Xcel Energy - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 EPS of $0.75 beat S&P Global consensus $0.65; revenue of $3.287B beat $3.210B, driven by higher recovery of infrastructure investments, sales growth and higher AFUDC; headwinds were higher interest, O&M and depreciation (EPS drivers: +$0.29 electric rev, +$0.05 gas rev, +$0.07 AFUDC; offsets: -$0.04 interest, -$0.03 depreciation, -$0.02 O&M). Consensus figures from S&P Global estimates (see table and note).
• 2025 EPS guidance reaffirmed at $3.75–$3.85; key assumptions updated: capital rider revenue increased to $255–$265M (from $200–$210M), O&M growth to ~4% (from ~3%), interest expense trimmed to $160–$170M (from $165–$175M).
• Management highlighted an additional $15B+ capex pipeline (on top of the $45B base plan) to meet growth and reliability, including ~5.2 GW proposed in TX/NM and large regional transmission projects; data-center pipeline at ~1.1 GW contracted/under construction with goal of ~2.5 GW by 2030.
• Regulatory/wildfire updates constructive: Colorado CPUC verbally approved $1.9B wildfire plan (written decision expected Q3), Texas approved ~$495M SPS resiliency plan; Marshall Fire trial slated Sep–Nov; Smokehouse cumulative liability estimate held at the low end at $290M, well below ~$500M insurance coverage (insurance remaining noted).
• Near-term catalysts: Q3 capital plan roll-forward (including incremental capex integration), Colorado resource plan (Phase I) decision expected fall 2025, SPS CCN filings in 2H25, Marshall Fire trial commencement late Q3.

What Went Well and What Went Wrong

• What Went Well

  • Strong EPS/revenue beat versus consensus; EPS +39% y/y to $0.75 on higher recovery of infrastructure investments and sales growth; weather-normalized electric sales +3.5%. Consensus figures from S&P Global (see Estimates Context).
  • Capex growth visibility: “we now believe that we're likely to need an additional $15 billion of capital investment” on top of $45B base plan; portfolio for SPS includes ~5.2 GW by 2030 with ~4.5 GW company-owned.
  • Regulatory momentum: CO wildfire plan settlement verbally approved; TX SPS resiliency plan approved (~$495M); both support system resiliency, with securitization contemplated in CO to mitigate bill impacts.

• What Went Wrong

  • Cost headwinds persist: higher interest (-$0.04), depreciation (-$0.03), and O&M (-$0.02) diluted EPS despite revenue uplift; interest pressure reflects higher debt and rates.
  • Legal overhangs: Marshall Fire trial scheduled for late Q3; while management disputes causation, the potential exists for damages beyond insurance limits if adverse outcomes occur.
  • Continued O&M inflation and nuclear generation costs noted; O&M growth assumption raised to ~4% for 2025 (from ~3%).

Transcript

Speaker 6

Hello, and welcome to Xcel Energy's second quarter 2025 earnings conference call. My name is George, and I'll be your coordinator for today's event. Please note this conference is being recorded, and during the call, your lines will be in the listen-only mode. A question-and-answer session will follow the prepared remarks, and questions will be taken from institutional investors and analysts. Reporters can contact media relations with inquiries, and individual investors and others can reach out to investor relations. To register for a question, please press star one on your telephone keypad. If you require assistance at any point, please press star zero, and you will be connected to an operator. I'd like to add to the call, as always, your host today, Mr. Roopesh Aggarwal, Vice President, Investor Relations, speaking to this conference. Please go ahead, sir.

Speaker 9

Thank you, George. Good morning, and welcome to Xcel Energy's second quarter 2025 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 have other members of the management team in the room to answer your questions if needed. This morning, we will review our second quarter 2025 results and highlights, provide updated 2025 assumptions, and share recent business and regulatory updates. Slides that accompany today's call are available on our website. Some 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 SEC filings. Today, we will discuss certain metrics that are non-GAAP measures. Information on the comparable GAAP measures and reconciliations are included in our earnings release.

