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Edited Transcript of XEL earnings conference call or presentation 30-Jan-20 3:00pm GMT

Q4 2019 Xcel Energy Inc Earnings Call

MINNEAPOLIS Feb 6, 2020 (Thomson StreetEvents) -- Edited Transcript of Xcel Energy Inc earnings conference call or presentation Thursday, January 30, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Benjamin Gwynn Stonestreet Fowke

Xcel Energy Inc. - Chairman, President & CEO

* Paul Andrew Johnson

Xcel Energy Inc. - VP & IR

* Robert C. Frenzel

Xcel Energy Inc. - Executive VP & CFO

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Conference Call Participants

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* Ali Agha

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Andrew Levi

ExodusPoint Capital Management, LP - Portfolio Manager

* Gregory Harmon Gordon

Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research

* Insoo Kim

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Julien Patrick Dumoulin-Smith

BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research

* Paul Patterson

Glenrock Associates LLC - Analyst

* Sophie Ksenia Karp

KeyBanc Capital Markets Inc., Research Division - Director and Senior Analyst of Electric Utilities & Power

* Travis Miller

Morningstar Inc., Research Division - Director of Utilities Research and Strategist

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Presentation

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Operator [1]

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Good day, and welcome to the Xcel Energy Year-End 2019 Earnings Call. Today's conference is being recorded. Questions will only be taken from institutional investors. Reporters can contact Media Relations with inquiries. Individual investors and others can reach out to Investor Relations.

At this time, I would like to turn the conference over to Paul Johnson, Vice President of Investor Relations. Please go ahead.

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Paul Andrew Johnson, Xcel Energy Inc. - VP & IR [2]

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Good morning, and welcome to Xcel Energy's 2019 Fourth Quarter Earnings Conference Call. Joining me today are Ben Fowke, Chairman, President and Chief Executive Officer; and Bob Frenzel, Executive Vice President and Chief Financial Officer. In addition, we have other members of the management team available to answer your questions.

Today we will discuss and review our 2019 results, update you on financial plans and objectives, share recent business and regulatory developments. Slides that accompany today's call are available on our website.

As a reminder, some of the comments during today's conference call may contain forward-looking information. Significant factors that could cause results to differ from those anticipated are described in our earnings release and in our filings with the SEC.

On today's call we will discuss certain metrics that are non-GAAP measures, including ongoing earnings in electric and natural gas margins. Information on the comparable GAAP measures and reconciliations are included in our earnings release.

I'll now turn the call over to Ben.

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [3]

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Well, thank you, Paul, and good morning, everyone. 2019 was an excellent year with a long and impressive list of accomplishments.

Let me share a few. We delivered EPS of $2.64 in 2019, which is the 15th consecutive year of meeting or exceeding our earnings guidance. We raised our annual dividend by $0.10 per share, which is the 16th straight year we've increased our dividend. Our stock hit an all-time high of $66.05 in September, and subsequently, hit an all-time new high of $67.69 this week. We achieved a total shareholder return of just over 32%. Our O&M declined almost 1%, even while making incremental investments in our system. The Minnesota Commission approved our purchase of the Longroad wind assets. And finally, we resolved multiple rate cases.

We also had a strong year operationally. We continued to achieve important milestones in our nation-leading wind expansion program with the completion of our Foxtail, Lake Benton and Hale projects. These 3 projects represent over 700 megawatts and were completed under budget. In addition, we have almost 2,000 megawatts of wind projects under construction, which are expected to be completed in 2020. We're very excited to continue our clean energy transition, which will result in significant customer savings and carbon reductions.

Our nuclear team continues to make great strides in transforming performance while reducing cost. The fleet achieved a capacity factor of 92.6% in 2019, even with 2 refueling outages. We have one of the top-performing nuclear fleets in the country as rated by the NRC and INPO. And in addition to strong performance, we have continued to lower our cost structure, with O&M cost declining a little over 2% in 2019, and this is the fourth straight year of declining O&M in our nuclear operations. I'm extremely proud of the effort and results of our nuclear employees and our leadership in our industry.

Moving to the wire side of our business. Our advanced grid efforts have progressed well and will enable increased reliability and security, faster storm restoration, better efficiency and new offerings for our customers. In 2019, we implemented foundational software and completed our initial meter deployment in Colorado, as planned, with full-scale implementation to follow. In November, we requested approval to expand our advanced grid program to benefit our Minnesota customers, and we expect a commission decision later this year.

