埃克西爾能源 (XEL) 2016 Q4 法說會逐字稿

Good day, and welcome to the Xcel Energy year-end 2016 earnings conference call.

Today's conference is being recorded.

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

Good morning, and welcome to Xcel Energy's 2016 earnings release conference call. Joining me today are Ben Fowke, Chairman, President and Chief Executive Officer; Bob Frenzel, Executive Vice President and Chief Financial Officer. In addition, we have other members of the Management Team in the room to answer questions.

This morning we will review 2016 results and update you on recent business and regulatory developments. Slides that accompany today's call are available on our website. As a reminder, some of the comments during today's conference call may contain forward-looking information. Significant factors that could cause results to differ from those anticipated are described in our earnings release and our filings with the SEC.

In addition, on today's call we will discuss certain ongoing earnings metrics that are non-GAAP measures. The comparable GAAP measures and a reconciliation are included in the earnings release, which is available on our website. I'll now turn the call over to Ben.

Well, thank you, Paul, and good morning. I will begin by reviewing some of the highlights from 2016, which was a great year financially, strategically, and operationally. Let me start with the financial results. We had another strong year, with ongoing EPS of $2.21 in 2016, compared with $2.09 per share in 2015. This represents an ongoing EPS growth rate of 5.7%, which is at the upper end of our 4% to 6% growth objective.

This was our 12th consecutive year of meeting or exceeding our earnings guidance. We also raised our dividend by 6.3% to $1.36 per share in 2016. This was the 13th straight year we've increased our dividend.

Turning to strategy, in 2016 we introduced our steel-for-fuel strategy. Because of the strong wind resources in our service territories, we have a unique opportunity to invest in renewable generation in which the capital costs can be offset by fuel savings. As a result, we are planning to invest about $3.5 billion in renewables over the next five years. Let me give you a quick update on some of our major initiatives.

The Colorado 600 megawatt Rush Creek Wind Project was approved by the commission last year and is progressing as planned. Rush Creek is expected to go into service in 2018. In Minnesota, we are seeking to add 1,500 megawatts of new wind generation, which reflects an RFP for PPAs for build own transfer projects, and our own self-build proposal to develop 750 megawatts of wind generation. As part of the RFP process, we received proposals from 17 bidders with 95 proposals for almost 10,000 megawatts of wind generation, featuring a combination of PPAs and build own transfer projects.

We've analyzed the bids, developed a short list, and are negotiating with the developers. We believe our 750 megawatt self build wind proposal is competitive and will complement the RFP portfolio. We plan to file a recommendation with the Minnesota commission later in the first quarter, and we expect a decision in the summer.

We also continue to make progress on the $1.5 billion of undefined renewable projects which are included in our capital forecast. We're working with various stakeholders and are in advanced discussions with site developers about adding 500 to 1,000 megawatts of wind generation at SPS. We expect to share further details later in the year.

Finally, last year we entered into a wind turbine supply agreement with Vestas, which provides us the flexibility to develop up to 2,500 megawatts of wind generation. This agreement allows us to secure 100% of the PTC benefit and maximize the fuel savings for our customers.

It's all part of our steel-for-fuel strategy. We have strong wind resources with high-capacity factors in our service territories. We have support for the development of renewable projects from state policy makers, interested stakeholders and our customers. And we've taken timely actions to secure the full utilization of the wind production tax credits. As a result, we expect the fuel savings on wind projects will more than offset the capital cost, and that's what steel for fuel is all about.

We also had a strong year in operations. In 2016, we successfully completed the construction of the 200 megawatt Courtenay Wind Farm in North Dakota, and we did it on time and under budget. This was our first wind project in which we were the general contractor, and is further evidence of our ability to develop, manage and construct wind projects. While the project took 15 months to complete, you can watch the entire construction process in a three-minute time-lapse video posted on our website. I think it's a fascinating video, and I encourage you to check it out.

