Scott Lauber; President, Chief Executive Officer, Director; WEC Energy Group Inc
Xia Liu; Chief Financial Officer, Executive Vice President; WEC Energy Group Inc
Brian Russo; Analyst; Jefferies LLC
Andrew Weisel; Analyst; Scotia Capital (USA), Inc.
Jeremy Tonet; Analyst; J.P. Morgan Securities LLC
Anthony Crowdell; Analyst; Mizuho Securities USA, LLC
Michael Sullivan; Analyst; Wolfe Research, LLC
Carly Davenport; Analyst; Goldman Sachs & Company, Inc.
Durgesh Chopra; Analyst; Evercore ISI Institutional Equities
Operator
Good afternoon, and welcome to WEC Energy Group's Conference Call for First Quarter 2025 Results. This call is being recorded for rebroadcast. (Operator Instructions) In conjunction with this call, a package of detailed financial information is posted at wecenergygroup.com. A replay will be available approximately two hours after the conclusion of this call.
Before the conference call begins, please note that all statements in the presentation than historical facts are forward-looking statements that involve risks and uncertainties that are subject to change at any time. Such statements are based on management's expectations at the time they are made.
In addition to the assumptions and other factors 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 discussion, referenced earnings per share will be based on diluted earnings per share, unless otherwise noted.
And now it is my pleasure to introduce Scott Lauber, President and Chief Executive Officer of WEC Energy Group. Please go ahead.
Scott Lauber
Good afternoon, everyone, and thank you for joining us today as we review our results for the first quarter of 2025. Here with me are Xia Liu, our Chief Financial Officer; and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations.
As you saw from our news release this morning, we reported first quarter 2025 earnings of $2.27 a share. We're off to a solid start to the year. We remain laser focused on reliability, financial discipline and customer satisfaction. And we're on track to deliver another year of strong results in line with our 2025 earnings guidance by $5.17 to $5.27 a share.
This, of course, assumes normal weather going forward. We continue to target 5% to 7% long-term compound annual growth rate, supported by a robust capital plan, driven by strong Epic growth in our region. In Wisconsin, the unemployment rate stands at 3.2%, continuing a long-running trend below the national average. And as we've discussed, we're continuing to see significant economic development along the I-94 corridor between Milwaukee and Chicago.
Microsoft is making good progress on this large data center complex in Southeast Wisconsin. Work has continued in the first phase of the project, and we have confidence in our five-year forecast of 1.8 gigawatts of demand growth in Southeastern Wisconsin. As you recall from last quarter, just in the north of Milwaukee, Cloverleaf has announced plans to develop approximately 1,700 acres for another large data center campus.
Cloverleaf has projected at least 1 gigawatt of electric demand for this development. We have not incorporated any of this investment related to Cloverleaf in our capital plan just yet. So stay tuned for the updated capital plan on our third quarter earnings call.
And there is other notable growth in Wisconsin. As a reminder, Eli Lilly has announced a $3 billion [expansion] of its manufacturing facility in Wisconsin. And just recently, Uline announced another expansion in Southeast Wisconsin. The company plans to build a 1.2 million square foot warehouse and distribution facility. We're also off to a strong start on our current capital plan. It's the largest five-year investment plan in our history, totaling $28 billion dedicated to economic growth and reliability. As we've discussed, it's based on projects that are low risk and highly executable.
On the tariff front, we're evaluating the impacts of tariffs on our supply chain and capital plan. For our $28 billion capital plan, we estimate the tariff exposure is approximately 2% to 3% overall. As you can expect, we are actively engaged to mitigate efforts and mitigation efforts through our contracts and various suppliers.
Fortunately, we have diversity in our business mix, capital plan and supply chain that should help to mitigate the overall effects on our customers. Our company has successfully navigated past periods of uncertainty and challenges, and you can certainly expect us to aim to do the same for this current environment.
