Xcel Energy - Q2 2023
July 27, 2023
Transcript
Operator (participant)
Hello and Welcome to Xcel Energy second quarter 2023 earnings conference call. My name is Melissa, and I will be your coordinator for today's event. Please note, this conference is being recorded, and for the duration of the call, your lines will be listen only. If you require assistance at any point, please press star 0, and you'll be connected to an operator. You will have the opportunity to ask questions. This can be done by pressing star 1 on your telephone keypad to register your question. Questions will only be taken from institutional investors. Reporters can contact media relations with inquiries, and individual investors and others can reach out to investor relations. I will now hand you over to your host, Paul Johnson, Vice President, Treasurer and Investor Relations, to begin today's conference. Thank you.
Paul Johnson (VP, Treasurer and Investor Relations)
Good morning, welcome to Xcel Energy's 2023 second quarter earnings call. Joining me today are Bob Frenzel, Chairman, President, and Chief Executive Officer, and Brian Van Abel, Executive Vice President and Chief Financial Officer. In addition, we will be review our 2023 second quarter results and highlights and share recent business developments. Slides that accompany today's call are available on our website. Some of the comments during today's call may contain forward-looking information. Significant factors that could cause results to differ from those anticipated are described in our earnings release and our SEC filings. We will discuss certain metrics that are non-GAAP measures. Information on the comparable GAAP measures and reconciliations are included in our earnings release.
With that, I'll turn it over to Bob Frenzel.
Bob Frenzel (Chairman, President and CEO)
Thanks, Paul. Good morning, everybody. Let's start with our results. We faced some headwinds from weather and other items in the second quarter, recording earnings of $0.52 per share for the second quarter of 2023, as compared to $0.60 per share in 2022. We've got tangible plans in place for the second half of the year to overcome the inflationary pressures, as well as the impact of a lower than expected ROE in the Minnesota Electric Rate Case, allow us to deliver on our 2023 guidance. Our strategic priorities are unchanged: leading the clean energy transition, enhancing our customers' experience, and keeping our customers' bills low. We've delivered on this strategic vision across our eight states for the past decade.
We invest in clean energy resources that provide both financial cost savings to our customers while transitioning to a lower carbon economy. We invest in network infrastructure to foster economic development for new businesses, to provide top quartile reliability, and to provide resiliency in the face of more volatile and unpredictable weather. We're also building infrastructure to accelerate clean transportation for all of our customers and exploring innovative technologies like batteries and clean fuels, to enable the policy objectives and the customer desires for a lower carbon economy. We've focused on continuous improvement to operate efficiently with a lower expense burden to our customers. As a result, we've been able to keep our operating expenses nearly flat for over a decade. Our customers benefit from these actions, including significant carbon reductions and residential bills that are 20% below the national average.
As you can see, we have a long history of delivering on our commitment to all of our stakeholders and are confident in our ability to meet our earnings guidance again in 2023. This quarter, we made progress on our clean energy transition plans with a growing portfolio of both company-owned resources and power purchase agreements. In our NSP solicitation, we recommended an incremental 250 MW of self-built solar generation and a 100-megawatt power purchase agreement. This brings our total company-owned solar projects at Sherco to over 700 MW, which will utilize the transmission rights for the first of the three retiring coal units there. In the SPS RFP, we recommended a portfolio of 418 MW of self-built solar projects and a 230-MW power purchase agreement.
We're also proposing a battery storage project in one of the new self-built solar facilities. In addition, later in the quarter, we expect to file our recommended Colorado portfolio for nearly 4,000 MW of potential resources. Based on our interim analysis, the outcomes should be very beneficial to our customers. Across our 8-state footprint, we enjoy a geographic advantage for wind and solar resources, which enables higher capacity factors. As a result, Xcel Energy can deliver new renewables at low and competitive prices due to a combination of high capacity factors, IRA tax benefits, and the ability to reuse transmission from retiring plants, all of which provides significant benefits to our customers and enables a faster transition to a clean energy economy. Each of these RFPs represent incremental opportunities as compared to our base capital forecast.
We anticipate commission decisions on these proceedings in the second half of 2023 for Minnesota and Colorado, and in the first half of 2024 for SPS. In May, Breakthrough Energy Catalyst announced a $20 million grant to support our 2 10 MW pilot projects for Form Energy's 100-hour battery technology. In July, the Minnesota Commission unanimously approved the Form Energy pilot to be installed at our Sherco site alongside our new solar projects. We plan on filing for our second Form Energy pilot later in the quarter and are evaluating sites that could be supportive of this exciting new clean energy technology. We're also working with the Department of Energy on additional funding opportunities to further reduce the cost of these projects for our customers. In May, we filed our second transportation electrification plan in Colorado.
The proposed plan, which covers the 2024 to 2026 period, includes expanded solutions and rebates to support new public charging stations and charging at homes, businesses, multifamily buildings, and community locations. It also proposes programs supporting electric school buses, innovation, and income-qualified customers. Our focus is to bring clean transportation to all customers and communities, and to expeditiously assist in the build-out of corridor charging to reduce range anxiety of EV purchasers. Next month, we plan to file our clean heat plan in Colorado, and we'll follow with our natural gas innovation plan for Minnesota during the fourth quarter. These plans will be similar to our electric resource plans and provide a framework for our natural gas system to achieve our carbon reduction goals while meeting the reliability and affordability needs of our customers.
