WEC Energy Group (WEC) Q4 2021 Earnings Call Transcript

WEC Energy Group (WEC 0.02%)
Q4 2021 Earnings Call
Feb 03, 2022, 2:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to WEC Energy Group's conference call for fourth quarter and year-end 2021 results. This call is being recorded for rebroadcast. [Operator instructions] Before the conference call begins, I remind you that all statements in the presentation, other than historical facts, are forward-looking statements that involve risks and uncertainties that are subject to change at any time. Such statements are based on management's expectations at the time they are made.

In addition to the assumptions and other factors refer to in connection with the statements, factors described in WEC Energy Group's latest Form 10-K and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated. During the discussions, referenced earnings per share will be based on diluted earnings per share, unless otherwise noted. After the presentation, the conference will be open to analysts for questions and answers. In conjunction with this call, a package of detailed financial information is posted at wecenergygroup.com.

A replay will be available approximately two hours after the call. And now, it is my pleasure to introduce Gale Klappa, executive chairman of WEC Energy Group.

Gale Klappa -- Executive Chairman

Well, good afternoon, everyone. Thank you for joining us today as we review our results for calendar year 2021. First, I'd like to introduce, as always, the members of our management team who are here with me today. We have Scott Lauber, who's now our president and chief executive; Xia Liu, our chief financial officer; and Beth Straka, senior vice president of corporate communications and investor relations.

As you saw from our news release this morning, we reported full year 2021 earnings of $4.11 a share. This exceeded the upper end of our most recent guidance, which was $4.07 a share. Our positive results were driven by favorable weather, solid economic recovery in our region and our continued focus on operating efficiency. Our balance sheet and cash flows remain strong.

And as we've discussed, this allows us to fund a highly executable capital plan without issuing equity. I would also note that the earnings we're reporting today are quality earnings with no adjustments. As you know, we've been very active in shaping the future of clean energy. Looking back on 2021, we set some of the most aggressive goals in our industry for reducing carbon emissions.

Across our generating fleet, we're targeting a 60% reduction in carbon emissions by 2025 and an 80% reduction by the end of 2030, all from a 2005 baseline. In fact, by the end of 2030, we expect our use of coal for power generation will be immaterial and our plan calls for a complete exit from coal by the year 2035. Of course, for the longer term, we remain focused on achieving net-zero carbon emissions from power generation by 2050. Now we all recognize that advances in technology will be needed to decarbonize the economy by 2050.

And hydrogen, of course, could be a key player, a key part of the solution in the decades ahead. To that end, we announced last week one of the first hydrogen power pilot programs of its kind in the United States. We're joining with the Electric Power Research Institute to test hydrogen as a fuel source at one of our newer natural gas-powered units located in the Upper Peninsula of Michigan. The project will be carried out this year, and the results will be shared across the industry to demonstrate how the use of hydrogen could materially reduce carbon emissions.

Switching gears now, we're driving forward on our $17.7 billion ESG progress plan, the largest five-year plan in the company's history. The plan is focused on efficiency, sustainability and growth. One of the highlights is the planned investment in nearly 2,400 megawatts of renewable capacity over the next five years. These renewable projects will serve the customers of our regulated utilities here in Wisconsin.

Overall, we expect the ESG progress plan to support average growth in our asset base of 7% a year driving earnings growth, dividend growth and dramatically improved environmental performance. In summary, we believe we're poised to deliver among the very best risk-adjusted returns our industry has to offer. And now, let's take a brief look at the regional economy. We saw a promising recovery throughout 2021 despite the prolonged pandemic.

The latest available data show Wisconsin's unemployment rate down at 2.8%; folks, that's a record low and more than a full percentage point below the national average. Importantly, jobs in the manufacturing sectors across Wisconsin have returned to pre-pandemic levels. And major economic development projects are moving full steam ahead. HARIBO, the gummy bear company is now recruiting workers at its brand new campus in Pleasant Prairie. Komatsu has begun relocating employees to its new state-of-the-art Milwaukee campus.

Milwaukee Tool's downtown office tower is set to begin operations this month, and we see more growth ahead. For example, ABB, a global industrial and technology company; and Saputo, a leading dairy products company have announced plans for major expansions in our region. And finally, you've heard the phrase: a rising tide lift all boats. Well, I'm pleased to report that one of the most celebrated luxury boat makers in the world, Grand Craft Boats, is relocating its operations from Michigan to the Milwaukee region.

You know, J. Lo, George Clooney, Robert Redford, they're among the high-profile clients of Grand Craft. So it will be interesting to see who shows up below deck at our next analyst day. Bottom line, we remain optimistic about the strength of the regional economy and our outlook for long-term growth.

With that, I'll turn the call over to Scott for more details on our utility operations and our infrastructure segment. Scott, all yours.

Scott Lauber -- President and Chief Executive Officer

Thank you, Gale. Looking back, we made significant progress in 2021. I'll start by covering some developments in Wisconsin. As Gale mentioned, we're continuing to make progress on the transition of our generation fleet and our ESG progress plan.

I am pleased to report that our Badger Hollow 1 Solar project is now providing energy to our customers. You'll recall that we own 100 megawatts of this project in Southwest Wisconsin. We have also made progress on the construction of Badger Hollow 2. Currently, we expect an in-service date in the first quarter of 2023.

