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Xcel Energy Inc (NASDAQ:XEL)
Q4 2020 Earnings Call
Jan 28, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen. Welcome to Xcel Energy's year-end 2020 Earnings Conference Call. [Operator Instructions] Questions will be taken from institutional investors. Reporters can contact media relations with inquiries and individual investors and others can reach out to Investor Relations.

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

Paul Johnson -- Vice President of Investor Relations

Good morning and welcome to Xcel Energy's 2020 year-end conference call. Joining me today are Ben Fowke, Chairman and Chief Executive Officer; Bob Frenzel, President and Chief Operating Officer; Brian Van Abel, Executive Vice President and Chief Financial Officer; and Amanda Rome, Executive Vice President and General Counsel.

This morning, we will review our 2020 results and share 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 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 SEC filings. Today we will discuss certain metrics that are non-GAAP measures including the ongoing earnings in electric and natural gas margins. Information on the comparable GAAP measures and reconciliations are included in the earnings release.

I may go off-script for a second, which sights [Phonetic] little bit dangerous, but in December, Utility Dive recognized Ben Fowke as Utility Executive of the year for his environmental leadership. Ben was the architect of our Steel for Fuel strategy in Xcel. He is also the one that drove us to be the first utility to claim that we're going to have an objective of 100% carbon-free by 2050. This is a well-deserved and overdue award.

With that, I'll turn it over to Ben.

Ben Fowke -- Chairman and Chief Executive Officer

Oh no Paul. I am blushing man. I'd say that old saying, never get off the boat Paul, never get off...

Paul Johnson -- Vice President of Investor Relations

I'm not so sure what that means but I'll just take it.

Ben Fowke -- Chairman and Chief Executive Officer

That's from Apocalypse Now. Anyway. Okay, all right. So I'm not going to go off script. And I'm going to thank everybody and welcome you to our call. Last year was certainly a challenging year, but our employees came through, delivering on our financial and operational objectives while mitigating the impacts of COVID and helping our communities.

Overall, 2020 was truly a stellar year. We executed on our business continuity plans as we kept employees and customers safe while providing reliable customer service. We're helping to jump-start the economy through our capital investment programs which create jobs and investment in our communities. And we stepped up our commitment to charitable giving to support those in need, including donating a gain of almost $20 million from our sale of the Mankato facility.

We had a long and impressive list of accomplishments in 2020. Let me share a few of them. We delivered EPS of $2.79 in 2020 which is the 16th consecutive year of meeting or exceeding our earnings guidance. We raised our annual dividend by $0.10 per share, which is the 17th straight year, we've increased our dividend. And we achieved a total shareholder return of just over 7.8%, which was the second highest TSR for our peer group. Our O&M declined almost 1% as we took actions to mitigate the impacts of COVID. The Minnesota Commission approved our wind repowering proposal and our request to acquire the Mower wind farm. And finally we resolved multiple rate cases during the pandemic.

Now turning to our investment plans. The Minnesota Commission recently approved our 650 megawatt wind repowering proposal with $750 million of rate base investment. The wind portfolio was projected to provide customer savings of more than $160 million over the life of the assets. It'll create jobs, jump-start the economy and reduce carbon. In addition, we are also proposing to acquire a repowering 120-megawatt wind farm PPA buyout for about $210 million. Now, this project was initially submitted as part of the Minnesota Relief and Recovery (RFP), but the repowering didn't result in customer savings. However, we worked with the party on the terms and the project is now expected to provide customer savings over the life of the asset. So, we'll move forward with it.

We also plan to file our Minnesota solar proposal later in the quarter. This project consists of 460 megawatts of solar facilities near our retiring Sherco coal plant which takes advantage of existing transmission. We fine-tuned our projections and now expect an estimated investment of $550 million. This lower cost provides more benefits to our customers. We have requested a commission decision on both projects in the third quarter and are confident the Commission will see the consumer benefit.

As part of our strategy to lead the clean energy transition, we're also working to electrify the transport sector. In 2020, we announced the goal to enable 1.5 million electric vehicles in our service territory by 2030. We have programs and filings under way in various states and our transportation electrification plan in Colorado was just recently approved. And we continue to achieve important milestones in our nation-leading wind expansion program with the completion of six projects in 2020. These projects represent nearly 1,500 megawatts of capacity and will complete under budget. In addition, we have approximately 800 megawatts of wind projects under construction which are expected to be completed in 2021. We're excited to continue the clean energy transition, which will result in significant customer savings and carbon reductions.

