot of this capacity, some of it's with renewables, and yet that production tax credit's there in the front end. It's going to be very good for customers.
Yeah. Scott's right. There's some immediate significant savings. You think about $30 million-$35 million of O&M savings from the closure of the plant, on top of that, you get fuel cost savings.
Wonderful, guys. Gale, Scott, talk to you guys soon.
Great. Thank you so much. Take care, Julien.
We'll take the next question from Jeremy Tonet with J.P. Morgan.
Afternoon, Jeremy.
Hi. Good afternoon. Thanks for having me.
It's been nice being had. No.
Just wanted to maybe pick up a little bit on the prior conversation there with regards to Wisconsin Commission. Are you hearing anything from the governor or stakeholders about who the next commissioner might be, if the governor has any particular policy goals for the Commission that could potentially be expressed in this next nominee?
No. In terms of any particular change of policy goals, no. The conversations we're hearing related to the concept of what the appropriate next appointee will be, really, in my opinion and from everything we've heard, revolve around the major concerns that the governor has had since he took office, which is reliability, affordability, and the continued transition away from fossil fuels, but in a pace and in a manner that preserves reliability. Nothing different in terms of our belief in the governor's policy objectives. The other thing that I would say is, you know, I would be shocked if the vetting process was not already underway. You know, we would expect some type of an appointment announcement, if you will, I would guess in the next 60 days.
The other point I think that's important to remember is all the governor's appointees have to be confirmed by the State Senate. The State Senate is heavily Republican. I think all of that, all of that leads to the type of an appointment that's really close to the center line in terms of philosophy and in terms of approach, of continuing the same type of approach the commission has been noted for over the course of many decades. I hope that helps, Jeremy.
Yeah, no, that's helpful there. I don't think I said different. I was just more thinking just type of. The policy as far as we were under the impression that maybe some labor-oriented policy might be in focus here. Didn't know if that was something that had come across your radar. We can move along here.
Well, Jeremy, actually to your point, we do know, and we've had conversations with the governor's office, as more and more renewable projects are under development, under construction inside the state of Wisconsin, we do know the governor's office is very interested in making sure as many of those jobs as possible are Wisconsin jobs. What you're saying would not be a particular surprise. I think that's been part of the governor's agenda from the very beginning.
Right. Right. Great. Thank you for that. Kind of moving along and recognizing it's earlier in the PGS rate case process, have you received any, you know, stakeholder feedback here, particularly on how the QIP rider impacts this? Any sense from the legislature on an extension?
As you probably recall, our filing position, if you will, we announced when we filed the case on January 6th, that it would not be our intention to try to extend the QIP rider through legislation. It's pretty clear from conversations with a number of the policymakers, including the governor's office in Illinois, that the preference is to return to traditional rate-making procedures for all the capital investments that PGL and North Shore are making, in particular, the capital investments that had been part of the what we call the QIP Rider program. When you think about it, actually we've really talked about this a lot internally. First of all, important to point out that the Illinois regulatory process in these rate reviews utilizes a forward-looking test period.
Even with going through a traditional rate-making process, you're in a forward-looking test period. That should help in terms of eliminating regulatory lag, number one. Number two, actually going through a rate review with all of the testimony and all of the, you know, all of the different stakeholders being able to voice their opinions. Actually, I think it's going to be a very positive thing because there's been noise about the method of recovery of the investment as opposed to the need for the investment. What this will allow us to do, this process over the course of 2023, this will allow us to again make the case for why the upgrade of aging, deteriorating piping systems underneath Chicago is so necessary for the safety and efficiency and stability of gas distribution in Chicago.
actually we kind of look forward to the debate, and we look forward to the whole process, which Scott will take probably through close to December, I would imagine.
Yeah. It'll take most of the year.
Yeah.
They're just You know, currently we haven't even seen a final schedule yet.
Right.
That'll be coming out.
Got it. That's very helpful.
Is that responsive, Jeremy?
That is very helpful. Just one last one if I could here. After this latest solar investment with the Samson announcement, how does the broader market interest currently stand? Anything notable to highlight here on this transaction?
No other than, I mean, other than in this particular transaction, there's really no construction risk because the facility went into service in May of last year. We really have no construction risk here whatsoever. We've got a year of operating data that we can base our due diligence on. Again, we're really pleased with this particular investment. We think it's gonna again add really a high, high-quality project to our infrastructure portfolio.
Just on the ITCs, had you guys disclosed how many years you're amortizing this over?
Well, we're using production tax credits instead of investment tax credits, and that's really what helps our economics here.
Mm-hmm. Yeah.
