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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20212022
OR
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ___________________
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Commission
File Number | | Registrant; State of Incorporation;
Address; and Telephone Number | | IRS Employer
Identification No. |
| | | | |
| 001-09057 | | WEC ENERGY GROUP, INC. | | 39-1391525 |
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 1331
Milwaukee, WI 53201
(414) 221-2345
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered |
| Common Stock, $.01 Par Value | | WEC | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ☒ | | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (June 30, 2021)2022):
Common Stock, $.01 Par Value, 315,434,531 shares outstanding
WEC ENERGY GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended June 30, 20212022
TABLE OF CONTENTS
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06/30/20212022 Form 10-Q | i | WEC Energy Group, Inc. |
GLOSSARY OF TERMS AND ABBREVIATIONS
The abbreviations and terms set forth below are used throughout this report and have the meanings assigned to them below:
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| Subsidiaries and Affiliates |
| ATC | | American Transmission Company LLC |
| ATC Holdco | | ATC Holdco LLC |
| | |
| Bishop Hill III | | Bishop Hill Energy III LLC |
| Blooming Grove | | Blooming Grove Wind Energy Center LLC |
| Bluewater | | Bluewater Natural Gas Holding, LLC |
| Coyote Ridge | | Coyote Ridge Wind, LLC |
| Integrys | | Integrys Holding, Inc. |
| Jayhawk | | Jayhawk Wind, LLC |
| MERC | | Minnesota Energy Resources Corporation |
| MGU | | Michigan Gas Utilities Corporation |
| NSG | | North Shore Gas Company |
| | |
| PGL | | The Peoples Gas Light and Coke Company |
| Tatanka Ridge | | Tatanka Ridge Wind LLC |
| UMERC | | Upper Michigan Energy Resources Corporation |
| | |
| Upstream | | Upstream Wind Energy LLC |
| WE | | Wisconsin Electric Power Company |
| We Power | | W.E. Power, LLC |
| WEC Energy Group | | WEC Energy Group, Inc. |
| WECI | | WEC Infrastructure LLC |
WG | | Wisconsin Gas LLC |
| WEPCo Environmental Trust | | WEPCo Environmental Trust Finance I, LLC |
| WG | | Wisconsin Gas LLC |
| Wispark | | Wispark LLC |
| WPS | | Wisconsin Public Service Corporation |
| | |
| Federal and State Regulatory Agencies |
| CBP | | United States Customs and Border Protection Agency |
| DOC | | United States Department of Commerce |
| EPA | | United States Environmental Protection Agency |
| FERC | | Federal Energy Regulatory Commission |
| ICC | | Illinois Commerce Commission |
| IEPA | | Illinois Environmental Protection Agency |
| IRS | | United States Internal Revenue Service |
| MPSC | | Michigan Public Service Commission |
| MPUC | | Minnesota Public Utilities Commission |
| PSCW | | Public Service Commission of Wisconsin |
| SEC | | United States Securities and Exchange Commission |
| WDNR | | Wisconsin Department of Natural Resources |
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| Accounting Terms |
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| ASU | | Accounting Standards Update |
| FASB | | Financial Accounting Standards Board |
| GAAP | | United States Generally Accepted Accounting Principles |
| LIFO | | Last-In, First-Out |
| OPEB | | Other Postretirement Employee Benefits |
| VIE | | Variable Interest Entity |
| | |
| Environmental Terms |
| ACE | | Affordable Clean Energy |
| BATW | | Bottom Ash Transport Water |
| | |
| BTA | | Best Technology Available |
| CAA | | Clean Air Act |
| CASAC | | Clean Air Scientific Advisory Committee |
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| 06/30/2022 Form 10-Q | ii | WEC Energy Group, Inc. |
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CO2 | | Carbon Dioxide |
CSAPR | | Cross-State Air Pollution Rule |
| ELG | | Steam Electric Effluent Limitation Guidelines |
| FGD | | Flue Gas Desulfurization |
| GHG | | Greenhouse Gas |
| GMZ | | Groundwater Management Zone |
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06/30/2021 Form 10-Q | ii | WEC Energy Group, Inc. |
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| NAAQS | | National Ambient Air Quality Standards |
| NOV | | Notice of Violation |
| NOx | | Nitrogen Oxide |
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| | |
| VN | | Violation Notice |
| WOTUS | | Waters of the United States |
| WPDES | | |
| | Wisconsin Pollutant Discharge Elimination System |
| | |
| Measurements |
| Dth | | Dekatherm |
| MW | | Megawatt |
| MWh | | Megawatt-hour |
| µg/m3 | | Micrograms Per Cubic Meter |
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| Other Terms and Abbreviations |
| 2007 Junior Notes | | WEC Energy Group, Inc.'s 2007 Junior Subordinated Notes Due 2067 |
| | |
| AD/CVD | | Antidumping and Countervailing Duties |
| AG | | Attorney General |
| AMI | | Advanced Metering Infrastructure |
| Badger Hollow I | | Badger Hollow Solar Park I |
| Badger Hollow II | | Badger Hollow Solar Park II |
| | |
CDCChicago, IL-IN-WI | | Centers for Disease ControlChicago, Illinois, Indiana, and PreventionWisconsin |
| CIP | | Conservation Improvement Program |
| COVID-19 | | Coronavirus Disease – 2019 |
| | |
| D.C. Circuit Court of Appeals | | United States Court of Appeals for the District of Columbia Circuit |
| Darien | | Darien Solar-Battery Park |
| EGU | | Electric Generating Unit |
| ERGS | | Elm Road Generating Station |
ESG Progress Plan
| | WEC Energy Group's Capital Investment Plan for Efficiency, Sustainability, and Growth for 2022-2026 |
| ETB | | Environmental Trust Bond |
| EV | | Electric Vehicle |
| Exchange Act | | Securities Exchange Act of 1934, as amended |
Executive Order 13990
| | Executive Order 13990 of January 20, 2021 – Protecting Public Health and the Environment and Restoring Science To Tackle the Climate Crisis |
ERGS | | Elm Road Generating Station |
ESG Progress Plan | | WEC Energy Group's Capital Investment Plan for Efficiency, Sustainability, and Growth for 2021-2025 |
ETB | | Environmental Trust Bond |
Exchange Act | | Securities Exchange Act of 1934, as amended |
| FTR | | Financial Transmission Right |
| GCRM | | Gas Cost Recovery Mechanism |
GUIC | | Gas Utility Infrastructure Cost |
| ITC | | Investment Tax Credit |
| LIBOR | | London Interbank Offered Rate |
| LNG | | Liquefied Natural Gas |
| MISO | | Midcontinent Independent System Operator, Inc. |
| | |
| OCPP | | Oak Creek Power Plant |
OC 5 | | Oak Creek Power Plant Unit 5 |
| | |
| OC 7 | | Oak Creek Power Plant Unit 7 |
| OC 8 | | Oak Creek Power Plant Unit 8 |
| | |
| Paris | | Paris Solar-Battery Park |
| PPA | | Power Purchase Agreement |
| PSB | | Public Service Building |
| PTC | | Production Tax Credit |
| PWGS | | Port Washington Generation Station |
| QIP | | Qualifying Infrastructure Plant |
| RICE | | Reciprocating Internal Combustion Engine |
| RNG | | Renewable Natural Gas |
| ROE | | Return on Equity |
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| 06/30/2022 Form 10-Q | iii | WEC Energy Group, Inc. |
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| S&P | | Standard & Poor's |
| Sapphire Sky | | Sapphire Sky Wind Energy LLC |
| SMP | | Natural Gas SystemSafety Modernization Program |
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| | |
SPCSPP | | COVID-19 Special Purpose ChargeSouthwest Power Pool, Inc. |
SSR | | System Support Resource |
| | |
| Supreme Court | | United States Supreme Court |
| Tax Legislation | | Tax Cuts and Jobs Act of 2017 |
| TCR | | Transmission Congestion Right |
| Thunderhead | | Thunderhead Wind Energy LLC |
| TPTFA | | Third-Party Transaction Fee Adjustment |
| | |
| Two Creeks | | Two Creeks Solar Park |
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| | |
WHOUFLPA | | World Health OrganizationUyghur Forced Labor Prevention Act |
| West Riverside | | West Riverside Energy Center |
| Whitewater | | Whitewater Cogeneration Facility |
| WRO | | Withhold Release Order |
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06/30/20212022 Form 10-Q | iiiiv | WEC Energy Group, Inc. |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
In this report, we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, and future events or performance. These statements are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Readers are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements may be identified by reference to a future period or periods or by the use of terms such as "anticipates," "believes," "could," "estimates," "expects," "forecasts," "goals," "guidance," "intends," "may," "objectives," "plans," "possible," "potential," "projects," "seeks," "should," "targets," "will," or variations of these terms.
Forward-looking statements include, among other things, statements concerning management's expectations and projections regarding earnings, completion of capital projects, sales and customer growth, rate actions and related filings with regulatory authorities, environmental and other regulations, including associated compliance costs, legal proceedings, dividend payout ratios, effective tax rates, pension and OPEB plans, fuel costs, sources of electric energy supply, coal and natural gas deliveries, remediation costs, climate-related matters, our ESG Progress Plan, liquidity and capital resources, and other matters.
Forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in the statements. These risks and uncertainties include those described in risk factors as set forth in our 20202021 Annual Report on Form 10-K, and those identified below:
•Factors affecting utility operations such as catastrophic weather-related damage, environmental incidents, unplanned facility outages and repairs and maintenance, and electric transmission or natural gas pipeline system constraints;
•Factors affecting the demand for electricity and natural gas, including political or regulatory developments, varying, adverse, or unusually severe weather conditions, including those caused by climate change, changes in economic conditions, customer growth and declines, commodity prices, energy conservation efforts, and continued adoption of distributed generation by customers;
•The timing, resolution, and impact of rate cases and negotiations, including recovery of deferred and current costs and the ability to earn a reasonable return on investment, and other regulatory decisions impacting our regulated operations;
•The impact of health pandemics, including the COVID-19 pandemic, on our business functions, financial condition, liquidity, and results of operations;
•The impact of recent and future federal, state, and local legislative and/or regulatory changes, including changes in rate-setting policies or procedures, the expiration and non-renewal of the QIP rider, deregulation and restructuring of the electric and/or natural gas utility industries, transmission or distribution system operation, the approval process for new construction, reliability standards, pipeline integrity and safety standards, allocation of energy assistance, energy efficiency mandates, and tax laws, including those that affect our ability to use PTCs and ITCs;
•Federal, state, and statelocal legislative and regulatory changes relating to the environment, including climate change and other environmental regulations impacting generation facilities and renewable energy standards, the enforcement of these laws and regulations, changes in the interpretation of regulations or permit conditions by regulatory agencies, and the recovery of associated remediation and compliance costs;
•The ability to obtain and retain customers, including wholesale customers, due to increased competition in our electric and natural gas markets from retail choice and alternative electric suppliers, and continued industry consolidation;
•The timely completion of capital projects within budgets and the ability to recover the related costs through rates;
•The risk of delays and shortages, and increased costs of equipment, materials, or other resources that are critical to our business operations and corporate strategy, as a result of supply chain disruptions (including disruptions from rail congestion), inflation, and other factors;
•The impact of health pandemics, including any new developments relating to the COVID-19 pandemic, on our business functions, financial condition, liquidity, and results of operations;
•Factors affecting the implementation of our CO2 emission and/or methane emission reduction goals and opportunities and actions related to those goals, including related regulatory decisions, the cost of materials, supplies, and labor, technology advances, and the feasibility of competing generation projects;projects, and our ability to execute our capital plan;
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| 06/30/2022 Form 10-Q | 1 | WEC Energy Group, Inc. |
•The financial and operational feasibility of taking more aggressive action to further reduce GHG emissions in order to limit future global temperature increases;
•The risks associated with inflation and changing commodity prices, particularlyincluding natural gas and electricity,electricity;
•The availability and the availabilitycost of sources of natural gas and other fossil fuels, purchased power, materials needed to operate environmental controls at our electric
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06/30/2021 Form 10-Q | 1 | WEC Energy Group, Inc. |
generating facilities, or water supply due to high demand, shortages, transportation problems, nonperformance by electric energy or natural gas suppliers under existing power purchase or natural gas supply contracts, or other developments;
•Any impacts on the global economy, supply chains and fuel prices, generally, from the ongoing conflict between Russia and Ukraine and related sanctions;
•Changes in credit ratings, interest rates, and our ability to access the capital markets, caused by volatility in the global credit markets, our capitalization structure, and market perceptions of the utility industry, us, or any of our subsidiaries;
•Changes in the method of determining LIBOR or the replacement of LIBOR with an alternative reference rate;
•Costs and effects of litigation, administrative proceedings, investigations, settlements, claims, and inquiries;
•The direct or indirect effect on our business resulting from terrorist attacks and cyber security intrusions, as well as the threat of such incidents, including the failure to maintain the security of personally identifiable information, the associated costs to protect our utility assets, technology systems, and personal information, and the costs to notify affected persons to mitigate their information security concerns and to comply with state notification laws;
•Restrictions imposed by various financing arrangements and regulatory requirements on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans or advances, that could prevent us from paying our common stock dividends, taxes, and other expenses, and meeting our debt obligations;
•The risk of financial loss, including increases in bad debt expense, associated with the inability of our customers, counterparties, and affiliates to meet their obligations;
•Changes in the creditworthiness of the counterparties with whom we have contractual arrangements, including participants in the energy trading markets and fuel suppliers and transporters;
•The financial performance of ATC and its corresponding contribution to our earnings;
•The investment performance of our employee benefit plan assets, as well as unanticipated changes in related actuarial assumptions, which could impact future funding requirements;
•Factors affecting the employee workforce, including loss of key personnel, internal restructuring, work stoppages, and collective bargaining agreements and negotiations with union employees;
•Advances in technology, and related legislation or regulation supporting the use of that technology, that result in competitive disadvantages and create the potential for impairment of existing assets;
•Risks related to our non-utility renewable energy facilities, including unfavorable weather, the ability to replace expiring long-term PPAs under acceptable terms, and the availability of reliable interconnection and electricity grids;
•The risk associated with the values of goodwill, and other intangible assets, long-lived assets, and equity method investments, and their possible impairment;
•Potential business strategies to acquire and dispose of assets or businesses, which cannot be assured to be completed timely or within budgets, and legislative or regulatory restrictions or caps on non-utility acquisitions, investments or projects, including the State of Wisconsin's public utility holding company law;
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| 06/30/2022 Form 10-Q | 2 | WEC Energy Group, Inc. |
•The timing and outcome of any audits, disputes, and other proceedings related to taxes;
•The ability to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act, while both continuing to integrate and consolidate our enterprise systems;
•The effect of accounting pronouncements issued periodically by standard-setting bodies; and
•Other considerations disclosed elsewhere herein and in other reports we file with the SEC or in other publicly disseminated written documents.
Except as may be required by law, we expressly disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
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06/30/20212022 Form 10-Q | 23 | WEC Energy Group, Inc. |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEC ENERGY GROUP, INC.
| | CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited) | CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited) | | Three Months Ended | | Six Months Ended | CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited) | | Three Months Ended | | Six Months Ended |
| June 30 | | June 30 | | June 30 | | June 30 |
| (in millions, except per share amounts) | (in millions, except per share amounts) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions, except per share amounts) | | 2022 | | 2021 | | 2022 | | 2021 |
| Operating revenues | Operating revenues | | $ | 1,676.2 | | | $ | 1,548.7 | | | $ | 4,367.6 | | | $ | 3,657.3 | | Operating revenues | | $ | 2,127.9 | | | $ | 1,676.2 | | | $ | 5,036.0 | | | $ | 4,367.6 | |
| | Operating expenses | Operating expenses | | Operating expenses | |
| Cost of sales | Cost of sales | | 525.9 | | | 444.5 | | | 1,791.5 | | | 1,179.2 | | Cost of sales | | 935.0 | | | 525.9 | | | 2,318.4 | | | 1,791.5 | |
| Other operation and maintenance | Other operation and maintenance | | 463.8 | | | 473.1 | | | 943.7 | | | 928.8 | | Other operation and maintenance | | 449.0 | | | 463.8 | | | 903.4 | | | 943.7 | |
| Depreciation and amortization | Depreciation and amortization | | 266.2 | | | 242.5 | | | 527.6 | | | 481.6 | | Depreciation and amortization | | 279.6 | | | 266.2 | | | 557.7 | | | 527.6 | |
| Property and revenue taxes | Property and revenue taxes | | 51.5 | | | 49.8 | | | 106.7 | | | 102.3 | | Property and revenue taxes | | 56.1 | | | 51.5 | | | 116.9 | | | 106.7 | |
| Total operating expenses | Total operating expenses | | 1,307.4 | | | 1,209.9 | | | 3,369.5 | | | 2,691.9 | | Total operating expenses | | 1,719.7 | | | 1,307.4 | | | 3,896.4 | | | 3,369.5 | |
| | Operating income | Operating income | | 368.8 | | | 338.8 | | | 998.1 | | | 965.4 | | Operating income | | 408.2 | | | 368.8 | | | 1,139.6 | | | 998.1 | |
| | Equity in earnings of transmission affiliates | Equity in earnings of transmission affiliates | | 41.3 | | | 52.9 | | | 83.9 | | | 92.7 | | Equity in earnings of transmission affiliates | | 43.0 | | | 41.3 | | | 84.7 | | | 83.9 | |
| Other income, net | Other income, net | | 39.7 | | | 28.6 | | | 72.5 | | | 34.2 | | Other income, net | | 19.8 | | | 39.7 | | | 59.4 | | | 72.5 | |
| Interest expense | Interest expense | | 120.0 | | | 124.4 | | | 239.5 | | | 253.8 | | Interest expense | | 119.8 | | | 120.0 | | | 237.4 | | | 239.5 | |
| Other expense | Other expense | | (39.0) | | | (42.9) | | | (83.1) | | | (126.9) | | Other expense | | (57.0) | | | (39.0) | | | (93.3) | | | (83.1) | |
| | Income before income taxes | Income before income taxes | | 329.8 | | | 295.9 | | | 915.0 | | | 838.5 | | Income before income taxes | | 351.2 | | | 329.8 | | | 1,046.3 | | | 915.0 | |
| Income tax expense | Income tax expense | | 54.1 | | | 53.8 | | | 129.0 | | | 143.8 | | Income tax expense | | 63.4 | | | 54.1 | | | 190.5 | | | 129.0 | |
| Net income | Net income | | 275.7 | | | 242.1 | | | 786.0 | | | 694.7 | | Net income | | 287.8 | | | 275.7 | | | 855.8 | | | 786.0 | |
| | Preferred stock dividends of subsidiary | Preferred stock dividends of subsidiary | | 0.3 | | | 0.3 | | | 0.6 | | | 0.6 | | Preferred stock dividends of subsidiary | | 0.3 | | | 0.3 | | | 0.6 | | | 0.6 | |
| Net (income) loss attributed to noncontrolling interests | Net (income) loss attributed to noncontrolling interests | | 0.6 | | | (0.2) | | | 0.7 | | | 0 | | Net (income) loss attributed to noncontrolling interests | | — | | | 0.6 | | | (1.8) | | | 0.7 | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 276.0 | | | $ | 241.6 | | | $ | 786.1 | | | $ | 694.1 | | Net income attributed to common shareholders | | $ | 287.5 | | | $ | 276.0 | | | $ | 853.4 | | | $ | 786.1 | |
| | Earnings per share | Earnings per share | | Earnings per share | |
| Basic | Basic | | $ | 0.88 | | | $ | 0.77 | | | $ | 2.49 | | | $ | 2.20 | | Basic | | $ | 0.91 | | | $ | 0.88 | | | $ | 2.71 | | | $ | 2.49 | |
| Diluted | Diluted | | $ | 0.87 | | | $ | 0.76 | | | $ | 2.49 | | | $ | 2.19 | | Diluted | | $ | 0.91 | | | $ | 0.87 | | | $ | 2.70 | | | $ | 2.49 | |
| | Weighted average common shares outstanding | Weighted average common shares outstanding | | Weighted average common shares outstanding | |
| Basic | Basic | | 315.4 | | 315.4 | | 315.4 | | 315.4 | Basic | | 315.4 | | 315.4 | | 315.4 | | 315.4 |
| Diluted | Diluted | | 316.3 | | 316.5 | | 316.3 | | 316.6 | Diluted | | 316.2 | | 316.3 | | 316.2 | | 316.3 |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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06/30/20212022 Form 10-Q | 34 | WEC Energy Group, Inc. |
WEC ENERGY GROUP, INC.
| | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) | | Three Months Ended | | Six Months Ended | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) | | Three Months Ended | | Six Months Ended |
| June 30 | | June 30 | | June 30 | | June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Net income | Net income | | $ | 275.7 | | | $ | 242.1 | | | $ | 786.0 | | | $ | 694.7 | | Net income | | $ | 287.8 | | | $ | 275.7 | | | $ | 855.8 | | | $ | 786.0 | |
| | Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | | | | | Other comprehensive income (loss), net of tax | | | | |
| Derivatives accounted for as cash flow hedges | Derivatives accounted for as cash flow hedges | | | | | Derivatives accounted for as cash flow hedges | | | | |
| Net derivative loss, net of tax benefit of $0 , $0.3, $0, and $1.6, respectively | | 0 | | | (0.8) | | | 0 | | | (4.2) | | |
| Reclassification of realized net derivative loss to net income, net of tax | | 1.0 | | | 0.4 | | | 2.0 | | | 0.5 | | |
| Cash flow hedges, net | | 1.0 | | | (0.4) | | | 2.0 | | | (3.7) | | |
| | Reclassification of realized net derivative (gain) loss to net income, net of tax | | Reclassification of realized net derivative (gain) loss to net income, net of tax | | — | | | 1.0 | | | (0.1) | | | 2.0 | |
| | Defined benefit plans | Defined benefit plans | | Defined benefit plans | |
| Amortization of pension and OPEB costs included in net periodic benefit cost, net of tax | Amortization of pension and OPEB costs included in net periodic benefit cost, net of tax | | 0.1 | | | 0.2 | | | 0.2 | | | 0.5 | | Amortization of pension and OPEB costs included in net periodic benefit cost, net of tax | | — | | | 0.1 | | | 0.1 | | | 0.2 | |
| | Other comprehensive income (loss), net of tax | | 1.1 | | | (0.2) | | | 2.2 | | | (3.2) | | |
| Other comprehensive income, net of tax | | Other comprehensive income, net of tax | | — | | | 1.1 | | | — | | | 2.2 | |
| | Comprehensive income | Comprehensive income | | 276.8 | | | 241.9 | | | 788.2 | | | 691.5 | | Comprehensive income | | 287.8 | | | 276.8 | | | 855.8 | | | 788.2 | |
| | Preferred stock dividends of subsidiary | Preferred stock dividends of subsidiary | | 0.3 | | | 0.3 | | | 0.6 | | | 0.6 | | Preferred stock dividends of subsidiary | | 0.3 | | | 0.3 | | | 0.6 | | | 0.6 | |
| Comprehensive (income) loss attributed to noncontrolling interests | Comprehensive (income) loss attributed to noncontrolling interests | | 0.6 | | | (0.2) | | | 0.7 | | | 0 | | Comprehensive (income) loss attributed to noncontrolling interests | | — | | | 0.6 | | | (1.8) | | | 0.7 | |
| Comprehensive income attributed to common shareholders | Comprehensive income attributed to common shareholders | | $ | 277.1 | | | $ | 241.4 | | | $ | 788.3 | | | $ | 690.9 | | Comprehensive income attributed to common shareholders | | $ | 287.5 | | | $ | 277.1 | | | $ | 853.4 | | | $ | 788.3 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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06/30/20212022 Form 10-Q | 45 | WEC Energy Group, Inc. |
WEC ENERGY GROUP, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except share and per share amounts) | | June 30, 2021 | | December 31, 2020 |
| Assets | | | | |
| Current assets | | | | |
| Cash and cash equivalents | | $ | 35.0 | | | $ | 24.8 | |
| Accounts receivable and unbilled revenues, net of reserves of $231.7 and $220.1, respectively | | 1,182.7 | | | 1,202.8 | |
| Materials, supplies, and inventories | | 452.7 | | | 528.6 | |
| | | | |
| Prepayments | | 283.7 | | | 263.4 | |
| Amounts recoverable from customers | | 213.6 | | | 20.0 | |
| Other | | 110.4 | | | 43.4 | |
| Current assets | | 2,278.1 | | | 2,083.0 | |
| | | | |
| Long-term assets | | | | |
| Property, plant, and equipment, net of accumulated depreciation and amortization of $9,625.3 and $9,364.7, respectively | | 26,266.4 | | | 25,707.4 | |
| Regulatory assets (June 30, 2021 includes $106.0 related to WEPCo Environmental Trust) | | 3,409.9 | | | 3,524.1 | |
| Equity investment in transmission affiliates | | 1,782.0 | | | 1,764.3 | |
| Goodwill | | 3,052.8 | | | 3,052.8 | |
| Other | | 1,005.7 | | | 896.5 | |
| Long-term assets | | 35,516.8 | | | 34,945.1 | |
| Total assets | | $ | 37,794.9 | | | $ | 37,028.1 | |
| | | | |
| Liabilities and Equity | | | | |
| Current liabilities | | | | |
| Short-term debt | | $ | 1,424.5 | | | $ | 1,776.9 | |
| Current portion of long-term debt (June 30, 2021 includes $4.1 related to WEPCo Environmental Trust) | | 493.6 | | | 785.8 | |
| Accounts payable | | 744.6 | | | 880.7 | |
| | | | |
| | | | |
| Other | | 711.2 | | | 704.7 | |
| Current liabilities | | 3,373.9 | | | 4,148.1 | |
| | | | |
| Long-term liabilities | | | | |
| Long-term debt (June 30, 2021 includes $111.1 related to WEPCo Environmental Trust) | | 12,695.7 | | | 11,728.1 | |
| Deferred income taxes | | 4,269.6 | | | 4,059.8 | |
| Deferred revenue, net | | 400.7 | | | 412.2 | |
| Regulatory liabilities | | 3,935.5 | | | 3,928.1 | |
| Environmental remediation liabilities | | 518.2 | | | 532.9 | |
| Pension and OPEB obligations | | 314.2 | | | 327.0 | |
| Other | | 1,256.7 | | | 1,229.4 | |
| Long-term liabilities | | 23,390.6 | | | 22,217.5 | |
| | | | |
| Commitments and contingencies (Note 20) | | 0 | | 0 |
| | | | |
| Common shareholders' equity | | | | |
| Common stock – $0.01 par value; 325,000,000 shares authorized; 315,434,531 shares outstanding | | 3.2 | | | 3.2 | |
| Additional paid in capital | | 4,144.1 | | | 4,143.7 | |
| Retained earnings | | 6,688.2 | | | 6,329.6 | |
| Accumulated other comprehensive loss | | (4.6) | | | (6.8) | |
| Common shareholders' equity | | 10,830.9 | | | 10,469.7 | |
| | | | |
| Preferred stock of subsidiary | | 30.4 | | | 30.4 | |
| Noncontrolling interests | | 169.1 | | | 162.4 | |
| Total liabilities and equity | | $ | 37,794.9 | | | $ | 37,028.1 | |
| | | | | | | | | | | | | | |
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except share and per share amounts) | | June 30, 2022 | | December 31, 2021 |
| Assets | | | | |
| Current assets | | | | |
| Cash and cash equivalents | | $ | 30.3 | | | $ | 16.3 | |
| Accounts receivable and unbilled revenues, net of reserves of $175.8 and $198.3, respectively | | 1,447.7 | | | 1,505.7 | |
| Materials, supplies, and inventories | | 572.2 | | | 635.8 | |
| | | | |
| Prepaid taxes | | 193.0 | | | 182.1 | |
| Other prepayments | | 33.5 | | | 63.4 | |
| Amounts recoverable from customers | | 134.2 | | | 102.3 | |
| Derivative assets | | 189.8 | | | 107.0 | |
| Other | | 41.8 | | | 44.1 | |
| Current assets | | 2,642.5 | | | 2,656.7 | |
| | | | |
| Long-term assets | | | | |
| Property, plant, and equipment, net of accumulated depreciation and amortization of $10,183.2 and $9,889.3, respectively | | 27,626.2 | | | 26,982.4 | |
| Regulatory assets (June 30, 2022 and December 31, 2021 include $96.1 and $100.7, respectively, related to WEPCo Environmental Trust) | | 3,144.7 | | | 3,264.8 | |
| Equity investment in transmission affiliates | | 1,837.2 | | | 1,789.4 | |
| Goodwill | | 3,052.8 | | | 3,052.8 | |
| Pension and OPEB assets | | 942.1 | | | 881.3 | |
| Other | | 361.6 | | | 361.1 | |
| Long-term assets | | 36,964.6 | | | 36,331.8 | |
| Total assets | | $ | 39,607.1 | | | $ | 38,988.5 | |
| | | | |
| Liabilities and Equity | | | | |
| Current liabilities | | | | |
| Short-term debt | | $ | 1,629.1 | | | $ | 1,897.0 | |
| Current portion of long-term debt (June 30, 2022 and December 31, 2021 each include $8.8, respectively, related to WEPCo Environmental Trust) | | 174.4 | | | 169.4 | |
| Accounts payable | | 1,078.2 | | | 1,005.7 | |
| | | | |
| | | | |
| Other | | 936.1 | | | 680.9 | |
| Current liabilities | | 3,817.8 | | | 3,753.0 | |
| | | | |
| Long-term liabilities | | | | |
| Long-term debt (June 30, 2022 and December 31, 2021 include $98.4 and $102.7, respectively, related to WEPCo Environmental Trust) | | 13,523.4 | | | 13,523.7 | |
| Deferred income taxes | | 4,493.1 | | | 4,308.5 | |
| Deferred revenue, net | | 378.7 | | | 389.2 | |
| Regulatory liabilities | | 4,000.1 | | | 3,946.0 | |
| Environmental remediation liabilities | | 504.3 | | | 532.6 | |
| Pension and OPEB obligations | | 222.2 | | | 219.0 | |
| Other | | 1,176.9 | | | 1,203.2 | |
| Long-term liabilities | | 24,298.7 | | | 24,122.2 | |
| | | | |
| Commitments and contingencies (Note 21) | | 0 | | 0 |
| | | | |
| Common shareholders' equity | | | | |
| Common stock – $0.01 par value; 325,000,000 shares authorized; 315,434,531 shares outstanding | | 3.2 | | | 3.2 | |
| Additional paid in capital | | 4,121.1 | | | 4,138.1 | |
| Retained earnings | | 7,169.5 | | | 6,775.1 | |
| Accumulated other comprehensive loss | | (3.2) | | | (3.2) | |
| Common shareholders' equity | | 11,290.6 | | | 10,913.2 | |
| | | | |
| Preferred stock of subsidiary | | 30.4 | | | 30.4 | |
| Noncontrolling interests | | 169.6 | | | 169.7 | |
| Total liabilities and equity | | $ | 39,607.1 | | | $ | 38,988.5 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
| | | | | | | | |
06/30/20212022 Form 10-Q | 56 | WEC Energy Group, Inc. |
WEC ENERGY GROUP, INC.
| | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | | Six Months Ended | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | | Six Months Ended |
| | June 30 | | June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 |
| Operating activities | Operating activities | | | | | Operating activities | | | | |
| Net income | Net income | | $ | 786.0 | | | $ | 694.7 | | Net income | | $ | 855.8 | | | $ | 786.0 | |
| Reconciliation to cash provided by operating activities | Reconciliation to cash provided by operating activities | | Reconciliation to cash provided by operating activities | |
| Depreciation and amortization | Depreciation and amortization | | 527.6 | | | 481.6 | | Depreciation and amortization | | 557.7 | | | 527.6 | |
| Deferred income taxes and ITCs, net | Deferred income taxes and ITCs, net | | 164.4 | | | 143.5 | | Deferred income taxes and ITCs, net | | 163.2 | | | 164.4 | |
| Contributions and payments related to pension and OPEB plans | Contributions and payments related to pension and OPEB plans | | (7.6) | | | (6.6) | | Contributions and payments related to pension and OPEB plans | | (8.6) | | | (7.6) | |
| Equity income in transmission affiliates, net of distributions | Equity income in transmission affiliates, net of distributions | | (17.7) | | | (20.1) | | Equity income in transmission affiliates, net of distributions | | (17.5) | | | (17.7) | |
| Change in – | Change in – | | Change in – | |
| Accounts receivable and unbilled revenues, net | Accounts receivable and unbilled revenues, net | | 70.0 | | | 215.4 | | Accounts receivable and unbilled revenues, net | | 36.3 | | | 70.0 | |
| Materials, supplies, and inventories | Materials, supplies, and inventories | | 75.9 | | | 82.1 | | Materials, supplies, and inventories | | 63.6 | | | 75.9 | |
| Prepaid taxes | | Prepaid taxes | | (10.9) | | | (46.8) | |
| Other prepayments | | Other prepayments | | 29.9 | | | 26.5 | |
| Amounts recoverable from customers | Amounts recoverable from customers | | (193.6) | | | 6.8 | | Amounts recoverable from customers | | (31.9) | | | (193.6) | |
| Other current assets | Other current assets | | (7.8) | | | 55.7 | | Other current assets | | 4.5 | | | 12.5 | |
| Accounts payable | Accounts payable | | (119.3) | | | (188.3) | | Accounts payable | | 1.5 | | | (119.3) | |
| Temporary LIFO liquidation credit | | Temporary LIFO liquidation credit | | 107.6 | | | 26.7 | |
| Other current liabilities | Other current liabilities | | 17.2 | | | (67.2) | | Other current liabilities | | 128.4 | | | (9.5) | |
| Other, net | Other, net | | (68.9) | | | (18.0) | | Other, net | | (117.0) | | | (68.9) | |
| Net cash provided by operating activities | Net cash provided by operating activities | | 1,226.2 | | | 1,379.6 | | Net cash provided by operating activities | | 1,762.6 | | | 1,226.2 | |
| | Investing activities | Investing activities | | Investing activities | |
| Capital expenditures | Capital expenditures | | (1,010.1) | | | (1,037.2) | | Capital expenditures | | (1,028.8) | | | (1,010.1) | |
| Acquisition of Jayhawk | Acquisition of Jayhawk | | (119.7) | | | 0 | | Acquisition of Jayhawk | | — | | | (119.7) | |
| Capital contributions to transmission affiliates | Capital contributions to transmission affiliates | | 0 | | | (9.0) | | Capital contributions to transmission affiliates | | (30.3) | | | — | |
| Proceeds from the sale of assets | Proceeds from the sale of assets | | 20.8 | | | 2.1 | | Proceeds from the sale of assets | | 65.0 | | | 20.8 | |
| Proceeds from the sale of investments held in rabbi trust | Proceeds from the sale of investments held in rabbi trust | | 12.7 | | | 17.1 | | Proceeds from the sale of investments held in rabbi trust | | 15.4 | | | 12.7 | |
| Insurance proceeds received for property damage | | Insurance proceeds received for property damage | | 41.3 | | | — | |
| Other, net | Other, net | | 21.7 | | | 20.8 | | Other, net | | (0.1) | | | 21.7 | |
| Net cash used in investing activities | Net cash used in investing activities | | (1,074.6) | | | (1,006.2) | | Net cash used in investing activities | | (937.5) | | | (1,074.6) | |
| | Financing activities | Financing activities | | Financing activities | |
| Exercise of stock options | Exercise of stock options | | 4.0 | | | 20.3 | | Exercise of stock options | | 23.0 | | | 4.0 | |
| Purchase of common stock | Purchase of common stock | | (11.3) | | | (50.3) | | Purchase of common stock | | (48.4) | | | (11.3) | |
| Dividends paid on common stock | Dividends paid on common stock | | (427.5) | | | (399.0) | | Dividends paid on common stock | | (459.0) | | | (427.5) | |
| Issuance of long-term debt | Issuance of long-term debt | | 1,018.8 | | | 110.0 | | Issuance of long-term debt | | — | | | 1,018.8 | |
| Retirement of long-term debt | Retirement of long-term debt | | (341.2) | | | (418.2) | | Retirement of long-term debt | | (49.1) | | | (341.2) | |
| Issuance of short-term loan | Issuance of short-term loan | | 0 | | | 340.0 | | Issuance of short-term loan | | 1.4 | | | — | |
| Repayment of short-term loan | Repayment of short-term loan | | (340.0) | | | 0 | | Repayment of short-term loan | | — | | | (340.0) | |
| Change in other short-term debt | Change in other short-term debt | | (12.4) | | | 40.7 | | Change in other short-term debt | | (269.3) | | | (12.4) | |
| Purchase of additional ownership interest in Upstream from noncontrolling interest | | 0 | | | (31.0) | | |
| Other, net | Other, net | | (14.9) | | | (5.8) | | Other, net | | (6.3) | | | (14.9) | |
| Net cash used in financing activities | Net cash used in financing activities | | (124.5) | | | (393.3) | | Net cash used in financing activities | | (807.7) | | | (124.5) | |
| | Net change in cash, cash equivalents, and restricted cash | Net change in cash, cash equivalents, and restricted cash | | 27.1 | | | (19.9) | | Net change in cash, cash equivalents, and restricted cash | | 17.4 | | | 27.1 | |
| Cash, cash equivalents, and restricted cash at beginning of period | Cash, cash equivalents, and restricted cash at beginning of period | | 72.6 | | | 82.3 | | Cash, cash equivalents, and restricted cash at beginning of period | | 87.5 | | | 72.6 | |
| Cash, cash equivalents, and restricted cash at end of period | Cash, cash equivalents, and restricted cash at end of period | | $ | 99.7 | | | $ | 62.4 | | Cash, cash equivalents, and restricted cash at end of period | | $ | 104.9 | | | $ | 99.7 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
| | | | | | | | |
| 06/30/2022 Form 10-Q | 7 | WEC Energy Group, Inc. |
WEC ENERGY GROUP, INC.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | WEC Energy Group Common Shareholders' Equity | | | | | | |
| (in millions, except per share amounts) | | Common Stock | | Additional Paid In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Common Shareholders' Equity | | Preferred Stock of Subsidiary | | Non-controlling Interests | | Total Equity |
| Balance at December 31, 2021 | | $ | 3.2 | | | $ | 4,138.1 | | | $ | 6,775.1 | | | $ | (3.2) | | | $ | 10,913.2 | | | $ | 30.4 | | | $ | 169.7 | | | $ | 11,113.3 | |
| Net income attributed to common shareholders | | — | | | — | | | 565.9 | | | — | | | 565.9 | | | — | | | — | | | 565.9 | |
| Net income attributed to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | 1.8 | | | 1.8 | |
| Common stock dividends of $0.7275 per share | | — | | | — | | | (229.6) | | | — | | | (229.6) | | | — | | | — | | | (229.6) | |
| Exercise of stock options | | — | | | 11.8 | | | — | | | — | | | 11.8 | | | — | | | — | | | 11.8 | |
| Purchase of common stock | | — | | | (23.4) | | | — | | | — | | | (23.4) | | | — | | | — | | | (23.4) | |
| Capital contributions from noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | — | | | 0.4 | | | 0.4 | |
| Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (1.0) | | | (1.0) | |
| Stock-based compensation and other | | — | | | 5.3 | | | — | | | — | | | 5.3 | | | — | | | — | | | 5.3 | |
| Balance at March 31, 2022 | | $ | 3.2 | | | $ | 4,131.8 | | | $ | 7,111.4 | | | $ | (3.2) | | | $ | 11,243.2 | | | $ | 30.4 | | | $ | 170.9 | | | $ | 11,444.5 | |
| Net income attributed to common shareholders | | — | | | — | | | 287.5 | | | — | | | 287.5 | | | — | | | — | | | 287.5 | |
| Common stock dividends of $0.7275 per share | | — | | | — | | | (229.4) | | | — | | | (229.4) | | | — | | | — | | | (229.4) | |
| Exercise of stock options | | — | | | 11.2 | | | — | | | — | | | 11.2 | | | — | | | — | | | 11.2 | |
| Purchase of common stock | | — | | | (25.0) | | | — | | | — | | | (25.0) | | | — | | | — | | | (25.0) | |
| Capital contributions from noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | — | | | 0.1 | | | 0.1 | |
| Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (1.2) | | | (1.2) | |
| Stock-based compensation and other | | — | | | 3.1 | | | — | | | — | | | 3.1 | | | — | | | (0.2) | | | 2.9 | |
| Balance at June 30, 2022 | | $ | 3.2 | | | $ | 4,121.1 | | | $ | 7,169.5 | | | $ | (3.2) | | | $ | 11,290.6 | | | $ | 30.4 | | | $ | 169.6 | | | $ | 11,490.6 | |
| | | | | | | | |
06/30/20212022 Form 10-Q | 68 | WEC Energy Group, Inc. |
WEC ENERGY GROUP, INC.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | WEC Energy Group Common Shareholders' Equity | | | | | | |
| (in millions, except per share amounts) | | Common Stock | | Additional Paid In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Common Shareholders' Equity | | Preferred Stock of Subsidiary | | Non-controlling Interests | | Total Equity |
| Balance at December 31, 2020 | | $ | 3.2 | | | $ | 4,143.7 | | | $ | 6,329.6 | | | $ | (6.8) | | | $ | 10,469.7 | | | $ | 30.4 | | | $ | 162.4 | | | $ | 10,662.5 | |
| Net income attributed to common shareholders | | 0 | | | 0 | | | 510.1 | | | 0 | | | 510.1 | | | 0 | | | 0 | | | 510.1 | |
| Net loss attributed to noncontrolling interests | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (0.1) | | | (0.1) | |
| Other comprehensive income | | 0 | | | 0 | | | 0 | | | 1.1 | | | 1.1 | | | 0 | | | 0 | | | 1.1 | |
| Common stock dividends of $0.6775 per share | | 0 | | | 0 | | | (213.7) | | | 0 | | | (213.7) | | | 0 | | | 0 | | | (213.7) | |
| Exercise of stock options | | 0 | | | 1.2 | | | 0 | | | 0 | | | 1.2 | | | 0 | | | 0 | | | 1.2 | |
| Purchase of common stock | | 0 | | | (6.6) | | | 0 | | | 0 | | | (6.6) | | | 0 | | | 0 | | | (6.6) | |
| Acquisition of a noncontrolling interest | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 6.2 | | | 6.2 | |
| Capital contributions from noncontrolling interest | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2.0 | | | 2.0 | |
| Distributions to noncontrolling interests | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (0.4) | | | (0.4) | |
| Stock-based compensation and other | | 0 | | | 5.3 | | | 0 | | | 0 | | | 5.3 | | | 0 | | | 0 | | | 5.3 | |
| Balance at March 31, 2021 | | $ | 3.2 | | | $ | 4,143.6 | | | $ | 6,626.0 | | | $ | (5.7) | | | $ | 10,767.1 | | | $ | 30.4 | | | $ | 170.1 | | | $ | 10,967.6 | |
| Net income attributed to common shareholders | | 0 | | | 0 | | | 276.0 | | | 0 | | | 276.0 | | | 0 | | | 0 | | | 276.0 | |
| Net loss attributed to noncontrolling interests | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (0.6) | | | (0.6) | |
| Other comprehensive income | | 0 | | | 0 | | | 0 | | | 1.1 | | | 1.1 | | | 0 | | | 0 | | | 1.1 | |
| Common stock dividends of $0.6775 per share | | 0 | | | 0 | | | (213.8) | | | 0 | | | (213.8) | | | 0 | | | 0 | | | (213.8) | |
| Exercise of stock options | | 0 | | | 2.8 | | | 0 | | | 0 | | | 2.8 | | | 0 | | | 0 | | | 2.8 | |
| Purchase of common stock | | 0 | | | (4.7) | | | 0 | | | 0 | | | (4.7) | | | 0 | | | 0 | | | (4.7) | |
| Capital contributions from noncontrolling interest | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0.5 | | | 0.5 | |
| Distributions to noncontrolling interests | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (0.9) | | | (0.9) | |
| Stock-based compensation and other | | 0 | | | 2.4 | | | 0 | | | 0 | | | 2.4 | | | 0 | | | 0 | | | 2.4 | |
| Balance at June 30, 2021 | | $ | 3.2 | | | $ | 4,144.1 | | | $ | 6,688.2 | | | $ | (4.6) | | | $ | 10,830.9 | | | $ | 30.4 | | | $ | 169.1 | | | $ | 11,030.4 | |
| | | | | | | | |
06/30/2021 Form 10-Q | 7 | WEC Energy Group, Inc. |
| CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (continued) | | |
| CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) | | CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) | |
| | | WEC Energy Group Common Shareholders' Equity | | | WEC Energy Group Common Shareholders' Equity | |
| (in millions, except per share amounts) | (in millions, except per share amounts) | | Common Stock | | Additional Paid In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Common Shareholders' Equity | | Preferred Stock of Subsidiary | | Non-controlling Interests | | Total Equity | (in millions, except per share amounts) | | Common Stock | | Additional Paid In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Common Shareholders' Equity | | Preferred Stock of Subsidiary | | Non-controlling Interests | | Total Equity |
| Balance at December 31, 2019 | | $ | 3.2 | | | $ | 4,186.6 | | | $ | 5,927.7 | | | $ | (4.1) | | | $ | 10,113.4 | | | $ | 30.4 | | | $ | 110.8 | | | $ | 10,254.6 | | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | | $ | 3.2 | | | $ | 4,143.7 | | | $ | 6,329.6 | | | $ | (6.8) | | | $ | 10,469.7 | | | $ | 30.4 | | | $ | 162.4 | | | $ | 10,662.5 | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | 0 | | | 0 | | | 452.5 | | | 0 | | | 452.5 | | | 0 | | | 0 | | | 452.5 | | Net income attributed to common shareholders | | — | | | — | | | 510.1 | | | — | | | 510.1 | | | — | | | — | | | 510.1 | |
| Net loss attributed to noncontrolling interests | Net loss attributed to noncontrolling interests | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (0.2) | | | (0.2) | | Net loss attributed to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (0.1) | | | (0.1) | |
| Other comprehensive loss | | 0 | | | 0 | | | 0 | | | (3.0) | | | (3.0) | | | 0 | | | 0 | | | (3.0) | | |
| Common stock dividends of $0.6325 per share | | 0 | | | 0 | | | (199.5) | | | 0 | | | (199.5) | | | 0 | | | 0 | | | (199.5) | | |
| Other comprehensive income | | Other comprehensive income | | — | | | — | | | — | | | 1.1 | | | 1.1 | | | — | | | — | | | 1.1 | |
| Common stock dividends of $0.6775 per share | | Common stock dividends of $0.6775 per share | | — | | | — | | | (213.7) | | | — | | | (213.7) | | | — | | | — | | | (213.7) | |
| Exercise of stock options | Exercise of stock options | | 0 | | | 16.0 | | | 0 | | | 0 | | | 16.0 | | | 0 | | | 0 | | | 16.0 | | Exercise of stock options | | — | | | 1.2 | | | — | | | — | | | 1.2 | | | — | | | — | | | 1.2 | |
| Purchase of common stock | Purchase of common stock | | 0 | | | (40.4) | | | 0 | | | 0 | | | (40.4) | | | 0 | | | 0 | | | (40.4) | | Purchase of common stock | | — | | | (6.6) | | | — | | | — | | | (6.6) | | | — | | | — | | | (6.6) | |
| Acquisition of a noncontrolling interest | | Acquisition of a noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | — | | | 6.2 | | | 6.2 | |
| Capital contributions from noncontrolling interest | | Capital contributions from noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | — | | | 2.0 | | | 2.0 | |
| Distributions to noncontrolling interests | Distributions to noncontrolling interests | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (0.5) | | | (0.5) | | Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (0.4) | | | (0.4) | |
| Stock-based compensation and other | Stock-based compensation and other | | 0 | | | 5.1 | | | 0 | | | 0 | | | 5.1 | | | 0 | | | 0 | | | 5.1 | | Stock-based compensation and other | | — | | | 5.3 | | | — | | | — | | | 5.3 | | | — | | | — | | | 5.3 | |
| Balance at March 31, 2020 | | $ | 3.2 | | | $ | 4,167.3 | | | $ | 6,180.7 | | | $ | (7.1) | | | $ | 10,344.1 | | | $ | 30.4 | | | $ | 110.1 | | | $ | 10,484.6 | | |
| Balance at March 31, 2021 | | Balance at March 31, 2021 | | $ | 3.2 | | | $ | 4,143.6 | | | $ | 6,626.0 | | | $ | (5.7) | | | $ | 10,767.1 | | | $ | 30.4 | | | $ | 170.1 | | | $ | 10,967.6 | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | 0 | | | 0 | | | 241.6 | | | 0 | | | 241.6 | | | 0 | | | 0 | | | 241.6 | | Net income attributed to common shareholders | | — | | | — | | | 276.0 | | | — | | | 276.0 | | | — | | | — | | | 276.0 | |
| Net income attributed to noncontrolling interests | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0.2 | | | 0.2 | | |
| Other comprehensive loss | | 0 | | | 0 | | | 0 | | | (0.2) | | | (0.2) | | | 0 | | | 0 | | | (0.2) | | |
| Common stock dividends of $0.6325 per share | | 0 | | | 0 | | | (199.5) | | | 0 | | | (199.5) | | | 0 | | | 0 | | | (199.5) | | |
| Net loss attributed to noncontrolling interests | | Net loss attributed to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (0.6) | | | (0.6) | |
| Other comprehensive income | | Other comprehensive income | | — | | | — | | | — | | | 1.1 | | | 1.1 | | | — | | | — | | | 1.1 | |
| Common stock dividends of $0.6775 per share | | Common stock dividends of $0.6775 per share | | — | | | — | | | (213.8) | | | — | | | (213.8) | | | — | | | — | | | (213.8) | |
| Exercise of stock options | Exercise of stock options | | 0 | | | 4.3 | | | 0 | | | 0 | | | 4.3 | | | 0 | | | 0 | | | 4.3 | | Exercise of stock options | | — | | | 2.8 | | | — | | | — | | | 2.8 | | | — | | | — | | | 2.8 | |
| Purchase of common stock | Purchase of common stock | | 0 | | | (9.9) | | | 0 | | | 0 | | | (9.9) | | | 0 | | | 0 | | | (9.9) | | Purchase of common stock | | — | | | (4.7) | | | — | | | — | | | (4.7) | | | — | | | — | | | (4.7) | |
| Purchase of additional ownership interest in Upstream from noncontrolling interest | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (31.0) | | | (31.0) | | |
| Capital contributions from noncontrolling interest | | Capital contributions from noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | — | | | 0.5 | | | 0.5 | |
| Distributions to noncontrolling interests | Distributions to noncontrolling interests | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (0.7) | | | (0.7) | | Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (0.9) | | | (0.9) | |
| Stock-based compensation and other | Stock-based compensation and other | | 0 | | | 3.3 | | | 0 | | | 0 | | | 3.3 | | | 0 | | | 0 | | | 3.3 | | Stock-based compensation and other | | — | | | 2.4 | | | — | | | — | | | 2.4 | | | — | | | — | | | 2.4 | |
| Balance at June 30, 2020 | | $ | 3.2 | | | $ | 4,165.0 | | | $ | 6,222.8 | | | $ | (7.3) | | | $ | 10,383.7 | | | $ | 30.4 | | | $ | 78.6 | | | $ | 10,492.7 | | |
| | Balance at June 30, 2021 | | Balance at June 30, 2021 | | $ | 3.2 | | | $ | 4,144.1 | | | $ | 6,688.2 | | | $ | (4.6) | | | $ | 10,830.9 | | | $ | 30.4 | | | $ | 169.1 | | | $ | 11,030.4 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
| | | | | | | | |
06/30/20212022 Form 10-Q | 89 | WEC Energy Group, Inc. |
WEC ENERGY GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 20212022
NOTE 1—GENERAL INFORMATION
WEC Energy Group serves approximately 1.6 million electric customers and 3.0 million natural gas customers, owns approximately 60% of ATC, and owns majority interests in multiple wind generating facilities as part of its non-utility energy infrastructure business.segment.