Beyond our strong financial and operational performance, I'm also very proud of our ESG leadership. In 2009, we estimate we reduced carbon emissions by more than 40% from 2005 levels, and we remain on track to achieve an 80% carbon reduction by 2030. In recognition of our carbon-free vision, S&P Global gave us their Award of Excellence, and we continue to proactively mitigate the impacts of our clean energy transition on our employees and our communities. We've provided assistance to impacted employees, offering retraining and relocation opportunities, and we're levering natural attrition. As a result, we've managed our transition with no layoffs from coal plant retirements.

We've also partnered with our communities impacted by the closing of coal plants to build new generation at existing sites, and we worked hard to attract new businesses to those communities as well. In Minnesota, there is continued progress to build a Google data center and relocate a metal recycling plant next to our closing Sherco coal plant. In Colorado, we've worked to develop a solar solution to retain a steel mill, which is our largest customer and a major employer in Pueblo, where we are closing 2 coal units. Now these collaborative economic development efforts will help sustain local economies in terms of both jobs and tax base.

And our results have been recognized by others. We were named as one of Fortune Magazine's Most Admired Companies for the seventh consecutive year, one of Corporate Responsibility Magazine's 100 Best Corporate Citizens and among Newsweek's Most Responsible Companies. We earned another perfect score on the Human Rights Campaign's Corporate Equality Index, and we remain among the best places to work for LGBTQ equality. In addition, various publications continue to recognize our strong leadership as a veteran employer. All of this adds up to an outstanding ESG record, which is becoming increasingly important to investors.

So I'm really pleased with our accomplishments. And looking forward, I'm excited about the opportunities we have in 2020 and beyond. We will continue executing on our multistate wind investment program, which will provide clean, affordable energy to our customers. Longer term, we'll add more universal solar, storage and firm capacity to our system as part of our plan to reduce carbon emissions by 80% by 2030. We'll deliver on our planned transmission projects while collaborating with others to solve congestion issues over the next decade. This work is critical to maintaining reliability as more renewables are added to the system, and it also creates significant investment opportunities well into the future.

Implementation of our advanced grid program will also keep the grid reliable, secure and efficient and allow for the integration of more renewables while enabling new offerings for our customers. We will continue working with our customers, policymakers and other stakeholders to build nation-leading EV programs, which will improve the customer experience and reduce emissions across the transportation sector.

So with that, let me turn the call over to Bob, who'll provide more detail on our financial results and outlook as well as a regulatory update. Bob?

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Robert C. Frenzel, Xcel Energy Inc. - Executive VP & CFO [4]

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Thanks, Ben, and good morning, everyone. My comments today will focus on full year 2019 results. For details on our fourth quarter results, please see our earnings release.

We achieved another year of strong operational and financial results. We delivered 2019 ongoing earnings of $2.64 per share, which is a 6.9% increase compared with $2.47 per share in 2018. This result represents the top end of our original guidance range of $2.55 to $2.65 per share. Similar to last year, weather was a positive factor, contributing almost $0.07 per share compared to normal. However, we also incurred additional O&M expense, including approximately $0.03 per share due to storms, partially offsetting the weather benefit.

The most significant earnings drivers for the year include higher electric and natural gas margins, which increased earnings by $0.37 per share, including rate increases in riders to recover capital investments. Lower O&M expenses increased earnings by $0.02 per share, and our lower effective tax rate increased earnings by $0.15 per share. However, the majority of the lower ETR is due to an increase in production tax credits which flow back to customers through electric margin and tax reform impacts, both of which are largely earnings neutral. Offsetting these positive drivers were increased depreciation and interest expense, reflecting our capital investment program, which reduced earnings by $0.29 per share. And lower AFUDC due to project timing decreased earnings by $0.08 per share.

Turning to sales. Our weather-adjusted electric sales declined by 0.3% in 2019. We saw positive residential sales across almost all of our jurisdictions with continued customer growth, partially offset by lower use per customer. And in the C&I space, we experienced discrete declines in certain large customer usage due to cogeneration and lower frac sand mining sales, which caused sales to be unfavorable. Weather-adjusted natural gas sales increased 2.7% in 2019 as a result of strong customer growth and higher use per customer, partially offset by the declines in the frac sand mining demand in Wisconsin. For 2020, we anticipate electric and natural gas sales growth of approximately 1%, which includes the impact of leap year.