I will now turn the call over to Bob.

Speaker 7

Thank you, Pratch, and good morning, everybody. In the second quarter of 2025, Xcel Energy continued to demonstrate our commitment to our customers, investors, and communities to make energy work better. During the quarter, we delivered strong earnings of $0.75 per share. We invested $2.6 billion in resilient and reliable energy infrastructure for our customers. We navigated an evolving energy policy landscape to ensure that we can continue to provide safe, clean, reliable, and affordable electric and natural gas service. We continued our wildfire risk reduction efforts to enable safer and more resilient communities. Based on our results through the first half of the year, we remain confident in our ability to deliver on our earnings guidance for the 21st year in a row, one of the best track records in our industry.

At Xcel Energy, we believe that we're in the early stages of an infrastructure investment cycle in the U.S. that will define many industries for decades. Not just the often-discussed AI boom, we see potential investment in onshoring and reshoring of manufacturing and other energy-intensive industries. Given our competitive reliability, cost, and sustainability, we believe we will be attractive to those industries. We see strong investment in oil and gas and other energy infrastructure, particularly in our SPS region, where we power large portions of the Permian and Delaware basins. We continue to see strong energy demand from electrification of transportation, manufacturing, and of home heating. Xcel Energy is here to meet the moment for our customers.

When we set our capital plan, our five-year capital plan last fall, we outlined a $45 billion infrastructure investment forecast to serve increased energy demand and make needed investments to strengthen our transmission and distribution systems. At that time, we also expected that our customers' needs could exceed that base forecast. Today, we now believe that we're likely to need an additional $15 billion of capital investment to meet our customer needs, largely within our current five-year forecast and some beyond. There are several drivers to that incremental need. In June, we filed a generation plan to support energy needs in our fast-growing Texas and New Mexico region. Our recommended portfolio included nearly 5,200 megawatts of generation and storage to be placed in service by 2030. Over 4,500 megawatts is expected to be company-owned and operated.

This includes 1,300 megawatts of wind, 700 megawatts of solar, 2,100 megawatts of natural gas CTs, and 500 megawatts of storage. We anticipate filing for regulatory approval of these projects over the remainder of this year, with commission decisions in 2026. We also anticipate issuing a second RFP later this year for additional resource needs in that region. In the Upper Midwest, we received approval in Minnesota for two firm dispatchable projects totaling 720 megawatts and at least an additional 2,800 megawatts of company-owned wind that will use our new Minnesota Energy Connection transmission line when it's placed in service in 2029. RFPs for additional generation projects that are needed to meet customer demand and grid reliability are ongoing, and we expect commission decisions in 2026.

We expect to invest an incremental $3 to $4 billion in regional transmission projects to support reliability and regional growth, including two 765 kV lines, one from the MISO tranche 2.1 and the other from the Southwest Power Pool's ITP portfolio. In addition to this $15 billion of incremental need, we are actively working through the resource planning process in Colorado that likely requires between 5 and 14 gigawatts of new generation to meet reliability and customer demand through 2031. We are still working through required regulatory approvals for a number of these projects and will provide updates as they materialize. We expect to formally update our five-year forecast through 2030 on our third quarter earnings update. As we move to aggressively build the generation and transmission that the grid requires to support both growth and reliability needs, we're also navigating a rapidly evolving energy policy landscape.

While we predominantly navigate resource plans and transition initiatives at a state level, we're also very focused on federal legislation as it pertains to how tax credits and permitting can impact customer outcomes. On July 4, the Budget Reconciliation Bill was signed into law. While we saw some challenges to wind and solar tax credits, there were also positive outcomes for customers in the bill. Lower corporate tax rates result in lower energy bills, all else being equal. Accelerated depreciation of capital is beneficial to customers, as is the efficiency of transferability of eligible credits, both of which were continued in the One Big Beautiful Bill. As with the incentives for qualifying energy storage and for carbon-free dispatchable resources like advanced geothermal, nuclear generation, and carbon sequestration, all beneficial for customers and the country's energy future.