Taken as a whole, these innovative projects and partnerships in electricity, in clean transportation, and in home heating are essential for Xcel Energy to meet our sustainability goals and to continue to deliver our customers the safe, clean, reliable, and affordable energy that they expect now and long into the future. In June, the Boulder County Sheriff's Office announced the findings of its investigation into the cause of the Marshall Fire in December of 2021. Our thoughts continue to be with the families and the communities impacted by this devastating fire, including our own employees, whose homes and families were directly affected. The report states that the first Marshall Fire started as a result of an ignition on a property affiliated with an entity called the Twelve Tribes, and that this ignition had nothing to do with Xcel Energy's power lines.
The sheriff's report also discusses a second ignition that started more than an hour after the first fire at a different location, which the report estimates is approximately 80 to 110 feet away from our power lines. The sheriff's report says that the most probable cause of the second ignition was PSCo's power lines. We strongly disagree with that conclusion. Because of the pending litigation that's been filed, we're not in a position to discuss the Marshall Fire in more detail at this time. We will vigorously defend ourselves and look forward to presenting our position in court. Importantly, additional information about the lawsuits and some of the relevant legal standards is included in our earnings release and our 10-Q filing. I would direct you there. Finally, we recently released our comprehensive sustainability report.
The report focuses on four core ESG pillars: reach Net Zero responsibly, strengthen our communities, operate with integrity, and to value people. It details our progress in achieving our industry-leading ESG goals, as well as our priorities moving forward. Some of the key highlights include: Xcel Energy has reduced our carbon emissions by 53% since 2005, and more than half of the electricity we provide to our customers comes from carbon-free resources, as compared to 41% nationwide. We outperform the industry reliability standard, restoring power to 94% of customers within 24 hours during major storm events. In this past year, in addition to contributing over $10 million to local organizations through the Xcel Energy Foundation, our employees contributed $3 million and volunteered over 74,000 hours for nonprofit and community improvement projects. We're proud of our track record.
It's keeping with our corporate strategy, and it's based on our values of connected, committed, trustworthy, and safe. With that, I'll turn it over to Brian.
Brian Van Abel (EVP and CFO)
Thanks, Bob. Good morning, everyone. We had earnings of $0.52 per share for the second quarter of 2023, compared to $0.60 per share in 2022. Please note that the line-by-line income statement comparisons are more complicated this quarter as a result of true-ups for the Minnesota rate case this year and the Texas rate case last year. Most significant earnings drivers for the quarter included the following: Lower depreciation and amortization expense increased earnings by $0.10 per share, largely due to the reversal of deferrals in the Texas rate case last year and the extension of depreciation lives from the Minnesota rate case. These decreases are partially offset by our capital investment program. Lower taxes, other than income taxes, increased earnings by $0.06 per share, reflecting property tax deferrals in Minnesota and Colorado.
In addition, other items combined to increase earnings by $0.04 per share. Offsetting these positive drivers, lower electric revenues, less fuel, decreased earnings by $0.23 per share, reflecting unfavorable weather, the impact of the Minnesota rate case, and recognition of revenue from the Texas rate case last year. Higher O&M expenses decreased earnings by $0.02 per share, and higher interest expense decreased earnings by $0.03 per share. Turning to sales. Year-to-date, weather-adjusted electric sales increased by 0.6%. We continue to expect annual electric sales growth of approximately 1% in 2023, which is driven by growth in C&I sales, partially offset by projected declines in residential sales. Now, shifting to the expenses. O&M expenses increased $14 million for the second quarter.
This increase is primarily due to the timing of generation outages, higher bad debt expense, insurance costs, and inflation, partially offset by the recognition of previously deferred costs from the Texas electric rate case in 2022. Given these drivers, as well as the Minnesota Rate Case decision, we're taking actions to mitigate O&M, which will include evaluating discretionary programs, staffing levels, consulting, employee expenses, variable compensation, and other management actions. As a result, we now expect the O&M expenses to decline 3% for the year. During the second quarter, we also made progress on several regulatory proceedings. Starting with our completed proceedings, in June, the Minnesota Commission approved a three-year electric rate increase of $311 million based on an ROE of 9.25%, an equity ratio of 52.5%, and a forward test year.
We plan to file for reconsideration of the decision as we felt the ROE was not consistent with the ALJ recommendation or recent Commission decisions in other Minnesota proceedings. In our South Dakota electric rate case, the Commission approved a settlement for approximately $14 million revenue increase. In our pending Colorado electric rate case, we reached a partial settlement that reflects a $95 million rate increase based on an ROE of 9.3%, an equity ratio of 55.7%, and a 2022 historic test year. Remaining items for litigation are the structure of the TCA rider and treatment of coal plant depreciation. We expect a Commission decision later this summer, with rates going into effect in September.
