WEC Energy Group, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. WEC is a regulated electric and natural gas utility holding company, with transmission investments and non-utility energy infrastructure, including wind generation. It serves approximately 1.6 million electric and 3.0 million natural gas customers. Unaudited interim results are seasonal and are not necessarily indicative of full-year results.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenues | $2,127.9 million | $1,676.2 million | $5,036.0 million | $4,367.6 million |
| Operating income | $408.2 million | $368.8 million | $1,139.6 million | $998.1 million |
| Net income attributable to common shareholders | $287.5 million | $276.0 million | $853.4 million | $786.1 million |
| Diluted EPS | $0.91 | $0.87 | $2.70 | $2.49 |
| Cash provided by operating activities | Not presented quarterly | $1,762.6 million | $1,226.2 million |
- Q2 revenue rose about 27% and common earnings about 4%; first-half revenue rose about 15% and common earnings about 9%. Higher natural gas prices and related pass-through revenues contributed materially to revenue growth; revenue growth alone does not indicate equivalent margin growth.
- First-half capital expenditures were $1,028.8 million, versus $1,010.1 million. Cash used in investing was $937.5 million; cash used in financing was $807.7 million.
- At June 30, cash and cash equivalents were $30.3 million. Short-term debt was $1,629.1 million; long-term debt, including current portion, was $13,697.8 million. Total debt was $15,326.9 million, and reported debt-to-capitalization was 57.5% (56.6% on management’s adjusted basis).
- Current liabilities exceeded current assets by $1,175.3 million. WEC reported $1,470.9 million of available capacity under revolving credit facilities and expects operating cash generation and capital-market access to support liquidity.
- The quarterly dividend was $0.7275 per share ($2.91 annualized). The board declared the next $0.7275 dividend on July 21, payable September 1, 2022.
Material changes and unusual items
- Q2 earnings increased $11.5 million year over year. Key contributors included Illinois earnings growth of $12.8 million and non-utility energy infrastructure growth of $11.5 million; corporate and other earnings declined $16.9 million.
- The Illinois results included a $54.5 million pretax gain from selling approximately 11 acres of Chicago real estate for $55.1 million. The gain was recorded as a reduction of operating expense and is not a recurring operating source.
- First-half non-utility earnings benefited from $15.2 million of Upstream wind-market settlement revenue recognized after FERC denied a related complaint, as well as increased production tax credits, including from Jayhawk’s commercial operation.
- Corporate and other results were weighed down by losses on investments held in the Integrys rabbi trust and lower earnings from technology- and energy-focused investment funds. First-half operating cash flow also benefited from higher customer collections, derivative gains and increased collateral received, while higher fuel, maintenance and remediation payments offset part of the increase.
- Higher utility revenues primarily reflected increased natural gas costs passed through to customers, along with higher sales volumes and regulatory or rate effects. Management also cited colder weather and continuing economic recovery as factors supporting utility volumes.
Outlook, capital plan and risks
- Management expects a 2022 annual effective tax rate of 18.5%–19.5%. The filing does not provide a clear full-year earnings guidance range in the supplied text.
- The 2022–2026 plan includes approximately $16.4 billion of capital expenditures for regulated utilities and non-utility energy infrastructure, plus an estimated $1.3 billion share of ATC capital expenditures. Estimated 2022 capital expenditures and acquisitions were $3.72 billion; these are estimates subject to change.
- WEC’s strategy includes renewable generation, battery storage, grid and gas-system upgrades, and replacement or retirement of older fossil-fueled generation. Supply-chain delays and inflation have affected project timing and costs. WEC also identified solar-panel trade investigations and import restrictions as potential risks to solar project cost and timing.
- Wisconsin utilities filed 2023 rate requests, updated in July 2022, seeking increases including electric and gas rates; decisions were expected in Q4 2022, with proposed changes effective January 1, 2023. The requests and outcomes remain subject to regulatory review. WEC also reported pending PGL QIP rider reconciliations, with no assurance all costs will be recoverable.
- Environmental and regulatory exposures include approximately $10.5 billion of minimum future purchase commitments; $504.3 million of environmental remediation liabilities, largely associated with manufactured-gas-plant sites, alongside $621.6 million of related regulatory assets; and an estimated $100 million in capital investment to comply with steam-electric wastewater requirements. Recovery of deferred costs depends on regulatory approval.
- Other risks include commodity-price volatility, interest rates and capital-market access, weather and outages, customer credit, litigation, environmental rule changes, and execution of the capital plan. A new putative ERISA class action was filed in May 2022; management could not assess the likelihood or estimate potential loss. In a separate Manlove Field matter, PGL agreed to a final consent order requiring a $575,000 payment and ongoing specified protections for affected homeowners.
Most important facts for investors to verify
- How much of earnings growth came from recurring utility margins versus the real-estate gain, wind settlements, production tax credits, weather, and regulatory amortizations.
- Progress, cost and timing of major capital projects, and the effect of inflation and supply-chain constraints on planned in-service dates and rate recovery.
- Liquidity and financing needs amid the current-liability deficit, commercial-paper borrowings, rising short-term borrowing costs, and the planned capital program.
- Outcomes of Wisconsin rate proceedings, PGL QIP reconciliations, and prudency reviews of previously incurred extreme-weather gas costs.
- Potential changes to environmental compliance costs, remediation obligations, solar-module availability, and the unresolved legal and regulatory matters described in the filing.