We had an excellent operational and safety year in 2016. And I want to take a moment to thank all of the Xcel employees who work hard throughout the year and always put safety and customers first. We had several challenging storms in our service territories recently, and we responded with industry-leading efficiency. One example was the wave of intense storms that hit our service territories over the Christmas weekend, resulting in more than 100,000 customer outages. Our crews braved frigid temperatures and unusually icy conditions to restore power safely and quickly, so that our customers could enjoy the holidays.

And just recently, Ice Storm Jupiter ripped through Texas, impacting 58,000 customers, many of them in small towns and remote locations. Once again, our field crews and supporting teams worked around the clock to restore power to our customers in a timely fashion.

Finally, Minnesota legislators recently introduced a bill which would allow us to build a natural gas combined-cycle power plant at our Sherco site. We originally proposed this plant, along with the addition of renewables, as part of our resource plan, which enables the early retirement of two coal units at the Sherco site. The Minnesota Commission acknowledged the capacity needs and the benefits of siting new generation at the existing plant site, but elected to defer a decision to a later date, which would require us to file a certificate of need. The bill was driven by legislators who are concerned about the loss of jobs and tax revenue, and wanted to expedite the decision process.

It's important to note, we have provided extensive justification for the plant, and the commission will still need to approve cost recovery for the power plant. The bill has passed the Energy Committee in the House, but will require approval in both the full House and Senate, along with the approval of the governor. We expect to get final resolution later in the year. If the bill is not passed, then we would plan to file a certificate of need.

Please note, this facility is not included in our capital forecast, and any potential capital investment would likely occur after 2021. With that, let me turn the call over to Bob. He will provide more detail on our financial results and outlook, as well as a regulatory update.

Thank you, Ben, and good morning. My comments today will focus predominantly on full year 2016 results. For details of our fourth-quarter results, please see our earnings release that was distributed this morning and posted on our website.

As Ben indicated, we realized another strong year of operational and financial performance, and delivered 2016 ongoing earnings of $2.21 per share compared to $2.09 per share of ongoing earnings in 2015. The most significant earnings drivers for the year include higher electric and natural gas margins, which increased earnings by $0.36 per share, largely due to rate increases in non-fuel riders to recover our capital investments. And a lower effective income tax rate, which increased earnings by $0.06 per share. The lower effective tax rate is primarily due to wind production tax credits in 2016, which flow back to our customers.

Partially offsetting these positive drivers were increased depreciation expense, largely due to capital additions, which reduced earnings by $0.21 per share. And higher interest expenses and property taxes, which combined, reduced earnings by $0.08 per share.

Another key driver to our EPS outcome was our disciplined approach to O&M expenses. For the third year in a row, Xcel Energy has maintained no growth in operating and maintenance expenses. While we're proud of our discipline, we remain committed to actively managing our costs for the benefit of our customers. Our objective is to continue our trend of no growth in O&M, which we expect to achieve through a continued focus on operational and commercial excellence, as well as productivity improvements through the use of technology. Based on our track record, you should be confident in our ability to achieve this objective.

Turning to sales, as we've discussed each quarter, we've seen a slight slowdown in both gas and electric sales in 2016. On a weather and leap-year-adjusted basis, we experienced a full year electric sales decline of 0.3% for 2016. Our positive residential sales growth was offset by lower C&I sales in most jurisdictions. Natural gas sales declined 1% in 2016 on a weather and leap-year-adjusted basis. We continued to see positive customer growth in our service territories for both the electric and natural gas businesses, but that growth has been offset by lower use per customer, primarily driven by improvements in energy efficiency.

2016 was a very productive year in terms of regulatory proceedings, and let me touch on a few of the highlights. We reached a four-year settlement in our Minnesota rate case, which is pending commission approval. We reached constructive outcomes in our Wisconsin, New Mexico and Texas rate cases.

The Minnesota Commission approved our resource plan, which will result in significant carbon reductions due to the early retirement of two coal units and the addition of wind and solar generation. We filed requests with the Colorado Commission for approval of a partial decoupling mechanism and for a certificate of need for the advanced grid initiative. We expect decisions on both initiatives later in the second quarter.