Now let me give you a few updates on our projects. In early March, the Darien solar project went into service. This adds 225 megawatts of renewable generation to our regulated portfolio with an investment of approximately $427 million. And currently, we have two solar projects in construction phase, Cash Kanan, a 300-megawatt project in Southern Wisconsin and Renegade a 100-megawatt project in the Upper Peninsula of Michigan.
We expect both of these projects to be placed into service next year. In addition, the Wisconsin Public Service Commission has approved our purchase of 90% of the high noon solar and battery project for approximately $883 million. Construction is expected to be completed in 2027. Of course, we are closely monitoring the federal developments related to the inflation Reduction Act, and we're actively seeking to safe harbor the projects in our capital plan.
At WEC infrastructure, we closed on the Harden 3 solar projects in February. We invested at approximately $406 billion for 90% ownership of the project which has a total capacity of 250 megawatts. As a reminder, this project fulfills our five-year planned investment at WEC Infrastructure. Overall, we have a lot of confidence in our ability to execute on our capital plan.
Now turning to the regulatory front. As a reminder, we currently have no active rate cases. In Wisconsin, at the end of March, we filed a new tariff proposal with the Public Service Commission to accommodate the economic growth we've discussed. The proposed very large customer, or VLC tariff, would meet the needs of our very large load customers while protecting all of our other customers.
Our proposal would apply to customers with 500 megawatts or more of forecasted new load. The customer commits a subscribing to a portion of one or more dedicated generation resources. The terms of the agreements are 20 years for wind and solar and the depreciable lays for natural gas and battery storage assets.
As filed, the (inaudible) for a fixed return on equity of 10.48% and an equity ratio of 57%. In addition, there are several other charges these customers are responsible for, administrative charges, energy charges, transmission charges and distribution charges. The proposed tariff is designed so that no cost to serve these very large customers would be subsidized by or shifted to other customers.
We work with these large customers in the design of the tariff to include the financial parameters. We believe this tariff is a key component to help make Wisconsin a prime spot for data center investments. We expect the decision by the commission by the second quarter of next year.
In Illinois, we received the Illinois Comverse Commission's decision on our safety modernization program in February. The commission lifted the pause on our work and directed Peoples Gas to focus on replacing all cast iron and ductile iron pipe that is a diameter under 36 inches by January 1, 2035.
The Commission also directed its staff to appoint a safety monitor to provide oversight by July of this year. Like other capital projects, our investments in pipe replacement will be reviewed in future rate proceedings. Under this pipe replacement program, approximately 1,100 miles of older pipe some dating back to the mid-1800s will need to be replaced. We are currently developing engineering plans to execute the order. We will factor the updated pipeline replacement program capital into our fall update.
Next up, Xia will provide more details on our financials.
Xia Liu
Thank you, Scott. Our first quarter 2025 earnings of $2.27 per share reflects a $0.30 increase compared to the first quarter of 2024. Our earnings package includes a comparison of first quarter results on page 12. I'll walk through the significant drivers.
Starting with our utility operations, earnings were $0.28 higher versus the first quarter of 2024. Weather positively impacted quarter-over-quarter earnings by approximately $0.18. Compared to normal conditions, we estimate that weather had a $0.01 positive impact in the first quarter of 2025 compared to a $0.17 negative impact in the first quarter of 2024.
Recall that our 2024 winter was the warmest in Wisconsin history on record. Rate-based growth contributed $0.20 more to earnings. This was driven primarily by the Wisconsin rate review outcome that was effective on January 1, 2025. Tax and other items added another $0.04. These positive drivers were partially offset by a total of $0.14 from O&M expense, depreciation and amortization and timing of fuel expense.
Our day-to-day O&M for the year is still expected to grow 8% to 10% when compared to actual O&M in 2024. As a reminder, this year-over-year growth is largely driven by a few factors. Our continued focus on commission-approved vegetation management, new assets coming online and measures we took last year to offset the mild weather impact. And let me give you some color on our weather-normal retail electric deliveries, excluding the iron ore mine.
(inaudible) to last Q1 and adjusting for leap year, we saw 7% growth this quarter, led by the large commercial and industrial class, which grew 2.3% in the quarter. This is right in line with our forecast. Remember, we expect our weather-normal annual electric sales growth to reach 4.5% to 5% starting in 2027 and we're on track to reach that over the next couple of years.
