Good afternoon, and welcome to WEC Energy Group's Conference Call for First Quarter 2022 Results. This call is being recorded for rebroadcast and all participants are in a listen-only mode at this time.

Before the conference call begins, I remind you that all statements in the presentation, other than historical facts, are forward-looking statements that involve risks and uncertainties that are subject to change at any time. Such statements are based on management's expectations at the time they are made.

In addition to the assumptions and other factors referred to in connection with the statements, factors described in WEC Energy Group's latest Form 10-K and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated.

During the discussions, referenced earnings per share will be based on diluted earnings per share, unless otherwise noted. After the presentation, the conference will be open to analysts for questions and answers. In conjunction with this call, a package of detailed financial information is posted at wecenergygroup.com.

A replay will be available approximately two hours after the conclusion of this call. And now it's my pleasure to introduce Gale Klappa, Executive Chairman of WEC Energy Group..

From the home of the defending NBA champion, Milwaukee Bucks, good afternoon, everybody, and thank you for joining us today as we review our results for the first quarter of 2022. First, I'd like to introduce the members of our management team who are here with me today.

We have Scott Lauber, our President and Chief Executive; Xia Liu, our Chief Financial Officer; and Beth Straka, Senior Vice President, Corporate Communications and Investor Relations. Now as you saw from our news release this morning, we reported first quarter 2022 earnings of $1.79 a share.

Our results were largely driven by colder-than-normal weather, a strong economy and the performance of our Infrastructure segment. In light of this strong start to the year, we're raising our earnings guidance by $0.05 a share for 2022 to a range of $4.34 to $4.38 a share, with an expectation of reaching the top end of this new range.

This, of course, assumes normal weather for the remainder of 2022. Our balance sheet and cash flows remained strong. And as we discussed, this allows us to fund a highly executable capital plan without issuing equity. We're also making good headway on our $17.7 billion ESG progress plan, the largest five-year capital plan in the Company history.

The plan is focused on efficiency, sustainability and growth. Over the past few months, we've received regulatory approval for more than $1.1 billion of needed capital projects in Wisconsin. Scott will provide more detail in just a few minutes. And we're preparing the way for further progress ahead.

As you may have seen, our Wisconsin utilities filed rate reviews with the Public Service Commission for the two-year period in 2023 and 2024. We provided you with details in the earnings packet that we released this morning, and Scott will cover the highlights in just a moment.

But the request, ladies and gentlemen, is all about the investments we need to make to enhance reliability for customers and continue the largest clean energy transition in our history. I would add that even with this request, the typical electric bill for our residential customers will remain below the national average.

Switching gears now, many of you have asked about the solar panel investigation by the Department of Commerce. There clearly will be impacts across the industry.

And at our companies, we may see some price increases and potential delays, particularly on the solar and battery projects that are still going through the regulatory approval process in Wisconsin. But the important point is that we do not expect the review by the Department of Commerce to have any material impact on our five-year capital plan.

In summary, we're poised to continue our strong track record, delivering among the best risk-adjusted returns our industry has to offer. We expect our ESG progress plan to support average growth in our asset base of 7% a year driving earnings growth, dividend growth and dramatically improved environmental performance.

Across our generating fleet, we're targeting a 60% reduction in carbon emissions by the end of 2025 and an 80% reduction by the year of 2030, both from a 2005 baseline. By the end of 2030, we expect our use of coal for power generation will be immaterial, and we're aiming for a complete exit from coal by the end of year 2035.

Our capital investments fully support this transition. Of course, for the longer term, we remain focused on the goal of net-zero carbon emissions from power generation on 2050. We're also investing in our natural gas distribution business and developing sources of renewable natural gas.

Our plan is to achieve net-zero methane emissions by the end of 2030. With those goals in mind, we're working to help shape the future of clean energy. Hydrogen, for example, could be a key part of the solution in the decades ahead.

So earlier this year, as you recall, we announced one of the first hydrogen power pilot programs of its kind in the United States. We're joining with the Electric Power Research Institute to test hydrogen as a fuel source at one of our natural gas-powered units in the Upper Peninsula of Michigan.

Engineering specifications and testing protocols are now being developed, and we're on track for actual blending of hydrogen in the unit this fall. We look forward to sharing results across the industry. And now let's take a brief look at the regional economy.

The latest available data show Wisconsin's unemployment rate at 2.8%, of course, well below the national average. The state's economy recovered throughout 2021 with especially strong growth in the manufacturing sector, and we continue to see major investments from growing companies in our region.