We also had a strong year operationally, for example, our nuclear team continues to make great strides in transforming performance while reducing cost. The fleet achieved a capacity factor of over 96% in 2020 even with a refueling outage during COVID. We have one of the top-performing nuclear fleets in the country as rated by both the NRC and INPO.

And in addition to strong performance, we have continued to lower our cost structure with O&M costs declining by more than 5% in 2020. And this is the sixth straight year of declining O&M costs in our nuclear operations. I'm extremely proud of the effort and the results of our nuclear employees and their leadership in our industry.

Beyond our strong financial and operational performance. I'm also very proud of our ESG leadership. In 2020, we estimate that we will reduce carbon emissions by about 50% from 2005 levels. And we remain on track to achieve an 80% carbon reduction by 2030. We announced our plans to convert the Harrington coal plant in Texas to natural gas by the end of 2024. Working with our co-owners, we announced a -- the proposed early retirement of the Craig and Hayden coal plants in Colorado. We will address the remaining coal plants in Colorado in our resource plan filing at the end of March.

We're also making significant strides to improve ESG compliance, transparency and disclosure as we issued our TCFD risk assessment. Our Natural Gas Report on our plans to reduce greenhouse gases in our LDC and our Green Bond Impact Report. We earned another perfect score on the Human Rights Campaigns Corporate Equality Index and remain among the best places to work for LGBTQ equality. All of this adds up to an outstanding ESG record, which is integrated into our strategy, and increasingly important to investors. I'm really pleased with our accomplishments and looking forward, I'm excited about the opportunities we have in 2021 and beyond.

With that, I'll turn it over to Brian.

Brian Abel -- Executive Vice President and Chief Financial Officer

Thanks, Ben, and good morning everyone. We had another strong year booking $2.79 per share for 2020 compared with $2.64 per share last year. Most significant earnings drivers for the year include the following. Higher electric margins increased earnings by $0.32 per share, primarily driven by riders and rate outcomes. Higher AFUDC increased earnings by $0.08 per share due to large projects under construction including our wind generation. Lower O&M expenses increased earnings by $0.02 per share, driven by our cost management efforts. And finally a lower effective tax rate increased earnings by $0.22 per share.

As a reminder, production tax credits lowered the ETR. However PTCs flawed back to customers through lower electric margin are largely earnings neutral. Offsetting these positive drivers were increased depreciation and interest expense, which reduced earnings by $0.36 per share reflecting our capital investment program. Other taxes, primarily property taxes reduced earnings by $0.06 per share. And finally, other items combined to reduce earnings by $0.07 per share.

Turning to sales, as expected COVID had an adverse impact as weather in leap year adjusted electric sales declined by about 3%. For 2021, we don't anticipate a full shut down of the economy like we experienced last spring. Instead, we expect a slower recovery with lingering impacts throughout the year. As a result, we anticipate modest weather-adjusted sales growth of approximately 1% off of depressed 2020 sales levels. As a reminder, we have a sales drop mechanism for all electric classes in Minnesota and decoupling for the electric residential and non-demand small C&I classes in Colorado. This covers about 45% of our total retail electric sales.

Shifting to expenses, we showed strong cost management by reducing O&M nearly 1% to mitigate the adverse COVID impacts. We expect O&M expenses to be relatively flat in 2021 reflecting incremental costs for our new wind farms, offset by a decline in base O&M.

Next, let me provide a quick regulatory update. In December, the Minnesota Commission approved our 2021 sale proposal as an alternative to our filed rate case. We view this as a constructive outcome that will allow us to focus on the Minnesota Resource Plan and other policy initiatives in 2021. In January, we filed a New Mexico rate case seeking a rate increase of approximately $88 million or a net rate increase of $48 million after reflecting the fuel savings in PTCs from the Sagamore Wind Farm. The net increase was driven by investment in transmission and distribution due to the significant growth in New Mexico since the last case.

The request was based on the ROE of 10.35% and equity ratio of 54.7%, a retail rate base of $1.9 billion and the historic test year. It also includes changes in depreciation to reflect the plan -- early retirement of our top coal plant. The decision and implementation of final rates is anticipated in the fourth quarter of this year. We also plan to file our Texas rate case later in the quarter. Both cases were required as a part of the approval of our wind projects at SPS.