This factors in a delay of approximately three months due to ongoing supply chain constraints. We do not expect a material change in the construction costs. In addition, the Public Service Commission has approved our plans to build two liquified natural gas storage facilities in the southeastern part of the state. Construction has started and we plan to bring the facilities into service in late 2023 and mid-2024.

We expect this project to save our customers approximately $200 million over time and help ensure reliability during Wisconsin's coldest winters. And we recently signed our first contract for renewable natural gas or RNG, for our gas distribution business. We'll be tapping into the output of one of our large local dairy farms. The gas supplied each year will directly replace higher emission methane from natural gas that would have then entered our pipes.

This one contract alone represents 25% of our 2030 goal for methane reduction. The Wisconsin-based company, U.S. Gain, is planning to have RNG flowing to our distribution network by the end of this year. The commission also approved the development of Red Barn, a wind farm in Southwestern part of the state.

We expect our Wisconsin Public Service utility to invest approximately $150 million in this project and for it to qualify for production tax credits. When complete, it will provide WPS with 82 megawatts of renewable capacity. And just this past Monday, we filed an application with the commission for approval to acquire a portion of the capacity from West Riverside Energy Center. West Riverside is a combined cycle natural gas plant owned by Alliant Energy.

If approved, Wisconsin Public Service would acquire 100 megawatts for approximately $91 million. That's the first of two potential option exercises. We expect the transaction to close in the second quarter of 2023. Looking forward, we expect to file a rate review for our Wisconsin utilities by May.

We have no other rate cases planned at this time. Turning now to our infrastructure segment. The 190-megawatt Jayhawk Wind Farm located in Kansas, began service in December. We invested approximately $300 million in this project.

Overall, we have brought six projects online in our infrastructure segment, representing more than 1,000 megawatts of capacity. And as you'll recall, we expect the Thunderhead Wind Farm to come online for the second quarter and the Sapphire Sky by the end of this year. Including these two projects, we plan to invest a total of $1.9 billion in this segment over the next five years, and we remain ahead of plan. And with that, I'll turn things back to Gale.

Gale Klappa -- Executive Chairman

Scott, thanks so much. We're confident that we can deliver our earnings guidance for 2022. We're guiding, as you know, in a range of $4.29 a share to $4.33 a share. The midpoint $4.31 represents growth of 7.5% from the midpoint of our original guidance last year.

And you may have seen the announcement that our board of directors, at its January meeting, raised our quarterly cash dividend by 7.4%. We believe this increase will rank in the top decile of our industry. This also marks the 19th consecutive year that our company will reward shareholders with higher dividends. We continue to target a payout ratio of 65% to 70% of earnings.

We're right in the middle of that range now. So I expect our dividend growth will continue to be in line with the growth in our earnings per share. Next up, Xia will provide you with more detail on our financial results and our first quarter guidance. Xia?

Xia Liu -- Chief Financial Officer

Thanks, Gale. Turning now to earnings. Our 2021 results of $4.11 per share increased $0.32 or 8.4% compared to 2020. Our earnings package includes a comparison of 2021 results on Page 17.

I'll walk through the significant drivers. Starting with our utility operations, we grew our earnings by $0.10 compared to 2020. First, weather added $0.04, mostly driven by colder winter weather conditions compared to 2020. Second, continued economic recovery drove a $0.09 increase in earnings.

This reflected stronger weather-normalized electric sales, as well as the resumption of late payment and other charges. Let me give you some highlights on our weather-normalized retail sales. Overall, retail delivery of electricity, excluding the iron ore mine, were up 2.6% compared to 2020. We saw a continued economic rebound in 2021 in our service territories.

Small commercial and industrial electric sales were up 4.4% from 2020, and large commercial and industrial sales, excluding the iron ore mine, were up 5.1%. Natural gas deliveries in Wisconsin were relatively flat excluding gas used for power generation. Lastly, rate relief and additional capital investment contributed $0.14 to earnings and lower day-to-day O&M drove a $0.03 improvement. These favorable factors were partially offset by $0.17 of higher depreciation and amortization expense and a net $0.03 reduction from fuel costs and other items.

Overall, we added $0.10 year over year from utility operations. Earnings from our investment in American Transmission Company decreased $0.02 per share year over year. The positive impact of additional capital investment was more than offset by two factors: a 2020 fourth quarter that benefited 2020 earnings and an impairment that we booked in the fourth quarter of 2021 on an investment outside of the ATC service territory. This substantially wrote off all of the goodwill on the project.

Earnings at our energy infrastructure segment improved $0.06 in 2021. This was mostly related to production tax credit from the Blooming Grove and Tatanka Ridge wind farms. Finally, we saw an $0.18 improvement in the corporate and other segment. Lower interest expense contributed $0.07 year over year.

Also, we recognized a $0.04 gain from our investment in the fund devoted to clean energy infrastructure and technology development. The remaining positive variance related to improved rabbi trust performance and some favorable tax and other items. In summary, we improved on our 2020 earnings by $0.32 per share. Looking now at the cash flow statement on Page 6.

Net cash provided by operating activities decreased $163 million. The increase in cash earnings was more than offset by working capital requirements, mostly related to higher natural gas prices. As we resume normal collection practices in the spring, we expect working capital to improve throughout the year. Total capital expenditures and asset acquisitions were $2.4 billion in 2021.

