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WEC Energy Group, inc (NYSE:WEC)
Q3 2021 Earnings Call
Nov 2, 2021, 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 Third Quarter 2021 Results. This call is being recorded for rebroadcast, and all participants are in a listen-only mode at this time.

Before the conference begins, I remind you that all statements in the presentation other than historical facts are forward-looking statements that involve risk and uncertainties that are subject to change at any time. Statements are based on management's expectation at the time they are made in addition to the assumptions and other factors referred to in connection with the statements, factors described in WEC Energy Group's latest Form 10-K and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated. During the discussions, reference to 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 made available approximately two hours after the conclusion of this call.

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

Gale E. Klappa -- Executive Chairman

From America's Heartland, good afternoon, everyone. Thank you for joining us today as we review our results for the third quarter of 2021. First, I'd like to introduce the members of our management team who are here with me today. We have Kevin Fletcher, our President and CEO; Scott Lauber, our Chief Operating Officer; Xia Liu, our Chief Financial Officer; and Beth Straka, our Senior Vice President of Corporate Communications and Investor Relations.

I'm sure you saw the announcement last week that our Board of Directors has taken the next step in our long-term succession planning. Kevin has decided to devote more time with his grandchildren and to water-skiing barefoot on his favorite lakes. He'll be retiring in 2022. We're delighted that Scott will assume the role of President and Chief Executive on February 1. And finally, I've agreed to continue serving as Executive Chairman until our Annual Stockholders Meeting in 2024. Kevin and Scott, of course, have been instrumental in shaping our progress over many years. We wish Kevin all the best. And I look forward to working hand-in-hand with Scott as he takes on his new role.

Now, as you saw from our news release this morning, we reported third quarter 2021 earnings of $0.92 a share. Our results were significantly better than expected, driven by warmer than normal weather, continued economic recovery in our region, and our focus on operating efficiency. Our balance sheet, our cash flows remained strong, and as we've discussed, this allows us to fund a highly executable capital plan without issuing equity.

In just a moment, we'll update you on the details of our new five-year ESG Progress Plan, a plan that will cover our investments in reliability and decarbonization over the period 2022 through 2026. As we've reported to you, we're well on our way to achieving some of the most aggressive goals in our industry for reducing carbon emissions. Across our generation fleet, we're targeting a 60% reduction by 2025 and then 80% reduction by 2030, both from a 2005 baseline. Importantly, we have a roadmap to reach these goals without any major advances in technology. So today, we're announcing that our use of coal will continue to decline to a level that we expect will be immaterial by the end of 2030. By the end of 2030, we expect our use of coal will account for less than 5% of the power we supply to customers.

A number of you have also been asking when can we exit coal completely. Here is the answer. We believe we'll be in a position to eliminate coal as an energy source by the year 2035. The next logical question is, what does this mean for the modern coal-fired units at our Oak Creek site? As you recall, these units were part of our Power the Future plan and were completed only about a decade ago. Well, our modern units at Oak Creek will remain a key part of our fleet for many, many years to come. These Power the Future units rank as some of the most efficient in the country, among the top 5% of all coal-fired plants in heat rate performance over the past decade and they're strategically -- as we've discussed, they are strategically located to support reliability on the Midwestern transmission grid. Fortunately, we can plan for the future of the new units at Oak Creek with fuel flexibility in mind. We've tested coal firing on natural gas at the site. So subject to the receipt of an environmental permit, we plan to make operating refinements over the next two years that will allow a fuel blend of up to 30% on natural gas. And then over time, we will be able to transition completely away from coal by making incremental investments in plant equipment. This would include, for example, new burners and, of course, we will need additional pipeline capacity reaching into the site. So we see a very bright and long future for the newer units at Oak Creek.

And now, let's take a look at the capital plan that will continue to shape a decarbonizing economy. For the period 2022 through 2026, we expect to invest $17.7 billion. Our focus remains on efficiency, sustainability and growth. This ESG Progress Plan is the largest capital plan in our history, an increase of $1.6 billion or nearly 10% above our previous five-year plan. We expect this plan to support compound earnings growth of 6% to 7% a year over the next five years without any need to issue new equity. We'll be increasing our investment in renewables for our regulated utilities from 1,800 megawatts of capacity in our previous plan to nearly 2,400 megawatts in this brand-new plan. These carbon-free assets include solar, wind and battery storage. We're also dedicating more capital to hardening our electric distribution networks, so that we can maintain a superior level of reliability for our customers, and investments in our gas delivery systems and the development of renewable natural gas will support our goals for the gas distribution business as well. As a reminder, we're targeting net zero methane emissions by 2030. So add it all up and we have what I really believe is a premium growth plan. The projects that are driving our growth are low-risk and highly executable, and they are accelerating the transition to a clean energy future.

With that, I'll turn the call over to Scott for more details on our sales results for the quarter, as well as an update on our Infrastructure segment. Scott, all yours.