Turning to expenses. O&M costs were almost 1% lower than last year, driven by continued efficiency gains in our transmission and in our fossil and nuclear generation fleets, partially offset by unexpected storm costs and incremental spending on strategic areas to enhance the customer experience and further reduce risk in our operations. We remain committed to improving operating efficiencies and taking cost out of the business for the benefit of our customers, as we have for the past 5 years. And as a result, our consolidated base O&M forecast is essentially flat. However, we do expect incremental O&M from adding new wind generation in 2020 and 2021, which is largely rider recoverable as well as continuing to invest in strategic areas of cybersecurity, wildfire mitigation and enhancing the customer experience. As a result, we expect total O&M expense will increase approximately 1% to 2% in 2020.

Next, let me provide a quick regulatory update. In December, the Minnesota Commission approved our rate case stay out proposal, including the extension of the sales, capital and property tax true-up mechanisms, along with the deferral of increases in nuclear decommissioning costs. We view this as a constructive outcome as it will allow us to concentrate on other strategic Minnesota activities, including our integrated resource plan, our advanced grid initiative and electric vehicle expansion efforts.

In January, the Minnesota Commission approved our affiliate filing for the Mankato natural gas plant and the assumption of the existing PPAs. We closed on the acquisition earlier this month, and believe the Mankato asset will bring substantial value and reliability to the Upper Midwest system and to our customers, especially as we retire additional coal plants. As we discussed in the past, we anticipate this asset will generate utility-like returns over its life. However, we expect the non-regulatory returns will be slightly lower in the near term and more robust towards the back end of the forecast.

We continue to progress -- we continue the progress on our PPA acquisition strategy, and we are working with stakeholders to improve the process to ensure better regulatory alignment. We do not expect to propose future asset acquisitions into the unregulated company.

Moving to Colorado. The commission held deliberations in our electric rate case in December and verbally approved an ROE of 9.3%, a current test year ended August 2019 and an equity ratio of 55.6%, along with other decisions. We view the support for strong capital structure and progress in improving the more current test year as positives, particularly for the credit support that they provide. But we're disappointed in a low ROE, which does not reflect our outstanding operational performance and leadership on the clean energy transition. We are waiting on a written commission order, which we need to calculate the final revenue impacts, however, we expect to seek reconsideration on certain issues. We expect new rates will be effective in February, 2020.

We also have electric rate cases in New Mexico and Texas. In New Mexico, we recently reached a constructive settlement that reflects a rate increase of approximately $31 million, an ROE of 9.45%, an equity ratio of 54.8% and an acceleration in depreciation in the top coal plant to reflect an early retirement. Hearings are scheduled in February with a commission decision to follow.

In Texas, we're seeking an increase of $136 million based on a historic test year, an equity ratio of 54.7% and an ROE of 10.35%. The request largely reflects investment for the Hale wind project as well as other capital to support strong regional growth. Intervener testimony will be filed in February, and as in the past, we'll work to see if we can reach a settlement with the various parties. We anticipate a commission decision in the second quarter of 2020.

We're planning to file several cases next year. In February, we will file a natural gas rate case in Colorado with new rates expected to be effective in November. We'll also consider filing a Colorado electric case in December. We intend to file a Minnesota electric case in November. And finally, we'll likely file rate cases in both Texas and New Mexico to recover the cost for the Sagamore wind project in the first quarter of 2021.

With a strong year behind us, we are reaffirming our 2020 earnings guidance range of $2.73 to $2.83 per share, which is consistent with the long-term EPS growth objective of 5% to 7%.

With that, I'll wrap up. In summary, 2019 was another great year for Xcel Energy. We delivered earnings within or above our guidance range for the 15th consecutive year. We increased our dividend for the 16th straight year. We issued $750 million of equity, representing the majority of our equity needs over the next 5 years. Our stock hit an all-time high in September and more recently, in January. We achieved a total shareholder return of just over 32%, eclipsing that TSR of the S&P 500 for yet another year. The Minnesota Commission approved our acquisition of the Longroad assets into rate base, and we put in service 3 wind projects, largely on time and under budget. We resolved multiple rate cases, and we continue to demonstrate leadership in environmental, social and governance arenas. We remain well positioned to deliver on our 2020 earnings guidance range and our long-term earnings and dividend growth objectives of 5% to 7%.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Greg Gordon of Evercore ISI.