Not surprisingly, renewable tax credits were front and center in the debate around this legislation. Accordingly, we expected limitations to credits as Congress tried to narrow a significant budget gap. For several years now, we've been working with our state commissions and other stakeholders on the substantial generation required in our operating regions to meet the reliability and growth needs of our customers. In total, we estimate that we need between 15 and 29 gigawatts of new generation before 2031, of which a significant amount could be sourced from wind and solar. Accordingly, we've already invested substantial capital and/or physically commenced construction of the clean energy resources included in our base capital plan, as well as enough to execute on our incremental investment pipeline, which we believe are necessary to meet the data center and electrification needs of our customers.

We'll continue to monitor and manage through the recent executive orders, agency rulemakings, and trade and tariff actions, and make adjustments as needed as we continue to develop the energy assets that we need in our regions. In addition, we've procured 19 gas turbine reservations to meet the reliability needs of our customers. We serve customers in the most resource-rich regions of the country, and pairing wind and solar and energy storage and gas backup means that we can deliver clean, reliable, and affordable energy for our customers at the speed that they require. Xcel Energy also continues to make progress to mitigate risk from wildfires and extreme weather. This includes investments in advanced camera and weather station technologies, enhanced power line safety setting installations, pole inspections and replacements, and operational measures such as wildfire safety operations and public safety power shutoff.

We've also seen strong support from our commissions and states to invest in wildfire risk reduction. In June, the Colorado PUC approved our unanimous settlement for our $1.9 billion wildfire mitigation plan, which included a partial securitization mechanism to manage customer bill impacts and an extension of our excess liability insurance deferral. In July, the Texas Commission approved our $500 million system resiliency plan. Both investment plans enhanced the reliability and resiliency of these systems to mitigate the impacts of evolving and volatile weather patterns. On the legislative front, in both Texas and North Dakota, constructive wildfire legislation was signed into law. In North Dakota, legislation passed establishing that when a utility is in compliance with an approved wildfire mitigation plan, it has exercised a reasonable standard of care.

In Texas, similar legislation passed that states an electric utility is not liable for damages from a wildfire, provided it's not negligent and is in compliance with an approved wildfire mitigation plan. Finally, I want to take a moment to thank our incredible line worker crews and other employees who've been working in tough conditions this week to get the lights back on for our customers after two rounds of major storms in the upper Midwest. All told, about 200,000 customers experienced outages from storms Sunday and Monday nights, mainly in Minnesota, Wisconsin, and South Dakota. More than 2,000 crew members joined in the effort, including crews from our Colorado and our Texas service areas, as well as contractors and mutual aid partners.

Their dedication to serving our customers when things get challenging is what they're known for, and I am very proud of everything they've accomplished in the past few days. With that, let me turn it over to Brian.

Speaker 8

Thanks, Bob. Good morning, everyone. Starting with our financial results, Xcel Energy delivered earnings of $0.75 per share for the second quarter of 2025, compared to earnings of $0.54 per share in the second quarter of 2024. The most significant earnings drivers for the quarter included the following. Higher revenue from electric and natural gas service, reflecting rate case outcomes and sales growth, increased earnings by $0.24 per share, and higher AFEDC increased earnings by $0.07 per share. Offsetting these positive drivers, higher interest charges decreased earnings by $0.04, reflecting higher debt levels and interest rates. Higher depreciation and amortization decreased earnings by $0.03, driven by increased system investment, and increased O&M decreased earnings by $0.02 per share. Turning to sales, weather-normalized electric sales increased 3.5% for the second quarter, driven by strong sales growth across segments in SPS and PSCo.