In our New Mexico electric rate case, we reached a contested settlement that reflects a rate increase of $33 million based on an ROE of 9.5% and an equity ratio of 54.7% in the forecast test year. We expect a decision and implementation of final rates by October. Both the Colorado and New Mexico settlements reflect significant negotiation and compromise by Xcel Energy and a wide range of intervenors with varied interests. The parties believe that the settlements resulted in a just and reasonable outcome for our customers. We are hopeful our commissions will approve the settlements without modifications. We also have pending rate cases in Wisconsin and Texas, which are early in the process. Intervenor testimony is expected in the Texas case in August, with a decision in the first quarter of next year.
While in Wisconsin, we expect intervenor testimony in the fall and a Commission decision by year-end. Turning to the Inflation Reduction Act, as most of you are aware, the US Treasury recently provided guidance on tax credit transferability, which was consistent with our expectations. We have considerable demand and anticipate monetizing excess tax credits later in the year. We are reaffirming our 2023 earnings guidance range of $3.30-$3.40 per share, which is consistent with our long-term EPS growth objective of 5%-7%. We've updated our key assumptions to reflect the latest information, which are detailed in our earnings release. Please note that the guidance assumption changes regarding capital riders, depreciation, property taxes, and ETR primarily reflect regulatory decisions or changes to assumed PTC levels and are largely earnings neutral.
However, the lower O&M and a portion of the interest expense assumptions will generally impact earnings. With that, I'll wrap up with a quick summary. We continue to expect to deliver 2023 earnings within our guidance range, as we have for the past 18 years, managing through regulatory outcomes, changing economic environments, and periodic headwinds. We're delivering on our capital plan and executing on opportunities, including clean generation, transmission, and distribution to support reliability, resiliency, and broader economic growth. We remain confident we can continue to deliver long-term earnings and dividend growth within the upper half of our 5%-7% objective range as we support our communities and states in the clean energy transition. This concludes our prepared remarks. Operator, we will now take questions.
Operator (participant)
As a reminder, if you would like to ask a question on today's call, please press star one on your telephone keypad. To withdraw your question, you may press star two. Our first question comes from Jeremy Tonet from J.P. Morgan. Please go ahead.
Jeremy Tonet (Managing Director and Senior Equity Research Analyst)
Hi, good morning.
Brian Van Abel (EVP and CFO)
Hey, good morning, Jeremy. How are you?
Jeremy Tonet (Managing Director and Senior Equity Research Analyst)
Good. Thanks for having me. Just wanted to touch base with a bit on the targeted O&M reductions, as you called out there, for these efficiencies in 2023. I was wondering if you could peel back the onion a little bit more to see how much of this is one time in nature versus carry forward into future years? Just any thoughts there would be helpful.
Brian Van Abel (EVP and CFO)
Sure. Hey, good morning, Jeremy. Thanks for the question. I think I'll explain it a couple different ways, talk about kind of the near-term actions. You know, when we think about it, you know, how do we hit our year-end O&M guidance? One is we look at, you know, second half of last year, we had elevated O&M. If you look at versus the first half of last year, and particularly in Q4, as there was some one-time items in Q4 relative to having a good year investing in the system. You know, there are some impacts this year where we've had some timing of generation outages earlier in this year. We also expect bad debt expense to decline. We saw some higher bad debt expense levels given the commodity price impacts earlier in this year.
As I think about that bad debt expense level, it should be more sustainable. I guess, some timing in the generation outages. We're also looking at a number of what I call it near-term and long-term opportunities. Near term is what you'd call more one-time discretionary items around program spend, consulting, third-party contracts, and variable compensation levers, you know, your more traditional management initiatives. I think we're spending a lot of time on longer term initiatives around our innovation and transformation team. We've invested heavily in driving what we call waste elimination and process improvements across our orgs. And then we're also investing heavily in technology. You heard me, I've talked about before, something we call the Digital Operations Factory, which is focused on using AI in, in our operations.
We started that in nuclear with our corrective action program. Now we're rolling that out to distribution and gas and our field operations, and that's using traditional AI. We're also looking at now use cases for Gen AI. As we look at it, you know, our goal is to hit 3% down for the year. Longer term, our goal is kind of keep O&M flat. As Bob said, you know, we've done that for nearly a decade, we have some work to do to get there, balance of the year, think longer term, O&M flat as we go forward.
Jeremy Tonet (Managing Director and Senior Equity Research Analyst)
Got it. That's very comprehensive, very helpful there. That kind of touches on, I guess, the next question I had, is just with regards to, well, the Minnesota order, if it's caused you to revisit any embedded assumptions over the remainder of your five-year plan at this point, and has these kind of O&M items, as you called out, adjusted for that?
Brian Van Abel (EVP and CFO)
No, I don't think it does. I think about our long-term assumptions and our long-term 5%-7% earnings growth rate. You know, we continue to expect to deliver in the upper half of that long-term guidance.
Jeremy Tonet (Managing Director and Senior Equity Research Analyst)
Got it. Just at a high level, if I could, you know, given the growth of wildfire risk, has your mitigation strategy, I guess, evolved over time, or do you have any other thoughts on that side?