In November 2020, we filed a request in North Dakota seeking an electric rate increase of approximately $22 million. This is our first rate case in North Dakota in eight years. The request was based on an ROE of 10.2%, and equity ratio of 52.5%, a rate base of $677 million and the forecast test year. Interim rates were implemented in January and a decision is expected later this year.

And in February, we will file a transmission expansion plan in Colorado to increase capacity to enable the addition of renewables to the system. We will also file a resource plan in Colorado at the end of March. It will include proposed plans for remaining coal plants in the state as well as additional renewable resources as we work to reduce carbon emissions at least 80% by 2030. The transmission expansion and resource plan will provide transparency into our long-term opportunities and will likely lead to robust capital investment in the second half of the decade. We expect the decisions on both the transmission expansion and the resource plan by early 2022.

As Ben mentioned, the Minnesota Commission approved our wind repowering proposal. As a result, we are moving these wind projects into our base capital forecast, which now reflects a rate base growth of 6.6%. We also have potential incremental capex of approximately $210 million for the PPA buyout and $550 million for the Sherco solar facility. If approved rate base growth would be 6.9%. Accordingly, we have updated our capital tables and our financial plans as detailed in our earnings release.

We anticipate that the incremental capital if approved by the Minnesota Commission would be financed with approximately 50% equity and 50% debt. This incremental equity will allow us to fund accretive capital investments, which will benefit our customers while maintaining our solid credit metrics and favorable access to the capital markets.

And with that, I'll wrap up with a quick summary. We continue to provide reliable service to our customers, while ensuring the safety and wellbeing of our employees and communities. We effectively mitigated COVID impacts and delivered earnings within our original guidance range for the 16th consecutive year. We increased our dividend for the 17th consecutive year. We continue to execute on our Steel for Fuel strategy by adding nearly 1,500 megawatts of owned wind in 2020.

The Minnesota Commission approved our wind repowering proposal and the acquisition of the Mower wind farm, both of which will provide significant benefits to our customers. The Colorado Commission approved our transportation electrification plan. We enhanced our ESG disclosures and they further progressed to this coal exposure and delivering our carbon reduction goals. We resolved multiple regulatory proceedings. We reaffirmed our 2021 earnings guidance of $2.90 per share to $3 per share. And finally, we remain confident we can deliver long-term earnings and dividend growth within our 5% to 7% objective range.

With that, that concludes our remarks. And operator will now take questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We'll take our first question from Jeremy Tonet with JP Morgan. Please go ahead.

Jeremy Tonet -- JP Morgan Chase -- Analyst

Hi, good morning.

Ben Fowke -- Chairman and Chief Executive Officer

Hi Jeremy.

Jeremy Tonet -- JP Morgan Chase -- Analyst

Just wanted to start off with what you could say about what type of capital opportunities are you seeing associated with the Colorado IRP and I was just wondering if you could frame the magnitude of what incremental spend might look like versus your current plan?

Brian Abel -- Executive Vice President and Chief Financial Officer

All right, Jeremy, good morning. So, two parts to that is really the Colorado Transmission Expansion Plan. And if you've heard about us talk before about transmission and we see a lot of opportunities to really -- this is needed to enable our energy transition. We need to enable several gigawatts of renewables. And if you think about that, it's enabling low cost universal solar and wind to bring it to our load centers in Denver. So what you'll see out of that in -- now, I can't give you specifics in terms of the overall capital investment, we'll file that in the next month or so, but significant investment opportunity on the transmissions -- transmission side, it's really a transmission backbone to deliver that for our customers as part of the ERP. On the Colorado resource plan, I think more detail to come on that. But look at our Minnesota Resource Plan, it is a good proxy where we have several gigawatts of renewables in our preferred plan through 2030. So it'll look and feel a lot like that, we're looking at what we're doing with our coal plants and adding a lot of renewables to help us to achieve that 80% plan. So we're excited about it, excited about that transparency into the back half of this decade and more details to come.

Jeremy Tonet -- JP Morgan Chase -- Analyst

That's helpful. Thank you. I was just wondering if you might be able to comment on how the PPA buyout opportunity has evolved over the past year or so, during the pandemic, and do you expect any market changes going forward here?

