威斯康辛能源 (WEC) 2019 Q2 法說會逐字稿

Good afternoon, and welcome to WEC Energy Group's conference call for second quarter 2019 results. This call is being recorded for rebroadcast. (Operator Instructions)

Before the conference call begins, I'll 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 2 hours after the conclusion of this call.

And now it is my pleasure to introduce Gale Klappa, Executive Chairman of WEC Energy Group.

Good afternoon, everyone. Thank you for joining us today as we review our second quarter 2019 results.

First, as always, I'd like to introduce the members of our management team who are here with me today. We have Kevin Fletcher, President and CEO; Scott Lauber, our Chief Financial Officer; Bill Guc, Controller; Peggy Kelsey, Executive Vice President and General Counsel; and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations.

Now before we dive into our quarter, I'd like to take just a moment to acknowledge the tremendous effort of our field personnel and support staff in the wake of the most severe storms to hit Central and Northern Wisconsin in at least 20 years. On July 19 and 20, 8 confirmed tornadoes wreaked havoc across the area and literally tore apart portions of our system. Both Kevin and I want to thank Governor Evers and his staff, the National Guard and the local emergency management teams for their outstanding support and cooperation. This was a textbook example of the public and private sectors pulling together for the common good.

And now onto the quarter. Bill Guc will discuss our financial results in detail in just a few minutes, but as you saw from our news release this morning, we reported second quarter 2019 earnings of $0.74 a share. During the quarter, we continue to see the benefit of operating efficiencies across our system, and the infrastructure investments we've made outside our traditional footprint also had a positive impact. These factors helped us to overcome an unusually cool start to summer in the Midwest.

Turning now to our power generation portfolio in Wisconsin. As we look ahead, we've identified the need for additional capacity at We Energies, capacity that can deliver carbon-free energy. But just last week, we filed with the Wisconsin Public Service Commission for approval to invest in the Badger Hollow II Solar park, which will be located in the Southwestern part of the state. As you may recall, we've already received approval for Wisconsin Public Service to invest in Badger Hollow I. We expect that this next phase of development at Badger Hollow to expand our solar capacity by approximately 100 megawatts. This investment will support our effort to reduce CO2 emissions and maintain reliable, affordable service for our customers.

In the meantime, we continue to see a very healthy economy here in Wisconsin. The unemployment rate for June came in at 2.9%. In fact, Wisconsin's unemployment rate has stood at 3% or lower since July of last year. This marks the longest period on record in the state with unemployment at or below 3%. And based on data just released literally last week, more people are working in the Milwaukee region than at any time in history.

Also we see continued momentum with a wide range of economic development projects. In May, for example, site and operational plans were approved for HARIBO's first North American plant. HARIBO is moving forward here in Wisconsin on what will be one of America's largest confectionery plants. Groundbreaking is scheduled for Phase 1 of construction by spring in 2020. At full build out, the HARIBO manufacturing campus can employ as many as 1,250 workers. So folks, the gummy bears are coming.

Last quarter, I also mentioned that international health care firm, Fresenius Kabi, announced plans for a production facility in the regions. Now Fresenius will be joined by another pharmaceutical company, Nexus Pharmaceuticals. A few weeks ago, Nexus unveiled plans to develop a therapeutic drug manufacturing facility in multiple phases over the next 10 years. Nexus expects to invest $250 million in the project. First phase of commercial production is slated to begin in 2022. The decision by Nexus to invest here highlights our ongoing success in attracting companies that require skilled knowledge and productive workers.

And I know all of you are interested in an update on Foxconn. In June, Foxconn began pouring the footings and the concrete foundations for its Gen 6 LCD fabrication plant. Initial production is expected to begin late next year.

Foxconn has also announced plans to diversify its Wisconsin output, potentially including servers, networking products and automotive controls, in addition to display panels for a range of industries. And a high-capacity data center is being designed to support Foxconn's research activities as its campus expands in Wisconsin.

This kind of growth in manufacturing in our region is spawning a very significant ripple effect. Nearly $1 billion of additional private investment has already been announced in the vicinity of the Foxconn campus.

Now I'll turn it over to Kevin for some key details on our operations and an update on our regulatory calendar. Kevin, all yours.

Thank you, Gale. I'd like to start by reviewing where we stand in Wisconsin. As Gale mentioned, on July 19, more than 290,000 customers in our Wisconsin service area were impacted as winds in excess of 80 miles per hour caused extensive damage to our network. Despite very difficult conditions, we were able to restore service to nearly all customers within a week. We also appreciate the patience and support of our customers in the wake of this historic weather event.

