Michael Sullivan

Michael Sullivan asked about the crosscurrents in Pennsylvania, including Governor Shapiro's comments and PPL's load growth, and how existing versus new generation fits into serving this demand, considering transmission capacity and political rhetoric.

Answer

Mac McFarland, President and CEO, linked political rhetoric to affordability and resource adequacy, viewing the RBP as a solution that could include cost allocation carve-outs for existing contracts. Cole Muller, CFO, emphasized that data centers are coming, existing generation will serve initial load, and new generation decisions are needed soon, potentially through RBP or bilateral contracts, leading to hybrid models. Mac McFarland declined to discuss specific organic or inorganic powered land opportunities due to commercial sensitivity and to avoid creating expectations, stressing Talen is working on multiple fronts.

Michael Sullivan asked about the crosscurrents in Pennsylvania, specifically concerning Governor Shapiro's commentary and PPL's load growth. He inquired about the role of existing versus new generation, transmission capacity, and how these factors tie into political rhetoric. He also sought more color on Talen Energy's organic and inorganic powered land opportunities, weighing their economics, speed, and the value proposition of inorganic powered land.

Answer

Mac McFarland, President and CEO, and Cole Muller, CFO, stated that political rhetoric focuses on affordability and resource adequacy, which the RBP aims to address. They noted that proposals for the RBP contemplate carve-outs for existing contracts regarding cost allocation. They reiterated that data centers are coming, and loads will continue to increase, with existing generation serving the initial build-out, eventually backed by new generation. Mr. Muller added that Governor Shapiro's team is actively engaged in RBP discussions. Regarding pipeline opportunities, Mr. McFarland explained that Talen Energy cannot discuss specifics due to commercial sensitivity and to avoid creating expectations, as seen with Montour. He emphasized that Talen Energy is working on multiple fronts (existing sites, other sites, new build, hybrid models) to contribute to the long arc of growth.

Michael Sullivan from Wolfe Research asked about the projected mix of regulated versus merchant earnings within PSEG's updated long-term plan, specifically if the 90% regulated earnings target still holds. He also sought clarification on the merchant assumption above the Production Tax Credit (PTC) floor and the historical and projected utility rate base Compound Annual Growth Rate (CAGR).

Answer

Dan Cregg, EVP and CFO, expressed that a decrease in the regulated earnings percentage would signify higher power prices and improved merchant performance, anticipating a modest shift. Ralph LaRossa, President, Chair, and CEO, emphasized that the PTC floor provides a regulated-type return, with only earnings above it considered truly merchant. Dan Cregg clarified that the 6%-7.5% utility rate base CAGR is consistent, building on a growing base that has exceeded this rate in prior years.

Michael Sullivan from Wolfe Research asked if the updated long-term plan still projects 90% regulated earnings and sought clarification on the mix of regulated versus merchant earnings. He also inquired about the historical rate base CAGR, noting that it seemed higher in previous years compared to the current 6%-7.5% projection.

Answer

Dan Cregg, EVP and CFO, expressed hope that the regulated earnings proportion would decrease, indicating higher power prices and better performance from the power business, but anticipated only a modest shift. Ralph M. LaRossa, President, Chair, and CEO, emphasized that the PTC floor acts like a regulated return, suggesting that only earnings above this floor are truly 'merchant.' Dan Cregg confirmed that the 6%-7.5% rate base CAGR is consistent, but it's applied to a growing base, implying higher absolute growth.

Michael Sullivan requested a refresh on the key components driving organic growth beyond 2026, including the Texas Energy Fund (TEF) and Virtual Power Plant (VPP), and the proportion attributed to share buybacks. He also inquired about the timing of upgrade opportunities at the LS assets in PJM, considering the RBA.

Answer

CFO Bruce Chung detailed growth drivers: the $750 million growth program (Smart Home, C&I, retail energy), all three TEF plants (last online 2028), and 400+ MW of smaller data center deals, with an 80-20 split between organic growth and buybacks for the 14%+ growth rate. President Robert Gaudette confirmed engineers are assessing 1 GW of upgrades and smaller additions at PJM plants, but no specific timing was provided.