As used in these notes, the term "financial statements" refers to the condensed consolidated financial statements. This includes the income statements, statements of comprehensive income, balance sheets, statements of cash flows, and statements of equity, unless otherwise noted. In this report, when we refer to "the Company," "us," "we," "our," or "ours," we are referring to WEC Energy Group and all of its subsidiaries.
On our financial statements, we consolidate our majority-owned subsidiaries, which we control, and VIEs, of which we are the primary beneficiary. We reflect noncontrolling interests for the portion of entities that we do not own as a component of consolidated equity separate from the equity attributable to our shareholders. The noncontrolling interests that we reported as equity on our balance sheets related to the minority interests at Bishop Hill III, Blooming Grove, Coyote Ridge, Jayhawk, Tatanka Ridge, and Upstream held by third parties.
We use the equity method to account for investments in companies we do not control but over which we exercise significant influence regarding their operating and financial policies. As a result of our limited voting rights, we account for ATC and ATC Holdco as equity method investments. See Note 17,18, Investment in Transmission Affiliates, for more information.
We have prepared the unaudited interim financial statements presented in this Form 10-Q pursuant to the rules and regulations of the SEC and GAAP. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and footnotes in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. Financial results for an interim period may not give a true indication of results for the year. In particular, the results of operations for the three and six months ended June 30, 2021,2022, are not necessarily indicative of expected results for 20212022 due to seasonal variations and other factors, including any continuing financial impacts from the COVID-19 pandemic.factors.
In management's opinion, we have included all adjustments, normal and recurring in nature, necessary for a fair presentation of our financial results.
NOTE 2—ACQUISITIONS
In accordance with Topic 805: Clarifying the Definition of a Business (ASU 2017-01), transactions are evaluated and are accounted for as acquisitions (or disposals) of assets or businesses, and transaction costs are capitalized in asset acquisitions. The purchase price of certain acquisitions below includes intangibles recorded as long-term liabilities related to PPAs and interconnection agreements. See Note 16,17, Goodwill and Intangibles, for more information.
Acquisition of Electric Generation Facility in Wisconsin
In November 2021, WE and WPS signed an asset purchase agreement to acquire Whitewater, a commercially operational 236.5 MW dual-fueled (natural gas and low sulfur fuel oil) combined-cycle electrical generation facility in Whitewater, Wisconsin, for $72.7 million. The transaction is expected to close in early 2023. In December 2021, WE and WPS filed an application with the PSCW for approval to acquire Whitewater.
Acquisition of a Wind Energy Generation Facility in Illinois
In June 2021, WECI signed an agreement to acquire a 90% ownership interest in Sapphire Sky, a 250 MW wind generating facility under construction in McLean County, Illinois, for approximately $412 million. The project has an offtake agreement with an unaffiliated third party for all of the energy to be produced by the facility for a period of 12 years. WECI's investment in Sapphire Sky is expected to qualify for PTCs. The transaction is subject to FERC approval and commercial operation is expected to begin by the end
| | | | | | | | |
| 06/30/2022 Form 10-Q | 10 | WEC Energy Group, Inc. |
of 2022, at which time the transaction is expected to close. Sapphire Sky will be included in the non-utility energy infrastructure segment.
Acquisition of a Wind Energy Generation Facility in Kansas
In February 2021, WECI completed the acquisition of a 90% ownership interest in Jayhawk, a 190 MW wind generating facility under construction in Bourbon and Crawford counties, Kansas, for $119.7$119.9 million, which included transaction costs, and was allocated primarilycosts. The project became commercially operational in December 2021. Subsequent to property, plant, and equipment. As of June 2021,the acquisition, WECI incurred an additional $47.8$153.6 million of capital expenditures as of June 30, 2022 for the project for a current total investment of $167.5 million. Upon completion, we expect WECI's total investment to be approximately $302$273.5 million. The project has an offtake agreement with an unaffiliated third party for all of the energy to be produced by the facility
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06/30/2021 Form 10-Q | 9 | WEC Energy Group, Inc. |
for a period of 10 years. WECI's investment in Jayhawk is expected to qualifyqualifies for PTCs. WECI is entitled to 99% of the tax benefits related to this facility for the first 10 years of commercial operation, after which weit will be entitled to tax benefits equal to ourits ownership interest. Commercial operation is expected to begin no later than the first quarter of 2022. Jayhawk is included in the non-utility energy infrastructure segment.
Acquisition of a Wind Energy Generation Facility in South Dakota
In December 2020, WECI completed the acquisition of an 85% ownership interest in Tatanka Ridge, a 155 MW wind generating facility in Deuel County, South Dakota that became commercially operational in January 2021. WECI's total investment was $240.1 million, which included transaction costs. Tatanka Ridge has offtake agreements for all the energy produced with an affiliate of an investment grade multinational company for 12 years and a well-established electric cooperative that serves utilities in multiple states for 10 years. WECI's investment in Tatanka Ridge qualifies for PTCs. WECI is entitled to 99% of the tax benefits related to this facility for the first 11 years of commercial operation, after which we will be entitled to tax benefits equal to our ownership interest. Tatanka Ridge is included in the non-utility energy infrastructure segment.
Acquisition of Wind Generation FacilitiesFacility in Nebraska
In August 2019, WECI signed an agreement to acquire an 80% ownership interest in Thunderhead, a 300 MW wind generating facility under construction in Antelope and Wheeler counties in Nebraska, for a total investment of approximately $338 million. In February 2020, WECI agreed to acquire an additional 10% ownership interest in Thunderhead for $43 million. The project has an offtake agreement with an unaffiliated third party for all of the energy to be produced by the facility for 12 years. WECI's investment in Thunderhead is expected to qualify for PTCs. The transaction was approved by FERC in April 2020, and commercial operation was initially expected to begin by the end of 2020. However, due to a delay in construction of the required substation, Thunderhead is now expected to begin commercial operation duringin the first halffall of 2022. The transaction is expected to close upon commercial operation. Thunderhead will be included in the non-utility energy infrastructure segment.
NOTE 3—DISPOSITION
Sale of Certain Real Estate by The Peoples Gas Light and Coke Company
In April 2020, WECI acquired an additional 10% ownership interestMay 2022, we sold approximately 11 acres of real estate owned by PGL that was no longer being utilized in Upstreamits operations, for $31.0 million, bringing its total ownership interest to 90%. Upstream is$55.1 million. The real estate was located in Antelope County, NebraskaChicago, Illinois. As a result of the sale, a pre-tax gain in the amount of $54.5 million was recorded within other operation and supplies energy tomaintenance expense on our income statement. The book value of the Southwest Power Pool. Upstream's revenue is substantially fixed over the first 10 years through an agreement with an unaffiliated third party. WECI's investment in Upstream qualifies for PTCs. Upstream isreal estate included in the non-utility energy infrastructure segment.sale was not material and, therefore, was not presented as held for sale.
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06/30/20212022 Form 10-Q | 1011 | WEC Energy Group, Inc. |
NOTE 3—4—OPERATING REVENUES
For more information about our operating revenues, see Note 1(d), Operating Revenues, in our 20202021 Annual Report on Form 10-K.
Disaggregation of Operating Revenues
The following tables present our operating revenues disaggregated by revenue source. We do not have any revenues associated with our electric transmission segment, which includes investments accounted for using the equity method. We disaggregate revenues into categories that depict how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors. For our segments, revenues are further disaggregated by electric and natural gas operations and then by customer class. Each customer class within our electric and natural gas operations have different expectations of service, energy and demand requirements, and can be impacted differently by regulatory activities within their jurisdictions.
| | (in millions) | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Non-Utility Energy Infrastructure | | Corporate
and Other | | Reconciling
Eliminations | | WEC Energy Group Consolidated | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Non-Utility Energy Infrastructure | | Corporate
and Other | | Reconciling
Eliminations | | WEC Energy Group Consolidated |
| Three Months Ended June 30, 2021 | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2022 | | | | | | | | | | | | | | | | |
| Electric | Electric | | $ | 1,083.2 | | | $ | 0 | | | $ | 0 | | | $ | 1,083.2 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1,083.2 | | Electric | | $ | 1,221.1 | | | $ | — | | | $ | — | | | $ | 1,221.1 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,221.1 | |
| Natural gas | Natural gas | | 212.7 | | | 266.1 | | | 66.9 | | | 545.7 | | | 9.4 | | | 0 | | | (8.7) | | | 546.4 | | Natural gas | | 329.5 | | | 442.2 | | | 95.8 | | | 867.5 | | | 12.0 | | | — | | | (11.0) | | | 868.5 | |
| Total regulated revenues | Total regulated revenues | | 1,295.9 | | | 266.1 | | | 66.9 | | | 1,628.9 | | | 9.4 | | | 0 | | | (8.7) | | | 1,629.6 | | Total regulated revenues | | 1,550.6 | | | 442.2 | | | 95.8 | | | 2,088.6 | | | 12.0 | | | — | | | (11.0) | | | 2,089.6 | |
| Other non-utility revenues | Other non-utility revenues | | 0 | | | 0 | | | 4.4 | | | 4.4 | | | 24.2 | | | 0 | | | (3.9) | | | 24.7 | | Other non-utility revenues | | — | | | — | | | 4.5 | | | 4.5 | | | 31.1 | | | — | | | (4.0) | | | 31.6 | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | | 1,295.9 | | | 266.1 | | | 71.3 | | | 1,633.3 | | | 33.6 | | | 0 | | | (12.6) | | | 1,654.3 | | Total revenues from contracts with customers | | 1,550.6 | | | 442.2 | | | 100.3 | | | 2,093.1 | | | 43.1 | | | — | | | (15.0) | | | 2,121.2 | |
| Other operating revenues | Other operating revenues | | 11.6 | | | 9.4 | | | 0.8 | | | 21.8 | | | 99.9 | | | 0.1 | | | (99.9) | | (1) | 21.9 | | Other operating revenues | | 6.8 | | | 0.2 | | | (0.4) | | | 6.6 | | | 100.5 | | | 0.1 | | | (100.5) | | (1) | 6.7 | |
| Total operating revenues | Total operating revenues | | $ | 1,307.5 | | | $ | 275.5 | | | $ | 72.1 | | | $ | 1,655.1 | | | $ | 133.5 | | | $ | 0.1 | | | $ | (112.5) | | | $ | 1,676.2 | | Total operating revenues | | $ | 1,557.4 | | | $ | 442.4 | | | $ | 99.9 | | | $ | 2,099.7 | | | $ | 143.6 | | | $ | 0.1 | | | $ | (115.5) | | | $ | 2,127.9 | |
| | (in millions) | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Non-Utility Energy Infrastructure | | Corporate
and Other | | Reconciling
Eliminations | | WEC Energy Group Consolidated | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Non-Utility Energy Infrastructure | | Corporate
and Other | | Reconciling
Eliminations | | WEC Energy Group Consolidated |
| Three Months Ended June 30, 2020 | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2021 | | | | | | | | | | | | | | | | |
| Electric | Electric | | $ | 999.6 | | | $ | 0 | | | $ | 0 | | | $ | 999.6 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 999.6 | | Electric | | $ | 1,083.2 | | | $ | — | | | $ | — | | | $ | 1,083.2 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,083.2 | |
| Natural gas | Natural gas | | 207.8 | | | 254.5 | | | 62.4 | | | 524.7 | | | 8.7 | | | 0 | | | (8.2) | | | 525.2 | | Natural gas | | 212.7 | | | 266.1 | | | 66.9 | | | 545.7 | | | 9.4 | | | — | | | (8.7) | | | 546.4 | |
| Total regulated revenues | Total regulated revenues | | 1,207.4 | | | 254.5 | | | 62.4 | | | 1,524.3 | | | 8.7 | | | 0 | | | (8.2) | | | 1,524.8 | | Total regulated revenues | | 1,295.9 | | | 266.1 | | | 66.9 | | | 1,628.9 | | | 9.4 | | | — | | | (8.7) | | | 1,629.6 | |
| Other non-utility revenues | Other non-utility revenues | | 0 | | | 0 | | | 4.2 | | | 4.2 | | | 17.1 | | | 0.8 | | | (3.9) | | | 18.2 | | Other non-utility revenues | | — | | | — | | | 4.4 | | | 4.4 | | | 24.2 | | | — | | | (3.9) | | | 24.7 | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | | 1,207.4 | | | 254.5 | | | 66.6 | | | 1,528.5 | | | 25.8 | | | 0.8 | | | (12.1) | | | 1,543.0 | | Total revenues from contracts with customers | | 1,295.9 | | | 266.1 | | | 71.3 | | | 1,633.3 | | | 33.6 | | | — | | | (12.6) | | | 1,654.3 | |
| Other operating revenues | Other operating revenues | | (1.2) | | | 6.7 | | | 0.1 | | | 5.6 | | | 99.5 | | | 0.1 | | | (99.5) | | (1) | 5.7 | | Other operating revenues | | 11.6 | | | 9.4 | | | 0.8 | | | 21.8 | | | 99.9 | | | 0.1 | | | (99.9) | | (1) | 21.9 | |
| Total operating revenues | Total operating revenues | | $ | 1,206.2 | | | $ | 261.2 | | | $ | 66.7 | | | $ | 1,534.1 | | | $ | 125.3 | | | $ | 0.9 | | | $ | (111.6) | | | $ | 1,548.7 | | Total operating revenues | | $ | 1,307.5 | | | $ | 275.5 | | | $ | 72.1 | | | $ | 1,655.1 | | | $ | 133.5 | | | $ | 0.1 | | | $ | (112.5) | | | $ | 1,676.2 | |
| | (in millions) | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Non-Utility Energy Infrastructure | | Corporate
and Other | | Reconciling
Eliminations | | WEC Energy Group Consolidated | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Non-Utility Energy Infrastructure | | Corporate
and Other | | Reconciling
Eliminations | | WEC Energy Group Consolidated |
| Six Months Ended June 30, 2021 | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 | | | | | | | | | | | | | | | | |
| Electric | Electric | | $ | 2,178.2 | | | $ | 0 | | | $ | 0 | | | $ | 2,178.2 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 2,178.2 | | Electric | | $ | 2,408.6 | | | $ | — | | | $ | — | | | $ | 2,408.6 | | | 0 | | $ | — | | | $ | — | | | $ | 2,408.6 | |
| Natural gas | Natural gas | | 840.0 | | | 959.6 | | | 292.5 | | | 2,092.1 | | | 24.0 | | | 0 | | | (22.0) | | | 2,094.1 | | Natural gas | | 1,076.3 | | | 1,122.1 | | | 334.0 | | | 2,532.4 | | | 27.3 | | | — | | | (25.8) | | | 2,533.9 | |
| Total regulated revenues | Total regulated revenues | | 3,018.2 | | | 959.6 | | | 292.5 | | | 4,270.3 | | | 24.0 | | | 0 | | | (22.0) | | | 4,272.3 | | Total regulated revenues | | 3,484.9 | | | 1,122.1 | | | 334.0 | | | 4,941.0 | | | 27.3 | | | — | | | (25.8) | | | 4,942.5 | |
| Other non-utility revenues | Other non-utility revenues | | 0 | | | 0 | | | 9.1 | | | 9.1 | | | 47.4 | | | 0 | | | (5.5) | | | 51.0 | | Other non-utility revenues | | — | | | — | | | 9.1 | | | 9.1 | | | 74.8 | | | — | | | (5.6) | | | 78.3 | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | | 3,018.2 | | | 959.6 | | | 301.6 | | | 4,279.4 | | | 71.4 | | | 0 | | | (27.5) | | | 4,323.3 | | Total revenues from contracts with customers | | 3,484.9 | | | 1,122.1 | | | 343.1 | | | 4,950.1 | | | 102.1 | | | — | | | (31.4) | | | 5,020.8 | |
| Other operating revenues | Other operating revenues | | 21.0 | | | 19.3 | | | 3.8 | | | 44.1 | | | 199.7 | | | 0.2 | | | (199.7) | | (1) | 44.3 | | Other operating revenues | | 14.8 | | | 2.4 | | | (2.3) | | | 14.9 | | | 201.0 | | | 0.3 | | | (201.0) | | (1) | 15.2 | |
| Total operating revenues | Total operating revenues | | $ | 3,039.2 | | | $ | 978.9 | | | $ | 305.4 | | | $ | 4,323.5 | | | $ | 271.1 | | | $ | 0.2 | | | $ | (227.2) | | | $ | 4,367.6 | | Total operating revenues | | $ | 3,499.7 | | | $ | 1,124.5 | | | $ | 340.8 | | | $ | 4,965.0 | | | $ | 303.1 | | | $ | 0.3 | | | $ | (232.4) | | | $ | 5,036.0 | |
| | | | | | | | |
06/30/20212022 Form 10-Q | 1112 | WEC Energy Group, Inc. |
| | (in millions) | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Non-Utility Energy Infrastructure | | Corporate
and Other | | Reconciling
Eliminations | | WEC Energy Group Consolidated | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Non-Utility Energy Infrastructure | | Corporate
and Other | | Reconciling
Eliminations | | WEC Energy Group Consolidated |
| Six Months Ended June 30, 2020 | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 | | | | | | | | | | | | | | | | |
| Electric | Electric | | $ | 2,034.2 | | | $ | 0 | | | $ | 0 | | | $ | 2,034.2 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 2,034.2 | | Electric | | $ | 2,178.2 | | | $ | — | | | $ | — | | | $ | 2,178.2 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,178.2 | |
| Natural gas | Natural gas | | 666.7 | | | 688.1 | | | 202.2 | | | 1,557.0 | | | 23.2 | | | 0 | | | (22.3) | | | 1,557.9 | | Natural gas | | 840.0 | | | 959.6 | | | 292.5 | | | 2,092.1 | | | 24.0 | | | — | | | (22.0) | | | 2,094.1 | |
| Total regulated revenues | Total regulated revenues | | 2,700.9 | | | 688.1 | | | 202.2 | | | 3,591.2 | | | 23.2 | | | 0 | | | (22.3) | | | 3,592.1 | | Total regulated revenues | | 3,018.2 | | | 959.6 | | | 292.5 | | | 4,270.3 | | | 24.0 | | | — | | | (22.0) | | | 4,272.3 | |
| Other non-utility revenues | Other non-utility revenues | | 0 | | | 0 | | | 8.6 | | | 8.6 | | | 33.5 | | | 1.2 | | | (5.5) | | | 37.8 | | Other non-utility revenues | | — | | | — | | | 9.1 | | | 9.1 | | | 47.4 | | | — | | | (5.5) | | | 51.0 | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | | 2,700.9 | | | 688.1 | | | 210.8 | | | 3,599.8 | | | 56.7 | | | 1.2 | | | (27.8) | | | 3,629.9 | | Total revenues from contracts with customers | | 3,018.2 | | | 959.6 | | | 301.6 | | | 4,279.4 | | | 71.4 | | | — | | | (27.5) | | | 4,323.3 | |
| Other operating revenues | Other operating revenues | | 4.2 | | | 20.7 | | | 2.3 | | | 27.2 | | | 198.2 | | | 0.2 | | | (198.2) | | (1) | 27.4 | | Other operating revenues | | 21.0 | | | 19.3 | | | 3.8 | | | 44.1 | | | 199.7 | | | 0.2 | | | (199.7) | | (1) | 44.3 | |
| Total operating revenues | Total operating revenues | | $ | 2,705.1 | | | $ | 708.8 | | | $ | 213.1 | | | $ | 3,627.0 | | | $ | 254.9 | | | $ | 1.4 | | | $ | (226.0) | | | $ | 3,657.3 | | Total operating revenues | | $ | 3,039.2 | | | $ | 978.9 | | | $ | 305.4 | | | $ | 4,323.5 | | | $ | 271.1 | | | $ | 0.2 | | | $ | (227.2) | | | $ | 4,367.6 | |
(1)Amounts eliminated represent lease revenues related to certain plants that We Power leases to WE to supply electricity to its customers. Lease payments are billed from We Power to WE and then recovered in WE's rates as authorized by the PSCW and the FERC. WE operates the plants and is authorized by the PSCW and Wisconsin state law to fully recover prudently incurred operating and maintenance costs in electric rates.
Revenues from Contracts with Customers
Electric Utility Operating Revenues
The following table disaggregates electric utility operating revenues into customer class:
| | | Three Months Ended June 30 | | Six Months Ended June 30 | | Three Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Residential | Residential | | $ | 419.0 | | | $ | 418.7 | | | $ | 842.7 | | | $ | 823.6 | | Residential | | $ | 449.7 | | | $ | 419.0 | | | $ | 912.8 | | | $ | 842.7 | |
| Small commercial and industrial | Small commercial and industrial | | 346.6 | | | 307.1 | | | 678.0 | | | 630.7 | | Small commercial and industrial | | 378.4 | | | 346.6 | | | 748.5 | | | 678.0 | |
| Large commercial and industrial | Large commercial and industrial | | 224.5 | | | 187.8 | | | 434.0 | | | 382.4 | | Large commercial and industrial | | 268.1 | | | 224.5 | | | 497.3 | | | 434.0 | |
| Other | Other | | 6.9 | | | 6.9 | | | 14.7 | | | 14.2 | | Other | | 7.2 | | | 6.9 | | | 15.0 | | | 14.7 | |
| Total retail revenues | Total retail revenues | | 997.0 | | | 920.5 | | | 1,969.4 | | | 1,850.9 | | Total retail revenues | | 1,103.4 | | | 997.0 | | | 2,173.6 | | | 1,969.4 | |
| Wholesale | Wholesale | | 38.6 | | | 41.3 | | | 78.3 | | | 83.4 | | Wholesale | | 40.8 | | | 38.6 | | | 83.2 | | | 78.3 | |
| Resale | Resale | | 37.4 | | | 28.4 | | | 100.1 | | | 73.6 | | Resale | | 60.7 | | | 37.4 | | | 117.5 | | | 100.1 | |
| Steam | Steam | | 4.2 | | | 4.1 | | | 19.0 | | | 12.5 | | Steam | | 4.7 | | | 4.2 | | | 16.8 | | | 19.0 | |
| Other utility revenues | Other utility revenues | | 6.0 | | | 5.3 | | | 11.4 | | | 13.8 | | Other utility revenues | | 11.5 | | | 6.0 | | | 17.5 | | | 11.4 | |
| Total electric utility operating revenues | Total electric utility operating revenues | | $ | 1,083.2 | | | $ | 999.6 | | | $ | 2,178.2 | | | $ | 2,034.2 | | Total electric utility operating revenues | | $ | 1,221.1 | | | $ | 1,083.2 | | | $ | 2,408.6 | | | $ | 2,178.2 | |
Natural Gas Utility Operating Revenues
The following tables disaggregate natural gas utility operating revenues into customer class:
| | (in millions) | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Natural Gas Utility Operating Revenues | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Natural Gas Utility Operating Revenues |
| Three Months Ended June 30, 2021 | | | | | | | | | |
| Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2022 | | | | | | | | |
| Residential | Residential | | $ | 188.6 | | | $ | 199.1 | | | $ | 37.9 | | | $ | 425.6 | | Residential | | $ | 198.5 | | | $ | 268.6 | | | $ | 63.5 | | | $ | 530.6 | |
| Commercial and industrial | Commercial and industrial | | 90.2 | | | 51.5 | | | 17.3 | | | 159.0 | | Commercial and industrial | | 102.1 | | | 78.2 | | | 36.6 | | | 216.9 | |
| Total retail revenues | Total retail revenues | | 278.8 | | | 250.6 | | | 55.2 | | | 584.6 | | Total retail revenues | | 300.6 | | | 346.8 | | | 100.1 | | | 747.5 | |
| Transportation | Transportation | | 17.8 | | | 48.8 | | | 6.6 | | | 73.2 | | Transportation | | 18.0 | | | 54.5 | | | 6.0 | | | 78.5 | |
Other utility revenues (1) | Other utility revenues (1) | | (83.9) | | | (33.3) | | | 5.1 | | | (112.1) | | Other utility revenues (1) | | 10.9 | | | 40.9 | | | (10.3) | | | 41.5 | |
| Total natural gas utility operating revenues | Total natural gas utility operating revenues | | $ | 212.7 | | | $ | 266.1 | | | $ | 66.9 | | | $ | 545.7 | | Total natural gas utility operating revenues | | $ | 329.5 | | | $ | 442.2 | | | $ | 95.8 | | | $ | 867.5 | |
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06/30/20212022 Form 10-Q | 1213 | WEC Energy Group, Inc. |
| | (in millions) | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Natural Gas Utility Operating Revenues | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Natural Gas Utility Operating Revenues |
| Three Months Ended June 30, 2020 | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2021 | | | | | | | | |
| Residential | Residential | | $ | 125.8 | | | $ | 157.4 | | | $ | 40.0 | | | $ | 323.2 | | Residential | | $ | 188.6 | | | $ | 199.1 | | | $ | 37.9 | | | $ | 425.6 | |
| Commercial and industrial | Commercial and industrial | | 47.0 | | | 36.5 | | | 16.6 | | | 100.1 | | Commercial and industrial | | 90.2 | | | 51.5 | | | 17.3 | | | 159.0 | |
| Total retail revenues | Total retail revenues | | 172.8 | | | 193.9 | | | 56.6 | | | 423.3 | | Total retail revenues | | 278.8 | | | 250.6 | | | 55.2 | | | 584.6 | |
| Transportation | Transportation | | 17.0 | | | 46.3 | | | 7.0 | | | 70.3 | | Transportation | | 17.8 | | | 48.8 | | | 6.6 | | | 73.2 | |
Other utility revenues (1) | Other utility revenues (1) | | 18.0 | | | 14.3 | | | (1.2) | | | 31.1 | | Other utility revenues (1) | | (83.9) | | | (33.3) | | | 5.1 | | | (112.1) | |
| Total natural gas utility operating revenues | Total natural gas utility operating revenues | | $ | 207.8 | | | $ | 254.5 | | | $ | 62.4 | | | $ | 524.7 | | Total natural gas utility operating revenues | | $ | 212.7 | | | $ | 266.1 | | | $ | 66.9 | | | $ | 545.7 | |
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| (in millions) | | Wisconsin | | Illinois | | Other States | | Total Natural Gas Utility Operating Revenues |
| Six Months Ended June 30, 2022 | | | | | | | | |
| Residential | | $ | 701.0 | | | $ | 734.1 | | | $ | 224.8 | | | $ | 1,659.9 | |
| Commercial and industrial | | 374.6 | | | 236.5 | | | 123.4 | | | 734.5 | |
| Total retail revenues | | 1,075.6 | | | 970.6 | | | 348.2 | | | 2,394.4 | |
| Transportation | | 43.5 | | | 135.4 | | | 19.9 | | | 198.8 | |
Other utility revenues (1) | | (42.8) | | | 16.1 | | | (34.1) | | | (60.8) | |
| Total natural gas utility operating revenues | | $ | 1,076.3 | | | $ | 1,122.1 | | | $ | 334.0 | | | $ | 2,532.4 | |
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| (in millions) | | Wisconsin | | Illinois | | Other States | | Total Natural Gas Utility Operating Revenues |
| Six Months Ended June 30, 2021 | | | | | | | | |
| Residential | | $ | 536.2 | | | $ | 533.0 | | | $ | 125.8 | | | $ | 1,195.0 | |
| Commercial and industrial | | 266.6 | | | 154.2 | | | 61.2 | | | 482.0 | |
| Total retail revenues | | 802.8 | | | 687.2 | | | 187.0 | | | 1,677.0 | |
| Transportation | | 42.2 | | | 123.0 | | | 17.6 | | | 182.8 | |
Other utility revenues (1) | | (5.0) | | | 149.4 | | | 87.9 | | | 232.3 | |
| Total natural gas utility operating revenues | | $ | 840.0 | | | $ | 959.6 | | | $ | 292.5 | | | $ | 2,092.1 | |
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| (in millions) | | Wisconsin | | Illinois | | Other States | | Total Natural Gas Utility Operating Revenues |
| Six Months Ended June 30, 2020 | | | | | | | | |
| Residential | | $ | 438.9 | | | $ | 440.3 | | | $ | 135.3 | | | $ | 1,014.5 | |
| Commercial and industrial | | 198.3 | | | 127.9 | | | 68.3 | | | 394.5 | |
| Total retail revenues | | 637.2 | | | 568.2 | | | 203.6 | | | 1,409.0 | |
| Transportation | | 41.1 | | | 119.0 | | | 17.5 | | | 177.6 | |
Other utility revenues (1) | | (11.6) | | | 0.9 | | | (18.9) | | | (29.6) | |
| Total natural gas utility operating revenues | | $ | 666.7 | | | $ | 688.1 | | | $ | 202.2 | | | $ | 1,557.0 | |
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(1)Includes the revenues subject to the purchased gas recovery mechanisms of our utilities. The amounts for the three months ended June 30, 2022 reflect higher natural gas costs incurred than were anticipated in rates. During the six months ended June 30, 2022, we continued to recover natural gas costs we under-collected from our customers in 2021, related to the extreme weather. As these amounts were billed to customers, they were reflected in retail revenues with an offsetting decrease in other utility revenues. The negative amount during this period also relates to the over-collection of natural gas costs recorded in a regulatory liability due to these costs being lower than what was anticipated in rates. See Note 6, Regulatory Assets and Liabilities, for more information.
The negative amount for the three months ended June 30, 2021 primarily relates to the approval by our utility commissions to recover from customers, over the second quarter of 2021, the higher natural gas costs that were incurred as a result of the extreme winter weather conditions in February 2021. As these amounts were billed to customers, they were reflected in retail revenues with an offsetting decrease in other utility revenues. For the six months ended June 30, 2021, in addition to costs related to the extreme weather event, we incurred higher natural gas costs as a result of an increase in the price of natural gas.
See Note 19,23, Regulatory Environment, for more information.
Other Natural Gas Operating Revenues
We have other natural gas operating revenues from Bluewater, which is in our non-utility energy infrastructure segment. Bluewater has entered into long-term service agreements for natural gas storage services with WE, WPS, and WG, and also provides limited service to unaffiliated customers. All amounts associated with the service agreements with WE, WPS, and WG have been eliminated at the consolidated level.
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| 06/30/2022 Form 10-Q | 14 | WEC Energy Group, Inc. |
Other Non-Utility Operating Revenues
Other non-utility operating revenues consist primarily of the following:
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| | Three Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | | 2021 | | 2020 | | 2021 | | 2020 |
| Wind generation revenues | | $ | 14.5 | | | $ | 7.3 | | | $ | 30.3 | | | $ | 16.6 | |
We Power revenues (1) | | 5.8 | | | 5.8 | | | 11.6 | | | 11.3 | |
| Appliance service revenues | | 4.4 | | | 4.2 | | | 9.1 | | | 8.6 | |
| | | | | | | | |
| Other | | 0 | | | 0.9 | | | 0 | | | 1.3 | |
| Total other non-utility operating revenues | | $ | 24.7 | | | $ | 18.2 | | | $ | 51.0 | | | $ | 37.8 | |
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06/30/2021 Form 10-Q | 13 | WEC Energy Group, Inc. |
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| | Three Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Wind generation revenues | | $ | 21.3 | | | $ | 14.5 | | | $ | 57.5 | | | $ | 30.3 | |
We Power revenues (1) | | 5.8 | | | 5.8 | | | 11.7 | | | 11.6 | |
| Appliance service revenues | | 4.5 | | | 4.4 | | | 9.1 | | | 9.1 | |
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| Total other non-utility operating revenues | | $ | 31.6 | | | $ | 24.7 | | | $ | 78.3 | | | $ | 51.0 | |
(1)As part of the construction of the We Power electric generating units,EGUs, we capitalized interest during construction, which is included in property, plant, and equipment. As allowed by the PSCW, we collected these carrying costs from WE's utility customers during construction. The equity portion of these carrying costs was recorded as a contract liability, which is presented as deferred revenue, net on our balance sheets. We continually amortize the deferred carrying costs to revenues over the related lease term that We Power has with WE.
Other Operating Revenues
Other operating revenues consist primarily of the following:
| | | Three Months Ended June 30 | | Six Months Ended June 30 | | Three Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
Late payment charges (1) | Late payment charges (1) | | $ | 17.3 | | | $ | 0 | | | $ | 32.3 | | | $ | 12.1 | | Late payment charges (1) | | $ | 16.3 | | | $ | 17.3 | | | $ | 29.9 | | | $ | 32.3 | |
Alternative revenues | Alternative revenues | | 2.9 | | | 4.3 | | | 9.1 | | | 12.8 | | Alternative revenues | | (11.3) | | | 2.9 | | | (17.3) | | | 9.1 | |
| Other | Other | | 1.7 | | | 1.4 | | | 2.9 | | | 2.5 | | Other | | 1.7 | | | 1.7 | | | 2.6 | | | 2.9 | |
| Total other operating revenues | Total other operating revenues | | $ | 21.9 | | | $ | 5.7 | | | $ | 44.3 | | | $ | 27.4 | | Total other operating revenues | | $ | 6.7 | | | $ | 21.9 | | | $ | 15.2 | | | $ | 44.3 | |
(1)The increase inNegative amounts can result from alternative revenues being reversed to revenues from contracts with customers as the customer is billed for these alternative revenues. Negative amounts can also result from revenues to be refunded to customers subject to decoupling mechanisms, wholesale true-ups, conservation improvement rider true-ups, and certain late payment charges during the three and six months ended June 30, 2021, compared with the same periods in 2020, was a result of the expiration of various regulatory orders from our utility commissions in response to the COVID-19 pandemic, which included the suspension of late payment charges during a designated time period. See Note 22, Regulatory Environment, for more information.charges.
NOTE 4—5—CREDIT LOSSES
Our exposure to credit losses is related to our accounts receivable and unbilled revenue balances, which are primarily generated from the sale of electricity and natural gas by our regulated utility operations. Credit losses associated with our utility operations are analyzed at the reportable segment level as we believe contract terms, political and economic risks, and the regulatory environment are similar at this level as our reportable segments are generally based on the geographic location of the underlying utility operations.
We have an accounts receivable and unbilled revenue balance associated with our non-utility energy infrastructure segment, related to the sale of electricity from our majority-owned wind generating facilities through agreements with several large high credit quality counterparties.
We evaluate the collectability of our accounts receivable and unbilled revenue balances considering a combination of factors. For some of our larger customers and also in circumstances where we become aware of a specific customer's inability to meet its financial obligations to us, we record a specific allowance for credit losses against amounts due in order to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we use the accounts receivable aging method to calculate an allowance for credit losses. Using this method, we classify accounts receivable into different aging buckets and calculate a reserve percentage for each aging bucket based upon historical loss rates. The calculated reserve percentages are updated on at least an annual basis, in order to ensure recent macroeconomic, political, and regulatory trends are captured in the calculation, to the extent possible. Risks identified that we do not believe are reflected in the calculated reserve percentages, are assessed on a quarterly basis to determine whether further adjustments are required.
We monitor our ongoing credit exposure through active review of counterparty accounts receivable balances against contract terms and due dates. Our activities include timely account reconciliation, dispute resolution and payment confirmation. To the extent possible, we work with customers with past due balances to negotiate payment plans, but will disconnect customers for non-payment as allowed by our regulators, if necessary, and employ collection agencies and legal counsel to pursue recovery of defaulted receivables. For our larger customers, detailed credit review procedures may be performed in advance of any sales being
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| 06/30/2022 Form 10-Q | 15 | WEC Energy Group, Inc. |
made. We sometimes require letters of credit, parental guarantees, prepayments or other forms of credit assurance from our larger customers to mitigate credit risk. See Note 22, Regulatory Environment, for information on certain regulatory actions that were and/or are being taken for the purpose of ensuring that essential utility services are available to our customers during the COVID-19 pandemic.
