WEC Energy Group, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. WEC is a regulated electric and natural gas utility group, 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. Results are seasonal and the company cautions that one quarter is not necessarily indicative of full-year results.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Operating revenue | $2,908.1 million | $2,691.4 million |
| Operating income | $731.4 million | $629.3 million |
| Net income attributable to common shareholders | $565.9 million | $510.1 million |
| Diluted EPS | $1.79 | $1.61 |
| Cash provided by operating activities | $1,076.8 million | $395.2 million |
| Capital expenditures | $383.5 million | $470.6 million |
At March 31, 2022, total assets were $39.0 billion, long-term debt including current maturities was $13.7 billion, and short-term debt was $1.45 billion. Debt was 57.3% of total capitalization (56.4% on management’s adjusted basis). Cash and cash equivalents were $33.8 million. Current liabilities exceeded current assets by $701.8 million; WEC cited $1.649 billion of available revolving-credit capacity, operating cash generation, and capital-market access as sources of liquidity. It reported compliance with debt covenants.
Material changes versus the prior-year quarter
- Revenue rose by $216.7 million and common earnings rose by $55.8 million; diluted EPS increased by $0.18. Colder weather and higher natural-gas sales volumes supported utility margins, while some increased commodity costs were passed through to customers.
- Wisconsin common earnings increased $31.8 million, aided by higher gas margins and approved amortization of regulatory liabilities that offset forecast revenue deficiencies. Non-utility energy infrastructure earnings increased $20.1 million, including recognition of $15.2 million of previously deferred Upstream wind-market settlement revenue and higher production tax credits. Other-states earnings rose $6.8 million, including the effect of MGU’s rate increase. Illinois earnings increased $1.3 million.
- Operating cash flow increased $681.6 million, primarily reflecting customer collections, recovery of prior-year gas costs, and derivative-related cash and collateral effects. Investing cash outflow narrowed to $338.2 million, partly because Q1 2021 included the Jayhawk acquisition. Financing cash outflow was $706.5 million, including $447.9 million of net commercial-paper repayments and $229.6 million of common dividends.
- The effective tax rate was 18.3%, versus 12.8%, primarily reflecting production tax credits and differing deferred-tax effects. WEC forecast a 2022 annual effective tax rate of 18.5%–19.5%.
Outlook, risks, and unusual items
- WEC reported a quarterly dividend rate of $0.7275 per share, or $2.91 annualized. Its five-year plan calls for approximately $16.4 billion of capital expenditures for utility and non-utility businesses in 2022–2026, plus an estimated $1.3 billion share of ATC capital expenditures.
- In April 2022, Wisconsin utilities filed requests for 2023 rate increases; WEC expected a PSCW decision in Q4 2022. Requested amounts and outcomes remain subject to regulatory review. Several Illinois QIP rider reconciliations are pending, and recovery of all costs is not assured.
- Key execution risks include inflation, supply-chain disruption, higher fuel and construction costs, weather, regulatory decisions, and potential delays or cost increases for solar projects. The company specifically cited possible U.S. tariffs on imported solar panels and delays associated with a CBP release order affecting silica-based products.
- WEC disclosed approximately $10.5 billion of minimum future purchase commitments. Environmental remediation reserves were $517.2 million, with $618.8 million of related regulatory assets. Future recovery remains dependent on regulatory treatment. The company also recorded a $39.1 million liability related to potential ATC ROE complaint refunds; it did not expect any eventual refund to materially affect results.
- A $41.0 million insurance recovery was received in Q1 for damage to the Public Service Building and steam tunnel. WEC said remaining costs were expected to be recovered through rates and did not expect a significant future earnings impact. Results also included a $15.2 million Upstream settlement recognized after FERC dismissed a complaint.
- WEC’s stated climate objectives include reducing electric-generation carbon emissions 60% by 2025 and 80% by 2030, from a 2005 baseline, and targeting net-zero generation emissions by 2050. Planned retirements, renewable investment, and regulatory and project execution are relevant dependencies.
Important facts for investors to verify
- Whether Wisconsin and Illinois rate filings and cost-recovery proceedings are approved on expected terms and timing.
- Whether customer collections, gas-cost recovery, and working-capital movements support operating cash flow beyond this seasonally strong quarter.
- Whether the solar-panel trade investigation and supply-chain conditions affect project costs or schedules, and whether major capital projects remain within budget.
- How much of the earnings increase reflects recurring utility performance versus deferred settlement revenue, tax credits, weather, and regulatory-liability amortization.
- Whether debt, liquidity, dividend commitments, and the capital plan remain manageable as financing needs and interest rates change.