Now I'll fill in a few details on the solar investment Gale mentioned. Just last week, on August 1, We Energies partnered with Madison Gas and Electric in filing for approval to purchase an additional 150 megawatts of solar capacity at Badger Hollow. We Energies would own 100 megawatts of the solar park with an estimated investment of $130 million. Subject to approval by the Wisconsin Commission, we expect that the second phase of development at Badger Hollow to be completed by the end of 2021.

Now an update on the rate review process. You may recall, on March 28, we filed a proposal with the Public Service Commission of Wisconsin to set customer rates for our Wisconsin utilities. The request followed a 4-year freeze of base rates, a freeze that has resulted in lower customer bills while maintaining world-class reliability. After applying savings from tax reform, we had filed for an increase in the typical We Energies monthly electric bill of approximately 2.9% in 2020 and an additional 2.9% in 2021.

There are 3 primary cost drivers for our proposed We Energies electric increases. Number one, our transmission charges. Remember, the amounts collected in rates have been capped since 2010. Number two, revenue the Commission assumed We Energies would receive from the Midwest grid operator that was not received. And number three, increased cost associated with the agreement to purchase energy from the Point Beach Nuclear Plant. This agreement was approved by the Commission in 2007 when we sold Point Beach and credited customers a total of $670 million. Of course, there will also be discussion during the case about the recovery of the remaining investment balance at the Pleasant Prairie Power Plant, which we retired last year.

Moving to Wisconsin Public Service. Our rate proposal includes our investment in the Forward Wind Energy Center and the 2 Wisconsin solar facilities. It also includes the ongoing modernization of our electric system to improve reliability in Northeastern Wisconsin. With the tax savings and other credits applied, the typical Wisconsin Public Service electric bill would increase by approximately 4.9% in 2020 and an additional 4.9% in 2021. Even with these increases, typical bills for Wisconsin Public Service customers would remain well below the current state and national averages. To support our strong balance sheet, we are sticking a slightly higher equity component in these rate reviews, consistent with recent decisions made by Wisconsin Commission.

We received a procedural schedule from the Commission on June 10. The first key date in the process is August 23, when Commission staff and interveners will file their direct testimony. We expect a Commission decision in the fourth quarter for new rates effective January 1, 2020.

Turning now to Illinois. The Peoples Gas System Modernization Program is progressing well. We just retired Chicago's oldest natural gas main, a cast-iron pipe that was placed into service in 1859 before the Civil War. This long-term effort to provide Chicago with a safe, modern, natural gas delivery network is approximately 26% complete.

On a final note, others are recognizing our focus on safety and reliability at Peoples Gas. Escalent, an analytics firm, recently surveyed more than 50,000 residential customers across the country about their energy companies. During this survey, Peoples Gas was ranked among the top 10 most trusted natural gas utility brands in the nation and #1 in the Midwest.

With that, I'll turn it back to Gale.

Thank you very much, Kevin. With our strong performance through the first half of this year, we're raising our 2019 full year guidance to a range of $3.50 a share to $3.53 a share, with the expectation of reaching the top end of the range. This translates, folks, into a growth rate between 6.7% and 7.6% off the midpoint of our original 2018 guidance.

For the longer-term, we continue to project that our earnings per share will grow at a rate of 5% to 7% a year.

And finally, a reminder about our dividend. At our January meeting, our Board of Directors raised the quarterly cash dividend to $0.59 a share, an increase of 6.8% over the previous rate. We continue to target a payout ratio of 65% to 70% of earnings. We're right in the middle of that range now, so expect our dividend growth will continue to be in line with the growth in our earnings per share.

Now with details on our second quarter results and our outlook for the remainder of the year, here's our CFO, Scott Lauber. Scott?

Thank you, Gale. Our 2019 second quarter earnings grew to $0.74 per share compared to $0.73 per share in the second quarter of 2018. Our favorable results were largely driven by additional capital investment and our continued emphasis on cost control. Weather accounted for a $0.07 decrease in the quarter compared to last year. Compared to normal, weather was a $0.03 drag on the quarter. In fact, June was the 10th coolest in the past 70 years.

The good news is the weather headwind was slowly offset by fuel recovery, which was positive by approximately $0.02 a share and by additional O&M savings. The earnings packet placed on our website this morning includes a comparison of second quarter and year-to-date results. My main focus will be on the quarter, beginning with operating income by segment, and then other income, interest expense and income taxes.