Let me provide some detail on our Texas rate case, which was approved by the commission last week. We settled the case earlier in the year, and the key terms include a base rate increase of $35.2 million, power-factor revenue of $12.6 million, and recovery of $4 million of rate case expenses in a separate proceeding. We believe the outcomes in both Texas and New Mexico rate cases reflect an improving regulatory environment in SPS.

Next, I want to spend just a moment on tax reform. It certainly has been topical for the industry and is a key component of the pro-growth agenda of the new Congress and Administration. We believe we are in early innings of this process, and given the complicated nature of comprehensive tax reform, we believe we have several quarters until we get additional clarity on likely outcomes.

And while we believe things will continue to evolve, we have analyzed two potential tax-reform scenarios and their potential impact on Xcel Energy. The first scenario is essentially the Executive Branch plan, which reflects a 20% corporate tax rate, maintains interest deductibility and does not include 100% bonus depreciation. Under this scenario, the impact would be mildly accretive to our earnings in 2021, due to a reduction in the deferred tax liability over time.

The second scenario is essentially the House blueprint, which reflects a 20% corporate tax rate, no interest deductibility and 100% bonus depreciation. Under this scenario, the impact would be modestly dilutive to our earnings in 2021, due to the loss of interest deductibility and lower rate base. Longer term, we believe that the industry is permanently negatively impacted by the loss of interest deductibility. Accordingly, Xcel Energy will continue to work vigorously with EEI to advance the interests of our customers and our industry. Finally, we remain confident we can manage the potential impact of tax reform, and deliver on our EPS and dividend growth objectives.

With that, I'll wrap up. In summary, 2016 was another great year for Xcel Energy. We delivered ongoing earnings within or above our guidance range for the 12th consecutive year. We increased our dividend for the 13th straight year. We held O&M flat for the third-consecutive year.

We reached a settlement in the Minnesota multi year rate plan, and resolved regulatory proceedings in Texas, New Mexico and Wisconsin. The Minnesota Commission approved our resource plan, which sets the framework for the addition of renewable projects and the retirement of two coal facilities. This should result in 63% of the NSP system energy being carbon free by 2030.

We continue to execute on our steel-for-fuel strategy, and we are well positioned to deliver on our 2017 ongoing earnings guidance range of $2.25 to $2.35 per share, our 4% to 6% earnings growth objective, and our 5% to 7% dividend growth objective.

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

Thank you.

(Operator Instructions)

We will take our first question today from Ali Agha with SunTrust.

Thank you, good morning.

Good morning, Ali.

Good morning. First question -- can you remind us, embedded in your 2017 guidance, what is the assumed earned ROE at the utility level, compared to what you actually earned in 2016?

Well, Ali, as you know, our ROEs in 2016, we didn't make a lot of progress over where we were in 2015, and that's primarily due to lower authorized ROEs. So when I look at 2017 and when I look at 2018, we will continue to, I think, close that gap, albeit on a lower authorized ROE and primarily do that through entering in some multi-year plans.

We expect approval in Minnesota of our multi-year plan, and we expect we'll have another multi-year plan in Colorado. We'll combine that with our cost initiatives, and I think where that will put us by 2018 is probably the low-9%s, as far as blended utility ROEs. So we'll make steady progress towards that.

And Ben, to your point, when we factor in the lower authorized ROE, assuming the Minnesota settlement is approved, when you factor that in, what is now the regulatory lag when you run the math, based on that new ROE at Minnesota?

Well, the lag is -- you've cut into the lag significantly under the multi-year plans. It's just that it's at a lower base rate of 9.2%. So I don't have the exact number, but I think we've probably got, what, about --?

Another way to look at it, if you look at 2016, we earned a little over 9.2% in Minnesota, so we're earning our authorized. The blended authorized ROE for the Xcel system is about 9.6%, and currently we're earning about 9%. So previously the gap was about 90 basis points; now it's about 60 basis points.

Okay, and for that 9.6%, that factors in the 9.2% at the new ROE at Minnesota?

Correct.

And my last question. Coming back to the normalized electric sales trends, anything to read into the Q4 numbers turning negative? And does that influence at all -- I think you assumed flat to like 0.5% as kind of your growth numbers for 2017. That still looks good? Or any changes, given what you're seeing ending last year?