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06/30/2021 Form 10-Q | 14 | WEC Energy Group, Inc. |
We have included tables below that show our gross third-party receivable balances and the related allowance for credit losses at June 30, 20212022 and December 31, 2020,2021, by reportable segment.
| | (in millions) | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Non-Utility Energy Infrastructure | | Corporate
and Other | | WEC Energy Group Consolidated | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Non-Utility Energy Infrastructure | | Corporate
and Other | | WEC Energy Group Consolidated |
| June 30, 2021 | | | | | | | | | | | | | | | |
| June 30, 2022 | | June 30, 2022 | | | | | | | | | | | | | | |
| Accounts receivable and unbilled revenues | Accounts receivable and unbilled revenues | | $ | 985.9 | | | $ | 363.3 | | | $ | 47.4 | | | $ | 1,396.6 | | | $ | 12.2 | | | $ | 5.6 | | | $ | 1,414.4 | | Accounts receivable and unbilled revenues | | $ | 1,029.1 | | | $ | 485.2 | | | $ | 79.9 | | | $ | 1,594.2 | | | $ | 23.7 | | | $ | 5.6 | | | $ | 1,623.5 | |
| Allowance for credit losses | Allowance for credit losses | | 114.4 | | | 109.0 | | | 8.3 | | | 231.7 | | | 0 | | | 0 | | | 231.7 | | Allowance for credit losses | | 78.0 | | | 91.0 | | | 6.8 | | | 175.8 | | | — | | | — | | | 175.8 | |
Accounts receivable and unbilled revenues, net (1) | Accounts receivable and unbilled revenues, net (1) | | $ | 871.5 | | | $ | 254.3 | | | $ | 39.1 | | | $ | 1,164.9 | | | $ | 12.2 | | | $ | 5.6 | | | $ | 1,182.7 | | Accounts receivable and unbilled revenues, net (1) | | $ | 951.1 | | | $ | 394.2 | | | $ | 73.1 | | | $ | 1,418.4 | | | $ | 23.7 | | | $ | 5.6 | | | $ | 1,447.7 | |
| Total accounts receivable, net – past due greater than 90 days (1) | Total accounts receivable, net – past due greater than 90 days (1) | | $ | 69.2 | | | $ | 51.9 | | | $ | 7.6 | | | $ | 128.7 | | | $ | 0 | | | $ | 0 | | | $ | 128.7 | | Total accounts receivable, net – past due greater than 90 days (1) | | $ | 71.6 | | | $ | 66.8 | | | $ | 7.4 | | | $ | 145.8 | | | $ | — | | | $ | — | | | $ | 145.8 | |
Past due greater than 90 days – collection risk mitigated by regulatory mechanisms (1) | Past due greater than 90 days – collection risk mitigated by regulatory mechanisms (1) | | 95.4 | % | | 100.0 | % | | 0 | % | | 91.6 | % | | 0 | % | | 0 | % | | 91.6 | % | Past due greater than 90 days – collection risk mitigated by regulatory mechanisms (1) | | 97.2 | % | | 100.0 | % | | — | % | | 93.6 | % | | — | % | | — | % | | 93.6 | % |
| | (in millions) | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Non-Utility Energy Infrastructure | | Corporate
and Other | | WEC Energy Group Consolidated | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Non-Utility Energy Infrastructure | | Corporate
and Other | | WEC Energy Group Consolidated |
| December 31, 2020 | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2021 | | | | | | | | | | | | | | |
| Accounts receivable and unbilled revenues | Accounts receivable and unbilled revenues | | $ | 899.8 | | | $ | 393.9 | | | $ | 79.8 | | | $ | 1,373.5 | | | $ | 45.0 | | | $ | 4.4 | | | $ | 1,422.9 | | Accounts receivable and unbilled revenues | | $ | 1,053.1 | | | $ | 523.1 | | | $ | 105.7 | | | $ | 1,681.9 | | | $ | 17.0 | | | $ | 5.1 | | | $ | 1,704.0 | |
| Allowance for credit losses | Allowance for credit losses | | 102.1 | | | 111.6 | | | 6.4 | | | 220.1 | | | 0 | | | 0 | | | 220.1 | | Allowance for credit losses | | 84.0 | | | 105.5 | | | 8.8 | | | 198.3 | | | — | | | — | | | 198.3 | |
Accounts receivable and unbilled revenues, net (1) | Accounts receivable and unbilled revenues, net (1) | | $ | 797.7 | | | $ | 282.3 | | | $ | 73.4 | | | $ | 1,153.4 | | | $ | 45.0 | | | $ | 4.4 | | | $ | 1,202.8 | | Accounts receivable and unbilled revenues, net (1) | | $ | 969.1 | | | $ | 417.6 | | | $ | 96.9 | | | $ | 1,483.6 | | | $ | 17.0 | | | $ | 5.1 | | | $ | 1,505.7 | |
| Total accounts receivable, net – past due greater than 90 days (1) | Total accounts receivable, net – past due greater than 90 days (1) | | $ | 84.8 | | | $ | 34.5 | | | $ | 3.5 | | | $ | 122.8 | | | $ | 0 | | | $ | 0 | | | $ | 122.8 | | Total accounts receivable, net – past due greater than 90 days (1) | | $ | 46.5 | | | $ | 36.6 | | | $ | 3.4 | | | $ | 86.5 | | | $ | — | | | $ | — | | | $ | 86.5 | |
Past due greater than 90 days – collection risk mitigated by regulatory mechanisms (1) | Past due greater than 90 days – collection risk mitigated by regulatory mechanisms (1) | | 97.6 | % | | 100.0 | % | | 0 | % | | 95.5 | % | | 0 | % | | 0 | % | | 95.5 | % | Past due greater than 90 days – collection risk mitigated by regulatory mechanisms (1) | | 97.6 | % | | 100.0 | % | | — | % | | 94.8 | % | | — | % | | — | % | | 94.8 | % |
(1)Our exposure to credit losses for certain regulated utility customers is mitigated by regulatory mechanisms we have in place. Specifically, rates related to all of the customers in our Illinois segment, as well as the residential rates of WE, WPS, and WG in our Wisconsin segment, include riders or other mechanisms for cost recovery or refund of uncollectible expense based on the difference between the actual provision for credit losses and the amounts recovered in rates. As a result, at June 30, 2021, $615.62022, $782.2 million, or 52.1%54.0%, of our net accounts receivable and unbilled revenues balance had regulatory protections in place to mitigate the exposure to credit losses. In addition, we have received specific orders related to the deferral of certain costs (including credit losses) incurred as a result of the COVID-19 pandemic. The additional protections related to our accounts receivable and unbilled revenue balances provided by these orders are subject to prudency reviews and are still being assessed. They are not reflected in the percentages in the above table or this note. See Note 22, Regulatory Environment, for more information on these orders.
A rollforward of the allowance for credit losses by reportable segment for the three and six months ended June 30, 2021 and 2020 is included below:
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Three Months Ended June 30, 2021 (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Corporate
and Other | | WEC Energy Group Consolidated |
| Balance at March 31, 2021 | | $ | 129.5 | | | $ | 122.0 | | | $ | 7.6 | | | $ | 259.1 | | | $ | 0 | | | $ | 259.1 | |
| Provision for credit losses | | 9.4 | | | 5.2 | | | 1.0 | | | 15.6 | | | 0 | | | 15.6 | |
| Provision for credit losses deferred for future recovery or refund | | (12.2) | | | (18.9) | | | 0 | | | (31.1) | | | 0 | | | (31.1) | |
| Write-offs charged against the allowance | | (16.5) | | | (4.0) | | | (0.6) | | | (21.1) | | | 0 | | | (21.1) | |
| Recoveries of amounts previously written off | | 4.2 | | | 4.7 | | | 0.3 | | | 9.2 | | | 0 | | | 9.2 | |
| Balance at June 30, 2021 | | $ | 114.4 | | | $ | 109.0 | | | $ | 8.3 | | | $ | 231.7 | | | $ | 0 | | | $ | 231.7 | |
| | | | | | | | |
06/30/20212022 Form 10-Q | 1516 | WEC Energy Group, Inc. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2021 (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Corporate
and Other | | WEC Energy Group Consolidated |
| Balance at December 31, 2020 | | $ | 102.1 | | | $ | 111.6 | | | $ | 6.4 | | | $ | 220.1 | | | $ | 0 | | | $ | 220.1 | |
| Provision for credit losses | | 23.1 | | | 12.3 | | | 2.3 | | | 37.7 | | | 0 | | | 37.7 | |
| Provision for credit losses deferred for future recovery or refund | | 10.1 | | | (15.8) | | | 0 | | | (5.7) | | | 0 | | | (5.7) | |
| Write-offs charged against the allowance | | (35.0) | | | (6.8) | | | (1.1) | | | (42.9) | | | 0 | | | (42.9) | |
| Recoveries of amounts previously written off | | 14.1 | | | 7.7 | | | 0.7 | | | 22.5 | | | 0 | | | 22.5 | |
| Balance at June 30, 2021 | | $ | 114.4 | | | $ | 109.0 | | | $ | 8.3 | | | $ | 231.7 | | | $ | 0 | | | $ | 231.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2022 (in millions) | | Wisconsin | | Illinois | | Other States | | WEC Energy Group Consolidated |
| Balance at the beginning of the period | | $ | 85.7 | | | $ | 107.0 | | | $ | 7.9 | | | $ | 200.6 | |
| Provision for credit losses | | 11.8 | | | 7.1 | | | (0.1) | | | 18.8 | |
| Provision for credit losses deferred for future recovery or refund | | (5.4) | | | (11.2) | | | — | | | (16.6) | |
| Write-offs charged against the allowance | | (22.1) | | | (17.9) | | | (1.2) | | | (41.2) | |
| Recoveries of amounts previously written off | | 8.0 | | | 6.0 | | | 0.2 | | | 14.2 | |
| Balance at June 30, 2022 | | $ | 78.0 | | | $ | 91.0 | | | $ | 6.8 | | | $ | 175.8 | |
| | | | | | | | |
Six Months Ended June 30, 2022 (in millions) | | Wisconsin | | Illinois | | Other States | | WEC Energy Group Consolidated |
| Balance at the beginning of the period | | $ | 84.0 | | | $ | 105.5 | | | $ | 8.8 | | | $ | 198.3 | |
| Provision for credit losses | | 23.6 | | | 18.4 | | | 0.1 | | | 42.1 | |
| Provision for credit losses deferred for future recovery or refund | | 3.4 | | | 0.9 | | | — | | | 4.3 | |
| Write-offs charged against the allowance | | (50.9) | | | (45.2) | | | (2.6) | | | (98.7) | |
| Recoveries of amounts previously written off | | 17.9 | | | 11.4 | | | 0.5 | | | 29.8 | |
| Balance at June 30, 2022 | | $ | 78.0 | | | $ | 91.0 | | | $ | 6.8 | | | $ | 175.8 | |
On a consolidated basis, there was a $22.5 million decrease in the allowance for credit losses at June 30, 2022, compared to December 31, 2021. The decrease was driven by customer write-offs related to collection practices returning to pre-pandemic levels in 2021, including the restoration of our ability to disconnect customers. After a customer is disconnected for a period of time without payment on their account, we will write off that customer balance. Partially offsetting the decrease in the allowance for credit losses, we believe that the high energy costs that customers are seeing, which have been driven by high natural gas prices, contributed to higher past due accounts receivable balances and a related increase in the allowance for credit losses.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2021 (in millions) | | Wisconsin | | Illinois | | Other States | | WEC Energy Group Consolidated |
| Balance at the beginning of the period | | $ | 129.5 | | | $ | 122.0 | | | $ | 7.6 | | | $ | 259.1 | |
| Provision for credit losses | | 9.4 | | | 5.2 | | | 1.0 | | | 15.6 | |
| Provision for credit losses deferred for future recovery or refund | | (12.2) | | | (18.9) | | | — | | | (31.1) | |
| Write-offs charged against the allowance | | (16.5) | | | (4.0) | | | (0.6) | | | (21.1) | |
| Recoveries of amounts previously written off | | 4.2 | | | 4.7 | | | 0.3 | | | 9.2 | |
| Balance at June 30, 2021 | | $ | 114.4 | | | $ | 109.0 | | | $ | 8.3 | | | $ | 231.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2021 (in millions) | | Wisconsin | | Illinois | | Other States | | WEC Energy Group Consolidated |
| Balance at the beginning of the period | | $ | 102.1 | | | $ | 111.6 | | | $ | 6.4 | | | $ | 220.1 | |
| Provision for credit losses | | 23.1 | | | 12.3 | | | 2.3 | | | 37.7 | |
| Provision for credit losses deferred for future recovery or refund | | 10.1 | | | (15.8) | | | — | | | (5.7) | |
| Write-offs charged against the allowance | | (35.0) | | | (6.8) | | | (1.1) | | | (42.9) | |
| Recoveries of amounts previously written off | | 14.1 | | | 7.7 | | | 0.7 | | | 22.5 | |
| Balance at June 30, 2021 | | $ | 114.4 | | | $ | 109.0 | | | $ | 8.3 | | | $ | 231.7 | |
The increase in the allowance for credit losses at June 30, 2021, compared to December 31, 2020, was driven by higher past due accounts receivable balances related to our utility operations, primarily associated with our residential customers. This increase in accounts receivable balances in arrears related to the continued economic disruptions caused by the COVID-19 pandemic, including high unemployment rates. However, as seen in the quarterly rollforward above, the allowance for credit losses began to decrease in the second quarter of 2021, which we believe iswas related to the start of normal collection practices in our Wisconsin and Illinois service territories. See Note 22, Regulatory Environment, for more information.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2020 (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Corporate
and Other | | WEC Energy Group Consolidated |
| Balance at March 31, 2020 | | $ | 67.7 | | | $ | 93.1 | | | $ | 3.9 | | | $ | 164.7 | | | $ | 0.1 | | | $ | 164.8 | |
| Provision for credit losses | | 12.3 | | | 7.6 | | | 0.4 | | | 20.3 | | | 0 | | | 20.3 | |
| Provision for credit losses deferred for future recovery or refund | | 5.8 | | | (3.9) | | | 0 | | | 1.9 | | | 0 | | | 1.9 | |
| Write-offs charged against the allowance | | (18.0) | | | (17.9) | | | (0.7) | | | (36.6) | | | 0 | | | (36.6) | |
| Recoveries of amounts previously written off | | 10.1 | | | 3.8 | | | 0.4 | | | 14.3 | | | 0 | | | 14.3 | |
| Balance at June 30, 2020 | | $ | 77.9 | | | $ | 82.7 | | | $ | 4.0 | | | $ | 164.6 | | | $ | 0.1 | | | $ | 164.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2020 (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Corporate
and Other | | WEC Energy Group Consolidated |
| Balance at December 31, 2019 | | $ | 59.9 | | | $ | 75.9 | | | $ | 4.1 | | | $ | 139.9 | | | $ | 0.1 | | | $ | 140.0 | |
| Provision for credit losses | | 26.0 | | | 22.0 | | | 1.1 | | | 49.1 | | | 0 | | | 49.1 | |
| Provision for credit losses deferred for future recovery or refund | | 9.1 | | | 25.6 | | | 0 | | | 34.7 | | | 0 | | | 34.7 | |
| Write-offs charged against the allowance | | (37.7) | | | (49.5) | | | (2.0) | | | (89.2) | | | 0 | | | (89.2) | |
| Recoveries of amounts previously written off | | 20.6 | | | 8.7 | | | 0.8 | | | 30.1 | | | 0 | | | 30.1 | |
| Balance at June 30, 2020 | | $ | 77.9 | | | $ | 82.7 | | | $ | 4.0 | | | $ | 164.6 | | | $ | 0.1 | | | $ | 164.7 | |
The increase in the allowance for credit losses at our Wisconsin and Illinois reportable segments was driven by an increase in past due accounts receivable balances from December 31, 2019 to June 30, 2020. This is a trend we generally see over the winter moratorium months, when we are not allowed to disconnect customer service as a result of non-payment. In Wisconsin, the winter moratorium begins on November 1 and ends on April 15, and in Illinois the winter moratorium begins on December 1 and ends on March 31. However, as a result of the COVID-19 pandemic and related regulatory orders we received, we were also unable to disconnect any of our Wisconsin and Illinois customers during the second quarter of 2020.
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06/30/20212022 Form 10-Q | 1617 | WEC Energy Group, Inc. |
NOTE 5—6—REGULATORY ASSETS AND LIABILITIES
The following regulatory assets and liabilities were reflected on our balance sheets at June 30, 20212022 and December 31, 2020.2021. For more information on our regulatory assets and liabilities, see Note 6, Regulatory Assets and Liabilities, in our 20202021 Annual Report on Form 10-K.
| | (in millions) | (in millions) | | June 30, 2021 | | December 31, 2020 | (in millions) | | June 30, 2022 | | December 31, 2021 |
| Regulatory assets | Regulatory assets | | | | | Regulatory assets | | | | |
| Pension and OPEB costs | Pension and OPEB costs | | $ | 1,054.4 | | | $ | 1,101.6 | | Pension and OPEB costs | | $ | 762.6 | | | $ | 802.3 | |
| Plant retirements | | 729.1 | | | 740.8 | | |
| Plant retirement related items | | Plant retirement related items | | 705.9 | | | 722.3 | |
| Environmental remediation costs | Environmental remediation costs | | 609.3 | | | 638.2 | | Environmental remediation costs | | 621.6 | | | 630.9 | |
| Income tax related items | Income tax related items | | 459.1 | | | 454.6 | | Income tax related items | | 457.0 | | | 458.8 | |
Energy costs recoverable through rate adjustments (1) | | 203.3 | | | 1.1 | | |
| Asset retirement obligations | Asset retirement obligations | | 190.7 | | | 181.3 | | Asset retirement obligations | | 180.6 | | | 194.2 | |
| SSR | | 132.8 | | | 135.6 | | |
| System support resource | | System support resource | | 126.7 | | | 129.5 | |
| Energy costs recoverable through rate adjustments | | Energy costs recoverable through rate adjustments | | 120.0 | | | 85.4 | |
Securitization (2) | Securitization (2) | | 106.0 | | | 105.2 | | Securitization (2) | | 96.1 | | | 100.7 | |
| MERC extraordinary natural gas costs | | MERC extraordinary natural gas costs | | 47.1 | | | 59.7 | |
Derivatives | | Derivatives | | 38.5 | | | 33.1 | |
| Uncollectible expense | Uncollectible expense | | 41.2 | | | 82.0 | | Uncollectible expense | | 30.0 | | | 42.6 | |
Derivatives | | 7.1 | | | 26.5 | | |
| Energy efficiency programs | | Energy efficiency programs | | 23.9 | | | 22.0 | |
| Other, net | Other, net | | 90.5 | | | 77.2 | | Other, net | | 68.9 | | | 85.6 | |
| Total regulatory assets | Total regulatory assets | | $ | 3,623.5 | | | $ | 3,544.1 | | Total regulatory assets | | $ | 3,278.9 | | | $ | 3,367.1 | |
| | Balance sheet presentation | Balance sheet presentation | | Balance sheet presentation | |
Amounts recoverable from customers (1) | | $ | 213.6 | | | $ | 20.0 | | |
| Amounts recoverable from customers | | Amounts recoverable from customers | | $ | 134.2 | | | $ | 102.3 | |
| Regulatory assets | Regulatory assets | | 3,409.9 | | | 3,524.1 | | Regulatory assets | | 3,144.7 | | | 3,264.8 | |
| Total regulatory assets | Total regulatory assets | | $ | 3,623.5 | | | $ | 3,544.1 | | Total regulatory assets | | $ | 3,278.9 | | | $ | 3,367.1 | |
(1)For most energy-related physical and financial contracts that qualify as derivatives, our regulators allow the effects of fair value accounting to be offset to regulatory assets and liabilities. See Note 14, Derivative Instruments, for more information on our derivative asset and liability balances.
| | | | | | | | | | | | | | |
| (in millions) | | June 30, 2022 | | December 31, 2021 |
| Regulatory liabilities | | | | |
| Income tax related items | | $ | 1,970.3 | | | $ | 1,998.5 | |
| Removal costs | | 1,252.2 | | | 1,248.0 | |
| Pension and OPEB benefits | | 388.3 | | | 397.3 | |
Derivatives (1) | | 247.7 | | | 124.1 | |
Energy costs refundable through rate adjustments (2) | | 78.3 | | | 13.7 | |
Electric transmission costs (3) | | 42.9 | | | 84.2 | |
| Uncollectible expense | | 33.4 | | | 37.1 | |
Earnings sharing mechanisms (3) | | 17.1 | | | 28.4 | |
| Other, net | | 53.8 | | | 29.0 | |
| Total regulatory liabilities | | $ | 4,084.0 | | | $ | 3,960.3 | |
| | | | |
| Balance sheet presentation | | | | |
| Other current liabilities | | $ | 83.9 | | | $ | 14.3 | |
| Regulatory liabilities | | 4,000.1 | | | 3,946.0 | |
| Total regulatory liabilities | | $ | 4,084.0 | | | $ | 3,960.3 | |
(1) For most energy-related physical and financial contracts that qualify as derivatives, our regulators allow the effects of fair value accounting to be offset to regulatory assets and liabilities. See Note 14, Derivative Instruments, for more information on our derivative asset and liability balances.
(2) The increase in these regulatory assetsliabilities was primarily relatesrelated to the highlower natural gas costs that were incurred as a result of the extreme winter weather conditionsduring 2022, compared to what was anticipated in February 2021. See Note 22, Regulatory Environment, for more information.rates.
(2)See Note 19, Variable Interest Entities, for more information.
| | | | | | | | | | | | | | |
| (in millions) | | June 30, 2021 | | December 31, 2020 |
| Regulatory liabilities | | | | |
| Income tax related items | | $ | 2,071.6 | | | $ | 2,137.7 | |
| Removal costs | | 1,243.6 | | | 1,221.1 | |
| Pension and OPEB benefits | | 367.7 | | | 378.1 | |
| Derivatives | | 95.6 | | | 16.4 | |
| Electric transmission costs | | 78.4 | | | 78.5 | |
| Energy costs refundable through rate adjustments | | 35.6 | | | 59.9 | |
| Earnings sharing mechanisms | | 28.3 | | | 36.9 | |
| Uncollectible expense | | 12.2 | | | 25.5 | |
| Other, net | | 25.8 | | | 25.0 | |
| Total regulatory liabilities | | $ | 3,958.8 | | | $ | 3,979.1 | |
| | | | |
| Balance sheet presentation | | | | |
| Other current liabilities | | $ | 23.3 | | | $ | 51.0 | |
| Regulatory liabilities | | 3,935.5 | | | 3,928.1 | |
| Total regulatory liabilities | | $ | 3,958.8 | | | $ | 3,979.1 | |
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06/30/20212022 Form 10-Q | 1718 | WEC Energy Group, Inc. |
(3) The decrease in these regulatory liability balances was primarily related to the PSCW's approval of certain accounting treatments that allowed our Wisconsin utilities to forego applying for a 2022 base rate increase, and instead maintain base rates consistent with 2021 levels. Among the accounting treatments approved was the amortization of certain regulatory liability balances in 2022, to offset a portion of the forecasted revenue deficiency. See Note 26, Regulatory Environment, in our 2021 Annual Report on Form 10-K for additional information on 2022 Wisconsin base rates.
NOTE 6—7—PROPERTY, PLANT, AND EQUIPMENT
Wisconsin Segment Plant to be Retired
Columbia Units 1 and 2
As a result of a MISO ruling received in June 2021, retirement of the jointly-owned Columbia generating units 1 and 2 became probable. Columbia generating units 1 and 2 are expected to be retired by June 1, 2026. The retirement date for these plants was pushed back from the end of 2023 for unit 1 and the end of 2024 respectively.for unit 2. See Note 23, Regulatory Environment, for more information on the Columbia generating units' retirement. The net book value of WPS's ownership share of these generating unitsunit 1 and unit 2 was $282.1$86.6 million and $185.6 million, respectively, at June 30, 2021. This amount was2022. These amounts were classified as plant to be retired within property, plant, and equipment on our balance sheet.sheets. These units are included in rate base, and WPS continues to depreciate them on a straight-line basis using the composite depreciation rates approved by the PSCW.
Public Service Building and Steam Tunnel Assets
During a significant rain event in May 2020, an underground steam tunnel in downtown Milwaukee flooded and steam vented into WE’s PSB. The damage to the building and adjacent steam tunnel assets from the flooding and steam was extensive and requiresrequired significant repairs and restorations. As of June 30, 2021,2022, WE had incurred $74.8$95.3 million of costs related to these repairs and restorations. In 2020, WE received $20.0 million of insurance proceeds in 2020 to cover a portion of these costs and $42.3 million was recorded in accounts receivable on our balance sheet as of June 30, 2021 for future insurance recoveries. The remainingwrote off $12.5 million of costs were included in other operation and maintenance expense in 2020 asthat we do not intend to seek recovery for through other operation and maintenance expense. In the first quarter of these costs.2022, WE received $41.0 million of insurance proceeds as a result of a settlement that was reached in February 2022. The remaining $21.8 million of costs is expected to be recovered through rates.
In June 2021, we received approval from the PSCW to restore the PSB and adjacent steam tunnel assets and to defer the project costs, net of insurance proceeds, to include inas a component of rate base. As such, and in light of the agreement with insurers noted above, we do not currently expect a significant impact to our future results of operations, and although we may experience differences between periods in the timing of cash flows, we also do not currently expect a significant impact to our long-term cash flows from this event.operations.
NOTE 7—8—COMMON EQUITY
Stock-Based Compensation
During the six months ended June 30, 2021,2022, the Compensation Committee of our Board of Directors awarded the following stock-based compensation awards to our directors, officers, and certain other key employees:
| | | | | | | | |
| Award Type | | Number of Awards |
Stock options (1) | | 530,612437,269 | |
Restricted shares (2) | | 69,68172,211 | |
| Performance units | | 152,382171,492 | |
(1)Stock options awarded had a weighted-average exercise price of $91.06$96.04 and a weighted-average grant date fair value of $13.20$14.71 per option.
(2)Restricted shares awarded had a weighted-average grant date fair value of $91.06$96.04 per share.
Restrictions
Our ability as a holding company to pay common stock dividends primarily depends on the availability of funds received from our utility subsidiaries; We Power; Bluewater Gas Storage, LLC;Bluewater; ATC Holding LLC, which holds our ownership interest in ATC; and WECI. Various financing arrangements and regulatory requirements impose certain restrictions on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans, or advances. All of ourOur utility subsidiaries, with the exception of UMERC and MGU, are prohibited from
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| 06/30/2022 Form 10-Q | 19 | WEC Energy Group, Inc. |
loaning funds to us, either directly or indirectly. See Note 11, Common Equity, in our 20202021 Annual Report on Form 10-K for additional information on these and other restrictions.
We do not believe that these restrictions will materially affect our operations or limit any dividend payments in the foreseeable future.
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06/30/2021 Form 10-Q | 18 | WEC Energy Group, Inc. |
Common Stock Dividends
On July 15, 2021,21, 2022, our Board of Directors declared a quarterly cash dividend of $0.6775$0.7275 per share, payable on September 1, 2021,2022, to shareholders of record on August 13, 2021.12, 2022.
NOTE 8—9—SHORT-TERM DEBT AND LINES OF CREDIT
The following table shows our short-term borrowings and their corresponding weighted-average interest rates:
| | (in millions, except percentages) | (in millions, except percentages) | | June 30, 2021 | | December 31, 2020 | (in millions, except percentages) | | June 30, 2022 | | December 31, 2021 |
| Commercial paper | Commercial paper | | | | | Commercial paper | | | | |
| Amount outstanding | Amount outstanding | | $ | 1,424.5 | | | $ | 1,436.9 | | Amount outstanding | | $ | 1,626.8 | | | $ | 1,896.1 | |
| Weighted-average interest rate on amounts outstanding | Weighted-average interest rate on amounts outstanding | | 0.17 | % | | 0.21 | % | Weighted-average interest rate on amounts outstanding | | 1.90 | % | | 0.26 | % |
| Term loan | | |
| Operating expense loans | | Operating expense loans | |
Amount outstanding | Amount outstanding | | $ | 0 | | | $ | 340.0 | | Amount outstanding | | $ | 2.3 | | | $ | 0.9 | |
| Weighted-average interest rate on amounts outstanding | | N/A | | 0.99 | % | |
|
(1)Coyote Ridge and Tatanka Ridge entered into operating expense loans. In accordance with their limited liability company operating agreements, they received loans from the holders of their noncontrolling interests in proportion to their ownership interests.
Our average amount of commercial paper borrowings based on daily outstanding balances during the six months ended June 30, 20212022 was $1,416.1$1,421.5 million with a weighted-average interest rate during the period of 0.18%0.68%.
In order to enhance our liquidity position in response to the COVID-19 pandemic, in March 2020, WEC Energy Group entered into a $340.0 million 364-day term loan. The weighted-average interest rate on the term loan during the six months ended June 30, 2021 was 0.99%. In March 2021, we repaid the term loan using the net proceeds from the issuance of our 0.80% Senior Notes. See Note 9, Long-Term Debt, for more information.
The information in the table below relates to our revolving credit facilities used to support our commercial paper borrowing programs, including remaining available capacity under these facilities:
| | | | | | | | | | | | | | |
| (in millions) | | Maturity | | June 30, 20212022 |
| WEC Energy Group | | October 2022September 2026 | | $ | 1,200.01,500.0 | |
| WE | | October 2022September 2026 | | 500.0 | |
WPS(1) | | October 2022September 2026 | | 400.0 | |
| WG | | October 2022September 2026 | | 350.0 | |
| PGL | | October 2022September 2026 | | 350.0 | |
| Total short-term credit capacity | | | | $ | 2,800.03,100.0 | |
| | | | |
| Less: | | | | |
| Letters of credit issued inside credit facilities | | | | $ | 2.3 | |
| Commercial paper outstanding | | | | 1,424.51,626.8 | |
| Available capacity under existing agreements | | | | $ | 1,373.21,470.9 | |
NOTE 9—LONG-TERM DEBT(1)In April 2022, WPS received approval from the PSCW to extend the maturity of its facility to September 2026.
WEC Energy Group, Inc.
NOTE 10—LEASES
In March 2021, we issued $600.0 millionWE and WPS have partnered with an unaffiliated utility to construct Paris, a utility-scale solar-powered electric generating facility with a battery energy storage system in Kenosha County, Wisconsin. WE and WPS own 75% and 15%, respectively, of 0.80% Senior Notes due March 15, 2024,Paris. Once fully constructed, WE and usedWPS will collectively own 180 MW of solar generation and 99 MW of battery storage of this project. The PSCW has approved the net proceeds to repayacquisition and construction of Paris, and commercial operation for the $340.0 million 364-day term loan entered intosolar portion of the project is targeted in March 2020 and for general corporate purposes.2023.
Related to their investment in Paris, WE and WPS, along with their unaffiliated utility partner, entered into several land leases in Kenosha County, Wisconsin Electric Power Company
In June 2021, WE issued $300.0 millionthat commenced in the second quarter of 1.70% Debentures due June 15, 2028, and used the net proceeds to redeem all $300.0 million outstanding of its 2.95% Debentures due September 15, 2021 at par.
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06/30/20212022 Form 10-Q | 1920 | WEC Energy Group, Inc. |
WEPCo Environmental Trust Finance I, LLCWe expect the optional extension to be exercised, and, as a result, the land leases are being amortized over the extended term of the leases. The lease payments will be recovered through rates.
Our total obligation under the land-related finance leases for Paris was approximately $52.5 million at June 30, 2022, and will decrease to zero over the remaining lives of the leases. Long-term lease liabilities related to our finance land leases for Paris were included in long-term debt on the balance sheet. Our finance lease right of use asset related to Paris was $52.5 million as of June 30, 2022, and was included in property, plant, and equipment on our balance sheet.
In May 2021, WEPCo Environmental Trust,accordance with Accounting Standards Codification Subtopic 980-842, Regulated Operations – Leases (Subtopic 980-842), the expense recognition pattern associated with Paris leases resembles that of an operating lease, as amortization of the right of use assets has been modified from what would typically be recorded for a special purpose entity formed by WE, issued $118.8 millionfinance lease under Topic 842. The difference between the minimum lease payments and the sum of 1.578% ETBs due December 15, 2035,imputed interest and unadjusted amortization costs calculated under Topic 842 is deferred as a regulatory asset in accordance with Subtopic 980-842 on our balance sheet.
At June 30, 2022, our weighted-average discount rate for the Paris finance leases was 5.28%. We used the net proceeds to purchase environmental control property from WE. Principal and interest will be paid semiannually, beginning December 15, 2021,fully collateralized incremental borrowing rates based upon information available for similarly rated companies in determining the present value of lease payments.
Future minimum lease payments and the ETBs are expected to be fully repaid by December 15, 2033. For additional information, see Note 19, Variable Interest Entities – WEPCo Environmental Trust Finance I, LLC.corresponding present value of our net minimum lease payments under the finance leases for Paris as of June 30, 2022, were as follows:
| | | | | | | | |
| (in millions) | | |
| Six months ended December 31, 2022 | | $ | 0.7 | |
| 2023 | | 2.2 | |
| 2024 | | 2.3 | |
| 2025 | | 2.3 | |
| 2026 | | 2.4 | |
| 2027 | | 2.4 | |
| Thereafter | | 176.0 | |
| Total minimum lease payments | | 188.3 | |
| Less: Interest | | (135.8) | |
| Present value of minimum lease payments | | 52.5 | |
| Less: Short-term lease liabilities | | — | |
| Long-term lease liabilities | | $ | 52.5 | |
NOTE 10—11—MATERIALS, SUPPLIES, AND INVENTORIES
Our inventory consisted of:
| | (in millions) | (in millions) | | June 30, 2021 | | December 31, 2020 | (in millions) | | June 30, 2022 | | December 31, 2021 |
| Natural gas in storage | | Natural gas in storage | | $ | 244.4 | | | $ | 326.0 | |
| Materials and supplies | Materials and supplies | | $ | 218.9 | | | $ | 218.1 | | Materials and supplies | | 242.7 | | | 225.3 | |
| Natural gas in storage | | 162.1 | | | 224.9 | | |
| Fossil fuel | Fossil fuel | | 71.7 | | | 85.6 | | Fossil fuel | | 85.1 | | | 84.5 | |
| Total | Total | | $ | 452.7 | | | $ | 528.6 | | Total | | $ | 572.2 | | | $ | 635.8 | |
PGL and NSG price natural gas storage injections at the calendar year average of the costs of natural gas supply purchased. Withdrawals from storage are priced on the LIFO cost method. For interim periods, the difference between current projected replacement cost and the LIFO cost for quantities of natural gas temporarily withdrawn from storage is recorded as a temporary LIFO liquidation debit or credit. At June 30, 2021,2022, we had a temporary LIFO liquidation credit of $26.7$107.6 million recorded within other current liabilities on our balance sheet. Due to seasonality requirements, PGL and NSG expect these interim reductions in LIFO layers to be replenished by year end.
Substantially all other materials and supplies, natural gas in storage, materials and supplies, and fossil fuel inventories are recorded using the weighted-average cost method of accounting.
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| 06/30/2022 Form 10-Q | 21 | WEC Energy Group, Inc. |
NOTE 11—12—INCOME TAXES
The provision for income taxes differs from the amount of income tax determined by applying the applicable United States statutory federal income tax rate to income before income taxes as a result of the following:
| | | Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2020 | | Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2021 |
| (in millions) | (in millions) | | Amount | | Effective Tax Rate | | Amount | | Effective Tax Rate | (in millions) | | Amount | | Effective Tax Rate | | Amount | | Effective Tax Rate |
| Statutory federal income tax | Statutory federal income tax | | $ | 69.1 | | | 21.0 | % | | $ | 62.2 | | | 21.0 | % | Statutory federal income tax | | $ | 73.7 | | | 21.0 | % | | $ | 69.1 | | | 21.0 | % |
| State income taxes net of federal tax benefit | State income taxes net of federal tax benefit | | 20.8 | | | 6.3 | % | | 18.4 | | | 6.2 | % | State income taxes net of federal tax benefit | | 22.2 | | | 6.3 | % | | 20.8 | | | 6.3 | % |
| Federal excess deferred tax amortization – Wisconsin unprotected | | (16.3) | | | (5.0) | % | | (11.1) | | | (3.8) | % | |
| PTCs | PTCs | | (13.5) | | | (4.1) | % | | (9.4) | | | (3.2) | % | PTCs | | (22.9) | | | (6.5) | % | | (13.5) | | | (4.1) | % |
| Federal excess deferred tax amortization | Federal excess deferred tax amortization | | (7.9) | | | (2.4) | % | | (8.9) | | | (3.0) | % | Federal excess deferred tax amortization | | (8.4) | | | (2.4) | % | | (7.9) | | | (2.4) | % |
| | Federal excess deferred tax amortization – Wisconsin unprotected | | Federal excess deferred tax amortization – Wisconsin unprotected | | (0.2) | | | — | % | | (16.3) | | | (5.0) | % |
| | Other | Other | | 1.9 | | | 0.6 | % | | 2.6 | | | 1.0 | % | Other | | (1.0) | | | (0.3) | % | | 1.9 | | | 0.6 | % |
| Total income tax expense | Total income tax expense | | $ | 54.1 | | | 16.4 | % | | $ | 53.8 | | | 18.2 | % | Total income tax expense | | $ | 63.4 | | | 18.1 | % | | $ | 54.1 | | | 16.4 | % |
| | | | Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 |
| (in millions) | | (in millions) | | Amount | | Effective Tax Rate | | Amount | | Effective Tax Rate |
| Statutory federal income tax | | Statutory federal income tax | | $ | 219.2 | | | 21.0 | % | | $ | 191.9 | | | 21.0 | % |
| State income taxes net of federal tax benefit | | State income taxes net of federal tax benefit | | 65.8 | | | 6.3 | % | | 57.7 | | | 6.3 | % |
| PTCs | | PTCs | | (67.7) | | | (6.5) | % | | (47.5) | | | (5.2) | % |
| Federal excess deferred tax amortization | | Federal excess deferred tax amortization | | (24.2) | | | (2.3) | % | | (22.5) | | | (2.5) | % |
| | Federal excess deferred tax amortization – Wisconsin unprotected | | Federal excess deferred tax amortization – Wisconsin unprotected | | (0.5) | | | (0.1) | % | | (46.6) | | | (5.1) | % |
| | Other | | Other | | (2.1) | | | (0.2) | % | | (4.0) | | | (0.4) | % |
| Total income tax expense | | Total income tax expense | | $ | 190.5 | | | 18.2 | % | | $ | 129.0 | | | 14.1 | % |
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| | Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2020 |
| (in millions) | | Amount | | Effective Tax Rate | | Amount | | Effective Tax Rate |
| Statutory federal income tax | | $ | 191.9 | | | 21.0 | % | | $ | 176.1 | | | 21.0 | % |
| State income taxes net of federal tax benefit | | 57.7 | | | 6.3 | % | | 52.4 | | | 6.3 | % |
| PTCs | | (47.5) | | | (5.2) | % | | (27.8) | | | (3.3) | % |
| Federal excess deferred tax amortization – Wisconsin unprotected | | (46.6) | | | (5.1) | % | | (33.2) | | | (4.0) | % |
| Federal excess deferred tax amortization | | (22.5) | | | (2.5) | % | | (21.9) | | | (2.6) | % |
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| | | | | | | | |
| | | | | | | | |
| Other | | (4.0) | | | (0.4) | % | | (1.8) | | | (0.3) | % |
| Total income tax expense | | $ | 129.0 | | | 14.1 | % | | $ | 143.8 | | | 17.1 | % |
The effective tax rates of 16.4% and 14.1% for the three and six months ended June 30, 2021, respectively, differ from the United States statutory federal income tax rate of 21%, primarily due to PTCs generated from ownership interests in wind generation
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06/30/2021 Form 10-Q | 20 | WEC Energy Group, Inc. |
facilities in our non-utility energy infrastructure segment and the recognition of certain unprotected deferred tax benefits created as a result of the Tax Legislation. InEffective January 1, 2020, in accordance with the rate order received from the PSCW in December 2019, our Wisconsin utilities arebegan amortizing the unprotected deferred tax benefits over periods ranging from two years to four years, to reduce near-term rate impacts to their customers. In addition, the impact of the protected benefits associated with the Tax Legislation, as discussed in more detail below, drove a decrease in the effective tax rate. These items were partially offset by state income taxes.
The effective tax rates of 18.2% and 17.1% for the three and six months ended June 30, 2020, respectively, differ from the United States statutory federal income tax rate of 21%, primarily due to the recognition of certain unprotected deferred tax benefits created as a result of the Tax Legislation. In addition, PTCs generated from ownership interests in wind generation facilities in our non-utility energy infrastructure segment and the impact of the protected benefits associated with the Tax Legislation, as discussed in more detail below, drove a decrease in the effective tax rate. These items were partially offset by state income taxes.
The Tax Legislation required our regulated utilities to remeasure their deferred income taxes and we began to amortize the resulting excess protected deferred income taxes beginning in 2018 in accordance with normalization requirements (see federal excess deferred tax amortization line above).
See Note 22,26, Regulatory Environment, in our 2021 Annual Report on Form 10-K for moreadditional information on unprotected tax benefits.
NOTE 12—13—FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).
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| 06/30/2022 Form 10-Q | 22 | WEC Energy Group, Inc. |
Fair value accounting rules provide a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are defined as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 – Pricing inputs are observable, either directly or indirectly, but are not quoted prices included within Level 1. Level 2 includes those financial instruments that are valued using external inputs within models or other valuation methods.
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methods that result in management's best estimate of fair value. Level 3 instruments include those that may be more structured or otherwise tailored to customers' needs.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We use a mid-market pricing convention (the mid-point price between bid and ask prices) as a practical measure for valuing certain derivative assets and liabilities. We primarily use a market approach for recurring fair value measurements and attempt to use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
When possible, we base the valuations of our derivative assets and liabilities on quoted prices for identical assets and liabilities in active markets. These valuations are classified in Level 1. The valuations of certain contracts not classified as Level 1 may be based on quoted market prices received from counterparties and/or observable inputs for similar instruments. Transactions valued using these inputs are classified in Level 2. Certain derivatives are categorized in Level 3 due to the significance of unobservable or internally-developed inputs. Our derivative instruments categorized as Level 3 consisted of both FTRs and TCRs at June 30, 2022 and of only FTRs at December 31, 2021. These derivative instruments are valued using auction prices from the applicable regional transmission organization.