Referring to Page 9 of the earnings packet, our consolidated operating income for the second quarter of 2019 is $314.6 million compared to operating income of $330.8 million in the second quarter of 2018, a decrease of $16.2 million. Adjusting for the impact of tax repairs and our adoption of the new lease accounting rules, operating income decreased by $6 million. Remember that in January, we adopted the new lease accounting standard, which had no impact on our net income, but does affect our segment reporting. For your reference, we have a breakout of these items for both the second and the first 6 months of 2019 on Page 9 and 10 of the earnings packet. Neither of these items impacted our net income.

Recall that as part of our previous rate settlement in Wisconsin, we agreed to apply the benefits of tax repairs to offset the growth of certain regulatory asset balances. The plan continues, and our expectation remains that the transmission escrow balance at We Energies will be reduced to 0 by the end of this year.

My segment update will focus on the remaining $6 million decrease in operating income, which excludes the impact of tax repairs and the new lease accounting rules.

Starting with the Wisconsin segment. The decrease in operating income, net of these adjustments, was $1.7 million. Lower sales volume primarily related to weather drove a $34.8 million decrease in operating income. Depreciation expense also increased by $8.4 million. This was substantially offset by a $38.1 million reduction in operating and maintenance expense, largely driven by our plant retirements. Additionally, we saw a positive impact from fuel.

In Illinois, operating income increased by $900,000. Margins rose as a result of our continued investments. Partially offsetting this increase was higher depreciation and operating and maintenance expense. The higher expense was due to repair work related to a much colder-than-normal first quarter and higher benefit costs.

Operating income in our Other States segment decreased $3.5 million. We saw a $2.5 million decrease in margin related to the timing of interim rates in our Minnesota utility in 2018.

Turning now to our energy infrastructure segment. Operating income at this segment was down $1.1 million. As expected, Bishop Hill and Upstream Wind investments did not have a material impact on operating income. However, a significant portion of earnings from these facilities came -- come in the form of production tax credits and are recognized as an offset to income tax expense. These production tax credits added approximately $0.02 per share to our earnings for the quarter.

The operating loss at our Corporate and Other segment increased by $600,000. Combining these changes, and excluding the impact of tax repairs and the new lease rules, operating income decreased $6 million.

Earnings from our investment in American Transmission Company totaled $36.9 million, an increase of $8.2 million as compared to the second quarter of 2018. Approximately $5.2 million of the increase was driven by continued capital investment. The remainder was driven by 2018 charge related to the final resolution of a FERC audit.

Other income net decreased by $7.8 million largely related to a prior year item, which was fully offset in operation and maintenance expense. There is no impact to quarterly net income. Additionally, a portion of the decrease was driven by lower investment gains associated with our benefit plans. Note that these investment gains partially offset the benefit expense including in our operating segments.

Excluding the impact of the new lease guidance, our net interest expense increased by $14.7 million primarily driven by our continued capital investment and slightly higher interest costs.

Our consolidated income tax expense, net of tax repairs, decreased by $24.8 million. The major factors were lower income before income taxes, production tax credits related to our infrastructure investments and a 2018 tax reform item. We expect our effective income tax rate to be between 10.5% and 11.5% this year. Excluding the benefits of tax repairs, we expect our 2019 effective tax rate to be between 20% and 21%. At this time, we expect to be a partial taxpayer in 2020.

Looking now at the cash flow statement on Page 6 of the earnings packet. Net cash provided by operating activities decreased $222 million. The decrease was driven by tax reform refunds to customers and a higher working capital.

Total capital expenditures and asset acquisitions were $1.1 billion for the first half of 2019, a $130.8 million increase from the same period in 2018. This reflects our investment focus in our regulated utility and energy infrastructure business.

Our adjusted debt to capital ratio was 53.2% at the end of the second quarter, a decrease from the 53.4% at the end of 2018.

Our calculation continues to treat half of the WEC Energy Group 2007 subordinated notes as common equity. We are using cash to satisfy any shares required for our 401(k) plans, options and other programs. Going forward, we do not expect to issue any additional shares. We paid $372.3 million in common dividends during the first 6 months of 2019, an increase of $23.6 million over the same period in 2018, which reflects the increase in the dividend level that was effective in the first quarter of this year.

Turning now to sales. We continue to see customer growth across our system. At the end of the second quarter of 2019, our utilities were serving approximately 11,000 more electric and 23,000 more natural gas customers compared to a year ago. Retail electric and natural gas sales volume are shown on Page 13 and 14 of the earnings packet.

Overall, retail deliveries of electricity, excluding the iron ore mine, were down 2.7% compared to the first half of 2018. And on a weather-normal basis, deliveries were down 1%.