I don't think the quarter is indicative of where we think trends will go. We still -- we are seeing good customer growth, Ali, in Colorado and Minnesota and other jurisdictions. That growth we are typically going to keep under the decoupling mechanisms, either in place or proposed. You put it all together, though, and we still think the long-term trend is that zero to 0.5% growth.

Got it. Thank you.

Yes.

We will take our next question from Julien Dumoulin-Smith with UBS.

Hey, Julien.

Hey, good morning, guys. Well done.

Thanks.

I wanted to ask a quick follow-up on this legislative angle real quickly. You describe a timeline issue and a reason to be expeditious to pursue this legislation instead of a traditional route, as you talk about. What is that difference in timing as you perceive it right now, net-net?

And also, just to be clear, you talk about it as being beyond the current resource plan. What's the timing if you get the legislation done versus not, as well, just in terms of in-service, and just how far out that is?

Okay. I don't know if I heard the first part of your question, Julien. Could you repeat that again?

Oh, sorry. I apologize for the signal. I was really asking about, what is the timeline difference between pursuing the legislative approach versus the traditional certificate-of-need approach in Minnesota?

Well, if we get the legislation, that could happen fairly quickly. Our latest update says it's progressing very fast, and it could be to the governor's by the end of this month. A certificate-of-need, we would be filing later in the year. We've got Chris Clark, who is the President of NSP. When would that get done most likely, Chris?

Typically, the certificate-of-needs take about 18 months. They can take as long as two years to proceed through that. So the legislation would eliminate the need for some of that proceeding time.

Okay, thank you. So Julien, that's why the legislation is being proposed. Because the constituents at Becker, where the Sherco site is located, are worried about tax base loss, and they want to preserve as many jobs as possible. And as an aside, we've been working very closely with those stakeholders in driving other forms of economic development to the region as well.

So our plan has always been about pragmatic de-carbonization, but we are also very respectful and understanding of the communities that are impacted, and trying to minimize that impact. And our proposal to the commission did just that. And, again, I think our legislators would like to move it along a little quicker. Your last part of your question --

Got it, but --

The expenditures -- and I think that would be roughly $800 million -- that would occur post-2021, and it would be consistent with the shutdown of the units, which I think take place in 2023?

2026.

Yes, okay.

Got it. So it would be in service around 2026 either way?

Yes. That's today's (multiple speakers)

Okay, got it. And then a bigger-picture question. If you can remind us, perhaps tailing off of Ali's question as well, where do you stand within your growth rate, as far as your execution on the earned ROE improvement? And how do you improve it from here? Should we be looking for more capital, more fuel-for-steel elements, to drive you to the upper end? Or are we talking about the earned ROE improvement to be the principal driver at this point as well?

Well, I think it's a combination. Our rate base growth is in the upper 5%. We're clearly focused on executing on what we have embedded in our capital plans. That would be the proposal here in Minnesota. It would be developing specific projects, as I mentioned in my prepared remarks, to cover that $1.5 billion of renewables in our CapEx program.

So if you execute on that, and you execute on getting the settlement on the multi-year plan in Minnesota, you get another multi-year plan in Colorado, then our cost initiatives should improve the ROE, as I mentioned. You put all that together, and I think it would bode pretty well for our EPS growth rate over the next five years.

Got it. So upper end, clearly?

Well, there's a lot of execution that goes with that, but that would certainly be what we would be shooting for.

Got it. Great, guys, thank you very much.

Thank you.

Our next question comes from Jonathan Arnold with Deutsche Bank.

Good morning, guys.

Hey, Jonathan.

Just focusing on the 2017 guidance factors that you provide, it seemed like a number of them have gone in the wrong direction versus the EEI update, and probably add up to best part of a nickel negative. Are there some other things you don't call out that are going to go and offset some of that pressure? Is it pension maybe, or are those -- is that direction correct within the range for this year?