Scott J. Lauber -- Senior Executive Vice President and Chief Operating Officer

Thank you, Gale. We continue to see customer growth across our system. At the end of September, our utilities were serving approximately 8,000 more electric customers and 15,000 more natural gas customers compared to a year ago. Retail electric and natural gas sales volumes are shown on a comparative basis beginning on Page 13 of the earnings packet. Overall, retail deliveries of electricity, excluding the iron ore mine, were up 2.4% from the third quarter of 2020 and on a weather normal basis were up 2.5%. We continue to see economic rebound in our service territory. For example, small commercial and industrial electric sales were up 3.5% from last year's third quarter and on a weather normal basis, they were up 4.2%. Meanwhile, large commercial and industrial sales, excluding the iron ore mine, were up 3.8% from the third quarter of 2020 and on a weather normal basis were up 3.5%. Natural gas deliveries in Wisconsin were up 1%. This excludes gas used for power generation. And on a weather normal basis natural gas deliveries in Wisconsin grew by 2.5%. Overall, our growth continues to track ahead of our forecast as the economy continues to open up.

Turning now to our Infrastructure segment, our new capital plan calls for the investment of $1.9 billion between 2022 and 2026. Considering the three projects that are currently under development, we expect to invest an additional $1.1 billion at that timeframe. As a quick reminder, we have eight wind projects, all with long-term off-takers. Announced through an operation in our Infrastructure segment, this represents approximately $2.3 billion of investments. As previously discussed, our Jayhawk Wind Farm is projected to go in service by early next year and our Thunderhead Wind investment is projected to go in service in the first half of 2022. These timelines have been factored into our updated capital plan.

With that, I'll turn it over to Kevin for an update on our utility operations.

Kevin Fletcher -- President and Chief Executive Officer

Thank you, Scott. First, I'll cover some developments here in Wisconsin. I'm pleased to report that our Badger Hollow I Solar project is just weeks away from completion. You'll recall that we own 100 megawatts of this project in Southwest Wisconsin. For the next phase of the project, Badger Hollow II, we now are performing civil work and grading. Our target for completing that project is the end of 2022. That date will depend on module supply which is uncertain as we await clarity on matters before the Department of Commerce.

Now, for a few regulatory updates. We expect a decision from the Wisconsin Commission shortly on our plans to build two liquefied natural gas storage facilities in the Southeastern part of the state. This proposed investment would greatly enhance customer savings and reliability during Wisconsin's cold winters. Pending approval, we expect the facilities to enter service in late 2023. They are projected to save our We Energies customers approximately $200 million over time.

We also have updates on the rate reviews at two of our smaller utilities. The Illinois Commerce Commission unanimously approved the final order for our rate case at North Shore Gas. The order authorizes a rate increase of 4.5%, including an ROE of 9.67% and an equity ratio of 51.58%. New rates went into effect on September 15. And the Michigan Public Service Commission unanimously approved a settlement in our rate case for Michigan Gas Utilities. The settlement authorizes a rate increase of 6.35%, including an ROE of 9.85% and an equity ratio of 51.5%. New rates will be effective January 1. We have no other rate cases pending at this time. And as we look forward to the winter heating season ahead, I'm pleased to report that we're ready. We have our gas contracts in place and our gas inventories are at our targeted levels.

And with that, I'll turn it over to Xia.

Xia Liu -- Executive Vice President and Chief Financial Officer

Thanks, Kevin. We continue to deliver quality and consistent earnings. Our 2021 third quarter earnings of $0.92 per share increased $0.08 per share compared to the third quarter of 2020. Our favorable results were largely driven by higher earnings from our utility operations. Our regulated utilities benefited from the strong economic recovery in our region, continued execution of our capital plan and our focus on operating efficiency.

The earnings packet placed on our website this morning includes a comparison of third quarter results on Page 17. I'll walk through the significant drivers. Starting with our utility operations, we grew our earnings by $0.05 compared to the third quarter of 2020. First, continued economic recovery from the pandemic and stronger weather normalized sales drove a $0.03 increase in earnings. Also, rate relief and additional capital investment added $0.04 compared to the third quarter of 2020 and lower day-to-day O&M contributed $0.04. These favorable factors were partially offset by $0.04 of higher depreciation and amortization expense and $0.02 of increased fuel costs related to higher natural gas prices. It's worth noting that we estimate weather was $0.05 favorable compared to normal in the third quarters of both 2021 and 2020. Overall, we added $0.05 quarter-over-quarter from utility operations.

Moving on to our investment in American Transmission Company, earnings increased $0.01 compared to the third quarter of 2020 driven by continued capital investment. Earnings at our Energy Infrastructure segment improved $0.01 in the third quarter of 2021 compared to the third quarter of 2020. This was driven by production tax credits related to wind farm acquisitions. Finally, we saw a $0.01 improvement in the Corporate and Other segment. This increase was primarily driven by lower interest expense. In summary, we improved on our third quarter 2020 performance by $0.08 a share.

Now, I'd like to update you on some other financial items. For the full-year, we expect our effective income tax rate to be between 13% and 14%. Excluding the benefit of unprotected taxes flowing to customers, we project our 2021 effective tax rate will be between 19% and 20%. As in past years, we expect to be a modest taxpayer in 2021. Our projections show that we will be able to efficiently utilize our tax position with our current capital plan.