Excluding gas used for power generation, natural gas deliveries in Wisconsin increased 3.8% versus the first half of 2018. Natural gas deliveries in Wisconsin grew by 2% on a weather-normal basis. Again, this excludes gas used for power generation.

Keep in mind that the weather in the second quarter of 2019 was dramatically different than the second quarter 2018. As a result, We Energies experienced a 65% decrease in cooling and heating days. I think it's important to point out that the dramatic swing really limits our effectiveness of our normalization calculations.

Finally, a quick reminder on earnings guidance. Asked Gale mentioned, we are raising our full year earnings guidance range to $3.50 to $3.53 with an expectation of reaching the top end of the range. This assumes normal weather for the remainder of the year.

Now looking at the guidance for the third quarter. In the third quarter last year, we earned $0.74 per share, which included a $0.05 pickup from warmer-than-normal weather. We expect our third quarter 2019 earnings to be in the range of $0.69 to $0.71 per share. This takes into the account the July weather and the expense from the recent storms. As usual, we're assuming normal weather for the remainder of the quarter.

With that, I'll turn things back to Gale.

Scott, thank you very much. Overall, we're on track and focused on delivering value for our customers and our stockholders. And for those of you who would like to learn more about our environmental and social performance, I would direct you to our latest corporate responsibility report available on our website, which we published just last month.

Operator, we're ready now to open it up for the question-and-answer session of the call.

(Operator Instructions) Your first question comes from Greg Gordon with Evercore ISI.

So Gale, great quarter considering the uncontrollable things that you had to manage, namely the huge swing in the weather. And I think I understand exactly where the opposites were, but it's not 100% clear because of the -- all the flow-through impacts of the change in accounting for tax repairs. What were the 2 or 3 key items in the quarter that allowed you to effectively offset the headwind from weather this year and put you in position to raise the guidance range? And if you could just simplify for us.

Sure. I'll be happy to take a shot at it. We'll let Scott or Kevin to add their view as well. To me, there were 2 big factors. I mean there are many small factors, but 2 big ones. One, I mentioned continuing operating efficiency across our system. This was the second quarter of this year, was really the first quarter where we're seeing the full benefit of the retirement of our older, less efficient coal-fired power plants. Remember, over the course of the last year or so, we retired 3 older coal-fired power plants: our Pleasant Prairie Plant near the state line of -- near Illinois; our Pulliam plant near Green Bay; and the Presque Isle Power Plant in the Upper Peninsula of Michigan. The closure of those 3 plants is delivering, as we expected, significant O&M cost reductions. So I think that was the big factor. The second is, again, we expected it, but we're seeing the benefit of our infrastructure investments that we've made, and that was a $0.02 a share pickup compared to last year as we roll in more of these infrastructure investments. So those, I think, were 2 very big factors. Scott?

And then I think the third item, as sales were down a little bit, we saw the benefit in fuel by a couple of cents that came in a little bit better than offset. Remember, the quarter was about $0.03 down compared to normal between the fuel and the O&M and infrastructure. That all contributed to us getting above our original guidance.

Greg, does that help?

Yes. Yes, it does. My second question is just you guys are really good in putting out your monthly slide deck updates on where the business stands. You don't do them specifically for the earnings calls. But I'm looking at Slide 10 of the July Investor presentation where you talked about the Badger Hollow Solar Farm and the Two Creeks Solar Project. So specifically what on the margin has improved there in terms of visibility on megawatts and dollars? And is that all accretive to the overall CapEx plan that you lay out in the presentation?

Well, Greg, first of all, I should point out, those are regulated investments. So, that's different from the infrastructure segment that we talked about. So these basically, the Badger Hollow investments, the Badger Hollow I, just in the quarter, we got approval from the Wisconsin Public Service Commission to proceed with Badger Hollow I. That is capacity for Wisconsin Public Service in the Northern part of the state.

And as I mentioned on the call, we just filed a week ago for approval to invest in Badger Hollow II, which would be capacity for We Energies. In essence, the WPS, Wisconsin Public Service investment, would be about $260 million because that also includes the Two Creek Solar farm in the Northeastern part of the state. So about $260 million of solar investment for Wisconsin Public Service and about $130 million of investment for We Energies.

That's correct, Gale, that you said the Badger Hollow and the Two Creeks are both for Wisconsin Public Service.

Right. Yes. And Greg, all of that was in our 5-year plan.

Your next question comes from Shar Pourreza with Guggenheim Partners.

Let me just -- Gale, let me just touch a little bit on sort of the energy infrastructure segment. I know -- can you comment on whether you're still seeing sort of robust interest around the wind investments? I know the last time, you and I spoke, you were evaluating maybe 1 dozen-or so sites. Maybe just a quick status there. And then, Scott, with your cash tax status that you kind of highlighted around 2020, how does sort of some of these incremental investments around the infrastructure segment could you see pushing off to those cash taxes?