This represents a $471 million decrease compared to 2020, due primarily to the timing of the in-service date of Thunderhead Wind Farm. Turning now to financing activities. We opportunistically refinanced over $450 million of holding company debt during the fourth quarter. This reduced the average interest rate of these notes from 4.5% to 2.2%.

We continue to demonstrate our commitment to strong credit quality. Adjusting for the impact of voluntary pension contribution and the year-over-year increase in working capital, our FFO to debt was 15.7% in 2021. Finally, let's look at our guidance for sales and earnings. For weather-normalized sales in Wisconsin, we're expecting 0.5% growth this year in both our electric and natural gas businesses, continued growth after a very strong year.

In terms of 2022 earnings guidance, last year, we earned $1.61 per share in the first quarter. We project first quarter 2022 earnings to be in the range of $1.68 per share to $1.70 per share. This forecast assumes normal weather for the rest of the quarter. And as Gale stated, for the full year 2022, we are reaffirming our annual guidance of $4.29 to $4.33 per share.

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

Gale Klappa -- Executive Chairman

Xia, thank you so much. Overall, we're on track and focused on providing value for our customers and our stockholders. Operator, we're now ready to open it up for the question-and-answer portion of the call.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Shahriar Pourreza of Guggenheim Partners.

Gale Klappa -- Executive Chairman

Rock and roll, Shar. How are you doing today?

Shar Pourreza -- Guggenheim Partners -- Analyst

How are you doing, Gale? All good.

Gale Klappa -- Executive Chairman

We're good. We're good, yeah.

Shar Pourreza -- Guggenheim Partners -- Analyst

Excellent. So just, Gale, I know this seems like a perennial topic at this point, but any sort of thoughts on the potential end of QIP in Illinois. It seems like efforts to eliminate it are getting traction yet again with, obviously, a piece of legislation. There was a press conference on Monday.

It's scheduled to expire. So what are your thoughts here? I mean, it's a little bit noisy, just high level would be great.

Gale Klappa -- Executive Chairman

Terrific, Shar, and thanks for the question. First of all, this is really nothing new, each year, late in the session for the past five years, a bill has been introduced. Very similar bills have been introduced each year for the past five years. We don't expect any significant movement in that piece of legislation, just exactly as what happened in the last five years.

You are correct under current law, the QIP rider that allows us to put into -- to basically begin earning a return on and of after new piping is put into service. That rider is scheduled by law to expire at the end of 2023, but we got a ways to go. I would say this, we continue to try to educate and I think have had some significant success in helping most people to understand two things. First of all, the QIP rider, and the way it works is actually the most cost-effective way for customers to basically have us continue with a very needed pipe-upgrade program.

And secondly, the Illinois Commerce Commission last year authorized a study, they asked us to hire an independent consulting firm called Kiefner, which did more than a year's work in looking at what's needed in Chicago, and they concluded that more than two-thirds, almost 80% of the remaining gas distribution pipes under Chicago have a useful life of less than 15 years. So the work has to be done. We're doing it the most cost-effective way possible, not concerned about any near-term legislation.

Shar Pourreza -- Guggenheim Partners -- Analyst

OK, perfect. And then, maybe just shifting over to the infrastructure segment. It seems like it's been a bit of a longer time since your last acquisition like Sapphire Sky versus, I guess, your prior cadence. Just curious, is this sort of a symptom of anything in particular? Is there fewer opportunities or just a lot of competition, supply chain, returns -- are you seeing projects maybe getting pushed out a little bit ahead of federal policy clarity? Just maybe some thoughts there, would be great.

Gale Klappa -- Executive Chairman

No, I'm happy to answer that question, Shar. First of all, as Xia mentioned and Scott, we're way ahead of plan. So Jayhawk came into service a bit early on budget. Sapphire Sky, which we announced late last year is under construction, and I expect Sapphire Sky to begin commercial operation at the end of this year.

We don't have anything particularly in the plan for this year, not because there's a paucity of projects. We have a robust pipeline that we are looking at. I think, some of the uncertainty over federal tax credits may be slowing things down a hair, but we're way ahead of plan. We didn't have anything specific in this year's plan.

But we continue to look. We have a robust pipeline of projects, and you will see some continuing effort here. We can be, as you know, very selective because we're so far ahead of plan.

Shar Pourreza -- Guggenheim Partners -- Analyst

Got it. Got it. And just one real quick modeling question. Is the ATC Holdco goodwill impairment that's in the driver slide, just remind me what that is?

Gale Klappa -- Executive Chairman

Yeah, happy to. It's an outside the service area investment that years ago, the joint venture of Duke and ATC made in California, and we'll let Xia give you the detail.

Xia Liu -- Chief Financial Officer

Yeah. Basically, we jointly own a transmission project. We acquired that back in 2013, and we performed the good -- normal goodwill assessment on that project and decided that it's very prudent for us to write down the majority of the goodwill. So it's a noncash book entry that we did in the fourth quarter 2021.

Shar Pourreza -- Guggenheim Partners -- Analyst

Got it. Perfect. Thanks, guys. I appreciate it.

And Gale, hopefully, the "no adjustments" comment in your prepared remarks was understood well by the audience. Appreciate it. Thanks, guys.