Well, I'll let Bob give you some details, Jonathan. But I mean, I think most of those are just truing off of where we landed in 2016. That said, we did have a holdco debt issuance at the end of the year. So we will pick up a little interest expense associated with that, but we believe it's very manageable. I can just tell you, our outlook on our ability to land guidance really remains unchanged. So Bob, I don't know if you want to add any color to that?

John, I think that Ben said it all. We true-up as we do with every guidance assumption, and we have ranges. We think that with respect to some of the capital accounts and depreciation and the rider revenues, that we can manage within those ranges.

As Ben said, the interest expense was both a mark-to-market on what we see in the market since EEI, as well as the holdco bond that we did back in December. So we think they are all manageable. It's a couple of pennies, and I think we can manage through that this year.

Okay, great. Just on the Minnesota wind, Ben, I think you used the word, you were confident that your self-build proposal would complement the RFP?

Right.

I just want to make sure I remember the numbers correctly. You're looking for 1,000 megawatts overall, is that correct? Of which you've submitted a 750-megawatt self-build?

No, based upon the robustness of the bidding, I think we're looking at 1,500 megawatts.

Okay.

We have a 750-megawatt self-build proposal, as you know. Our pricing is very competitive with that. And we've also seen competitive PPAs and competitive build-own transfers. So it leads me to believe that, at the end of the day, we'll have ownership opportunities for 750 megawatts. It's potentially some upside there. But at this point, that's what our assumption is.

Okay. So you're feeling good that your 750 megawatts will be part of the overall package, basically?

Yes, I've got a cold, but I'm feeling good about the RFP process. (laughter)

Okay, well, great. Thank you for that, and I hope you feel better.

Thanks.

Our next question comes from Travis Miller with Morningstar.

Hey, Travis.

Hi, good morning. Thank you. Just wondering, given that we're now probably not going to see any kind of carbon legislation or cuts, et cetera, at the federal level. How do you think that impacts what Minnesota regulators, even politicians, might be thinking is necessary at the state level as you did through another round of resource plan?

Thanks for that question, Travis, because I think it's a really important thing to talk about. I actually think that it strengthens our resource plans and what we're trying to accomplish, because we've always been about approaching carbon reduction from a pragmatic standpoint. I mean, steel-for-fuel is a great example of that. Never losing sight of customer affordability, never losing sight of reliability, not being really interested in running massive science experiments.

And so there have been times, despite our environmental leadership, where we've been critical of some public policies and other things, which, we didn't think it was the most pragmatic, efficient way to get things done. So I now think there's more opportunity to rally around our plans, which have always been pragmatic. And that's in Minnesota, that's in Colorado. And I think you continue to advance the ball there, because it just makes economic sense.

And by the way, the economic sense is why we'll be reporting to you later in the year about what's taking place in SPS, where that will be driven by economics. So I actually think -- it's a little counterintuitive -- but I actually think it makes what we've been proposing that much more appealing.

Great. And then just remind me what the timing cycle is for the IRP process going forward?

In what state?

The resource plan.

In Minnesota?

Minnesota, yes.

You want to take that, Chris?

Thanks, Ben. We'll file for the approval of the wind projects that are selected, in the first quarter. And then to the extent that we have additional filings for the next resource plan, the commission has asked for that in 2019. So the immediate focus is going to be in advancing those wind proposals this year.

Okay, thank you.

And then you would make a full resource plan filing in 2018, 2019 timeframe? Is that right?

Correct.

Okay, so kind of every two to three years?

Correct.

Okay.

Very good, thank you.

Thank you.

Our next question comes from Stephen Byrd with Morgan Stanley.

Hey, Stephen.

Hi, good morning. I wanted to just go through tax reform. I think you gave a good high-level overview. In the scenario in which CapEx is immediately expensed, could you talk about what you might want to do in terms of increasing your rate base growth, if anything? Or if that's really, in your mind, not necessary in the grand scheme to keep along the earnings trajectory that you would like to hit?

I mean, that's a good question, Stephen. I do think we have to be careful that we don't try to give model-specific, quantifiable, this is what we'll do, and blah-blah-blah, because post 2021, I think you're going to have so many variables. First of all, I think, as Bob said, we're in the early innings and disruption with border tax adjustments, I mean, it just leads me to believe that if tax reform happens and we're talking about it at this time next year, it will be a lot different than what we're talking about now.