Brian Abel -- Executive Vice President and Chief Financial Officer

No. I think, no. It's-- it has evolved a little bit. You see, we just announced one year generic, we'll provide more details and officially announce that in the next month or so as we file it. No, we're excited to continue to execute on it. We delivered mile-- the Mower PPA buyout this year with the commission, and this one. I know we've continued to have conversations with our counter-parties. I think there's another opportunity if you see potential tax credit extensions in Washington that you get some further repowering opportunities, but it's certain that we continually look at and work out with our counter-parties. There is another good data point to watch is that our IRPs often drive RFPs where we can have PPAs bid into us, PPA buyout opportunities. So that's a really good opportunity longer term. So while we're excited about it, we delivered. If you look, we've delivered on our PPA buyout opportunity with counting this one that we just announced. It's over $500 million of PPA buyouts and that's excluding Mankato. So we've delivered Mower Long road. This new one, Capital and Manchief in Belmont, so a good long-term opportunity as we continue to look at harvesting it.

Ben Fowke -- Chairman and Chief Executive Officer

Yeah, and I think just-- whether it's PPAs, whether it's transmission spend, whether it's renewables, you should feel very confident that we've got a long runway of capital investment, and that's what we're really excited about. And of course you know we've been focused on -- we know what that actually save customers money too, so that is clean energy transition can be driven by economics, which of course then sets up electrification of other sectors like transport. So I think we've got great organic growth in front of us, Jeremy.

Jeremy Tonet -- JP Morgan Chase -- Analyst

Got it. That's very helpful. Thanks. And one last one if I could sneak in here. I was just wondering, what you guys see as the risks and opportunities with a potential acceleration of Minnesota' carbon-free electricity goal to 2040 here and also thinking about on a national level, Biden has set our plans for 2035 there and just wondering if you had any thoughts you could share. Thanks.

Ben Fowke -- Chairman and Chief Executive Officer

Well, I mean first of all pretty pleased that Xcel and our whole industry now is really on board for achieving a net zero goal and for us it's -- we think we can do zero carbon -- not net zero but zero carbon by 2050 with an important interim goal of 80% by 2030, but you know if you heard me talk before, I will tell you that that last 20% is going to take technologies to become commercially viable because, Jeremy, I think it's incredibly important that this transition is based on economics, so that you do have the opportunities to electrify other sectors with economics combined. You get a lot of bipartisan support when economics can drive the decisions. So could we go faster than our goal of 2050. Well, it's possible, I mean but I think that would mean that those technologies that we refer to, whether it's the next generation nuclear, whether it's the development of hydrogen, whether it's carbon capture working economically, whether it's long-term storage, they have to come into the money, much sooner than I think they will, but you've heard me say before I never bet against technology. So more to come on that.

Jeremy Tonet -- JP Morgan Chase -- Analyst

Got it. Appreciate the thoughts there. That's it for me. Thanks.

Operator

We'll take our next question from Julien Dumoulin-Smith with Bank of America. Please go ahead.

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

Hey, good morning. Team. Thanks for the time. So just wanted to follow up on Colorado and latest thought process on timing for a rate case there. I -- in conjunction with the question, I just was curious about the shift in your '21 guide on O&M. Is that driven in part by a thought process on Colorado rate case timing or, I also noticed that there is a little bit of a shift in the rider revenue there as well. So if you could stick to the '21 shift on O&M, as well as the latest on Colorado and timing there as well for the month?

Bob Frenzel -- President and Chief Operating Officer

Yeah, hey, Julien, it's Bob. Good morning and thanks for the question. With regard to the case, I'll cover that and I'll turn it back over to Brian to talk a little bit about your question on the O&M. So in Colorado, obviously we've been talking about a case there, we filed two riders in the summer of last year. Obviously we watched what happened with the agents rider and still prosecuting the wildfire rider. But there is a number of other factors that go into evaluation of our case in Colorado and we're continuing to watch those. Obviously the pace of economic recovery in Colorado is very important. We're seeing very strong growth there. But as Brian indicated, our sales forecast still expect a slow recovery with some lingering impacts.

So sales is the key driver and obviously our efforts around O&M and efficiencies that we can gain in that business will probably dictate when and how we file a case in Colorado. It's likely, the second half outcome at the earliest and it's largely associated with capital investment in the distribution business and in enabling technologies for us to continue to deliver a great customer experience out there. So more to come from us, but it's probably at least the second half decision for us.