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Gregory Harmon Gordon, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research [2]

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So it doesn't look like there were any real substantive changes to your medium- to long-term outlook from your last disclosures. Your CapEx budget is the same, but you did slightly tweak some of your guidance drivers for '20, including a modest reduction in the expected O&M growth. I guess I'm wondering, as you look in this year and then you look out over like a 5-year planning horizon -- you guys have done a great job, as you say it, bending the cost curve and controlling costs to reduce regulatory lag. And I'm just wondering -- in general, I wonder about the industry, but also specifically with regard to Xcel, how -- as you circle back around and look at your organization, how much leaner do you think you can get given improvements in technology and the cost of deploying renewables, et cetera?

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Robert C. Frenzel, Xcel Energy Inc. - Executive VP & CFO [3]

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Greg, it's Bob. That's a great question. As we give guidance, we do expect modest increases in O&M over the next year or 2 as we bring the wind onto the system, and we spend some money in very strategic areas like cyber and wildfire risk mitigations. Over the longer term, we expect to keep O&M flat, probably beyond the '21 period. And that includes substantial cost curve bending as we absorb increases in salaries and bargaining unit increases and increases from suppliers, looking for upticks in our contracts and things like that. So it's a continuous effort, but I think the guidance for us is flat in '22 and beyond to what is '21.

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Gregory Harmon Gordon, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research [4]

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Great. Second and last question. I think tomorrow we're expecting, unless things have changed, rate decisions in Texas for 2 of your competitors, CenterPoint and AEP. I know that you've got a pending case in that -- where a decision is not expected until later this year. There's been concern about regulatory risk, both lower equity ratios and lower ROEs in that state. CenterPoint looks like they're coming out a little bit better than where they otherwise would have landed, but it's still not a great outcome relative to industry average. How do you think you guys differentiate?

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [5]

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Well, Greg, it's Ben. I think, historically, there's been a lot of differences in the pure T&D utility with no customers in ERCOT, like CenterPoint, and a vertically integrated company, like SPS, outside of ERCOT. And you see that we've been in front of the regulator numerous times in the last 5 years and the equity ratios are what they are as well as the ROE. So I think the more relevant case that I look to as I think about how Texas might get resolved, it's actually the settlement we had in New Mexico. As you know, Greg, many of the same interveners in Mexico are going to be the same ones in Texas. So we'll obviously look at those cases, but we're cautiously optimistic that we'll have some opportunities to potentially settle the Texas case in the March time frame of this year.

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Operator [6]

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We'll take our next question from Insoo Kim, Goldman Sachs.

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Insoo Kim, Goldman Sachs Group Inc., Research Division - Equity Analyst [7]

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My first question is on the 2020 outlook for the -- weather-adjusted load growth. Thank you for the color that you gave on what impacted, especially on the electric side, the weather-adjusted load. As you look out towards this year and just having gone through just a month of this year, does that still give you confidence that you could achieve the 1% increase in load, including the leap year impact?

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Robert C. Frenzel, Xcel Energy Inc. - Executive VP & CFO [8]

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Yes. Insoo, it's Bob. Thanks for the question, and appreciate you on the call. I think our sales forecast is reasonably conservative. We did have some discrete declines in our large C&I customers in 2019 that we don't expect to continue in '20. And underlying those discrete items, we do have strong customer growth, which is slightly moderated by use per customer. But I think our forecast is as expected, and we don't expect to adjust that from guidance.

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Insoo Kim, Goldman Sachs Group Inc., Research Division - Equity Analyst [9]

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Got it. And my second question, in Minnesota, with the ongoing discussions on the Clean Energy First, potential legislation. How did the latest discussions fit in with your overall timing and shape of fleet transformation that you've laid out in the IRP? And do you see -- and if there are changes, do you see potential opportunities or challenges relative to the original plan?

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [10]

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Well, that's a really good question. I think Clean Energy First basically codifies what we're already planning to do. And so this would be the second time that it was -- where the state is looking to legislate that Clean Energy First legislation, and I think there will be some opportunities that come out of it. For us, it's important that we make sure we do this in the most efficient way possible. We recognize the very strong importance of our nuclear energy. And we recognize the fact that as we close and shut coal plants on a voluntary basis to achieve that 80% carbon reduction that our investors have some opportunities to be rewarded as well. So we'll see where it goes. We're going to move forward. We're filing our IRP plan and that's, as you know, that's -- so we've filed it, rather, and that will be discussed throughout the year. And it's -- and I think it's a pretty extraordinary plan, which has a lot of renewables, some gas, the continuation of our nuclear plants. So I think we're well positioned.