At American Transmission Company, earnings increased $0.02 compared to the first quarter of '24. $0.01 was related to continued capital investment and the other $0.01 is related to a modest gain from selling and interest has 15 transmission line in California in the first quarter of this year.
Turning to our Energy Infrastructure segment. Earnings increased $0.05 in the first quarter of '25 compared to the first quarter of 2024, largely from higher production tax credits. Remember, we completed our investment in the Maple flats and Delilah solar projects in the fourth quarter of 2024 as well as the Hearten3 solar project this February.
Next, you'll see that earnings from the Corporate and Other segment decreased $0.03. This was driven by higher interest expense, partially offset by favorable tax timing and other items. Finally, there was $0.02 of dilution primarily associated with our common equity issuances. We issued about $200 million in 2024 and about $140 million in Q1 this year.
Including the Q1 issuances, as a reminder, we expect to raise a total of $700 million to $800 million of common equity in 2025 via our ATM program as well as the dividend reinvestment and employee benefit plans. This is a part of the $2.7 billion to $3.2 billion total common equity we expect to issue through 2029 to finance the capital investment. As we refresh our capital plan this fall, we continue to expect any incremental capital will be funded with 50% equity content.
Finally, let me comment on earnings guidance. As Scott mentioned earlier, we are reaffirming our 2025 earnings guidance of $5. 17 and to $5.27 per share, assuming normal weather for the rest of the year. We are also reaffirming our long-term EPS CAGR of 6.5% to 7%. For the second quarter, we are expecting a range of $0.63 to $0.69 per share. This accounts for April weather and assumes normal weather for the rest of the quarter.
With that, I'll turn it back to Scott.
Scott Lauber
Thank you, Xia. Now as you may recall, our Board at its January meeting increased the dividend by 6.9%. This marks the 22nd consecutive year that our shareholders will be rewarded with higher dividends. Overall, we're optimistic about continued growth in our region and our company's growth and future.
Operator, we are now ready for question-and-answer portion of the call.
Operator
(Operator Instructions) Julien Dumoulin-Smith, Jefferies.
Brian Russo
It's Brian Russo on for Julian. Just on the recent MISO capacity auction results, can I -- could we get your thoughts on your base generation CapEx spend or any upside CapEx maybe for data centers? And then how that plays into the whole long-term strategy for the power of the future assets and Port Washington and maybe also the nuclear PPA negotiations.
Scott Lauber
Here, there's a lot built into that. When you looked at the MISO auction, especially when you look at the summer part of the auction, it was really a tight auction. Overall, we were long on one company and a little bit short on the other, but nothing material, all in the right -- kind of all in the right direction overall. We build (technical difficulty) several years now, as we get orders in place to build new generation capacity.
So as we think about it, looking forward, we are looking forward to some of the decisions by the commission, and we expect end of June, early July here on some of the additional gas generation needs that we have from the combustion turbines and the right units that are at the commission to help us build that needed capacity to meet this large customer load along with the other economic development in the region.
So we are actively working to procure. We already started talking about 2030, 2031 and how we look at the capacity needs. As you start thinking about our part of the future assets and some of the other assets that we have, we are looking at and we have successfully tested gas at about 30% blend on the power of the future coal units, and we're looking to our plans to make that 100% gas by 2029. And the same thing looking at the Weston 4 units, converting it to gas. So we're looking at how do we strategically have the capacity in the region. (technical difficulty) that help you.
Operator
Andrew Weisel, Scotiabank.
Andrew Weisel
First question. In Illinois, the ICC recently concluded it for view of the pipeline safety modernization program. The red authorized you to replace a good amount of the older pipe. I know it's not exactly the same as the prior program, but it might represent some upside to the CapEx. Scott, I know you mentioned that we'll have to wait for the CapEx refresh this fall.
