WEC ENERGY GROUP, INC. quarterly report, Q1 FY2024

WEC Energy Group, Inc. — Q1 2024 Form 10-Q

Reporting period: Three months ended March 31, 2024. Unaudited interim results; management cautions that seasonal results are not necessarily indicative of full-year performance.

Business context and results

WEC serves approximately 1.7 million electric and 3.0 million natural gas customers, primarily through regulated utilities in Wisconsin, Illinois, Michigan, and Minnesota. It also owns an approximately 60% interest in transmission affiliate ATC and renewable and other energy infrastructure businesses.

Metric	Q1 2024	Q1 2023	Change
Operating revenue	$2,680.2 million	$2,888.1 million	Down $207.9 million
Operating income	$813.4 million	$669.3 million	Up $144.1 million
Net income attributable to common shareholders	$622.3 million	$507.5 million	Up $114.8 million
Diluted EPS	$1.97	$1.61	Up $0.36
Cash from operating activities	$863.6 million	$796.1 million	Up $67.5 million
Capital expenditures	$444.5 million	$499.4 million	Down $54.9 million

Revenue fell mainly with lower natural gas costs passed through to customers and reduced gas sales in warmer weather; these revenue changes do not translate directly into margin changes. Operating income and earnings increased, led by Illinois following new utility rate orders. Q1 net margin was approximately 23.2% of revenue, versus 17.6% a year earlier.

Drivers and material changes

Illinois: Common-shareholder earnings rose $74.4 million to $187.5 million. Higher gas margins reflected PGL and NSG rate orders effective December 2023 and February 2024; moving PGL infrastructure costs from a rider into base rates contributed to the winter-period increase.
Wisconsin: Earnings increased $9.2 million to $266.4 million. Higher electric margins and the January 2024 rate-case re-opener were partly offset by warmer weather, lower gas volumes, storm restoration costs, depreciation, and interest expense.
Other states and transmission: Earnings rose $5.4 million to $38.6 million and $0.8 million to $30.1 million, respectively. Non-utility energy infrastructure earnings increased $5.8 million to $94.3 million.
Consolidated interest expense increased to $192.0 million from $172.2 million. Income tax expense was $87.7 million; the effective tax rate was 12.3%, compared with 12.7%.
Gas utility margins were $286.4 million in Wisconsin, $471.3 million in Illinois, and $93.8 million in other states. Wisconsin electric margins were $841.4 million. These are management-defined non-GAAP measures.

Cash, debt, and liquidity

At March 31, cash and cash equivalents were $38.9 million; cash, cash equivalents, and restricted cash totaled $116.1 million. Operating cash flow exceeded capital expenditures by $419.1 million for the quarter.
Short-term debt was $2.57 billion, primarily commercial paper carrying a 5.50% weighted-average rate at quarter-end. Long-term debt, including its current portion, was $16.02 billion on the capitalization presentation; total debt including short-term borrowings was $18.59 billion.
Debt was 60.5% of total capitalization on the GAAP presentation (59.9% on management’s adjusted presentation). Available capacity under revolving facilities was $727.7 million. The company reported compliance with debt covenants.
Current liabilities exceeded current assets by $2.11 billion. Management expects operating cash generation, credit facilities, and capital-market access to meet cash requirements.
Financing included $552.8 million of net commercial-paper borrowing and $756.9 million of long-term debt retirements. WEC repurchased $122.1 million principal of its junior notes for $115.2 million and recorded a $6.9 million gain; a $600 million 0.80% note also matured and was funded with commercial paper.

Outlook, plans, and risks

Management expects a 2024 annual effective tax rate of 11.5%–12.5%. The filing does not provide a clear full-year EPS guidance figure.
The 2024–2028 investment plan totals approximately $23.7 billion: $19.5 billion for regulated utilities, about $3 billion for WEC’s share of ATC investment, and $1.2 billion for non-utility energy infrastructure. Management also expects approximately $3.8 billion of reliability investment over the five-year period.
Plans include renewable generation, storage, natural-gas generation, grid and gas-system upgrades, and emissions reductions. The company targets 60% and 80% reductions in generation CO₂ emissions by 2025 and 2030, respectively, from a 2005 baseline, and net-zero generation emissions by 2050.
On April 12, 2024, Wisconsin utilities filed for 2025 and 2026 rate increases; decisions are expected in Q4 2024. These are pending requests, not approved rates. MGU also filed a rate request; UMERC filed after quarter-end. WEC declared a $0.835-per-share quarterly dividend, payable June 1, 2024.
Illinois regulators paused PGL’s System Modernization Program pending a proceeding on pipeline replacement and prudent investment levels. PGL and NSG face pending reviews of historical rider costs, and potential disallowances could materially affect results. A 2023 ICC order disallowed certain capital costs; WEC recorded a $178.9 million non-cash impairment in Q4 2023 and expects to appeal after rehearing.
Environmental rules finalized by the EPA in April 2024—including rules concerning air emissions, wastewater, and coal ash—were under company evaluation. Additional compliance or remediation costs, including coal-ash costs, could be significant, although WEC expects certain costs to be recoverable through rates.
Other risks include weather-sensitive demand, rate recovery and regulatory outcomes, inflation and supply-chain constraints, interest and commodity prices, major-project execution, and changes in the future role of natural gas in Illinois. Minimum future purchase obligations were approximately $9.5 billion.

Investor facts to verify

Whether the Illinois rate-order-driven earnings increase is sustainable and how warmer weather and seasonal gas demand affect subsequent quarters.
Progress and final regulatory outcomes for PGL’s modernization program, rider reconciliations, and pending Wisconsin and Michigan rate cases.
Capital-plan costs, financing needs, project timing, and recoverability through customer rates, particularly for proposed generation and renewable projects.
Effects and potential cost recovery of newly finalized environmental rules, plus the status of emissions targets and planned plant retirements.
Short-term borrowing levels, interest costs, liquidity capacity, and the sustainability of dividend growth amid the investment program.