WEC ENERGY GROUP, INC. quarterly report, Q2 FY2023

WEC Energy Group, Inc. — Form 10-Q Summary

Reporting period: Three and six months ended June 30, 2023; unaudited. WEC Energy Group operates regulated electric and natural gas utilities, holds an approximately 60% interest in American Transmission Company (ATC), and owns non-utility energy infrastructure, including renewable generation.

Financial performance and position

Metric	Q2 2023	Q2 2022	Six months 2023	Six months 2022
Operating revenue	$1,830.0 million	$2,127.9 million	$4,718.1 million	$5,036.0 million
Operating income	$425.3 million	$408.2 million	$1,094.6 million	$1,139.6 million
Net income attributable to common shareholders	$289.7 million	$287.5 million	$797.2 million	$853.4 million
Diluted EPS	$0.92	$0.91	$2.52	$2.70
Operating cash flow	Not separately stated for the quarter	$1,754.3 million	$1,762.6 million

Revenue declined year over year in both comparison periods, mainly reflecting lower natural gas prices and associated pass-through costs; regulated natural gas costs are generally recovered from customers. Weather and sales volumes also affected results.
Q2 common earnings edged higher, while first-half earnings fell $56.2 million. First-half diluted EPS decreased $0.18.
For the first half, capital expenditures were $1,073.7 million. Investing cash outflow was $2,101.4 million, including acquisitions of renewable facilities and generation assets. Operating cash flow less capital expenditures was approximately $680.6 million.
At June 30, cash and cash equivalents were $54.7 million. Short-term debt was $1,090.3 million and long-term debt, including current portion, was $16,985.8 million. The company reported a $1,639.3 million excess of current liabilities over current assets, but cited $2,010.8 million of available revolving-credit capacity, ongoing cash generation, and capital-market access as sources of liquidity.
Debt to total capitalization was 60.7% on the company’s GAAP presentation (59.8% adjusted for rating-agency treatment of junior notes). WEC issued $1.45 billion of long-term debt in the first half. It reported compliance with debt covenants.
The quarterly dividend was $0.78 per share; the board declared the same amount for payment September 1, 2023.

Material changes and notable items

Wisconsin segment Q2 earnings increased $37.2 million, supported by 2023 rate orders and fuel-cost collection timing, partly offset by lower weather-driven sales and higher operating costs. Illinois earnings decreased $26.3 million, including the absence of a prior-year property-sale gain and a regulatory order affecting the uncollectible-expense rider.
First-half corporate and other losses increased $42.8 million, primarily because of higher interest expense. Illinois earnings were down $26.6 million. These declines were partly offset by Wisconsin earnings growth of $6.3 million.
A $22.2 million pretax gain was recorded on the June 2023 sale of land at the former Pleasant Prairie power plant. In Q2 2022, PGL recorded a $54.5 million pretax gain on a property sale.
WEC acquired interests in Whitewater, Red Barn, West Riverside, Samson I, and Sapphire Sky during the first half. The acquisitions added generation capacity, including renewable assets, and contributed to higher production tax credits (PTCs).
First-half interest expense rose to $350.9 million from $237.4 million. The filing attributes the increase mainly to debt issuance and higher short-term borrowing rates.

Outlook, risks, and contingencies

Management expects a 2023 annual effective tax rate of 13.0%–14.0%. The filing does not provide a clear consolidated 2023 EPS forecast in the text provided.
The 2023–2027 capital plan anticipates approximately $18.1 billion of capital expenditures for regulated utilities and non-utility energy infrastructure, plus about $2.0 billion for WEC’s share of ATC investment. Planned work includes utility renewables, battery storage, distribution reliability, and generation projects. Estimates are subject to regulatory, cost, supply-chain, and execution risks.
Management targets electric-generation carbon-emissions reductions of 60% by 2025 and 80% by 2030 from a 2005 baseline, and net-zero generation emissions by 2050. It also targets net-zero methane emissions across natural gas distribution by 2030. These goals depend on successful project delivery, technology, regulation, and costs.
Pending rate matters include Wisconsin 2024 rate-case re-openers, Illinois natural-gas rate cases, and Minnesota and Michigan proceedings. Decisions were generally expected in the second half of 2023. PGL’s QIP costs for 2016–2022 remain subject to ICC reconciliation and are not assured recovery.
An ICC order requires PGL and NSG to refund a combined $16.1 million to customers beginning September 2023; the utilities petitioned for judicial review. The company recorded the liability.
Environmental exposures include potential costs from proposed air-emissions and wastewater rules, coal-combustion-residuals requirements, and remediation of former manufactured-gas-plant sites. Recorded remediation reserves were $475.8 million, with $582.7 million of related regulatory assets. The filing notes that proposed CCR rules could have a material adverse impact and require additional remediation.
Other risks include severe weather, changing demand, fuel and commodity prices, inflation, supply-chain delays, project cost overruns, regulatory recovery, interest rates, credit access, cyber and physical security, and litigation. Solar-panel import restrictions and customs delays may affect project timing and costs.
S&P affirmed WEC’s ratings but revised its outlook to negative in May 2023, citing weakening financial measures; utility outlooks remained stable. Management did not expect the outlook change to materially affect capital-market access.
The Samson I solar facility sustained storm damage; a $1.6 million impairment was offset by a $1.6 million insurance receivable. Management did not expect a significant long-term cash-flow impact.

Important facts for investors to verify

Progress on pending rate cases, the $16.1 million Illinois customer refund review, and recovery of PGL’s QIP expenditures.
Whether earnings and cash generation can support the substantial capital plan, dividend, and debt service, particularly given higher borrowing costs and WEC’s negative S&P outlook.
Execution, cost, and timing of renewable, battery, LNG, and generation projects, including exposure to solar-panel supply restrictions and inflation.
Final environmental rules and resulting compliance or remediation costs, especially proposed CCR and wastewater requirements.
How weather, customer demand, commodity prices, and regulatory pass-through mechanisms affect utility margins and cash flows.