Bob Frenzel (Chairman, President and CEO)
Hey, Jeremy, it's Bob. Appreciate the question. As you know, we've been operating under, in Colorado, under a wildfire mitigation plan that was instituted probably more than 3 years ago. That plan is due to be refreshed in Colorado at the end of this year. We expect to propose continuation of existing programs and new programs in Colorado that understand the volatility of weather in the west and the footprint of the Colorado company in particular. We're still working through that. Nothing specific right now, but certainly, you know, looking at everything that we can in terms of the risk and the opportunities to, you know, strengthen our own system and make sure that we protect our communities and our customers.
Jeremy Tonet (Managing Director and Senior Equity Research Analyst)
Got it. Just one last one, if I could. You know, post what we've seen in Minnesota here so far, does your view of the relative attractiveness of Minnesota versus Xcel's wider footprint, change in any way?
Bob Frenzel (Chairman, President and CEO)
Look, you know, I think as I said in my opening remarks, we feel like we've run a really good utility in Minnesota and across our eight states, focusing on our customers and our communities, and helping our states achieve their policy objectives around clean energy and clean transportation. The outcome I'll say was disappointing, you know, for two reasons. Paul and Brian mentioned one, which was, you know, it was inconsistent with previous decisions in Minnesota, that had been, you know, 9.4%-9.65%. Equally important, probably didn't recognize what I think Xcel Energy is a national leading utility in advancing a lot of these initiatives, making sure we do it reliably and affordably and sustainably.
You know, we'll continue to review our investment opportunities and our programs in the state, but I think generally, you know, we're really confident that, you know, this is our headquarter state, and we want to work proactively with the governor and the legislature and the PUC to advance these initiatives.
Jeremy Tonet (Managing Director and Senior Equity Research Analyst)
Got it. That's very helpful. I'll leave it there. Thanks.
Operator (participant)
Thank you. Our next question comes from Durgesh Chopra of Evercore. Please go ahead.
Durgesh Chopra (Managing Director)
Hey, good morning, team. Sorry, I was in mute.
Bob Frenzel (Chairman, President and CEO)
Three years later, we're still getting caught by the mute button.
Durgesh Chopra (Managing Director)
Okay. Can you hear me now? I'm sorry.
Brian Van Abel (EVP and CFO)
Yeah, great.
Durgesh Chopra (Managing Director)
Okay, perfect. Sorry about that, guys. Brian, I heard you mention the Minnesota Rate Case item, just a feel or rehearing. Could you just give us a little bit more color there as to what the next steps are, timeline?
Brian Van Abel (EVP and CFO)
The reconsideration, it's we need to file for reconsideration 20 days after the written order. That's coming up. certainly, we will file for reconsideration, right around ROE, around the decision on the prepaid pension asset and some other expense levels. you know, we're hopeful the Minnesota Commission will take that up and look hard at our reconsideration filing. They have 60 days once that they have 60 days to decide. That's the process.
Durgesh Chopra (Managing Director)
Got it. Okay. That should be coming out shortly, and then 60 days after the decision, whether they take it up or not?
Brian Van Abel (EVP and CFO)
Yep.
Durgesh Chopra (Managing Director)
That's the Minnesota Commission. Okay.
Brian Van Abel (EVP and CFO)
Yep.
Durgesh Chopra (Managing Director)
Thank you. Then just, you know, you've mentioned the transferability guidance was in line with your expectations. There's been a lot of discussions, you know, within the industry, investors, and credit agencies on the implications to CFO. You know, I know, you know, you're very knowledgeable on this topic in general, so just get your thoughts there, how you're seeing this play out and implications for your credit metrics.
Brian Van Abel (EVP and CFO)
I mean, we've spent a lot of, I would call it an industry collaboration, on how we work this through our financials. Not only have we worked with, you know, a lot of our peer utilities, we've also worked with the Big Four accounting firms. Everything we're going to do is going to be in accordance with GAAP. We'll take the income tax approach. It's gonna flow through our income tax expense line, and it'll also flow through cash from operations. I think it's pretty straightforward, and I know there's been a lot of discussion, you know, whether it'll show up in the FFO or the debt metrics, and I feel pretty good about it, 'cause it absolutely will reflect the economics of our underlying financials.
It is for us, right, it's, it'll be a reoccurring cash flow benefit as we look to monetize these tax credits. I feel pretty good about how it'll be reflected across the rating agencies, and we spent time with each of those, talking them through that. Like I said, also work closely with the Big Four accounting firms. This is generally the approach the whole industry will take.
Durgesh Chopra (Managing Director)
That's really helpful. Thanks. Maybe just to the extent you are willing to comment on this, just a little bit more pointed question on 2023 guidance. Obviously, you mentioned the history of, you know, meeting and exceeding expectations. You know, just with the unfavorable weather, you know, and the regulatory decision, where are you tracking? With your sort of cost efforts in place, what are you targeting or where are you tracking within the guidance range?