For example, Amazon is expanding its presence in Southeastern Wisconsin with plans to lease a 1 million square foot building that is now under development. This expansion could add 400 new jobs to Amazon's workforce, a workforce that is already 3,000 strong in the region. Uline's workforce is also on the rise.

Uline, as you may know, is one of the nation's largest suppliers of packaging and shipping materials. 700 employees joined Uline's workforce in Wisconsin last year, and Uline expects to add 300 more jobs this year. So we remain optimistic about not only the strength but the trajectory of the regional economy.

And with that, I'll turn the call over to Scott for more information on our utility operations and our infrastructure segment as well. Scott, all yours..

Thank you, Gale. As Gale mentioned, across Wisconsin, we're making good progress on the transition of our generation fleet and our ESG progress plan. Work continues on our Badger Hollow II solar facility in the southwestern part of the state.

We have a plan for delivery and acceptance of the panels, and we expect clearance from customs in a reasonable time frame, so we still project Badger Hollow II to be in service in the first half of 2023. And recently, the Wisconsin Public Service Commission approved our purchase of 90% of the Paris Solar Battery Park.

It's the largest investment of its kind in Wisconsin history. Located South of Milwaukee, this facility will host 200 megawatts of solar generation and 110 megawatts of battery storage, providing our customers with sunshine after sunset.

Regarding the solar panels, we have a line of sight on production and delivery, and we still project commercial operation by mid-2023. The situation with battery production and delivery is more fluid, and we'll work through the details we'll provide you with more information about potential delays in the battery installation of the Paris facility.

And of course, we'll continue to examine our capacity situation in light of these developments. To put all this in perspective, it's worth noting that only 3% of our five-year capital plan is devoted to renewables and battery storage in 2023. Turning to other important projects.

The commission has approved our plans to build 128 megawatts of natural gas generation at our existing Weston power plant site in Northern Wisconsin. The new facility will use seven reciprocating internal combustion engines, or as we call them, price units. These dispatchable units will support the retirement of older, less efficient coal generation.

We expect this project to go into service in 2023. As Gale noted, WEC Infrastructure was a positive driver for the quarter with the addition of Jayhawk, which entered commercial operation in mid-December. Thunderhead will be the next wind farm to go into service, and we now expect that in the fall of this year.

As discussed before, we remain ahead of schedule in our five-year capital investment plan for our infrastructure business. Turning to gas distribution. Just last week, we signed another contract to use renewable natural gas, or RNG, from a local dairy farm. This new agreement brings us halfway to our net-zero methane goal for the end of 2030.

Now I'll touch on the rate filings Gale mentioned. On April 28, we filed a rate review with the Public Service Commission of Wisconsin. Our proposed plans would help us to continue to reduce emissions, strengthen key infrastructure and provide affordable power to customers.

I'll discuss the request to set rates for We Energies and Wisconsin Public Service. You can refer to Pages 14 and 15 of the earnings packet for more details. Under our plans for the two utilities, the typical electric bill for residential customers would increase approximately $5 to $6 a month in 2023 or roughly 5% to 6%.

Key drivers for our proposed increase include capital investments in renewables, battery storage, natural gas generation and LNG storage for our gas distribution system. Many of these projects have already been approved.

In addition, we are introducing grid hardening projects that are part of a 10-year plan to protect our system against severe weather, and the rate review includes other costs that have been authorized to recover in previous proceedings.

In summary, this represents only the second time in eight years we have asked for a base rate increase for We Energies. We expect final orders by the end of the year with new rates effective in January 2023. We have no other regulatory reviews pending across our companies. And with that, I'll turn it back to Gale..

Scott, thank you very much. As you may recall, our Board of Directors, at its January meeting raised our quarterly cash dividend by 7.4%. We believe this increase will rank in the top decile of our industry. We continue to target a payout ratio of 65% to 70% of earnings.

We're right in the middle of that range now, so I expect our dividend growth will continue to be in line with the growth in earnings per share. And today, we're reaffirming our projection of long-term earnings growth at 6% to 7% a year. Again, we do not see any need to issue new equity.

Next up, Xia will provide more details on our first quarter numbers and our second quarter guidance. Xia, all yours..

Thanks, Gale. Our 2022 first quarter earnings of $1.79 per share increased $0.18 per share compared to the first quarter of 2021. Our earnings package includes a comparison of first quarter results on Page 13. I'll walk through the significant drivers.

Starting with our utility operations, we grew our earnings by $0.15 compared to the first quarter of '21. First, rate base growth contributed $0.13 to earnings. As we continued to execute on our ESG progress plan, we grew our utility rate base by over 7% last year.