That said, yes, it does create headroom, and that's a good thing. And we certainly have a lot of investment potential to invest in our grid. We have some grid investment initiatives, but you know that our approach has always been to make sure that we don't invest so much that it starts to make our prices rise more than is an acceptable of level.

So we've always throttled that back, and that's one of the reasons why we concentrate on steel-for-fuel, because it doesn't raise prices. If you create the headroom, then you can you can push the throttle down on CapEx, specifically as it relates to the grid.

I will say though -- and Bob mentioned it in his remarks -- that I am working with EEI and my colleague CEOs to convince federal legislators that our industry, while everybody thinks it is unique, we truly are unique. And I don't think the long-term trade of receiving bonus depreciation in exchange for non-deductibility of interest -- which is a permanent difference when you get to the regulatory rate-making arena -- is a good trade for customers or shareholders.

Obviously industry and Xcel would adapt, and I'm optimistic that we get the right kind of tax reform and the economy will grow, and we will all benefit from that. But I do think we need to be careful to try to give exact quantifications long term. I'd rather just talk about the trends that we see and what we would like to see differently.

That makes perfect sense. I think it's just good to hear you talk about the ability to be able to throttle as needed, so that makes sense. And my follow-up just is on the wind at SPS. You mentioned in your remarks the ability to potentially pursue 500 to 1,000 megawatts. Could you just talk a little bit more about the regulatory process for getting that approved? I wasn't completely clear on how that would unfold.

Yes, we would make the proposal, I think, in the spring -- is that right, Marvin? In the spring of this year. The Commission would probably then take up to 12 months to actually approve it and we've calculated that all into our construction schedules, et cetera. So it all would be put together in time to enjoy the 100% value of the production tax credits.

Understood. And so this would be self-build, this wouldn't be a mirror-image of the Minnesota approach, this would be a bit of a different approach here?

No, there isn't a formalized RFP process at SPS. We are working with site developers, and as I mentioned, we're in late-stage discussions on how that would all work. But this would be our ownership.

Understood. That's all I had. Thank you.

Thank you.

Our next question comes from Chris Turnure with JPMorgan.

Hi, Chris.

Good morning, guys. Bob, I was hoping you can give us more detail on your tax comments, particularly on the Administration's proposal? You said that it would be mildly accretive, and that, that would be primarily due to deferred tax liability, I guess, cash benefits over time for you. Could you give us more detail there, explain if that's all on the corporate level of the Company, and if that is basically just offsetting the increased drag from the lower tax rate itself?

Yes, Chris, I think when you take the deferred tax liability position that the Company sits in today, and if you assume, just call it an effective 40% tax rate, and you cut it in half, you change that deferred tax liability and over time, that changes your rate base as you flow those benefits back to -- the cash back to the customers. And secondarily, probably more importantly, as we continue to spend capital in that program, the deferred tax liability associated with regular maker schedules would set up on your balance sheet at a slightly different level. So your rate base would be slightly higher than it otherwise would be at a 40% tax rate.

Okay. So it's all on the regulated side that you're making that detail assumption. Got it.

That's correct.

And then there's been pretty material changes at the Colorado commission over the past month or so. Does that change your filing strategy at all for this year? How can we think about timing and expectations there for both the electric and the gas side?

This is Ben. It doesn't change that strategy. We know Jeff Ackermann very well, and I think he's going to be a great chair. Wendy Moser, she definitely knows the business. So I think we're quite optimistic about what the new commission looks like.

We also had some changes in Minnesota, and I think those changes are going to be productive and constructive, and we look forward to working with the Minnesota commission as well. So I think they're positives.

And what can we expect in terms of the timing of the filings in Colorado, and then the duration of the ask there? Is it going to be a multi-year for electric and then another single year for gas?

Well, the timing is, we'll file in the spring of this year, and we will be asking for a multi-year on the electric side. Marvin, what are we going to be asking on the gas side?

We're still looking through on the gas side. It will come later on this year, probably around summer -- spring to summer of 2017.