But my question is, any early thoughts on roughly how big of an opportunity that might be and how quickly you might be able to get those efforts going? I know you have to rehire, retrain and redeploy, I think, thousands of employees, so you can't just do it immediately, but when might that work start to resume?
Scott Lauber
Excellent question. And we can give you a little color what we're looking at now. So we're going through the process, and we had a couple of projects that, of course, were stale, that we're going -- running it back through some of the permitting process as you have to go through the permitting process, and we're going through to see if we can kick off a few of them this year.
But of course, we're going through that hiring process and our planning. We'll see the program ramp up in '26 and '27 and get to what we think will be a full run rate, and we're still pulling the numbers together in '28, but we expect that will probably be a little over $500 million a year going forward.
And remember, our old program was about $280 million to $300 million. But in order to get this program completed by beginning of 2035, we really have a lot of spending to do because we expect to be closer to that 2040 timeframe. So it will be ramping up over; 26 and '27 with -- hopefully, we get to that run rate in 2028.
Andrew Weisel
Okay. Great. Next, on Microsoft, I think you briefly mentioned that things are going smoothly there. Can you just elaborate on that, maybe what you're hearing and seeing from the company? I know there's a lot of questions among investors about pauses of various phases and potential global slowdown, all those types of questions. Maybe if you could just tell us how your latest conversations with them have been going both around the current phase 1 that goes through '26 and what the company is doing and seeing around those future phases in your neck of the woods?
Scott Lauber
Sure. And Microsoft, we've been working with them for a couple of years now, and they reiterated to us that the economic development and the demand that we have in our forecast over the five-year period, that supports that Southeastern Wisconsin that 1.8 gigawatts is still solid. We have worked with them on building substation ourselves American transmission company, and that work progresses.
So I have no concerns that that site is still going to be very, very strong and a very core part of Microsoft's development. And I learned a lot just listening to the Microsoft conference call because they talk about timing and going in and out of some of their build cycles and how they manage it.
It just sounds like now with AI and all the hyperscalers being the talk and how it affects the electric utilities. People are talking about it a lot more, but I think they've always managed it. So I encourage you to listen to the Microsoft conference call. I thought it was really interesting how they described some of the things, but I have no concerns in Southeastern Wisconsin here.
Andrew Weisel
Okay. Great. Appreciate the comment. (inaudible) One last one, if I may. If I could squeeze one in for Xia. On equity, $140 million in the quarter. Obviously, that's a bit less than the 25% of the full year guidance. You mentioned that $700 million to $800 million. How should we think about that? Is that any kind of reflection on the market uncertainty in tariffs, view on your stock price or maybe a function of cash needs ramping up as the year goes on. Any thoughts on the timing there?
Xia Liu
Yes. Andrew, it's all of the above. We're targeting $700 million to $800 million. And so stock price plays a role in that through the access to the ATM program. Our cash needs play a role. So we're managing it very, very tightly, but we feel very confident that through our ATM and the employee benefit plans, we could access the $700 million to $800 million fairly easily throughout the rest of the year.
Operator
Jeremy Tonet, J.P. Morgan.
Jeremy Tonet
The IRA has been in focus for the market for some time here in tax credit transferability as well. Just wondering any updated thoughts you can provide here if transferability or other products to the IRA were to be repealed and how you think about this would impact in the plan or offsets that you could offer?
Scott Lauber
Sure. And I'll start and then Xia can walk you through a little bit more of the numbers. But when you think of the IRA and a lot of projects that we have in our plan, we've been anticipating that the IRA benefits. And I think a lot of our customers are anticipated to remember, all the PTCs and ITCs for the projects going forward go back to our customers.
So I could see that there would be a phase out of the IRA and PTCs and ITCs in the future, but it's pretty well integrated in a lot of the projects that people had assumed going forward. And transferability, there's other ways to look at moving those tax benefits to others, whether it's tax equity or transferability. Tax equity is just a little more complicated.
It gets -- it ends up in the same result. I think it's a little more costly for our customers or transferability has been very lean and easy to execute. And actually, we've been able to benefit some of our local companies, too, with the benefits of those tax benefits. So hopefully, there's a transition period and transferability stays for a while because I think it's really beneficial to our customers, and Xia can give you a little more detail on some of the numbers.