Gale Klappa -- Executive Chairman

Thank you, Shar.

Shar Pourreza -- Guggenheim Partners -- Analyst

Bye.

Operator

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

Gale Klappa -- Executive Chairman

Good afternoon, Julien.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Hey, hey, hey, afternoon. Thanks for the time, guys. Appreciate it. And just to clarify the last question a little bit on Peoples in Illinois here, mean, when you say you're not concerned, is the capex spend that you have over '22 to '26 here, which, obviously, spans the lapsing of the current program.

You're saying that if that program were to go away here, that would -- that number ballpark would stay intact?

Gale Klappa -- Executive Chairman

Well, what would happen? I mean, first of all, I think the most direct answer to your question is that work is needed for safety and reliability. So we either would continue, assuming that the rider was renewed by legislation post the end of 2023 or we would revert to, basically, annual rate cases. And again, if you recall, in Illinois, the commission there uses forward-looking test periods. So either way, that work's got to continue and the investment is in the range, depending upon the year, of $280 million to $300 million a year.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Got it. Excellent. Thank you. And then, just pivoting on the transmission side here, just Cardinal-Hickory.

Obviously, some developments in the courts last week. Just how are you thinking about options given the federal wildlife reserve just in terms of alternate routes, timing, capex, recovery? Anything you could share there?

Gale Klappa -- Executive Chairman

Sure. Happy to. And for those who might not have been following Cardinal-Hickory, there is some activity in the courts with an environmental group challenging the permits that were issued by U.S. Fish and Wildlife Service by the Iowa Public Service Commission, by the Wisconsin Public Service Commission.

So there have been multiple permits that would allow this more than 100-mile line to be built coming out of Iowa into Southwestern Wisconsin and then working its way over to the Madison area. So that's essentially a little more than a 100-mile line, and to show you how long these projects take, that project was first envisioned and first discussed in 2011. So construction has been underway essentially in the Iowa portion, the portion in question where the permits are being challenged is in the Southwestern part. It's an environmentally sensitive part of the Southwestern section of the state of Wisconsin.

It's called the Driftless Area. American transmission company, and again, this is partially owned, this line will be partially owned by ITC, ATC and the Dairyland Power Cooperative. The ATC portion, no one has questioned the permits for that section of the line. So we'll see how all of this works out in court, but long story short, the Wisconsin Commission has reiterated the need for the line and reiterated their belief that the approval was appropriate and needed.

We'll see how all this works out in court. At the end of the day, that line is an important part of moving renewable energy across the Midwest and into Wisconsin. So at the end of the day, I'm confident something positive will come out of this may be a bit delayed. We'll see what happens in the courts.

I hope that helps, Julien.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

No, absolutely. It's good color. Well, I'll leave it there, guys. Thank you, again, and best of luck.

Hope to see you guys soon.

Gale Klappa -- Executive Chairman

Sounds good. Thanks, Julien.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Sure.

Operator

Your next question comes from the line of Jeremy Tonet of J.P. Morgan.

Gale Klappa -- Executive Chairman

Greetings, Jeremy.

Rich Sunderland -- J.P. Morgan -- Analyst

Hi, it's actually, Rich Sunderland, on for Jeremy. Can you hear me?

Gale Klappa -- Executive Chairman

I can. What have you done with Jeremy?

Rich Sunderland -- J.P. Morgan -- Analyst

Jeremy is sorry to miss, but I'm happy it's time for me today. Just maybe starting around the load growth expectation for 2022. Curious on the key drivers there and really how you think about realized recovery from the pandemic in 2021? And maybe how much conservative is -- conservatism is baked in there for the '22 outlook?

Gale Klappa -- Executive Chairman

We're going to let Scott handle that for you. He and Xia on top of those details. I will say this though, we're coming off of -- just as a reminder, we're coming off a very strong recovery in 2021, and we see continued growth in 2022. Scott, particularly -- at least I was impressed by the numbers related to the small C&I segment.

Scott Lauber -- President and Chief Executive Officer

You're exactly right, Gale. In fact, when we go back and Xia, I look at our forecast compared to what happened in 2021. We were right on with residential at hit exactly on, the positive surprise was in small commercial and large commercial. So we came in almost -- our original forecast was about 1.3% growth, and we came in at 2.5% at a retail-less mind.

So very happy with the growth that we saw. And as you look at it, we continue in 2022, to expect residential as people can start coming back to work and you start to see more and more people return to work, residential will go down a little bit. And then, that small commercial to grow, continuing to expand in there. And then, once again, large commercial, we almost have a 2% growth in that large commercial sector.

So we are seeing really, really good growth. And you can see, as you look at our longer-term plan, a lot of good economic growth -- that Gale talked about on the call. So a lot of good economic growth coming here, too.

Rich Sunderland -- J.P. Morgan -- Analyst

Thanks, appreciate the color there. And then, you may be pivoting this new pilot program in Michigan. What's the long-term target for blending? And how do you think about this program in the context of your entire fleet?

Gale Klappa -- Executive Chairman

You're speaking, I believe, of the hydrogen pilot program that we're going to undertake in the Upper Peninsula, Michigan, at one of our newer RICE units. And just to put all of that in context for everyone, the RICE units, it's a technology that's been well proven, fueled by natural gas, modular technology, if you will, does not require water permit. I mean, these are really advanced state-of-the-art power generation facilities. And the project is really a pilot project -- it's being designed right now.