Okay. I don't know if we'll get multi-year or not. I think that depends on the negotiations. We do think that these cases are set up to settle, and so that will be the primary driver. We would also like to see the gas rates in effect before the winter heating season.

Okay, great. Thank you.

Thank you.

Our next question comes from Anthony Crowdell with Jefferies.

Good morning. Quick question. When do you expect to make the next Texas transmission cost-recovery factor filing?

Okay, you got me stumped on that one. Anybody around the room? Marvin, you got it?

Pardon me, I'll double check on that. But I think (inaudible) it's right now, frankly.

Anthony, this is Bob. I think that, after concluding our Texas rate case that was approved by the commission, we had negotiated the ability to file the CTRF filing immediately. You should expect to see that from us sometime this month.

Okay. And just quickly -- I know that your strategy is unique with the steel-for-fuel, and you created headroom. But have you been seeing any pushback on rate increases in any of your jurisdictions? We're seeing possibly some pushback in California and just want to know, in your jurisdictions, have you seen anything?

Well, I would say, we're not seeing it now, but we certainly have saw it in past years. That's why we had some of the issues we had a few years ago is, we pushed through a significant amount of capital particularly associated with the re-licensing of our nuclear plants.

The bottom line is, I think it's very difficult to justify more than a 2% to 3% increase in rates. And that's why we've been very cautious as we -- you heard in my remarks before, we have a lot of money we can spend in the grid and we'll go as fast as our customers and our regulators want us to go. And typically, that means an inflationary-type pace of rate increases. This is why we're so excited about steel-for-fuel, because it pays for itself. I absolutely -- we're very mindful of that, and our capital plans respect that.

Great. Thanks for taking my questions.

You're welcome.

Our next question comes from Andy Levi with Avon Capital Advisors.

Hey, Andy.

Hey, good morning, how are you?

Good.

Just a couple questions. First, just on the SPS, on the wind. Is that part of the $1.5 billion that you had in the handout?

Yes, it would start to give details around that $1.5 billion, correct.

Got it, okay. And then just in general, the upside CapEx that you had outlined, I guess it was on the third-quarter call, when you gave guidance and all that. Where are we at there as far as the percent that has gotten (multiple speakers)

Are you talking about -- the upside, I think, that you're referring to would be the $1.5 billion of renewables that we didn't have specifically identified projects for, Andy. Is that what you're talking about?

No, I think it's the total, through 2020, I think it is, that you have your base case, and then you have your upside CapEx as you fill in over time?

The only thing that we had to -- we were confident in, that's why it was in the forecast -- but that we had to actually solutionize, if you will, was the $1.5 billion. Everything else is pretty much identified.

Andy, it's Bob. The construct you're talking about was something we were talking about through most of 2016. When we gave you new capital guidance at EEI or on the third-quarter earnings call, we rolled all of the upside capital from that into what I call our base capital plan and that's reflective of the $18.2 billion capital plan that we now talk about. So it's all in there.

Which gets you to the high end your growth rate?

That's correct. I think our rate base growth rate has us 5.5% rate base growth rate over the next five years.

Okay. And then the question that I've always been asking, as you look at where the numbers are all falling out, as you said, you've filled in most of the CapEx as far as you get to the high end of your rate base growth. I think on the cost control side, you're probably in the early innings of being able to continue to do a good job there, whether it's reduce costs or keep costs flat.

We get the Minnesota rate case, which is already settled, approved, hopefully, by the end of the second quarter and then the 750 megawatts for the upper Midwest, probably kind of the same timeframe. Once you get all that done and you feel more comfortable about getting those big pieces in line, is that a good time to address the growth rate of 4% to 6%, and refresh it going forward?

Well, I think, Andy, every time we have significant changes either to the upside or the downside, we're always going to take a look at what that means for our long-term growth rate, and update accordingly. And so as you get more time and more certainty -- and certainly what you're talking about would be execution.

As I mentioned, we'll take a look at it, and we'll take a look at it if there's any tailwinds -- or headwinds, rather, that might have surfaced as well. So look for us to -- we'll continue to review that long-term growth rate. And if it needs to change, we'll change it.