Next, colder winter weather conditions drove a $0.05 increase in earnings when compared to the first quarter of last year. Also, continued economic recovery added $0.01, reflecting stronger weather normalized sales during the quarter. Overall, we saw a continued economic rebound in the first quarter of 2022.

Weather normalized retail natural gas deliveries in Wisconsin, excluding gas used for power generation, were up 3.6% compared to the first quarter of '21. Residential natural gas sales were up 1.6% from the first quarter of '21, and commercial and industrial natural gas sales were up 6.8%.

Additionally, weather normalized retail deliveries of electricity, excluding the iron ore mine, were up 0.7% compared to the first quarter of '21. These positive drivers were partially offset by $0.04 of higher depreciation and amortization expense and a $0.01 increase each in day-to-day O&M and fuel.

Overall, we added $0.13 quarter-over-quarter from utility operations. Earnings at our Energy Infrastructure segment improved $0.06 in the first quarter of '22 compared to the first quarter of '21. Higher production tax credits, driven by strong wind production, added $0.03 in earnings.

We also recognized a $0.03 earnings contribution in Q1 this year from the final resolution of market settlements in the Southwest Power Pool that were related to Storm Arie. Finally, you'll see that earnings at our corporate and other segment decreased $0.01 when compared to the first quarter of '21.

Unfavorable rabbi trust performance resulted in a $0.02 earnings reduction. This was partially offset by a pickup of $0.01 from our investment in a clean energy fund. In summary, we improved on our first quarter of '21 performance by $0.18 per share.

Looking now at the cash flow statement on Page 6 of the earnings package, net cash provided by operating activities increased $682 million. Cash earnings and recovery of commodity costs contributed to this increase. Total capital expenditures and asset acquisitions were $384 million in the first quarter of '22, a $207 million decrease from 2021.

This was primarily driven by spending on Jayhawk wind farm. In closing, before I turn it back to Gale, I'd like to provide our guidance for the second quarter. For the quarter, we're expecting a range of $0.82 to $0.84 per share. This accounts for April weather and assumes normal weather for the rest of the quarter.

As a reminder, we earned $0.87 per share in the second quarter last year, which included an estimated $0.03 from favorable weather. And as Gale mentioned earlier, we're raising our 2022 earnings guidance to a range of $4.34 to $4.38 per share, with an expectation of reaching the top end of the new range. With that, I'll turn it back to Gale..

Xia, thank you. Overall, we're on track and focused on delivering value for our customers and our stockholders. Operator, we're now ready to open it up for the Q&A portion of the call..

Thank you. Now, we will take your questions. [Operator Instructions] Your first question comes from the line of Shar Pourreza with Guggenheim Partners..

Yes, congrats on the bucks, making it to around two of the playoffs..

Going to be tough series, but they sure showed up yesterday..

For sure. For sure. So Gale, just on the Wisconsin rate cases and specifically storm hardening, grid resiliency, how should we sort of think about maybe the timing and pace of the spending for the 800 miles of undergrounding planned over the next decade.

What's the sort of the cost per mile? And is 800 miles just a starting point for maybe an expanded program..

Yes. I think, Shar, the way -- the best way to look at it is what we have proposed in the rate review is really the start of about a 10-year program that we see ahead of us to maintain reliability and to really make sure that we continue to be one of the most reliable utilities in terms of outage history and restoration and country.

We've had a great track record, but we're seeing -- I mean last year, in particular, I mean, we saw some very serious storms, I don't think that's going to abate necessarily. We also have aging equipment. So, we have laid out and Scott can give you more detail, but we've laid out internally a 10-year program.

What you see in the rate case, Scott, is the start of that..

Correct, Gale. So yes, the start of it is starting in 2023, and it's about $700 million right now, but we'll continue to evaluate it like we do. We sold $700 million over that 10-year period, but it's more than just undergrounding.

It's adding the technology to the grid, more re-closures, more of that self-feeling technology, similar to the benefits we had in a couple of projects in Northern Wisconsin, where we saw a 97% improvement. So looking forward to this program, but it's about $700 million. But of course, as we get into it, we'll evaluate it more..

Okay.

And Scott, this is incremental to the plan? Or is this inclusive of the current plan?.

No, that has been factored in our 10-year plan, as we laid that out last year or at our five-year plan. But remember, that just get our runway -- a lot longer runway as we look through this because the majority of our system is getting to that 50, 60, 70 years old, and that was the time I think how you renew that system..