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Operator [11]

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We'll take our next question from Julien Dumoulin-Smith of Bank of America.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [12]

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So perhaps just to follow up a little bit on the tax extenders' bill and some of the developments on the PTC. I know you guys are always vocal about your opportunities on the wind side. Can you elaborate your latest thinking on repowering specifically given the extension? And I know it's a little early, but just altogether, how do you think about the repowering opportunity in the PPA buyout strategy at large given the extension?

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [13]

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Well, I think it's helpful, I mean that's the short answer. The 60% PTC extension allows you to lock in technology through 2024 with a 60% PTC. So I think that will potentially create some more opportunities, to your point, for repowering, Julien. We -- as you know, we don't have those opportunities embedded in our forecast, but we are certainly going to be looking for those opportunities.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [14]

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Got it. Excellent. And then as you think towards the rate case in Minnesota, do you want to give any kind of premise as to how you think about that, again, obviously, being pushed out? But any parameters you think about in setting expectations going forward in that case, specifically? I know you just alluded to some potentially on the last question here, but maybe you just -- to start to open up that conversation?

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [15]

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Well, I mean, we pushed it out a year, and I think the terms were constructive. We -- unless we can figure out a way to push it out another year, we'll file in November, with interim rates to go into effect in January of, I guess, that would be '21. So I don't really have much more details than that. We were pleased to work with the staff and stay out. I think that allows us to focus on the resource plan, and it's nice to be able to take a little burden off the staff too as they've got quite a workload. So could we stay out another year? Well, I don't know. But I guess, I can't add much more color than that, Julien. That's where we are.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [16]

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That is fair.

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Operator [17]

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We'll take our next question from Travis Miller of Morningstar.

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Travis Miller, Morningstar Inc., Research Division - Director of Utilities Research and Strategist [18]

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As you're looking in the industry, obviously, you're quite active, both solar and wind, say 2020 and 2021, as you're negotiating contracts, both regulated and possibly the PPAs outside of those. What are you seeing just in terms of cost comparisons? Where costs are going, both wind and solar, are they still going down? Are they changing terms? Just wondering if you could characterize what you're seeing going 2020 and 2021, in wind and solar.

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [19]

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Well, I think you're still seeing the technologies fall in price. The -- you think you then have to match that up with the -- where we are with PTCs and ITCs. But as we just talked about, that 60% extension, I think, is going to be helpful. Without that 60% PTC extension, Travis, I would have told you that perhaps we'll see some bump up in wind, and we still might. And which is why I'm really pleased we locked down the 100%. I think that's a no-regret strategy in every sense of the word. But I think the technology is still going to compete head on with fossil alternatives, even in a low natural gas environment.

Of course, the key that I think is important to that is that we will put more renewables on the big grid that we're all connected to than anybody else, but we're going to need more than just renewables and battery storage. Renewables will be our biggest source of energy by the mid-'20s. But as you see in our IRP in Minnesota, and we'll address this in Colorado next year, we're also going to need to back up that wind with natural gas. And then ultimately, we're going to need to start developing technologies, carbon-free dispatchable technologies that will allow us to achieve our goal of a 0% carbon system by 2050. So maybe that's a little bit long-winded, but I thought I'd throw that out there for you, Travis. That's the plan.

I will also add Travis, our industry is really, really stepping up to the challenge of carbon reduction. I mean we're proud to have been the first to establish the goal. But if you go down the line and add up what utilities are doing, it is really significant, and I'm quite proud of this industry.

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Robert C. Frenzel, Xcel Energy Inc. - Executive VP & CFO [20]

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Travis, it's Bob. I'll add real quick. Our year-over-year fuel cost decline was about $325 million. And while half of that was just lower commodity prices, natural gas and coal, the rest of that is our steel-for-fuel program coming home to roost to the benefit of our customers. And while we are investing steel into the ground and have capital cases for recovery, you're seeing the real benefit on the fuel line. And that does attribute -- that does accrete to the customers, and it provides some headroom in the bill for us for continued investments in the distribution and transmission grids, which we know we need.

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Travis Miller, Morningstar Inc., Research Division - Director of Utilities Research and Strategist [21]

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Okay, great. And then did I hear you correctly, you do not plan on any unregulated renewable energy acquisitions, but you would possibly keep doing the PPA-type acquisitions? I -- just to make sure there's not a change there from what you said.