Okay. I'll try for the first half and let Scott tackle the second half. First of all, yes, we continue to look at a range of projects for the infrastructure segment. We're in heavy due diligence right now on a couple of projects, so we'll see where that turns. But again, we're heavy due diligence, kind of final stages of due diligence on a couple of projects right now. We do see continued opportunity there, and we're being incredibly selective because we can be. I mean we're only going to pick what we think are the absolute cream of the crop. Right now, without any additional infrastructure investments, I expect some more to come. But without any, Scott, will we be a partial taxpayer next year, in 2020, Scott?

Yes. So in 2020 and then any additional would help us continue to take advantage of our tax position in the end of '20 and '21.

Got it. And it seems like you guys are filling up this bucket, the $1.1 billion that's in your sort of your plan somewhat ahead of schedule. Is that something you'll look to update at EEI?

Well, we always update at EEI. We will have a whole refresh of our 5-year capital plan, spinning out another year. We'll probably introduce that on our earnings call next time and then go into great detail with you and everyone else interested at the EEI session.

Got it. I mean, Gale, just I know -- I probably ask you this on a weekly basis, but is there a point in time with the Foxconn project that you could sort of give an assessment on sort of the rooftop solar opportunities? And just remind us if you do announce a rooftop solar project on Foxconn, is that incremental to sort of your plan?

Well, to answer the first part of your question, obviously, in the first quarter, Foxconn substantially reworked their Phase 1 development based on -- and they're going full aboard now on Phase 1 construction. Kevin was telling me he drove by there yesterday and, I mean, it's -- the construction is rocking on the Foxconn campus right now. So even though they've redone Phase 1 with the addition of a data center, which was not in their original Phase 1 plan, we don't see, at the moment, a lot of change in demand from Foxconn for Phase 1. So now that they are putting all the final designs in place for Phase 1, letting construction projects and letting construction contracts, we'll have -- we'll be in a lot better position to talk with them about how we're going to meet their energy need. I think solar is still a possibility, and we'll see where we go. But they really have not been in a position, as they've redesigned Phase 1, to really talk about that kind of detail at this stage of the game. So our plan really didn't really identify specific solar project for Foxconn, so we'll just see how that shakes out. But I would expect by the end of this year, we'll have a much better feel for exactly how we're going to serve their need. And I expect the Phase 1 need still to be very significant. My guess is at this point is that Phase 1 would still make Foxconn our single largest Wisconsin customer in terms of demand.

Kevin, anything you want to add?

Well, I'll just add, as you just mentioned, Gale, there is a lot of dirt being turned at the Foxconn facility, and it seems like on a regular basis, we're seeing more contractor being let for their infrastructure they're building, but also on their own infrastructure from electric side. There are substations, they just released the construction bids for the building of that this past week.

Congrats on the quarter. Congrats, again, guys.

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

Well, I'm just going to pick it up where Shar left it off a little bit. But on the infrastructure side of the equation and, admittedly, this is little bit of a blend, can you talk about the gas storage opportunity? I believe the first go around Bluewater was about 1/3 of your overall needs. How do you think about owning relative to just procuring relative to your total needs on storage? What are the frameworks, the metrics that you might think about in that debate, if you will? And then I've got a follow-up.

Okay. Sure. Well, first of all, we would very much like, from a strategy standpoint, to own more storage, again, to take volatility out for our retail customers. This would strictly be storage for our retail gas customers, and Bluewater is a great example. Bluewater is actually delivering better customer savings than we even thought it would. So certainly, we would be interested in procuring more gas storage, but it has to be gas storage that fits our needs and has to be gas storage that -- on which we can earn our -- a predictable, reasonable rate of return. But again, overall, we would like to own more gas storage. We'd love to get up to 65% or 75% of our expected retail customer peak demand to be able to supplied out of storage. But slow as she goes, and we continue to look at various opportunities. But right now, the nearest-term opportunities for us in that infrastructure segment have really been in wind.

Absolutely understood. And then, perhaps related, if you can, I suppose there was a lot of conversation about the impact of last winter's extreme weather and low cold conditions. We saw recently out of Michigan some draft commentary. As a follow-up to last winter, and certainly related to the gas storage conversation, what's the debate and conversation in Wisconsin, both within your company and at the PFC?

Well, a couple of things. First of all, I would say no debate at the PFC, and there's a reason for that. We came through the polar vortex event at the end of January. I mean it was tight, but we came through that event with incredible reliability for our customers. And I know Kevin and I are both very proud of that. That didn't happen in every Midwestern state.