Shar, we've got some transformers as old as you are. So we really need to kind of replace them..

There are only 22-year-old transformers. That's pretty -- and then just, Gale, you've done -- you guys have done a great job kind of reducing O&M historically. I guess, now, I guess, how are you thinking about your current O&M target of flat to 1% reduction.

In light of some of the observable inflationary pressures we're seeing in the market to see if they're not transitory, and just remind us what level of O&M reductions for '23 and '24 are you assuming in the case you just filed in the cases?.

Well, we'll take the answer in two pieces, and I'll ask Xia to give you the '23 number for the rate review. But long story short, for 2022, our target was a zero to 1% reduction in day-to-day O&M. We still believe that's achievable, and that's what's in our plan.

And then when you look at the filing for the rate review, in light of inflation, in light of wage increases, et cetera, we have proposed in the rate review a modest increase in O&M for 2023.

Xia?.

Yes. So, if you compare to the last rate order in 2020, our rate filing for O&M is actually a net reduction of 2.6%. So compared to what the commission ordered us three years ago, we actually proposed a reduction. But if you compare it to actual 2021, it's a modest increase like Gail mentioned..

Okay. Got it. And then just real quick last from go, it sounds like thank you for addressing the supply chain constraints and circumvention issues, but I just want to bring this home.

Do you still feel comfortable with the 700 megawatts of solar in the current plan, which you haven't filed for approvals on yet? Or could we see some of that replaced with for instance, let's say, wind, Can you pivot if these tail risks aren't subsided?.

Yes, it's a great question, Shar. I think the short answer is yes. We're at a point where pivots are certainly still doable, and let me be clear about that. Scott covered with you the two projects that are really on the immediate horizon that have already received regulatory approval that are already in the earliest stages of construction.

And we either have a plan or a line of sight on those two projects related to the solar panel. So, we feel very good about that. When you think about the projects that are still going through the solar and battery projects that are still going through Wisconsin regulatory review, there, there may be price increases, there may be some delays.

But if you think about, as Scott said, if you think about our total five-year capital plan, less than 3% of that is in solar and batteries in 2023. And -- and we've got significant projects that are not solar-related like the very important capacity additions of the rice units in Northern Wisconsin.

And yes, we could still, if we needed to pivot to win. So, we feel very good about where we are even in light of the difficult situation posed by the Department of Commerce..

Congrats on the results. And hopefully, Beth continues to make a really speedy recovery..

Great. Thank you so much, Shar..

Your next question comes from Julien Dumoulin-Smith with Bank of America..

Hope you guys are all doing well and Beth, hope you're doing in particular, doing better here..

Very good. She is well at the moment..

So just coming back kind of filling out on what I heard you guys say a moment ago and then also in the remarks here, any net delays to your projects, forget '22, but really in that later period in '23 and '24? How does that impact the rate application that was filed right first off? And then secondly, it sounds as if the -- which there's anything shifts here, et cetera, you're committing to be largely intact in your numbers regardless.

But again, I just want to make sure I would like to close the gap on that last question..

Yes. Great clarify question, Julien. Yes, given everything we're seeing right now, the five-year capital plan, the ESG progress plan at $17.7 billion, we are -- we don't see anything that will derail that five-year capital plan.

Could something move between here or there, depending upon how long this Department of Commerce investigation goes, could we pivot to win, win instead of a particular solar installation in a given year? Yes, but we have a lot of flexibility.

Scott?.

No, absolutely. So we'll be looking at it and -- and as you recall, in Wisconsin, we have a two-year forward-looking test year. So that will give us an opportunity to look at 2024, any effects on the timing of the batteries and the cost of the solar as we look at putting that next part of the case together..

Absolutely, appreciate it. And then just if you can speak to this a little bit more, I mean, especially if you think about the solar net impact as well over time, like where you are within your CAGR.

But I think the bigger point I wanted to bring up here is what's driving the guidance raise already and pointing to the upper end already, right? I mean just to frame it here, it's not -- it doesn't seem as if your retail sales outlook at 0.5% year-over-year growth is particularly outsized.

Weather is obviously a tailwind, but O&M looks like a little bit of a drag ex the rabbi trust.

Like what's driving this pivot here, if you can speak to it? And also, where are you in this long-term EPS outlook, especially net of any in solar perspective here?.

All right, two points -- two pieces to the question. And the first is, essentially, the nickel raise is really the result of -- results outside of our utilities.