Looking now at the cash flow statement on Page 6 of the earnings package. Net cash provided by operating activities increased $57 million. Our increase in cash earnings in the first nine months of 2021 more than offset the higher working capital requirements. As expected, with normal collection practices underway in all of our service territories, we made great strides in improving our working capital position in the third quarter. Total capital expenditures and asset acquisitions were $1.7 billion for the first nine months of 2021, a $129 million increase as compared with the first nine months of 2020. This reflects our investment focus in our regulated utilities and energy infrastructure business.

Looking forward, as Gale outlined earlier, we're excited about our plans to invest $17.7 billion over the next five years in key infrastructure. This ESG Progress Plan supports 7% annual growth in our asset base. Pages 18 and 19 of the earnings packet provide more details of the breakdown of the plan, which I will highlight here. As we continue to make our energy transition, nearly 70% of our capital plan is dedicated to sustainability, including $5.4 billion in renewable investment and $6.8 billion in grid and fleet reliability. Additionally, we dedicated $2.8 billion to support our strong customer growth. We also plan to invest $2.7 billion in technology and modernization of our infrastructure to further generate long-term operating efficiency. With our strong economic development backdrop and our continued focus on efficiency, sustainability and growth, we see a long runway of investment ahead, even beyond the next five years.

In closing, before I turn it back to Gale, I'd like to provide our guidance. We're raising our earnings guidance again for 2021 to a range of $4.05 to $4.07 per share with an expectation of reaching the top end of the range. This assumes normal weather for the remainder of the year. This is the second time we're raising our guidance. If you recall, our original guidance was $3.99 to $4.03 per share.

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

Gale E. Klappa -- Executive Chairman

Xia, thank you very much. We're on track for a solid year. Again, in light of our strong performance, our guidance range now stands at $4.05 to $4.07 a share. We're also tightening our projection of long-term earnings growth to a range of 6% to 7% a year.

And finally, a quick reminder about our dividend. As usual, I expect our Board will assess our dividend plans for next year at our scheduled meeting in early December. 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. Overall, we're on track to focus on delivering and providing value for our customers and our stockholders.

And operator, we're now ready to open it up for the Q&A portion of the call.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Shar Pourreza with Guggenheim Partners.

Shar Pourreza -- Guggenheim Partners -- Analyst

Hey, guys.

Gale E. Klappa -- Executive Chairman

Rockin' rollick, Shar. How are you doing?

Shar Pourreza -- Guggenheim Partners -- Analyst

Not too bad, not too bad, Gale. Appreciate it. So just a couple of questions, and Gale, I want to unpack sort of your comments around the Oak Creek Power the Future units because I think that's sort of somewhat pretty material. Any estimate around capital cost to fully convert from coal to gas and what the heat rate of those units would be? I know the contracts are obviously tech agnostic, but which shifting also base load units to essentially higher heat rate peakers. Have any kind of ramifications under the terms of the contracts with the unit service capacity or do you expect to run them all the time? Thanks.

Gale E. Klappa -- Executive Chairman

Great question, Shar. And I'm going to ask Scott to give you some details as well. Let me say one thing, though, I would not expect, as we move through the transition of the New Oak Creek units between now and 2035, I would not expect them to run simply as peakers. They're probably going to run much more like our Port Washington units which are highly efficient combined cycle units. So I wouldn't make the conclusion that they'll run as peakers. They're very much going to be needed for reliability, no question about that.

In terms of capital, I mentioned there would be incremental capital investments in the plan. And I'm going to have Scott give you the details. I can tell you, though, that after a lot of work and a lot of analysis, we still have more to do for the long run. But after a lot of work and a lot of analysis, we are convinced that this is an economic thing to do for customers. Scott?

Scott J. Lauber -- Senior Executive Vice President and Chief Operating Officer

Sure, Gale. And as we look at the plant in this first step here to get to that 30%, we're looking at a very modest investment, approximately $30 million to get it to be able to run at that blend -- coal blending with some gas and a little coal. And then as you look farther out in that 2030 timeframe, 2035 timeframe, as we look at converting completely, that would be approximately $150 million, but this is really early in that analysis and more to come as we continue to flush that out.

Shar Pourreza -- Guggenheim Partners -- Analyst

Perfect. Thank you for that. And then just -- Gale, just $1.6 billion increase in the capital plan is -- obviously, as you highlighted, it's really material, it's driven by electric maybe at the expense of energy infrastructure and gas spend, right? So as you kind of looking on the roll-forward, electric spend is up about $2 billion and the infrastructure and gas are down around $450 million [Phonetic], is this kind of a broader and more sustainable strategic shift in growth focus going forward or just kind of a timing factor, especially as we're thinking about your plans beyond 2025?