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06/30/2021 Form 10-Q | 21 | WEC Energy Group, Inc. |
The following tables summarize our financial assets and liabilities that were accounted for at fair value on a recurring basis, categorized by level within the fair value hierarchy:
| | | June 30, 2021 | | June 30, 2022 |
| (in millions) | (in millions) | | Level 1 | | Level 2 | | Level 3 | | Total | (in millions) | | Level 1 | | Level 2 | | Level 3 | | Total |
| Derivative assets | Derivative assets | | | | | | | | | Derivative assets | | | | | | | | |
| Natural gas contracts | Natural gas contracts | | $ | 70.2 | | | $ | 4.2 | | | $ | 0 | | | $ | 74.4 | | Natural gas contracts | | $ | 108.0 | | | $ | 17.3 | | | $ | — | | | $ | 125.3 | |
| FTRs | | 0 | | | 0 | | | 5.4 | | | 5.4 | | |
| FTRs and TCRs | | FTRs and TCRs | | — | | | — | | | 19.9 | | | 19.9 | |
| Coal contracts | Coal contracts | | 0 | | | 7.0 | | | 0 | | | 7.0 | | Coal contracts | | — | | | 74.8 | | | — | | | 74.8 | |
| Total derivative assets | Total derivative assets | | $ | 70.2 | | | $ | 11.2 | | | $ | 5.4 | | | $ | 86.8 | | Total derivative assets | | $ | 108.0 | | | $ | 92.1 | | | $ | 19.9 | | | $ | 220.0 | |
| | Investments held in rabbi trust | Investments held in rabbi trust | | $ | 77.6 | | | $ | 0 | | | $ | 0 | | | $ | 77.6 | | Investments held in rabbi trust | | $ | 49.7 | | | $ | — | | | $ | — | | | $ | 49.7 | |
| | Derivative liabilities | Derivative liabilities | | Derivative liabilities | |
| Natural gas contracts | Natural gas contracts | | $ | 0 | | | $ | 5.8 | | | $ | 0 | | | $ | 5.8 | | Natural gas contracts | | $ | 25.8 | | | $ | 9.6 | | | $ | — | | | $ | 35.4 | |
| Coal contracts | | 0 | | | 0.2 | | | 0 | | | 0.2 | | |
| Interest rate swaps | | 0 | | | 3.4 | | | 0 | | | 3.4 | | |
| Total derivative liabilities | | $ | 0 | | | $ | 9.4 | | | $ | 0 | | | $ | 9.4 | | |
|
| | | December 31, 2020 | | December 31, 2021 |
| (in millions) | (in millions) | | Level 1 | | Level 2 | | Level 3 | | Total | (in millions) | | Level 1 | | Level 2 | | Level 3 | | Total |
| Derivative assets | Derivative assets | | | | | | | | | Derivative assets | | | | | | | | |
| Natural gas contracts | Natural gas contracts | | $ | 11.7 | | | $ | 2.0 | | | $ | 0 | | | $ | 13.7 | | Natural gas contracts | | $ | 46.4 | | | $ | 18.2 | | | $ | — | | | $ | 64.6 | |
| FTRs | FTRs | | 0 | | | 0 | | | 2.4 | | | 2.4 | | FTRs | | — | | | — | | | 2.4 | | | 2.4 | |
| Coal contracts | Coal contracts | | 0 | | | 1.8 | | | 0 | | | 1.8 | | Coal contracts | | — | | | 53.0 | | | — | | | 53.0 | |
| Total derivative assets | Total derivative assets | | $ | 11.7 | | | $ | 3.8 | | | $ | 2.4 | | | $ | 17.9 | | Total derivative assets | | $ | 46.4 | | | $ | 71.2 | | | $ | 2.4 | | | $ | 120.0 | |
| | Investments held in rabbi trust | Investments held in rabbi trust | | $ | 79.6 | | | $ | 0 | | | $ | 0 | | | $ | 79.6 | | Investments held in rabbi trust | | $ | 79.6 | | | $ | — | | | $ | — | | | $ | 79.6 | |
| | Derivative liabilities | Derivative liabilities | | Derivative liabilities | |
| Natural gas contracts | Natural gas contracts | | $ | 7.7 | | | $ | 6.4 | | | $ | 0 | | | $ | 14.1 | | Natural gas contracts | | $ | 8.4 | | | $ | 6.7 | | | $ | — | | | $ | 15.1 | |
| Coal contracts | | 0 | | | 1.2 | | | 0 | | | 1.2 | | |
| Interest rate swaps | | 0 | | | 6.8 | | | 0 | | | 6.8 | | |
| Total derivative liabilities | | $ | 7.7 | | | $ | 14.4 | | | $ | 0 | | | $ | 22.1 | | |
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| 06/30/2022 Form 10-Q | 23 | WEC Energy Group, Inc. |
The derivative assets and liabilities listed in the tables above include options, swaps, futures, physical commodity contracts, and other instruments used to manage market risks related to changes in commodity prices and interest rates.prices. They also include FTRs and TCRs, which are used at our electric utilities and certain of our non-utility wind parks to manage electric transmission congestion costs in the MISO Energy and Operating Reserves Markets.Markets and the SPP Integrated Marketplace, respectively.
We hold investments in the Integrys rabbi trust. These investments are restricted as they can only be withdrawn from the trust to fund participants' benefits under the Integrys deferred compensation plan and certain Integrys non-qualified pension plans. These investments are included in other long-term assets on our balance sheets. ForDuring the three months ended June 30, 2021 and 2020, the net unrealized gains included in earnings related to the investments held at the end of the period were $5.8 million and $11.4 million, respectively. During the six months ended June 30, 2021,2022, we recorded $9.8$10.1 million of net unrealized gainslosses in earnings related to the investments held at the end of the period, compared with $2.8$5.8 million of net unrealized gains recorded during the same quarter in 2021. For the six months ended June 30, 2022, we recorded $13.4 million of net unrealized losses in earnings related to the investments held at the end of the period, compared with $9.8 million of net unrealized gains recorded during the same period in 2020.2021.
The following table summarizes the changes to derivatives classified as Level 3 in the fair value hierarchy:
| | | Three Months Ended June 30 | | Six Months Ended June 30 | | Three Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Balance at the beginning of the period | Balance at the beginning of the period | | $ | 0.9 | | | $ | 0.9 | | | $ | 2.4 | | | $ | 3.1 | | Balance at the beginning of the period | | $ | 1.0 | | | $ | 0.9 | | | $ | 2.4 | | | $ | 2.4 | |
| Purchases | Purchases | | 6.0 | | | 7.5 | | | 6.1 | | | 7.5 | | Purchases | | 21.9 | | | 6.0 | | | 21.9 | | | 6.1 | |
Realized and unrealized gains included in earnings (1) | | Realized and unrealized gains included in earnings (1) | | 1.8 | | | — | | | 1.8 | | | — | |
| Settlements | Settlements | | (1.5) | | | (1.9) | | | (3.1) | | | (4.1) | | Settlements | | (4.8) | | | (1.5) | | | (6.2) | | | (3.1) | |
| Balance at the end of the period | Balance at the end of the period | | $ | 5.4 | | | $ | 6.5 | | | $ | 5.4 | | | $ | 6.5 | | Balance at the end of the period | | $ | 19.9 | | | $ | 5.4 | | | $ | 19.9 | | | $ | 5.4 | |
Gains included in earnings attributable to the change in unrealized gains of Level 3 derivatives held at the end of the reporting period (1) | | Gains included in earnings attributable to the change in unrealized gains of Level 3 derivatives held at the end of the reporting period (1) | | $ | 0.9 | | | $ | — | | | $ | 0.9 | | | $ | — | |
(1)Amounts relate to FTRs and TCRs acquired by our non-utility wind parks. These realized and unrealized gains and losses are recorded in operating revenues on our income statements. | | | | | | | | |
06/30/2021 Form 10-Q
| 22 | WEC Energy Group, Inc. |
Fair Value of Financial Instruments
The following table shows the financial instruments included on our balance sheets that were not recorded at fair value:
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| (in millions) | (in millions) | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | (in millions) | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| Preferred stock of subsidiary | Preferred stock of subsidiary | | $ | 30.4 | | | $ | 30.7 | | | $ | 30.4 | | | $ | 32.3 | | Preferred stock of subsidiary | | $ | 30.4 | | | $ | 26.4 | | | $ | 30.4 | | | $ | 30.3 | |
Long-term debt, including current portion (1) | Long-term debt, including current portion (1) | | 13,127.9 | | | 14,673.9 | | | 12,450.5 | | | 14,343.2 | | Long-term debt, including current portion (1) | | 13,518.7 | | | 12,530.8 | | | 13,563.4 | | | 14,819.4 | |
(1)The carrying amount of long-term debt excludes finance lease obligations of $61.4$179.1 million and $63.4$129.7 million at June 30, 20212022 and December 31, 2020,2021, respectively.
The fair values of our long-term debt and preferred stock are categorized within Level 2 of the fair value hierarchy.
NOTE 13—14—DERIVATIVE INSTRUMENTS
We use derivatives as part of our risk management program to manage the risks associated with the price volatility of interest rates, purchased power, generation, and natural gas costs for the benefit of our customers and shareholders. Our approach is non-speculative and designed to mitigate risk. Regulated hedging programs are approved by our state regulators.
We record derivative instruments on our balance sheets as an asset or liability measured at fair value unless they qualify for the normal purchases and sales exception and are so designated. We continually assess our contracts designated as normal and will discontinue the treatment of these contracts as normal if the required criteria are no longer met. Changes in the derivative's fair value are recognized currently in earnings unless specific hedge accounting criteria are met or we receive regulatory treatment for the derivative. For most energy-related physical and financial contracts in our regulated operations that qualify as derivatives, our regulators allow the effects of fair value accounting to be offset to regulatory assets and liabilities.
None of our derivatives are designated as hedging instruments, with the exception of our interest rate swaps, which have been designated as cash flow hedges. The following table shows our derivative assets and derivative liabilities, along with their classification on our balance sheets.
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| | June 30, 2021 | | December 31, 2020 |
| (in millions) | | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
| Other current | | | | | | | | |
| Natural gas contracts | | $ | 66.7 | | | $ | 5.8 | | | $ | 13.0 | | | $ | 12.9 | |
| FTRs | | 5.4 | | | 0 | | | 2.4 | | | 0 | |
| Coal contracts | | 6.1 | | | 0.1 | | | 1.6 | | | 0.8 | |
| Interest rate swaps | | 0 | | | 3.4 | | | 0 | | | 6.8 | |
Total other current (1) | | 78.2 | | | 9.3 | | | 17.0 | | | 20.5 | |
| | | | | | | | |
| Other long-term | | | | | | | | |
| Natural gas contracts | | 7.7 | | | 0 | | | 0.7 | | | 1.2 | |
| Coal contracts | | 0.9 | | | 0.1 | | | 0.2 | | | 0.4 | |
Total other long-term (1) | | 8.6 | | | 0.1 | | | 0.9 | | | 1.6 | |
| Total | | $ | 86.8 | | | $ | 9.4 | | | $ | 17.9 | | | $ | 22.1 | |
(1)On our balance sheets, we classify derivative assets and liabilities as other current or other long-term based on the maturities of the underlying contracts.
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06/30/20212022 Form 10-Q | 2324 | WEC Energy Group, Inc. |
Realized gains (losses)On our balance sheets, we classify derivative assets and liabilities as current or long-term based on the maturities of the underlying contracts. Derivative assets and liabilities not shown separately on our balance sheets are included in the other current and other long-term line items. The following table shows our derivative assets and derivative liabilities. None of the derivatives notshown below were designated as hedging instrumentsinstruments.
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| | June 30, 2022 | | December 31, 2021 |
| (in millions) | | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
| Current | | | | | | | | |
Natural gas contracts (1) | | $ | 116.4 | | | $ | 30.0 | | | $ | 60.6 | | | $ | 14.0 | |
| FTRs and TCRs | | 19.9 | | | — | | | 2.4 | | | — | |
| Coal contracts | | 53.5 | | | — | | | 44.0 | | | — | |
| Total current | | 189.8 | | | 30.0 | | | 107.0 | | | 14.0 | |
| | | | | | | | |
| Long-term | | | | | | | | |
Natural gas contracts (1) | | 8.9 | | | 5.4 | | | 4.0 | | | 1.1 | |
| Coal contracts | | 21.3 | | | — | | | 9.0 | | | — | |
| Total long-term | | 30.2 | | | 5.4 | | | 13.0 | | | 1.1 | |
| Total | | $ | 220.0 | | | $ | 35.4 | | | $ | 120.0 | | | $ | 15.1 | |
(1)Our natural gas derivative assets increased from December 31, 2021 to June 30, 2022 primarily due to the significant increase in natural gas prices.
Realized gains and losses on derivatives used in our regulatory utility operations are primarily recorded in cost of sales upon settlement; however, they may be subsequently deferred for future rate recovery or refund as the gains and losses are included in our utilities’ fuel and natural gas cost recovery mechanisms. Realized gains and losses on FTRs and TCRs used in our non-utility operations are recorded in operating revenues on the income statements. Our estimated notional sales volumes and realized gains (losses)and losses were as follows:
| | | Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2020 | | Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2021 |
| (in millions) | (in millions) | | Volumes | | Gains | | Volumes | | Gains (Losses) | (in millions) | | Volumes | | Gains | | Volumes | | Gains |
| Natural gas contracts | Natural gas contracts | | 47.9 Dth | | $ | 4.8 | | | 44.7 Dth | | $ | (17.2) | | Natural gas contracts | | 41.1 Dth | | $ | 108.9 | | | 47.9 Dth | | $ | 4.8 | |
| FTRs | | 7.4 MWh | | 10.2 | | | 7.2 MWh | | 0.6 | | |
| FTRs and TCRs | | FTRs and TCRs | | 7.0 MWh | | 4.3 | | | 7.4 MWh | | 10.2 | |
| Total | Total | | $ | 15.0 | | | $ | (16.6) | | Total | | $ | 113.2 | | | $ | 15.0 | |
| | | Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2020 | | Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 |
| (in millions) | (in millions) | | Volumes | | Gains (Losses) | | Volumes | | Gains (Losses) | (in millions) | | Volumes | | Gains | | Volumes | | Gains (Losses) |
| Natural gas contracts | Natural gas contracts | | 107.7 Dth | | $ | (2.7) | | | 103.1 Dth | | $ | (41.9) | | Natural gas contracts | | 100.6 Dth | | $ | 140.5 | | | 107.7 Dth | | $ | (2.7) | |
| FTRs | | 15.8 MWh | | 12.3 | | | 14.4 MWh | | 2.0 | | |
| FTRs and TCRs | | FTRs and TCRs | | 14.0 MWh | | 5.3 | | | 15.8 MWh | | 12.3 | |
| Total | Total | | | | $ | 9.6 | | | | | $ | (39.9) | | Total | | | | $ | 145.8 | | | | | $ | 9.6 | |
On our balance sheets, the amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral are not offset against the fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. At June 30, 20212022 and December 31, 2020,2021, we had posted cash collateral of $10.5$14.1 million and $18.9$13.9 million, respectively, in our margin accounts.respectively. These amounts were recorded on our balance sheets in other current assets. At June 30, 2022 and December 31, 2021, we had also received cash collateral of $50.5$98.5 million in our margin accounts. This amount wasand $13.2 million, respectively. These amounts were recorded on our balance sheetsheets in other current liabilities.
The following table shows derivative assets and derivative liabilities if derivative instruments by counterparty were presented net on our balance sheets:
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| (in millions) | (in millions) | | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities | | (in millions) | | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities | |
| Gross amount recognized on the balance sheet | Gross amount recognized on the balance sheet | | $ | 86.8 | | | $ | 9.4 | | | $ | 17.9 | | | $ | 22.1 | | | Gross amount recognized on the balance sheet | | $ | 220.0 | | | $ | 35.4 | | | $ | 120.0 | | | $ | 15.1 | | |
| Gross amount not offset on the balance sheet | Gross amount not offset on the balance sheet | | (51.0) | | (1) | (0.5) | | | (6.9) | | | (7.7) | | (2) | Gross amount not offset on the balance sheet | | (110.1) | | (1) | (27.8) | | (2) | (15.2) | | (3) | (9.2) | | (4) |
| Net amount | Net amount | | $ | 35.8 | | | $ | 8.9 | | | $ | 11.0 | | | $ | 14.4 | | | Net amount | | $ | 109.9 | | | $ | 7.6 | | | $ | 104.8 | | | $ | 5.9 | | |
(1)Includes cash collateral received of $50.5$84.2 million.
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| 06/30/2022 Form 10-Q | 25 | WEC Energy Group, Inc. |
(2)Includes cash collateral posted of $0.8$1.9 million.
(3)Includes cash collateral received of $6.4 million.
(4)Includes cash collateral posted of $0.4 million.
Cash Flow Hedges
As of June 30,Until their expiration on November 15, 2021, we had 2 interest rate swaps with a combined notional value of $250.0 million to hedge the variable interest rate risk associated with our 2007 Junior Notes. The swaps provideprovided a fixed interest rate of 4.9765% on $250.0 million of the $500.0 million of outstanding 2007 Junior Notes through November 15, 2021.Notes. As these swaps qualifyqualified for cash flow hedge accounting treatment, the related gains and losses are beingwere deferred in accumulated other comprehensive loss and are beingwere amortized to interest expense as interest iswas accrued on the 2007 Junior Notes.
We previously entered into forward interest rate swap agreements to mitigate the interest rate exposure associated with the issuance of long-term debt related to the acquisition of Integrys. These swap agreements were settled in 2015, and we continue to amortize amounts out of accumulated other comprehensive loss into interest expense over the periods in which the interest costs are recognized in earnings.
The table below shows the amounts related to these cash flow hedges recorded in other comprehensive income (loss) and in earnings,that were reclassified to interest expense, along with our total interest expense on the income statements:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | | 2021 | | 2020 | | 2021 | | 2020 |
| Derivative loss recognized in other comprehensive loss | | $ | 0 | | | $ | (1.1) | | | $ | 0 | | | $ | (5.8) | |
| Net derivative loss reclassified from accumulated other comprehensive loss to interest expense | | (1.3) | | | (0.6) | | | (2.7) | | | (0.7) | |
| Total interest expense line item on the income statements | | 120.0 | | | 124.4 | | | 239.5 | | | 253.8 | |
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06/30/2021 Form 10-Q | 24 | WEC Energy Group, Inc. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| Net derivative gain (loss) reclassified from accumulated other comprehensive loss to interest expense | | $ | 0.1 | | | $ | (1.3) | | | $ | 0.2 | | | $ | (2.7) | |
| Total interest expense line item on the income statements | | 119.8 | | | 120.0 | | | 237.4 | | | 239.5 | |
We estimate that during the next twelve months $2.1$0.4 million will be reclassified from accumulated other comprehensive loss as an increasea decrease to interest expense.
NOTE 14—15—GUARANTEES
The following table shows our outstanding guarantees:
| | | | | | | | | | | | | | | | | | | | | | | | | | Total Amounts Committed at June 30, 2022 | | Expiration | |
| | Expiration | | | | |
| (in millions) | (in millions) | | Total Amounts Committed at June 30, 2021 | | Less Than 1 Year | | 1 to 3 Years | | Over 3 Years | (in millions) | | Total Amounts Committed at June 30, 2022 | Less Than 1 Year | | 1 to 3 Years | | Over 3 Years |
Guarantees supporting transactions of subsidiaries (1) | | $ | 139.4 | | | $ | 54.4 | | | $ | 1.5 | | | $ | 83.5 | | | |
Standby letters of credit (2)(1) | Standby letters of credit (2)(1) | | 127.2 | | | 54.3 | | | 0 | | | 72.9 | | | Standby letters of credit (2)(1) | $ | 83.8 | | | $ | 10.5 | | | $ | 0.2 | | | $ | 73.1 | | |
Surety bonds (3)(2) | Surety bonds (3)(2) | | 12.8 | | | 12.7 | | | 0.1 | | | 0 | | | Surety bonds (3)(2) | | 12.9 | | | 12.9 | | | — | | | — | | |
Other guarantees (4)(3) | Other guarantees (4)(3) | | 10.0 | | | 0 | | | 0 | | | 10.0 | | | Other guarantees (4)(3) | | 9.5 | | | — | | | — | | | 9.5 | | |
| Total guarantees | Total guarantees | | $ | 289.4 | | | $ | 121.4 | | | $ | 1.6 | | | $ | 166.4 | | | Total guarantees | | $ | 106.2 | | | $ | 23.4 | | | $ | 0.2 | | | $ | 82.6 | | |
(1)Consists of $4.2 million, $8.2 million, and $127.0 million to support the business operations of UMERC, Bluewater, and WECI, respectively.
(2)At our request or the request of our subsidiaries, financial institutions have issued standby letters of credit for the benefit of third parties that have extended credit to our subsidiaries. These amounts are not reflected on our balance sheets.
(3)(2)Primarily for workers compensation self-insurance programs and obtaining various licenses, permits, and rights-of-way. These amounts are not reflected on our balance sheets.
(4)(3)Consists of $10.0 million relatedRelated to workers compensation coverage for which a liability was recorded on our balance sheets.
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| 06/30/2022 Form 10-Q | 26 | WEC Energy Group, Inc. |
NOTE 15—16—EMPLOYEE BENEFITS
The following tables show the components of net periodic benefit cost (credit) for our benefit plans.
| | | Pension Benefits | | Pension Benefits |
| | Three Months Ended June 30 | | Six Months Ended June 30 | | Three Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Service cost | Service cost | | $ | 13.6 | | | $ | 11.7 | | | $ | 27.5 | | | $ | 24.8 | | Service cost | | $ | 14.2 | | | $ | 13.6 | | | $ | 26.6 | | | $ | 27.5 | |
| Interest cost | Interest cost | | 21.7 | | | 26.1 | | | 43.6 | | | 52.2 | | Interest cost | | 22.4 | | | 21.7 | | | 45.2 | | | 43.6 | |
| Expected return on plan assets | Expected return on plan assets | | (50.1) | | | (47.7) | | | (100.7) | | | (95.6) | | Expected return on plan assets | | (52.5) | | | (50.1) | | | (105.2) | | | (100.7) | |
| Loss on plan settlement | Loss on plan settlement | | 1.9 | | | 10.0 | | | 2.0 | | | 10.3 | | Loss on plan settlement | | 2.2 | | | 1.9 | | | 2.2 | | | 2.0 | |
| Amortization of prior service cost | Amortization of prior service cost | | 0.4 | | | 0.4 | | | 0.8 | | | 0.8 | | Amortization of prior service cost | | 0.4 | | | 0.4 | | | 0.8 | | | 0.8 | |
| Amortization of net actuarial loss | Amortization of net actuarial loss | | 28.2 | | | 25.5 | | | 55.6 | | | 49.7 | | Amortization of net actuarial loss | | 19.1 | | | 28.2 | | | 38.2 | | | 55.6 | |
| Net periodic benefit cost | Net periodic benefit cost | | $ | 15.7 | | | $ | 26.0 | | | $ | 28.8 | | | $ | 42.2 | | Net periodic benefit cost | | $ | 5.8 | | | $ | 15.7 | | | $ | 7.8 | | | $ | 28.8 | |
| | | OPEB Benefits | | OPEB Benefits |
| | Three Months Ended June 30 | | Six Months Ended June 30 | | Three Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Service cost | Service cost | | $ | 3.6 | | | $ | 3.5 | | | $ | 7.8 | | | $ | 7.6 | | Service cost | | $ | 3.3 | | | $ | 3.6 | | | $ | 7.1 | | | $ | 7.8 | |
| Interest cost | Interest cost | | 3.6 | | | 4.6 | | | 7.2 | | | 9.3 | | Interest cost | | 3.8 | | | 3.6 | | | 7.7 | | | 7.2 | |
| Expected return on plan assets | Expected return on plan assets | | (16.6) | | | (15.1) | | | (33.0) | | | (30.2) | | Expected return on plan assets | | (17.3) | | | (16.6) | | | (34.5) | | | (33.0) | |
| | Amortization of prior service credit | Amortization of prior service credit | | (3.9) | | | (3.8) | | | (7.9) | | | (7.5) | | Amortization of prior service credit | | (3.9) | | | (3.9) | | | (7.9) | | | (7.9) | |
| Amortization of net actuarial gain | Amortization of net actuarial gain | | (6.5) | | | (5.8) | | | (12.2) | | | (11.2) | | Amortization of net actuarial gain | | (6.3) | | | (6.5) | | | (12.3) | | | (12.2) | |
| Net periodic benefit credit | Net periodic benefit credit | | $ | (19.8) | | | $ | (16.6) | | | $ | (38.1) | | | $ | (32.0) | | Net periodic benefit credit | | $ | (20.4) | | | $ | (19.8) | | | $ | (39.9) | | | $ | (38.1) | |
During the six months ended June 30, 2021,2022, we made contributions and payments of $6.6$5.7 million related to our pension plans and $1.0$2.9 million related to our OPEB plans. We expect to make contributions and payments of $5.2$5.5 million related to our pension plans and $1.2 million related to our OPEB plans during the remainder of 2021,2022, dependent upon various factors affecting us, including our liquidity position and possible tax law changes.
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06/30/2021 Form 10-Q | 25 | WEC Energy Group, Inc. |
NOTE 16—17—GOODWILL AND INTANGIBLES
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the identifiable net assets acquired. The table below shows our goodwill balances by segment at June 30, 2021.2022. We had 0no changes to the carrying amount of goodwill during the six months ended June 30, 2021.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Wisconsin | | Illinois | | Other States | | Non-Utility Energy Infrastructure | | Total |
Goodwill balance (1) | | $ | 2,104.3 | | | $ | 758.7 | | | $ | 183.2 | | | $ | 6.6 | | | $ | 3,052.8 | |
(1)We had 0no accumulated impairment losses related to our goodwill as of June 30, 2021.2022.
Intangible Assets
At June 30, 2022 and December 31, 2021,, we had $5.7 million of indefinite-lived intangible assets primarily related to ana MGU trade name obtained through an acquisition, which is included in other long-term assets on our balance sheets. We had 0no changes to the carrying amount of these intangible assets during the six months ended June 30, 2021.2022.
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| 06/30/2022 Form 10-Q | 27 | WEC Energy Group, Inc. |
Intangible Liabilities
The intangible liabilities below were all obtained through acquisitions by WECI and are classified as other long-term liabilities on our balance sheets. See Note 2, Acquisitions, for more information.
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| (in millions) | (in millions) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | (in millions) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
PPAs (1) | PPAs (1) | | $ | 93.1 | | | $ | (3.2) | | | $ | 89.9 | | | $ | 76.1 | | | $ | 0 | | | $ | 76.1 | | PPAs (1) | | $ | 87.9 | | | $ | (10.4) | | | $ | 77.5 | | | $ | 87.9 | | | $ | (6.5) | | | $ | 81.4 | |
Proxy revenue swap (2) | Proxy revenue swap (2) | | 7.2 | | | (1.7) | | | 5.5 | | | 7.2 | | | (1.3) | | | 5.9 | | Proxy revenue swap (2) | | 7.2 | | | (2.4) | | | 4.8 | | | 7.2 | | | (2.1) | | | 5.1 | |
Interconnection agreements (3) | Interconnection agreements (3) | | 5.1 | | | (0.4) | | | 4.7 | | | 5.1 | | | (0.3) | | | 4.8 | | Interconnection agreements (3) | | 4.7 | | | (0.6) | | | 4.1 | | | 4.7 | | | (0.5) | | | 4.2 | |
| Total intangible liabilities | Total intangible liabilities | | $ | 105.4 | | | $ | (5.3) | | | $ | 100.1 | | | $ | 88.4 | | | $ | (1.6) | | | $ | 86.8 | | Total intangible liabilities | | $ | 99.8 | | | $ | (13.4) | | | $ | 86.4 | | | $ | 99.8 | | | $ | (9.1) | | | $ | 90.7 | |
(1) Represents PPAs related to the acquisition of Blooming Grove, Tatanka Ridge, and Jayhawk expiring between 2030 and 2032. The weighted-average remaining useful life of the PPAs is approximately 1110 years.
(2) Represents an agreement with a counterparty to swap the market revenue of Upstream's wind generation for fixed quarterly payments over 10 years, which expires in 2029. The remaining useful life of the proxy revenue swap is approximately eightseven years.
(3) Represents interconnection agreements related to the acquisitions of Tatanka Ridge and Bishop Hill III, expiring in 2040 and 2041, respectively. These agreements relate to payments for connecting our facilities to the infrastructure of another utility to facilitate the movement of power onto the electric grid. The weighted-average remaining useful life of the interconnection agreements is approximately 1918 years.
Amortization related to these intangibles for the three and six months ended June 30, 2022, was $2.1 million and $4.3 million, respectively. Amortization for the three and six months ended June 30, 2021, was $1.9 million and $3.7 million, respectively. Amortization for the three and six months endednext five years, including amounts recorded through June 30, 2020, was not significant. Amortization for the next five years2022, is estimated to be:
| | | For the Years Ending December 31 | | For the Years Ending December 31 |
| (in millions) | (in millions) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | (in millions) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 |
| Amortization to be recorded in operating revenues | Amortization to be recorded in operating revenues | | $ | 8.9 | | | $ | 8.9 | | | $ | 8.9 | | | $ | 8.9 | | | $ | 8.9 | | Amortization to be recorded in operating revenues | | $ | 8.5 | | | $ | 8.4 | | | $ | 8.4 | | | $ | 8.4 | | | $ | 8.4 | |
| Amortization to be recorded in other operation and maintenance | Amortization to be recorded in other operation and maintenance | | 0.2 | | | 0.2 | | | 0.2 | | | 0.2 | | | 0.2 | | Amortization to be recorded in other operation and maintenance | | 0.2 | | | 0.2 | | | 0.2 | | | 0.2 | | | 0.2 | |
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06/30/20212022 Form 10-Q | 2628 | WEC Energy Group, Inc. |
NOTE 17—18—INVESTMENT IN TRANSMISSION AFFILIATES
We own approximately 60% of ATC, a for-profit, transmission-only company regulated by the FERC for cost of service and certain state regulatory commissions for routing and siting of transmission projects. We also own approximately 75% of ATC Holdco, a separate entity formed in December 2016 to invest in transmission-related projects outside of ATC's traditional footprint. The following tables provide a reconciliation of the changes in our investments in ATC and ATC Holdco:
| | | | Three Months Ended June 30, 2022 |
| (in millions) | | (in millions) | | ATC | | ATC Holdco | | Total |
| Balance at beginning of period | | Balance at beginning of period | | $ | 1,795.0 | | | $ | 23.2 | | | $ | 1,818.2 | |
| Add: Earnings from equity method investment | | Add: Earnings from equity method investment | | 42.6 | | | 0.4 | | | 43.0 | |
| Add: Capital contributions | | Add: Capital contributions | | 9.2 | | | — | | | 9.2 | |
| Less: Distributions | | Less: Distributions | | 33.2 | | | — | | | 33.2 | |
| | Balance at end of period | | Balance at end of period | | $ | 1,813.6 | | | $ | 23.6 | | | $ | 1,837.2 | |
| | | Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2021 |
| (in millions) | (in millions) | | ATC | | ATC Holdco | | Total | (in millions) | | ATC | | ATC Holdco | | Total |
| Balance at beginning of period | Balance at beginning of period | | $ | 1,741.9 | | | $ | 31.7 | | | $ | 1,773.6 | | Balance at beginning of period | | $ | 1,741.9 | | | $ | 31.7 | | | $ | 1,773.6 | |
| Add: Earnings from equity method investment | Add: Earnings from equity method investment | | 40.7 | | | 0.6 | | | 41.3 | | Add: Earnings from equity method investment | | 40.7 | | | 0.6 | | | 41.3 | |
| | Less: Distributions | Less: Distributions | | 32.8 | | | 0 | | | 32.8 | | Less: Distributions | | 32.8 | | | — | | | 32.8 | |
| | Less: Other | Less: Other | | 0.1 | | | 0 | | | 0.1 | | Less: Other | | 0.1 | | | — | | | 0.1 | |
| Balance at end of period | Balance at end of period | | $ | 1,749.7 | | | $ | 32.3 | | | $ | 1,782.0 | | Balance at end of period | | $ | 1,749.7 | | | $ | 32.3 | | | $ | 1,782.0 | |
| | | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2022 |
| (in millions) | (in millions) | | ATC | | ATC Holdco | | Total | (in millions) | | ATC | | ATC Holdco | | Total |
| Balance at beginning of period | Balance at beginning of period | | $ | 1,686.7 | | | $ | 31.0 | | | $ | 1,717.7 | | Balance at beginning of period | | $ | 1,766.9 | | | $ | 22.5 | | | $ | 1,789.4 | |
| Add: Earnings from equity method investment | Add: Earnings from equity method investment | | 52.5 | | | 0.4 | | | 52.9 | | Add: Earnings from equity method investment | | 83.6 | | | 1.1 | | | 84.7 | |
| Add: Capital contributions | Add: Capital contributions | | 6.0 | | | 0 | | | 6.0 | | Add: Capital contributions | | 30.3 | | | — | | | 30.3 | |
| Less: Distributions | Less: Distributions | | 32.0 | | | 0 | | | 32.0 | | Less: Distributions | | 67.2 | | | — | | | 67.2 | |
| Add: Other | | 0.1 | | | 0 | | | 0.1 | | |
| | Balance at end of period | Balance at end of period | | $ | 1,713.3 | | | $ | 31.4 | | | $ | 1,744.7 | | Balance at end of period | | $ | 1,813.6 | | | $ | 23.6 | | | $ | 1,837.2 | |
| | | Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| (in millions) | (in millions) | | ATC | | ATC Holdco | | Total | (in millions) | | ATC | | ATC Holdco | | Total |
| Balance at beginning of period | Balance at beginning of period | | $ | 1,733.5 | | | $ | 30.8 | | | $ | 1,764.3 | | Balance at beginning of period | | $ | 1,733.5 | | | $ | 30.8 | | | $ | 1,764.3 | |
| Add: Earnings from equity method investment | Add: Earnings from equity method investment | | 82.4 | | | 1.5 | | | 83.9 | | Add: Earnings from equity method investment | | 82.4 | | | 1.5 | | | 83.9 | |
| | Less: Distributions | Less: Distributions | | 66.2 | | | 0 | | | 66.2 | | Less: Distributions | | 66.2 | | | — | | | 66.2 | |
| | | Balance at end of period | Balance at end of period | | $ | 1,749.7 | | | $ | 32.3 | | | $ | 1,782.0 | | Balance at end of period | | $ | 1,749.7 | | | $ | 32.3 | | | $ | 1,782.0 | |
| | Six Months Ended June 30, 2020 | |
| (in millions) | | ATC | | ATC Holdco | | Total | |
| Balance at beginning of period | | $ | 1,684.7 | | | $ | 36.1 | | | $ | 1,720.8 | | |
| Add: Earnings from equity method investment | | 92.1 | | | 0.6 | | | 92.7 | | |
| Add: Capital contributions | | 9.0 | | | 0 | | | 9.0 | | |
| Less: Distributions | | 72.6 | | | 0 | | | 72.6 | | |
| Less: Return of capital | | 0 | | | 5.3 | | | 5.3 | | |
| Add: Other | | 0.1 | | | 0 | | | 0.1 | | |
| Balance at end of period | | $ | 1,713.3 | | | $ | 31.4 | | | $ | 1,744.7 | | |
We pay ATC for network transmission and other related services it provides. In addition, we provide a variety of operational, maintenance, and project management work for ATC, which is reimbursed by ATC. We are also required to initially fund the construction of transmission infrastructure upgrades needed for new generation projects. ATC owns these transmission assets and reimburses us for these costs when the new generation is placed in service.
The following table summarizes our significant related party transactions with ATC:
| | | Three Months Ended June 30 | | Six Months Ended June 30 | | Three Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Charges to ATC for services and construction | Charges to ATC for services and construction | | $ | 5.7 | | | $ | 7.0 | | | $ | 11.7 | | | $ | 13.0 | | Charges to ATC for services and construction | | $ | 4.7 | | | $ | 5.7 | | | $ | 10.9 | | | $ | 11.7 | |
| Charges from ATC for network transmission services | Charges from ATC for network transmission services | | 89.1 | | | 79.6 | | | 181.7 | | | 166.5 | | Charges from ATC for network transmission services | | 90.8 | | | 89.1 | | | 181.9 | | | 181.7 | |
|
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06/30/20212022 Form 10-Q | 2729 | WEC Energy Group, Inc. |
Our balance sheets included the following receivables and payables for services provided to or received from ATC:
| | (in millions) | (in millions) | | June 30, 2021 | | December 31, 2020 | (in millions) | | June 30, 2022 | | December 31, 2021 |
| Accounts receivable for services provided to ATC | Accounts receivable for services provided to ATC | | $ | 1.9 | | | $ | 3.7 | | Accounts receivable for services provided to ATC | | $ | 1.4 | | | $ | 2.0 | |
| | Accounts payable for services received from ATC | Accounts payable for services received from ATC | | 30.6 | | | 29.3 | | Accounts payable for services received from ATC | | 30.6 | | | 30.2 | |
Amounts due from ATC for transmission infrastructure upgrades (1) | Amounts due from ATC for transmission infrastructure upgrades (1) | | 5.7 | | | 4.6 | | Amounts due from ATC for transmission infrastructure upgrades (1) | | 14.9 | | | 13.0 | |
(1)The transmission infrastructure upgrades were primarily related to WE's and WPS's construction of their new solar projects,Paris, as well as WE's continued construction of Badger Hollow II and Badger Hollow I, respectively.II.
Summarized financial data for ATC is included in the tables below:
| | | Three Months Ended June 30 | | Six Months Ended June 30 | | Three Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Income statement data | Income statement data | | | | | | | | | Income statement data | | | | | | | | |
| Operating revenues | Operating revenues | | $ | 185.9 | | | $ | 203.1 | | | $ | 374.6 | | | $ | 389.9 | | Operating revenues | | $ | 191.6 | | | $ | 185.9 | | | $ | 382.6 | | | $ | 374.6 | |
| Operating expenses | Operating expenses | | 92.4 | | | 97.5 | | | 187.5 | | | 192.7 | | Operating expenses | | 95.2 | | | 92.4 | | | 190.7 | | | 187.5 | |
| Other expense, net | Other expense, net | | 28.1 | | | 25.4 | | | 56.6 | | | 53.9 | | Other expense, net | | 28.8 | | | 28.1 | | | 56.8 | | | 56.6 | |
| Net income | Net income | | $ | 65.4 | | | $ | 80.2 | | | $ | 130.5 | | | $ | 143.3 | | Net income | | $ | 67.6 | | | $ | 65.4 | | | $ | 135.1 | | | $ | 130.5 | |
| | (in millions) | (in millions) | | June 30, 2021 | | December 31, 2020 | (in millions) | | June 30, 2022 | | December 31, 2021 |
| Balance sheet data | Balance sheet data | | | | | Balance sheet data | | | | |
| Current assets | Current assets | | $ | 92.5 | | | $ | 92.7 | | Current assets | | $ | 106.0 | | | $ | 89.8 | |
| Noncurrent assets | Noncurrent assets | | 5,462.6 | | | 5,400.6 | | Noncurrent assets | | 5,801.8 | | | 5,628.1 | |
| Total assets | Total assets | | $ | 5,555.1 | | | $ | 5,493.3 | | Total assets | | $ | 5,907.8 | | | $ | 5,717.9 | |
| | Current liabilities | Current liabilities | | $ | 427.5 | | | $ | 310.8 | | Current liabilities | | $ | 482.7 | | | $ | 436.9 | |
| Long-term debt | Long-term debt | | 2,412.7 | | | 2,512.2 | | Long-term debt | | 2,562.4 | | | 2,513.0 | |
| Other noncurrent liabilities | Other noncurrent liabilities | | 397.4 | | | 378.2 | | Other noncurrent liabilities | | 438.5 | | | 422.0 | |
| Members' equity | Members' equity | | 2,317.5 | | | 2,292.1 | | Members' equity | | 2,424.2 | | | 2,346.0 | |
| Total liabilities and members' equity | Total liabilities and members' equity | | $ | 5,555.1 | | | $ | 5,493.3 | | Total liabilities and members' equity | | $ | 5,907.8 | | | $ | 5,717.9 | |
NOTE 18—19—SEGMENT INFORMATION
We use net income attributed to common shareholders to measure segment profitability and to allocate resources to our businesses. At June 30, 2021,2022, we reported 6 segments, which are described below.
•The Wisconsin segment includes the electric and natural gas utility operations of WE, WPS, WG, and UMERC.
•The Illinois segment includes the natural gas utility operations of PGL and NSG.
•The other states segment includes the natural gas utility and non-utility operations of MERC and MGU.
•The electric transmission segment includes our approximate 60% ownership interest in ATC, a for-profit, transmission-only company regulated by the FERC for cost of service and certain state regulatory commissions for routing and siting of transmission projects, and our approximate 75% ownership interest in ATC Holdco, which was formed to invest in transmission-related projects outside of ATC's traditional footprint.
•The non-utility energy infrastructure segment includes:
◦We Power, which owns and leases generating facilities to WE,
◦Bluewater, which owns underground natural gas storage facilities in Michigan that provide approximately one-third of the current storage needs for our Wisconsin natural gas utilities, and
◦WECI, which holds our ownership interests in the following wind generating facilities:
▪90% ownership interest in Bishop Hill III, located in Henry County, Illinois,
▪80% ownership interest in Coyote Ridge, located in Brookings County, South Dakota,
▪90% ownership interest in Upstream, located in Antelope County, Nebraska,
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06/30/20212022 Form 10-Q | 2830 | WEC Energy Group, Inc. |
▪90% ownership interest in Blooming Grove, located in McLean County, Illinois,
▪85% ownership interest in Tatanka Ridge, located in Deuel County, South Dakota, and
▪90% ownership interest in Jayhawk, under constructionlocated in Bourbon and Crawford counties, Kansas.
See Note 2, Acquisitions, for more information on Tatanka Ridge and Jayhawk.
•The corporate and other segment includes the operations of the WEC Energy Group holding company, the Integrys holding company, the Peoples Energy, LLC holding company, Wispark, LLC, Wisvest LLC, Wisconsin Energy Capital Corporation, and WEC Business Services LLC, and also included the operations of WPS Power Development, LLC in 2020 prior to the sale of its remaining solar facilities in the fourth quarter of 2020.LLC.