I mean if you think about the performance of the Infrastructure segment, if you think about the penny pickup from the technology fund that we've invested in, basically, you get to about $0.05.

So essentially, if you think about being on target with a strong start, but being on target for the remainder of the year for our utility earnings projections, and then you layer on what happened in the first quarter with our Infrastructure segment and with the pickup from the Energize Fund, I mean basically, there was no reason not to raise guidance by $0.05.

So that was the thinking essentially as we raise the range. And again, we expect to come in at the top end of that range. And then longer term, as I said in the prepared remarks, we still believe we're at 6% to 7% earnings per share growth for the longer term. And again, no need to issue equity..

Excellent. And it seems like, as you said, you took the words out of my mouth or the next clarification. The energy infrastructure is tracking well above expectations.

It was above expectations for 1Q and really the delta here for the balance of the year, which would be accruing that into the energy in front, not as if there's some further offset through the course of the year that would impact the infrastructure segment?.

You are correct..

Your next question comes from Michael Sullivan with Wolfe Research..

Yes, sorry to beat a dead horse here, but just sticking kind of with some of the solar questions to start off.

I guess first, can you just clarify when you say line of sight on production and delivery, does that mean you physically have the panels for your near-term projects? And then also if we could just get a little more color on what exactly is going on, on the battery side of things? I wasn't quite following what's causing the delays there..

Okay. Sure. We'll be happy to do that, and Scott can provide you with some detail as well. But let me just start out by saying this. We have, as Scott mentioned, a plan, the first project, which is the first project we mentioned, which is the very nearest term one, which is Badger Hollow II. We got a plan. We know where the solar panels are.

We are confident in the schedule. So, that's really pretty clear. On Paris, which really got approved just very recently, there, we have clear sight on our production schedule and a delivery schedule and a clear sense given precedent that there won't be a customs problem.

Scott, do you want to add on to that?.

No, that's exactly -- we've talked through this quite a bit, walking through the details on logistics. And looking at our time frame, the sites are getting ready right now. So, it's just a matter of delivery of the panels.

And like Gale said, we laid out the delivery and still feel comfortable with that beginning of the year, mid-year 2023 for the completion of those two sites on the solar aspect.

As we look into the batteries, the batteries across the country has just been a little more volatile on trying to get the delivery and production of those batteries delivered to a site. So, we're just very cautious retook through more of the details.

We first wanted to work through the solar aspects of it, and that will go after the batteries and lay out on schedule for those..

And Scott is right into all that in perspective, if you look at our five-year capital plan and the 2023 spending, so the 2023 spending on batteries that was in the five-year plan, the 2023 spending on batteries is like 1% of our $17.7 billion capital plan. So, it's not going to move the needle significantly one way or another.

Is that helpful, Michael?.

That is, if I could just follow on there.

In terms of the cost of things, I think you mentioned a little bit of fluidity there, too, but maybe if you can just level set on what you saw for some of your most recent solar projects and then where things are tracking at least as of right now on some of the nearer-term ones?.

Yes. For the future solar projects, Scott, it wouldn't surprise me to see a 30% to 40% increase compared to what we've been seeing in the past..

Correct. Correct. And remember, the first solar projects we put in were extremely at a low rate, the $1,300 a kilowatt. So, those first two projects we put in about $1,300 a kilowatt hour. The next ones are going up a little bit more probably in the shorter term, probably 20% to 30% and then Gale in the longer term, probably in 30% to 40%..

And battery pricing, as Scott said, has been a bit less predictable and kind of all over the place. So, we'll see how the battery situation shakes out. But I hope that gives you some sense of what we're seeing on the solar side..

Yes, super helpful.

If I could just squeeze one more in, shifting over to the rate case, is there precedent in Wisconsin for the limited rate reopener that you're asking for in 2024? Just trying to jog my memory a little bit there?.

Yes, there's certainly ample press for a limited reopener, absolutely..

Your next question comes from Durgesh Chopra with Evercore ISI..

Unfortunately, I'm going to ask you for your sort of thoughts and views as an industry leader on, how this investigation actually goes? I mean, what are you hearing and what do you think the Department of Commerce is headed here? Gale Klappa's views..

Oh, gosh. Well, that on a dime won't get you much at Starbucks, but I'll be happy to give you my opinion. I do think that there's going to be a significant amount of pressure on the Department of Commerce. You're seeing it already.

I think a letter went to the Department of Commerce either Friday or today signed by 26 senators, basically saying, Look, Department of Commerce, this is really messing up the industry in the U.S. So please get on with the investigation, try not to take nine months. My sense is that the Department of Commerce will be thorough.