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [22]

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So our goal is to look for PPA buyout opportunities or repowering opportunities with the benefits flowing to the customer. So that means putting them in regulated operations and into rate base. That's always been the plan. Of course, we offered that as well for a gas-fired plant in Mankato. And the commission decided the benefits, which were primarily back-end loaded, weren't sufficient enough to go forward. So we made the decision that we would -- the asset was important enough and we thought it valuable enough that we would hold it in our portfolio, but as a non-reg selling into the utility under a long-term power purchase agreement. But I -- Travis, I view that more as an anomaly than anything else. And I would challenge anybody to find a utility that is more focused and has more of their growth, 100% of their growth coming from regulated operations. There's nobody that's more pure-play and vertically integrated than Xcel Energy, and that's the way we mean to keep it.

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Operator [23]

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We'll take our next question from Ali Agha of SunTrust Robinson Humphrey.

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Ali Agha, SunTrust Robinson Humphrey, Inc., Research Division - MD [24]

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First question. In 2019, as you noted in the slides, at the OpCo level you earned a 9.06% ROE. Can you just remind us what earned ROE is embedded in your 2020 guidance, at the OpCo level?

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Robert C. Frenzel, Xcel Energy Inc. - Executive VP & CFO [25]

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Yes, Ali, it's Bob. Our weighted average regulated ROE is about 9.4% across all of our jurisdictions, and we still have approximately 50 basis points of leakage and lag in that. So high 8s is probably a good number right now.

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Ali Agha, SunTrust Robinson Humphrey, Inc., Research Division - MD [26]

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I see. So Bob, you'd expect a little bit of leakage or a reduction from what '19 ended up earning?

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Robert C. Frenzel, Xcel Energy Inc. - Executive VP & CFO [27]

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I do, mostly driven by a lower ROE in Colorado electric case. We're still working on trying to close that ROE gap, and we think we have some opportunity over the longer term to do that.

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [28]

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Ali, I think it's important to note, though, that we are -- I will tell you, we are disappointed in the ROE we received in Colorado. But as Bob mentioned, there were some positive things there, too. But as you -- as we're into the end of January, and we see the puts and takes that we've had so far, I would tell you that we are solidly positioned to be in the middle of our earnings guidance range.

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Ali Agha, SunTrust Robinson Humphrey, Inc., Research Division - MD [29]

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Okay. And secondly, I know your current '20 through '24 CapEx 5 year is roughly around $22 billion. And Ben, you alluded to looking at additional opportunities, whether it's renewables, et cetera, if they do arise. Just from a constrained perspective in terms of whether it's rate case, I mean, rate impact to customers or balance sheet, et cetera, how much can you stretch that $22 billion if there were opportunities? Or do you not see any constraints if the right opportunities are there?

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [30]

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Well, I don't -- if the right opportunities are there, there are no constraints. And we're focused on CapEx that helps reduce total bills for our customers. And where we can find those opportunities, if it's a PPA buyout, that's great; if it's trading O&M for capital, that's great; if it's more steel for fuel that saves customers money on their fuel bill, more than offsets the capital cost and the associated return, that's great. We're always going to be looking for that. And longer term, I think we're in the early days of beneficial electrification and saving customers' money on their total energy bill with EVs and other opportunities. So I'm excited about the capital opportunities we have to invest. And I think we've demonstrated we can grow our regulated rate base. Again, it's 100% of where we get our earnings from and keep our bills flat for our customers.

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Ali Agha, SunTrust Robinson Humphrey, Inc., Research Division - MD [31]

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Okay. And last question, again a quick reminder. When you look at this 5% to 7% growth rate target that you laid out, can you remind us -- as you stand here today and you look at the authorities and the CapEx, are you comfortable in the upper half of that range, the higher end of that range? Can you just remind us where you stand on looking at that growth rate from where we are today?

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [32]

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Yes, I think we're positioned to be on the upper part of the range. I mean I'd...

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Ali Agha, SunTrust Robinson Humphrey, Inc., Research Division - MD [33]

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Upper part.

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [34]

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Yes. Bob, I don't know if you have anything to add?

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Robert C. Frenzel, Xcel Energy Inc. - Executive VP & CFO [35]

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No, I agree with that.

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Ali Agha, SunTrust Robinson Humphrey, Inc., Research Division - MD [36]

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So higher end is the way we should think about it?

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [37]

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Yes.

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Operator [38]

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We'll take our next question from Sophie Karp of Keybanc.

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Sophie Ksenia Karp, KeyBanc Capital Markets Inc., Research Division - Director and Senior Analyst of Electric Utilities & Power [39]

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Most of the topics have been discussed, I guess, but I just wanted to...