All of our operations are located within the United States. The following tables show summarized financial information related to our reportable segments for the three and six months ended June 30, 20212022 and 2020:2021:
| | | Utility Operations | | | Utility Operations | |
| (in millions) | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility Operations | | Electric Transmission | | Non-Utility Energy Infrastructure | | Corporate and Other | | Reconciling Eliminations | | WEC Energy Group Consolidated | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility Operations | | Electric Transmission | | Non-Utility Energy Infrastructure | | Corporate and Other | | Reconciling Eliminations | | WEC Energy Group Consolidated |
| Three Months Ended June 30, 2021 | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2022 | | | | | | | | | | | | | | | | | | |
| External revenues | External revenues | | $ | 1,307.5 | | | $ | 275.5 | | | $ | 72.1 | | | $ | 1,655.1 | | | $ | 0 | | | $ | 21.0 | | | $ | 0.1 | | | $ | 0 | | | $ | 1,676.2 | | External revenues | | $ | 1,557.4 | | | $ | 442.4 | | | $ | 99.9 | | | $ | 2,099.7 | | | $ | — | | | $ | 28.1 | | | $ | 0.1 | | | $ | — | | | $ | 2,127.9 | |
| Intersegment revenues | Intersegment revenues | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 112.5 | | | 0 | | | (112.5) | | | 0 | | Intersegment revenues | | — | | | — | | | — | | | — | | | — | | | 115.5 | | | — | | | (115.5) | | | — | |
| Other operation and maintenance | Other operation and maintenance | | 346.1 | | | 90.8 | | | 21.2 | | | 458.1 | | | 0 | | | 12.4 | | | (2.8) | | | (3.9) | | | 463.8 | | Other operation and maintenance | | 337.9 | | | 79.1 | | | 22.9 | | | 439.9 | | | — | | | 13.9 | | | (0.9) | | | (3.9) | | | 449.0 | |
| Depreciation and amortization | Depreciation and amortization | | 179.8 | | | 54.0 | | | 9.4 | | | 243.2 | | | 0 | | | 31.3 | | | 6.4 | | | (14.7) | | | 266.2 | | Depreciation and amortization | | 187.7 | | | 57.4 | | | 10.2 | | | 255.3 | | | — | | | 34.3 | | | 6.8 | | | (16.8) | | | 279.6 | |
| Equity in earnings of transmission affiliates | Equity in earnings of transmission affiliates | | 0 | | | 0 | | | 0 | | | 0 | | | 41.3 | | | 0 | | | 0 | | | 0 | | | 41.3 | | Equity in earnings of transmission affiliates | | — | | | — | | | — | | | — | | | 43.0 | | | — | | | — | | | — | | | 43.0 | |
| Interest expense | Interest expense | | 139.8 | | | 16.6 | | | 1.5 | | | 157.9 | | | 4.8 | | | 17.9 | | | 24.6 | | | (85.2) | | | 120.0 | | Interest expense | | 135.6 | | | 18.0 | | | 3.2 | | | 156.8 | | | 4.8 | | | 17.4 | | | 24.6 | | | (83.8) | | | 119.8 | |
| Income tax expense | | 23.1 | | | 16.0 | | | 0.8 | | | 39.9 | | | 9.4 | | | 0.7 | | | 4.1 | | | 0 | | | 54.1 | | |
| Income tax expense (benefit) | | Income tax expense (benefit) | | 49.3 | | | 21.2 | | | 0.9 | | | 71.4 | | | 9.3 | | | (7.3) | | | (10.0) | | | — | | | 63.4 | |
| Net income (loss) | Net income (loss) | | 146.8 | | | 43.6 | | | 2.5 | | | 192.9 | | | 27.0 | | | 68.2 | | | (12.4) | | | 0 | | | 275.7 | | Net income (loss) | | 148.7 | | | 56.4 | | | 2.7 | | | 207.8 | | | 29.0 | | | 80.3 | | | (29.3) | | | — | | | 287.8 | |
| Net income (loss) attributed to common shareholders | Net income (loss) attributed to common shareholders | | 146.5 | | | 43.6 | | | 2.5 | | | 192.6 | | | 27.0 | | | 68.8 | | | (12.4) | | | 0 | | | 276.0 | | Net income (loss) attributed to common shareholders | | 148.4 | | | 56.4 | | | 2.7 | | | 207.5 | | | 29.0 | | | 80.3 | | | (29.3) | | | — | | | 287.5 | |
|
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| | Utility Operations | | | | | | | | | | |
| (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility Operations | | Electric Transmission | | Non-Utility Energy Infrastructure | | Corporate and Other | | Reconciling Eliminations | | WEC Energy Group Consolidated |
| Three Months Ended June 30, 2020 | | | | | | | | | | | | | | | | | | |
| External revenues | | $ | 1,206.2 | | | $ | 261.2 | | | $ | 66.7 | | | $ | 1,534.1 | | | $ | 0 | | | $ | 13.7 | | | $ | 0.9 | | | $ | 0 | | | $ | 1,548.7 | |
| Intersegment revenues | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 111.6 | | | 0 | | | (111.6) | | | 0 | |
| Other operation and maintenance | | 349.4 | | | 93.2 | | | 20.4 | | | 463.0 | | | 0 | | | 7.6 | | | 3.5 | | | (1.0) | | | 473.1 | |
| Depreciation and amortization | | 167.6 | | | 48.6 | | | 8.3 | | | 224.5 | | | 0 | | | 24.4 | | | 6.4 | | | (12.8) | | | 242.5 | |
| Equity in earnings of transmission affiliates | | 0 | | | 0 | | | 0 | | | 0 | | | 52.9 | | | 0 | | | 0 | | | 0 | | | 52.9 | |
| Interest expense | | 140.0 | | | 16.1 | | | 2.5 | | | 158.6 | | | 4.9 | | | 15.1 | | | 32.6 | | | (86.8) | | | 124.4 | |
| Income tax expense (benefit) | | 21.8 | | | 12.2 | | | 1.0 | | | 35.0 | | | 14.5 | | | 11.2 | | | (6.9) | | | 0 | | | 53.8 | |
| Net income (loss) | | 130.1 | | | 32.1 | | | 2.8 | | | 165.0 | | | 33.5 | | | 65.0 | | | (21.4) | | | 0 | | | 242.1 | |
| Net income (loss) attributed to common shareholders | | 129.8 | | | 32.1 | | | 2.8 | | | 164.7 | | | 33.5 | | | 64.8 | | | (21.4) | | | 0 | | | 241.6 | |
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06/30/20212022 Form 10-Q | 2931 | WEC Energy Group, Inc. |
| | | Utility Operations | | | Utility Operations | |
| (in millions) | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility Operations | | Electric Transmission | | Non-Utility Energy Infrastructure | | Corporate and Other | | Reconciling Eliminations | | WEC Energy Group Consolidated | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility Operations | | Electric Transmission | | Non-Utility Energy Infrastructure | | Corporate and Other | | Reconciling Eliminations | | WEC Energy Group Consolidated |
| Six Months Ended June 30, 2021 | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2021 | | | | | | | | | | | | | | | | | | |
| External revenues | External revenues | | $ | 3,039.2 | | | $ | 978.9 | | | $ | 305.4 | | | $ | 4,323.5 | | | $ | 0 | | | $ | 43.9 | | | $ | 0.2 | | | $ | 0 | | | $ | 4,367.6 | | External revenues | | $ | 1,307.5 | | | $ | 275.5 | | | $ | 72.1 | | | $ | 1,655.1 | | | $ | — | | | $ | 21.0 | | | $ | 0.1 | | | $ | — | | | $ | 1,676.2 | |
| Intersegment revenues | Intersegment revenues | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 227.2 | | | 0 | | | (227.2) | | | 0 | | Intersegment revenues | | — | | | — | | | — | | | — | | | — | | | 112.5 | | | — | | | (112.5) | | | — | |
| Other operation and maintenance | Other operation and maintenance | | 688.0 | | | 200.1 | | | 44.4 | | | 932.5 | | | 0 | | | 21.3 | | | (4.6) | | | (5.5) | | | 943.7 | | Other operation and maintenance | | 346.1 | | | 90.8 | | | 21.2 | | | 458.1 | | | — | | | 12.4 | | | (2.8) | | | (3.9) | | | 463.8 | |
| Depreciation and amortization | Depreciation and amortization | | 356.0 | | | 106.7 | | | 18.6 | | | 481.3 | | | 0 | | | 62.3 | | | 13.0 | | | (29.0) | | | 527.6 | | Depreciation and amortization | | 179.8 | | | 54.0 | | | 9.4 | | | 243.2 | | | — | | | 31.3 | | | 6.4 | | | (14.7) | | | 266.2 | |
| Equity in earnings of transmission affiliates | Equity in earnings of transmission affiliates | | 0 | | | 0 | | | 0 | | | 0 | | | 83.9 | | | 0 | | | 0 | | | 0 | | | 83.9 | | Equity in earnings of transmission affiliates | | — | | | — | | | — | | | — | | | 41.3 | | | — | | | — | | | — | | | 41.3 | |
| Interest expense | Interest expense | | 279.9 | | | 33.1 | | | 3.0 | | | 316.0 | | | 9.7 | | | 35.9 | | | 48.8 | | | (170.9) | | | 239.5 | | Interest expense | | 139.8 | | | 16.6 | | | 1.5 | | | 157.9 | | | 4.8 | | | 17.9 | | | 24.6 | | | (85.2) | | | 120.0 | |
| Income tax expense (benefit) | | 71.2 | | | 57.4 | | | 9.2 | | | 137.8 | | | 19.2 | | | 0.8 | | | (28.8) | | | 0 | | | 129.0 | | |
| Net income | | 403.4 | | | 155.7 | | | 27.2 | | | 586.3 | | | 55.0 | | | 139.5 | | | 5.2 | | | 0 | | | 786.0 | | |
| Net income attributed to common shareholders | | 402.8 | | | 155.7 | | | 27.2 | | | 585.7 | | | 55.0 | | | 140.2 | | | 5.2 | | | 0 | | | 786.1 | | |
| Income tax expense | | Income tax expense | | 23.1 | | | 16.0 | | | 0.8 | | | 39.9 | | | 9.4 | | | 0.7 | | | 4.1 | | | — | | | 54.1 | |
| Net income (loss) | | Net income (loss) | | 146.8 | | | 43.6 | | | 2.5 | | | 192.9 | | | 27.0 | | | 68.2 | | | (12.4) | | | — | | | 275.7 | |
| Net income (loss) attributed to common shareholders | | Net income (loss) attributed to common shareholders | | 146.5 | | | 43.6 | | | 2.5 | | | 192.6 | | | 27.0 | | | 68.8 | | | (12.4) | | | — | | | 276.0 | |
|
| | | Utility Operations | | | Utility Operations | |
| (in millions) | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility Operations | | Electric Transmission | | Non-Utility Energy Infrastructure | | Corporate and Other | | Reconciling Eliminations | | WEC Energy Group Consolidated | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility Operations | | Electric Transmission | | Non-Utility Energy Infrastructure | | Corporate and Other | | Reconciling Eliminations | | WEC Energy Group Consolidated |
| Six Months Ended June 30, 2020 | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 | | | | | | | | | | | | | | | | | | |
| External revenues | External revenues | | $ | 2,705.1 | | | $ | 708.8 | | | $ | 213.1 | | | $ | 3,627.0 | | | $ | 0 | | | $ | 28.9 | | | $ | 1.4 | | | $ | 0 | | | $ | 3,657.3 | | External revenues | | $ | 3,499.7 | | | $ | 1,124.5 | | | $ | 340.8 | | | $ | 4,965.0 | | | $ | — | | | $ | 70.7 | | | $ | 0.3 | | | $ | — | | | $ | 5,036.0 | |
| Intersegment revenues | Intersegment revenues | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 226.0 | | | 0 | | | (226.0) | | | 0 | | Intersegment revenues | | — | | | — | | | — | | | — | | | — | | | 232.4 | | | — | | | (232.4) | | | — | |
| Other operation and maintenance | Other operation and maintenance | | 680.2 | | | 197.3 | | | 42.1 | | | 919.6 | | | 0 | | | 12.8 | | | 1.9 | | | (5.5) | | | 928.8 | | Other operation and maintenance | | 650.5 | | | 192.7 | | | 47.5 | | | 890.7 | | | — | | | 24.8 | | | (6.6) | | | (5.5) | | | 903.4 | |
| Depreciation and amortization | Depreciation and amortization | | 333.0 | | | 96.1 | | | 16.1 | | | 445.2 | | | 0 | | | 48.9 | | | 12.5 | | | (25.0) | | | 481.6 | | Depreciation and amortization | | 374.8 | | | 114.2 | | | 20.2 | | | 509.2 | | | — | | | 68.3 | | | 13.3 | | | (33.1) | | | 557.7 | |
| Equity in earnings of transmission affiliates | Equity in earnings of transmission affiliates | | 0 | | | 0 | | | 0 | | | 0 | | | 92.7 | | | 0 | | | 0 | | | 0 | | | 92.7 | | Equity in earnings of transmission affiliates | | — | | | — | | | — | | | — | | | 84.7 | | | — | | | — | | | — | | | 84.7 | |
| Interest expense | Interest expense | | 283.1 | | | 32.1 | | | 4.7 | | | 319.9 | | | 9.7 | | | 30.4 | | | 67.7 | | | (173.9) | | | 253.8 | | Interest expense | | 271.9 | | | 35.7 | | | 6.5 | | | 314.1 | | | 9.7 | | | 34.6 | | | 47.2 | | | (168.2) | | | 237.4 | |
| Income tax expense (benefit) | Income tax expense (benefit) | | 73.0 | | | 51.7 | | | 9.9 | | | 134.6 | | | 24.4 | | | 22.4 | | | (37.6) | | | 0 | | | 143.8 | | Income tax expense (benefit) | | 144.7 | | | 63.3 | | | 11.3 | | | 219.3 | | | 18.2 | | | (12.2) | | | (34.8) | | | — | | | 190.5 | |
| Net income (loss) | Net income (loss) | | 377.1 | | | 139.4 | | | 29.1 | | | 545.6 | | | 58.5 | | | 130.3 | | | (39.7) | | | 0 | | | 694.7 | | Net income (loss) | | 437.1 | | | 169.8 | | | 34.2 | | | 641.1 | | | 56.8 | | | 173.6 | | | (15.7) | | | — | | | 855.8 | |
| Net income (loss) attributed to common shareholders | Net income (loss) attributed to common shareholders | | 376.5 | | | 139.4 | | | 29.1 | | | 545.0 | | | 58.5 | | | 130.3 | | | (39.7) | | | 0 | | | 694.1 | | Net income (loss) attributed to common shareholders | | 436.5 | | | 169.8 | | | 34.2 | | | 640.5 | | | 56.8 | | | 171.8 | | | (15.7) | | | — | | | 853.4 | |
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| 06/30/2022 Form 10-Q | 32 | WEC Energy Group, Inc. |
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| | Utility Operations | | | | | | | | | | |
| (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility Operations | | Electric Transmission | | Non-Utility Energy Infrastructure | | Corporate and Other | | Reconciling Eliminations | | WEC Energy Group Consolidated |
| Six Months Ended June 30, 2021 | | | | | | | | | | | | | | | | | | |
| External revenues | | $ | 3,039.2 | | | $ | 978.9 | | | $ | 305.4 | | | $ | 4,323.5 | | | $ | — | | | $ | 43.9 | | | $ | 0.2 | | | $ | — | | | $ | 4,367.6 | |
| Intersegment revenues | | — | | | — | | | — | | | — | | | — | | | 227.2 | | | — | | | (227.2) | | | — | |
| Other operation and maintenance | | 688.0 | | | 200.1 | | | 44.4 | | | 932.5 | | | — | | | 21.3 | | | (4.6) | | | (5.5) | | | 943.7 | |
| Depreciation and amortization | | 356.0 | | | 106.7 | | | 18.6 | | | 481.3 | | | — | | | 62.3 | | | 13.0 | | | (29.0) | | | 527.6 | |
| Equity in earnings of transmission affiliates | | — | | | — | | | — | | | — | | | 83.9 | | | — | | | — | | | — | | | 83.9 | |
| Interest expense | | 279.9 | | | 33.1 | | | 3.0 | | | 316.0 | | | 9.7 | | | 35.9 | | | 48.8 | | | (170.9) | | | 239.5 | |
| Income tax expense (benefit) | | 71.2 | | | 57.4 | | | 9.2 | | | 137.8 | | | 19.2 | | | 0.8 | | | (28.8) | | | — | | | 129.0 | |
| Net income | | 403.4 | | | 155.7 | | | 27.2 | | | 586.3 | | | 55.0 | | | 139.5 | | | 5.2 | | | — | | | 786.0 | |
| Net income attributed to common shareholders | | 402.8 | | | 155.7 | | | 27.2 | | | 585.7 | | | 55.0 | | | 140.2 | | | 5.2 | | | — | | | 786.1 | |
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NOTE 19—20—VARIABLE INTEREST ENTITIES
The primary beneficiary of a VIE entity must consolidate the entity's assets and liabilities. In addition, certain disclosures are required for significant interest holders in VIEs.
We assess our relationships with potential VIEs, such as our coal suppliers, natural gas suppliers, coal transporters, natural gas transporters, and other counterparties related to PPAs, investments, and joint ventures. In making this assessment, we consider, along with other factors, the potential that our contracts or other arrangements provide subordinated financial support, the
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06/30/2021 Form 10-Q | 30 | WEC Energy Group, Inc. |
obligation to absorb the entity's losses, the right to receive residual returns of the entity, and the power to direct the activities that most significantly impact the entity's economic performance.
WEPCo Environmental Trust Finance I, LLC
In November 2020, the PSCW issued a financing order approving the securitization of $100 million of undepreciated environmental control costs related to WE's retired Pleasant Prairie power plant, the carrying costs accrued on the $100 million during the securitization process, and the related financing fees. The financing order also authorized WE to form WEPCo Environmental Trust, a bankruptcy-remote special purpose entity, for the sole purpose of issuing ETBs to recover the costs approved in the financing order. WEPCo Environmental Trust is a wholly-owned subsidiary of WE.
In May 2021, WEPCo Environmental Trust issued ETBs and used the proceeds to acquire environmental control property from WE. The environmental control property is recorded as a regulatory asset on our balance sheets and includes the right to impose, collect, and receive a non-bypassable environmental control charge from WE's retail electric distribution customers until the ETBs are paid in full and all financing costs have been recovered. The ETBs are secured by the environmental control property. Cash collections from the environmental control charge, and funds on deposit in trust accounts, are the sole source of funds to satisfy the debt obligation. The bondholders have no recourse to WE or any of WE's affiliates. See Note 9, Long-Term Debt, for more information on the ETBs.affiliates other than WEPCo Environmental Trust.
WE acts as the servicer of the environmental control property on behalf of WEPCo Environmental Trust and is responsible for metering, calculating, billing, and collecting the environmental control charge. As necessary, WE is authorized to implement periodic adjustments of the environmental control chargecharge. The adjustments are designed to ensure the timely payment of principal, interest, and other ongoing financing costs. WE remits all collections of the environmental control charge to an indenture trustee of WEPCo Environmental Trust.
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| 06/30/2022 Form 10-Q | 33 | WEC Energy Group, Inc. |
WEPCo Environmental Trust is a VIE primarily because its equity capitalization is insufficient to support its operations. As described above, WE has the power to direct the activities that most significantly impact WEPCo Environmental Trust's economic performance. Therefore, WE is considered the primary beneficiary of WEPCo Environmental Trust, and consolidation is required.
The following table summarizes the impact of WEPCo Environmental Trust on our balance sheet.
| | | | | | | | | | |
(in millions) | | June 30, 2021 | | |
Assets | | | | |
Other current assets (restricted cash) | | $ | 1.6 | | | |
Regulatory assets | | 106.0 | | | |
Other long-term assets (restricted cash) | | 0.6 | | | |
| | | | |
Liabilities | | | | |
Current portion of long-term debt | | 4.1 | | | |
Other current liabilities (accrued interest) | | 0.3 | | | |
Long-term debt | | 111.1 | | | |
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| (in millions) | | June 30, 2022 | | December 31, 2021 | | |
| Assets | | | | | | |
| Other current assets (restricted cash) | | $ | 3.1 | | | $ | 2.4 | | | |
| Regulatory assets | | 96.1 | | | 100.7 | | | |
| Other long-term assets (restricted cash) | | 0.6 | | | 0.6 | | | |
| | | | | | |
| Liabilities | | | | | | |
| Current portion of long-term debt | | 8.8 | | | 8.8 | | | |
| | | | | | |
| Other current liabilities (accrued interest) | | 0.1 | | | 0.1 | | | |
| Long-term debt | | 98.4 | | | 102.7 | | | |
Investment in Transmission Affiliates
We own approximately 60% of ATC, a for-profit, electric transmission company regulated by the FERC and certain state regulatory commissions. We have determined that ATC is a VIE but consolidation is not required since we are not ATC's primary beneficiary. As a result of our limited voting rights, we do not have the power to direct the activities that most significantly impact ATC's economic performance. Therefore, we account for ATC as an equity method investment. At June 30, 20212022 and December 31, 2020,2021, our equity investment in ATC was $1,749.7$1,813.6 million and $1,733.5$1,766.9 million, respectively, which approximates our maximum exposure to loss as a result of our involvement with ATC.
We also own approximately 75% of ATC Holdco, a separate entity formed in December 2016 to invest in transmission-related projects outside of ATC's traditional footprint. We have determined that ATC Holdco is a VIE but consolidation is not required since we are not ATC Holdco's primary beneficiary. As a result of our limited voting rights, we do not have the power to direct the activities that most significantly impact ATC Holdco's economic performance. Therefore, we account for ATC Holdco as an equity method investment. At June 30, 20212022 and December 31, 2020,2021, our equity investment in ATC Holdco was $32.3$23.6 million and $30.8$22.5 million, respectively, which approximates our maximum exposure to loss as a result of our involvement with ATC Holdco.
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06/30/2021 Form 10-Q | 31 | WEC Energy Group, Inc. |
See Note 17,18, Investment in Transmission Affiliates, for more information, including any significant assets and liabilities related to ATC and ATC Holdco recorded on our balance sheets.
Power Purchase AgreementCommitment
We have aOn May 31, 2022, WE's PPA with LSP-Whitewater Limited Partnership that representsrepresented a variable interest.interest expired. This agreement iswas for 236236.5 MWs of firm capacity from a natural gas-fired cogeneration facility, and we accountaccounted for it as a finance lease.
In November 2021, WE entered into a tolling agreement with LSP-Whitewater Limited Partnership that commenced on June 1, 2022 upon the expiration of the PPA. Concurrent with the execution of the tolling agreement, WE and WPS also entered into an agreement to purchase the natural gas-fired cogeneration facility for $72.7 million. This purchase agreement is subject to regulatory approval by the PSCW, which is expected by the end of 2022. The tolling agreement includes 0 minimum energy requirements overextends until the remaining termearlier of approximately one year. We have examinedthe closing of the asset purchase or December 31, 2022. The tolling agreement continues to represent a variable interest since its terms are substantially similar to the terms of the PPA. After examining the risks of the entity, including operations, maintenance, dispatch, financing, fuel costs, and other factors, andwe have determined that we are not the primary beneficiary of the entity. We do not hold an equity or debt interest in the entity, and there is 0no residual guarantee associated with the PPA.tolling agreement. Similar to the PPA, we account for the tolling agreement as a finance lease.
We have $8.9$1.9 million of required capacity payments over the remaining term of thisthe tolling agreement. We believe that the required capacity payments under this contractthe agreement will continue to be recoverable in rates, and our maximum exposure to loss is limited to these capacity payments.
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NOTE 20—21—COMMITMENTS AND CONTINGENCIES
We and our subsidiaries have significant commitments and contingencies arising from our operations, including those related to unconditional purchase obligations, environmental matters, and enforcement and litigation matters.
Unconditional Purchase Obligations
Our electric utilities have obligations to distribute and sell electricity to their customers, and our natural gas utilities have obligations to distribute and sell natural gas to their customers. The utilities expect to recover costs related to these obligations in future customer rates. In order to meet these obligations, we routinely enter into long-term purchase and sale commitments for various quantities and lengths of time.
The wind generation facilities that are part of our non-utility energy infrastructure segment have obligations to distribute and sell electricity through long-term offtake agreements with their customers for all of the energy produced. In order to support these sales obligations, these companies enter into easements and other service agreements associated with the wind generating facilities.
Our minimum future commitments related to these purchase obligations as of June 30, 2021,2022, including those of our subsidiaries, were approximately $10.9$10.5 billion.
Environmental Matters
Consistent with other companies in the energy industry, we face significant ongoing environmental compliance and remediation obligations related to current and past operations. Specific environmental issues affecting us include, but are not limited to, current and future regulation of air emissions such as sulfur dioxide, NOx, fine particulates, mercury, and GHGs; water intake and discharges; management of coal combustion products such as fly ash; and remediation of impacted properties, including former manufactured gas plant sites.
Air Quality
Cross State Air Pollution Rule – Good Neighbor Plan
The EPA issued a proposed rule that would update and expand the Cross-State Air Pollution Rule's ozone-season NOx program to address the 2015 ozone NAAQS, resulting in more stringent regulation of ozone-season NOx emissions from EGUs in 26 states, relying on authorization through the CAA's “good neighbor provision." As part of the proposed rule, expected to take effect in May 2023, the EPA would establish a new trading program that would impose lower NOx emissions budgets on states, at levels that the EPA projected would be achievable through full operation of existing EGU emissions control equipment beginning during ozone season 2023, and through installation of additional control equipment at both EGU and non-EGU stationary sources by the start of the 2026 ozone season, as well as planned plant retirements.
Based on a review of our existing units' 2020 and 2021 actual ozone season emissions and projected future emissions versus proposed NOx ozone season allocations, we anticipate that we should be able to comply with the expanded rule requirements without procuring additional allowances on the open market.
Our RICE units in the Upper Peninsula of Michigan and planned RICE units in Wisconsin are not subject to this rule as proposed as each unit is expected to be less than 25 MW. We note that, to the extent we use RICE engines for natural gas distribution operations, those engines may be subject to the emission limits and operational requirements of the rule beginning in 2026. In June 2022, we submitted comments on this proposed rule seeking clarification of its applicability, as well as other items, and we will closely monitor the final rule for any changes from the proposed rule.
National Ambient Air Quality Standards
Ozone
After completing its review of the 2008 ozone standard, the EPA released a final rule in October 2015, creating a more stringent standard than the 2008 NAAQS. The 2015 ozone standard lowered the 8-hour limit for ground-level ozone. In December 2020, the EPA completed its 5-year review of the ozone standard and issued a final decision to retain, without any changes, the existing 2015
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standard. Under Executive Order 13990, the Biden Administration ordered that all agencies review existing regulations, orders, guidance documents, policies, and similar actions promulgated, issued, or adopted between January 20, 2017 and January 20, 2021.
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Consequently, In October 2021, the EPA announced that it will reconsider the December 2020 decision to retain the 2015 ozone standards with 0no changes and that it is currently under review bytargeting the EPA.end of 2023 to complete this reconsideration.
The EPA issued final nonattainment area designations for the 2015 ozone standard in April 2018. The following counties within our Wisconsin service territories were designated as partial nonattainment: Door, Kenosha, Sheboygan, Manitowoc, and Northern Milwaukee/Ozaukee. This re-designation wasThe area designations were challenged in the D.C. Circuit Court of Appeals in Clean Wisconsin et al. v. U.S. Environmental Protection Agency. A decision was issued in July 2020 remanding the rule to the EPA for further evaluation. As a result of the July 2020 remand, in MayJune 2021, the EPA announced it was takingpublished its final action to revise the nonattainment area designations and/or boundaries for 13 counties associated with 6 nonattainment areas, including several in Illinois and Wisconsin. Under the new designations, all of Milwaukee and Ozaukee counties will beare now listed as nonattainment and portions of Racine, Waukesha, and Washington counties will behave been added to the nonattainment area. As a result of these boundary changes, the Valley Power Plant is now in the nonattainment area. Additionally, the Chicago, Illinois, Indiana, and WisconsinIL-IN-WI nonattainment area will now includeincludes an expanded portion of Kenosha county,County, and the partial nonattainment areas of Sheboygan, Door, and Manitowoc counties arewere also being expanded.
In April 2022, the EPA proposed to find that the Milwaukee and Chicago, IL-IN-WI nonattainment areas did not meet the marginal attainment deadline of August 2021, and will be adjusted to "moderate" nonattainment status for the 2015 standard. Accordingly, Wisconsin must submit State Implementation Plan revisions to address the reclassifications. A final rulemaking for the designations is expected in October 2022.
In February 2021, the Wisconsin Department of Natural Resources proposed draft2022, revisions to the Wisconsin Administrative Code to adopt the 2015 ozonestandard were finalized. The amended regulations adopted the standard and incorporateincorporated by reference the federal air pollution monitoring requirements related to the NAAQS. The Natural Resources Board adopted the rule as proposed during their June 2021 meeting.standard. We believe that we are well positioned to meet the requirements associated with the 2015 ozone standard and do not expect to incur significant costs to comply with the associated state orand federal rules.
Particulate Matter
In addition to the 2015 ozone standard, in December 2020, the EPA completed its 5-year review of the 2012 standardannual and 24-hour standards for particulate matter, including fine particulate matter. The EPA determined that 0no revisions were necessary to the current standard.annual standard of 12 µg/m3 or the 24-hour standard of 35 µg/m3. This determination was also subject to review under Executive Order 13990 and in June 2021, the EPA announced it would reconsider the December 2020 decision. Under the Biden Administration's policy review, the EPA concluded that the scientific evidence and information from the December 2020 determination supports revising the level of the annual standard for the particulate matter NAAQS to below the current level of 12 micrograms per cubic meter,µg/m3, while retaining the 24-hour standard. In March 2022, the EPA’s CASAC sent a letter to the EPA finalizing its peer review of the particulate matter standards. Based on their review, the majority of the members of the CASAC found that lowering the annual standard to within a range of 8 to 10 µg/m3 was appropriate, while a minority of the members of the committee found that a range of 10 to 11 µg/m3 would be appropriate. Additionally, a majority of the CASAC members favored lowering the 24-hour standard, while a minority concurred with EPA’s preliminary conclusion to retain the 24-hour standard without revision. In May 2022, the EPA released its staff-written Policy Assessment for the reconsideration of the standard. Similar to the CASAC findings, the EPA staff found that conditions supported either an annual standard in the 10 to 12 µg/m3 range or in the 8 to 10 µg/m3 range.
A proposed rule-makingrule is expected in summerAugust 2022, and a final rule is expected in spring 2023. All counties within our service territories are in attainment with the current 2012 standards. If the EPA lowers the annual standard to 10 or 11 µg/m3, our generating facilities within our service territories should remain in attainment. If the EPA lowers it to below 10 µg/m3, there could be some non-attainment areas that may affect permitting of some smaller ancillary equipment located at our facilities.
Climate Change
The ACE rule, effective since September 2019,which replaced the Clean Power Plan, was vacated by the D.C. Circuit Court of Appeals in January 2021. The ACE rule replaced the Clean Power Plan and provided existing coal-fired generating units with standards for achieving GHG emission reductions. In a memorandum issued to the EPA regional administrators in FebruaryOctober 2021, the EPA stated thatSupreme Court agreed to review the D.C. Circuit Court's ruling vacating the EPA's ACE rule and in June 2022, the Supreme Court decision meantissued its decision. The Supreme Court found that 0 existingthe EPA may regulate GHGs under section 111 of the CAA but cannot rely on generation shifting to lower carbon emitting sources to do so. Based on an updated EPA regulatory timeline, we expect a new GHG replacement rule regulates GHG emissions from electric generating units. The EPA is currently reviewing its options for such regulations and has signaled that a draft rule will notto be ready until 2022 at the earliest.proposed in March 2023.
In January 2021, the EPA finalized a rule to revise the New Source Performance Standards for GHG emissions from new, modified, and reconstructed fossil-fueled power plants. The rule became effective March 14, 2021;plants; however, on March 17, 2021 the EPA asked the D.C. Circuit Court of Appeals to vacate and remand the final rule, whichit was grantedvacated by the D.C. Circuit Court of Appeals in April 2021. Based on April 5, 2021. Despite this uncertainty,an
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updated EPA regulatory timeline, we expect a new rule to be proposed in March 2023. We continue to move forward on the ESG Progress Plan, which is heavily focused on reducing GHG emissions.
Our ESG Progress Plan includes the retirement of older, fossil-fueled generation, to be replaced with zero-carbon-emitting renewables and clean natural gas-fueled generation. We have already retired more than 1,800 MW of coal-fired generation since the beginning of 2018. Through our ESG Progress Plan, we expect to retire approximately 1,600 MW of additional fossil-fueled generation by 2025. By the end of 2020, we were able to reduce CO2 emissions from our electric generation fleet2026, which includes the planned retirements in 2024-2025 of OCPP Units 5-8 and the planned retirement by June 2026 of jointly-owned Columbia Units 1-2. See Note 23, Regulatory Environment, for more than 50% below 2005 levels. As a result,information on the timing of the retirements. In May 2021, we announced new goals in May 2021. We are committing to a 60% reductionachieve reductions in carbon emissions from our electric generation fleet by 60% by the end of 2025 and anby 80% reduction by the end of 2030, both from a 2005 baseline. We expect to achieve these goals by the retirement of older,making operating refinements, retiring less efficient generating units, operating refinements, and the use of existing technology while executing our ESG Progress Plan.capital plan. Over the longer term, the target for our generation fleet is net-zero carbonCO2 emissions by 2050. We have already retired more than 1,800 MW of coal-fired generation since the beginning of 2018. As part of the ESG Progress Plan, we expect to retire approximately 1,800 MW of additional fossil-fueled generation by 2025, which includes the planned retirements in 2023-2024 of OCPP Units 5-8 and the jointly-owned Columbia Units 1-2.
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We also continue to reduce methane emissions by improving our natural gas distribution system. Our initial 2030 goal called forsystem, and have set a 30% reduction in methane emissions from a 2011 baseline. Given advancements with renewable natural gas, we are setting a new target across our natural gas distribution operations to achieve net-zero methane emissions by the end of 2030. We plan to achieve our net-zero goal through an effort that includes both continuous operational improvements and equipment upgrades, as well as the use of RNG throughout our utility systems.
Cross-State Air Pollution Rule Update Rule Revision
In 2015, the EPA determined that several upwind states had failed to submit state implementation plans that addressed their "Good Neighbor" obligations (i.e., the states projected NOx emissions significantly contribute to a continuing downwind nonattainment and/or maintenance problem); therefore, by statute, the EPA was required to issue a federal implementation plan. In March 2021, the EPA finalized a CSAPR update rule revision that keeps 9 of the 21 CSAPR affected states (including Wisconsin) as a Group 2 NOx ozone season trading program source and found that the prior CSAPR update is sufficient to meet its "Good Neighbor" obligations. NaN further NOx reductions would be needed within these 9 states. This rule became effective June 29, 2021. We do not expect that the final rule will have a material impact on our financial condition or results of operations.
Water Quality
Clean Water Act Cooling Water Intake Structure Rule
In August 2014, the EPA issued a final regulation under Section 316(b) of the Clean Water Act that requires the location, design, construction, and capacity of cooling water intake structures at existing power plants to reflect the BTA for minimizing adverse environmental impacts. The federal rule became effective in October 2014 and applies to all of our existing generating facilities with cooling water intake structures, except for the ERGS units, which were permitted and received a final BTA determination under the rules governing new facilities.
In 2016, the WDNR initiated a state rulemaking process to incorporate the federal Section 316(b) requirements into the Wisconsin Administrative Code. This new state rule, NR 111, became effective in June 2020, and the WDNR will apply it when establishing BTA requirements for cooling water intake structures at existing facilities. These BTA requirements are incorporated into WPDES permits for WE and WPS facilities.
We have received a final BTA determination for Valley power plant. We have received interim BTA determinations for OC 5 through OC 8,PWGS, OCPP Units 5-8 and Weston Units 2, 3, and 4, and Valley power plant. Although we currently4. We believe that existing technology at the Port Washington Generating StationPWGS satisfies the BTA requirements,requirements; however, a final determination will not be made until the dischargeWPDES permit is renewed for this facility, which is expected to be in 2021.by the third quarter of 2022. We anticipatealso believe that existing technology installed at the OCPP facility meets the BTA requirements; however, depending on the timing of the permit renewalreissuance, all 4 generating units may be retired prior to the WDNR making a final BTA decision anticipated in 2025. In addition, we believe that existing technology installed at the Weston facility will includeresult in a final BTA determination to address all ofduring the Section 316(b) rule requirements.WPDES permit reissuance in 2023.
As a result of past capital investments completed to address Section 316(b) compliance at WE and WPS, we believe our fleet overall is well positioned to continue to meet this regulation and do not expect to incur significant additional compliance costs.
Steam Electric Effluent Limitation Guidelines
The EPA's final 2015 ELG rule took effect in January 2016 and was modified in 2020 to revise the treatment technology requirements related to BATW and wet FGD wastewaters at existing facilities. This rule created new requirements for several types of power plant wastewaters. The 2 new requirements that affect WE and WPS relate to discharge limits for BATW and wet FGD wastewater. Our power plant facilities already have advanced wastewater treatment technologies installed that meet many of the discharge limits established by this rule. There will, however, need to be facility modifications to meet water permit requirements for the BATW systemssystem at Weston Unit 3, andwhich is expected to be completed by December 2023. Modifications to OC 7 and OC 8.8 were completed and placed in-service in mid-2021. Wastewater treatment system modifications also will be required for wet FGD discharges and site wastewater from the OCPP and ERGS units. Based on engineering cost estimates, we expect that compliance with the ELG rule will require approximately $110100 million in capital investment. In December 2021, the PSCW Division of Energy Regulation and Analysis issued a Certificate of Authority approving the ERGS FGD wastewater treatment system modification. The BATW modifications do not require PSCW
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approval prior to construction. All of these ELG required projects are either in-service or are on track for completion by the WPDES permit deadline in December 2023.
In July 2021, the EPA announced that it intends to initiate rulemaking to revise the ELG Rule as modified in 2020. The EPA has stated that the ELG Rule will continue to be implemented and enforced while the agency pursues this rulemaking process. The EPA plans to propose a revised rule in the fall of 2022.
Waters of the United States
In December 2021, the EPA and the United States Army Corps of Engineers together released a proposed rule to repeal the April 2020 Navigable Waters Protection Rule that defined WOTUS. The purpose of this proposed rule will be to restore regulations defining WOTUS that were in place prior to 2015 and to update certain provisions to be consistent with relevant Supreme Court decisions. The pre-2015 approach involves applying factors established through case law and agency precedents to determine whether a wetland or surface drainage feature is subject to federal jurisdiction. In January 2022, the Supreme Court granted certiorari in a case to evaluate the proper test for determining whether wetlands are WOTUS. At this point, our projects requiring federal permits are moving ahead, but we are monitoring to better understand potential future impacts. This case, once decided, should provide clarity regarding the definition of WOTUS. We will continue to monitor this litigation and any subsequent agency action.
Land Quality
Manufactured Gas Plant Remediation
We have identified sites at which our utilities or a predecessor company owned or operated a manufactured gas plant or stored manufactured gas. We have also identified other sites that may have been impacted by historical manufactured gas plant activities. Our natural gas utilities are responsible for the environmental remediation of these sites, some of which are in the EPA Superfund Alternative Approach Program. We are also working with various state jurisdictions in our investigation and remediation planning. These sites are at various stages of investigation, monitoring, remediation, and closure.
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In addition, we are coordinating the investigation and cleanup of some of these sites subject to the jurisdiction of the EPA under what is called a "multisite" program. This program involves prioritizing the work to be done at the sites, preparation and approval of documents common to all of the sites, and use of a consistent approach in selecting remedies. At this time, we cannot estimate future remediation costs associated with these sites beyond those described below.
The future costs for detailed site investigation, future remediation, and monitoring are dependent upon several variables including, among other things, the extent of remediation, changes in technology, and changes in regulation. Historically, our regulators have allowed us to recover incurred costs, net of insurance recoveries and recoveries from potentially responsible parties, associated with the remediation of manufactured gas plant sites. Accordingly, we have established regulatory assets for costs associated with these sites.
We have established the following regulatory assets and reserves for manufactured gas plant sites:
| | (in millions) | (in millions) | | June 30, 2021 | | December 31, 2020 | (in millions) | | June 30, 2022 | | December 31, 2021 |
| Regulatory assets | Regulatory assets | | $ | 609.3 | | | $ | 638.2 | | Regulatory assets | | $ | 621.6 | | | $ | 630.9 | |
| Reserves for future environmental remediation | Reserves for future environmental remediation | | 518.2 | | | 532.9 | | Reserves for future environmental remediation | | 504.3 | | | 532.6 | |
Enforcement and Litigation Matters
We and our subsidiaries are involved in legal and administrative proceedings before various courts and agencies with respect to matters arising in the ordinary course of business. Although we are unable to predict the outcome of these matters, management believes that appropriate reserves have been established and that final settlement of these actions will not have a material impact on our financial condition or results of operations.
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Consent Decrees
Wisconsin Public Service Corporation – Weston and Pulliam Power Plants
In November 2009, the EPA issued an NOV to WPS, which alleged violations of the CAA's New Source Review requirements relating to certain projects completed at the Weston and Pulliam power plants from 1994 to 2009. WPS entered into a Consent Decree with the EPA resolving this NOV. This Consent Decree was entered by the United States District Court for the Eastern District of Wisconsin in March 2013. With the retirement of Pulliam Units 7 and 8 in October 2018, WPS completed the mitigation projects required by the Consent Decree and received a completeness letter from the EPA in October 2018. We are working with the EPA on a closeout process for the Consent Decree.Decree and expect that process to be completed in 2023.
Joint Ownership Power Plants – Columbia and Edgewater
In December 2009, the EPA issued an NOV to Wisconsin Power and Light Company, the operator of the Columbia and Edgewater plants, and the other joint owners of these plants, including Madison Gas and Electric Company, WE (former co-owner of an Edgewater unit), and WPS. The NOV alleged violations of the CAA's New Source Review requirements related to certain projects completed at those plants. WPS, along with Wisconsin Power and Light Company, Madison Gas and Electric Company, and WE, entered into a Consent Decree with the EPA resolving this NOV. This Consent Decree was entered by the United States District Court for the Western District of Wisconsin in June 2013. As a result of the continued implementation of the Consent Decree related to the jointly owned Columbia and Edgewater plants, the Edgewater 4 generating unit was retired in September 2018. Wisconsin Power and Light Company has startedexpects to start the process to close out this Consent Decree.Decree in early 2023.
NOTE 21—22—SUPPLEMENTAL CASH FLOW INFORMATION
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| | Six Months Ended June 30 |
| (in millions) | | 2021 | | 2020 |
| Cash paid for interest, net of amount capitalized | | $ | 239.9 | | | $ | 252.4 | |
| Cash paid (received) for income taxes, net | | 28.2 | | | (10.0) | |
| Significant non-cash investing and financing transactions: | | | | |
| Accounts payable related to construction costs | | 127.9 | | | 136.9 | |
Receivable related to insurance proceeds for property damage (1) | | 39.6 | | | 1.5 | |
(1)See Note 6, Property, Plant, and Equipment, for information about a steam incident at WE's PSB.
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| | Six Months Ended June 30 |
| (in millions) | | 2022 | | 2021 |
| Cash paid for interest, net of amount capitalized | | $ | 234.9 | | | $ | 239.9 | |
| Cash paid for income taxes, net | | 37.3 | | | 28.2 | |
| Significant non-cash investing and financing transactions: | | | | |
| Accounts payable related to construction costs | | 210.2 | | | 127.9 | |
| Increase in receivable related to insurance proceeds | | — | | | 39.6 | |
| Liabilities accrued for software licensing agreement | | 7.4 | | | — | |
The statements of cash flows include our activity related to cash, cash equivalents, and restricted cash. Our restricted cash primarily consists of the cash held in the Integrys rabbi trust, which is used to fund participants' benefits under the Integrys deferred compensation plan and certain Integrys non-qualified pension plans. All assets held within the rabbi trust are restricted as they can only be withdrawn from the trust to make qualifying benefit payments. Our restricted cash also consists of cash on deposit in financial institutions that is restricted to satisfy the requirements of certain debt agreements at WEC Infrastructure Wind Holding I LLC and WEPCo Environmental Trust. The restricted cash we received when WECI acquired ownership interests in certain wind generation projects is included in our restricted cash as well. This cash is restricted as it can only be used to pay for any remaining costs associated with the construction of the wind generation facilities.
The following table reconciles the cash, cash equivalents, and restricted cash amounts reported within the balance sheets to the total of these amounts shown on the statements of cash flows:
| | (in millions) | (in millions) | | June 30, 2021 | | December 31, 2020 | (in millions) | | June 30, 2022 | | December 31, 2021 |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 35.0 | | | $ | 24.8 | | Cash and cash equivalents | | $ | 30.3 | | | $ | 16.3 | |
| Restricted cash included in other current assets | Restricted cash included in other current assets | | 16.8 | | | 0 | | Restricted cash included in other current assets | | 21.9 | | | 19.6 | |
| Restricted cash included in other long term assets | Restricted cash included in other long term assets | | 47.9 | | | 47.8 | | Restricted cash included in other long term assets | | 52.7 | | | 51.6 | |
| Cash, cash equivalents, and restricted cash | Cash, cash equivalents, and restricted cash | | $ | 99.7 | | | $ | 72.6 | | Cash, cash equivalents, and restricted cash | | $ | 104.9 | | | $ | 87.5 | |
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NOTE 22—23—REGULATORY ENVIRONMENT
Recovery of Natural Gas Costs
Due to the cold temperatures, wind, snow, and ice throughout the central part of the country during February 2021, the cost of gas purchased for our natural gas utility customers was temporarily driven significantly higher than our normal winter weather expectations. All of our utilities have regulatory mechanisms in place for recovering all prudently incurred gas costs.