Brian Abel -- Executive Vice President and Chief Financial Officer

And good morning. Julien. On your O&M question, first just let me say, really proud of the employees in the work that was done in 2020. Just a great effort in terms of the mitigation work that everyone did in this company. About 2021, it's a combination of things, one is, our continued drive sustainable cost transformation and two, our 2020 actuals came in a little bit higher than we thought in Q3 due to a couple of discrete items so -- but expect us to continue to drive O&M transformation. Now what you don't see in our flat guidance is, we're adding about $50 million of wind O&M in 2021. So we're offsetting that to keep our overall O&M flat with our cost transformation efforts. So excited about what we accomplished in 2020 and what we expect to accomplish in '21 and beyond.

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

Excellent. Thanks, team. Hey, Bob. Coming back to you. Real quickly, if I can. In terms of, when you said that there-- to quote you a number of other factors that go into it. I think if I'm hearing you right, the -- perhaps the most decisive one is obviously the sales and economic growth. Are there other material drivers that will come into it? It sounds like you're waiting to see the trajectory of this post-COVID year on sales, but I just -- I don't want to sort of mischaracterize that.

Bob Frenzel -- President and Chief Operating Officer

We still have our wildfire rider proposal in front of the ALJ right now. We went through hearings a week or two ago and felt like we made a really good show in there. I mean this is a significant investment to mitigate a big state policy desire in terms of mitigating wildfires. So we'd asked for a rider, the intervener came back proposing deferrals and we're deferring on links and return profiles of those, so obviously arguing decent outcome in the wildfire rider is one of the factors that would go into our decision making, but not -- certainly not exclusive.

Ben Fowke -- Chairman and Chief Executive Officer

And Julien, probably it's the fact that its sales, it's O&M and then it would be regulatory decisions. All of that would factor into a mid-year kind of review and determine whether or not we need to file or not.

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

Right. Yeah, understood. If you got the deferral that -- would that be adequate. It sounds like there is more than just a binary decision on the the wildfire here.

Ben Fowke -- Chairman and Chief Executive Officer

I think you'd have to just look at how the devil is always in the details on those things so that along with the other drivers that I mentioned, sales and O&M could be all the factors that we looked at.

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

Totally appreciate it. All right, guys. Thank you very much. All the best. Speak to you soon.

Brian Abel -- Executive Vice President and Chief Financial Officer

Thanks, Julien.

Operator

We'll take our next question from Insoo Kim with Goldman Sachs. Please go ahead.

Brian Abel -- Executive Vice President and Chief Financial Officer

Good morning.

Insoo Kim -- Goldman Sachs -- Analyst

Thank you. Good morning, Brian, on the-- the five year capex plan, can you just, I guess, go through which of the items in the base plan versus the incremental. I know the proposed repowering and the one PPA buyout is with the incremental amount in the base that our investments in the Harrington coal plant conversion and we have investments with wildfire [Phonetic] protection, all of those -- is that embedded in the base plan or would that be incremental?

Brian Abel -- Executive Vice President and Chief Financial Officer

Yeah. No, those are the ones that you mentioned are basically in the base plan. It's a relatively small investment in the Harrington -- in the conversion of Harrington from coal to natural gas and we have our wildfire investments in our base plan. You're right -- clear that we have the solar opportunity and the PPA buyout opportunity in the incremental plan and hope to expect to give visibility into those by the end of this year. So provide color and hopefully have a rate base growth trajectory of nearly 7% if we execute on those.

Insoo Kim -- Goldman Sachs -- Analyst

Got it. And then, just going back to Jeremy's question on President Biden's plans to achieve the carbon pollution-free power sector in the U.S. by 2035 and setting aside for a moment, the probability of passing of federal or state policies to achieve that. Do you think, when you look at your fleet, the undepreciated value of your remaining coal plants or other fossil fuel units? How do you see that? Do you see that as potentially achievable given the current regulatory and price framework for renewables or what items do you think you would need on both ends to achieve that?

Ben Fowke -- Chairman and Chief Executive Officer

Well, the accelerated depreciation is -- it's certainly a factor, but as I said with the prior question, it's far more a question of how the technologies were ready and economically viable. Because getting 80% is not easy, but we know we can do it with existing technology, and I know I can do it in a way that preserves affordability and reliability. But just to move completely away from fossil would require an incredible emergence and acceleration of technologies that I think are still ways away. So, I mean again technology can emerge, but 2035 is like tomorrow in utility land as far as technologies go. So I think there's going to be -- I mean, I think there is going to be an element of pragmatism that gets baked into those goals. And I've always said, we will move as fast as the speed of technology and that's what we'll do. But honestly I think it's a -- very much of a stretch goal based upon the way I see the horizon in front of us. So that said...