Xia Liu
Absolutely. So the -- on the phaseout point, like Scott mentioned, we're actively seeking safe harboring the upcoming renewable projects. So once we do that, we could -- hopefully, we could qualify the project for 100% of PTCs through at least 2029. So we're actively seeking that. In terms of the transferability, as you know that we have been able to transfer about $200 million of PTCs annually to third parties over the past several years. And as we build more projects, that number ramps up slightly in the plan.
However, if you think about the projects, we have almost 80% of the planned PTC transfer from projects already in service from 2025 and prior. So as we all know, we don't believe Congress likes to change the economics of projects already placed in service. Assume that depending on the law, obviously, but assume that transferability were to only impact projects put in service from 2026 or 2027 or later, we would have very limited credits that we would not be able to sell. So we think the impact would be pretty limited.
And also, like Scott mentioned, for the utility projects, if transferability were repealed, it would make renewable projects more costly for the customers. So I think we would have to take a step back and think about the optimal generation project mix from a customer affordability standpoint. So I think all in all, we're managing it just -- but watching the development and also managing very actively. We're not concerned at this point.
Jeremy Tonet
Okay. Got it. So the FFO impact is something that you think would be manageable in the grand scheme of things, everything you talk about?
Xia Liu
Yes, depending on the law, yes, absolutely.
Scott Lauber
We're all anxiously waiting to see at the final line.
Xia Liu
Yes.
Jeremy Tonet
Got it. And then I just want to pivot towards the BLC tariff. And I think it's key that customers are involved in the creation here, right? Just wondering, as it stands, how you think that impacts Wisconsin. And how does -- Wisconsin stand relative to other states and trying to win this business with this tariff? Just wondering if you could expand on that.
Scott Lauber
I think the key is you hit it. We worked with our very large customers with the basic understanding that we cannot have this very large load gets subsidized at all by any other customers. So we worked on the fundamentals, and that's how we came up on the tariff. I think it's a fair tariff for our customers, for the very large customers and for our shareholders.
So we try to be a very balanced approach. I think in what we've heard from some of the developers is that it's a very fair and straightforward and clean tariffs. So I'm very happy with it. I think our team did a great job and really appreciate both sides as we balance it through with the large customers and our internal team. So I'm really optimistic with it.
Operator
Anthony Crowdell, Mizuho.
Anthony Crowdell
Just two quick questions. One is really strong residential electric load growth there. I think 5.5%. Just wondering if you go through some of the drivers. Or was that mainly driven by weather?
Scott Lauber
Yes. And Xia's looked at these numbers. But remember, last year was such a warm first quarter. So the growth, I think, is just getting back to normal weather. I'm happy to see normal. And I think when you look at the normalization for the quarter -- that is also an anomaly of how that weather affected last year's normalization because it was so extreme forms we had in like 134 years. So we're seeing good customer growth, good customer connections. So I'm not -- I don't think there's anything to read one way or the other, other than some pretty extreme weather between last year and this year. Xia, anything to add?
Xia Liu
No, it's all mostly weather-driven.
Anthony Crowdell
Great. And then if I could just follow up on Cloverleaf. Just you gave some acreage and maybe projected about a 1 gigawatt of demand. Just curious, would that mostly be met with gas or a combination of gas and renewables or any type of clarity you can provide on the generation needs there.
Scott Lauber
Sure. So a couple of things is, one, yes, it's about 1,700 acres of developing. They talked initially about 1 gigawatt of load. We expect -- they also say the say can hold up to probably about 3.5 gigawatts of load. So (inaudible) relief is in the process of marketing the land and the location. We expect in the next couple of months to see who potentially is a longer-term purchaser of that spot or a purchaser of that location. And then we'll work on the details of the generation mix of that, that will hopefully factor in then to our fall update in the third quarter call of the capital plan.