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Paul Andrew Johnson, Xcel Energy Inc. - VP & IR [40]

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Sophie, there's a lot of background noise. We can hardly hear you.

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Sophie Ksenia Karp, KeyBanc Capital Markets Inc., Research Division - Director and Senior Analyst of Electric Utilities & Power [41]

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Can you hear me now?

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Paul Andrew Johnson, Xcel Energy Inc. - VP & IR [42]

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Much better.

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Sophie Ksenia Karp, KeyBanc Capital Markets Inc., Research Division - Director and Senior Analyst of Electric Utilities & Power [43]

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Sorry about that. So most of the topics have been discussed, but I just wanted to circle back quickly on Colorado. Could you discuss where, kind of, the regulatory environment in the state is going directionally? I guess, with the disappointing rate decision and the initiative of -- in Boulder, like, would it be fair to say, overall, it's getting more difficult maybe, or is it not a fair statement?

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [44]

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So I don't -- I wouldn't categorize it that way. Boulder has been -- we've been talking about Boulder for 10 years now and probably will be talking about it at least for another 5. And that's more centric, I think, to Boulder, and we continue to, I think, do quite well on a legal basis there with supportive commission decisions as well.

As far as the regulatory environment in Colorado, yes, I mentioned, Bob and I both did, we're disappointed in a 9.3% ROE. We think we're one of the best-performing utilities in the nation, and that ROE, quite frankly, doesn't reflect that. So likely look for reconsideration on that. But longer term, Sophie, I believe that what we're doing -- and what we're doing was codified in the law last legislative session, we're highly aligned with what our customers and our stakeholders want to see in Colorado. And when I think about how you achieve long-term success, that's exactly how you do it, align with stakeholders and then execute on a crisp basis. And that is what Xcel is doing, and I think that bodes well for future success.

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Operator [45]

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We'll take our next question from Andrew Levi of ExodusPoint.

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [46]

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Was going to ask you about the growth rate, but I guess that was...

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [47]

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How disappointing, Andy, it's not the dividend.

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [48]

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Ben, I just wanted to really to get your thoughts on -- obviously, you've mentioned ESG and how it's kind of taking up a big -- a big growing kind of the industry as far as how people are investing. But I guess another part that's been talked about relative to ESG is natural gas. And whether it's as an LDC, whether it's midstream, whether it's fracking, whether it's even using it in your power plant as the fuel. Ben, I just wanted to get your thoughts just on natural gas as a commodity and whether you think it's clean or dirty or -- and then in the context of ESG, if you kind of agree with some people's view that it's a dirty fuel?

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [49]

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Yes. Well, Andy, I think that is a very good question. It's a challenging question because we're going to need natural gas to achieve that 80% carbon reduction that I mentioned, and early action is pretty darn important in addressing the risk of climate change. So we're going to get pushed back on natural gas. But I think the key is to make sure that people understand, you shouldn't make perfection be the enemy of a great plan. And we're moving away from coal completely here in the Upper Midwest. That's the plan. We're going to need gas to back it up. We had a -- this time last year, we were on a polar vortex. Reliability is critical. So I think we've got a really pragmatic plan.

Our challenge as an industry, Andy, is going to be making sure that people see that 2050 is a long way away. We're going to need different types of innovation. We'll put as much renewables and battery storage on the grid. But experts tell us that the big grid that we're all connected to does get saturated, depending on where you are in the country, between 50% and 70%. That's amazing. That's the big grid. But that's where we're -- but after that, we're going to need things to back it up and ultimately, new technologies. So as part of the leadership of EEI, that's a message I want to get out there.

Now as far as the LDC goes and as far as using natural gas, I think our industry needs to be more demanding of upstream methane emissions. I think that's really important, and we can do something about that. We need to double down on energy efficiency on the gas side. And then ultimately, I think we need to look at potentially using renewable gas or hydrogen made out of carbon-free energy and other things and start blending that in the resource mix.

I will also tell you that here in the Upper Midwest, heat pumps and things like that are pretty tough to make work, at least with today's technology. So -- and we've got to keep customers warm. So it's a challenging issue. But I think with the right messaging and demonstrating we've got a great plan, I think we can persevere.

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Operator [50]

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We'll take our next question from Paul Patterson of Glenrock Associates.

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Paul Patterson, Glenrock Associates LLC - Analyst [51]

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Just really quickly on Ali Agha's questions, I just wanted to follow-up. Are you guys indicating that you -- in general -- just to make sure I understand it, that you don't expect any rate increases, when everything is factored into a fuel and everything else, with respect to your regulatory objectives or your CapEx objectives?