For the full year, we continue to forecast 3% weather-normalized growth. Shifting to rate case activity, in South Dakota, we filed an electric rate case requesting a $44 million increase based on a 10.3% ROE and a 52.9% equity ratio. Looking forward, we are evaluating options to file an electric rate case in New Mexico, a natural gas rate case in Minnesota, and rate cases in Colorado later this year. Moving to data centers, we are making solid progress on our target pipeline and are in active negotiations on several ESAs. We remain on track to meet our goal of contracting our toll-based plan by the end of this year, as we have spoken about before. We also continue to make strong progress on the Smokehouse Creek wildfire claims process. We've resolved 187 of the 253 submitted claims, which we continue to view as constructive.

In addition, we have settled or dismissed 11 of 27 lawsuits. We have committed to $176 million in settlement agreements, of which $123 million has been paid through the second quarter of 2025. Based on current information and the settlement activity, we are reaffirming the low end of our estimated liability of $290 million, which remains well below our insurance coverage of approximately $500 million, as we described in our earnings disclosure. Regarding the Marshall trial, we are preparing for trial starting September 25th and expected to conclude by mid to late November. Please see our earnings release and slides for additional disclosure on Marshall and Smokehouse Creek. Moving to guidance, we are reaffirming our 2025 guidance range of $3.75 to $3.85 per share. We remain confident in our ability to deliver long-term earnings growth in the upper half of our 6 to 8% target range.

Updates to key assumptions are included in our slides and earnings release. With that, I'll wrap up with a quick summary. Xcel Energy posted strong second quarter 2025 earnings of $0.75 per share. We continue to lead the clean energy transition while ensuring safe, clean, and reliable service and keeping customer bills as low as possible. We now have visibility to $15 billion plus of opportunities in our investment pipeline. We continue to make investments to reduce risk to our system and communities from extreme weather alongside constructive support from our states. We maintain a strong balance sheet and credit metrics using a balance of debt and equity to fund accretive growth. Finally, we reaffirm our 2025 EPS guidance of $3.75 to $3.85, and we remain confident in our ability to deliver long-term earnings growth in the upper half of our 6 to 8% target range.

This concludes our prepared remarks. Operator, we will now take questions.

Speaker 6

Thank you much, sir. Ladies and gentlemen, once again, it's time for questions. Our very first question today is coming from Carly Davenport of Goldman Sachs. Please go ahead.

Hey, good morning. Thanks for taking the questions. Maybe to start on the line of sight to the CapEx upside moving from that $8 billion up to $15 billion, I guess, how should we be thinking about the potential conversion of that upside into the base capital plan next quarter? Is there spend that could fall outside from a timing perspective or any regulatory considerations that could keep dollars out of the base plan update? Just any color there would be helpful.

Speaker 8

Hey, Carly. Good morning. I'll try and keep this somewhat succinct. When we think about it, the SPS RFP, we're relatively early in that process. We'll be filing with the New Mexico and Texas commissions here in August and expect decisions of those certificates that need in the first half of next year. Minnesota, we continue to work through the RFPs, and then we have the transmission, the big transmission in SPP and MISO. A lot of that will be in the kind of 2026 to 2030 timeframe, with a little bit falling out. As I think about it, we're generally conservative with what we view from a regulatory perspective. We'll be really clear and transparent on Q3 in terms of what's in our base plan and what's outside of it.

Overall, I think we feel really good about this, what we've now changed to a $15 billion plus line of sight in terms of the progress we've made both in Minnesota and in SPS. I think we have one of the best growth prospects in the industry, and we'll be really clear on how we lay that out in Q3.

Speaker 6

Yeah, hey, Carly.

Thank you so much.

Bob, just to add on to what Brian said, I agree with everything. Look, these projects are largely generation and transmission related in the incremental need category. While a lot of it's driven by reliability needs of the existing footprint, some of it's driven by growth as well. We know as a company, as an industry, there's tremendous need for electricity in this country right now to meet growing demand from all the things I mentioned in my prepared remarks. We think that this incremental need is real. It's going to materialize, and whether it's in the front five or six or seven, it's definitely coming towards our territories to support reliability and to support growth.