So at the Commission, the Commission asked for a report from every utility in Wisconsin on their performance during the polar vortex, and we got nothing but praise, as I think we should have, for the reliability that we delivered. However, whenever you have an event like that, that stresses your system to the max, it shows you where your weak points are and where you need additional capacity. One of the things I think Kevin will see as we update our 5-year plan is the network, particularly our gas distribution network, particularly in the Southeastern part of -- between Milwaukee and the state line need some reinforcement.

You said it exactly correct, Gale. If you look at Foxconn, one of the developments that we talked about from an economic development perspective, and that's part of the state we already identified the need for additional gas capacity there. But with the polar vortex, it showed us that, indeed, we had identified, certainly, the one that's something we need to address very quickly. And we do have proposals before the Commission now for us to strengthen that particular gas infrastructure.

And that's really important. I mean you think about -- if you think about, Julien, the life and death situation of a day where it's minus 26 Fahrenheit with a minus 50 wind chill, this isn't something you fool around with. And I think one of the things I'm very pleased about is our Wisconsin Commission has always understood the need for reliability. And they've always been very supportive of the kind of extensions and expansions that we surely really needed.

To clarify that. It's just an acceleration of just the capital budget and timing of getting the thing.

We have identified a potential need 5, 6, 7, 8 years down the road to get there.

Your next question comes from Michael Weinstein with Crédit Suisse.

Kevin, I'm just curious. When you guys -- when you were taking a look at Foxconn, are they still planning a glass facility with Corning that will draw significant gas demand? Is that still part of the plan there?

That is not a part of their revised plan, to my knowledge.

I think Kevin is correct. That is not -- a part of that is -- part of the reason for that is their original plan had the Gen 10-6 LDC fabrication plant, which produces very large-sized panels -- glass panels. And that requires -- that would require an organization like Corning to be on site. The Gen 6 plant, the one that they're now building and construction is underway, as we mentioned, produces much smaller panels for a range of industries, but much smaller in size and doesn't require an on-site plant, like Corning, would deliver.

Got you. And separately, Scott, in terms of infrastructure investments, are you planning at some point to get into more -- some solar investments on that side of it? I mean, especially with the safe harbor window that will close at the end of the year, you might have to get some inventory in place at this point.

Yes. When we look at the infrastructure investments, right now, the ones that are readily available that we are looking at is in the wind side of the business. That looked like it's solar, but the opportunities we're seeing is more on the wind. And the solar that we talked about on the call, that's all in the utility, and we are working to get all the tax benefits there.

Mike, if I can -- I'm sorry, just to echo Scott's point, right now, the economic -- I mean we've looked at solar. In fact, we looked at a big solar opportunity 6 months ago, or something like that, for the infrastructure bucket. But when we compared the economics when that project would have been available to us, when we look at the economics, the wind projects that we're looking at from the infrastructure segment actually had more enhanced returns.

Yes, Even with the safe harbor tax credit, I mean...

Even with the safe harbor tax credit.

Okay. Got you. And one last question. Are you -- I guess, in terms of being on track for carbon reduction and decarbonization over the long haul, just to confirm that the PTC, the Power the Future plants, will -- they could continue to operate over a long period of time without -- and you can still achieve your goals. I just want to make sure that, that's true.

Yes. In fact, just to put some numbers around it. Our original goal was a 40% reduction in CO2 by 2030. We've made tremendous progress. And internally, Kevin and I think we're going to hit that goal by maybe 2023.

That's correct.

So we're ahead of target on the initial goal. And then the longer-term goal is an 80% reduction by 2050. And we have a roadmap that's going to require some technology improvement to get to 80% by 2050, but we think we know how to do that. And it would remain -- and the Power the Future plants would remain operational.

Your next question comes from Michael Lapides with Goldman Sachs.

And congrats on a great quarter and start to the year -- or first half of the year.

Thank you, sir.

I have 2 questions for you, guys. One, the cost savings that have been a big driver so far of year-to-date performance, how should we think about the readthrough that has for 2020 and beyond, I mean -- and especially since a lot of that is for the coal plant retirements? That's my first question. My second one is an easy one. If I look at your CapEx plan in the July slide deck, and I thought it was, like, Page 31 or 32, it showed that by function and by geography, it only tends to show a roll down starting in '21 in the Wisconsin and Illinois distribution CapEx. And just curious, do you really see CapEx starting to come down that dramatically in kind of 2021, '22 and '23? Or is it simply because you just don't have line of sight of what the specific projects might be this far out to be able to kind of forecast out that far?