We will actually test burn hydrogen in a mix with natural gas, up to 25% hydrogen, 75% natural gas. And this project will actually be in the field in the fourth quarter of 2023. We, with the Electric Power Research Institute will then analyze the results. And as I mentioned in the prepared remarks, the results will be shared across the industry.

We're optimistic that this pilot program, one of the first of its kind in the U.S., will demonstrate that hydrogen, with that particular technology, the RICE unit technology, could be a major player going forward in decarbonizing the economy.

Rich Sunderland -- J.P. Morgan -- Analyst

Great. Thank you for the time today.

Gale Klappa -- Executive Chairman

You're welcome.

Operator

Your next question comes from the line of Neil Kalton of Wells Fargo Securities.

Gale Klappa -- Executive Chairman

Greetings, Neil.

Neil Kalton -- Wells Fargo Securities -- Analyst

Hi, everybody. Hello.

Gale Klappa -- Executive Chairman

Yeah, hello, Neil, are you getting snow or ice where you are?

Neil Kalton -- Wells Fargo Securities -- Analyst

We're getting a lot of it, and I'm watching all my neighbors and my wife and son shoveling the driveway right now, so I'm feeling pretty good about this. I a.m. winning.

Gale Klappa -- Executive Chairman

I just got a text from your wife, it said you dog.

Neil Kalton -- Wells Fargo Securities -- Analyst

Yeah, bad back. I can't do things anymore. So anyway, just a question on the solar. So obviously, Badger Hollow, I guess, it slipped a little bit.

Understandable given all the supply chain issues, etc., but you've got quite a bit more solar in the plan as we look out over the next few years. And I'm curious if your -- if there's any, at this point, any reason to be concerned about costs or timing from what you're seeing right now as it relates to the additional, I think, 1,300 megawatts that you plan to do over time?

Gale Klappa -- Executive Chairman

Yeah, great question, Neil. I think, the short answer is with what we're seeing for 2022 and what we have under contract, no significant issues other than perhaps some timing. Down the road, Scott, your thoughts?

Scott Lauber -- President and Chief Executive Officer

Yeah, down the road, I mean, we're definitely watching steel prices for the infrastructure and also the solar panels. But as you look at natural gas prices also as the prices go up, the economics are still there. So we expect that some of the costs will rise, and we are monitoring it very closely, as you can imagine, but I don't think it's going to change our plan.

Gale Klappa -- Executive Chairman

OK, I agree with Scott. And Neil, one other point. The drive to decarbonize the economy is not abating in any way, shape or form. So we continue to see those investments as both needed and expected as we go down the road.

Neil Kalton -- Wells Fargo Securities -- Analyst

Perfect. Thank you.

Gale Klappa -- Executive Chairman

Thank you, Neil.

Operator

Your next question comes from the line of Durgesh Chopra of Evercore ISI.

Gale Klappa -- Executive Chairman

Greetings, Durgesh. How are you doing?

Durgesh Chopra -- Evercore ISI -- Analyst

I'm doing well. I'm doing well. Thanks for asking. Thank you for taking my question also.

Xia, just this is a modeling question, the $0.04 gain on clean energy fund. Can you just elaborate on that? And then, what quarter was that gain? And then, I'm assuming you're not sort of modeling anything for 2022? That was a multipart question, I'm sorry.

Xia Liu -- Chief Financial Officer

That's OK. I think, on the second quarter call, I mentioned that we booked a $0.03 of gain in the second quarter, then we picked up another $0.01 in the fourth quarter, so $0.04 for the whole year. And when we develop the financial plan, we don't try to build any expectations of anything like similar like investment gains like this. But if the market continues to point to the right -- point in the right direction, then if we end up having more gains, we'll be happy to book those, but we don't count on those going forward.

Gale Klappa -- Executive Chairman

Sounds right. We'd be delighted to book more gains. I think, this was from a revaluation, if you will, of one particular investment in the fund that is -- these funds, as you know, investing in clean technology, some of them hit, some of them don't. This one hit, it hit very, very well.

And with the new round of funding and the devaluation, it was perfectly appropriate to revalue our investment.

Durgesh Chopra -- Evercore ISI -- Analyst

Awesome. Thank you for that color. And then, just maybe your peers on the call today talked about just wanted to sort of be interested in your progress on your -- actually, your execution and your capital plan for '21. Your peers mentioned some supply chain concerns and that to push some of the renewable projects out.

Just wondering, are you seeing any of those pressures? And how did you actually do in 2021 versus your targeted capex plan?

Gale Klappa -- Executive Chairman

Well, and we'll ask Scott to give you his view as well. The one impact we had was really more from COVID than it was from supply chain, and that was a large solar farm, a large solar field called Badger Hollow 1, and that got delayed. It's now in service. That got delayed several months.

And it was a decision that we helped to make at the point where we were deep in the pandemic in 2021 to continue the construction of PACE. We would have had to bring in about 150 crew people from outside the state to continue the construction at that point in time. In the middle of the pandemic, we thought that was really not a very good idea. So we agreed to a schedule delay, but it's got no significant cost delay at all, and that's now behind us.