Obviously, with the Inflation Reduction Act, solar is now eligible. You can choose either ITCs or PTCs, and our choice here is clearly PTCs, which will be spread over, Scott, a 10-year period.
10-year period. Adding that second solar farm in our portfolio really adds diversity to portfolio too. We're really happy to, you know, adding that second solar.
Very helpful. I'll leave it there. Thanks.
Thank you.
We'll take our next question from Michael Sullivan with Wolfe Research.
Greetings, Michael.
Hey, Gale. How are you?
We're good. You keeping, Steve straight?
All good. We're gonna steal Aaron Rodgers from you too.
Well, he looks good in green, I believe.
Back to the old playbook. Anyways, wanted to start with just the credit metrics. I think you all used to give a reconciliation of FFO to debt with year-end earnings. Do you have that off the top of your head, or are you able to give where that ended up shaking out for the year?
Sure. We'll ask Xia to give you a response to that.
Michael, we disclosed the longer-term credit metrics and, but we have all the actual data. We'll be happy to provide that to you. I think it's all public information.
Okay. Okay, thanks. I just wanted to check on the solar build-out. Scott, I think you said like assuming release of panels, which has kind of been like a little bit of a moving target. Just any updated color there on where things stand with where the panels are and being able to get them?
Yeah. We've been, we've been able to get them in the U.S. We've been able to get them in the warehouse. In fact, about 40% of the panels we need to complete Badger Hollow II and Paris are in Chicago warehouse, and another 30% of the panels are about in the U.S. We have the panels. We're just working to get them through the paperwork to get through the border patrol. You know, we're starting to see a few panels, not ours, but a few panels get through the border patrol, so we're optimistic. But we have them in the States, and we just need to get them released yet. We think all the paperwork is good. We've gone back and worked with our suppliers and worked with our developers to get everything lined up.
It's just a matter of getting it through the final border patrol. We're all ready. The sites are... You know, the one site is ready, and we have a lot of the panels right here, just a few hundred miles away to be able to put them on. We just got to get them out.
Okay, great. last one
They're in a warehouse. They're in a hermetically sealed warehouse in Chicago.
Got it. Got it. Okay. Last one, just flipping to the Samson acquisition. I know, like, none of these projects are exactly alike, but just on like a $ per kW basis, this actually was one of, like, the cheaper deals that you've done. Is that just a function of location, current environment, anything like nuance there that we should be thinking about?
No, I think, you know, when you look at the appropriate purchase price, one of the big factors is the particular elements of the offtake agreement or the purchase power agreement, in this case with AT&T. That was a heavy determinant of the overall value that we saw in the project. Xia, anything you want to add to that?
No, that's it. That's exactly right. It's a function of the PPA purchase price.
Okay, great. Thank you. Thank you very much.
You're welcome, Michael.
Our next question comes from Durgesh Chopra with Evercore ISI.
Durgesh, you gonna sing Fly, Eagles, Fly for us?
Oh, that'll put you to sleep. I'm not a great singer. I will be singing after they actually win in the, you know, in a few weeks here. Okay, thanks Gale for giving me time. I was gonna ask you a question on the price of Samson I versus Maple Flats, you've answered, so that's good. Maybe are you seeing, you know? We've heard a lot about transformer shortages and just general material shortages. I think you talked about the panels already being in-house. Can you just generally talk about materials, your construction materials, and are you seeing some tightness there specifically if, you know, issues with transformers or any other equipment?
Yeah, great question, Durgesh. Let me say this. A couple of years ago, we actually were in a position where we thought we would be very protective of our customers and our franchise if we did a double order of transformers, and that has served us pretty well. I think everyone's a bit tight. Scott, we feel reasonably in good shape with where we stand.
Yeah. We feel like we're in good shape. We've been working with our suppliers every week. You know, probably the one that's across the industry is more of those pad-mount transformers. We've been working, and we are able to continue with all our construction and our capital work. We don't think there's any issues, but we're watching it very closely. Hopefully, things will loosen up here. Pad-mount transformers along with some meter sets have been probably the tightest things for us, but we're watching everything.
So far, so good.
I guess, are you sourced for the balance of the year in 2024? Is that how we should think about it when you're talking about the two-year kind of pre-order?
I...
Just-
I think we're sourced through the year next year. What we did is some of our larger transformers that we need for substations, we went out and did some ordering way ahead of time.
Yeah
... just to get into the queue. Those are the transformers that Gale was talking about. There's different sizes of transformers. Those real large ones, we got out there, a year ago to put orders out ahead of time.