Okay. I guess the right time would be after you get these final pieces in place -- is that a fair way to look at it?

Well, I'm not going to get specific on the timeframe. We just continue to look at what's happened, and what we think will happen in the future.

Okay, I appreciate that. It's just interesting, as we go through earnings the last couple days, seems in your case, your growth rate is at least trending towards the high end, if not going higher than the high end and when you work up the numbers, it's probably higher than the high end, but would (multiple speakers)

Well, I appreciate that Andy, because you're right, it is. And again, I think, as I've said before, our rate base growth is going to increase. But when you have things like steel-for-fuel, the pace of rate increases is modest. And that's really important, we think, to long-term success.

I think your cost control is what's helping that as well.

Yes, absolutely.

Similar to CMS. And then if you kind of look at what we've been dealing with the last couple days, most companies are taking down their growth rates, while you have the potential of raising it. So hopefully, over time, that will get reflected in your --

You're trailing away, Andy.

Oh, I'm sorry. I'm just -- what I'm saying is that, over the last couple days, there have been a number of companies that have been taking down their growth rate, or trending towards the bottom of their growth rate, while yours seem to be trending toward the top of your growth rate and potentially the ability to raise that growth rate. So hopefully, over time, that will be reflected in your stock, as far as a relative PE to the rest of --

Well, it sounds like you like or story, Andy. We appreciate that. We'll keep working on it for you.

Thank you very much.

All right.

Our next question comes from Paul Patterson with Glenrock Associates.

Good morning, Paul.

Good morning, how you doing?

Good.

You made some comments just now about the efforts by you and other utilities to get some form of different treatment vis-a-vis others, regarding tax reform. I was just wondering if you could give us a little bit more of a flavor as to how far along that process is? Have you met with the Administration or anything, or what kind of feedback have you gotten?

This is Ben. Yes, we've been working closely with other -- like I mentioned, other CEOs in the industry, with EEI, the trade group, as you know and so yes, we've had some preliminary discussions, but I would emphasize the word preliminary. I think there's a long way to go with tax reform, I really do.

And again, I think when we're talking about tax reform a year from now, we'll be talking about something that looks, I believe, a lot different than what's on the table now. I mean, it's just -- our industry's impacted, we think there's a way to address that. We think normalization might be that pathway. But when I think of other industries, the retail industry, et cetera, there's major potential disruption. So I'm optimistic about tax reform, but I think it will probably look a lot different than what we're talking about today. I do think the Senate is going to weigh in, and we've heard that.

In what way? What do you mean, the Senate is going to weigh in?

Well, I don't think -- if you read the commentary from key members of the Senate, I think they're saying that they appreciate what the House has done, but they're going to have their own version of what tax reform should look like.

Okay, I'm sorry. And do you have any sense as to when we're going to get -- I appreciate what you're saying in terms of the disruption and just the wide variation as to what could happen. Do you have any idea when we get a little more of a sense, as to when we'll get a better idea, as to a narrowing of what actually is going to be put on the table? I know it's early, I'm just wondering.

It's early. I think you'll see the House version get passed. Then the Senate will take up what I believe will be their own version. Which, my personal opinion, and based upon conversations we've had, will look a lot different than the House version. We haven't even talked about transition rules and I think there will definitely be transition rules because of the potentially disruptive nature.

So I think Bob said in his remarks, give us a couple more quarters, let's see how things go. Things are moving fast in this Administration, but I really do think, to get it done, unless you try to jam it through in a budget reconciliation process -- and even then, I think you would be hard-pressed to get a majority of senators voting on that. I do think this is going to take some bipartisan work and I certainly hope it is a bipartisan product, because I think that's better for the country, in my personal opinion.

Okay, thanks so much.

All right, thank you.

That will conclude today's question-and-answer session. I would now like to turn the call back over to CFO Bob Frenzel for any additional or closing remarks.

Thank you all for participating in our call this morning. Please contact our investor relations team if you have any follow-up questions.

That will conclude today's conference. Thank you for your participation, and you may now disconnect.