Brian Van Abel (EVP and CFO)
Yeah, so, you know, I sitting here today, six months of the year, we're, we're tracking to midpoint, midpoint of guidance, and I'll give you a little bit more color, right? I, I think about it in kind of three buckets. First is execution of our, on our O&M plans, which I, which I talked about earlier. Second is we do have additional rate case revenue that will come in the door in the second half of the year, particularly with the Colorado rate case in flight, the New Mexico rate case in flight, there's still continued benefits from Wisconsin last year. We do have, expected, continued sales growth in our service territories. Those are really the three buckets that I, I think about it in targeting midpoint of guidance.
Obviously, as we normally do in Q3, we will look at where we are in Q3. That's certainly when we tighten guidance.
Durgesh Chopra (Managing Director)
Very clear. Thanks so much, Brian. Appreciate the time.
Operator (participant)
Thank you. Our next question comes from Julien Dumoulin-Smith of Bank of America. Please go ahead.
Julien Dumoulin-Smith (Senior Equity Research Analyst)
Hey. Hey, good morning, team. Thank you so much for the time and the opportunity. Appreciate it. Hey, team, I wanted to focus on the wildfire dynamics. Obviously, a lot of fixation on this, perhaps, principally coming from out of state as well. Can you elaborate a little bit? I know in the prepared remarks, you said you referred us to the 10-Q immediately here, but can you elaborate at least on your insurance levels today, your insurance programs across the states, as well as, how do you frame the risks here from the lawsuits that have been filed?
I imagine that some of the commentary you alluded to in the Q here, but can you help frame up your understanding as well as maybe some of the differences critically, from some of the out-of-state considerations that are drawing renewed scrutiny?
Bob Frenzel (Chairman, President and CEO)
Yeah. Hey, Julien, it's Bob, and thanks for the question. Here's what I can say about Marshall right now. The Boulder County Sheriff's report concluded that the Marshall Fire first ignited on the property of the Twelve Tribes and that this ignition was unrelated to our equipment. With respect to the cause of the second ignition, which began 1 hour after the first, we strongly disagree with the conclusion of the sheriff's report, and we will vigorously defend ourselves in court. The sheriff's report concluded that there were no design or installation or maintenance defects or deficiencies in Public Service' electrical circuit in the area of the second ignition. So, you know, regarding the litigation, there's a hearing in September where we expect to learn more about the procedural next steps.
Additional information about the lawsuits and the legal standards are included in our disclosures, in our earnings release, and in our 10-Q. Given the lawsuits, you know, I don't think we're going to comment any further beyond those particular disclosures. I'll let Brian comment on insurance coverage, other than that, I think we're gonna, you know, stick to our disclosure statements.
Brian Van Abel (EVP and CFO)
Yeah, Julien, the insurance coverage is included in our disclosure. It's approximately $500 million.
Julien Dumoulin-Smith (Senior Equity Research Analyst)
Got it. All right. Understood. Any further commentary about the differences in context across the different states, especially whether it pertains to legal recovery constructs and/or jury constructs?
Bob Frenzel (Chairman, President and CEO)
Yeah, it's all included in the disclosures, an entire page of disclosures.
Julien Dumoulin-Smith (Senior Equity Research Analyst)
Got it.
Bob Frenzel (Chairman, President and CEO)
In the earnings release in the Q.
Julien Dumoulin-Smith (Senior Equity Research Analyst)
Fair enough. We'll leave it there. Thank you, guys, very much.
Bob Frenzel (Chairman, President and CEO)
Thanks.
Julien Dumoulin-Smith (Senior Equity Research Analyst)
Appreciate it.
Bob Frenzel (Chairman, President and CEO)
Appreciate it.
Brian Van Abel (EVP and CFO)
Thanks, Julian.
Operator (participant)
Thank you. Our next question comes from Anthony Crowdell out of Mizuho. Please go ahead.
Anthony Crowdell (Managing Director and Senior Equity Research Analyst)
Hey, hey, good morning, Bob. Good morning, Brian, and good morning, Paul. Sorry, I didn't want to leave you out.
Bob Frenzel (Chairman, President and CEO)
Sure, Paul.
Anthony Crowdell (Managing Director and Senior Equity Research Analyst)
hopefully two quick questions. One on Julian, following up on Julian with the Marshall Fire. Is there a timing when that resolves itself or you just have to let it play through the course and you can't give any real feel of when that proceeding will wrap up and that overhang lifted?
Bob Frenzel (Chairman, President and CEO)
As I mentioned, look, we have a September hearing where we're going to learn a lot more about the procedural schedule. We'll know more then.
Brian Van Abel (EVP and CFO)
Yeah, Anthony, we really can't go beyond what we've already said in the disclosure, so we have to limit the questions on that.
Anthony Crowdell (Managing Director and Senior Equity Research Analyst)
Okay, great. On slide 11, the pending settlement at in Colorado, just, you talk about, I think an alternative rate increase, $47 million, that's dependent upon, I guess, some coal plant deferrals. I'm just curious if you could talk about how the commission will they Hopefully, when they approve the settlement, is that when they will address how they handle the coal plant deferrals, or does that get rolled into a separate proceeding?