So things are moving along very well there. I think it will be a combination, of course, of gas and renewables just because you need that firm capacity ability. But I also think they'll have some renewables in there too, just to help with the energy part of the bill, too. So I think it will be a combination, but more to come as we continue to work with that and whoever purchased that location.
Anthony Crowdell
And the timing of when maybe that load would come online, that would something we get more on the third quarter call?
Scott Lauber
Correct. Correct. And they're trying to move very fast to get that purchaser in the next couple of months, and then we'll have more clarity as we work with them to develop their plans. But we've been working with the potential purchasers of the sites. I can't mention any names, of course, but all high-quality companies and they're just reviewing the plans that we would have to serve those sites.
Operator
Michael Sullivan, Wolfe Research.
Michael Sullivan
Scott, I wanted to start with maybe just a little more color on where you're seeing the tariff impacts in your capital plan? And it's primarily around the renewables. Just remind us kind of what the process is for updating costs on that front as you seek to recover?
Scott Lauber
Sure, sure. And as you think about it, as we look at our capital plan, a lot of the electric and gas distribution is mainly domestically sourced. When you start thinking about some of the remaining part of our plan, largely in the generation.
A lot of it's labor, probably 50% to 60% is labor, but then the remaining are the materials. And -- of course, we have to see final clarity on the tariffs. The solar for the near-term projects, if we're very comfortable, those are in flight. We got processes and manufacturing and panels lined up.
The farther ones out, of course, we have been working with other developers and suppliers to really onshore a lot of the production of these panels. The challenge, of course, is where do you get the polysilicon and the wafers, the cells, et cetera. So we've been working with everyone to get that. If there would be a cost increase, we would, of course, notify our regulators, the commission as soon as possible of that cost increase and then go through a prudency review process, which we've done at other projects for force majeure situation.
So at this time, we don't have anything that's notable to talk about. On the other aspect, probably the last item are the batteries. Remember, we have the smaller part of our generation plan is probably the battery is a little about -- a little under $1 billion. In fact, we have our first battery installation going in the end of this month, about 100 megawatts of that.
Those batteries are a little more tricky across the industry, and we'll just manage the batteries as we get some more clarity on the tariffs. And of course, we're working with vendors on those batteries. And of course, working with some of the very large customers also, we could see them looking at renewables and batteries too as they look at PCAs and long-term generation needs.
So we're kind of looking at all of the above, but probably the biggest potential charges coming from the tariffs could relate to batteries or the solar projects.
Michael Sullivan
Appreciate the color there, very helpful. And then I wanted to ask also on the reconciliation bill potential impacts of a lower corporate tax rate. Can you give us any sense there if that were to happen?
Scott Lauber
Sure, and Xia can walk you through the details. It's basically the same that we kind of went through several years ago at the lower tax rate, right? So in general, you're going to get a lot of the benefits, we'll go back to our customers for that lower tax rate through the regulatory model. And in general, then there will be a little less of a tax shield at the parent company for some of the deductions up there and the interest expense. That's kind of the high-level story. I don't think -- remember last time, there was a little bigger change in taxes.
So I don't think it's going to be that big of effect, but Xia, any additional color?
Xia Liu
Yes. I think Michael and Steve published a report, which really correctly stated the potential impact. Like Scott mentioned, long-term benefit for customers because customers would pay less under that situation, it would have some earnings impact, particularly for the tax shield earnings benefit from the noncustomer deductions at the holding company that would decrease over the longer term.
But the earnings would increase the utilities because your rate base would be higher over the longer term. So in terms of the cash flows, obviously, the lower the corporate tax rate, you would collect less from the customer. So everything else being equal, there will be slightly less cash flow for the company overall. So I think we're watching that very closely. And in case that we went that way, we would be ready to handle and deal with it.
Operator
Carly Davenport, Goldman Sachs.
Carly Davenport
Maybe just the commentary on the data center front in terms of your conversations with customers with super clear. Could you talk a little bit about conversations with other large load customers outside of the data center industry. Anything changing there in terms of their plans to progress on new projects either from a timing or a magnitude of their power needs perspective? And then any sort of dispersion across the diverse set of industries that you serve would be helpful.