OnIn March 23, 2021, WE and WG requestedreceived approval from the PSCW to recover approximately $54 million and $24 million, respectively, of natural gas costs in excess of the benchmark set in their GCRMs. On March 30, 2021, the PSCW approved the requests to recover the costsGCRMs over a period of three months, beginning in April 2021. OnIn March 30, 2021, WPS also filed its revised natural gas rate sheets with the PSCW reflecting approximately $28 million of natural gas costs in excess of the benchmark set in its GCRM. WPS also recovered these excess costs over a period of three months, beginning in April 2021.
PGL and NSG incurred approximately $131 million and $10 million, respectively, of natural gas costs in February 2021 in excess of the amounts included in their rates. These costs are beingwere recovered over a period of 12 months, which started on April 1, 2021. PGL's and NSG's natural gas costs will beare being reviewed for prudency by the ICC as part of their annual natural gas cost reconciliation, which we expectreconciliation. The ICC could order the refund of any costs determined to file withbe imprudent as part of the ICC in Aprilreconciliation. A decision regarding this review is expected by the end of 2022.
In February 2021, MERC incurred approximately $75 million of natural gas costs in excess of the benchmark set in its GCRM. On July 6,In August 2021, the MPUC issued a written order approving a joint proposal filed by MERC and four4 other Minnesota utilities filed joint comments with the MPUC proposing a plan to recover their respective excess natural gas costs. Under the proposal, MERC wouldwill recover $10 million of these costs through its annual natural gas true-up process over a period of 12 months, and the remaining $65 million over 27 months, both beginningof which started in September 2021. Recovery of these costs and the issue of prudence has been referred to a contested-case proceeding. As a result of the proceeding, the MPUC could disallow recovery or order the refund of any costs determined to be imprudent. A decision regarding this review is expected during the third quarter of 2022.
Natural gas costs incurred at MGU and UMERC in excess of the amount included in their respective rates were not significant.
Coronavirus Disease – 2019
The global outbreak of COVID-19 was declared a pandemic by the WHO and the CDC. COVID-19 has spread globally, including throughout the United States and, in turn, our service territories. Each of the states in which our regulated utilities operate declared a public health emergency and issued shelter-in-place orders in response to the COVID-19 pandemic. All of the shelter-in-place orders have since expired or been lifted. The PSCW, the ICC, the MPUC, and the MPSC all issued written orders requiring certain actions to ensure that essential utility services were available to customers in their respective jurisdictions. A summary of these orders is included below.
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Wisconsin
In March 2020, the PSCW issued 2 orders in response to the COVID-19 pandemic. The first order required all public utilities in the state of Wisconsin, including WE, WPS, and WG, to temporarily suspend disconnections, the assessment of late fees, and deposit requirements for all customer classes. In addition, it required utilities to reconnect customers that were previously disconnected, offer deferred payment arrangements to all customers, and streamline the application process for customers applying for utility service.
In the second order issued in March 2020, the PSCW authorized Wisconsin utilities to defer expenditures and certain foregone revenues resulting from compliance with the first order, and expenditures as otherwise incurred to ensure safe, reliable, and affordable access to utility services during the declared public health emergency. The PSCW affirmed that this authorization for deferral includes the incremental increase in uncollectible expense above what is currently being recovered in rates. As WE, WPS, and WG already have a cost recovery mechanism in place to recover uncollectible expense for residential customers, this new deferral only impacts the recovery of uncollectible expense for their commercial and industrial customers. See Note 4, Credit Losses, for information regarding changes to our allowance for credit losses. As of June 30, 2021, the total amount deferred at our Wisconsin utilities related to the COVID-19 pandemic was not significant. The PSCW will review the recoverability and examine the prudency of any deferred amounts in future rate proceedings.
In June 2020, the PSCW issued a written order providing a timeline for the lifting of the temporary provisions required in the first March 2020 order. Utilities were allowed to disconnect commercial and industrial customers and require deposits for new service as of July 25, 2020 and July 31, 2020, respectively. After August 15, 2020, utilities were no longer required to offer deferred payment arrangements to all customers. Additionally, utilities were authorized to reinstate late fees except for the period between the first order and this supplemental order. Our Wisconsin utilities resumed charging late payment fees in late August 2020. Late payment fees were not charged on outstanding balances that were billed between the first order and late August 2020.
Subsequent to the June 2020 order, the PSCW extended the moratorium on disconnections of residential customers until November 1, 2020. In accordance with Wisconsin regulations, utilities are generally not allowed to disconnect residential customers for non-payment during the winter moratorium, which began on November 1, 2020 and ended on April 15, 2021. Utilities were allowed to continue assessing late payment fees during the winter moratorium. On April 5, 2021, the PSCW issued a written order indicating that it would not extend the moratorium on disconnections further; therefore, utilities could begin disconnecting residential customers for non-payment after April 15, 2021. Utilities are required to offer a deferred payment arrangement to low-income residential customers prior to disconnecting service. The order also allowed our Wisconsin utilities to resume charging late payment fees on the full balance of all outstanding arrears, regardless of the associated dates the service was provided, after April 15, 2021.
Illinois
In March 2020, the ICC issued an order to all Illinois utilities, including PGL and NSG, requiring, among other things, a moratorium on disconnections of utility service and a suspension of late fees and penalties during the declared public health emergency. These provisions applied to all utility customer classes. Illinois utilities were also required to temporarily enact more flexible credit and collections procedures.
In June 2020, the ICC issued a written order approving a settlement agreement negotiated by Illinois utilities, ICC staff, and certain intervenors. The key terms of the settlement agreement included the following:
•The moratorium on disconnections and the suspension of late fees and penalties were extended until July 26, 2020.
•Customers disconnected after June 18, 2019 could be reconnected without being assessed a reconnection fee if reconnection was requested prior to August 25, 2020.
•Flexible deferred payment arrangements were required to be offered to residential and commercial and industrial customers for an extended period of time and with reduced down payment requirements.
•Deposit requirements were waived until August 25, 2020 for all residential customers, and were waived for an additional four months for residential customers that verbally expressed financial hardship.
•PGL and NSG were required to establish a bill payment assistance program with approximately $12.0 million and $1.2 million, respectively, available for eligible residential customers to provide relief from high arrearages.
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06/30/2021 Form 10-Q | 37 | WEC Energy Group, Inc. |
In addition to the above, the settlement agreement approved in June 2020 authorized PGL and NSG to implement a SPC rider for the recovery of incremental direct costs resulting from COVID-19, foregone late fees and reconnection charges, and the costs associated with their bill payment assistance programs. PGL and NSG began recovering costs under the SPC rider on October 1, 2020. Amounts deferred under the SPC rider are being recovered over 36 months and will be subject to review and reconciliation by the ICC. As of June 30, 2021, PGL's and NSG's regulatory assets related to the COVID-19 pandemic were $26.9 million, collectively.
Subsequent to the approval of the June 2020 settlement agreement, and at the request of the ICC, PGL and NSG agreed to extend the moratorium on disconnections for qualified low-income residential customers and residential customers expressing financial hardship through March 31, 2021. The annual winter moratorium in Illinois that generally prohibits PGL and NSG from disconnecting residential customers for non-payment began on December 1, 2020 and ended on March 31, 2021.
In March 2021, the ICC issued a written order approving a second settlement agreement negotiated by Illinois utilities, ICC staff, and certain intervenors. The key terms of this new settlement agreement are as follows:
•Utilities could start sending disconnection notices, on a staggered basis, as of April 1, 2021. Disconnections were done on a staggered schedule based on customer arrears and income levels (e.g. low income versus non-low income customers). Utilities were not allowed to disconnect customers for non-payment prior to June 30, 2021 if the customer's household income was below 300% of the federal poverty level and the customer was on a deferred payment plan.
•Utilities were required to continue offering flexible deferred payment arrangements with reduced down payment requirements to residential customers through June 30, 2021. Deferred payment arrangements vary based on income level.
•Reconnection fees were waived for eligible low income customers through June 30, 2021. In addition, utilities will continue to exempt eligible low income customers from late payment fees and deposits.
•Each utility was required to continue, or renew, its bill payment assistance program through 2021. In addition to the $12.0 million PGL initially funded, PGL was required to fund an additional $6.0 million to its bill payment assistance program. No additional funding was required for NSG due to the amount still available for assistance from its initial funding. During April 2021, PGL's bill payment assistance program ended as all $18.0 million of funds were exhausted. NSG's bill payment assistance program is ongoing as funds remain available.
•Costs related to the provisions in the settlement agreement, including costs related to the bill payment assistance programs, will be recoverable through the SPC rider.
Minnesota
In May 2020, the MPUC issued a written order authorizing Minnesota utilities, including MERC, to track and defer COVID-19 related expenses and certain foregone revenues. The MPUC will review the recoverability and examine the prudency of any deferred amounts in future rate proceedings. As of June 30, 2021, amounts deferred at MERC related to the COVID-19 pandemic were not significant.
In June 2020, the MPUC verbally ordered Minnesota utilities to temporarily suspend disconnections and waive reconnection fees, service deposits, late fees, interest, and penalties for all residential customers. In addition, utilities were required to immediately reconnect residential customers that were previously disconnected. In August 2020, the MPUC issued a written order affirming these temporary provisions. The order was to remain in effect until 60 days after Minnesota's declared peacetime emergency expired. Prior to the June 2020 verbal order issued by the MPUC, MERC had voluntarily taken actions to ensure its customers continued to receive utility services during the pandemic. These actions included, but were not limited to, temporarily suspending disconnections and waiving late payment fees for residential and small commercial and industrial customers that entered into payment plans.
In March 2021, the MPUC issued an order requiring Minnesota utilities to file a transition plan to resume collections and disconnections upon the earlier of an Executive Secretary finding the transition plan was complete, or 90 days following the expiration of Minnesota's declared peacetime emergency. MERC filed its transition plan in April 2021, and it was subsequently deemed complete by the Executive Secretary. In accordance with the transition plan, MERC resumed disconnections on August 2, 2021. MERC will not disconnect residential customers with past due balances if the customer has a pending application or has been deemed eligible for a financial assistance program. In addition, MERC will continue to offer flexible deferred payment arrangements to residential customers. For customers who enter, or are complying with, a payment arrangement, MERC will not impose any service deposits, down payments, interest, late payment fees, or reconnections fees through April 30, 2022.
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06/30/2021 Form 10-Q | 38 | WEC Energy Group, Inc. |
Michigan
In April 2020, the MPSC issued a written order requiring Michigan utilities, including MGU and UMERC, to put certain minimum protections in place during the COVID-19 pandemic. The minimum protections required by the order included the suspension of disconnections, late payment fees, deposits, and reconnection fees for certain vulnerable customers. In addition, utilities were required to extend access to and enhance the flexibility of payment plans to customers financially impacted by COVID-19.
As required in the MPSC order, MGU and UMERC filed responses with the MPSC in April 2020 affirming the actions being taken to protect customers. These actions provided protections to more customers than required by the MPSC order, and included suspending disconnections for all residential customers, waiving deposit requirements for new service, suspending the assessment of late fees for customers that entered into payment plans, and enhancing payment plan options for all customers.
The April 2020 MPSC order also authorized all Michigan utilities to defer, for potential future recovery, uncollectible expense incurred on or after March 24, 2020 that exceeded the amounts being recovered in rates. In July 2020, the MPSC issued an order denying Michigan utilities' ability to defer additional COVID-19 related expenses and certain foregone revenues. The MPSC indicated that utilities could still seek recovery of these costs and foregone revenues by filing additional information on the specifics of their request. MGU and UMERC filed comments with the MPSC in November 2020 indicating that they have not experienced any material additional COVID-19 related expenses or foregone revenues, but that they will continue to monitor them and will notify the MPSC if they become material. At June 30, 2021, our Michigan utilities had not recorded any deferrals related to the COVID-19 pandemic.
In June 2021, MGU and UMERC worked with MPSC staff to develop a transition plan to resume collections and disconnections, while continuing to assist customers in managing their arrears balances. In accordance with the agreed upon transition plan, MGU and UMERC resumed pre-pandemic collection activities and residential service disconnections on August 2, 2021. Flexible deferred payment arrangements will continue to be available to customers.
Wisconsin Electric Power Company, Wisconsin Public Service Corporation, and Wisconsin Gas LLC
20222023 and 2024 Rates
On March 30, 2021,In April 2022, WE, WPS, and WG filed an application with the PSCW for the approval of certain accounting treatments which, if approved, would allow them to maintain their current electric, natural gas, and steam base rates through 2022 and forego filing a rate case for one year. In connection with the request, the 3 utilities also entered into an agreement, dated March 23, 2021, with various stakeholders. Pursuant to the terms of the agreement, the stakeholders fully support the application, and the utilities expect to file their next rate cases by no later than May 1, 2022.
The application filed with the PSCW includes the following key proposals:
•WE, WPS, and WG would amortize, in 2022, certain previously deferred balances to offset approximately half of their forecasted revenue deficiencies.
•WG would defer interest and depreciation expense associated with capital investments since its last rate case that otherwise would have been added to rate base in a 2022 test-year rate case.
•WE, WPS, and WG would be allowed to defer any increases in tax expense due to changes in tax law that occur in 2021 and/or 2022.
•WE, WPS, and WG would maintain their earnings sharing mechanisms for 2022, with modification. The earnings sharing mechanisms would be modified to authorize the utility to retain 100% of the first 15 basis points of earnings above its currently authorized ROE. This modification would expire on December 31, 2022. The earnings sharing mechanisms would otherwise remain as currently authorized.
We expect the PSCW to review and consider the application during the third quarter of 2021.
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06/30/2021 Form 10-Q | 39 | WEC Energy Group, Inc. |
2020 and 2021 Rates
In March 2019, WE, WPS, and WG filed applicationsrequests with the PSCW to increase their retail electric, natural gas, and steam rates, as applicable, effective January 1, 2020. In August 2019, all 3 utilities filed applications2023. The requested increases in electric rates were driven by capital investments in new wind, solar, and battery storage; capital investments in natural gas generation; reliability investments, including grid hardening projects to bury power lines and strengthen WE's distribution system against severe weather; and changes in wholesale business with other utilities. Many of these investments have already been approved by the PSCW. The requested increases in natural gas rates primarily related to capital investments previously approved by the PSCW, including LNG storage for approval of settlement agreements entered into with certain intervenorsour natural gas distribution system.
In July 2022, WE, WPS, and WG updated their rate requests to resolve several outstanding issuesreflect recent developments that impacted, as applicable, the respective utility's original proposal for rate increases in each utility's respective rate case. In December 2019, the PSCW issued written orders that approved the settlement agreements without material modification and addressed the remaining outstanding issues that were not included2023. These recent developments included:
•Delays in the settlement agreements.in-service dates of Darien and the battery portion of Paris due to supply chain disruptions.
•WE's decision to extend the operating life of the OCPP due to tight energy supply conditions in MISO and the delay in the renewable energy projects discussed above. The newexpected retirement of the OCPP units 5 and 6 was delayed one year, until May 2024, and the retirement of units 7 and 8 was delayed approximately 18 months, until late 2025.
•Wisconsin Power & Light Company's decision to delay the retirements of the jointly-owned Columbia units. The retirements of the Columbia units, which were originally planned for the end of 2023 and 2024, were delayed until 2026. WPS holds a 27.5% ownership interest in these units.
•Increases in the cost of Badger Hollow II.
•The effect of anticipated increases in interest rates became effective January 1, 2020. on borrowing costs.
•An industry-wide update to S&P's methodology for assessing the impact of PPAs on utility's credit ratings.
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| 06/30/2022 Form 10-Q | 40 | WEC Energy Group, Inc. |
The final orders reflectupdated rate request proposals include aggregate increases of approximately $30 million for WE, $6 million for WPS, and $2 million for WG from the following:original proposals and are reflected in the following table:
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| | WE | | WPS | | WG |
| 2020 Effective rate increase (decrease) | | | | | | | | | | | | |
Electric (1) (2) | | $ | 15.3 | million | / | 0.5% | | $ | 15.8 | million | / | 1.6% | | N/A |
Gas (3) | | $ | 10.4 | million | / | 2.8% | | $ | 4.3 | million | / | 1.4% | | $ | (1.5) | million | / | (0.2)% |
| Steam | | $ | 1.9 | million | / | 8.6% | | N/A | | N/A |
| | | | | | | | | | | | |
| ROE | | 10.0% | | 10.0% | | 10.2% |
| | | | | | | | | | | | |
| Common equity component average on a financial basis | | 52.5% | | 52.5% | | 52.5% |
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| | WE | | WPS | | WG |
| Proposed 2023 rate increase | | | | | | | | | | | | |
| Electric | | $ | 285.6 | million | / | 9.2% | | $ | 79.4 | million | / | 6.6% | | N/A |
| Gas | | $ | 55.4 | million | / | 11.7% | | $ | 30.9 | million | / | 8.4% | | $ | 61.9 | million | / | 8.6% |
| Steam | | $ | 3.6 | million | / | 16.5% | | N/A | | N/A |
Proposed ROE (1) | | 10.0% | | 10.0% | | 10.2% |
Proposed common equity component average on a financial basis (1) | | 53.0% | | 53.0% | | 53.0% |
(1)Amounts are net of certain deferred tax benefits from the Tax Legislation that were utilized to reduce near-term rate impact. The WE and WPS rate orders reflect the majority of the unprotected deferred tax benefits from the Tax Legislation being amortized over two years. For WE, approximately $65 million of tax benefits will be amortized in each of 2020 and 2021. For WPS, approximately $11 million of tax benefits were amortized in 2020 and approximately $39 million are being amortized in 2021. The unprotected deferred tax benefits related to the unrecovered balances of certain of WE's retired plants and its SSR regulatory asset were used to reduce the related regulatory asset. Unprotected deferred tax benefits by their nature are eligible to be returned to customers in a manner and timeline determined to be appropriate by our regulators.
(2)The WPS rate orderproposed ROEs are consistent with each utilities' currently authorized ROE. The common equity component average for each utility is net of $21 million of refunds related to its 2018 earnings sharing mechanism. These refunds are being made to customers evenly over two years, with half returned in 2020 and the remainder being returned in 2021.currently 52.5%.
(3)The WE amount includes certain deferred tax expense from the Tax Legislation, and the WPS and WG amounts are net of certain deferred tax benefits from the Tax Legislation that were utilized to reduce near-term rate impact. The rate orders for all 3 gas utilities reflect all of the unprotected deferred tax expense and benefits from the Tax Legislation being amortized evenly over four years. For WE, approximately $5 million of previously deferred tax expense will be amortized each year. For WPS and WG, approximately $5 million and $3 million, respectively, of previously deferred tax benefits will be amortized each year. Unprotected deferred tax expense and benefits by their nature are eligible to be recovered from or returned to customers in a manner and timeline determined to be appropriate by our regulators.
In accordance with its rate order, WE filed an application with the PSCW in July 2020 requesting a financing order to securitize $100 million of Pleasant Prairie power plant's book value, plus the carrying costs accrued on the $100 million during the securitization process and related financing fees. In November 2020, the PSCW issued a written order approving the application. The financing order also authorized WE to form a bankruptcy-remote special purpose entity, WEPCo Environmental Trust, for the sole purpose of issuing ETBs to recover the approved costs. In May 2021, WEPCo Environmental Trust issued $118.8 million of 1.578% ETBs due December 15, 2035. See Note 9, Long-Term Debt, for more information regarding the issuance of the ETBs. See Note 19, Variable Interest Entities, for more information regarding WEPCo Environmental Trust.
The WPS rate order allows WPSutilities are proposing to collect the previously deferred revenue requirement for ReACT™ costs above the authorized $275.0 million level. The total cost of the ReACT™ project was $342 million. This regulatory asset will be collected from customers over eight years.
All 3 Wisconsin utilities will continue havingusing an earnings sharing mechanism through 2021. The earnings sharing mechanism was modified from its previous structure to one that is consistent with other Wisconsin investor-owned utilities.mechanism. Under thisthe proposed earnings sharing mechanism, if the utility earns above its authorized ROE: (i) the utility retainswould retain 100.0% of earnings for the first 25 basis points above the authorized ROE; (ii) 50.0% of the next 50 basis points iswould be required to be refunded to customers;ratepayers; and (iii) 100.0% of any remaining excess earnings iswould be required to be refunded to customers. In addition, the rate orders also require WE, WPS, and WG to maintain residential and small commercial electric and natural gas customer fixed charges at previously authorized rates and to maintain the status quo for WE's and WPS's electric market-based rate programs for large industrial customers through 2021.ratepayers.
WE and WPS are seeking a limited rate case re-opener for 2024 to address additional revenue requirements associated with generation projects that are expected to be placed into service in 2023 and 2024. In addition, WE and WG are requesting a limited rate case re-opener for 2024 to address additional revenue requirements associated with LNG projects that are expected to be placed into service in 2023 and 2024, respectively. | | | | | | | | |
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| 40 | WEC Energy Group, Inc. |
We expect a decision from the PSCW in the fourth quarter of 2022, with any rate adjustments expected to be effective January 1, 2023.
The Peoples Gas Light and Coke Company and North Shore Gas Company
North Shore Gas Company 2021 Rate Case
On October 15, 2020, NSG filed a request with the ICC to increase its natural gas rates. NSG's request is targeting a rate increase of $7.6 million (8.5%) and reflects a 10.0% ROE and a common equity component average of 52.5%. The proposed natural gas rate increase is primarily driven by NSG's ongoing significant investment in its distribution system since its last rate review that resulted in revised base rates effective January 1, 2015. New rates are expected to be effective in September 2021.
Qualifying Infrastructure Plant Rider
In July 2013, Illinois Public Act 98-0057, The Natural Gas Consumer, Safety & Reliability Act, became law. This law provides natural gas utilities with a cost recovery mechanism that allows collection, through a surcharge on customer bills, of prudently incurred costs to upgrade Illinois natural gas infrastructure. In January 2014, the ICC approved a QIP rider for PGL, which is in effect through 2023.
PGL's QIP rider is subject to an annual reconciliation whereby costs are reviewed for accuracy and prudency. In March 2021,2022, PGL filed its 20202021 reconciliation with the ICC, which, along with the 2020, 2019, 2018, 2017, and 2016 reconciliations, are still pending.
As of June 30, 2021,2022, there can be 0no assurance that all costs incurred under PGL's QIP rider during the open reconciliation years will be deemed recoverable by the ICC.
Michigan Gas Utilities Corporation
2021 Rate Application
In February 2020, MGU provided notification to the MPSC of its intent to file an application requesting an increase to MGU's natural gas rates to be effective January 1, 2021. However, MGU decided that it would delay its filing of the rate case as a result of the COVID-19 pandemic.
In May 2020, MGU filed an application with the MPSC requesting approval to defer $5.0 million of depreciation and interest expense during 2021 related to capital investments made by MGU since its last rate case. In July 2020, the MPSC issued a written order approving MGU's request. The deferral of these costs will help to mitigate the impacts from delaying the filing of the rate case.
In March 2021, MGU filed a request with the MPSC to increase its natural gas rates. MGU's request targeted a rate increase of $15.1 million (10.7%) and reflected a 10.2% ROE and a common equity component of 52.5%. The proposed natural gas rate increase is primarily driven by MGU's significant investment in capital infrastructure since its last rate review that resulted in revised base rates effective January 1, 2016.
On July 29, 2021, MGU filed with the MPSC, a settlement agreement it reached with certain intervenors. The settlement agreement targets a rate increase of $9.3 million (6.35%). The rates reflect a 9.85% ROE and a common equity component average of 51.5%. The settlement agreement also allows MGU to implement a rider for its Main Replacement Program that will support recovery of $31.7 million of planned capital investment related to pipeline replacements to maintain system safety and reliability between 2023 and 2027 without having to file a rate case. The settlement agreement is pending MPSC approval, and we expect a decision from the MPSC during the third quarter of 2021. New rates are expected to be effective in January 2022.
NOTE 23—24—NEW ACCOUNTING PRONOUNCEMENTS
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The new standard removes certain exceptions for performing intraperiod allocation and calculating income taxes in interim periods and also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The guidance was effective for annual and interim periods beginning after December 15, 2020. The adoption of ASU 2019-12, effective January 1, 2021, did not have a significant impact on our financial statements and related disclosures.
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Reference Rate Reform
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact this guidance may have on our financial statements and related disclosures.
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| 06/30/2022 Form 10-Q | 41 | WEC Energy Group, Inc. |
Government Assistance
In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832). The amendments in this update increase the transparency surrounding government assistance by requiring disclosure of: (i) the types of assistance received; (ii) an entity’s accounting for the assistance; and (iii) the effect of the assistance on the entity’s financial statements. The update is effective for annual periods beginning after December 15, 2021. We plan to adopt this pronouncement for our fiscal year ending on December 31, 2022, and we are currently evaluating the impact this guidance may have on our financial statements and related disclosures.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CORPORATE DEVELOPMENTS
The following discussion should be read in conjunction with the accompanying unaudited financial statements and related notes and our 20202021 Annual Report on Form 10-K.
Introduction
We are a diversified holding company with natural gas and electric utility operations (serving customers in Wisconsin, Illinois, Michigan, and Minnesota), an approximately 60% equity ownership interest in American Transmission Company LLC (ATC) (a for-profit electric transmission company regulated by the Federal Energy Regulatory Commission and certain state regulatory commissions), and non-utility energy infrastructure operations through W.E. Power, LLC (which owns generation assets in Wisconsin), Bluewater Natural Gas Holding, LLC (which owns underground natural gas storage facilities in Michigan), and WEC Infrastructure LLC (WECI), which holds ownership interests in several wind generating facilities.
Corporate Strategy
Our goal is to continue to build and sustain long-term value for our shareholders and customers by focusing on the fundamentals of our business: environmental stewardship; reliability; operating efficiency; financial discipline; exceptional customer care; and safety. Our 2021-2025 capital investment plan for efficiency, sustainability and growth, referred to as our ESG Progress Plan, provides a roadmap for us to achieve this goal. It is an aggressive plan to cut emissions, maintain superior reliability, deliver significant savings for customers, and grow our investment in the future of energy.
Throughout our strategic planning process, we take into account important developments, risks and opportunities, including new technologies, customer preferences and commodity prices,affordability, energy resiliency efforts, and sustainability. We published the results of a priority sustainability issue assessment in 2020, identifying the issues that are most important to our company and its stakeholders over the short and long terms. Our risk and priority assessments have formed our direction as a company.
Creating a Sustainable Future
Our ESG Progress Plan includes the retirement of older, fossil-fueled generation, to be replaced with zero-carbon-emitting renewables and clean natural gas-fired generation by 2025.generation. When taken together, the retirements and new investments should better balance our supply with our demand, while maintaining reliable, affordable energy for our customers. The retirements will contribute to meeting our goals to reduce carbon dioxide (CO2) emissions from our electric generation.
By the end of 2020, we were able to reduce CO2 emissions from our electric generation fleet by more than 50% below 2005 levels. As a result,In May 2021, we announced new goals in May 2021. We are committing to a 60% reductionachieve reductions in carbon emissions from our electric generation fleet by 60% by the end of 2025 and anby 80% reduction by the end of 2030, both from a 2005 baseline. We expect to achieve these goals by making operating refinements, retiring less efficient generating units, and executing our capital plan. Over the longer term, the target for our generation fleet is net-zero CO2 emissions by 2050.
As part of our path toward these goals, we are exploring co-firing with natural gas at our ERGS coal-fired units. By the end of 2030, we expect to use coal as a backup fuel only, and we believe we will be in a position to eliminate coal as an energy source by the end of 2035.
We already have already retired more than 1,800 megawatts (MW) of coal-fired generation since the beginning of 2018, which included the 2019 retirement of the Presque Isle power plant as well as the 2018 retirements of the Pleasant Prairie power plant, the Pulliam power plant, and the jointly-owned Edgewater Unit 4 generating units. As part ofThrough our ESG Progress Plan, we expect to retire approximately 1,8001,600 MW of additional fossil-fueled generation by 2025,the end of 2026, which includes the planned retirementsretirement in 2023-20242024-2025 of Oak Creek Power Plant Units 5-8 and the planned retirement in 2026 of jointly-owned Columbia Units 1-2. See Note 23, Regulatory Environment, for information on the delay of these planned retirements.
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| 06/30/2022 Form 10-Q | 43 | WEC Energy Group, Inc. |
In addition to retiring these older, fossil-fueled plants, we expect to invest approximately $2$3.5 billion from 2021-20252022-2026 in regulated renewable energy in Wisconsin. Our plan is to replace a portion of the retired capacity by building and owning a combination of clean, natural gas-fired generation and zero-carbon-emitting renewable generation facilities that are anticipated to include the following new investments:
•8001,400 MW of utility-scale solar;
•600800 MW of battery storage; and
•100 MW of wind;wind.
We also plan on investing in a combination of clean, natural gas-fired generation, including:
•100 MW of reciprocating internal combustion engine (RICE) natural gas-fueled generation; and
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•the planned purchase of up to 200 MW of capacity in the West Riverside Energy Center — a new, combined-cycle natural gas plant recently completed by Alliant Energy in Wisconsin.Wisconsin; and
•the planned purchase of the Whitewater Cogeneration Facility, a natural gas-fired combined-cycle electric generating facility with a capacity of 236.5 MW.
The new investments discussed above are in addition to the renewable projects currently underway. For more details, see Liquidity and Capital Resources – Capital Resources and Requirements – CapitalCash Requirements – Significant Capital Projects.
In addition, we previously received approval from the Public Service Commission of Wisconsin (PSCW) to investare investing in 300 MW of utility-scale solar within our Wisconsin segment. Wisconsin Public Service Corporation (WPS) has partnered with an unaffiliated utility to construct two solar projects now in service in Wisconsin: Two Creeks Solar Park (Two Creeks), now in service, and Badger Hollow Solar Park I (Badger Hollow I), expected to enter commercial operation in the fourth quarter of 2021.. WPS owns 100 MW of Two Creeks and will own 100 MW of Badger Hollow I for a total of 200 MW. Wisconsin Electric Power Company (WE) has partnered with an unaffiliated utility to construct Badger Hollow Solar Park II, thatwhich is expected to enter commercial operation in December 2022.the first half of 2023. Once constructed, WE will own 100 MW of this project.
In December 2018, WE received approval from the PSCW for two renewable energy pilot programs. The Solar Now pilot is expected to add a total of 35 MW of solar generation to WE's portfolio, allowing non-profit and governmental entities, as well as commercial and industrial customers, to site utility owned solar arrays on their property. Under this program, WE has energized 1823 Solar Now projects and currently has another fourthree under construction, together totaling more than 2429 MW. The second program, the Dedicated Renewable Energy Resource pilot, would allow large commercial and industrial customers to access renewable resources that WE would operate, adding up to 150 MW of renewables to WE's portfolio, and helping these larger customers meet their sustainability and renewable energy goals.
In August 2021, the PSCW approved pilot programs for WE and WPS to install and maintain electric vehicle (EV) charging equipment for customers at their homes or businesses. The programs provide direct benefits to customers by removing cost barriers associated with installing EV equipment. In October 2021, subject to the receipt of any necessary regulatory approvals, we pledged to expand the EV charging network within the service territories of our electric utilities. In doing so, we joined a coalition of utility companies in a unified effort to make EV charging convenient and widely available throughout the Midwest. The coalition we joined is planning to help build and grow EV charging corridors, enabling the general public to safely and efficiently charge their vehicles.
We also continue to reduce methane emissions by improving our natural gas distribution system. Our initial 2030 goal called forWe set a 30% reduction in methane emissions from a 2011 baseline. Given advancements with renewable natural gas, we are setting a new target across our natural gas distribution operations to achieve net-zero methane emissions by the end of 2030. We plan to achieve our net-zero goal through an effort that includes both continuous operational improvements and equipment upgrades, as well as the use of renewable natural gas (RNG) throughout our utility systems. In 2022, we received approval from the PSCW for our RNG pilots and we signed our first three contracts for RNG for our natural gas distribution business, which will be transporting the output of local dairy farms onto our gas distribution system. The RNG supplied will directly replace higher-emission methane from natural gas that would have entered our pipes. These three contracts represent approximately 80 percent of our 2030 goal for methane reduction. We expect to have RNG flowing to our distribution network by the end of 2022.
As part of our effort to look for new opportunities in sustainable energy, we are testing the effects of blending hydrogen, a clean generating fuel, with natural gas for one of our RICE generating units in the Upper Peninsula of Michigan. We are partnering with the Electric Power Research Institute in this research that could help create another viable option for decarbonizing the economy. The project is being carried out in 2022, and the results will be shared across the industry.
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| 06/30/2022 Form 10-Q | 44 | WEC Energy Group, Inc. |
Reliability
We have made significant reliability-related investments in recent years, and in accordance with our ESG Progress Plan, expect to continue strengthening and modernizing our generation fleet, as well as our electric and natural gas distribution networks to further improve reliability.
Below are a few examples of reliability projects that are proposed, currently underway, or currently underway.
•WE is constructing approximately 46 miles of natural gas transmission main to increase the quantity and reliability of natural gas service in southeastern Wisconsin. This project, called the Lakeshore Lateral Project, is expected to be completed by the end of 2021.recently completed.
•WE and Wisconsin Gas LLC (WG) have received approval to each plan to construct their own liquefied natural gas (LNG) facilitiesfacility to meet anticipated peak demand. Subject to PSCW approval, commercialCommercial operation of the WE and WG LNG facilities is targeted for the end of 2023.2023 and 2024, respectively.
•The Peoples Gas Light and Coke Company continues to work on its Natural Gas SystemSafety Modernization Program, which primarily involves replacing old iron pipes and facilities in Chicago’s natural gas delivery system with modern polyethylene pipes to reinforce the long-term safety and reliability of the system.
•WPS is in the final year of its System Modernization and Reliability Project, which involves modernizing parts of its electric distribution system, including burying or upgrading lines. WE, WPS, and WG alsoOur utilities continue to upgrade their electric and natural gas distribution systems to enhance reliability.
We expect to spend approximately $3.4 billion from 2022 to 2026 on reliability related projects with continued investment over the next decade. For more details, see Liquidity and Capital Resources – Capital Resources and Requirements – CapitalCash Requirements – Significant Capital Projects.
Operating Efficiency
We continually look for ways to optimize the operating efficiency of our company and will continue to do so under the ESG Progress Plan. For example, we are making progress on our Advanced Metering Infrastructure program, replacing aging meter-reading equipment on both our network and customer property. An integrated system of smart meters, communication networks, and data
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management programs enables two-way communication between our utilities and our customers. This program reduces the manual effort for disconnects and reconnects and enhances outage management capabilities.
We continue to focus on integrating the resources of all our businesses and finding the best and most efficient processes while meeting all applicable legal and regulatory requirements.processes.
Financial Discipline
A strong adherence to financial discipline is essential to meeting our earnings projections and maintaining a strong balance sheet, stable cash flows, a growing dividend, and quality credit ratings.
We follow an asset management strategy that focuses on investing in and acquiring assets consistent with our strategic plans, as well as disposing of assets, including property, plants, equipment, and entire business units, that are no longer strategic to operations, are not performing as intended, or have an unacceptable risk profile. See Note 3, Disposition, for information on a recent transaction.
Our investment focus remains in our regulated utility and non-utility energy infrastructure businesses, as well as our investment in ATC. In our non-utility energy infrastructure segment, we have acquired or agreed to acquire majority interests in eight wind parks, capablewith total available capacity of providing more than 1,550 MW of carbon-free energy in total.MW. These renewable energy assets represent more than $2.3 billion in committed investments and have long-term agreements to serve customers outside our traditional service areas. Production tax credits from these wind investments reduce our cash tax expense. See Note 2, Acquisitions, for additional information on recent and pending transactions.
We expect total capital expenditures for our regulated utility and non-utility energy infrastructure businesses to be approximately $15.0$16.4 billion from 20212022 to 2025.2026. In addition, we currently forecast that our share of ATC's projected capital expenditures over the next five years will be $1.1$1.3 billion. Specific projects included in the $16.1$17.7 billion ESG Progress Plan are discussed in more detail below under Liquidity and Capital Resources – Capital Resources and Requirements – CapitalCash Requirements – Significant Capital Projects.
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| 06/30/2022 Form 10-Q | 45 | WEC Energy Group, Inc. |
Exceptional Customer Care
Our approach is driven by an intense focus on delivering exceptional customer care every day. We strive to provide the best value for our customers by demonstrating personal responsibility for results, leveraging our capabilities and expertise, and using creative solutions to meet or exceed our customers’ expectations.
A multiyear effort is driving a standardized, seamless approach to digital customer service across our companies. We have moved all utilities to a common platform for all customer-facing self-service options. Using common systems and processes reduces costs, provides greater flexibility and enhances the consistent delivery of exceptional service to customers.
Safety
Safety is one of our core values and a critical component of our culture. We are committed to keeping our employees and the public safe through a comprehensive corporate safety program that focuses on employee engagement and elimination of at-risk behaviors.
Under our "Target Zero" mission, we have an ultimate goal of zero incidents, accidents, and injuries. Management and union leadership work together to reinforce the Target Zero culture. We set annual goals for safety results as well as measurable leading indicators, in order to raise awareness of at-risk behaviors and situations and guide injury-prevention activities. All employees are encouraged to report unsafe conditions or incidents that could have led to an injury. Injuries and tasks with high levels of risk are assessed, and findings and best practices are shared across our companies.
Our corporate safety program provides a forum for addressing employee concerns, training employees and contractors on current safety standards, and recognizing those who demonstrate a safety focus.
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06/30/2021 Form 10-Q | 45 | WEC Energy Group, Inc. |
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 20212022
Consolidated Earnings
The following table compares our consolidated results for the second quarter of 20212022 with the second quarter of 2020,2021, including favorable or better, "B", and unfavorable or worse, "W", variances:
| | | Three Months Ended June 30 | | Three Months Ended June 30 |
| (in millions, except per share data) | (in millions, except per share data) | | 2021 | | 2020 | | B (W) | (in millions, except per share data) | | 2022 | | 2021 | | B (W) |
| Wisconsin | Wisconsin | | $ | 146.5 | | | $ | 129.8 | | | $ | 16.7 | | Wisconsin | | $ | 148.4 | | | $ | 146.5 | | | $ | 1.9 | |
| Illinois | Illinois | | 43.6 | | | 32.1 | | | 11.5 | | Illinois | | 56.4 | | | 43.6 | | | 12.8 | |
| Other states | Other states | | 2.5 | | | 2.8 | | | (0.3) | | Other states | | 2.7 | | | 2.5 | | | 0.2 | |
| Electric transmission | Electric transmission | | 27.0 | | | 33.5 | | | (6.5) | | Electric transmission | | 29.0 | | | 27.0 | | | 2.0 | |
| Non-utility energy infrastructure | Non-utility energy infrastructure | | 68.8 | | | 64.8 | | | 4.0 | | Non-utility energy infrastructure | | 80.3 | | | 68.8 | | | 11.5 | |
| Corporate and other | Corporate and other | | (12.4) | | | (21.4) | | | 9.0 | | Corporate and other | | (29.3) | | | (12.4) | | | (16.9) | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 276.0 | | | $ | 241.6 | | | $ | 34.4 | | Net income attributed to common shareholders | | $ | 287.5 | | | $ | 276.0 | | | $ | 11.5 | |
| | Diluted earnings per share | Diluted earnings per share | | $ | 0.87 | | | $ | 0.76 | | | $ | 0.11 | | Diluted earnings per share | | $ | 0.91 | | | $ | 0.87 | | | $ | 0.04 | |
Earnings increased $34.4$11.5 million during the second quarter of 2021,2022, compared with the same quarter in 2020.2021. The significant factors impacting the $34.4$11.5 million increase in earnings were:
•A $16.7$12.8 million increase in net income attributed to common shareholders at the WisconsinIllinois segment, driven by an increasea gain on the sale of certain real estate in electricChicago, as well as higher natural gas margins due to higher retail sales volumes and an increasePGL's continued capital investment in late payment charges. The positive impact of increased rates from the Wisconsin rate orders approved by the PSCW, effective January 1, 2020, also drove an increase in earnings.SMP project under its QIP rider. See Note 22, Regulatory Environment,3, Disposition, for more information.information on the sale. These positive impacts were partially offset by higher depreciationincreases in various operating expenses, including expenses related to the settlement of legal claims, charitable projects, and amortization during the second quarter of 2021.benefit costs.
•An $11.5 million increase in net income attributed to common shareholders at the Illinoisnon-utility energy infrastructure segment, driven by an increase in PTCs during 2022, primarily due to the Jayhawk wind park that achieved commercial operation in
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December 2021, an increase in the PTC rate related to the PTC inflation adjustment issued by the IRS, and higher generation at our other wind parks.
•A $1.9 million increase in net income attributed to common shareholders at the Wisconsin segment, driven by an increase in natural gas margins related to higher retail sales volumes, primarily due to PGL'sthe continued capital investmenteconomic recovery in Wisconsin from the SMP project under its QIP rider and an increase in late payment charges. Lower pension expenseCOVID-19 pandemic, as well as colder weather during the second quarter of 2021 also contributed2022, compared with the same quarter in 2021. Also contributing to the increase in earnings.earnings was lower operation and maintenance expense, driven by the amortization of certain regulatory liabilities to offset a portion of our 2022 forecasted revenue deficiencies, and higher net credits from the non-service components of our net periodic pension and OPEB costs. The amortization of the regulatory liabilities was approved by the PSCW in order to forego filing for 2022 base rate increases. See Note 26, Regulatory Environment, in our 2021 Annual Report on Form 10-K for additional information on our 2022 Wisconsin base rates. These positive impactsincreases in earnings were partially offset by the negative impact from actual fuel and purchased power costs compared with costs collected in rates and higher depreciation and amortization.
•A $9.0These increases in earnings were partially offset by a $16.9 million increase in earnings fromnet loss attributed to common shareholders at the corporate and other segment, driven by lower interest expense and higher earningsnet losses from our equity method investment in a technology and energy-focused investment fund. These positive impacts were partially offset by lower net gains fromthe investments held in the Integrys rabbi trust during the second quarter of 2021,2022, compared with net gains during the same quarter in 2020.2021. The investment gains and losses from the investments held in the rabbi trust partially offset increasesthe changes in benefitbenefits costs related to deferred compensation, which are included in other operation and maintenance expense in our operating segments. See Note 12,13, Fair Value Measurements, for more information on our investments held in the Integrys rabbi trust. A decrease in earnings from our equity method investments in technology and energy-focused investment funds also contributed to the decrease in earnings.
These increases in earnings were partially offset by a $6.5 million decrease in net income attributed to common shareholders at the electric transmission segment, driven by lower equity earnings from transmission affiliates. The lower equity earnings were due to the FERC order issued in May 2020 addressing complaints related to ATC's ROE. The order resulted in an increase in the base ROE that ATC is allowed to collect, retroactive to November 2013, and increased ATC's earnings during the second quarter of 2020. For further discussion of the FERC order, see Factors Affecting Results, Liquidity, and Capital Resources – Other Matters – American Transmission Company Allowed Return on Equity Complaints. Continued capital investment by ATC partially offset the negative quarter-over-quarter impact from the FERC order.
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Non-GAAP Financial Measures
The discussions below address the contribution of each of our segments to net income attributed to common shareholders. The discussions include financial information prepared in accordance with GAAP, as well as electric margins and natural gas margins, which are not measures of financial performance under GAAP. Electric margins (electric revenues less fuel and purchased power costs) and natural gas margins (natural gas revenues less cost of natural gas sold) are non-GAAP financial measures because they exclude other operation and maintenance expense, depreciation and amortization, and property and revenue taxes.