Scott Lauber -- President and Chief Executive Officer

No, that's exactly correct. And everything else for 2021, our supply chain worked with our vendors to get everything in line. And we've had a practice here for several years that we are ordering some of the long lead time materials a year, a year and a half ahead of time for some of these major projects to make sure we have it. And then, the only other item was just what we mentioned in our prepared remarks, whereas Badger Hollow 2, we see about a three-month delay right now, but no significant cost at this time.

Durgesh Chopra -- Evercore ISI -- Analyst

Excellent. Thank you, guys, much. Appreciate the time.

Gale Klappa -- Executive Chairman

You're welcome. Thank you, Durgesh. Take care.

Operator

Your next question comes from the line of Michael Sullivan of Wolfe Research.

Gale Klappa -- Executive Chairman

Michael how's your IT department?

Michael Sullivan -- Wolfe Research -- Analyst

Oh, yes, fantastic.

Gale Klappa -- Executive Chairman

You might kind of reiterate no change in your rating, right, Michael?

Michael Sullivan -- Wolfe Research -- Analyst

Yeah, yeah, for sure. Yeah, the first question, maybe just if you could give us a sense of what the clean O&M savings number was for 2021 and what you're embedding in '22 guidance?

Gale Klappa -- Executive Chairman

Happy to do so. Xia's got it right in front of us. Xia?

Xia Liu -- Chief Financial Officer

So for year 2021, we ended with 1.6% down year over year compared to 2020. So we guided earlier in the year to 2% to 3%, and we're right in that range. And what was -- you had a second part of your question.

Michael Sullivan -- Wolfe Research -- Analyst

Yeah, what are you assuming in 2022?

Xia Liu -- Chief Financial Officer

Yeah, for 2022, we guide at flat to 1% reduction from 2021.

Michael Sullivan -- Wolfe Research -- Analyst

OK, great.

Gale Klappa -- Executive Chairman

And Michael, I'm sorry, I'm sure you recognize this, but in light of the general inflation in the economy, we think that's really, really strong performance. We're very pleased about the plan we have in place to deliver what Xia's discussing.

Michael Sullivan -- Wolfe Research -- Analyst

Got it. OK. And just curious if you could give any latest thoughts on where you think things might go with the pending issue at FERC as it relates to the RTO rider?

Gale Klappa -- Executive Chairman

My own guess, and this is just a guess, but my own view is the RTO rider is probably history, but to be replaced by something else, perhaps an incentive type mechanism. I'm guessing the RTO rider as we've known it probably won't survive. However, a very important point, we have not assumed the continuation at all of the RTO rider in our forecast for 2022 earnings.

Michael Sullivan -- Wolfe Research -- Analyst

OK, that's great. Thanks. And sorry, just one last one. Maybe it looks like the FFO to debt metric ticked down a little bit year over year.

Should we think about that as kind of stabilizing around that 15% -- 15.7%. I think, where it came out as a go-forward target?

Gale Klappa -- Executive Chairman

Xia, your view?

Xia Liu -- Chief Financial Officer

Yeah, we target the 15% to 16% measured by Moody's and S&P. So this is right in that neighborhood. And as I said in the prepared remarks, the dip is really driven by year-over-year change of working capital. And that's largely attributed to higher natural gas prices.

So we expect that to recover. And we also made a voluntary pension contribution in 2021. So overall, we -- I think we're right in the target range for FFO to debt.

Michael Sullivan -- Wolfe Research -- Analyst

Great. Thank you very much.

Gale Klappa -- Executive Chairman

Thank you, Michael. Take care.

Operator

Your next question comes from the line of Andrew Weisel of Scotiabank.

Gale Klappa -- Executive Chairman

Good afternoon, Andrew.

Andrew Weisel -- Scotiabank -- Analyst

Hey, thanks for taking my questions. Most of them have been answered. I just want to follow up a little bit on the upcoming Wisconsin rate case. Two quick ones.

First is, do you see any potential for yet another stay out or agreement to keep rates unchanged? I don't mean to be greedy. You've done a great job managing the customer bills. Just wondering strategically, if you want to extend the stay out or if you feel it's time to have a conversation with regulators and interveners like you do every so often?

Gale Klappa -- Executive Chairman

Yeah, it's a great question, Andrew. And I think, unanimously, we believe it's time to reset, if you will. Number of moving parts that are in our thinking. I mean, first of all, as you recall, we've announced the retirement of four older coal-fired units at our Oak Creek side.

These are 1960s vintage units, and we've announced the retirement of the first two of those four in 2023 and the second two of the four in 2024. So there will be retirement there. There will be cost savings there. And we really have been out of a rate case for so long that it's really just time to step back and reset.

And I think, every -- the commission staff, the interveners, I mean, we all believe it's just time to take a thorough review again, and we're looking forward to that. Scott?

Scott Lauber -- President and Chief Executive Officer

It's gonna be a very straightforward rate case. I mean, when you look at our capital investments that we've made, the capital investments and the majority of them, I think when you look at what's already been approved. And at the commission right now, that's about 60% or a little over 60% of the rate base. And then, you even add in new services and other reliability capital.

Almost all of this has been approved or great capital additions for reliability or decarbonizing the environment. So it's gonna be a pretty straightforward rate case as you see us pull the final numbers together here in the next couple of months.