Speaker 8

Yeah, I think about the Colorado resource plan that we're working through right now and expect a commission decision here in Q3. That spend, the commercial operations for those projects, is through 2031. That's both going to be in this five-year and kind of that incremental CapEx for longer.

Great. Appreciate all that color. Super helpful. Maybe just on the SPS resource plan, as you pointed to that in your previous answer, could you remind us on your turbine procurement position just as we think about executing on the gas generation. Included in that plan, if I recall, when you initially filed it, it was supposed to come into service by kind of the 2030 timeframe. Could you just lay out the details on that front?

Speaker 6

Sure, happy to, Carly. In the prepared remarks, I said that we had 19 turbine reservation slots to support either projects that we already know are coming or that we will need them for. I think the SPS portfolio requires nine of those 19, and I think we're largely ready to supply those on time.

Speaker 8

Yeah, Carly, this is something that we think about, our overall scale and relationships with our OEMs and the need for gas generation we see across our footprint. We look at, we reserve turbine slots in kind of that 2027, 2028 timeframe well ahead of the market so we can deliver on these projects because we see a significant need of gas generation across all of our operating companies to integrate the renewables and ensure reliability. We're well positioned from that perspective, not only on the EPC side, but also on the OEM side, given the demand on EPCs and the construction of the gas units across the country.

Super clear. Thanks so much for the color.

Speaker 6

Thank you very much, Carly. Next question will be coming from Nicholas Campanella, calling from Barclays. Please go ahead.

Hey, good morning. Thanks for all the updates. I just wanted to kind of hit OBBB, but more specifically, I guess, the Treasury order that's coming in the next few weeks here. It seems like your appetite for renewable buildout is unchanged now that we're on the other side of this. If the window for safe harbor is shortened, how do you kind of see that affecting your plan? I know that you did a lot of safe harbor on the original 45, so I just wanted to kind of confirm that you don't really see an impact on any outcome, but I'll let you talk. Thank you.

Speaker 8

Hey, Nick, yeah, kind of a lot wrapped up in that question. If I don't hit on all of it, just remind me of the pieces that you want me to hit on. I think stepping back, when we look at our $45 billion base plan, we've taken steps, as you'd expect us, to start physical construction on a number of projects last year, started physical construction on projects this year in the first half. We feel very good about our $45 billion base plan plus the $15 billion plus line of sight projects that we have. We feel good at delivering those projects for our customers and having them in a good place from a startup construction or physical work perspective. Overall, in a good place. I think about the Treasury guidance.

From our perspective, the saturated language is beginning construction, and that term has been defined for a long time. We've been engaged in D.C. along with our industry partners. I think we do expect something to come out here by mid-August. Not going to opine on what that might be, but as we look at it, we're continuing to start physical work on our projects, and we'll evaluate that guidance as it comes up. Overall, we feel really well positioned with where we are today and the generation needs for our customers to serve our customers.

Okay, thank you for that. With the $15 billion of CapEx upside becoming more of a reality now, that should put pressure higher on rate base growth. Your cash flow profile is already improving from the investments you're making today. You kind of talked about the depreciation benefits with OBBB, and we should have sales growth later in the plan as well. As we kind of think about getting further out in the plan, how should EPS growth kind of track against rate base growth? Should we be kind of expecting similar types of equity issuance, or is that kind of improving in your view?

If I think about it, I'll take that in a couple of different ways. Again, really excited about the growth prospects and delivering for our customers here as we see the demand growth increase. From an equity perspective, we've always been managing a strong balance sheet. We do a balanced mix of debt and equity. If you look at our earnings release in our Q, we issued over $1 billion of equity via ATM in Q2. That really, our base plan had $4.5 billion of equity, and we already accomplished $2.5 billion between the forward, late last year, and this ATM issue. We're in a really good place, and we'll continue to do that. We do see the incremental capital, as we've always said, coming with a balanced mix of debt and equity. Roughly, rule of thumb we've always given is that 40% equity.