I'll answer, If you don't mind, your second question first, and that's the traditional roll down that we see in years 4 and 5 -- or 3.5 in our 5-year capital plan. And really, I mean, the easiest, most honest answer to that is we don't believe in giving you a 5-year plan with a lot of white space in it. And clearly, our plans can change. Demand can change. Lots of stuff can change 3, 4 and 5 years out. So we tend to show you on our 5-year plan only what we really, really have nailed in terms of what we think is going to have to happen, particularly in the regulated side of the business over that 5-year period. So I wouldn't put too much stock into the roll down. If you look back over the last -- I guess, I've been around here about 16 years, Scott's been here longer, if you look back at our 5-year plans for overall those years, you'll probably see very much the same cadence, so I wouldn't put too much stock in that. Let me tell you this. We continue to project 5% to 7% earnings per share growth for the longer term. And we believe we have a long runway of capital projects that will support that earnings growth.

Got it. And that first question about the O&M benefits due to the coal plant retirements, how much? I guess, I'm going to break this into 2 questions. How much of the O&M savings have the coal plant retirements been for this year? And how should we think about the -- whether that impacts 2020 and beyond in terms of the earnings power?

All right. Let me give you 2 specific responses to that. First of all, our estimate of annual cost savings associated with the retirement of those 3 plants is approximately $100 million on an annual basis. I don't think we have in the room here of a specific number for the savings for Q2, but we are on target to achieve, on an annual basis, $100 million worth of savings.

And then secondly, think about it this way. Our operational day-to-day O&M starting this year, systemwide, is about $1.234 billion, and I thank Scott for giving me 1, 2, 3, 4. We said at the beginning of the year that we thought our O&M could come in 3% to 4%. That was our goal, 3% to 4% below that $1.234 billion for 2019. And Scott, how are we doing?

Yes. We are right on target with that. So we are -- through the second quarter -- I mean, the first quarter is a little bit higher O&M. The second quarter is a little lower, but we are right on pace to get that 3% to 4% out. And all these plants folded are factored into our Wisconsin rate filings, which is part of the reason we were able to stay on for so many years.

Got it. And then when you guys think about 2020 and beyond, how should we -- like, will you give guidance based off of the original 2019 midpoint? Will you give guidance based off of whatever the higher 2019 guidance level you just provided on today's call? I'm just trying to think about what the baseline is going to be.

For earnings growth projection, Michael?

Yes. And I'm just think about the starting point, not necessarily the range or the ending point.

Well, our historical approach has been to give you a new earnings per share range. So say in the beginning of 2020, we'll tell you what we think our earnings guidance is going to be in a pretty tight range for 2020. And then we'll let you -- we'll show you what that is off 2019 earnings, but also we'll show you a growth rate off the midpoint of our original 2019 guidance.

Your next question comes from Praful Mehta with Citigroup.

So maybe on the Page 13 of the release package where you have the volume and load growth because when we look at that, I know you mentioned little bit in your initial remarks, as well, it seems like load growth is pretty low even when you look at normalized for weather. So just wanted to understand what specifically about the weather makes you feel that the normalization process wasn't complete. And then secondly, how confident are you about load growth by the end of the year given Q1 and Q2 performance?

We're chuckling because you probably heard me say this a gazillion times. I will say it again. The weather normalization techniques that are available to our industry are simply flawed. They're just not that accurate. And Scott mentioned during his prepared remarks a huge -- I mean a dramatic swing between -- in weather conditions between Q2 of this year and Q2 over a year ago. Scott, you just might want to repeat a couple of those stats.

Yes. So what we're looking at for the month of June, it was the 10th coolest since last June of the last 70 years and then 65% cooler compared to normal in the quarter. And the other thing that made it really challenging in the constant year is was extremely wet. So whenever you had a day that would get even above normal temperatures, it was cool, but even if you had a normal temperature, the next day, you would expect the load to be there. It would rain and actually cool everything off. So it's really hard to normalize when you have intermediate rains during the month that I think this was one of the wettest Junes we had on record. So that made it very challenging, but we are very happy. When you do look at our customer growth, we're seeing about 0.7% growth of new customers. Our overall customer counts year-over-year in both in the gas and a little bit higher in the -- or the electric and a little bit higher in the gas. So still seeing that good customer growth come through.