Gale E. Klappa -- Executive Chairman

Yeah. Again, a great question, Shar. Let me just say this, we always start with need and our preference, obviously, is to invest in regulated assets where there is clearly a customer benefit or a customer need. So as we look at this plan and you're right, the increase is material, but as we look at this plan compared to the prior five-year plan, and again, largest five-year capital plan in our history at $17.7 billion. The two things you mentioned are correct. First of all, we'll be adding a significant amount of renewables to maintain reliability as we retire older, less efficient coal-fired plants in this timeframe. So the first is, we have got to replace some of that capacity with carbon-free energy. So there is an increase in renewable investment -- regulated renewable investment in the plan compared to the previous five-year plan. And then -- and this is something that we've all talked about internally and Kevin continues to point out and he's absolutely right, we have aging distribution infrastructure. And that aging distribution infrastructure which we've invested in in the past, we're coming up to a period now where there is a much greater need to replace that aging distribution infrastructure. So those are the two drivers, if you will, of kind of the incremental change in this five-year capital plan versus the prior five-year capital plan.

Does that respond to your question?

Shar Pourreza -- Guggenheim Partners -- Analyst

It does. It does. And that's super helpful, Gale. And then just lastly, is just on the Infrastructure segment on that roll-forward, does the contracting spending profile, is it indicating anything something about Princess [Phonetic] Project returns you're seeing or pressure from input costs or is it just really a function of limited capital flowing to new regulated opportunities instead? So like, are you seeing any of these pressures in the business that others are seeing?

Gale E. Klappa -- Executive Chairman

No. And again, we've been asked this question, as you know, before. The last one we just announced a few months ago was Sapphire Sky. Actually, our projections show having the best returns of any of the eight projects. So, we are not seeing a diminution at all in terms of potential returns or in terms of the robust nature of the pipeline. And remember, we've got two coming that have been announced, but are not yet in service, Jayhawk and Upstream -- not Upstream, I'm sorry, Thunderhead. Yeah. My James Bond project, Thunderhead. And then in addition to that, there is still more than $1 billion to be invested in this five-year capital plan. So, we're still very active and seeing the kind of positive returns that we would expect to see.

Shar Pourreza -- Guggenheim Partners -- Analyst

Fantastic. Thank you for that. And congrats, Scott and Kevin on Phase 2. And Gale, don't go anywhere, you're still too young. Appreciate it.

Gale E. Klappa -- Executive Chairman

Thank you very much.

Scott J. Lauber -- Senior Executive Vice President and Chief Operating Officer

Thank you, Shar.

Operator

Your next question comes from the line of Steve Fleishman with Wolfe Research.

Gale E. Klappa -- Executive Chairman

Greetings, Steve. How are you doing?

Steve Fleishman -- Wolfe Research -- Analyst

Hey, Gale. Good afternoon. Hi, everyone. So first of all, just on the new growth rate, the 6% to 7%, should we assume that that is based on kind of the initial 2021 guidance?

Gale E. Klappa -- Executive Chairman

Yes. Yeah.

Steve Fleishman -- Wolfe Research -- Analyst

Okay. I just wanted to --. Yeah.

Gale E. Klappa -- Executive Chairman

Yeah. No. I'm glad you asked and the short answer is yes. And then just to kind of put some numbers around it, historically, what we've done is, looked at the midpoint of our original guidance and then gave you guidance, in this case, the 6% to 7% off of that. So, the midpoint of our original guidance for 2021 is like $4.01 a share.

Steve Fleishman -- Wolfe Research -- Analyst

Okay. Great. And then on the -- I know the spending to convert the Oak -- new Oak Creek units is relatively modest. But would that spending be kind of like recoverable under the lease structure of that law or would it be done more normal rate base? How would that work?

Gale E. Klappa -- Executive Chairman

No. The short answer, Steve, is that, we obviously have to get Commission approval for any investment of that kind, but it would be under the way the lease works, it would be under the Power the Future terms.

Steve Fleishman -- Wolfe Research -- Analyst

Okay. And is that -- is there any chance that that could get extended, if you do things to extend the period, or those just have under the law set end dates?

Gale E. Klappa -- Executive Chairman

Well, there is a current 30-year end date from the date of operation of the new Oak Creek units for the lease. So, the Commission initially set a 30-year lease period, but in the terms of the agreement with the Commission, the Commission has the right to extend the lease. So all of that will be -- oh my God, all of that would be dealt with probably around 2039, 2040.

Steve Fleishman -- Wolfe Research -- Analyst

Okay.

Gale E. Klappa -- Executive Chairman

And I know that you're still going to be doing your [Speech Overlap].

Steve Fleishman -- Wolfe Research -- Analyst

You're not going to be Executive Chairman. Yeah. And you'll still be Chairman. So, last question, and this is kind of a broad one. I'd be curious your take on the, I guess, it's the Build Back Better Infrastructure Bill and potential implications, opportunities for WEC from that, and chances of using capacity?

Gale E. Klappa -- Executive Chairman

Yeah. It's such a sausage making machine in Washington as you know, but if I were a betting man, I think something will pass. And it appears, as you've seen, Steve, that there is strong support for the renewable tax credit portion of that Build Back Better plan and that seems to have stuck in every single version or every single iteration of the plan. So, again, if I were a betting man, I would say that extensions of renewable tax credits will happen, and it looks like there is a strong possibility that what they call direct pay will occur.

Now, if direct pay is a part of the renewable package, if you will, in that plan, then that clearly enhances our opportunities. It's good for customers. It's good for cash flows. It's good for our -- the growth of our regulated business. It's good for the growth of our Infrastructure segment. So, I think a key to watch is, not only the 10-year extension that they're talking about of production tax credits, also the flexibility on tax credits for solar, but also a big key would be the direct pay and that would be a strong positive and would also have a step back and look again at what is doable, and what's needed here.