Brian Van Abel (EVP and CFO)
Nope. Anthony, that will all be decided within the rate case decision that the commission will make here in Q3. They deliberate. They had hearings on it in July, that's all part of the record. It's kind of either the, the $95 million one or the alternate is if you, you defer some additional depreciation, it's $47 million. That $48 million difference is just the, the prior years' depreciation. All will be decided.
Bob Frenzel (Chairman, President and CEO)
It would be earnings neutral, but it would have a cash flow impact, obviously.
Anthony Crowdell (Managing Director and Senior Equity Research Analyst)
Great, thanks. I'm good from here. Thanks again for taking the questions.
Brian Van Abel (EVP and CFO)
Yeah, thank you.
Operator (participant)
Thank you. Our next question comes from Sophie Karp of KeyBanc. Please go ahead.
Sophie Karp (Managing Director and Equity Research Analyst)
Hi, good morning, and thanks for taking my question.
Brian Van Abel (EVP and CFO)
Hey, Sophie.
Sophie Karp (Managing Director and Equity Research Analyst)
Yeah, hi. A lot of my questions have been answered, but maybe I can just ask a couple of questions here. On volumes, I'm just curious if you could discuss a little bit what drives the volumes variability here, aside from weather? It seems like, you know, C&I volumes were equally or close to equally weak as well as residential. You know, like, what are some puts and takes that drives it, I guess, year-over-year?
Brian Van Abel (EVP and CFO)
Hey, Sophie. Yeah, if I think about sales in really looking at the weather normalized sales, we continue to see really strong growth on the C&I side, out at SPS, and in Q2 on a weather normalized basis. We have strength in Minnesota and Wisconsin, too. Colorado, on a year-to-date basis on C&I, there was a large manufacturing facility that was down for the first quarter in the first quarter of this year in Colorado, that had some weakness. On the residential side, the residential, while we're down, you know, close to a % for the year, it's tracking in line with our forecast or expectations for the year, right? We continue to see good customer growth, we do see continued use for customer declines, as our... We have really strong energy efficiency and DSM program.
I think overall it is tracking both on the C&I side and on the resi side, it is tracking to expectations for through the first 6 months and for the balance year with our, with our guidance on sales.
Sophie Karp (Managing Director and Equity Research Analyst)
All right. Thank you. Maybe I can just ask like a bigger picture question here. I know you've been looking at potentially involving in operating an SMR adjacent to one of your territories. Just kind of curious how you're still thinking about that and if it's been any progress to report?
Bob Frenzel (Chairman, President and CEO)
Yeah. Hey, it's Bob. Look, we as a company, we certainly have a view on nuclear, both current and future. Key priority for us is preserving the existing nuclear fleet and making sure that there's a potential for a nuclear future for the country. We have been working with a company called NuScale on their technology. It's an SMR technology, mostly helping them through the nuclear regulatory process and making sure that their applications meet the NRC guidelines and hoping to get that technology can get through the regulatory process. We don't have plans as a company to own or operate a SMR at this point. We really are just taking our nuclear expertise and helping with the nuclear future for that company, with.
We don't have any specific plans to announce on SMRs in specifics.
Sophie Karp (Managing Director and Equity Research Analyst)
All right. Thank you. That's all for me.
Operator (participant)
Thank you. Our next question comes from Carly Davenport of Goldman Sachs. Please go ahead.
Carly Davenport (Vice President and Equity Research Analyst)
Hey, good morning. Thanks for taking the question.
Bob Frenzel (Chairman, President and CEO)
Hey, Carly, welcome aboard.
Carly Davenport (Vice President and Equity Research Analyst)
Thank you. Appreciate that. Bob, you've been vocal, you know, about sort of an all-of-the-above approach, kind of on the energy transition from a technology perspective. You talked a little bit about the grant to support the Form Energy pilot. Could you just talk a little bit about kind of how that pilot's evolving and other opportunities that might exist in that space for itself, you think about long-duration storage?
Bob Frenzel (Chairman, President and CEO)
Yeah, happy to. Look, as we think about it as a company, you know, first utility to announce 100% carbon free. Given our geographic position, our ability to transition with wind and solar cost effectively for our customers through the end of this decade, allowed us to make an interim target of an 80% carbon reduction. We feel very confident in that. We've always been focused on, you know, we need new technology, new research, development, and deployment of new technologies to achieve our 100% goal and the nation's clean energy goal. One of the big pieces of that is obviously energy storage. We have a lot of lithium ion for our batteries around the country, and we have some on our own systems.
Long-duration energy storage is a critical part of the energy future. The Form Energy battery is a 100 megawatt hour battery. Instead of 4 hours, it's 4 days. That's a nice asset class as we think about periods when the wind doesn't blow and the sun doesn't shine. We've seen evidence of that as recently as early June of this year in the Southwest, where we had very limited wind production. We've seen it in polar vortexes, where in Winter Storm Uri, where we had no wind production for almost a 3-day period. This idea of a long-duration battery is just really interesting. What's exciting about Form in particular. It's a pretty old technology, really.