Andrew Weisel -- Scotiabank -- Analyst

OK. And not to get ahead of that, but are you able to give us any kind of high-level guess of what it might do to rates directionally or qualitatively?

Gale Klappa -- Executive Chairman

Stay tuned. We're pulling everything together. The filing is due by May 1. So we'll certainly have a good conversation with you in advance of that.

Scott Lauber -- President and Chief Executive Officer

Yeah, and I think, the other thing to remember is this is a place where you do two-year forward-looking rate cases. So a lot of our capital projects and you see that capital spending, it's going to come in over two years, just like Gale mentioned, the retirement of those plants are over two years. So we'll factor that in, too. So it will be a multiyear filing we do here.

Gale Klappa -- Executive Chairman

Very straightforward case, though. We wouldn't expect being to have anything is dramatic in terms of -- this is not a case about higher O&M. As Scott said, this is a case about capital, much of which will have already been approved, capital needed for reliability and for decarbonization.

Andrew Weisel -- Scotiabank -- Analyst

Very good. And then, just a quick follow-up, is it too early to talk about performance-based ratemaking in this upcoming case?

Gale Klappa -- Executive Chairman

Yeah, and I'm glad you asked. For those of you who have not followed it, perhaps quite as closely, the commission did have an informational hearing about -- just about the concept of performance-based ratemaking. That hearing came out of more than a year's worth of work of the Governor's task force looking at climate change, looking at decarbonization, looking at what initiatives the state might put in place. But I think, it's very clear from the informational hearing that any changes in the process for putting rates in place in Wisconsin is gonna be deliberate, gonna be thoroughly thought through.

And I would not expect that to have any impact on our upcoming rate review. 

Andrew Weisel -- Scotiabank -- Analyst

OK, very helpful. Thank you.

Gale Klappa -- Executive Chairman

You're welcome. By the way, before we go to the next caller, I just got a text from one of your brother and who says, given your performance, nobody's asking the most important question. Will Aaron Rodgers be back in Green Bay next year? The answer to that is, I don't know, but Janis is still with us for the bucks and rock and roll.

Operator

Your next question comes from the line of Michael Lapides of Goldman Sachs.

Michael Lapides -- Goldman Sachs -- Analyst

Hey, guys. Thanks for taking my questions. And I'll leave my John Moran props at home for now. 

Gale Klappa -- Executive Chairman

There you go.

Michael Lapides -- Goldman Sachs -- Analyst

Really nice night in New York last night. Real quick, just -- just thinking about gas demand. If I go back over the last several years, kind of three, four years or so, weather-normalized gas demand in Wisconsin was actually pretty elevated, I can go back five years. But now, this year, you're forecasting about 0.5%.

And then, if I look at your November slide deck, you kind of forecast, I think it's around 0.7% to 1% demand growth. Can you just talk to us a little bit about the trajectory, meaning why coming down off that kind of -- yeah, first of all, what led to the abnormal kind of that 3%-ish-plus range from a couple of years ago and that lasted for several years. And then, down to 0.5% now kind of as we are coming out of COVID, but then reramping back up?

Gale Klappa -- Executive Chairman

Yeah, and Scott and I will both take a shot at that for it. Good question, Michael. The easy question, the first piece is what happened? Why did we not see growth in weather normal gas demand during this past year, during 2021. And as we looked at the data, I think the answer really pops out from the data and that is the effect of the pandemic.

If you think about the most dramatically impacted segment of our customer base for the pandemic, it's small, commercial and industrial customers. Many of those premises were just closed during huge swaths of the pandemic. And so, they weren't -- think of the restaurants that weren't cooking, think of the stores that were completely closed and not heated to the normal level. So clearly, the impact of the pandemic tempered the growth in customer demand for natural gas.

But we still think we're going to see a growth trajectory. And Scott, we're still seeing strong customer growth.

Scott Lauber -- President and Chief Executive Officer

Yeah, that's exactly right. And when we look at it, we're looking at strong customer growth, about 0.5%, maybe 0.7%. I mean, you can imagine, we are factoring in, if prices stay a little bit higher, conservation will continue and products continue to become efficient. So looking forward, we're still assuming that 0.5% in the future -- about 0.7% to 1%.

So good growth. And to Gale's point, remember, the pandemic started in about March. So last year, there was two months that weren't reflected in the previous year when the pandemic -- we didn't have a pandemic. So that's also like 2021 was a little weaker because of just the timing of the pandemic.

Xia Liu -- Chief Financial Officer

Yeah. I would just add, Michael, that we came pretty much on top of our forecast last year. So we guided that way. So we came out exactly what we thought it would happen last year.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. And then, just a follow-on question. Like if I look at 2020 and 2021 earnings, both years actually would have been a higher number if I backed out the kind of roughly the $0.08 of debt extinguishment costs that showed up in each year. So the earnings number, like a lot of companies consider that nonrecurring.

And I respect the fact that back things in and out, kind of you stick with GAAP, but if I think about it, that is something that probably isn't going to happen in 2022 or 2023, I may be wrong there. So it would imply the base would have actually been higher, meaning the '21 starting point or the '20 starting point, but the growth rate into '22 and '23 would actually be a little bit lower just because the starting point is higher. Am I just kind of thinking about that right? Or are there -- are you looking at the debt tranches at the holdco and saying, "Hey, look, I'm going to have other refinancings and I'll probably incur other similar like costs?" Or are there other moving parts I'm not considering?

