WEC Energy Group, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. WEC Energy Group is a regulated electric and natural gas utility holding company serving customers across Wisconsin, Illinois, Michigan, and Minnesota, with an approximately 60% interest in transmission company ATC and non-utility energy infrastructure, including renewable generation.
Financial performance and condition
- Revenue: Consolidated operating revenue was $8.893 billion, down 7.3% from $9.597 billion in 2022. Lower natural gas prices reduced pass-through gas revenue; utility sales volumes were also lower.
- Profit: Net income attributed to common shareholders was $1.332 billion, down 5.4% from $1.408 billion. Diluted EPS was $4.22 versus $4.45. Operating income was $1.908 billion, compared with $1.924 billion.
- Margins: Wisconsin electric and natural gas margins increased by $363.6 million combined, mainly reflecting 2023 rate orders and fuel-cost collections. Illinois natural gas margins rose $16.4 million, but the segment recorded a $178.9 million impairment. The filing presents these segment margin measures as non-GAAP.
- Cash flow and investment: Operating cash flow was $3.018 billion, up $957.7 million, primarily from lower fuel and gas payments. Investing cash outflow was $3.558 billion; capital expenditures were $2.493 billion, versus $2.315 billion in 2022. Acquisitions of renewable and generation assets also increased investing outflows.
- Debt and liquidity: Total debt was $18.798 billion, up from $17.295 billion; debt was 61.5% of total capitalization (60.7% on management’s adjusted measure). Cash and cash equivalents were $42.9 million. Commercial paper outstanding was $2.017 billion, with $1.281 billion of available revolving-credit capacity. Current liabilities exceeded current assets by $2.319 billion; management expects operating cash flow, credit facilities, and capital-market access to meet requirements. The company was in compliance with debt covenants at year-end.
- Other metrics: Interest expense increased to $726.9 million from $515.1 million. The effective tax rate was 13.3% versus 18.6%, principally reflecting higher production tax credits and other tax items. Total assets were $43.940 billion and common shareholders’ equity was $11.724 billion.
Material changes versus 2022
- Common earnings fell $76.4 million. Wisconsin earnings increased $92.9 million, while Illinois earnings declined $86.9 million and corporate and other losses widened $92.0 million, chiefly because of higher interest expense. Electric transmission earnings decreased $10.4 million, partly reflecting a favorable prior-year ATC return-on-equity item.
- The Illinois segment recorded a $178.9 million non-cash impairment after the Illinois Commerce Commission (ICC) disallowed certain previously incurred capital costs. The 2022 comparison included a $54.5 million real-estate sale gain.
- Capital expenditures increased by $178.0 million. Debt increased amid substantial borrowing and higher interest rates; the company issued $2.170 billion of long-term debt and retired $1.005 billion during 2023.
Outlook, commentary, and risks
- Capital plan: Planned 2024–2028 investment totals approximately $23.7 billion, including $19.5 billion in regulated utilities, an estimated $3.0 billion share of ATC investment, and $1.2 billion in non-utility energy infrastructure. The company plans approximately $7.0 billion of regulated renewable investment in Wisconsin over 2024–2028.
- 2024 planning assumptions: Management forecasts relatively flat weather-normalized retail electric sales and 0.8% growth in natural gas deliveries, assuming normal weather. Estimated capital expenditures and acquisitions are $4.131 billion for 2024, $3.980 billion for 2025, and $4.227 billion for 2026. The filing does not provide a clear numerical 2024 earnings guidance figure. Management expects a 2024 effective tax rate of 11.5%–12.5%.
- Dividend and transition goals: The quarterly dividend was raised to $0.835 per share for 2024, or $3.34 annualized; the target payout ratio remains 65%–70% of earnings. Goals include reducing electric-generation carbon emissions 60% by 2025 and 80% by 2030 from a 2005 baseline, net carbon neutrality by 2050, and net-zero methane emissions across gas distribution by 2030. The company reported a 54% electric-generation emissions reduction through 2023 and expects to eliminate coal as an energy source by the end of 2032.
- Illinois regulatory uncertainty: The ICC paused PGL’s System Modernization Program (SMP) spending pending a proceeding expected to last about 12 months. A limited rehearing allows certain already-started work and emergency repairs, but not reconsideration of the capital-cost disallowance; the company expects to appeal that disallowance. Pending reconciliations of PGL’s former infrastructure rider costs could also result in further disallowances.
- Other risks: Key exposures include regulatory cost recovery and rate-case outcomes; environmental rules and remediation; retirement and replacement of generation; large-project execution, inflation and supply-chain constraints; interest rates, financing access and credit ratings; weather, fuel availability and commodity prices; cybersecurity and operational reliability; and changing demand from electrification and distributed generation. Solar-panel trade restrictions and supply delays could affect project timing and costs.
- Unusual items and assurance: The filing reports the $178.9 million ICC-related impairment and 2023 gains from investments held in a rabbi trust, partly offsetting deferred-compensation costs. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether the ICC’s Illinois decisions, SMP pause, pending cost reconciliations, and anticipated appeal change recoverability, spending plans, or earnings.
- Whether the $23.7 billion investment plan can be completed on schedule and budget, receive regulatory approval, and be recovered through rates.
- How higher debt, interest expense, and the negative working-capital position affect financing needs, credit metrics, and dividend capacity.
- Whether planned generation retirements, replacements, and emissions targets remain consistent with reliability, customer affordability, and regulatory requirements.
- How much of the year-over-year cash-flow increase reflects sustainable operating performance versus lower commodity-cost payments and proceeds from selling tax credits.