Durgesh, one of the reasons we did what Scott just described is the large economic development projects that were coming to fruition here. For example, I mean, we've talked a lot about Haribo, but they are up and running and ramping up, and Komatsu is finished, and is now operating their new headquarters and manufacturing, state-of-the-art manufacturing plant. A number of the major economic development projects, which we knew would require large transformer sets, we prepared for that in advance, which was really good.
All right, guys. Thanks so much. I appreciate the time.
Go Eagles.
For sure. Go Eagles.
We'll take our next question from Andrew Weisel with Scotiabank.
How you doing, Andrew?
Hey, I'm good, thanks. First question is another one on Samson I here. It's early, but how do you think about the potential to invest in some or all of the next five phases? I mean, that alone could be more than half of the five-year budget. Would you prefer to diversify your projects?
Well, we've really followed a philosophy of diversification. However, you never say never. We will see if the performance on Samson I is as we expected, and we're certainly open to looking at, you know, portions of future phases. We have not made any decision on that whatsoever. It's certainly a possibility, and I'm confident if we wanted to be a continued partner in any of those future phases, we would have the opportunity to do so. We'll balance that against what we see as the performance in Samson I and against our thinking about diversification, both solar, wind, and region.
Do we know the timing of when Samson Two is going to be at that decision point?
It's under construction now. I don't have a in-service date. We know it's under construction now. My guess is it's in the next 12-18 months max.
Okay, great. Next question on a similar front here. The year-over-year EPS walk shows positive $0.10 from PTCs. Are you able to quantify what % of your total earnings relate to renewable tax credits at the energy infrastructure segment?
Wait, Xia might be able to give you that. We can tell you what the earnings from our renewable investments were. We can start at $0.28, which is what we delivered in terms of the investments in our infrastructure projects. You wrap in the PTCs, you wrap in other revenues. Xia, we got to about $0.28 a share for 2022 from the infrastructure segment.
Correct. We don't have the breakdown between PTCs and operating revenues, but the majority of the 28 is from PTCs.
Okay, great. Thanks. One last one, if I can. The new battery pilot sounds exciting, I'm interested in your other science project, the hydrogen blending. You briefly mentioned on the last call that initial results were encouraging. Are you able to give any additional updates on that project?
Yeah, they were very encouraging. Within a matter of weeks now, in fact, I think before the end of February, the Electric Power Research Institute, which really was the main technical organization helping to drive the project and helping to analyze the project. The Electric Power Research Institute will have a full report available, on all the analysis, and we expect that report to be out in the next few weeks. Again, very encouraged from the standpoint of both, the efficiency of what we saw, no degradation of the equipment, I mean, you name it, and it was. As Scott said, the engineers were giddy. That's scary, actually, when the engineers are giddy.
They enjoyed the project.
Very good. Looking forward to that. Thank you.
You're welcome. Thank you, Andrew.
We'll take our next question from Anthony Crowdell with Mizuho.
Anthony.
Hey, good afternoon, Gale. Absolutely. I saw some photos of you with Aaron Rodgers at a basketball game recently, in one of the local papers.
Yeah, I was apparently seated next to him and some other folks. For some reason or another, you know, when you're sitting next to Aaron, there are a lot of pictures being taken.
It was all of you. Aaron was very fortunate. I own one share, so I hope he wasn't out that late. I hate keeping my employees out late there. Just more housekeeping questions, I guess. One on Illinois. I think you spoke earlier on the rate case, and maybe it's, you know, I think if I characterize it correctly, it's good maybe to go through an entire case and the commission. I think parties will see how much the company has invested. I'm just curious when you see the timing of way the QIP rider expires, also on the electric side, which I know you guys are not there, but on the electric side, their formula rate plan expired. The commission right now has six or seven pretty sizable rate cases.
Does that make settlements maybe more likely to happen given the workload there?
It's very difficult to say one way or another, certainly the commission will have a solid amount of work to get through. I believe every natural gas distribution company of any size has filed their rate case in Illinois. Of course, as you say, the formula rate plans and the changes under the legislation on the electric side. There, there'll be a lot cooking in Illinois this particular year. Whether that leads to more settlements, I think it's way too early to tell. Clearly, you know, Illinois has had a track record of settlements. We actually, I believe, had a very positive settlement with our North Shore case just a year or so ago. It's certainly not out of the realm of possibility, Anthony, at all.
Got it. If I stay with the gas business, at least, you know, Henry Hub gas prices have really declined from the start of the winter till now, and we still have, you know, a couple more weeks of winter left. I mean, is the company able to maybe capture that in customer bills through contracts or something? I'm just wondering, has maybe the company's buying, more hedging process kicked up with these lower prices to mitigate customer bill impact?