Insoo Kim -- Goldman Sachs -- Analyst

Got it.

Ben Fowke -- Chairman and Chief Executive Officer

Yes. That said, I mean -- but there is a lot of good things that come with that goal, we support a 100% carbon-free. So we're aligned with that. I think under the Biden administration, you'll see an acceleration of EVs and an acceleration of transmission build. I think you'll see an acceleration of the R&D in the technologies that we need to achieve those goals, whether it's 2035, 2040 or 2050. And I think that is the key to me and if we can all pull together on that and develop the right frameworks, invest in R&D, have the right tax policies, I think we're going to do amazing things. And, nobody would have thought that we'd be where we are today as an industry and certainly not at Xcel Energy just five years ago. So I'm excited about what the future possibilities hold.

Insoo Kim -- Goldman Sachs -- Analyst

Got it. Thank you so much for the color.

Ben Fowke -- Chairman and Chief Executive Officer

Got it.

Operator

We'll take our next question from Stephen Baird with Morgan Stanley. Please go ahead.

Stephen Baird -- Morgan Stanley -- Analyst

Hey, good morning. Hope you all are doing well.

Ben Fowke -- Chairman and Chief Executive Officer

We are.

Stephen Baird -- Morgan Stanley -- Analyst

Great. Just following up on -- you can sense a theme in the questions here on federal policy, but I wanted to maybe get a little more specific. We may see further legislation that would both extend tax credits for wind and solar, potentially create a new tax credit for storage, and I'm just curious if you saw that kind of -- let's say that there is a longer-term extension, could that be material enough for you all to want to both kind of relook at your Minnesota Resource Plan? Could that have a pretty big impact on how you think about your resource mix in Colorado, like how impactful could longer-term extensions for wind and solar and a new tax credit for storage be as you think about your resource mix in the future?

Ben Fowke -- Chairman and Chief Executive Officer

Well, first of all, I think it overall be a positive. So, and I think there's also discussion about tax credits for nuclear as well, which I am fully supportive of, and transmission, all of those things are going to enable us to go, I think even faster because of the affordability equation to it. Obviously, at some point you do saturate the big grid with renewables regardless of cost. But if renewables continue to fall in price, Stephen, what that would allow you to do is put more renewables on your system, even if, even if you have an increase in curtailments, because the economics would pencil out better. So, that's probably a long-winded answer to your question, but hopefully that gives you some insights to it.

Bob Frenzel -- President and Chief Operating Officer

And Stephen, I'll just add that depending on how -- I will certainly delve in details -- but depending on how long that PTC extension is for wind, you start to see more repowering opportunities come up as the wind farms exit their original 10-year PTC life, and so that's what you saw with the couple of wind farms that we got approved just recently in Minnesota Commission. So I think that could present us all some more opportunity to see at a longer-term extension.

Stephen Baird -- Morgan Stanley -- Analyst

That's a good point. Maybe just following up a little bit on this. So let's dream here and let's say that there is going to be a longer-term extension of these tax credits and new storage tax credit, maybe transmission, nuclear. Is that enough to sort of trigger a kind of a formal review on your part in terms of the mix that you've sort of established or is it less formal and if it's just you continue to evolve using it over time, but it wouldn't necessarily trigger a reassessment of your broader plans?

Ben Fowke -- Chairman and Chief Executive Officer

Well, I mean that I think it would -- I think it just puts our IRP processes in our proposals that much more deeply in the money for our customers. And it makes the economic stuff much more compelling. Again, I think we can do more to accelerate some of the renewables that we put into our system within operational limitations, but Stephen, I mean, if you've got -- if our electricity because of those things becomes even more affordable, think about the opportunities to accelerate ED and others -- and electrification of other sectors. I mean that is a -- would be a tremendous benefit.

Stephen Baird -- Morgan Stanley -- Analyst

That's a fair point. Maybe just on EVs. Last question from me, I promise, just if we did...

Ben Fowke -- Chairman and Chief Executive Officer

Stephen, you broke. I can't hear you. No, I don't think he can't -- he is still there, I think. Stephen, did you go on mute by accident? That's one of the most popular terms in 2020 by the way. The other one is could you go on mute? And the other one is I forgot my mask.