It's their duty to be thorough, but my sense is, given the real need, I mean, 85% or more of solar panels, utility-scale solar panels that are produced are coming from outside the United States. So that just gives you a sense of the magnitude of the issue and the potential impact of the delay.

So my sense is the Department of Commerce will probably -- they have a duty to be thorough, but I'm guessing that they might speed up the review process to the extent they can, and we'll just have to see where they go. It could the industry stand more tariffs, nobody would like it, but potentially that might be the case.

I think it is really unpredictable as to where the DOC will eventually go. But this is a very important energy security issue for the United States. So my sense is there will be a balanced decision. And I think you could also see -- if worse comes to worst, you could also see some executive action out of the way house.

So too early to give you anything more definitive than that other than I think there will be a continued drumbeat to conclude one way or another, this investigation thoroughly, but as soon as possible. Durgesh, I hope that helps..

That helps tremendously, thanks Gale. And just one quick clarification, the 30% to 40% increase that you just mentioned, I think, in response to an earlier question, that is before any additional tariffs are put in place.

Am I correct about that? And would be what could be the implications of additional tariffs, if I can answer that question? Or maybe it's too early..

I think for the second part of the question, it's probably too early, Durgesh, But the short answer is yes. The 30% to 40% we were quoting is before any impact of the Department of Commerce investigation..

Your next question comes from Jeremy Tonet with JP Morgan..

Well wishes to Beth, and thank you for having me. Just want to start off, I guess, -- we've talked a lot about the potential solar delays here, as you noted. And maybe just wondering, if we could in a little bit more about reserve margins in your service territory and the outlook there. Had you noted demand continues to grow? There's coal retirements.

There could be delays with the star and batteries being delayed.

And just wondering, I guess, how you think about reserve and risk?.

Well, it's a great question, and you probably saw the information released by MISO just a few days ago about concern about this coming summer even in terms of potential capacity shortfalls, particularly if there's a warmer than normal summer.

And as Scott mentioned in his remarks, obviously, and we continually do this, but obviously, we have to relook at our capacity situation. We have retirements on tap in -- as part of this five-year plan. So nothing definitive yet, but we will certainly have to relook our capacity situation.

I think in Wisconsin, certainly for this summer, I think we're in reasonably good shape. But actually, Scott and Xia and I were talking about this earlier. The fact that MISO is signaling a potential concern, not only potential concern, but a real concern about reliability and potential outages in a hot summer in the Midwest.

It kind of doesn't surprise us because of what we've been seeing.

You may have heard me say over the last few years, a couple of years in particular, that even on temperature days in Wisconsin, we were being asked by MISO to run our units at full capacity for lengthy, lengthy periods of time to help keep energy in balance to meet demand in the MISO market.

So we kind of saw this potential shortfall coming, and we'll see how it goes. Again, I think for Wisconsin, we're in reasonably good shape. I'm guessing we'll be producing a lot of energy that will be fed into the grid to help keep things stable this summer, which is a good thing for us, obviously.

But in the longer term here, we have to see the length of the delays, any issues with battery production and delivery. And as Scott said, we will continually relook at our capacity situation. And I hope that helps, Jeremy..

Yes, that is helpful there. And then maybe just pivoting towards sales a little bit here.

As it relates to retail electric sales growth, could you provide more color, I guess, on the drivers between the delta with your initial expectations versus what was achieved in the quarter? And do you see retail growth projection higher at this point? Just wondering, if you could provide a bit more color there on how your outlook might have changed as it relates to those sales?.

Well, I think I'm going to let Scott and Xia give you some more detail. From my standpoint, the longer-term outlook is unchanged. I mean you really can't move your expectations based on one quarter, particularly a quarter where it was colder than normal. Weather normalization is an art, not a science.

So, we give our best estimate of what's weather normal and what's not. But I think, at least, Scott, from my opinion, the backdrop and strength of the manufacturing sectors in Wisconsin is a big driver for us..

No, you're exactly right. So two items, really, when I look at the data, you see that large manufacturing in the -- in our sector or in our company, we track about 17 sectors, a couple of them in the manufacturing. We're seeing that as being very positive.

In addition, this quarter, although it is just one quarter, that small commercial industrial was ahead of our forecast. So just business is getting back open, even opening more than we anticipated where the pandemic loss, et cetera. So, they've been growing pretty well here.

So really happy to see that small commercial going and the large industrial was positive, particularly in the manufacturing sector. So, overall, I'm very happy with where the sales are coming in..