We view that ATM as our plan to be, but we'll also look at other products, mandatories, converts as our equity needs to grow to fund our accretive growth. As I think about that translating from rate base growth to EPS growth, obviously, we'll provide a holistic update in Q3 around our new five-year capital plan, our incremental pipeline, our sales growth, rate base growth. Even what we said last year when we moved to 6 to 8, we talked about being above the high end at times. I think that's a good way to think about it.

Okay, very fair. Just one last one on Marshall. I know that trial will be in September. I think mediation deadline was today, but just is settlement of that fully off the table for now, or is there still an opportunity to do that into trial? Just taking your temperature there. Thanks.

Yeah, hey, Nick, it's Bob. Thanks for the question. Technically, the court-ordered mediation concluded at the end of July, but that doesn't mean the parties don't continue to talk. As we step back and think about the trial broadly and the fire broadly, we continue to maintain that our equipment didn't start the second ignition in the wildfire, and we're prepared to go to court, as Brian indicated in his prepared remarks at the end of September. That trial is likely to last through middle to late November. Between now and then, you're probably going to see some filings back and forth from plaintiffs and us around pretrial briefs and things like that. We're planning to go to trial. We're always open to settlement discussions, but we have to start with the idea that our equipment didn't cause that second ignition. We maintain that.

Very good. Thank you.

Speaker 6

Thank you very much, sir. Next question will be coming from Jeremy Tonnett of J.P. Morgan. Please go ahead. Your line is open.

Hi, good morning.

Speaker 8

Hey, Jeremy.

I was just wondering if we could turn to the competitive transmission opportunities. How do you think about incorporating them into your plan? Do you probability weight the chance of winning contracts here, or do you include them kind of on a binary basis?

Hey, Jeremy, I didn't speak broadly about it. We don't include them in our capital plan unless they're one. We're very disciplined on the competitive side. You don't see us bidding on projects generally outside of our service territory. Pretty disciplined. We look at all of our growth capital that we have within our service territories, the transmission we need to build in SPP, MISO, longer-term Colorado, and all the generation. You don't expect us to be chasing competitively bid transmission projects outside of our service areas.

Got it. Understood. Thanks. I just want to, I guess, turn to the data centers a little bit more. What is your contracting progress on the base data center assumption here? Can you provide any more color on the counterparty type, long-term ramp for the portion of your base forecast currently contracted?

Speaker 6

Hey, Jeremy, let me start with Bob, and then I'll kick it over to Brian. As a company, we're very excited about the opportunity to serve this type of critical infrastructure. We have about 1.1 gigawatts of data centers under construction and under contract. Our plan is for, by the balance of the year, to hit another sort of gig of data centers, ultimately hitting about 2.5 by the 2030 timeframe. We've got a really robust pipeline behind that, high-quality stuff that we're working on right now. Seven or so gigs that I would talk about as maybe tier two opportunities. There's even tier three and beyond stuff beyond that total. Really excited. As I sit and think about our business, we have interests in all parts of our three operating areas, the Upper Midwest, Colorado, and the Desert Southwest.

For different reasons, each of those regions are very attractive to our data center counterparts, whether you're a hyperscaler or a data center developer. With specific contract stuff, I'll kick it over to Brian and tell him about the ramp profile. Big picture, I think we see this as a real growth opportunity, a real opportunity to grow sales on our system, bring rates down for all of our customers, and be beneficial for both hyperscalers as well as our existing customer base.