In fact, to Scott's point, our customer growth, both on the electric and gas side of our businesses, it's actually a bit stronger in the first half of this year than it was even in the first half of last year. One other thought, and actually, Kevin and Scott and I were talking about this earlier today, when you look at particularly weather normalization for gas delivery, Q2 is just problematic to begin with because the volumes of gas deliveries are generally so low given that it's springtime and there's not a lot of heat required. So I think we have to be very careful about putting too much stock in one quarter's weather normalization. Now longer term, and you asked a very good question, longer term, we have projected a bit of an uptick, particularly in electric demand in the 2021, 2022 time frame. And we're still quite confident of that because of all of these economic development projects that I mentioned earlier and more that I didn't have a chance to mention. I mean, we have a very robust pipeline of industrial economic development and expansion projects that are coming on stream, largely, Scott, in that '21, '22 time frame.

Yes. Exactly right, Gale. And we just took a look at it as we were preparing specifically on those outer years. And just calling out our hand, we've talked about 14 projects that were significant size that's going to get us to the growth we projected when we're at EEI last fall. So we'll be continuing to review our forecast. We feel very good where we're at.

And Amazon is going to use even more robots in their brand-new facility, and that requires more sophisticated e equipment.

That's a great. And great to hear the confidence on that. So I guess, the second question was more on your rate review -- the ongoing rate review. In terms of the -- I guess, you mentioned that you have a request for a higher equity ratio apart from other factors that you've kind of talked about. Could you give us a sense for where that equity ratio is in terms of the ask versus what's currently in the plan just so when we see the outcome, we can compare against what you kind of had forecast in your plan as well?

Yes. So what we looked at the equity ratio, and it's a little bit different at all the companies, but, basically, the equity ratio was about at Wisconsin where We Energies is the largest subsidiary at 51%. And we're moving that in a rate case to 52%, which, when you look at our numbers and the effective tax reform, it really helps with the cash flow and the benefits there. When we look at -- in our guidance, we're assuming what our current rates are, what we put at our long 5-year plan together at the 51% and a 10.2% at Wisconsin Electric, and there's a lot of stuff that has to go through the rate case. But we really look at that 52% as not only more beneficial actually to the cash flow and the benefits with maintaining all of the credit ratings at these utilities.

And 52% equity ratio is very consistent with the last station made by -- for a major Wisconsin utility by the Wisconsin Commission. So nothing out of the ordinary here.

Got you. So just to be clear, if you did get 52%, that would be accretive to the current forecast of your growth.

I don't think you can look at that in isolation. You've got to look at the revenue decision. You've got to look at the return on equity. So it's like what I do, it's all in there. So I wouldn't try to isolate that and come to -- just that one item and come to a conclusion. Scott?

No, I agree. There's a lot of factors. We all look at the ROE and equity percentage in combination. So if we get through the rate case, then we'll look at where we are by most likely the first quarter of next year for our guidance, et cetera.

And I stand corrected. Definitely, it's not ragu. It's prego. Just like prego, it's in there.

Your final question comes from the line of Vedula Murti with Avon Capital.

Okay. A couple of things. You mentioned about the tax rate and that you expect it to be 10% to 11% over the balance of the rest of this year. Should we be thinking for the forward years '20 and '21 that with the -- some of the projects you have in the pipeline, whatever the effective tax rate would be in a similar zone?

Now I think when you look at effective tax rate, you have to take out the tax repairs and put it closer to that 20% and 21%. Tax repairs are really unique for our company in 2018 and '19. So we haven't come out with the range. And the production tax credits, of course, will help us, but that 20% to 21% is a good reasonable number.

Okay. And then I guess within, say, your $3.53 upper end for this year, how should I think about what the earnings contribution from tax credits are from wind production and other types of things as part of that aggregate?

Vedula, we're expecting -- in terms of the impact of the tax credits from our infrastructure investments, we're expecting about $0.02 a quarter of earnings, and that's exactly what we delivered this quarter.

Sure. Okay. So if -- in terms of the forecast going forward on the 5% to 7%, if tax rates have kind of normalized back towards the 20% area versus the 10% this year, that clearly is already accounted for in terms of that, lack of better term, headwind, which will be filled in through other investments and rate recoveries, et cetera.

It is accounted for in our growth projections, but it will get some reset in this rate case here because it's really a unique Wisconsin item that kept -- reduced that transmission balance this year and now by the end of the year. So those unique tax repair items will all get reset in this rate case to get back to that 20% to 21%.

And again, because the use of the tax repairs during this year is to get that transmission escrow balance down to 0., once it's down to 0 and is constant, it gets reset for rates that are effective January 2020.

All right. Ladies and gentlemen, that concludes our conference call for today. Thanks so much for participating. It's always good to be with you. If you have any other questions, feel free to contact Beth Straka at her direct line (414) 221-4639. So long, everybody.

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