And I'll add one anecdotal thing. We joke that our EV penetration doubled when Xia moved to become our CFO because she brought her Tesla with her. But I noticed yesterday, I thought this was amazing. And we have nothing in our forecast for any significant EV penetration in that five-year plan.

But in the large condo building where Judy and I live north of Downtown Milwaukee, they're basically 99 units, seven of those units now have EVs. That really surprised me. I just happened to pass through our underground garage yesterday, and there are seven Teslas with charging units in our own condo building.

So I think, if anything, we may be conservative about the EV penetration. And we're also getting a lot of interest in our EV pilot. So that really started beginning of this year that pilot went in place.

So, we're seeing a lot of good people -- a lot of good inquiries on commercial side, which I expect that, some nice load coming potentially here and then also on the residential side. So just early yet, but a good indication. The challenge is now that everyone's got to get the vehicle..

Your next question comes from Anthony Crowdell with Mizuho..

And good luck in Boston tomorrow night, I'm a Yankee fan. So any time a Boston team loses, I am so happy. Just maybe two quick questions. One of them, obviously, a lot of the call delays on the solar. You talked about rising cost on some renewable projects before any impact of Department of Commerce investigation.

I think the Company's plan over the years has been more of a diversified portfolio, and it's benefited a lot of the customers.

Do you see any change from the regulators on the headwinds that are going on right now with renewable to maybe change the strategy that's going forward and maybe keep going for this diversified generation portfolio?.

That's a great question. And I think actually, we have ongoing conversations, obviously, with policymakers particularly in Wisconsin. And I can tell you that there is -- there has been and continues to be both strong support for decarbonization.

And as you know, we have some of the most aggressive decarbonization goals in the industry, but also a strong, strong support for energy security. I mean we talk with the governor's office. We talk and we can with commissioners.

We talk with the state Department of Natural Resources, which is the state and to a person with all past gubernatorial administration since I've been here and with the current one, there is a strong support to do both. Yes, to carbonize, but do not take your eye off the ball. We have to have energy security.

That hasn't changed, and I don't think it's going to. I think in Wisconsin, we're pretty practical. And I believe that over time, we can do both. We can decarbonize the economy. We can still provide reliable power but we can also -- we also have to do that with a variety of energy sources.

And as you've heard me say, we look at everything through what I call the ARC, A-R-C, affordable, reliable, clean. It's got to be all three, but there is going to be a transition and natural gas is going to be a significant part of that transition in terms of power generation.

I mean, you just cannot keep a major economy alive in trucking without the range of options that we have in our portfolio today..

And last one, and I apologize if I had this wrong. And maybe it's all you guys being, I guess, too customer focused if there's such a thing, I believe you filed for the same ROE request in this rate filing as you currently have.

And as I've seen other utilities across the country, rate cases, maybe the last month, two months, given this inflationary environment, they've all had a significant step-up in what they're requesting for ROE. Just thoughts on the level of ROE that you guys have filed for..

We think that level of ROE is appropriate. It reflects our cost of capital. And basically, with our planning, at that level of ROE, again, with the opportunity to earn above the allowed ROE and the sharing mechanism that provides benefit to both customers and shareholders.

We just think it's an inappropriate approach at this point in time and would provide us the cash flows to maintain strong credit ratings. So when we look at our -- when we look at the overall situation, we think it's the right level for us..

Your next question comes from Michael Lapides with Goldman Sachs..

Obviously, you've got your bias at the box. I'm always going to lead with a go grid. A couple of questions for you, one on the rate proposal. If I read this right, the electric side has fuel costs embedded in it.

So the gas side, can you just remind me what's happening to the customer -- the total customer bill these days, not just the base rate component of the bill? But I'm just trying to think about what's going on in Wisconsin relative to some of the neighboring states to the total bill?.

Scott, Xia, you want to give that a shot?.

Yes. So, the numbers that we did provide on the call the $5 to $6 a month is the total bill. It'll still below the national average and right in line with our Midwest peers as it relates -- and this does include in fuel at the time when we put the case together.

But just like every year, we'll file for a fuel update and the commission has a process of updating the latest forecast on gas prices, et cetera, in the fall of each year. And that's an ongoing -- every year we go in for that. So -- but it's really -- right now, it's a very modest number at that $5 or $6.

That may change a little bit when you look at that final fuel that even makes the case even better for renewables as we put more renewables in and have that fuel-free resource there..

Xia, what would you like to add?.