This was found by the Department of Energy almost 60 years ago, but is becoming commercializable by a new company, Form Energy. They're a Breakthrough Energy VC-funded company, an Energy Impact Partners-funded company. The technology is pretty interesting. I won't call it simple, because that would minimize the impact and the efforts of the development team and the founders of that company. It's basically rusting and derusting iron, and the great part about that is iron is readily available, it's domestically available, not subject to counterparties and regimes in the world where we have challenges.
You know, when I think about new technologies, you know, sometimes it's not the best that wins, it's the one that's most commercializable and the one that can deploy the fastest. I was really proud to be in West Virginia last month and breaking ground with the Form Energy team, with Secretary Granholm and Senator Manchin. They're building an 800 megawatt-capable factory in West Virginia as we speak, with loan guarantees and grants from the government. This is a technology that's going to come to fruition. It's a technology that's going to be scalable. We're really pleased to be their first partner in sales of that. It's a pilot. It's 10 MW, and we're going to put it on a 9,000 megawatt system.
We have a great opportunity to build it with them and invest alongside, and the Breakthrough Energy grants and the potential DOE grants buy down that cost and buy down that risk for the company. Very exciting technology, really excited about the future, what this could mean.
Brian Van Abel (EVP and CFO)
Carla, I would just add, you know, we have another pilot in Colorado, Ambri, which is a liquid metal technology that we'll have online in 2024. That's a 8 to 12-hour duration, so kind of called mid duration. We're spending a lot of time on this new technology. I think also longer term, if we kind of broaden the definition of energy storage, green hydrogen is a form of energy storage. As we think about longer term, being able to store and then burn it through some of our firm's dispatchable units longer term. We're pretty excited about a lot of the called new technologies, and really happy to see how excited our Minnesota Commission is on Form Energy, with the unanimous approval of that project.
Carly Davenport (Vice President and Equity Research Analyst)
Awesome. Appreciate those perspectives. Then to follow up, just around earnings guidance, you know, obviously you're reiterating the guidance for 2023.
Brian Van Abel (EVP and CFO)
Sure.
Carly Davenport (Vice President and Equity Research Analyst)
Just wanted to check in on temperature on the five to seven long-term guidance as you kind of think about the incremental spending opportunities from a CapEx perspective, along with some of the regulatory outcomes that you've seen, kind of how you're thinking about that long-term range.
Brian Van Abel (EVP and CFO)
Yeah, Carla, good question. We fully expect to continue delivering in the upper half of our 5%-7% long-term guidance. That's unchanged. You know, I think you mentioned the incremental opportunities that we have, and I think in Bob's comments, he mentioned the Sherco Solar 3 farm, the SPS, the 418 MW of solar farms that are going to provide significant customer benefits in SPS. We filed that CCN yesterday. Those two together are north of $1 billion of clean energy investments that will benefit our customers that are outside of our current capital plan. I think longer term, right, we'll file here in Q3 our preferred plan for with the Colorado Commission around our RFP. You know, going into that, that was decided pre-IRA.
The commission ruled on that resource plan before we could layer on the significant benefits, significant customer benefits of the IRA. When we look at how the costs are coming in relative to what was approved, we believe we can go bigger and faster, and above what that initial 4,000 MW of renewables and storage showed. We're excited to work with our Colorado Commission on that, look for that filing in Q3 and hopefully get a decision in Q4. Even in more longer term, in the next 18-24 months, we'll be filing more RFPs in Minnesota, Colorado and SPS for further significant additions to clean energy assets as we march towards the 80% by 2030 goal.
Pretty excited about it, pretty excited about long-term opportunities, and we do feel good about delivering the upper half of our long-term guidance range.
Carly Davenport (Vice President and Equity Research Analyst)
Great. Thank you.
Bob Frenzel (Chairman, President and CEO)
Thank you. Our next question comes from Steve Fleishman of Wolfe Research. Please go ahead.
Steve Fleishman (Managing Director and Senior Analyst)
Yeah. Hi, good morning.
Bob Frenzel (Chairman, President and CEO)
Hey, Steve.
Steve Fleishman (Managing Director and Senior Analyst)
good to have all of you on the phone, including Paul. just.
Bob Frenzel (Chairman, President and CEO)
Thank you, Steve.
Steve Fleishman (Managing Director and Senior Analyst)
The 1 Marshall Fire question: Is there a deadline when any claims need to be filed by?
Bob Frenzel (Chairman, President and CEO)
Steve, it's Bob. My understanding is that claims are a 2-year deadline, so that would say the end of this year is when claims need to be filed.
Steve Fleishman (Managing Director and Senior Analyst)
Okay. Second question, different topic on the Colorado settlement. I know, I think you mentioned Q3 for the final order. Is there a specific date for that approval?
Bob Frenzel (Chairman, President and CEO)
Not, there's not a date, Steve. We expect that the commissioner will rule probably in the middle of August. Hold deliberations in the middle of August.
Steve Fleishman (Managing Director and Senior Analyst)
Okay. lastly, just, I know you all have been, pretty focused on a number of IRA provisions, including the, the hydrogen one. I'm just kind of curious, latest thoughts on the, you know, ability, to, to look at hydrogen production, you know, with green hydrogen, you know, all those, kind of pillars of the green hydrogen. When do you think we'll get that? And whether nuclear might be included in that, or is additionality gonna be a problem for that? Thanks.