We believe that electric and natural gas margins provide a useful basis for evaluating utility operations since the majority of prudently incurred fuel and purchased power costs, as well as prudently incurred natural gas costs, are passed through to customers in current rates. As a result, management uses electric and natural gas margins internally when assessing the operating performance of our segments as these measures exclude the majority of revenue fluctuations caused by changes in these expenses. Similarly, the presentation of electric and natural gas margins herein is intended to provide supplemental information for investors regarding our operating performance.
Our electric margins and natural gas margins may not be comparable to similar measures presented by other companies. Furthermore, these measures are not intended to replace operating income as determined in accordance with GAAP as an indicator of operating performance. The following table shows operating income by segment for our utility operations during the second quarter of 20212022 and 2020:2021:
| | | Three Months Ended June 30 | | Three Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 |
| Wisconsin | Wisconsin | | $ | 291.5 | | | $ | 277.6 | | Wisconsin | | $ | 309.1 | | | $ | 291.5 | |
| Illinois | Illinois | | 74.9 | | | 59.5 | | Illinois | | 91.9 | | | 74.9 | |
| Other states | Other states | | 4.6 | | | 6.0 | | Other states | | 6.3 | | | 4.6 | |
Each applicable segment discussion below includes a table that provides the calculation of electric margins and natural gas margins, as applicable, along with a reconciliation to the most directly comparable GAAP measure, operating income.
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Wisconsin Segment Contribution to Net Income Attributed to Common Shareholders
The Wisconsin segment's contribution to net income attributed to common shareholders forwas $148.4 million during the three months ended June 30, 2021 was $146.5 million,second quarter of 2022, representing a $16.7$1.9 million, or 12.9%1.3%, increase over the prior year.same quarter in 2021. The higher earnings were driven by an increase in electricnatural gas margins duerelated to higher retail sales volumes, and an increaseprimarily due to the continued economic recovery in late payment charges. The positive impactWisconsin
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| 06/30/2022 Form 10-Q | 47 | WEC Energy Group, Inc. |
from the Wisconsin rate orders approved by the PSCW, effective January 1, 2020, also drove an increase in earnings. These positive impacts were partially offset by higher depreciation and amortizationCOVID-19 pandemic, as well as colder weather during the second quarter of 2022, compared with the same quarter in 2021. Also contributing to the increase in earnings was lower operation and maintenance expense, driven by the amortization of certain regulatory liabilities to offset a portion of our 2022 forecasted revenue deficiencies, and higher net credits from the non-service components of our net periodic pension and OPEB costs. The amortization of the regulatory liabilities was approved by the PSCW in order to forego filing for 2022 base rate increases. See Note 26, Regulatory Environment, in our 2021 Annual Report on Form 10-K for additional information on our 2022 Wisconsin base rates. These increases in earnings were partially offset by the negative impact from actual fuel and purchased power costs compared with costs collected in rates and higher depreciation and amortization.
| | | Three Months Ended June 30 | | Three Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | B (W) | (in millions) | | 2022 | | 2021 | | B (W) |
| Electric revenues | Electric revenues | | $ | 1,092.0 | | | $ | 998.3 | | | $ | 93.7 | | Electric revenues | | $ | 1,225.5 | | | $ | 1,092.0 | | | $ | 133.5 | |
| Fuel and purchased power | Fuel and purchased power | | 346.1 | | | 282.4 | | | (63.7) | | Fuel and purchased power | | 472.9 | | | 346.1 | | | (126.8) | |
| Total electric margins | Total electric margins | | 745.9 | | | 715.9 | | | 30.0 | | Total electric margins | | 752.6 | | | 745.9 | | | 6.7 | |
| | Natural gas revenues | Natural gas revenues | | 215.5 | | | 207.9 | | | 7.6 | | Natural gas revenues | | 331.9 | | | 215.5 | | | 116.4 | |
| Cost of natural gas sold | Cost of natural gas sold | | 106.4 | | | 91.6 | | | (14.8) | | Cost of natural gas sold | | 209.2 | | | 106.4 | | | (102.8) | |
| Total natural gas margins | Total natural gas margins | | 109.1 | | | 116.3 | | | (7.2) | | Total natural gas margins | | 122.7 | | | 109.1 | | | 13.6 | |
| | Total electric and natural gas margins | Total electric and natural gas margins | | 855.0 | | | 832.2 | | | 22.8 | | Total electric and natural gas margins | | 875.3 | | | 855.0 | | | 20.3 | |
| | Other operation and maintenance | Other operation and maintenance | | 346.1 | | | 349.4 | | | 3.3 | | Other operation and maintenance | | 337.9 | | | 346.1 | | | 8.2 | |
| Depreciation and amortization | Depreciation and amortization | | 179.8 | | | 167.6 | | | (12.2) | | Depreciation and amortization | | 187.7 | | | 179.8 | | | (7.9) | |
| Property and revenue taxes | Property and revenue taxes | | 37.6 | | | 37.6 | | | — | | Property and revenue taxes | | 40.6 | | | 37.6 | | | (3.0) | |
| Operating income | Operating income | | 291.5 | | | 277.6 | | | 13.9 | | Operating income | | 309.1 | | | 291.5 | | | 17.6 | |
| | Other income, net | Other income, net | | 18.2 | | | 14.3 | | | 3.9 | | Other income, net | | 24.5 | | | 18.2 | | | 6.3 | |
| Interest expense | Interest expense | | 139.8 | | | 140.0 | | | 0.2 | | Interest expense | | 135.6 | | | 139.8 | | | 4.2 | |
| Income before income taxes | Income before income taxes | | 169.9 | | | 151.9 | | | $ | 18.0 | | Income before income taxes | | 198.0 | | | 169.9 | | | 28.1 | |
| | Income tax expense | Income tax expense | | 23.1 | | | 21.8 | | | (1.3) | | Income tax expense | | 49.3 | | | 23.1 | | | (26.2) | |
| Preferred stock dividends of subsidiary | Preferred stock dividends of subsidiary | | 0.3 | | | 0.3 | | | — | | Preferred stock dividends of subsidiary | | 0.3 | | | 0.3 | | | — | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 146.5 | | | $ | 129.8 | | | $ | 16.7 | | Net income attributed to common shareholders | | $ | 148.4 | | | $ | 146.5 | | | $ | 1.9 | |
The following table shows a breakdown of other operation and maintenance:
| | | Three Months Ended June 30 | | Three Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | B (W) | (in millions) | | 2022 | | 2021 | | B (W) |
| Operation and maintenance not included in line items below | Operation and maintenance not included in line items below | | $ | 156.1 | | | $ | 153.6 | | | $ | (2.5) | | Operation and maintenance not included in line items below | | $ | 172.0 | | | $ | 156.1 | | | $ | (15.9) | |
Transmission (1) | Transmission (1) | | 127.6 | | | 129.0 | | | 1.4 | | Transmission (1) | | 107.4 | | | 127.6 | | | 20.2 | |
Regulatory amortizations and other pass through expenses (2) | Regulatory amortizations and other pass through expenses (2) | | 33.0 | | | 36.9 | | | 3.9 | | Regulatory amortizations and other pass through expenses (2) | | 36.6 | | | 33.0 | | | (3.6) | |
We Power (3) | We Power (3) | | 29.4 | | | 29.9 | | | 0.5 | | We Power (3) | | 27.3 | | | 29.4 | | | 2.1 | |
| Earnings sharing mechanisms (4) | | Earnings sharing mechanisms (4) | | (5.4) | | | — | | | 5.4 | |
| Total other operation and maintenance | Total other operation and maintenance | | $ | 346.1 | | | $ | 349.4 | | | $ | 3.3 | | Total other operation and maintenance | | $ | 337.9 | | | $ | 346.1 | | | $ | 8.2 | |
(1)Represents transmission expense that our electric utilities are authorized to collect in rates. The PSCW has approved escrow accounting for ATC and MISO network transmission expenses for WE and WPS. As a result, WE and WPS defer as a regulatory asset or liability, the difference between actual transmission costs and those included in rates until recovery or refund is authorized in a future rate proceeding. During the three months ended June 30,second quarter of 2022 and 2021, and 2020, $124.8$130.1 million and $113.7$124.8 million, respectively, of costs were billed to our electric utilities by transmission providers.
During the second quarter of 2022, WE and WPS amortized $20.3 million of the regulatory liabilities associated with their transmission escrows to offset certain 2022 revenue deficiencies, as approved by the PSCW in order to forego filing for 2022 base rate increases. This amortization drove the decrease in transmission expense during the second quarter of 2022, compared with the same quarter in 2021. See Note 26, Regulatory Environment, in our 2021 Annual Report on Form 10-K for additional information on 2022 Wisconsin base rates.
(2)Regulatory amortizations and other pass through expenses are substantially offset in margins and therefore do not have a significant impact on net income.
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| 06/30/2022 Form 10-Q | 48 | WEC Energy Group, Inc. |
(3)Represents costs associated with the We Power generation units, including operating and maintenance costs recognized by WE. During the three months ended June 30,second quarter of 2022 and 2021, and 2020, $25.7$26.1 million and $25.5$25.7 million, respectively, of costs were billed to or incurred by WE related to the We Power generation units, with the difference in costs billed or incurred and expenses recognized, either deferred or deducted from the regulatory asset.
(4)Represents amortization of a certain portion of WPS's regulatory liability associated with its 2020 earnings sharing mechanism to offset certain 2022 revenue deficiencies, as approved by the PSCW in order to forego filing for 2022 base rate increases. See Note 26, Regulatory Environment, in our 2021 Annual Report on Form 10-K for additional information on 2022 Wisconsin base rates. | | | | | | | | |
06/30/2021 Form 10-Q
| 48 | WEC Energy Group, Inc. |
The following tables provide information on delivered sales volumes by customer class and weather statistics:
| | | Three Months Ended June 30 | | Three Months Ended June 30 |
| | MWh (in thousands) | | MWh (in thousands) |
| Electric Sales Volumes | Electric Sales Volumes | | 2021 | | 2020 | | B (W) | Electric Sales Volumes | | 2022 | | 2021 | | B (W) |
| Customer Class | Customer Class | | | | | Customer Class | | | | |
| Residential | Residential | | 2,655.6 | | | 2,736.7 | | | (81.1) | | Residential | | 2,657.1 | | | 2,655.6 | | | 1.5 | |
Small commercial and industrial (1) | Small commercial and industrial (1) | | 3,084.8 | | | 2,793.1 | | | 291.7 | | Small commercial and industrial (1) | | 3,106.5 | | | 3,084.8 | | | 21.7 | |
Large commercial and industrial (1) | Large commercial and industrial (1) | | 3,144.7 | | | 2,561.9 | | | 582.8 | | Large commercial and industrial (1) | | 2,988.4 | | | 3,144.7 | | | (156.3) | |
| Other | Other | | 29.7 | | | 36.2 | | | (6.5) | | Other | | 28.9 | | | 29.7 | | | (0.8) | |
Total retail (1) | Total retail (1) | | 8,914.8 | | | 8,127.9 | | | 786.9 | | Total retail (1) | | 8,780.9 | | | 8,914.8 | | | (133.9) | |
| Wholesale | Wholesale | | 707.1 | | | 725.3 | | | (18.2) | | Wholesale | | 639.4 | | | 707.1 | | | (67.7) | |
| Resale | Resale | | 1,344.7 | | | 1,425.5 | | | (80.8) | | Resale | | 855.4 | | | 1,344.7 | | | (489.3) | |
Total sales in MWh (1) | Total sales in MWh (1) | | 10,966.6 | | | 10,278.7 | | | 687.9 | | Total sales in MWh (1) | | 10,275.7 | | | 10,966.6 | | | (690.9) | |
(1)Includes distribution sales for customers who have purchased power from an alternative electric supplier in Michigan.
| | | Three Months Ended June 30 | | Three Months Ended June 30 |
| | Therms (in millions) | | Therms (in millions) |
| Natural Gas Sales Volumes | Natural Gas Sales Volumes | | 2021 | | 2020 | | B (W) | Natural Gas Sales Volumes | | 2022 | | 2021 | | B (W) |
| Customer Class | Customer Class | | | | | | | Customer Class | | | | | | |
| Residential | Residential | | 142.9 | | | 177.4 | | | (34.5) | | Residential | | 175.9 | | | 142.9 | | | 33.0 | |
| Commercial and industrial | Commercial and industrial | | 83.6 | | | 99.1 | | | (15.5) | | Commercial and industrial | | 106.4 | | | 83.6 | | | 22.8 | |
| Total retail | Total retail | | 226.5 | | | 276.5 | | | (50.0) | | Total retail | | 282.3 | | | 226.5 | | | 55.8 | |
| Transportation | Transportation | | 311.1 | | | 286.8 | | | 24.3 | | Transportation | | 321.0 | | | 311.1 | | | 9.9 | |
| Total sales in therms | Total sales in therms | | 537.6 | | | 563.3 | | | (25.7) | | Total sales in therms | | 603.3 | | | 537.6 | | | 65.7 | |
| | | Three Months Ended June 30 | | Three Months Ended June 30 |
| | Degree Days | | Degree Days |
| Weather | Weather | | 2021 | | 2020 | | B (W) | Weather | | 2022 | | 2021 | | B (W) |
WE and WG (1) | WE and WG (1) | | | | | | | WE and WG (1) | | | | | | |
| Heating (928 Normal) | | 738 | | | 995 | | | (25.8) | % | |
| Cooling (164 Normal) | | 303 | | | 223 | | | 35.9 | % | |
| Heating (923 Normal) | | Heating (923 Normal) | | 840 | | | 738 | | | 13.8 | % |
| Cooling (171 Normal) | | Cooling (171 Normal) | | 259 | | | 303 | | | (14.5) | % |
| WPS (2) | WPS (2) | | WPS (2) | |
| Heating (964 Normal) | | 854 | | | 1,078 | | | (20.8) | % | |
| Cooling (137 Normal) | | 242 | | | 185 | | | 30.8 | % | |
| Heating (963 Normal) | | Heating (963 Normal) | | 908 | | | 854 | | | 6.3 | % |
| Cooling (144 Normal) | | Cooling (144 Normal) | | 249 | | | 242 | | | 2.9 | % |
| UMERC (3) | UMERC (3) | | UMERC (3) | |
| Heating (1,197 Normal) | Heating (1,197 Normal) | | 1,093 | | | 1,325 | | | (17.5) | % | Heating (1,197 Normal) | | 1,232 | | | 1,093 | | | 12.7 | % |
| | Cooling (80 Normal) | | 156 | | | 114 | | | 36.8 | % | |
| Cooling (82 Normal) | | Cooling (82 Normal) | | 115 | | | 156 | | | (26.3) | % |
(1)Normal degree days are based on a 20-year moving average of monthly temperatures from Mitchell International Airport in Milwaukee, Wisconsin.
(2)Normal degree days are based on a 20-year moving average of monthly temperatures from the Green Bay, Wisconsin weather station.
(3)Normal degree days are based on a 20-year moving average of monthly temperatures from the Iron Mountain, Michigan weather station.
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| 06/30/2022 Form 10-Q | 49 | WEC Energy Group, Inc. |
Electric Revenues
Electric revenues increased $133.5 million during the second quarter of 2022, compared with the same quarter in 2021. To the extent that changes in fuel and purchased power costs are passed through to customers, the changes are offset by comparable changes in revenues. See the discussion of electric utility margins below for more information related to the recovery of fuel and purchased power costs and the remaining drivers of the changes in electric revenues.
Electric Utility Margins
Electric utility margins at the Wisconsin segment increased $30.0$6.7 million during the second quarter of 2021,2022, compared with the same quarter in 2020.2021. The significant factors impacting the higher electric utility margins were:
•A $19.3An $18.3 million increase in margins related to higher retail sales volumes, including the impact of weather. As measured by cooling degree days, the second quarter of 2021 was 35.9% and 30.8% warmer than the same quarter in 2020 in the Milwaukee area and Green Bay area, respectively. Commercial and industrial retail sales volumes also improved during the second quarter of
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06/30/2021 Form 10-Q | 49 | WEC Energy Group, Inc. |
2021, compared with the same quarter in 2020, due to the continued economic recovery in Wisconsin from the COVID-19 pandemic.
•A $6.2 million increase in margins from other revenues, primarily related to higher late payment charges driven by an increase in past due accounts receivable balances during the second quarter of 2021. Late payment charges were suspended by the PSCW for a period of time beginning March 24, 2020 as a result of the COVID-19 pandemic. See Note 22, Regulatory Environment, for more information.
•A $4.1 million net increase in margins related to the impact of the Wisconsin rate orders approved by the PSCW, effective January 1, 2020. The positive impact of increased rates from the rate orders included a $2.4 million negative impact related to unprotected excess deferred taxes during the second quarter of 2021, which we agreed to return to customers over two years andin our PSCW-approved rate orders. This increase in margins is offset in income taxes.
•A $2.0 million increase in securitization revenues received during the second quarter of 2022, compared with the same quarter in 2021, related to an environmental control charge collected from WE's retail electric distribution customers on behalf of WEPCo Environmental Trust. WE began assessing this charge in June 2021, subsequent to the issuance of the ETBs by WEPCo Environmental Trust in May 2021, in accordance with a November 2020 PSCW financing order. See Note 22, Regulatory Environment,20, Variable Interest Entities, for more information. These revenues are offset in depreciation and amortization as well as interest expense.
•A $4.2 million increase in other revenues, primarily related to third party use of our assets.
These increases in margins were partially offset by:
•A $14.2 million quarter-over-quarter negative impact from actual fuel and purchased power costs compared with costs collected in rates. Under the Wisconsin fuel rules, the margins of our electric utilities are impacted by under- or over-collections of certain fuel and purchased power costs that are within a 2% price variance from the costs included in rates, and the remaining variance beyond the 2% price variance is generally deferred for future recovery or refund to customers.
•Lower margins of $4.7 million driven by the expiration of certain wholesale contracts.
Natural Gas Revenues
Natural gas revenues increased $116.4 million during the second quarter of 2022, compared with the same quarter in 2021. Because prudently incurred natural gas costs are passed through to our customers in current rates, the changes are offset by comparable changes in revenues. The average per-unit cost of natural gas increased 55% during the second quarter of 2022, compared with the same quarter in 2021. The remaining drivers of changes in natural gas revenues are described in the discussion of natural gas utility margins below.
Natural Gas Utility Margins
Natural gas utility margins at the Wisconsin segment decreased $7.2increased $13.6 million during the second quarter of 2021,2022, compared with the same quarter in 2020.2021. The most significant factorfactors impacting the lowerhigher natural gas utility margins was a $9.1were:
•An $11.4 million decrease related to lower retailincrease in margins from higher sales volumes, primarily driven by warmer springthe continued economic recovery in Wisconsin from the COVID-19 pandemic, as well as colder weather during the second quarter of 2022, compared with the same quarter in 2021. As measured by heating degree days, the second quarter of 20212022 was 25.8%13.8% and 20.8% warmer6.3% colder than the same quarter in 20202021 in the Milwaukee area and Green Bay area, respectively. This decrease in margins was partially offset by a $2.2
•A $2.5 million increase in margins from other revenues, primarily related to higher late payment chargesamortization of a certain portion of WG's regulatory liability consisting of credit balances associated with the escrow of natural gas storage service costs from Bluewater Gas Storage, LLC. In September 2021, the PSCW issued a written order for our Wisconsin utilities approving certain accounting treatments to offset certain 2022
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revenue deficiencies in the second quarter oforder to forego filing for 2022 base rate increases. See Note 26, Regulatory Environment, in our 2021 as discussed above.Annual Report on Form 10-K for more information.
Other Operating Expenses (includes other operation and maintenance, depreciation and amortization, and property and revenue taxes)
Other operating expenses at the Wisconsin segment increased $8.9$2.7 million during the second quarter of 2021,2022, compared with the same quarter in 2020.2021. The significant factors impacting the increase in operating expenses were:
•A $12.2$12.8 million increase in electric and natural gas distribution expenses, primarily driven by higher storm restoration expense during the second quarter of 2022, and higher costs to maintain system reliability.
•A $7.9 million increase in depreciation and amortization, driven by assets being placed into service as we continue to execute on our capital plan, as well as an increase related to the We Power leases.leases, and an increase related to securitization amortization, which is offset in revenues. These increases were partially offset by $2.5 million of deferred depreciation related to capital investments made by WG since it's last rate case, as approved by the PSCW in an order that allowed our Wisconsin utilities to offset certain 2022 revenue deficiencies in order to forego filing for 2022 base rate increases. See Note 26, Regulatory Environment, in our 2021 Annual Report on Form 10-K for more information.
•A $2.8$3.6 million increase in customer serviceregulatory amortizations and other pass through expenses, as discussed in the notes under the other operation and maintenance table above.
•A $3.0 million increase in benefits, primarily related to additionaldriven by higher stock-based compensation and pension costs, from an information technology project created to improve the billing, call center, and credit collection functions, as well as higher call volumes and meteringpartially offset by lower deferred compensation costs.
These increases in other operating expenses were partially offset by:
•A $6.0$20.2 million decrease in benefit costs, primarily due to lower deferred compensationtransmission expense driven by the amortization of a certain portion of WE's and pension costs, partially offset by higher medical costs.WPS's regulatory liabilities associated with transmission escrow balances, as discussed in the notes under the other operation and maintenance table above.
•A $3.9$5.4 million decrease in expense driven by the amortization of a certain portion of WPS's regulatory amortizations and other pass through expenses,liability associated with its 2020 earnings sharing mechanism, as discussed in the notes under the other operation and maintenance table above.
Other Income, Net
Other income, net at the Wisconsin segment increased $3.9$6.3 million during the second quarter of 2021,2022, compared with the same quarter in 2020,2021, driven by higher net credits from the non-service components of our net periodic pension and OPEB costs. See Note 15,16, Employee Benefits, for more information on our benefit costs.
Interest Expense
Interest expense at the Wisconsin segment decreased $4.2 million during the second quarter of 2022, compared with the same quarter in 2021, primarily due to the deferral of interest expense related to capital investments made by WG since its last rate case, as approved by the PSCW in an order that allowed our Wisconsin utilities to offset certain 2022 revenue deficiencies in order to forego filing for a 2022 base rate increase. See Note 26, Regulatory Environment, in our 2021 Annual Report on Form 10-K for more information. Also contributing to the decrease was lower interest expense on finance lease liabilities, primarily related to the WE Power leases, as finance lease liabilities decrease each year as payments are made.
Income Tax Expense
Income tax expense at the Wisconsin segment increased $1.3$26.2 million during the second quarter of 2021,2022, compared with the same quarter in 2020.2021. The increase in income tax expense was due to an increase in pretax income, partially offset by a positiveapproximate $18 million negative impact related to the 2021lower quarter-over-quarter amortization of the unprotected excess deferred tax benefits from the Tax Legislation in connection with the Wisconsin rate orders approved by the PSCW, effective January 1, 2020. The impact due to the benefit from the amortization of the unprotected excess deferred tax benefits in 2021 from the Tax Legislation did not impact earnings as there was an offsetting negative impact in operating income. See Note 11, Income Taxes, for more information.
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in operating income. Also contributing to this increase in income tax expense was an increase in pre-tax income in 2022. See Note 12, Income Taxes, for more information.
Illinois Segment Contribution to Net Income Attributed to Common Shareholders
The Illinois segment's contribution to net income attributed to common shareholders forwas $56.4 million during the three months ended June 30, 2021 was $43.6 million,second quarter of 2022, representing an $11.5a $12.8 million, or 35.8%29.4%, increase over the prior year.same quarter in 2021. The increase was driven by a gain on the sale of certain real estate in Chicago, as well as higher natural gas margins due to PGL's continued capital investment in the SMP project under its QIP rider and an increase in late payment charges. Lower pension expense duringrider. See Note 3, Disposition, for more information on the second quarter of 2021 also contributed to the increase in earnings.sale. These positive impacts were partially offset by higher depreciationincreases in various operating expenses, including expenses related to the settlement of legal claims, charitable projects, and amortization.benefit costs.
Since the majority of PGL and NSG customers use natural gas for heating, net income attributed to common shareholders at the Illinois segment is sensitive to weather and is generally higher during the winter months.
| | | Three Months Ended June 30 | | Three Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | B (W) | (in millions) | | 2022 | | 2021 | | B (W) |
| Natural gas revenues | Natural gas revenues | | $ | 275.5 | | | $ | 261.2 | | | $ | 14.3 | | Natural gas revenues | | $ | 442.4 | | | $ | 275.5 | | | $ | 166.9 | |
| Cost of natural gas sold | Cost of natural gas sold | | 49.0 | | | 53.2 | | | 4.2 | | Cost of natural gas sold | | 205.6 | | | 49.0 | | | (156.6) | |
| Total natural gas margins | Total natural gas margins | | 226.5 | | | 208.0 | | | 18.5 | | Total natural gas margins | | 236.8 | | | 226.5 | | | 10.3 | |
| | Other operation and maintenance | Other operation and maintenance | | 90.8 | | | 93.2 | | | 2.4 | | Other operation and maintenance | | 79.1 | | | 90.8 | | | 11.7 | |
| Depreciation and amortization | Depreciation and amortization | | 54.0 | | | 48.6 | | | (5.4) | | Depreciation and amortization | | 57.4 | | | 54.0 | | | (3.4) | |
| Property and revenue taxes | Property and revenue taxes | | 6.8 | | | 6.7 | | | (0.1) | | Property and revenue taxes | | 8.4 | | | 6.8 | | | (1.6) | |
| Operating income | Operating income | | 74.9 | | | 59.5 | | | 15.4 | | Operating income | | 91.9 | | | 74.9 | | | 17.0 | |
| | Other income, net | Other income, net | | 1.3 | | | 0.9 | | | 0.4 | | Other income, net | | 3.7 | | | 1.3 | | | 2.4 | |
| Interest expense | Interest expense | | 16.6 | | | 16.1 | | | (0.5) | | Interest expense | | 18.0 | | | 16.6 | | | (1.4) | |
| Income before income taxes | Income before income taxes | | 59.6 | | | 44.3 | | | 15.3 | | Income before income taxes | | 77.6 | | | 59.6 | | | 18.0 | |
| | Income tax expense | Income tax expense | | 16.0 | | | 12.2 | | | (3.8) | | Income tax expense | | 21.2 | | | 16.0 | | | (5.2) | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 43.6 | | | $ | 32.1 | | | $ | 11.5 | | Net income attributed to common shareholders | | $ | 56.4 | | | $ | 43.6 | | | $ | 12.8 | |
The following table shows a breakdown of other operation and maintenance:
| | | Three Months Ended June 30 | | Three Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | B (W) | (in millions) | | 2022 | | 2021 | | B (W) |
| Operation and maintenance not included in the line items below | Operation and maintenance not included in the line items below | | $ | 68.7 | | | $ | 75.9 | | | $ | 7.2 | | Operation and maintenance not included in the line items below | | $ | 53.3 | | | $ | 68.7 | | | $ | 15.4 | |
Riders (1) | Riders (1) | | 22.7 | | | 18.0 | | | (4.7) | | Riders (1) | | 26.4 | | | 22.7 | | | (3.7) | |
Regulatory amortizations (1) | Regulatory amortizations (1) | | (0.6) | | | (0.7) | | | (0.1) | | Regulatory amortizations (1) | | (0.6) | | | (0.6) | | | — | |
| | Total other operation and maintenance | Total other operation and maintenance | | $ | 90.8 | | | $ | 93.2 | | | $ | 2.4 | | Total other operation and maintenance | | $ | 79.1 | | | $ | 90.8 | | | $ | 11.7 | |
(1)These riders and regulatory amortizations are substantially offset in margins and therefore do not have a significant impact on net income.
The following tables provide information on delivered sales volumes by customer class and weather statistics:
| | | Three Months Ended June 30 | | Three Months Ended June 30 |
| | Therms (in millions) | | Therms (in millions) |
| Natural Gas Sales Volumes | Natural Gas Sales Volumes | | 2021 | | 2020 | | B (W) | Natural Gas Sales Volumes | | 2022 | | 2021 | | B (W) |
| Customer Class | Customer Class | | | | | | Customer Class | | | | | |
| Residential | Residential | | 117.7 | | | 140.5 | | | (22.8) | | Residential | | 145.2 | | | 117.7 | | | 27.5 | |
| Commercial and industrial | Commercial and industrial | | 42.0 | | | 48.5 | | | (6.5) | | Commercial and industrial | | 52.5 | | | 42.0 | | | 10.5 | |
| Total retail | Total retail | | 159.7 | | | 189.0 | | | (29.3) | | Total retail | | 197.7 | | | 159.7 | | | 38.0 | |
| Transportation | Transportation | | 125.7 | | | 136.7 | | | (11.0) | | Transportation | | 133.9 | | | 125.7 | | | 8.2 | |
| Total sales in therms | Total sales in therms | | 285.4 | | | 325.7 | | | (40.3) | | Total sales in therms | | 331.6 | | | 285.4 | | | 46.2 | |
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| | | Three Months Ended June 30 | | Three Months Ended June 30 |
| | Degree Days | | Degree Days |
Weather (1) | Weather (1) | | 2021 | | 2020 | | B (W) | Weather (1) | | 2022 | | 2021 | | B (W) |
| Heating (718 Normal) | | 652 | | | 772 | | | (15.5) | % | |
| Heating (708 Normal) | | Heating (708 Normal) | | 722 | | | 652 | | | 10.7 | % |
(1)Normal heating degree days are based on a 12-year moving average of monthly temperatures from Chicago's O'Hare Airport.
Natural Gas Revenues
Natural gas revenues increased $166.9 million during the second quarter of 2022, compared with the same quarter in 2021. Because prudently incurred natural gas costs are passed through to our customers in current rates, the changes are offset by comparable changes in revenues. The average per-unit cost of natural gas increased 234% during the second quarter of 2022, compared with the same quarter in 2021. The remaining drivers of changes in natural gas revenues are described in the discussion of margins below.
Natural Gas Utility Margins
Natural gas utility margins at the Illinois segment, net of the $4.7$3.7 million impact of the riders referenced in the table above, increased $13.8$6.6 million during the second quarter of 2021,2022, compared with the same quarter in 2020.2021. The increase in margins was primarily driven by:
•A $6.5$6.2 million increase in revenues at PGL due to continued capital investment in the SMP project. PGL recovers the costs related to the SMP through a surcharge on customer bills pursuant to an ICC approved QIP rider, which is in effect through 2023. See Note 23, Regulatory Environment, for more information.
•A $4.2$1.8 million increase in late payment charges drivenrelated to the impact of the NSG rate order approved by an increase in past due accounts receivable balances and the suspension of late payment charges during 2020 due to a regulatory order from the ICC, effective September 15, 2021, which includes the Variable Income Tax Adjustment Rider in response tobase rates. See Note 26, Regulatory Environment, in our 2021 Annual Report on Form 10-K for additional information on the COVID-19 pandemic.2021 rate order.
•A $3.1These increases in natural gas utility margins were partially offset by a $2.2 million increasedecrease in fixed charges driven byduring the moratorium on disconnections during 2020 due to a regulatory order fromsecond quarter of 2022, compared with the ICCsame quarter in response to the COVID-19 pandemic.
See Note 22, Regulatory Environment, for more information.2021.
Other Operating Expenses (includes other operation and maintenance, depreciation and amortization, and property and revenue taxes)
Other operating expenses at the Illinois segment decreased $1.6$10.4 million, net of the $3.7 million impact of the riders referenced in the table above, during the second quarter of 2021,2022, compared with the same quarter in 2020.2021. The significant factor impacting the decrease in operating expenses was a $9.5$54.5 million decreasepre-tax gain on the sale of certain real estate in pension expense during the second quarter of 2021, compared with the same quarter in 2020.Chicago. See Note 3, Disposition, for more information.
This decrease in operating expenses related to the pre-tax gain was partially offset by:
•An $11.4 million increase in expenses associated with the settlement of legal claims.
•A $5.4$10.0 million increase in expenses related to charitable projects supporting our customers and the communities within our service territories.
•An $8.4 million increase in benefit costs, primarily due to higher pension and stock-based compensation costs.
•A $4.9 million increase in natural gas distribution and maintenance costs.
•A $3.4 million increase in depreciation expense, primarily driven by PGL's continued capital investment in the SMP project.
•A $1.2$2.4 million increase in costs associated with maintenance at the Manlove Gas Storage Field.
•A $1.6 million increase in customer service expense, primarily driven by higher call volumesvolumes.
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•A $1.6 million increase in property and meteringrevenue taxes, primarily driven by an increase in the invested capital tax related to continued capital investment. This increase was offset in natural gas utility margins.
Other Income, Net
Other income, net at the Illinois segment increased $2.4 million during the second quarter of 2022, compared with the same quarter in 2021, driven by higher net credits from the non-service components of our net periodic pension and OPEB costs. See Note 16, Employee Benefits, for more information on our benefit costs.
Interest Expense
Interest expense at the Illinois segment increased $0.5$1.4 million during the second quarter of 2021,2022, compared with the same quarter in 2020,2021, primarily due to the$225.0 million of long-term debt issuance of $200.0 millionissuances in November 2020.2021.
Income Tax Expense
Income tax expense at the Illinois segment increased $3.8$5.2 million during the second quarter of 2021,2022, compared with the same quarter in 2020,2021, driven by an increase in pretaxpre-tax income.
Other States Segment Contribution to Net Income Attributed to Common Shareholders
The other states segment's contribution to net income attributed to common shareholders forduring the three months ended June 30, 2021second quarter of 2022 was $2.5$2.7 million, representing a $0.3$0.2 million, or 10.7%8.0%, decreaseincrease over the prior year.same quarter in 2021. The decreaseincrease was primarily driven by higher natural gas margins due to a rate increase at MGU, effective January 1, 2022, and higher retail sales volumes during the second quarter of 2022, compared with the same quarter in 2021. These positive impacts were partially offset by increases in operating expenses, including operation and maintenance, depreciation and amortization, and property taxes.as well as interest expense, as discussed below.
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Since the majority of MGUMERC and MERCMGU customers use natural gas for heating, net income attributed to common shareholders at the other states segment is sensitive to weather and is generally higher during the winter months.
| | | Three Months Ended June 30 | | Three Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | B (W) | (in millions) | | 2022 | | 2021 | | B (W) |
| Natural gas revenues | Natural gas revenues | | $ | 72.1 | | | $ | 66.7 | | | $ | 5.4 | | Natural gas revenues | | $ | 99.9 | | | $ | 72.1 | | | $ | 27.8 | |
| Cost of natural gas sold | Cost of natural gas sold | | 32.4 | | | 27.8 | | | (4.6) | | Cost of natural gas sold | | 55.8 | | | 32.4 | | | (23.4) | |
| Total natural gas margins | Total natural gas margins | | 39.7 | | | 38.9 | | | 0.8 | | Total natural gas margins | | 44.1 | | | 39.7 | | | 4.4 | |
| | Other operation and maintenance | Other operation and maintenance | | 21.2 | | | 20.4 | | | (0.8) | | Other operation and maintenance | | 22.9 | | | 21.2 | | | (1.7) | |
| Depreciation and amortization | Depreciation and amortization | | 9.4 | | | 8.3 | | | (1.1) | | Depreciation and amortization | | 10.2 | | | 9.4 | | | (0.8) | |
| Property and revenue taxes | Property and revenue taxes | | 4.5 | | | 4.2 | | | (0.3) | | Property and revenue taxes | | 4.7 | | | 4.5 | | | (0.2) | |
| Operating income | Operating income | | 4.6 | | | 6.0 | | | (1.4) | | Operating income | | 6.3 | | | 4.6 | | | 1.7 | |
| | Other income, net | Other income, net | | 0.2 | | | 0.3 | | | (0.1) | | Other income, net | | 0.5 | | | 0.2 | | | 0.3 | |
| Interest expense | Interest expense | | 1.5 | | | 2.5 | | | 1.0 | | Interest expense | | 3.2 | | | 1.5 | | | (1.7) | |
| Income before income taxes | Income before income taxes | | 3.3 | | | 3.8 | | | (0.5) | | Income before income taxes | | 3.6 | | | 3.3 | | | 0.3 | |
| | Income tax expense | Income tax expense | | 0.8 | | | 1.0 | | | 0.2 | | Income tax expense | | 0.9 | | | 0.8 | | (0.1) | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 2.5 | | | $ | 2.8 | | | $ | (0.3) | | Net income attributed to common shareholders | | $ | 2.7 | | | $ | 2.5 | | | $ | 0.2 | |
The following table shows a breakdown of other operation and maintenance:
| | | Three Months Ended June 30 | | Three Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | B (W) | (in millions) | | 2022 | | 2021 | | B (W) |
| Operation and maintenance not included in line item below | Operation and maintenance not included in line item below | | $ | 16.5 | | | $ | 17.3 | | | $ | 0.8 | | Operation and maintenance not included in line item below | | $ | 18.9 | | | $ | 16.5 | | | $ | (2.4) | |
Regulatory amortizations and other pass through expenses (1) | Regulatory amortizations and other pass through expenses (1) | | 4.7 | | | 3.1 | | | (1.6) | | Regulatory amortizations and other pass through expenses (1) | | 4.0 | | | 4.7 | | | 0.7 | |
| | Total other operation and maintenance | Total other operation and maintenance | | $ | 21.2 | | | $ | 20.4 | | | $ | (0.8) | | Total other operation and maintenance | | $ | 22.9 | | | $ | 21.2 | | | $ | (1.7) | |
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(1)Regulatory amortizations and other pass through expenses are substantially offset in margins and therefore do not have a significant impact on net income.
The following tables provide information on delivered sales volumes by customer class and weather statistics:
| | | Three Months Ended June 30 | | Three Months Ended June 30 |
| | Therms (in millions) | | Therms (in millions) |
| Natural Gas Sales Volumes | Natural Gas Sales Volumes | | 2021 | | 2020 | | B (W) | Natural Gas Sales Volumes | | 2022 | | 2021 | | B (W) |
| Customer Class | Customer Class | | | | | | | Customer Class | | | | | | |
| Residential | Residential | | 43.5 | | | 53.4 | | | (9.9) | | Residential | | 52.6 | | | 43.5 | | | 9.1 | |
| Commercial and industrial | Commercial and industrial | | 25.1 | | | 26.8 | | | (1.7) | | Commercial and industrial | | 37.8 | | | 25.1 | | | 12.7 | |
| Total retail | Total retail | | 68.6 | | | 80.2 | | | (11.6) | | Total retail | | 90.4 | | | 68.6 | | | 21.8 | |
| Transportation | Transportation | | 170.8 | | | 123.4 | | | 47.4 | | Transportation | | 164.9 | | | 170.8 | | | (5.9) | |
| Total sales in therms | Total sales in therms | | 239.4 | | | 203.6 | | | 35.8 | | Total sales in therms | | 255.3 | | | 239.4 | | | 15.9 | |
| | | | Three Months Ended June 30 | | | Three Months Ended June 30 |
| | Degree Days | | Degree Days |
Weather (1) | Weather (1) | | 2021 | | 2020 | | B (W) | Weather (1) | | 2022 | | 2021 | | B (W) |
| MERC | MERC | | | | | | | MERC | | | | | | |
| Heating (955 Normal) | | 911 | | | 1,041 | | | (12.5) | % | |
| Heating (956 Normal) | | Heating (956 Normal) | | 1,112 | | | 911 | | | 22.1 | % |
| | MGU | MGU | | MGU | |
| Heating (773 Normal) | | 810 | | | 933 | | | (13.2) | % | |
| Heating (778 Normal) | | Heating (778 Normal) | | 796 | | | 810 | | | (1.7) | % |
(1)Normal heating degree days for MERC and MGU are based on a 20-year moving average and 15-year moving average, respectively, of monthly temperatures from various weather stations throughout their respective service territories.
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| 53 | WEC Energy Group, Inc. |
Natural gas revenues increased $27.8 million during the second quarter of 2022, compared with the same quarter in 2021. Because prudently incurred natural gas costs are passed through to our customers in current rates, the changes are offset by comparable changes in revenues. The average per-unit cost of natural gas sold increased 34% during the second quarter of 2022, compared with the same quarter in 2021. See the discussion of natural gas utility margins below for the remaining drivers of changes in natural gas revenues.
Natural Gas Utility Margins
Natural gas utility margins increased $0.8$4.4 million during the second quarter of 2021,2022, compared to the same quarter in 2020. This2021. The increase in margins was primarily driven by a $0.8by:
•A $2.3 million increase related to MERC CIP revenue, which was offsetthe new rates at MGU that went into effect in operation and maintenance expense. Rebates and programs are available to residential and commercial customers of MERC through the CIP, which is funded by rate payers using the Conservation Cost Recovery Charge and the Conservation Cost Recovery Adjustment funds that are collected on their monthly billing statements. There was also an2022.
•A $1.6 million increase of $0.7 million in revenues related to MERC's GUIC rider. The GUIC rider allows MERChigher retail sales volumes due to recover previously approved GUIC incurred to replace or modify natural gas facilitiesboth colder weather in our Minnesota service territories and continued economic recovery during the second quarter of 2022, as compared to the extent the work is required by state, federal, or other government agencies and exceeds the costs includedsame quarter in base rates. These increases were partially offset by lower sales due to warmer weather.2021.
Other Operating Expenses (includes other operation and maintenance, depreciation and amortization, and property and revenue taxes)
Other operating expenses at the other states segment increased $2.2$2.7 million during the second quarter of 2021,2022, compared to the same quarter in 2020. This2021. The significant factors impacting the increase was primarilyin operating expenses were:
•A $1.5 million increase in natural gas operations and customer service expense, driven by anvarious operation and maintenance projects approved in MGU's rate case and higher labor and external contracting costs.
•A $0.8 million increase of $1.1 million in depreciation and amortization related to continued capital investment, as well as an increase of $0.8 million in operation and maintenance expense related to MERC's CIP program, which had an offsetting increase in margins.investment.
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Interest Expense
Interest expense at the other states segment decreased $1.0increased $1.7 million during the second quarter of 2021,2022, compared with the same quarter in 2020,2021, primarily due to the deferral of $1.2 million of interest expense related to capital investments made by MGU since its last rate case. See Note 22, Regulatory Environment, for more information.
Income Tax Expense
Income tax expense at the other states segment decreased $0.2 million duringin the second quarter of 2021, compared withas approved by the same quarterMPSC to mitigate the impacts from delaying the filing of its 2021 rate case. See Note 26, Regulatory Environment, in 2020, driven byour 2021 Annual Report on Form 10-K for additional information. This deferred interest expense is now being amortized over a decrease in pretax income.four-year period as a result of MGU's approved rate increase.
Electric Transmission Segment Contribution to Net Income Attributed to Common Shareholders
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30 |
| (in millions) | | 2021 | | 2020 | | B (W) |
| Net income attributed to common shareholders | | $ | 27.0 | | | $ | 33.5 | | | $ | (6.5) | |
Net income attributed to common shareholders at our electric transmission segment decreased $6.5 million during the second quarter of 2021, compared with the same quarter in 2020, driven by an $11.6 million decrease in equity earnings from transmission affiliates, primarily due to the impact of the FERC order issued in May 2020 addressing complaints related to ATC's ROE. The order resulted in an increase in the base ROE that ATC is allowed to collect, retroactive to November 2013, and increased our earnings from ATC by $14.6 million during the second quarter of 2020. For further discussion of the FERC order, see Factors Affecting Results, Liquidity, and Capital Resources – Other Matters – American Transmission Company Allowed Return on Equity Complaints. Continued capital investment by ATC partially offset the negative quarter-over-quarter impact from the FERC order.