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [52]

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No, Paul. I hope I didn't give that impression. I mean our goal is to keep our total bills to customers at or below the CPI index. And if you look back on some of our -- and look in our investor deck, you can see that we've done that over the last 5 years. Now what -- the other -- you will see increases as well in the kWh rate but remember, that's only one component of a total bill. So we're really focused on keeping bills again, CPI or less, as we go through this time frame. And our analysis says we can with the right deployment of technology and supportive public policy. That's really important because you can also make it much more expensive than it needs to be. But -- and that's where we are.

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Paul Patterson, Glenrock Associates LLC - Analyst [53]

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Okay. And is there any thought about maybe going to sort of a PBR, sort of a CPI minus x or something like that, if that's sort of the objective maybe, and maybe not have all these sort of rate cases and rate proceedings?

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [54]

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You mean like change the regulatory compact for something around that?

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Paul Patterson, Glenrock Associates LLC - Analyst [55]

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It's not the regulatory compact so much as it's just the regulatory -- I mean you guys are going in all the time for rate increases or rate cases, if you follow me, and they're kind of -- you seem to know more about it than I do. They can be kind of tactical and what have you. In some places around -- in some jurisdictions internationally, you have something like a CPI minus x, where basically -- the sort of performance-based rate-making sort of thing, where your rates do -- where inflation is taken into account in terms of where your rates are set periodically. I don't know. I just was wondering if there's any thought about something like that or...

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [56]

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Well, I mean, we're always open to new ideas. But I think you have to be pretty cautious when you start addressing those sorts of things, Paul. And we do file a number of cases and -- that we spent a lot of time on calls like this, talking about it, but we've got a great track record of managing that. And we've got, I think, a very good track record of aligning with policymakers, which again on a long-term basis gets you where you need to be. So in my experience, some of those mechanisms aren't necessarily good for the companies that have them -- that have those in place. They can be, but they can also be harmful as well. So...

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Paul Patterson, Glenrock Associates LLC - Analyst [57]

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Sure. Sure. I was wondering if there's any thought about that. That's all. I don't -- I just -- just hearing it, I just thought I'd ask that. That's all. And then...

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [58]

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Performance-based rate-making is great, but sometimes it's not symmetrical, I guess. So that's -- so we're pretty pragmatic about that.

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Paul Patterson, Glenrock Associates LLC - Analyst [59]

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Absolutely. And then in terms of -- there's been some questions about, as you know, coal and coal dispatch and you guys made your filing in December in Minnesota. I'm just wondering if, going forward, you see additional activity in that, or anything that you guys are looking at in terms of coal plant retirement? Any sort of flexibility that might be worked into, in terms of potential additional savings that might be enhanced by -- I know you guys are looking at it all the time, but in terms of coal plant retirements or dispatch changes that might also drive savings for customers or for you, how should we think about that? I mean, is there anything -- any -- other than what you guys have been doing for some time now, is there any additional sort of things on the horizon?

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [60]

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Well, I mean, first of all, thank you for recognizing what we did with our coal plants up here. I think -- I mean, I think that working with the commission here, I thought that was a great example of partnership. And moving from must run to economic dispatch, I think that was a positive first step. The commission is very interested in -- in understanding how a pause in coal dispatch could work as we start to ready for the day when we don't have any coal in the Upper Midwest. So I think it's the Midwestern way to kind of be pragmatic about how we approach this going forward.

And to your point, Paul, I think there are opportunities across our system to look at how we dispatch our coal plants, particularly when you look at the variable cost of things like steel for fuel and renewable energy. So we are definitely looking at that down in the SPS region. We've got some water issues that we need to address, and that could be solved with some seasonal dispatch, so -- again, with economics in mind. So yes, just look for us to look for more opportunities like we're doing here in the Upper Midwest.

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Operator [61]

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We have no further questions in queue. I'll turn it back to Bob Frenzel for closing remarks.

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Robert C. Frenzel, Xcel Energy Inc. - Executive VP & CFO [62]

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Well, thanks, everyone, for participating in our call this morning. We look forward to seeing you out on the road this quarter. Please contact our Investor Relations team with any follow-up questions.

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Benjamin Gwynn Stonestreet Fowke, Xcel Energy Inc. - Chairman, President & CEO [63]

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Thank you.

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Operator [64]

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This concludes today's call. Thank you for your participation. You may now disconnect.