WEC ENERGY GROUP, INC. annual report, FY2022

WEC Energy Group, Inc. — 2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. WEC is a regulated electric and natural gas utility group operating principally in Wisconsin, Illinois, Michigan, and Minnesota, with an approximately 60% interest in American Transmission Company (ATC) and non-utility energy infrastructure investments.

Financial performance and position

Metric	2022	2021
Operating revenue	$9.597 billion	$8.316 billion
Operating income	$1.924 billion	$1.715 billion
Net income attributable to common shareholders	$1.408 billion	$1.300 billion
Diluted earnings per share	$4.45	$4.11
Cash from operating activities	$2.061 billion	$2.033 billion
Cash used in investing activities	$2.642 billion	$2.312 billion
Capital expenditures	$2.315 billion	$2.253 billion

Utility operating revenue rose to $9.470 billion from $8.229 billion. Much of the increase reflected higher natural gas costs passed through to customers; higher gas sales volumes and weather also contributed.
Net income attributable to common shareholders increased $107.8 million, or about 8.3%. Growth in Wisconsin, non-utility energy infrastructure, and transmission earnings was partly offset by a larger corporate and other loss.
Wisconsin segment earnings rose $51.9 million to $758.4 million, helped by regulatory-liability amortization, higher gas margins, and pension and OPEB credits. Non-utility energy infrastructure earnings increased $45.2 million to $324.4 million, mainly on higher production tax credits (PTCs) and wind generation. ATC-related transmission earnings increased $23.2 million to $129.5 million.
Consolidated total debt was $17.295 billion at year-end, and debt was 60.3% of total capitalization (58.8% in 2021). Short-term debt was $1.647 billion; long-term debt, including current maturities, was $15.647 billion.
Current liabilities exceeded current assets by $1.423 billion. Management cited $1.454 billion of available revolving-credit capacity, operating cash generation, and capital-market access as sources of liquidity; cash and cash equivalents were $28.9 million.
Common dividends paid were $917.9 million. The board raised the quarterly dividend to $0.78 per share in January 2023 ($3.12 annualized) and reaffirmed a target payout ratio of 65%–70% of earnings.

Changes, outlook, and management commentary

Revenue increased 15.4% and operating income increased 12.2% year over year, while diluted EPS rose from $4.11 to $4.45. Higher fuel and gas costs drove a substantial portion of revenue growth, but generally flow through regulatory recovery mechanisms.
Operating cash flow increased only modestly despite higher earnings. Investing cash use rose, including the $382 million Thunderhead wind acquisition and continued capital investment. Financing cash flow included $2.0 billion of long-term debt issuance; commercial paper borrowings declined net $252.6 million.
Management’s 2023–2027 capital plan calls for approximately $18.1 billion of capital expenditures for regulated utility and non-utility energy infrastructure businesses, plus an estimated $2.0 billion share of ATC capital expenditures. Forecast capital expenditures and acquisitions total $3.975 billion in 2023, $3.908 billion in 2024, and $3.384 billion in 2025.
The plan includes approximately $5.4 billion of Wisconsin regulated renewable investment in 2023–2027, targeting 1,900 MW of solar, 700 MW of battery storage, and 700 MW of wind, alongside gas generation and reliability projects. Planned retirements include Oak Creek units 5–8 in 2024–2025 and Columbia units 1–2 by June 2026.
Management forecasts weather-normalized retail electric and natural gas delivery volumes to grow 0.7%–1.0% annually in 2025–2027. No consolidated earnings guidance is stated in the supplied filing text. The company expects a 2023 effective tax rate of 13%–14%.
Wisconsin regulators approved 2023 base-rate increases effective January 1, 2023, including electric, gas, and steam increases for applicable utilities. Illinois gas utilities filed for rate increases in January 2023; the outcome was pending. PGL’s infrastructure surcharge rider expires after 2023, with future recovery returning to traditional ratemaking.

Risks, contingencies, and unusual items

Key risks include regulatory decisions affecting rate recovery and returns, environmental and climate requirements, inflation and supply-chain delays, fuel and commodity volatility, weather and demand changes, interest rates and capital-market access, cyber or physical disruptions, and counterparties’ ability to perform.
A December 2022 Guardian Pipeline equipment failure, combined with extreme cold, constrained Wisconsin gas deliveries. Utilities used LNG storage, curtailed interruptible deliveries, and requested conservation; the filing reports no significant customer outages.
WEC recorded $3.307 billion of regulatory assets and $3.792 billion of regulatory liabilities. Their recovery or refund depends on regulatory treatment; the auditors identified rate regulation as a critical audit matter because of the judgment involved.
The D.C. Circuit’s August 2022 decision remanded aspects of ATC’s allowed-return proceedings. WEC recorded related year-over-year earnings effects; additional refunds remained possible for one complaint period, though management did not expect a material future impact from any such refund.
Unusual earnings contributors included a $54.5 million pretax gain on a Chicago real-estate sale, recognition of $15.2 million of previously disputed SPP market-settlement revenue, and the effect of regulatory-liability amortization that helped Wisconsin utilities avoid filing for 2022 base-rate increases.
WEC is defending a putative class action alleging fiduciary-duty breaches relating to its employee retirement savings plan. Management states that reserves have been established for ordinary-course proceedings and does not expect their resolution to materially affect results.
The company reported that its financial statements received an unqualified audit opinion and that internal control over financial reporting was effective as of December 31, 2022.

Important facts for investors to verify

Whether earnings growth is sustained by regulated operating performance rather than regulatory amortizations, tax credits, weather, or one-time gains.
Progress and final costs of the large 2023–2027 capital plan, project schedules, regulatory approvals, and recovery of investments through customer rates.
Liquidity and leverage trends, including debt maturities, rising financing costs, and the ability to fund capital spending while maintaining the dividend.
Regulatory outcomes for PGL’s rate case and post-2023 infrastructure cost recovery, and any further developments in ATC’s ROE proceedings.
Whether fuel-cost recovery, gas-cost recovery, and the February 2021 extraordinary gas-cost collections proceed as expected, and whether customer arrears or credit losses increase.
Exposure to environmental remediation and compliance costs, renewable-project supply and tariff risks, planned plant retirements, and the outcome of material litigation or contingencies.