Steve Fleishman -- Wolfe Research -- Analyst

Great. Thanks so much.

Gale E. Klappa -- Executive Chairman

You're welcome, Steve. Thank you.

Operator

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

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

Hey. Good afternoon, team. Thanks for the time. Congratulations.

Gale E. Klappa -- Executive Chairman

You're on the road again, Julien?

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

Trying to be. Trying to stay on road. It's all it is. I appreciate it. And congratulations again to Kevin and Scott here. If I can pick it up where perhaps Shar lifted off on the coal side, just what about Weston here? You made the broader comment, not just about PTF, but about the wider nature of coal within your portfolio. Can you comment on that asset? And I have a follow-up.

Gale E. Klappa -- Executive Chairman

Sure. I'm going to give you an answer and then I'm going to let Xia and Scott give you a little bit more detail. But the Weston units, which for those of you who may not be familiar, the Weston units are relatively new coal-fired units that are an integral part of Wisconsin Public Service generation fleet, the company that we acquired based in Green Bay. Weston is a real workhorse. And again, we may have some flexibility there that we're looking at now in terms of optionality for the Weston units. Scott?

Scott J. Lauber -- Senior Executive Vice President and Chief Operating Officer

Yes, Gale. The Weston, and particularly the newer units, Weston 4, we have actually done some coal firing on that with some natural gas also, so we'll be evaluating that as an option as we go through the next several years here. So -- but we do realize that it's a very critical part of the state and we want to make sure we have the reliability at that location. So we're going to continue to evaluate it.

Gale E. Klappa -- Executive Chairman

And Julien, to your question, which is a good one, and everyone should know, we have a path here to have a really significant change in our portfolio to support decarbonization and to get to aggressive environmental goals. We can do that and we can do that without sacrificing reliability. We will not sacrifice reliability. We don't have to do that as we work through our plan.

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

Excellent. Thank you for clarifying that. If I can ask just on the Infrastructure side, just to elaborate on this, where you said a moment ago, your Sapphire project, for instance, among the best returns that you had thus far in your efforts and obviously you're kind of relatively scaling this down. Is this more about keeping the Infrastructure segment within, call it, a 10% bucket of total earnings and having effectively achieve that with this five-year outlook and that's what's driving a little bit of scaling back? Or conversely, is this just about being conservative and arguably whether it's direct pay or whether it's just simply finding opportunities that exceed that allocation that you could actually be again sort of exceeding these budgets?

Gale E. Klappa -- Executive Chairman

Well, let me just say this, we're usually conservative and that won't surprise you. And I would look at what we've just laid out here for that segment of our capital spending over the next five years, and it's a really strong place holder, which we will then, once we see what's in that Build Back Better plan, we'll step back and see what opportunities that might give us. So, I think the short answer to your question, and Xia's smiling and nodding her head, I think the short answer to your question is, we're being appropriately conservative today.

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

Excellent. Sorry, just to clarify the earlier comment on Build Back Better, what's the [Technical Issues] that improvements in direct pay if you can quantify that at all?

Gale E. Klappa -- Executive Chairman

I'm sorry, you broke up, Julien. Can you ask that one more time?

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

Sorry. The balance sheet, under the plan today, how much better would your credit metrics get, if you have any sense on that? Obviously, there's a lot of assumptions.

Gale E. Klappa -- Executive Chairman

Xia?

Xia Liu -- Executive Vice President and Chief Financial Officer

Yeah. Julien, we're looking at the details, as you know, the language just came out, so we wanted to really study the specific implications. But I think in general we could look at between 50 basis point to 100 basis point improvement just looking at the first glance of the language.

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

Thank you, guys. Wow, impressive.

Gale E. Klappa -- Executive Chairman

Thank you.

Operator

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

Gale E. Klappa -- Executive Chairman

Hello, Durgesh. How are you doing today?

Durgesh Chopra -- Evercore ISI -- Analyst

Hey, Gale. Good afternoon and congratulations to Kevin and Scott as well from my side. Two questions from me. First, you -- I think I'm jumping the gun here, but still OK to assume no equity in the plan through 2026 now?

Gale E. Klappa -- Executive Chairman

Yes, yes and yes.

Durgesh Chopra -- Evercore ISI -- Analyst

Okay. Just wanted to clarify that. That's great. And then maybe just really quickly, some of your peers have talked about given us some sort of sensitivity on natural gas price increases and customer bill impact. So to the extent that you can help us with that, that would be greatly appreciated.

Gale E. Klappa -- Executive Chairman

Sure. Let me give you a dollar amount and Scott can fill in some additional details. Depending upon and we have natural gas, we're the natural gas provider in most of Wisconsin, Chicago, the Northern suburbs of Chicago, portions of Western Michigan and in places all over Minnesota. Depending upon where you are in our service area, it looks like the average bill increase for a residential customer, given what we've been able to do to mitigate higher gas prices with our hedging and storage opportunities, so the typical residential customer will see about a $25 to a $40 monthly increase for each month of the heating season based on what we're seeing today and what we've got locked in. And I can tell you that we have been very aggressive as always with our hedging strategies, with gas storage, with option contracts, and we're pleased with how we've been able to mitigate the very sizable increase in the natural gas market for pricing. Scott?

