Operator: The next question comes from Travis Miller with Morningstar.
Travis Miller: Quick question on slide 12. The $0.16 of the cost savings, how much of that is just the reversal of higher costs and how much is incremental cost savings you’re expecting this year?
Rejji Hayes: It’s Rejji. On the waterfall chart, just for others, reference for 2024, yeah, the $0.16 of pickup that we’re seeing – or that we’re anticipating year-over-year, you do see a portion of reversal related to storm activity. Obviously, I mentioned in my prepared remarks that we had a significant ice storm in the first quarter of 2023. And so, we do not anticipate storms of that magnitude year in and year out. But we also have a good portion of CE Way related savings. And I’d say it’s about $60 million, or call it $0.15. And you have to think about the puts and takes here. So you’ve got the reversal of storms, you definitely have cost savings embedded in this current plan, but we also have inflation in other cost categories like salaries, as well as other costs, non-labor related costs.
And so, there’s a mix of inflation, as well as cost savings to offset or fund that inflation. And then that coupled with the reversal of the storm is what drives that $0.16 per share.
Travis Miller: A broader question. You have touched on a little bit in the call here, but we think about those clean energy standard buckets in terms of the nuclear, natural gas with carbon capture and renewables, what’s your thought long term, in general? I know you don’t have those specifics yet. But how those three buckets work for you? It seems like in your earlier comments, nuclear is not really on the table right now. How much does nuclear, natural gas/CC go into that mix when you’re thinking about 2035 or 2040?
Garrick Rochow: What I love about this energy law is there is a lot of flexibility. There’s just a ton of flexibility in there. And that’s a strength. And that’s served us well in previous energy laws. If you go back to 2016, Integrated Resource Plan, you build a plan that works for your customers, works for your investors and allows you to deliver the energy supply that you need across your service area. Our focus right now is really on this first step, which is the Renewable Energy Plan. And that is wind, it’s solar, it’s hydros, we have to hit a milestone by 2030 of 50% and then by 2035 of 60%. Those are important milestones first. So that’s our focus right now. Now, we’re not taking our eye off the ball. Like 2040, we have to have 100% clean energy.
There’s a milestone along that journey as well. That will get into the carbon capture, that will get into other considerations and how we meet that. So that’s a broader definition where nuclear is part of it, natural gas with carbon capture. I anticipate that, once we get this Renewable Energy Plan finalized, we’re going to start looking out there at those other future sources. Right now, we would see it, given our natural gas fleet, as consideration for carbon capture as one of the options, but we’re not taking anything off the table. You’ve got to have a wide open landscape, we’ve got to do right math, got to make sure we have the right plan for our customers and for our investors. So we’re not saying no to anything. So hopefully that helps.
Operator: The next question comes from Sophie Karp with KeyBanc.
Sophie Karp: I wanted to ask you about your prospective growth in renewable energy investments. So basically, as outlined by the new law and the filing you intend to make, I guess what we’re seeing in other states and other jurisdictions right now is some sort of a push back maybe on those types of investments. And the genesis of that might be different in different jurisdictions, but it seems that the cost is often a barrier. So my question is, how do you plan to sort of avoid that? And what are the steps you’ve taken to socialize this plan as to not shock the regulators or intervenors or consumers [indiscernible] that becomes reality.
Garrick Rochow: It’s a great question. There’s a lot of dynamics that play out in any type of construction, whether you’re putting in a gas pipeline or whether you’re building renewables. And we’ve really, at a ground level, from a community perspective, is where we see the opportunity to be able to best influence this. For example, we completed the 201 megawatt Heartland wind farm up in the Gratiot County. Gratiot County and surrounding counties have been very welcoming to renewables. And so, we know that because we’re on the ground making that happen. And that’s the way we intend to approach these at a very local level. Now there has been a siting reform in the state that was signed in November timeframe by our governor. That has to be implemented by the Commission.
And so, there’s some work there. But that could also help from a siting perspective, as we move forward. I would remind you too, within this New Energy Law, we have the opportunity to be outside of Michigan as well in MISO. And so, we’re going to look for a lot of – there’s windier states, there’s sunnier states, we’re going to look for those areas where projects are underway, or there’s a good siting opportunity to be able to connect and be able to achieve the clean energy standard as well. As I shared also, when I think forward about this new energy standard, it’s a mix, right? Not all ownership, it’s not all PPAs, there’s probably a blend that makes the most sense. And that’s what we’re figuring out right now. So that gives us a lot of options.
Again, that’s the strength of this to be able to find all those important resources, get them all sited and get them constructed. I would also remind you, last comment, I’m a little long winded here. But there is flexibility in this law. If you’re not there exactly in 2030 or 2035, you can get an exception through the Public Service Commission. So that also offers flexibility to be able to achieve these ambitious clean energy goals.
Operator: Our final question comes from Anthony Crowdell with Mizuho.
Anthony Crowdell: Just quickly, I wanted to take the other side of Julien’s question. I think you’ve finished the year slightly under a 15% FFO to debt, potentially get 60 basis points added for the change at Moody’s. Any thought? I think the upgrade trigger for you guys at Moody’s is 17%. Any thought of maybe achieving that to get an upgrade to your credit rating?
Rejji Hayes: It’s Rejji. I would just say it’s a pretty big lift, I would think, to get mathematically to that 17% or high teens area that Moody’s and S&P have guided us toward if we wanted to get an upgrade. And so, that would require in the absence of additional equity, pretty substantial cash flow generation and/or monetization of tax credits. And so, I don’t foresee that in the near term or in this vintage of our five year plan. And I’ve also just – observing markets now for what seems like the last 15 to 20 years. It really hasn’t been worth the cost of getting to those higher credit rating levels. If you think about the juice being worth the squeeze, just the amount of coupon that you can save by having a higher credit rating has not been worth the cost of all the equity issuances and so on.
We like where we are right now. We think that’s the most efficient area from a credit rating perspective, to issue debt. And really, there’s no appetite to equitize the balance sheet in a manner that would allow us to get an upgrade. So we feel good where we are is a longwinded way of saying that.
Operator: We have no further questions. I’ll turn the call back to Garrick for closing remarks.
Garrick Rochow: Thank you, Emily. And I’d like to thank all of you for joining us today for year-end earnings call. I look forward to seeing you on the road here in the near future. Take care and stay safe.
Operator: This concludes today’s conference. We thank everyone for your participation. You may now disconnect your lines.