Scott Lauber
Sure. And thanks for the question, Carly. As we look at it, and as you know, we are attracting customers at about 16, 17 sectors. And we have relationships that we talk to our large customers. I'd say right now, most of the customers are cautious on what's going on with the tariffs and what kind of clarity.
So I think people are cautious before they overreact one way or the other. So unemployment was constant at 3.2%, way below the national average and the large significant projects outside of the data centers are still progressing and people are the Eli Lilly, et cetera, there's still a lot of expansion in housing development in Southeastern Wisconsin. So as you drive around, it still looks very positive, constructive.
I think the question is going to be, as people see more clarity on what's going on with tariffs, et cetera that will be a question in people's mind, but cautiously optimistic, I would say. And I think Xia has analyzed the first quarter where we're seeing, so I'll let Xia walk you through what we're seeing on the large group in the first quarter.
Xia Liu
Carly, we are all over that. So as you know, we follow about 16 different sectors in the stage. It covers from food, paper printing, all the way to health services and education. So out of the 16, 10 of those had quarter-over-quarter positive growth, some with double-digit growth.
There are two or three sectors that experienced some negative growth, I think they are not driven by macro environment, mostly driven by the individual decisions made by those customers. So overall, we remain very optimistic about the long-term growth in our region.
Carly Davenport
And then just a quick follow-up on the conversation earlier on Illinois. Just on the future of gas, anything that you fly from the most recent series of workshops there that you think could impact the final outcome early next year?
Scott Lauber
I would say right now, I haven't seen anything that has gone one way or the other. I mean, the workshops, as you know, we've got postponed now, not the workshops, but the final decision to next year. I think everyone is looking at the economic development and what's needed for gas. They've approved our pipe replacement program, very large pipe.
I think that's positive. So I don't -- I'm not expecting anything that I've seen recently to change that momentum.
Operator
Durgesh Chopra, Evercore ISI.
Durgesh Chopra
Just, Scott, a lot of eyes on the tariff filing in Wisconsin, the VLT filing. Maybe just a little bit cutter on the higher ROE, how do you come up with 70 basis points higher than the current authorized and the customer feedback on that higher ROE. Just any color or thoughts there would be really appreciated.
Scott Lauber
Sure. Sure. And remember, so we worked with the customers coming out with this agreement on the ROEs and the equity layers. And when you think about it, it's a long term. So we're talking 20 years to the depreciable life, which should be up to 30 years or more on some of these projects. So they're looking for certainty. And we don't know what the future would bring.
But we think the ROEs when you look at interest rates over a long period of time are near one of the lower spots now at that 9.8%. So having something locked in for a longer period of time, we came up with that 10.48% and thought it was reasonable for both of us to lock into that number. But remember, this is for 20 to 30 years. So it's a long investment, but it also gives them certainty on what they're putting into their model. Hope that's helpful.
Durgesh Chopra
Yes, it does. And then maybe just quickly, in Illinois, can you just remind us the higher $500 million per year rate which you get to in '27, '28, that is not going to be recovered by a tracker, correct? That's slide 1. And if not, what's the rate case strategy on under covering that higher level of spending because it is indeed wrapping up quite a bit?
Scott Lauber
Correct. Correct. So you are correct that, that covered under our tracker. In Illinois, we'll have to file forward-looking test years on the rate case. We're evaluating right now when our next test year filing will be. But of course, we'll have to forecast that into the test year. That will -- it's forward-looking test year, but it also gives us a chance that the commission and the ICG will be able to review what our plans are, again, along with having that safety monitor on site to actually review our projects too as they go in.
So I think it adds a lot of color and a lot of opportunities to improve the prudency on a front-end basis also as we go through these capital projects. So it will be more of an ongoing annual rate case in the future.
All right, everybody. That concludes our conference call for today. Thank you for participating. If you have any more questions, please feel free to reach out to Beth Straka at (414) 221-4639.
Operator
This concludes today's conference call. Thank you for joining. You may now disconnect.