Scott J. Lauber -- Senior Executive Vice President and Chief Operating Officer

That's exactly correct, Gale. So we've got about a third of our gas in storage that we fill throughout the year and as Kevin mentioned, those storage levels are where we wanted to be at this time. And then we also have about a third at the hedging program, so that $25 to $40, looking at the current prices, we don't expect that to move too much with our hedging program and our storage inventory.

Durgesh Chopra -- Evercore ISI -- Analyst

Is there is a percentage of total bill, what's that like 25%, 30%? Am I thinking about that the right way?

Scott J. Lauber -- Senior Executive Vice President and Chief Operating Officer

Yeah. It's about 30% to 40% depending upon the area.

Durgesh Chopra -- Evercore ISI -- Analyst

Thank you.

Gale E. Klappa -- Executive Chairman

Thank you, Durgesh.

Operator

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

Gale E. Klappa -- Executive Chairman

Good afternoon, Jeremy.

Jeremy Tonet -- J.P. Morgan -- Analyst

Hi. Good afternoon. Thanks for having me here.

Gale E. Klappa -- Executive Chairman

Nice being ahead, Jeremy.

Jeremy Tonet -- J.P. Morgan -- Analyst

Just a last one on Oak Creek here, if I could. Just want to see with regards to the timeline of 2035. How that date was establishes the right timeline as opposed to something earlier or later?

Gale E. Klappa -- Executive Chairman

It all -- it's a great question. It all comes back, as we've talked this through with our operating people, with our technicians, with our outside experts, it all comes back to the proper transition to continue aggressive CO2 reduction but maintaining reliability. And we're quite confident that by 2035, at the latest, that we can adjust our fuel source at Oak Creek such that coal will be a backup source. I mentioned to you that our view is that, our use of coal for power supply for our customers will be almost immaterial in our planning by 2030, less than 5% of our total power supply. So we're going to walk our way forward with continuing to increase the fuel blending at Oak Creek, making sure that we maintain that high standard of reliability which we've got to have, but it really is a thought about how quickly can we go and maintain reliability in step increments. And that's our current view. So we'll see how it goes. But we're very confident about the trajectory between now and 2030. And if the trajectory is even better, then we'll see where we go, but it's really our best estimate of how to make continued progress on aggressive environmental goals and maintaining reliability.

Jeremy Tonet -- J.P. Morgan -- Analyst

Got it. That's very helpful. Thanks. And just one last one from me, on the new 6% to 7% growth target, what's different now versus prior to the change, just given your directional guidance since growth is already generally trended at the high end of the range? Just wondering what prompted, I guess, today's change in message?

Gale E. Klappa -- Executive Chairman

Well, one simple thing, the refreshing of our five-year capital plan. I mean, we went from a $16.1 billion five-year capital plan that we unveiled to you last -- the same time last year to a 10% increase in the capital needs to $17.7 billion. And when you look at that and you say, OK, no need for equity, run it through the model, what do we get, and it gives us confidence in the 6% to 7% growth rate.

Jeremy Tonet -- J.P. Morgan -- Analyst

Got it. Makes sense. I suppose WEC operational execution might feed into it a little bit as well. But appreciate the capex uplift there.

Gale E. Klappa -- Executive Chairman

Well, let me just say this the operational execution is unhurt.

Jeremy Tonet -- J.P. Morgan -- Analyst

Thanks for taking my questions. Have a good one.

Gale E. Klappa -- Executive Chairman

Jeremy, thank you.

Operator

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

Gale E. Klappa -- Executive Chairman

Afternoon, Andrew.

Andrew Weisel -- Scotiabank -- Analyst

Hi, everybody. First question on O&Ms, I see the income statement is flattish on a year-to-date basis. Can you give us a figure on what you call the manageable or day-to-day O&Ms? And I know you've been targeting a 2% to 3% year-over-year reduction on that metric. Is that still a good number or should we expect some spending to be pulled from 2022, given the strong year-to-date earnings results?

Gale E. Klappa -- Executive Chairman

Xia has the answer for you.

Xia Liu -- Executive Vice President and Chief Financial Officer

Yeah. So, we are looking at the projection for the year, taking into consideration what has happened over the past three quarters and what we expect to see, the 3% range is still very good number, the day-to-day reduction, compared to the annual 2020.

Andrew Weisel -- Scotiabank -- Analyst

Okay. Great. And next question is on rate cases. Congrats on having such a clear near-term outlook. Can you talk about expectations for the next filings? I think you previously talked about May 2022 for Wisconsin. Is that still a good placeholder or then which of the smaller subs might see activity over the coming months?

