WEC ENERGY GROUP, INC. quarterly report, Q2 FY2021

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

Reporting period: Quarter and six months ended June 30, 2021. WEC is a diversified utility and energy infrastructure company serving approximately 1.6 million electric and 3.0 million natural gas customers, with transmission and wind-generation investments. Financial statements are unaudited; results are seasonal and are not necessarily indicative of full-year performance.

Financial performance and position

Metric	Q2 2021	Q2 2020	Six months 2021	Six months 2020
Operating revenue	$1,676.2 million	$1,548.7 million	$4,367.6 million	$3,657.3 million
Operating income	$368.8 million	$338.8 million	$998.1 million	$965.4 million
Net income attributable to common shareholders	$276.0 million	$241.6 million	$786.1 million	$694.1 million
Diluted EPS	$0.87	$0.76	$2.49	$2.19
Cash from operating activities	—	$1,226.2 million	$1,379.6 million

Q2 revenue rose about 8% and common earnings about 14% year over year. First-half revenue increased about 19% and common earnings about 13%. Higher natural gas costs passed through recovery mechanisms contributed to revenue growth.
First-half operating cash flow declined $153.4 million year over year, primarily due to higher payments for natural gas, taxes, and operating costs. Capital expenditures were $1,010.1 million, versus $1,037.2 million.
At June 30, cash and cash equivalents were $35.0 million; short-term debt was $1,424.5 million and long-term debt, including current portion, was approximately $13.2 billion. Total debt was $14.6 billion; debt to capitalization was 57.4% (56.4% on the company’s adjusted presentation). Available capacity under revolving credit agreements was $1,373.2 million.
Current liabilities exceeded current assets by approximately $1.1 billion. Management said it expected no liquidity impact, citing available credit lines, capital-market access, and internally generated cash.
Q2 Wisconsin electric margins increased $30.0 million while natural gas margins declined $7.2 million; Illinois natural gas margins increased $18.5 million. These are company-defined non-GAAP measures, not substitutes for operating income.

Material changes and business developments

Q2 common earnings increased $34.4 million. Wisconsin and Illinois earnings rose $16.7 million and $11.5 million, respectively; corporate and other improved $9.0 million. Electric transmission earnings fell $6.5 million, mainly because the prior-year period included an ATC return-on-equity-related benefit.
First-half earnings increased $92.0 million. The largest contributions were corporate and other (+$44.9 million), Wisconsin (+$26.3 million), Illinois (+$16.3 million), and non-utility energy infrastructure (+$9.9 million).
WEC acquired a 90% interest in the 190 MW Jayhawk wind project for $119.7 million in February; total investment was $167.5 million by June, with a projected total investment of about $302 million. Commercial operation was expected by the first quarter of 2022.
In June, WECI signed an agreement to acquire 90% of the 250 MW Sapphire Sky wind project for approximately $412 million, subject to FERC approval; closing was expected at commercial operation, projected by the end of 2022.
In May, a WE subsidiary issued $118.8 million of environmental trust bonds at 1.578%, and WE issued $300 million of 1.70% debentures, using proceeds to redeem $300 million of higher-coupon debt. WEC issued $600 million of 0.80% senior notes in March.

Outlook, risks, and contingencies

Management expected a 2021 annual effective tax rate of 13%–14%, including an estimated 6 percentage-point benefit from amortization of unprotected excess deferred taxes; excluding that benefit, the expected range was 19%–20%. The filing did not provide full-year earnings-per-share guidance.
The 2021–2025 plan projected approximately $15.0 billion of capital expenditures for regulated utilities and non-utility energy infrastructure, plus $1.1 billion of WEC’s share of projected ATC spending. Estimated capital expenditures and acquisitions were $2.8 billion in 2021, $3.4 billion in 2022, and $3.2 billion in 2023.
Management set generation carbon-reduction goals of 60% by 2025 and 80% by 2030, from a 2005 baseline, and a net-zero generation target by 2050. It also set a net-zero methane emissions target across natural gas distribution operations by 2030. Achievement depends on project execution, technology, costs, and regulatory decisions.
Extreme February 2021 weather drove unusually high natural gas costs. Recovery requests or mechanisms covered costs across several utility territories, but some recovery remained subject to regulatory review or approval. MERC proposed recovering approximately $75 million over 12 to 27 months; its proposal was pending.
COVID-19-related arrears and bad-debt exposure remained risks, although management reported that normal collection activity had resumed in Wisconsin and Illinois and expected working capital to improve. At June 30, net receivables included a $231.7 million credit-loss allowance; $615.6 million of net receivables had regulatory protections.
Environmental remediation reserves were $518.2 million, with $609.3 million of related regulatory assets. Expected capital investment to comply with steam-electric wastewater rules was approximately $110 million. Minimum future purchase-obligation commitments were approximately $10.9 billion.
A proposed FERC rule limiting a transmission ROE incentive could reduce annual after-tax ATC equity earnings by approximately $7 million if adopted. WEC also retained a $39.1 million liability related to a separate ATC ROE complaint; management did not expect any eventual refund to materially affect results.
PSCW approval was pending for a proposal to maintain certain Wisconsin utility base rates through 2022. Other open regulatory matters include rate cases, QIP cost reconciliations, and environmental requirements. Management reported no material changes to previously disclosed risk factors and said disclosure controls were effective.

Investor verification priorities

Confirm the pace and prudency of recovery of the February 2021 gas-cost increases, including the pending MERC plan and future regulatory reconciliations.
Track operating cash flow, customer arrears and credit-loss allowances as collection practices normalize.
Assess funding, regulatory approvals, construction timing, and cost recovery for the large capital plan and wind acquisitions, including Jayhawk and Sapphire Sky.
Monitor debt levels, refinancing needs, credit ratings, and whether available liquidity remains adequate alongside substantial capital spending and dividends.
Follow ATC ROE proceedings and the potential impact of the proposed incentive-rule change, as well as environmental compliance costs and planned generating-unit retirements.