Gale Klappa -- Executive Chairman

Michael, I'll ask Xia to answer the question about the holdco debt. Let me, if I can, respond though a little bit more broadly. Of course, there are a number of moving pieces in any given year. But as you know, some companies in our industry, basically, adjust their way to a high growth rate.

We don't do that. And I'm glad you're asking the question because I think the quality of our earnings and the fact that we don't adjust our way to a higher growth rate, I think, that's a differentiator for us. I mean, I really do. And it shows up in things like cash flows.

It shows up in things like dividend growth. And so, what we're reporting, I mean, we don't nickel and dime you to death with little adjustments here and there just to hit a growth rate. What we're reporting is high quality and real and GAAP. And with that, I will get off my soap box and let Xia respond.

Xia Liu -- Chief Financial Officer

Michael, I wouldn't just pick out that one item and readjust whatever you're trying to adjust because to Gale's point, we're very much focused on the quality of earnings. If we see favorable weather, we see stronger economic recovery than what we originally forecasted. If we also have some favorable tax resolution happen in 2020 -- in the year, I will remain opportunistic about debt refinancing and just to take advantage of the development. So I think, that's just the normal course of what we do to manage throughout the year.

So I wouldn't take one item out and adjust it out at all.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Thank you, guys, much. Appreciate it.

Gale Klappa -- Executive Chairman

Take care, Michael.

Operator

Your final question comes from the line of Paul Patterson of Glenrock Associates.

Gale Klappa -- Executive Chairman

Paul, you changed your last name, didn't you?

Paul Patterson -- Glenrock Associates -- Analyst

No, that's called misunderstanding. So a lot of my questions have been asked and answered. And I don't want to nickel and dime you guys to death, but just sort of a quick little follow-up's here. The $0.06 for the taxes, would -- is that -- how should we think about that going into 2022? Is that -- is there any something unusual there? Or just how should we think about that going into 2022? 

Gale Klappa -- Executive Chairman

Xia, your thoughts?

Xia Liu -- Chief Financial Officer

Yeah. So no, nothing unusual there. As I said in the prepared remarks, that was largely driven by the production tax credit, the additional projects that we brought online. So you know that we expect a couple more projects coming online, one in the middle of the year, the other end of the year.

So we expect another $0.08 of pickup from this section. And the only thing I would warn you is I wouldn't do a $0.02 per quarter because depending on the timeline and everything else, it could be skewed to one quarter versus another. But for the year, we expect another $0.08 increase.

Paul Patterson -- Glenrock Associates -- Analyst

OK. And then, just with the goodwill impairment, I know it looks tiny to me. I mean, it looks like it's about $0.01 or something maybe. But just -- I was just a little bit curious, you guys did a test and it led to a revaluation.

But what caused -- what changed in order to have the test? I'm just sort of -- you don't think of the transmission project in California. Like I'm just sort of curious as to what made you guys say, "Hey, the goodwill don't apply anymore." What -- was there any particular event or anything there that that had that? Again, I know it's kind of nickel and dime in for you guys, but I'm just sort of wondering.

Gale Klappa -- Executive Chairman

No, no problem. It was really basically a FERC ROE case that we got a FERC order and we took another look, Xia?

Xia Liu -- Chief Financial Officer

Yeah. So Gale mentioned one of the drivers for the year-over-year change for ATC. But if you're just looking at the goodwill impairment, we do that every year. We look at the goodwill, we do the evaluation, we look at the assumptions, including forward-looking ROE, capital expenditure opportunities and all the assumptions around that.

It just -- the most recent assessment led us to believe that the goodwill should be written off, nothing abnormal. It's just normal course.

Paul Patterson -- Glenrock Associates -- Analyst

Right. But that's because, basically, you guys saw a lower -- because the lower ROE had been awarded, it impaired goodwill. Is that how we should think about it? Do I understand you guys correctly? Or is it something else?

Xia Liu -- Chief Financial Officer

No, it's capital expenditure opportunities. No, nothing unusual. So we just look at the net cash flows and terminal value and apply the different assumptions and that, which led to the conclusion that the goodwill should be written off.

Paul Patterson -- Glenrock Associates -- Analyst

OK. OK. Well, thanks so much. I appreciate it.

Gale Klappa -- Executive Chairman

You're more than welcome. Happy to have your questions. All right. Well, I think, we've worn you out.

So thanks so much for participating in our conference call today. We appreciate all your questions. And if you have any other questions, feel free to contact Beth Straka. Her direct line is (414) 221-4639.

Thanks, everybody. Take care, so long for now.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Gale Klappa -- Executive Chairman

Scott Lauber -- President and Chief Executive Officer

Xia Liu -- Chief Financial Officer

Shar Pourreza -- Guggenheim Partners -- Analyst

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Rich Sunderland -- J.P. Morgan -- Analyst

Neil Kalton -- Wells Fargo Securities -- Analyst

Durgesh Chopra -- Evercore ISI -- Analyst

Michael Sullivan -- Wolfe Research -- Analyst

Andrew Weisel -- Scotiabank -- Analyst

Michael Lapides -- Goldman Sachs -- Analyst

Paul Patterson -- Glenrock Associates -- Analyst

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