Well, we're clearly going to I mean, gosh, I look today, and I think we're around $2.60 per million BTU. It was amazing, compared to where we were just about, you know, two, three months ago. But if you look at, particularly for our natural gas heating customers, we have a set commission-approved strategy where we basically, in advance of the winter season, we basically, do a third, a third, and a third. Roughly a third of gas in storage, a third of financial hedging, and a third on the spot market. To the extent that that third, that's being purchased off the spot market is materially better, it's going to be helpful to customer bills.
Yeah. We also have that process as we start thinking about next year as we put injections. We may be hedging a little bit right now, just following a very strict pattern to lock in some of those prices for next year.
Exactly. one thing that I would add to all of that is that, when we filed our case, for Peoples Gas in Illinois, and Scott mentioned this in his prepared remarks, just looking at the futures market for natural gas, we should be able to completely even with a rate increase in base rates, we should be able to completely offset that with lower commodity costs and keep customer bills flat, in 2024 in Illinois.
Oh, great. Then if I just last question I'd say with cost. I'm just curious, it seems. You know, obviously, Wisconsin, you know, WEC, a large corporation in our space. You've been able to navigate a lot of the challenges of, you know, maybe higher rates, inflation headwinds. You know, is it the scale and size? I mean, how big of a factor is that in navigating where some of the smaller utilities or smaller companies are really stumbling on navigating? I mean, is it that? Do you need that scale and size to handle these challenges?
Anthony, that's a great question. My view would be we are in a scale business. I don't think there's any question about that. I'm gonna ask Xia to give you one statistic that I think underscores the benefits of scale. If you look back as a starting point to 2016, which would be the first full year after our acquisition of Integrys. From 2016 to the end of 2022, Xia will give you a statistic that'll blow your mind.
I think Gale's mention is thinking about the day-to-day O&M performance. you know, we brought down over $300 million since the acquisition. The CAGR from 2016 all the way to the projected 2023, I think is about 2.5% reduction a year projected. At the same time, if you think about asset-based growth over the same period, it's been north of 7% a year. You're growing rate base, asset base, at the same time bringing down O&M. That's a pretty solid track record.
It just gives you an example, Anthony, of the benefits of scale.
Well, thanks so much. Thanks for the time. I'm also not planning a dog anytime soon. I hope you guys have a great day.
Thank you, Anthony.
Our last question comes from the line of Vedula Murti with Hudson Bay Capital.
Hello, Vedula.
Hello. Good afternoon. How are you?
We're good. How about you?
I'm okay.
No, no, no, Vedula. Vedula, I keep wanting you to say wonderful and award-winning, you know that.
Okay. Wonderful, award-winning. I appreciate that. Thank you.
All right.
on conversational filler that can be removed if it doesn't add significant meaning to the sentence. In this case, it acts as a soft start to I'm wondering if you can, maybe... the topic you don't talk too much about is rate design and whether in fact there's any room or any ability to kind of work on that to, you know, perhaps balance some misalignments or to like, you know, somehow, you know, perhaps make things perhaps broadly more affordable." - This is a long sentence. The "..." suggests
Secondarily, one of the other things is about the fixed charge versus variable and whether, you know, there's been a trend mostly to moving towards a much larger fixed charge and away from being volumetrically exposed. Is there any thought or any consideration or philosophy around perhaps using that as a means to, you know, to, you know, make things more balanced in terms of affordability?
Okay. Well, I will ask Scott to give his view on this as well. Let me start off with one thing that immediately comes to mind. We have been, I think, pretty innovative in trying to help on the whole affordability issue. In fact, in the prior rate case, then it will be actually improved coming out of this rate case. We started something called the LIFT program for low income individuals, where if you stayed on a payment plan, there was actually some forgiveness of bill arrears. That's been actually an example again of how we're trying to help and work on the whole affordability issue. That's one thing that comes to mind.
The other is, I'm sure as we continue to see adoption of EVs, you know, across the footprint, that we will be looking at time of use rates, and things that can be helpful in terms of, in terms of not adding to the peak demand and therefore not adding to our investment costs, because as we continue to grow the prevalence of EVs. Scott?
No, you're exactly right. Looking at like time of use rates has been very helpful, especially as people are starting to get the EVs, and they charge at night. We're always looking at other opportunities. We've added in the past year some real-time market pricing programs too to encourage economic development. We really continue to evaluate what's good for the state of Wisconsin and our customers.
Hope that's helpful.
Appreciate it. Thank you.
You're welcome. All right, folks. Well, I think that concludes our conference call for today. Thanks so much for taking part. Always enjoy the discussions with you. If you have any additional questions, feel free to call Beth Straka at 414-221-4639. Thank you, everybody. So long.
Thank you everyone for your participation. You may now disconnect.