Michael Sullivan asked for a refresh on the key components driving NRG's organic growth beyond 2026, including the Texas Energy Fund (TEF), Virtual Power Plants (VPP), and the contribution of share buybacks. He also questioned the timing of upgrade opportunities for the LS Power assets in PJM, considering the RBA process and the value of speed to market.

Answer

CFO Bruce Chung outlined the organic growth drivers: the $750 million growth program (half from Smart Home net subscriber growth, half from C&I and retail energy), all three TEF plants (last online 2028), and 400+ MW of smaller data center deals. He noted an 80-20 split between organic growth and share repurchases for the 14%+ growth rate. President Robert Gaudette stated that engineers are assessing 1 GW of upgrades and smaller 25-50 MW additions at PJM plants, working to determine market readiness given the RBA timing and data center demand.

Michael Sullivan inquired about the sensitivity of incremental load growth on CapEx and earnings, the equity financing requirements for additional CapEx, and whether the 80% minimum bill level or the full ramp is assumed in Evergy's financial forecasts.

Answer

David Campbell, Chairman, President, and CEO, Evergy, explained that the impact of additional ESAs on CapEx and earnings would depend on specific agreements, with the bulk of impacts expected after 2030. Bryan Buckler, EVP and CFO, Evergy, suggested a 50/50 debt-equity funding rule of thumb for incremental capital. David Campbell clarified that forecasts typically model the 80% minimum bill level for the first two years of an ESA, then an expected case for subsequent years.

Michael Sullivan sought sensitivities or rules of thumb regarding the impact of incremental load growth on CapEx and earnings, and the proportion of incremental CapEx financed with equity. He also asked if the embedded ramp rates in the forecast assume the 80% minimum bill level or the full ramp.

Answer

David Campbell stated that additional ESAs would reinforce and extend growth beyond 2030, with specific impacts depending on each customer. Bryan Buckler suggested a 50/50 debt-equity funding rule of thumb for incremental capital. David Campbell clarified that the forecast typically models the 80% minimum bill level for the first two years of an ESA, transitioning to an expected case from the third year onward.

Michael Sullivan asked about DTE Energy's resource planning for incremental load opportunities, specifically regarding the timing of new gas generation beyond Monroe's replacement. He also inquired if the weather and power price volatility at the start of the year could lead to another year of trading outperformance and sought clarification on the general rule of thumb for incremental equity as a percentage of increased CapEx.

Answer

Joi Harris, President and CEO, explained that DTE has taken steps, including MISO queue entry and turbine down payments, to position for new gas generation (CCGT, CCS capable) towards the tail end of the plan, with the IRP in Q3 determining the final resource mix. David Ruud, CFO, noted that strong trading margins from 2025, driven by gas and power contracts, are expected to continue into 2026, though DTE guides to $50 million-$60 million for trading. Mr. Ruud clarified that incremental equity typically represents approximately 40% of additional CapEx over time.

Michael Sullivan asked about DTE Energy's resource planning for incremental load, particularly the timing for new gas generation, and inquired if the company anticipates another year of strong trading outperformance given current market volatility. He also asked for the general rule of thumb for incremental equity as a percentage of increased CapEx.

Answer

Joi Harris, President and CEO, DTE Energy Company, explained that DTE has taken steps like MISO queue entry and turbine down payments to position for new gas generation towards the tail end of their plan, with the IRP in Q3 determining the final resource mix. David Ruud, CFO, DTE Energy Company, confirmed that some strong trading margins from 2025 are expected to continue into 2026, providing tailwinds despite guiding to $50M-$60M. Ruud also stated that incremental equity typically accounts for approximately 40% of additional CapEx over time.

Michael Sullivan from Wolfe Research inquired about the likelihood of settling the current Illinois rate cases, how WEC Energy Group plans to offset the headwind from the recent Illinois rider settlement, and whether the Microsoft ramp could potentially lower rates for general customers, along with any insights on the size of the upcoming Wisconsin rate case.

Answer

Scott Lauber, CEO of WEC Energy Group, stated it's too early to consider settlements for the Illinois rate cases. He affirmed that the 7%-8% long-term growth rate, bolstered by $1 billion in new hyperscaler-driven growth, will offset the Illinois settlement headwinds. Mr. Lauber explained that while data centers paying their fair share will incrementally benefit customers long-term by spreading corporate allocations, it's hard to quantify now. He added that Wisconsin rate case numbers are still being compiled with affordability in mind.