No, I think that I think Scott really covered it. Overall, we look at our reach requests and compared to the peers in the Midwest and compared to the national average, we feel really good about the overall customer impact..

And as Scott said, the $5 to $6 a month for the typical residential customer at this stage of the game does include an estimate of fuel..

The other question I had is when you are entering the year, I know asked about electricity demand. And I know there's some -- Gale, you and I have talked about at length over the years.

But just curious, when you all entered the year, what was your guidance for weather normal gas demand growth? Because it seems that and one quarter doesn't make a long-term trend, but it seems that gas demand growth again is kind of surprising to the upside again?.

Yes. I think going in, Scott, was a 0.3%..

0.5%..

0.5%. And remember, and we all discussed this with the normalization in the first quarter when it's colder than normal is not the, the best indication. On the other hand, gas sales have been very strong.

I mean we see several customers still converting from oil -- fuel oil to natural gas and actually commercial and customers last year converted from coal to natural gas, getting cleaner and yet the usage is up.

I do think though as you get into the fall, gas usage as -- when you think about gas costs, what you're seeing in the paper every day, people may be putting in some more insulation and looking for conservation a little bit more this year.

So, we'll see, but we're -- we always want to be looking at that -- our gas growth in line with customer growth and surprise on the upside with usage..

Yes. Scott is making a great point, but I will say we continue to see -- as Scott said, we continue to see good customer growth on the gas distribution side of our business. And it really is a mixture of things. It's -- I mean, my gosh, some people have 40-year-old oil-burning furnaces. They're not putting oil burning furnaces in today.

They're converting to natural gas. And then as Scott said, we have customers, industrial customers that are actually getting cleaner by switching off of their own generation and moving on to our gas distribution network. So, we see both usage growth, but also strong customer growth.

In fact, in most months of last year, our gas customer growth exceeded our electric customer growth..

One last one.

Just curious, what I think the earnings growth kind of annualized multiyear is for ATC, meaning for the transmission business?.

And looking at that in the five-year plan, it's probably roughly 4% to 5% a year..

Yes, that's about right..

Okay.

So kind of in line with rate base growth?.

Yes, exactly. Except, we don't have anything in there for Tranche 1 of Future 1. And you know what I'm referring to, MISO is going through a long, long planning process, which they call Future One and Future One has three tranches. So there's Tranche 1, which is now kind of creeping toward resolution, if you will.

And I think MISO has said they would vote on the projects in Tranche 1 in late July, if I remember correctly. We don't really have anything in there in our five-year plan, Scott, for Tranche 1..

No, we don't have anything in our five-year plan. But when you think about it, those projects probably won't start hitting until the end of the decade. So, I mean, let's talk about the transmission, and we'll see more about it in July.

But once again, it probably won't hit this year's five-year plan, maybe the next -- but the last couple of years, from ATC, we've actually seen some growth just from the renewables that are happening in the system of Wisconsin here alone..

And from upgrading aging transmission lines. So just wanted to be clear, when we said 4% to 5% asset-based growth coming out of ATC, it doesn't assume anything about Future One..

And for the last question, we have Paul Patterson with Glenrock Associates..

Not wonderful an award-winning as usual, and you're having a bad day, Paul..

Not a particularly bad just an average day. No. It's what it is. Beggars can't be choosing, but....

I thought our call would brighten your day. I don't know, Paul..

Well, it is in its own way. So, it's always sunny in Wisconsin, I guess. So actually, my transition question was asked just now. But there is this proceeding is regarding the road map to zero investigation that's been looking at of all things PBR, performance-based regulation, and affordability and energy efficiency and stuff.

And I'm just wondering, since I've got you, any -- I mean, to me like they put out an order few weeks ago sort of saying that they're still sort of interested in it and they're exploring it.

But do you have any thoughts about where this might lead?.

I think there's a very, very deliberate process that has just begun at the Wisconsin Commission to investigate whether there are any other regulatory incentives or any other changes that could help to continue to incentivize the right kind of decarbonization, again, without compromising energy security.

So, we see this as a -- as always, with Wisconsin regulation, forward-looking far-side balanced and -- but I do think they're in the very earliest stages of considering any potential alternatives. So, I wouldn't see anything, for example, that would impact our current rate case..

Okay, fair enough. We'll see what happens. I really appreciate it. And thanks so much..

You welcome. Take care. All right. Well, folks, I think that concludes our conference call for today. Thanks so much for participating. If you have any other questions, feel free to contact Beth. She won't be on mute. (414) 221-4639. Thanks, everybody. Take care..

This concludes today's conference call. You may now disconnect..