Gale E. Klappa -- Executive Chairman

Well, yes, for our Wisconsin utilities, late spring 2022 or certainly, by no later than May 1 of 2022, that's the plan for filing our next rate reviews for the Wisconsin utilities. And recall that we're, I believe, the only state in the US that has a two-year forward-looking test period for those rate reviews. So, we're looking forward to having the rate reviews done next year in Wisconsin. And Kevin and Scott, I don't know of any other plan. I mean, we just -- as Kevin described, we just finished rate reviews for North Shore Gas in Illinois for Michigan Gas Utilities and nothing else seems to be on the docket.

Scott J. Lauber -- Senior Executive Vice President and Chief Operating Officer

Gale, just as I've said in my remarks, we have no other plans at this particular time. Thanks for the question.

Andrew Weisel -- Scotiabank -- Analyst

It's a great position to be in. Thank you, team.

Gale E. Klappa -- Executive Chairman

Thank you.

Operator

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

Gale E. Klappa -- Executive Chairman

Good afternoon, Michael.

Michael Lapides -- Goldman Sachs -- Analyst

Hey, guys. Thank you for taking my question. Just curious, in the five-year plan, can you walk us through a little bit of the cadence of the change, meaning is the change mostly in 2022 and 2023 or is it more in kind of the back end of the plan?

Gale E. Klappa -- Executive Chairman

Scott, do you want to take that one?

Scott J. Lauber -- Senior Executive Vice President and Chief Operating Officer

Sure, Gale. And when we look at the plan, it's actually throughout the plan.

Gale E. Klappa -- Executive Chairman

Yeah.

Scott J. Lauber -- Senior Executive Vice President and Chief Operating Officer

In fact, when you look at it compared to this year's plan, the prior capital plan in years four and five is kind of tapered off. And in this particular year, especially as we laid out more and more is our energy transition and these projects get staged in over time, it's actually a flatter outlook as you look through it. So it really blended in well. And when you think about us putting in the generation and agreeing very measured, you got to make sure you get the generation in and go to the next project. So it's very deliberate in how we laid it out.

Gale E. Klappa -- Executive Chairman

Xia, anything you'd like to add?

Xia Liu -- Executive Vice President and Chief Financial Officer

I agree. I think the two areas would be the renewable investment and the grid and fleets reliability investments. So, we are adding investment in all five years in those categories.

Gale E. Klappa -- Executive Chairman

And Michael, as we look even beyond the five-year plan that we just rolled out this morning, the new five-year plan, one of the things that Xia just mentioned is very clear to us, the additional and upwardly trajectory investments in grid modernization and in reliability, those kind of investment dollars are going to continue well beyond -- the need is going to be there well beyond this five-year period.

Michael Lapides -- Goldman Sachs -- Analyst

Right. Oh no. And we've got a massive opportunity in Wisconsin and elsewhere on the system. Just curious, though, I want to make sure I follow-up, can you give any cadence for like what years, within just the Wisconsin regulated business, what amount of potential new megawatts of renewable is in this plan that hasn't already been announced?

Gale E. Klappa -- Executive Chairman

That hasn't been announced?

Michael Lapides -- Goldman Sachs -- Analyst

Yes.

Gale E. Klappa -- Executive Chairman

Okay. Okay. Yeah. So we have a number of them already pending at the Wisconsin Commission. But go ahead, Scott.

Scott J. Lauber -- Senior Executive Vice President and Chief Operating Officer

So, there is approximately on the solar side hasn't been announced approximately 700 megawatts on the solar and then another about 500 megawatts in the batteries.

Michael Lapides -- Goldman Sachs -- Analyst

Got it.

Scott J. Lauber -- Senior Executive Vice President and Chief Operating Officer

So, as you know, we have the several of the largest wind farms ready and nothing additional, just that one that we've already filed for in the wind.

Gale E. Klappa -- Executive Chairman

And much of the batteries really can be deployed at existing sites.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. And so, when you think about this, that 700 megs of solar, 500 megawatts of battery, that's kind of spread throughout the five years of the plan?

Gale E. Klappa -- Executive Chairman

Correct. Yeah, correct. Yeah.

Scott J. Lauber -- Senior Executive Vice President and Chief Operating Officer

Yeah. It's going to -- you're going to see a consistent growth as we look at our renewables over the next five years.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. And then the one thing and it's smaller but I noticed that there is an uptick in expected capex at ATC. And we haven't really seen an uptick in expected capex in ATC for a while. Can you talk a little bit about what's driving that and whether this is a beginning of a cycle of kind of continual increase in spend at ATC or it's just a little bit more of a one-off?

Gale E. Klappa -- Executive Chairman

No. And Kevin, of course, is the Chairman at ATC. I'm going to ask him to comment on this. But one of the things that is notable here that I think, Kevin, will continue is ATC has a lot of maintenance capital that is just really going to be required to maintain the reliability of the existing transmission network. And I think that uptick in maintenance capital, Kevin, is a significant driver here.

Kevin Fletcher -- President and Chief Executive Officer

Gale, it is just like it is on our retail side it's exactly right. And also, as you know, there is a lot of renewable projects that are planned and onboard, so that will help drive some of that capex investment over the next five years and even into the future from that perspective. So, maintenance, as well as new needs from renewables is the drivers.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Thank you, guys. Much appreciate it.

Gale E. Klappa -- Executive Chairman

You're welcome, Michael. Hang in there.