Michael Sullivan inquired about the possibility of settling the current Illinois rate cases and how the headwinds from the recent rider settlement's bill credits and rate base reduction would be offset. He also asked if the Microsoft ramp-up could potentially lower rates for other customers and for any indication of the size of the upcoming Wisconsin rate case.

Answer

CEO Scott Lauber stated it's too early to consider settlements for the current Illinois rate case. He clarified that the reaffirmed 7-8% long-term growth rate already factored in the settlement's headwinds, which are being offset by the additional $1 billion growth from hyperscalers who pay their fair share. Mr. Lauber explained that as data centers contribute significantly to the rate base (14-15% in the five-year plan), corporate allocations will spread across a larger footprint, incrementally benefiting other customers long-term, but did not provide specific numbers for the Wisconsin rate case.

Michael Sullivan asked about the impact of zoning on data center development in Michigan, specifically if it acts as an impediment or gating factor. He also inquired about CMS Energy's regulatory strategy, including the potential for more frequent settlements to reduce volatility from ALJ decisions and the possibility of spacing out rate cases more, given past commission commentary.

Answer

Garrick Rochow, President and CEO, stated that zoning is not an impediment, clarifying that a Wall Street Journal article referenced Howell, Michigan, which is outside their service territory. He explained that CMS Energy guides data centers to pro-investment communities and that zoning moratoriums are typically short (30-180 days) due processes that often lead to new ordinances, citing Mason, Michigan, as a successful example. Regarding regulatory strategy, Mr. Rochow expressed openness to settlements but confidence in achieving constructive outcomes even without them, given Michigan's regulatory environment. He noted that Michigan's rate increases are among the lowest nationally, and annual rate cases allow for smaller, inflation-aligned increases and passing savings to customers. He mentioned early, but not serious, talks about expanding rate case intervals with the right construct.

Michael Sullivan asked about the extent to which zoning regulations pose an impediment to data center development in CMS Energy's service territory. He also inquired about CMS Energy's regulatory strategy, specifically regarding the potential for more frequent settlements in rate cases to reduce volatility and the possibility of spacing out rate cases over longer periods.

Answer

Garrick Rochow (CEO, CMS Energy) stated that zoning is not an impediment, clarifying that reported issues often refer to areas outside their service territory. He explained that CMS Energy guides data centers to pro-investment communities and that moratoriums are typically short due diligence processes, citing Mason, Michigan, as an example of a community that adopted a new zoning ordinance for data centers. Regarding regulatory strategy, Mr. Rochow expressed openness to settlements but confidence in achieving constructive outcomes even without them, noting that Michigan's rate increases are among the lowest nationally. He suggested that annual rate cases, with smaller increases, allow for better management of affordability and passing savings to customers, though he acknowledged early, non-serious talks about longer spacing.

The analyst asked about the company's credit metrics following the new plan, the status and timing of the Meade pipeline asset sale, and whether there were any changes to the leverage on that asset.

Answer

The executives stated that credit metrics are expected to remain consistent with current ratings, which have been affirmed by agencies. They confirmed the Meade sale is targeted for Q4 and that there is no change to the asset's leverage.

Asked if the 2024 guidance represents a clean base for long-term growth, inquired about the 2023 FFO to debt metric and future targets, and requested quantification of the expected O&M optimization in 2024.

Answer

The 2024 guidance is a clean base for growth, excluding any one-time gains. The 2023 FFO to debt was around 14% on a pro forma basis, impacted by non-cash-generating CapEx, and is expected to improve with new rate cases. O&M optimization aims for a rate below inflation, with more specifics to be shared at the March Investor Day.

Inquired about the accounting for uncollectibles, the reasons for changes in financial forecasts following the New York rate case, and the status of the asset sale gain assumed in the 2023 guidance.

Answer

Executives clarified the uncollectible adjustment is a standard accounting change, not related to COVID, to neutralize earnings impact. The guidance update reflects better year-end visibility post-rate case, and the rate base forecast changed due to project timing. The asset sale gain is based on specific transactions, and the sale will only proceed if target valuations are met.