Speaker 8

Yeah, and just to add a little bit of color, we talked about we continue to make really good progress in ESA negotiations with those counterparties. We talked about one in Minnesota, one in Wisconsin, one in Colorado. A couple of them are what you expect to your hyperscalers. We continue to make progress. When I think about progress, they have their system impact studies, facility studies, land, and now we're on to actually the terms of the agreement and discussing that. We also had a new opportunity pop up in Texas and Amarillo that we're working on. We don't expect us to update our data center slide every quarter. Our pipeline is robust, as Bob mentioned. We continue to see inbounds and looking forward to executing on the agreements we talked about for the balance of the year and bring that forward.

Got it. Very helpful there. Thanks. Just a quick last one, if I could. If you could speak a bit more on the gain on debt repurchases there. Was this contemplated or the plan or any other color there?

Yeah, Jeremy. No, it wasn't part of our plan. What we saw is we use it opportunistic. It's a great tool. When you think about it, we saw some headwinds in our venture capital investments related to clean energy. You know this is a challenging market for clean energy. You saw some negative market markets this year in the first half. We just used that to offset that. Not an earnings driver at all.

Got it. Understood. Thank you.

Speaker 6

Thank you. What's your question, sir? Jeremy, next question will be coming from Julian Smith of Jefferies. Please go ahead. Your line is open.

Speaker 8

Hey, good morning, team. Can you guys hear me okay?

Speaker 6

Perfect. Perfect, Julian.

Speaker 8

There we go. Excellent. Hey. Bob, let me ask you this. I mean, you say at times we can do the math. If I heard you right earlier in the call, it seems like you might actually be doing the math for us here, at least as it pertains to the third quarter update. Are you guys actually going to refresh the full suite of guidance in a more formal way with that roll forward?

Speaker 6

Yeah. I think, as always, our third quarter update has a full and comprehensive update on all the assumptions, whether it's sales or capital deployment, rate base growth, earnings growth, financing needs, etc. We plan to do a full roll forward on the third quarter call.

Speaker 8

All right. Thanks for clarifying that. Just going back to your ROEs and the PSCO backdrop, obviously, you got the distribution rider, etc. How do you think about the improvement in earned returns there just a little bit? That might be one of the disintermediating factors between rate base and earnings here, or at least one of the bigger factors in the medium term. How are you feeling about that? Prospects, etc., just given the 7.8%? Yeah. Julian, I can take that one. You're talking about rolling 12-month averages at 7.8%. The distribution rider has been a good mechanism. We have a lot of investments on the distribution system to deliver for our customers, both from a resiliency perspective and a growing capacity perspective. That rider this year was capped, so it was kind of partially implemented this year, then full implementation next year. That 7.8%.

We do expect improvement through balance of the year and then continued improvement next year. We are working on that, and the distribution rider, once fully implemented, should help address some of that next year. Thank you. Brian mentioned his prepared remarks. We're looking at potential cases in Colorado at the end of the year, and that's a composite ROE. We've done a lot of work to improve the electric side of that ROE, and the gas still has lag in some of its mechanisms. If you think about the preponderance of the capital in that company going forward, it's largely electric. As Brian mentioned, whether it's a distribution rider, a renewable energy rider, a transmission rider, or a new rate case, we expect certainly the electric side of that ROE to continue to improve. Got it. Excellent.

Sorry to—I don't mean to press too much on this—but given what you have here already, and I know we can do the math, but just to verify, it does seem like a low teens rate-based carrier, which admittedly wouldn't be all that different from your, shall we say, regional peers necessarily. Curious if you want to verify that.

Speaker 6

I mean, Julian, we did kind of give you that rule of thumb of 25 bps of rate base, or 25 bps of rate base equals roughly incremental $1 billion of capital. Yeah, you're doing the math correctly. We will roll forward off a higher base for 2026 to 2030 rate base guidance as we always do. You are correct. We believe we have one of the best growth prospects in the industry. We're going to deliver these projects for our customers, right? We're really focused on reliable and affordable and clean energy for our customers. We have a lot of investments ahead of us to deliver on that.

Speaker 8

Awesome. All right. Best of luck, guys. Talk soon.

Speaker 6

What happened?