Bob Frenzel (Chairman, President and CEO)
Yeah. Hey, Steve, it's Bob. Thanks for the question. You know, we've been very active in clean fuels in general, and hydrogen in particular. You know, look, philosophically, you know, we believe that we're gonna undergo a large period of electrification over the next 10 or 20 years as a country and as a company. That there are, you know, parts of the economy that are going to be difficult, or expensive, or even in some cases, impossible to electrify. Therefore, we feel like we need a clean molecule to help in those areas. Today that's natural gas, but tomorrow, you know, the most promising molecule that we see is a green hydrogen molecule. This looks like it's an opportunity for the company.
It's another version of steel for fuel at some level. The federal government's supportive of it, the states are supportive of it, and we've got 2 hydrogen hub applications, one in the Rocky Mountain region, with MOUs from 4 states, two of which we serve Colorado and New Mexico, as well as Utah and Wyoming. Here in the upper Midwest, a 5-state MOU, again, three of which that we serve, Wisconsin, Minnesota, North Dakota, and Montana. You know, we're in front of the DOE. Those have progressed through the process, and we expect to know by the end of the year whether we're gonna get DOE loan grants for hydrogen.
I think you're aware of some of the challenges around what qualifies for a tax credit in hydrogen land. I think there's sort of three areas of sort of debate. What we're trying to do is balance cost to the customer and a need to accelerate OEMs to build and take us down the technology curve of electrolyzers and balance of plant. I think about those as location, generation matching, and then additionality. With respect to location, you know, we've been all three of those, you know, on one end, we think we need flexibility in all three of those categories.
On the location, we've been supporting as a company, a balancing area type location, but certainly not national, which causes real market distortions and challenges with generation nationally. You know, similarly on matching, you know, I think that the pure level would say we need hourly matching, but we probably need some transition period to get to that strict hourly matching. We've been supportive of some period of time where, you know, maybe by the end of the decade or late this decade, we've got hourly matching, but in the end, we go to annually matching for some period of time.
Then with additionality, again, very supportive of the additionality as a concept, but areas of flexibility there, one, we would really support nuclear, in regards to additionality, and we have supported pretty vocally that, as well as any sort of otherwise, back down energy, we would support that as additionality if it came back into the grid. Very active. We're very active at EEI, we're very active at ACP, I think those are generally in line with principles that both of those organizations are supporting.
Paul Johnson (VP, Treasurer and Investor Relations)
Hey, Steve, you asked about timing. The statutory deadline is August 22nd. They haven't missed the statutory deadline yet, what we're hearing is that there's still a lot of uncertainty around the position that is outlined, given some of the polarizing viewpoints. It certainly could slip into September or October.
Steve Fleishman (Managing Director and Senior Analyst)
Okay. That's a lot of good information. Thank you. Appreciate it.
Paul Johnson (VP, Treasurer and Investor Relations)
Thank you.
Operator (participant)
Thank you. Our next question comes from Ryan Levine of Citi. Please go ahead.
Ryan Levine (Senior Equity Research Analyst)
Hi, everybody.
Bob Frenzel (Chairman, President and CEO)
Hi.
Ryan Levine (Senior Equity Research Analyst)
In terms of the $500 million insurance, what was the cost of that insurance and when was it procured? I guess, go forward, are you seeing changes in pricing for wildfire-related insurance, and what's your strategy on a go-forward basis related to the insurance?
Paul Johnson (VP, Treasurer and Investor Relations)
We haven't disclosed the cost, Ryan, every year we renew our insurance program. We continue to look at that. You know, insurance program is, for everything, is based on market experience with insurance companies, as you can imagine, it gets more challenging all the time. That's not just related to wildfire, that's what all we have to say about insurance.
Ryan Levine (Senior Equity Research Analyst)
Have you already procured it in 2023 for the next year, or is that an upcoming event for the backup year?
Paul Johnson (VP, Treasurer and Investor Relations)
We're still in the process.
Ryan Levine (Senior Equity Research Analyst)
Okay. I guess one last question on that. I mean, the $500 million, any associated costs with procuring it, is that passed on to ratepayers, or is that embedded in your O&M cost balance?
Paul Johnson (VP, Treasurer and Investor Relations)
It's recovered through rate cases, yes. It's included in O&M expense.
Ryan Levine (Senior Equity Research Analyst)
Included in?
Paul Johnson (VP, Treasurer and Investor Relations)
It's included in O&M expense.
Ryan Levine (Senior Equity Research Analyst)
Okay. Appreciate the call. Thank you.
Operator (participant)
Thank you. As we have no further questions in the queue, I will turn the call back over to CFO, Brian Van Abel, for closing remarks.
Bob Frenzel (Chairman, President and CEO)
Hey, thank you all for participating in our earnings call this morning. Please contact our investor relations team with any follow-up questions. Thank you.
Operator (participant)
That concludes today's conference. You may now disconnect.