Bob Frenzel -- President and Chief Operating Officer

Operator move to...

Brian Abel -- Executive Vice President and Chief Financial Officer

Yeah. Operator, move to the next question.

Operator

Okay. We'll take our next from Sophie Karp with KeyBanc. Please go ahead.

Sophie Karp -- Keybanc Capital Markets Inc. -- Analyst

Hi. Good morning, guys. Hope you can hear me.

Ben Fowke -- Chairman and Chief Executive Officer

Hey, Sophie.

Bob Frenzel -- President and Chief Operating Officer

Hey, Sophie.

Sophie Karp -- Keybanc Capital Markets Inc. -- Analyst

I think -- well, congrats on a good year in this challenging environment for sure. Maybe if you continue the EV topic, like what are the opportunities in the EV advancement, I guess, for you aside from participate in the charging infrastructure? And have you done some modeling maybe along the lines of any penetration in households which at some level, it may be some upgrade to the distribution system. Do you know which areas or which states maybe have more need for that or how should we think about that? Because that's a really -- topic has been on my mind a lot. Thank you.

Bob Frenzel -- President and Chief Operating Officer

Hey, Sophie. It's Bob. Maybe I'll start this and then I'll kick it over to Brian potentially. You're a little bit muffled, but I think you're asking about what the investment opportunity, if we have a significant penetration of electric vehicles. I think our forecast right now for the next five years, has $0.5 billion in electric vehicle and that includes charging stations and the distribution infrastructure as you mentioned to enable that. And over the decade, that number is closer to $1.5 billion to $2 billion. Similarly, that's all encapsulating into the distribution system. I think the one area that we could probably still sharpen our pencil on a little bit is the impacts of fleet and heavy duty vehicles, and how that would impact us. Those are very discrete in high loads in certain feeders on our system, and we probably aren't as sophisticated as we'd like to be right now on exactly when and where that would happen because it's largely in the hands of the cylinders of those vehicles. So it's possible there is some incremental upside there, distribution feeders are, I wouldn't say wildly underutilized at this point. And so, potential capital expansion opportunities on fleet and heavy duty vehicles is probably where any of the upside might come.

Ben Fowke -- Chairman and Chief Executive Officer

I think too, Sophie. There is a virtuous circle here, the more EV penetration we get particularly we encourage customers to charge-off peak, the more all customers benefit. And so that tends to give us that tailwind to keeping our product affordable which makes more electrification, more EVs, everything else more possible. So it's that element, probably that is super exciting. You look way down the road and there's a lot of folks that think EV penetrations could be an extension of the grid, if you will, and the use of those batteries and I was kind of encouraged by the CEO of Ford when you spoke to us at an industry event and he was -- he saw that future too, because in the past I've been told that the car manufacturers are a little worried about using batteries in that manner. Now we're ways away from that, but I mean, when you look down the road, you can certainly see a future that incorporates EVs into the grid.

Sophie Karp -- KeyBanc Capitall Markets -- Analyst

Got it, got it. So this is very helpful, thank you. And then just on the power supply side, as the renewable targets and goals become more aggressive and possibly we will see more build-out if like you mentioned, we will have additional ITC or the fiscal incentives. Is there a scenario where maybe you see short -- and, kind of throwing in their potential coal retirements in Colorado. Is there a scenario where in some of the jurisdictions Colorado specifically or maybe Minnesota, you would see a shortage of baseload power or like some dispatchable capacity, if you will, like what they see maybe in some other regions in that area, right now? Or do you feel that you have adequate supplies to tie over to the point where you can have dispatchable renewable resource.

Ben Fowke -- Chairman and Chief Executive Officer

I mean-- Sophie, let me just make sure, I heard your question because it is a little bit muffled. Did you ask if -- do you see a situation where because of EV penetration and other things that we might have a shortage of...

Brian Abel -- Executive Vice President and Chief Financial Officer

Dispatchable generation.

Ben Fowke -- Chairman and Chief Executive Officer

Dispatchable generation. Is that your question?

Sophie Karp -- KeyBanc Capitall Markets -- Analyst

Yes, Not as much because of EVs but due to higher maybe wind penetration and coal retirements in the region.