Speaker 8

The next question is coming from Steve Fleischman, Wolfe Research. I think we lost our operator.

Oh, that might be me. I thought I lost the call.

No, Steve, we can hear you.

Okay, great. Thanks for the time. Just to follow up on the question regarding the kind of OBB and executive orders, do we need to be concerned at all about kind of federal land issue with respect to your kind of renewable projects?

Speaker 6

Yeah. Hey, Steve, I can take that one. We don't have any projects on federal land. Just make it an easy answer.

Okay. I like easy answers. Thank you. Going back to also the topic of the Marshall Fire, Bob, you mentioned you kind of don't think you caused a second ignition. I think your slides also continue to show that a lot of the damage was already kind of happening from the first ignition. I assume that remains part of your core case as well.

Yeah, absolutely, Steve. When I think about the trial broadly, I think the sheriff report identifies that the start of the fire was on property owned by the 12 tribes. That first ignition was subject to almost 100-mile-an-hour winds for over an hour and 20 minutes, causing a fire spread theory where we see propagation of that fire into the towns in Colorado. Obviously, at some point, there's a purported second ignition. We believe that, again, on a trial basis, we have to have been found to have started a second ignition, that we were negligent in the maintenance and operations of our lines. We get into sort of joint and several, or not joint and several, liability on the call. It's sort of our portion damages based on causality. We feel very good about the facts and circumstances of our trial and are prepared to go there.

There is still an opportunity to kind of settle if you deem that it makes sense.

Sure. There is no prevention from a settlement proposal. We have probably two months before the trial begins, and you could settle even during the pendency of the trial. There is lots of opportunity there. Again, we feel very good about our facts, and we're prepared to go to trial.

Okay. Great. Thank you.

Thank you very much, sir. Want to move to Sophia Karp of KeyBank. Please go ahead. Your line is open, ma'am.

Hi. Good morning. Thank you for taking my question. I have a follow-up on the trial. Could you remind us if there was any sort of range of estimate on the damages? I know that ultimately that will be decided at the second trial, but what are the estimates that are currently being contemplated?

Yeah. Hey, Sophie, it's Bob. I think you got it right. The structure of the trial is such that we look at liability in the first trial, and in the second trial would be any damages if we get that far. We don't have an aggregate estimate of damage claims. What we do believe is that from the insurance companies, there was about $2 billion worth of property damage that they paid off in their claim process.

Got it. Thank you. My second question is, just kind of broadly speaking, you have a lot of growth opportunities ahead of you, right? You're going to presumably have some equity needs for those. Given that your evaluation does not reflect those growth opportunities right now, in my opinion at least, have you explored or are you likely to explore alternatives to equity raises, such as maybe selling some of the non-core assets or assets you deem less core to your electric operation? How should we think about that?

Speaker 8

Hey, Sophie, I can take that. I commented a little before in terms of ATM. Is there a plan to be? We'll look in that mandatory and converts. We have a strong balance sheet, and we're comfortable issuing equity to fund that accretive growth. I've been on record. We've been on record that we're not all that interested in minority interest sales. We view our assets as core. If we were ever to do anything, it would be for strategic reasons, not to fund our investments that we need to make. We've been disciplined for the past 20 years on the strategic side.

Got it. Thank you so much. That's all for me.

Speaker 6

Thank you very much, ma'am. We'll now move to Paul Patterson of Glenrock Associates. Please go ahead.

Good morning. Can you hear me?

Hi.

You're breaking up again. Next question is Paul Patterson with Glenrock Associates.

Hello. Can you hear me?

Yes, sir. Your line is open, sir. Sir, your line was open. Okay, gentlemen. She appeared and did not hear us. Right now, we do not have any further questions. We'll turn the call over to Mr. Van Abel for additional closing remarks.

Speaker 8

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

Speaker 6

Thank you very much, sir. Ladies and gentlemen, that will conclude today's conference. May I disconnect? Have a good day and goodbye.