Operator

And our last question comes from the line of Vedula Murti with Hudson Bay Capital.

Gale E. Klappa -- Executive Chairman

Greetings, Vedula.

Vedula Murti -- Hudson Bay Capital Management -- Analyst

Hello, Gale. How are you?

Gale E. Klappa -- Executive Chairman

We're good. How are you doing?

Vedula Murti -- Hudson Bay Capital Management -- Analyst

I'm OK.

Gale E. Klappa -- Executive Chairman

Hey, how is your friend Mad Dog doing?

Vedula Murti -- Hudson Bay Capital Management -- Analyst

Mad Dog?

Gale E. Klappa -- Executive Chairman

Never mind. [Speech Overlap]

Vedula Murti -- Hudson Bay Capital Management -- Analyst

Sorry. I'm thumps closed today.

Gale E. Klappa -- Executive Chairman

It is a WFAN in New York.

Vedula Murti -- Hudson Bay Capital Management -- Analyst

Oh. Yeah. It's my kid brother works there, yes. Anyway, he's doing very well. Thank you.

Gale E. Klappa -- Executive Chairman

Very good.

Vedula Murti -- Hudson Bay Capital Management -- Analyst

Yeah. I was just going to ask about is electric vehicles and associated infrastructure, I mean, we saw the other day large concept by Hertz in terms of wanting to convert over their fleet and choosing Tesla as their preferred provider, etc. Can you give us a sense as to, right now, like how large of a fleet that you have that addressable to be converted to electric? And kind of how you're thinking about that over a period of time and kind of based on how the fleet runs the type of characteristics and features, etc., that you'll be looking for as you do the transition?

Gale E. Klappa -- Executive Chairman

Vedula, are you thinking about our own fleet, that you're asking about?

Vedula Murti -- Hudson Bay Capital Management -- Analyst

Yes, yes, your own fleet.

Gale E. Klappa -- Executive Chairman

All right. Well, we've got -- we've made a commitment, actually I'm going to ask Kevin to give you the details. We've made a commitment to part of a national plan to -- in a very reasonable timeframe to continue to add materially to our operating fleet on the ground to our bucket trucks, to our other vehicles to continue to transition them to EVs. And then so I'll ask Kevin to give you the details on that and then I'll come back and I want to talk very briefly about a pilot program that is beyond our own fleet. But a pilot program for our customers that we just got approved a couple of months ago. Kevin?

Kevin Fletcher -- President and Chief Executive Officer

Gale, for our cars and SUVs, specifically for our fleet as you're asking about, we have a goal of 35% to be purchased of EVs of between now and 2025. And then for the larger trucks, for our Class 3 trucks, our goal is that 25% of those would be EVs by that point in time. We're also looking at some of the fleets and storing and looking at our forklifts and the equipment that we use for moving our products around, looking at those and have targets for those as well.

Gale E. Klappa -- Executive Chairman

And Kevin wanted to buy some new electric motorcycles from Harley, but we'll talk about that later.

Kevin Fletcher -- President and Chief Executive Officer

Always pushing, Gale. Thanks.

Gale E. Klappa -- Executive Chairman

And then, Vedula, we just got approved a pilot program from the Wisconsin Commission. We're in the very early stages. We'll talk more about it as we rollout some of these options for our customers. But essentially the pilot program is to help the -- with the affordability for, particularly large commercial customers, hotels, etc., the affordability of installing charging stations. So that program is again just now in the earlier stages. And we'll talk more about that as we get some customers to sign up. But early on as our key account folks talk to our large customers. There are some significant interest in moving forward. We're putting EV charging stations in offices, hotels, parking lots, etc. Hope that responds to your question, Vedula.

Kevin Fletcher -- President and Chief Executive Officer

Gale, I'll add [Speech Overlap]. Our fleet is one, but we're also working on large -- our large customers and the biggest opportunity is our large customers are looking at their fleets, not just our internal fleet, but that goes hand-in-hand with what Gale shared with the pilot that we're working on.

Gale E. Klappa -- Executive Chairman

Thank you for your question.

Vedula Murti -- Hudson Bay Capital Management -- Analyst

No. Thank you very much.

Gale E. Klappa -- Executive Chairman

Terrific. Thank you, Vedula. Well, ladies and gentlemen, that concludes our conference call for today. Thanks so much for participating and for all your good questions. If you have any other questions, feel free to contact Beth Straka, she can be reached at 414-221-4639. Thanks, everybody. So long.

Duration: 51 minutes

Call participants:

Gale E. Klappa -- Executive Chairman

Scott J. Lauber -- Senior Executive Vice President and Chief Operating Officer

Kevin Fletcher -- President and Chief Executive Officer

Xia Liu -- Executive Vice President and Chief Financial Officer

Shar Pourreza -- Guggenheim Partners -- Analyst

Steve Fleishman -- Wolfe Research -- Analyst

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

Durgesh Chopra -- Evercore ISI -- Analyst

Jeremy Tonet -- J.P. Morgan -- Analyst

Andrew Weisel -- Scotiabank -- Analyst

Michael Lapides -- Goldman Sachs -- Analyst

Vedula Murti -- Hudson Bay Capital Management -- Analyst

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