Ben Fowke -- Chairman and Chief Executive Officer

Well, I mean I-- that's what the IRP process is all about. I mean we do take a long-term view. That's why I do think the vertically integrated regulated model really works because we can plan for those kinds of contingencies and make sure that we do have adequate reserves and adequate back up. The point that we have to get across is to hit important interim goals, we do need in the upper Midwest to preserve our nuclear fleet, that's going very well, by the way, and we're going to need a little more gas back of, not necessarily using more gas, but having there -- having it ready when some of the renewable resources might not be there. All in all, it's still pencils out to be cost beneficial for our customers. But those are the kinds of things we have to discuss in those resource planning processes, so that we have a plan to your point that provides an economic benefits, the environmental benefits and of course maintains reliability.

Sophie Karp -- KeyBanc Capitall Markets -- Analyst

Thank you so much. I'll jump back into the queue.

Ben Fowke -- Chairman and Chief Executive Officer

Thank you, Sophie.

Operator

We will take our final question from Paul Patterson with Glenrock Associates. Please go ahead.

Paul Patterson -- Glenrock Associates -- Analyst

Hey. Can you hear me?

Brian Abel -- Executive Vice President and Chief Financial Officer

Hey, Paul. We can hear you loud and clear.

Paul Patterson -- Glenrock Associates -- Analyst

So I wanted to just really quickly, I noticed that micro-grids and if you guys have micro-grid project. I think in the files for something, I think in December in Wisconsin. I just wondering what are you seeing, or are you seeing any trend in that, in the other service territories or -- I realize it's a pilot and I think it's only about $170 million something, but I am just sort of wondering if there's anything more you're seeing on that end in these service territories.

Ben Fowke -- Chairman and Chief Executive Officer

Thank you Paul.

Bob Frenzel -- President and Chief Operating Officer

Hey, Paul, it's Bob. Look, we filed for some -- we call them community resiliency initiatives in Colorado and work those through the process with the commission and we're now got approval and we're going to start to build out those initiatives. Haven't seen a lot of pull in micro-grids in the rest of the service territories, but obviously something that we're willing to explore with our customers through the process, but it's been pretty quiet other than Colorado.

Brian Abel -- Executive Vice President and Chief Financial Officer

Well microgrid...

Paul Patterson -- Glenrock Associates -- Analyst

Thanks so much...

Bob Frenzel -- President and Chief Operating Officer

You have him.

Ben Fowke -- Chairman and Chief Executive Officer

I think micro-grids have a role in utilities' future. It just -- the -- they don't come without a price deck. So the resiliency element of it, the -- those become important things. And what we are always willing to do is figure out how we can incorporate that into our total distribution planning process and I think you'll see more of that in the future, but it is not -- it's not without a cost obviously.

Paul Patterson -- Glenrock Associates -- Analyst

So just to follow up on that, because I guess it varies from territory to territory. I guess it's to -- within your service territories, I guess the economics simply aren't there in terms of arbitrage and stuff in terms of offsetting those costs, is that how you sort of see in terms of it being widespread?

Ben Fowke -- Chairman and Chief Executive Officer

Yeah, I think that's fair. I think if they were primarily gambling extra resiliency and extra reliabilities in order.

Paul Patterson -- Glenrock Associates -- Analyst

Got it. Okay, thanks so much.

Ben Fowke -- Chairman and Chief Executive Officer

Thank you, Paul.

Operator

Ladies and gentleman. This concludes today's question and answer session. For closing remarks, I'd like to turn the conference over to Brian Van Abel.

Brian Abel -- Executive Vice President and Chief Financial Officer

Yeah, thank you all for participating in our earnings call this morning. For any questions, please contact our Investor Relations team, and have a great day. Thank you all. [Operator Closing Remarks]

Duration: 42 minutes

Call participants:

Paul Johnson -- Vice President of Investor Relations

Ben Fowke -- Chairman and Chief Executive Officer

Brian Abel -- Executive Vice President and Chief Financial Officer

Bob Frenzel -- President and Chief Operating Officer

Jeremy Tonet -- JP Morgan Chase -- Analyst

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

Insoo Kim -- Goldman Sachs -- Analyst

Stephen Baird -- Morgan Stanley -- Analyst

Sophie Karp -- Keybanc Capital Markets Inc. -- Analyst

Sophie Karp -- KeyBanc Capitall Markets -- Analyst

Paul Patterson -- Glenrock Associates -- Analyst

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