The decrease in equity earnings from transmission affiliates was partially offset by a $5.1 million decrease in income tax expense during the second quarter of 2021, compared with the same quarter in 2020, driven by $3.3 million of uncertain tax positions recorded in the second quarter of 2020, and a decrease in pretax earnings. Partially offsetting this decrease in income tax expense was a $1.2 million negative impact from changes in amortization of federal excess deferred income taxes. | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30 |
| (in millions) | | 2022 | | 2021 | | B (W) |
| Equity in earnings of transmission affiliates | | $ | 43.0 | | | $ | 41.3 | | | $ | 1.7 | |
| Other income (expense), net | | 0.1 | | | (0.1) | | | 0.2 | |
| Interest expense | | 4.8 | | | 4.8 | | | — | |
| Income before income taxes | | 38.3 | | | 36.4 | | | 1.9 | |
| | | | | | |
| Income tax expense | | 9.3 | | | 9.4 | | | 0.1 | |
| Net income attributed to common shareholders | | $ | 29.0 | | | $ | 27.0 | | | $ | 2.0 | |
Non-Utility Energy Infrastructure Segment Contribution to Net Income Attributed to Common Shareholders
| | | Three Months Ended June 30 | | Three Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | B (W) | (in millions) | | 2022 | | 2021 | | B (W) |
| Operating income | | Operating income | | $ | 90.4 | | | $ | 86.8 | | | $ | 3.6 | |
| | Interest expense | | Interest expense | | 17.4 | | | 17.9 | | | 0.5 | |
| Income before income taxes | | Income before income taxes | | 73.0 | | | 68.9 | | | 4.1 | |
| | Income tax expense (benefit) | | Income tax expense (benefit) | | (7.3) | | | 0.7 | | | 8.0 | |
| Net loss attributed to noncontrolling interests | | Net loss attributed to noncontrolling interests | | — | | | 0.6 | | | (0.6) | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 68.8 | | | $ | 64.8 | | | $ | 4.0 | | Net income attributed to common shareholders | | $ | 80.3 | | | $ | 68.8 | | | $ | 11.5 | |
Operating Income
Operating income at the non-utility energy infrastructure segment increased $3.6 million during the second quarter of 2022, compared with the same quarter in 2021. The increase was primarily due to a $3.7 million positive impact from a sharing arrangement with one of our Blooming Grove customers resulting from strong energy prices.
Income Tax Expense (Benefit)
At the non-utility energy infrastructure segment, $7.3 million of income tax benefit was recorded during the second quarter of 2022, compared with $0.7 million of income tax expense recorded during the same quarter in 2021. The change was primarily due to a $9.3 million increase in PTCs in 2022, driven by the Jayhawk wind park achieving commercial operation in December 2021, an increase in the PTC rate related to the PTC inflation adjustment issued by the IRS, and higher generation at our other wind parks. This favorable change in the income tax benefit was partially offset by higher pre-tax earnings during the second quarter of 2022, compared with same quarter in 2021.
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06/30/20212022 Form 10-Q | 5456 | WEC Energy Group, Inc. |
Net income attributed to common shareholders at the non-utility energy infrastructure segment increased $4.0 million during the second quarter of 2021, compared with the same quarter in 2020, related to an $8.3 million increase in PTCs generated in the second quarter of 2021, driven by our Blooming Grove and Tatanka Ridge wind parks that achieved commercial operation in December 2020 and January 2021, respectively. Partially offsetting this increase was a $6.2 million increase in operating losses at the Coyote Ridge and Tatanka Ridge wind parks. The majority of earnings from our ownership interests in the wind parks come in the form of the wind PTCs discussed previously. In addition, there was a $2.8 million increase in interest expense primarily due to WEC Infrastructure Wind Holding I LLC's debt issuance in December 2020.
Corporate and Other Segment Contribution to Net Income Attributed to Common Shareholders
| | | | | Three Months Ended June 30 | | | Three Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | B (W) | (in millions) | | 2022 | | 2021 | | B (W) |
| Operating loss | | Operating loss | | $ | (5.8) | | | $ | (3.6) | | | $ | (2.2) | |
| | Other income (expense), net | | Other income (expense), net | | (8.9) | | | 19.9 | | | (28.8) | |
| Interest expense | | Interest expense | | 24.6 | | | 24.6 | | | — | |
| | Loss before income taxes | | Loss before income taxes | | (39.3) | | | (8.3) | | | (31.0) | |
| | Income tax expense (benefit) | | Income tax expense (benefit) | | (10.0) | | | 4.1 | | | 14.1 | |
| Net loss attributed to common shareholders | Net loss attributed to common shareholders | | $ | (12.4) | | | $ | (21.4) | | | $ | 9.0 | | Net loss attributed to common shareholders | | $ | (29.3) | | | $ | (12.4) | | | $ | (16.9) | |
Operating Loss
The netoperating loss attributed to common shareholders at the corporate and other segment decreased $9.0increased $2.2 million during the second quarter of 2021,2022, compared with the same quarter in 2020.2021. The significant factors impactinghigher operating loss was driven by $2.6 million of gains on land sales at Wispark during the lower net loss were:second quarter of 2021, which did not reoccur in the second quarter of 2022.
Other Income (Expense), Net
•
An $8.0
The corporate and other segment had other expense, net of $8.9 million during the second quarter of 2022, compared with other income, net of $19.9 million during the same quarter in 2021. The $28.8 million decrease in interest expense,other income was driven by the issuance of new debt in the second half of 2020 with lower interest rates than the debt retired during 2020. Also contributing to the decrease was lower interest rates on our short-term and variable-rate long-term debt.
•A $6.7a $9.7 million increase in other income, net driven by an $11.5 million increase in earnings from our equity method investment in a technology and energy-focused investment fund. Partially offsetting this increase in equity earnings was a $5.7 million decrease in the net gainsloss from the investments held in the Integrys rabbi trust during the second quarter of 2021,2022, compared with a $6.0 million net gain during the same quarter in 2020.2021. The investment gains and losses from the investments held in the rabbi trust partially offset increasesthe changes in benefitbenefits costs related to deferred compensation, which are included in other operation and maintenance expense in our operating segments. See Note 12,13, Fair Value Measurements, for more information on our investments held in the Integrys rabbi trust. A $13.7 million decrease in earnings from our equity method investments in technology and energy-focused investment funds also contributed to the decrease in other income.
Income Tax Expense (Benefit)
•
A $2.4
The corporate and other segment recorded a $10.0 million increase in operating income at Wispark due to higher gains on the sale of landtax benefit during the second quarter of 2021,2022, compared with the same quarter in 2020.
These increases in earnings were partially offset by an $11.0$4.1 million increase inof income tax expense during the second quarter of 2021, compared with the same quarter in 2020,2021. The positive change in income taxes was driven by a lower pretax loss,higher pre-tax loss. Also contributing to the favorable change in the income tax benefit were a $3.0$2.0 million quarter-over-quarterincrease in excess tax benefits recognized related to stock option exercises and a $1.9 million increase in the interim tax expensebenefit recorded to adjust consolidated income tax expense to the projected, annualized consolidated effective income tax rate, and a $0.9 million decrease in excess tax benefits recognized related to stock option exercises during the second quarter of 2021,six months ended June 30, 2022, compared towith the same quarterperiod in 2020.2021.
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| 06/30/2022 Form 10-Q | 57 | WEC Energy Group, Inc. |
SIX MONTHS ENDED JUNE 30, 20212022
Consolidated Earnings
The following table compares our consolidated results for the six months ended June 30, 20212022 with the six months ended June 30, 2020,2021, including favorable or better, "B", and unfavorable or worse, "W", variances:
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
| (in millions, except per share data) | (in millions, except per share data) | | 2021 | | 2020 | | B (W) | | (in millions, except per share data) | | 2022 | | 2021 | | B (W) | |
| Wisconsin | Wisconsin | | $ | 402.8 | | | $ | 376.5 | | | $ | 26.3 | | | Wisconsin | | $ | 436.5 | | | $ | 402.8 | | | $ | 33.7 | | |
| Illinois | Illinois | | 155.7 | | | 139.4 | | | 16.3 | | | Illinois | | 169.8 | | | 155.7 | | | 14.1 | | |
| Other states | Other states | | 27.2 | | | 29.1 | | | (1.9) | | | Other states | | 34.2 | | | 27.2 | | | 7.0 | | |
| Electric transmission | Electric transmission | | 55.0 | | | 58.5 | | | (3.5) | | | Electric transmission | | 56.8 | | | 55.0 | | | 1.8 | | |
| Non-utility energy infrastructure | Non-utility energy infrastructure | | 140.2 | | | 130.3 | | | 9.9 | | | Non-utility energy infrastructure | | 171.8 | | | 140.2 | | | 31.6 | | |
| Corporate and other | Corporate and other | | 5.2 | | | (39.7) | | | 44.9 | | | Corporate and other | | (15.7) | | | 5.2 | | | (20.9) | | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 786.1 | | | $ | 694.1 | | | $ | 92.0 | | | Net income attributed to common shareholders | | $ | 853.4 | | | $ | 786.1 | | | $ | 67.3 | | |
| Diluted Earnings Per Share | Diluted Earnings Per Share | | $ | 2.49 | | | $ | 2.19 | | | $ | 0.30 | | | Diluted Earnings Per Share | | $ | 2.70 | | | $ | 2.49 | | | $ | 0.21 | | |
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06/30/2021 Form 10-Q | 55 | WEC Energy Group, Inc. |
Earnings increased $92.0$67.3 million during the six months ended June 30, 2021,2022, compared with the same period in 2020.2021. The significant factors impacting the $92.0$67.3 million increase in earnings were:
•A $44.9 million increase in earnings from the corporate and other segment, driven by lower interest expense, higher earnings from our equity method investment in a technology and energy-focused investment fund, and net gains from investments held in the Integrys rabbi trust during the six months ended June 30, 2021, compared with net losses during the same period in 2020. An increase in certain income tax benefits also contributed to the increase in earnings.
•A $26.3$33.7 million increase in net income attributed to common shareholders at the Wisconsin segment, driven by an increase in electricnatural gas margins duerelated to higher retail sales volumes, includingprimarily due to the impact of weather. The positive impact of increased ratescontinued economic recovery in Wisconsin from the Wisconsin rate ordersCOVID-19 pandemic, as well as colder weather during the six months ended June 30, 2022, compared with the same period in 2021. Also contributing to the increase in earnings was lower operation and maintenance expense, driven by the amortization of certain regulatory liabilities to offset a portion of our 2022 forecasted revenue deficiencies, and higher net credits from the non-service components of our net periodic pension and OPEB costs. The amortization of the regulatory liabilities was approved by the PSCW effective January 1, 2020, also drove an increase in earnings. Higherorder to forego filing for 2022 base rate increases. These increases in earnings were partially offset by higher depreciation and amortization partially offset these positive impacts on earnings.and the negative impact from actual fuel and purchased power costs compared with costs collected in rates.
•A $16.3$31.6 million increase in net income attributed to common shareholders at the non-utility energy infrastructure segment, driven by an increase in PTCs during 2022, primarily due to the Jayhawk wind park that achieved commercial operation in December 2021, an increase in the PTC rate related to the PTC inflation adjustment issued by the IRS, and higher generation at our other wind parks. Also contributing to the increase in net income was the recognition of revenue related to market settlements Upstream received from SPP in February 2021. Due to a complaint filed with the FERC, the revenue related to these settlements could not be recognized until the FERC issued an order denying the complaint in the first quarter of 2022.
•A $14.1 million increase in net income attributed to common shareholders at the Illinois segment, driven by a gain on the sale of certain real estate in Chicago, as well as higher natural gas margins due to PGL's continued capital investment in the SMP project under its QIP rider and anNSG's rate increase, in late payment charges. Lower benefit costs and a gain on the sale of certain land parcels during the first half of 2021 also contributed to the increase in earnings.effective September 15, 2021. These positive impacts were partially offset by higher depreciationincreases in various operating expenses, including expenses related to the settlement of legal claims, charitable projects, and amortization.benefit costs.
•A $9.9These increases in earnings were partially offset by a $20.9 million increasedecrease in net income attributed to common shareholders atearnings from the non-utility energy infrastructurecorporate and other segment, due to an increase in PTCs generated in 2021, driven by net losses from the investments held in the Integrys rabbi trust during the first half of 2022, compared with net gains during the same period in 2021. A decrease in earnings from our Blooming Groveequity method investments in technology and Tatanka Ridge wind parks that achieved commercial operationenergy-focused investment funds also contributed to the decrease in December 2020 and January 2021, respectively.earnings.
Expected 20212022 Annual Effective Tax Rate
We expect our 20212022 annual effective tax rate to be between 13%18.5% and 14%, which includes an estimated 6%19.5%. Our effective tax rate benefit duecalculations are revised every quarter based on the best available year-end tax assumptions, adjusted in the following year after returns are filed. Tax accrual estimates are trued-up to the amortizationactual amounts claimed on the tax returns and further adjusted after examinations by taxing authorities, as needed.
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| 06/30/2022 Form 10-Q | 58 | WEC Energy Group, Inc. |
Non-GAAP Financial Measures
The discussions below address the contribution of each of our segments to net income attributed to common shareholders. The discussions include financial information prepared in accordance with GAAP, as well as electric margins and natural gas margins, which are not measures of financial performance under GAAP. Electric margins (electric revenues less fuel and purchased power costs) and natural gas margins (natural gas revenues less cost of natural gas sold) are non-GAAP financial measures because they exclude other operation and maintenance expense, depreciation and amortization, and property and revenue taxes.
We believe that electric and natural gas margins provide a useful basis for evaluating utility operations since the majority of prudently incurred fuel and purchased power costs, as well as prudently incurred natural gas costs, are passed through to customers in current rates. As a result, management uses electric and natural gas margins internally when assessing the operating performance of our segments as these measures exclude the majority of revenue fluctuations caused by changes in these expenses. Similarly, the presentation of electric and natural gas margins herein is intended to provide supplemental information for investors regarding our operating performance.
Our electric margins and natural gas margins may not be comparable to similar measures presented by other companies. Furthermore, these measures are not intended to replace operating income as determined in accordance with GAAP as an indicator of operating performance. The following table shows operating income by segment for our utility operations during the six months ended June 30, 20212022 and 2020:2021:
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 |
| Wisconsin | Wisconsin | | $ | 719.2 | | | $ | 704.4 | | Wisconsin | | $ | 806.8 | | | $ | 719.2 | |
| Illinois | Illinois | | 243.1 | | | 221.1 | | Illinois | | 260.1 | | | 243.1 | |
| Other states | Other states | | 38.9 | | | 43.4 | | Other states | | 50.9 | | | 38.9 | |
Each applicable segment discussion below includes a table that provides the calculation of electric margins and natural gas margins, as applicable, along with a reconciliation to the most directly comparable GAAP measure, operating income.
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06/30/20212022 Form 10-Q | 5659 | WEC Energy Group, Inc. |
Wisconsin Segment Contribution to Net Income Attributed to Common Shareholders
The Wisconsin segment's contribution to net income attributed to common shareholders forwas $436.5 million during the six months ended June 30, 2021, was $402.8 million,2022, representing a $26.3$33.7 million, or 7.0%8.4%, increase over the prior year.same period in 2021. The higher earnings were driven by an increase in electricnatural gas margins duerelated to higher retail sales volumes, includingprimarily due to the impact of weather. The positive impact of increased ratescontinued economic recovery in Wisconsin from the Wisconsin rate ordersCOVID-19 pandemic, as well as colder weather during the six months ended June 30, 2022, compared with the same period in 2021. Also contributing to the increase in earnings was lower operation and maintenance expense, driven by the amortization of certain regulatory liabilities to offset a portion of our 2022 forecasted revenue deficiencies, and higher net credits from the non-service components of our net periodic pension and OPEB costs. The amortization of the regulatory liabilities was approved by the PSCW effective January 1, 2020, also drove an increase in earnings. Higherorder to forego filing for 2022 base rate increases. These increases in earnings were partially offset by higher depreciation and amortization partially offset these positive impacts on earnings.and the negative impact from actual fuel and purchased power costs compared with costs collected in rates.
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | B (W) | (in millions) | | 2022 | | 2021 | | B (W) |
| Electric revenues | Electric revenues | | $ | 2,193.8 | | | $ | 2,036.5 | | | $ | 157.3 | | Electric revenues | | $ | 2,418.5 | | | $ | 2,193.8 | | | $ | 224.7 | |
| Fuel and purchased power | Fuel and purchased power | | 695.5 | | | 583.2 | | | (112.3) | | Fuel and purchased power | | 879.8 | | | 695.5 | | | (184.3) | |
| Total electric margins | Total electric margins | | 1,498.3 | | | 1,453.3 | | | 45.0 | | Total electric margins | | 1,538.7 | | | 1,498.3 | | | 40.4 | |
| | Natural gas revenues | Natural gas revenues | | 845.4 | | | 668.6 | | | 176.8 | | Natural gas revenues | | 1,081.2 | | | 845.4 | | | 235.8 | |
| Cost of natural gas sold | Cost of natural gas sold | | 504.3 | | | 328.1 | | | (176.2) | | Cost of natural gas sold | | 706.0 | | | 504.3 | | | (201.7) | |
| Total natural gas margins | Total natural gas margins | | 341.1 | | | 340.5 | | | 0.6 | | Total natural gas margins | | 375.2 | | | 341.1 | | | 34.1 | |
| | Total electric and natural gas margins | Total electric and natural gas margins | | 1,839.4 | | | 1,793.8 | | | 45.6 | | Total electric and natural gas margins | | 1,913.9 | | | 1,839.4 | | | 74.5 | |
| | Other operation and maintenance | Other operation and maintenance | | 688.0 | | | 680.2 | | | (7.8) | | Other operation and maintenance | | 650.5 | | | 688.0 | | | 37.5 | |
| Depreciation and amortization | Depreciation and amortization | | 356.0 | | | 333.0 | | | (23.0) | | Depreciation and amortization | | 374.8 | | | 356.0 | | | (18.8) | |
| Property and revenue taxes | Property and revenue taxes | | 76.2 | | | 76.2 | | | — | | Property and revenue taxes | | 81.8 | | | 76.2 | | | (5.6) | |
| Operating income | Operating income | | 719.2 | | | 704.4 | | | 14.8 | | Operating income | | 806.8 | | | 719.2 | | | 87.6 | |
| | Other income, net | Other income, net | | 35.3 | | | 28.8 | | | 6.5 | | Other income, net | | 46.9 | | | 35.3 | | | 11.6 | |
| Interest expense | Interest expense | | 279.9 | | | 283.1 | | | 3.2 | | Interest expense | | 271.9 | | | 279.9 | | | 8.0 | |
| Income before income taxes | Income before income taxes | | 474.6 | | | 450.1 | | | 24.5 | | Income before income taxes | | 581.8 | | | 474.6 | | | 107.2 | |
| | Income tax expense | Income tax expense | | 71.2 | | | 73.0 | | | 1.8 | | Income tax expense | | 144.7 | | | 71.2 | | | (73.5) | |
| Preferred stock dividends of subsidiary | Preferred stock dividends of subsidiary | | 0.6 | | | 0.6 | | | — | | Preferred stock dividends of subsidiary | | 0.6 | | | 0.6 | | | — | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 402.8 | | | $ | 376.5 | | | $ | 26.3 | | Net income attributed to common shareholders | | $ | 436.5 | | | $ | 402.8 | | | $ | 33.7 | |
The following table shows a breakdown of other operation and maintenance:
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | B (W) | (in millions) | | 2022 | | 2021 | | B (W) |
| Operation and maintenance not included in line items below | Operation and maintenance not included in line items below | | $ | 303.4 | | | $ | 291.9 | | | $ | (11.5) | | Operation and maintenance not included in line items below | | $ | 318.7 | | | $ | 303.4 | | | $ | (15.3) | |
Transmission (1) | Transmission (1) | | 255.3 | | | 258.8 | | | 3.5 | | Transmission (1) | | 215.3 | | | 255.3 | | | 40.0 | |
Regulatory amortizations and other pass through expenses (2) | Regulatory amortizations and other pass through expenses (2) | | 70.5 | | | 69.3 | | | (1.2) | | Regulatory amortizations and other pass through expenses (2) | | 72.4 | | | 70.5 | | | (1.9) | |
We Power (3) | We Power (3) | | 58.8 | | | 60.2 | | | 1.4 | | We Power (3) | | 54.9 | | | 58.8 | | | 3.9 | |
| Earnings sharing mechanism (4) | | Earnings sharing mechanism (4) | | (10.8) | | | — | | | 10.8 | |
| Total other operation and maintenance | Total other operation and maintenance | | $ | 688.0 | | | $ | 680.2 | | | $ | (7.8) | | Total other operation and maintenance | | $ | 650.5 | | | $ | 688.0 | | | $ | 37.5 | |
(1)Represents transmission expense that our electric utilities are authorized to collect in rates. The PSCW has approved escrow accounting for ATC and MISO network transmission expenses for WE and WPS. As a result, WE and WPS defer as a regulatory asset or liability, the difference between actual transmission costs and those included in rates until recovery or refund is authorized in a future rate proceeding. During the six months ended June 30, 2022 and 2021, and 2020, $255.4$256.6 million and $234.7$255.4 million, respectively, of costs were billed to our electric utilities by transmission providers.
During the six months ended June 30, 2022, WE and WPS amortized $40.5 million of the regulatory liabilities associated with their transmission escrows to offset certain 2022 revenue deficiencies, as approved by the PSCW in order to forego filing for 2022 base rate increases. This amortization drove the decrease in transmission expense during the six months ended June 30, 2022, compared with the same period in 2021.
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| 06/30/2022 Form 10-Q | 60 | WEC Energy Group, Inc. |
(2)Regulatory amortizations and other pass through expenses are substantially offset in margins and therefore do not have a significant impact on net income.
(3)Represents costs associated with the We Power generation units, including operating and maintenance costs recognized by WE. During the six months ended June 30, 2022 and 2021, and 2020, $51.6$50.9 million and $60.6$51.6 million, respectively, of costs were billed to or incurred by WE related to the We
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06/30/2021 Form 10-Q | 57 | WEC Energy Group, Inc. |
Power generation units, with the difference in costs billed or incurred and expenses recognized, either deferred or deducted from the regulatory asset.
(4)Represents amortization of a certain portion of WPS's regulatory liability associated with its 2020 earnings sharing mechanism to offset certain 2022 revenue deficiencies, as approved by the PSCW in order to forego filing for 2022 base rate increases.
The following tables provide information on delivered sales volumes by customer class and weather statistics:
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
| | MWh (in thousands) | | MWh (in thousands) |
| Electric Sales Volumes | Electric Sales Volumes | | 2021 | | 2020 | | B (W) | Electric Sales Volumes | | 2022 | | 2021 | | B (W) |
| Customer Class | Customer Class | | | | | | | Customer Class | | | | | | |
| Residential | Residential | | 5,464.4 | | | 5,417.8 | | | 46.6 | | Residential | | 5,501.1 | | | 5,464.4 | | | 36.7 | |
Small commercial and industrial (1) | Small commercial and industrial (1) | | 6,171.9 | | | 5,890.0 | | | 281.9 | | Small commercial and industrial (1) | | 6,312.1 | | | 6,171.9 | | | 140.2 | |
Large commercial and industrial (1) | Large commercial and industrial (1) | | 6,126.6 | | | 5,570.8 | | | 555.8 | | Large commercial and industrial (1) | | 5,970.5 | | | 6,126.6 | | | (156.1) | |
| Other | Other | | 73.6 | | | 78.7 | | | (5.1) | | Other | | 69.1 | | | 73.6 | | | (4.5) | |
Total retail (1) | Total retail (1) | | 17,836.5 | | | 16,957.3 | | | 879.2 | | Total retail (1) | | 17,852.8 | | | 17,836.5 | | | 16.3 | |
| Wholesale | Wholesale | | 1,437.4 | | | 1,467.8 | | | (30.4) | | Wholesale | | 1,357.9 | | | 1,437.4 | | | (79.5) | |
| Resale | Resale | | 3,282.2 | | | 3,421.9 | | | (139.7) | | Resale | | 2,094.2 | | | 3,282.2 | | | (1,188.0) | |
Total sales in MWh (1) | Total sales in MWh (1) | | 22,556.1 | | | 21,847.0 | | | 709.1 | | Total sales in MWh (1) | | 21,304.9 | | | 22,556.1 | | | (1,251.2) | |
(1)Includes distribution sales for customers who have purchased power from an alternative electric supplier in Michigan.
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
| | Therms (in millions) | | Therms (in millions) |
| Natural Gas Sales Volumes | Natural Gas Sales Volumes | | 2021 | | 2020 | | B (W) | Natural Gas Sales Volumes | | 2022 | | 2021 | | B (W) |
| Customer Class | Customer Class | | | | | | | Customer Class | | | | | | |
| Residential | Residential | | 658.4 | | | 669.8 | | | (11.4) | | Residential | | 741.2 | | | 658.4 | | | 82.8 | |
| Commercial and industrial | Commercial and industrial | | 386.6 | | | 390.6 | | | (4.0) | | Commercial and industrial | | 452.6 | | | 386.6 | | | 66.0 | |
| Total retail | Total retail | | 1,045.0 | | | 1,060.4 | | | (15.4) | | Total retail | | 1,193.8 | | | 1,045.0 | | | 148.8 | |
| Transportation | Transportation | | 738.4 | | | 715.4 | | | 23.0 | | Transportation | | 767.6 | | | 738.4 | | | 29.2 | |
| Total sales in therms | Total sales in therms | | 1,783.4 | | | 1,775.8 | | | 7.6 | | Total sales in therms | | 1,961.4 | | | 1,783.4 | | | 178.0 | |
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30 |
| | Degree Days |
| Weather | | 2021 | | 2020 | | B (W) |
WE and WG (1) | | | | | | |
| Heating (4,209 Normal) | | 3,858 | | | 3,920 | | | (1.6) | % |
| Cooling (164 Normal) | | 303 | | | 223 | | | 35.9 | % |
| | | | | | |
WPS (2) | | | | | | |
| Heating (4,623 Normal) | | 4,336 | | | 4,446 | | | (2.5) | % |
| Cooling (137 Normal) | | 242 | | | 185 | | | 30.8 | % |
| | | | | | |
UMERC (3) | | | | | | |
| Heating (5,164 Normal) | | 4,883 | | | 4,998 | | | (2.3) | % |
| Cooling (80 Normal) | | 156 | | | 114 | | | 36.8 | % |
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30 |
| | Degree Days |
| Weather | | 2022 | | 2021 | | B (W) |
WE and WG (1) | | | | | | |
| Heating (4,190 Normal) | | 4,165 | | | 3,858 | | | 8.0 | % |
| Cooling (171 Normal) | | 259 | | | 303 | | | (14.5) | % |
| | | | | | |
WPS (2) | | | | | | |
| Heating (4,610 Normal) | | 4,751 | | | 4,336 | | | 9.6 | % |
| Cooling (144 Normal) | | 249 | | | 242 | | | 2.9 | % |
| | | | | | |
UMERC (3) | | | | | | |
| Heating (5,157 Normal) | | 5,571 | | | 4,883 | | | 14.1 | % |
| Cooling (82 Normal) | | 115 | | | 156 | | | (26.3) | % |
(1)Normal degree days are based on a 20-year moving average of monthly temperatures from Mitchell International Airport in Milwaukee, Wisconsin.
(2)Normal degree days are based on a 20-year moving average of monthly temperatures from the Green Bay, Wisconsin weather station.
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| 06/30/2022 Form 10-Q | 61 | WEC Energy Group, Inc. |
(3)Normal degree days are based on a 20-year moving average of monthly temperatures from the Iron Mountain, Michigan weather station.
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06/30/2021 Form 10-Q
| 58 | WEC Energy Group, Inc. |
Electric revenues increased $224.7 million during the six months ended June 30, 2022, compared with the same period in 2021. To the extent that changes in fuel and purchased power costs are passed through to customers, the changes are offset by comparable changes in revenues. See the discussion of electric utility margins below for more information related to the recovery of fuel and purchased power costs and the remaining drivers of the changes in electric revenues.
Electric Utility Margins
Electric utility margins at the Wisconsin segment increased $45.0$40.4 million during the six months ended June 30, 2021,2022, compared with the same period in 2020.2021. The significant factors impacting the higher electric utility margins were:
•A $41.0$54.1 million increase in margins related to the impact of unprotected excess deferred taxes during the six months ended June 30, 2021, which we agreed to return to customers in our PSCW-approved rate orders. This increase in margins is offset in income taxes.
•A $5.3 million increase in securitization revenues received during the six months ended June 30, 2022, compared with the same period in 2021, related to an environmental control charge collected from WE's retail electric distribution customers on behalf of WEPCo Environmental Trust. WE began assessing this charge in June 2021, subsequent to the issuance of the ETBs by WEPCo Environmental Trust in May 2021, in accordance with a November 2020 PSCW financing order. These revenues are offset in depreciation and amortization as well as interest expense.
•A $4.9 million net increase in margins related to higher retail sales volumes, includingdriven by the impact of weather.favorable weather during the six months ended June 30, 2022, compared with the same period in 2021. As measured by coolingheating degree days, the six months ended June 30, 20212022 were 35.9%8.0% and 30.8% warmer9.6% colder than the same period in 20202021 in the Milwaukee area and Green Bay area, respectively. Commercial
These increases in margins were partially offset by:
•An $18.4 million period-over-period negative impact from actual fuel and industrial retail sales volumes also improvedpurchased power costs compared with costs collected in rates. Under the Wisconsin fuel rules, the margins of our electric utilities are impacted by under- or over-collections of certain fuel and purchased power costs that are within a 2% price variance from the costs included in rates, and the remaining variance beyond the 2% price variance is generally deferred for future recovery or refund to customers.
•Lower margins of $7.4 million driven by the expiration of certain wholesale contracts.
Natural Gas Revenues
Natural gas revenues increased $235.8 million during the six months ended June 30, 2021,2022, compared with the same period in 2020, due2021. Because prudently incurred natural gas costs are passed through to our customers in current rates, the continued economic recoverychanges are offset by comparable changes in Wisconsin from the COVID-19 pandemic.
•A $5.8 million increase in margins from other revenues, primarily related to higher late payment charges driven by an increase in past due accounts receivable balancesrevenues. The average per-unit cost of natural gas increased 23% during the six months ended June 30, 2022, compared with the same period in 2021. Late payment charges were suspended byThe remaining drivers of changes in natural gas revenues are described in the PSCW for a perioddiscussion of time beginning March 24, 2020 as a result of the COVID-19 pandemic. See Note 22, Regulatory Environment, for more information.
•A $2.5 million increase innatural gas utility margins driven by lower purchased capacity costs as a result of an expiration of a contract in 2020, as well as lower ash handling costs.
These increases in margins were partially offset by a $2.4 million net decrease in margins related to the impact of the Wisconsin rate orders approved by the PSCW, effective January 1, 2020. The positive impact of increased rates from the rate orders was more than offset by a $15.4 million negative impact related to unprotected excess deferred taxes, which we agreed to return to customers over two years and is offset in income taxes. See Note 22, Regulatory Environment, for more information.below.
Natural Gas Utility Margins
Natural gas utility margins at the Wisconsin segment increased $0.6$34.1 million during the six months ended June 30, 2021,2022, compared with the same period in 2020.2021. The most significant factorfactors impacting the higher natural gas utility margins was a $2.6were:
•A $29.7 million increase in margins from other revenues,higher sales volumes, primarily related to higher late payment chargesdriven by the continued economic recovery in Wisconsin from the COVID-19 pandemic, as well as colder weather during the six months ended June 30, 2021, as discussed above. This increase in margins was partially offset by a $1.5 million decrease related to lower retail sales volumes, including the impact of weather. As measured by heating degree days, the six months ended June 30, 2021 were 1.6% and 2.5% warmer than2022, compared with the same period in 20202021.
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| 06/30/2022 Form 10-Q | 62 | WEC Energy Group, Inc. |
•A $5.0 million increase in margins related to amortization of a certain portion of WG's regulatory liability consisting of credit balances associated with the Milwaukee area and Green Bay area, respectively.escrow of natural gas storage service costs from Bluewater Gas Storage, LLC. In September 2021, the PSCW issued a written order for our Wisconsin utilities approving certain accounting treatments to offset certain 2022 revenue deficiencies in order to forego filing for 2022 base rate increases.
Other Operating Expenses (includes other operation and maintenance, depreciation and amortization, and property and revenue taxes)
Other operating expenses at the Wisconsin segment increased $30.8decreased $13.1 million during the six months ended June 30, 2021,2022, compared with the same period in 2020.2021. The significant factors impacting the increasedecrease in operating expenses were:
•A $23.0$40.0 million decrease in transmission expense driven by the amortization of a certain portion of WE's and WPS's regulatory liabilities associated with transmission escrow balances, as discussed in the notes under the other operation and maintenance table above.
•A $10.8 million decrease in expense driven by the amortization of a certain portion of WPS's regulatory liability associated with its 2020 earnings sharing mechanism, as discussed in the notes under the other operation and maintenance table above.
•A $3.9 million decrease in other operation and maintenance expense related to the We Power leases, as discussed in the notes under the other operation and maintenance table above.
•A $2.1 million decrease related to a gain on land sales during the six months ended June 30, 2022, compared with the same period in 2021.
These decreases in operating expenses were partially offset by:
•An $18.8 million increase in depreciation and amortization, driven by assets being placed into service as we continue to execute on our capital plan, as well as an increase related to the We Power leases.leases, and an increase related to securitization amortization, which is offset in revenues. These increases were partially offset by $5.1 million of deferred depreciation related to capital investments made by WG since it's last rate case, as approved by the PSCW in an order that allowed our Wisconsin utilities to offset certain 2022 revenue deficiencies in order to forego filing for 2022 base rate increases.
•An $18.7 million increase in electric and natural gas distribution expenses, primarily driven by higher storm restoration expense during the six months ended June 30, 2022, and higher costs to maintain system reliability.
•A $5.5 million increase in customer service expenses, primarily related to additional costs from an information technology project created to improve the billing, call center, and credit collection functions, as well as higher call volumes and metering costs.
•A $3.4$5.6 million increase in property and liability insurance premiums.revenue taxes, driven by higher gross receipt taxes.
These increases in operating expenses were partially offset by:
•A $3.5 million decrease in transmission expense as approved in the PSCW's 2019 rate orders, which were effective January 1, 2020. See the notes under the other operation and maintenance table above for more information.
•A $2.8 million decrease in benefit costs, primarily due to lower stock-based compensation and pension costs, partially offset by higher deferred compensation costs.
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Other Income, Net
Other income, net at the Wisconsin segment increased $6.5$11.6 million during the six months ended June 30, 2021,2022, compared with the same period in 2020,2021, driven by higher net credits from the non-service components of our net periodic pension and OPEB costs.
Interest Expense
Interest expense at the Wisconsin segment decreased $3.2$8.0 million during the six months ended June 30, 2021,2022, compared with the same period in 2020,2021, primarily due to the deferral of interest expense related to capital investments made by WG since its last rate case, as approved by the PSCW in an order that allowed our Wisconsin utilities to offset certain 2022 revenue deficiencies in order to forego filing for a 2022 base rate increase. Also contributing to the decrease was lower interest expense on finance lease liabilities, and lower interest rates on short-term debt.primarily related to the WE Power leases, as finance lease liabilities decrease each year as payments are made.
Income Tax Expense
Income tax expense at the Wisconsin segment decreased $1.8increased $73.5 million during the six months ended June 30, 2021,2022, compared with the same period in 2020.2021. The decreaseincrease was primarily due to an approximate $15$50 million positivenegative impact related to the 2021lower period-over-period amortization of the unprotected excess deferred tax benefits from the Tax Legislation in connection with the Wisconsin rate orders approved by the PSCW, effective January 1, 2020. The impact due to the benefit from the amortization of the
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| 06/30/2022 Form 10-Q | 63 | WEC Energy Group, Inc. |
unprotected excess deferred tax benefits in 2021 from the Tax Legislation did not impact earnings as there was an offsetting negative impact in operating income. Partially offsetting this decreaseAlso contributing to the increase was higher pre-tax income in income tax expense was an increase in pretax income and a decrease in PTCs.2022.
Illinois Segment Contribution to Net Income Attributed to Common Shareholders
The Illinois segment's contribution to net income attributed to common shareholders forwas $169.8 million during the six months ended June 30, 2021, was $155.7 million,2022, representing a $16.3$14.1 million, or 11.7%9.1%, increase over the prior year.same period in 2021. The increase was driven by a gain on the sale of certain real estate in Chicago, as well as higher natural gas margins due to PGL's continued capital investment in the SMP project under its QIP rider and anNSG's rate increase, in late payment charges. Lower benefit costs and a gain on the sale of certain land parcels during the first half of 2021 also contributed to the increase in earnings.effective September 15, 2021. These positive impacts were partially offset by higher depreciationincreases in various operating expenses, including expenses related to the settlement of legal claims, charitable projects, and amortization.benefit costs.
Since the majority of PGL and NSG customers use natural gas for heating, net income attributed to common shareholders at the Illinois segment is sensitive to weather and is generally higher during the winter months.
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | B (W) | (in millions) | | 2022 | | 2021 | | B (W) |
| Natural gas revenues | Natural gas revenues | | $ | 978.9 | | | $ | 708.8 | | | $ | 270.1 | | Natural gas revenues | | $ | 1,124.5 | | | $ | 978.9 | | | $ | 145.6 | |
| Cost of natural gas sold | Cost of natural gas sold | | 412.6 | | | 179.9 | | | (232.7) | | Cost of natural gas sold | | 536.6 | | | $ | 412.6 | | | (124.0) | |
| Total natural gas margins | Total natural gas margins | | 566.3 | | | 528.9 | | | 37.4 | | Total natural gas margins | | 587.9 | | | $ | 566.3 | | | 21.6 | |
| | Other operation and maintenance | Other operation and maintenance | | 200.1 | | | 197.3 | | | (2.8) | | Other operation and maintenance | | 192.7 | | | 200.1 | | | 7.4 | |
| Depreciation and amortization | Depreciation and amortization | | 106.7 | | | 96.1 | | | (10.6) | | Depreciation and amortization | | 114.2 | | | 106.7 | | | (7.5) | |
| Property and revenue taxes | Property and revenue taxes | | 16.4 | | | 14.4 | | | (2.0) | | Property and revenue taxes | | 20.9 | | | 16.4 | | | (4.5) | |
| Operating income | Operating income | | 243.1 | | | 221.1 | | | 22.0 | | Operating income | | 260.1 | | | 243.1 | | | 17.0 | |
| | Other income, net | Other income, net | | 3.1 | | | 2.1 | | | 1.0 | | Other income, net | | 8.7 | | | 3.1 | | | 5.6 | |
| Interest expense | Interest expense | | 33.1 | | | 32.1 | | | (1.0) | | Interest expense | | 35.7 | | | 33.1 | | | (2.6) | |
| Income before income taxes | Income before income taxes | | 213.1 | | | 191.1 | | | 22.0 | | Income before income taxes | | 233.1 | | | 213.1 | | | 20.0 | |
| | Income tax expense | Income tax expense | | 57.4 | | | 51.7 | | | (5.7) | | Income tax expense | | 63.3 | | | 57.4 | | | (5.9) | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 155.7 | | | $ | 139.4 | | | $ | 16.3 | | Net income attributed to common shareholders | | $ | 169.8 | | | $ | 155.7 | | | $ | 14.1 | |
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The following table shows a breakdown of other operation and maintenance:
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | B (W) | (in millions) | | 2022 | | 2021 | | B (W) |
| Operation and maintenance not included in the line items below | Operation and maintenance not included in the line items below | | $ | 135.5 | | | $ | 144.6 | | | $ | 9.1 | | Operation and maintenance not included in the line items below | | $ | 123.8 | | | $ | 135.5 | | | $ | 11.7 | |
Riders (1) | Riders (1) | | 65.8 | | | 54.1 | | | (11.7) | | Riders (1) | | 69.9 | | | 65.8 | | | (4.1) | |
Regulatory amortizations (1) | Regulatory amortizations (1) | | (1.2) | | | (1.4) | | | (0.2) | | Regulatory amortizations (1) | | (1.0) | | | (1.2) | | | (0.2) | |
| | Total other operation and maintenance | Total other operation and maintenance | | $ | 200.1 | | | $ | 197.3 | | | $ | (2.8) | | Total other operation and maintenance | | $ | 192.7 | | | $ | 200.1 | | | $ | 7.4 | |
(1)These riders and regulatory amortizations are substantially offset in margins and therefore do not have a significant impact on net income.
The following tables provide information on delivered sales volumes by customer class and weather statistics:
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
| | Therms (in millions) | | Therms (in millions) |
| Natural Gas Sales Volumes | Natural Gas Sales Volumes | | 2021 | | 2020 | | B (W) | Natural Gas Sales Volumes | | 2022 | | 2021 | | B (W) |
| Customer Class | Customer Class | | | | | | | Customer Class | | | | | | |
| Residential | Residential | | 529.6 | | | 520.9 | | | 8.7 | | Residential | | 575.0 | | | 529.6 | | | 45.4 | |
| Commercial and industrial | Commercial and industrial | | 202.0 | | | 204.5 | | | (2.5) | | Commercial and industrial | | 225.4 | | | 202.0 | | | 23.4 | |
| Total retail | Total retail | | 731.6 | | | 725.4 | | | 6.2 | | Total retail | | 800.4 | | | 731.6 | | | 68.8 | |
| Transport | | 456.5 | | | 465.9 | | | (9.4) | | |
| Transportation | | Transportation | | 492.6 | | | 456.5 | | | 36.1 | |
| Total sales in therms | Total sales in therms | | 1,188.1 | | | 1,191.3 | | | (3.2) | | Total sales in therms | | 1,293.0 | | | 1,188.1 | | | 104.9 | |
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| | Six Months Ended June 30 |
| | Degree Days |
Weather (1) | | 2021 | | 2020 | | B (W) |
| Heating (3,855 Normal) | | 3,655 | | | 3,565 | | | 2.5 | % |
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| 06/30/2022 Form 10-Q | 64 | WEC Energy Group, Inc. |
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| | Six Months Ended June 30 |
| | Degree Days |
Weather (1) | | 2022 | | 2021 | | B (W) |
| Heating (3,819 Normal) | | 3,931 | | | 3,655 | | | 7.6 | % |
(1)Normal heating degree days are based on a 12-year moving average of monthly temperatures from Chicago's O'Hare Airport.
Natural Gas Revenues
Natural gas revenues increased $145.6 million during the six months ended June 30, 2022, compared with the same period in 2021. Because prudently incurred natural gas costs are passed through to our customers in current rates, the changes are offset by comparable changes in revenues. The average per-unit cost of natural gas increased 19% during the six months ended June 30, 2022, compared with the same period in 2021. The remaining drivers of changes in natural gas revenues are described in the discussion of margins below.
Natural Gas Utility Margins
Natural gas utility margins at the Illinois segment, net of the $11.7$4.1 million impact of the riders referenced in the table above, increased $25.7$17.5 million during the six months ended June 30, 2021,2022, compared with the same period in 2020.2021. The increase in margins was primarily driven by:
•A $13.0$12.4 million increase in revenues at PGL due to continued capital investment in the SMP project. PGL recovers the costs related to the SMP through a surcharge on customer bills pursuant to an ICC approved QIP rider, which is in effect through 2023.
•A $6.3$7.7 million increase in late payment charges drivenrelated to the impact of the NSG rate order approved by an increase in past due accounts receivable balances and the suspension of late payment charges during 2020 due to a regulatory order from the ICC, effective September 15, 2021, which includes the Variable Income Tax Adjustment Rider in response to the COVID-19 pandemic.base rates.
•A $4.8 million increase in fixed charges driven by the moratorium on disconnections during 2020 due to a regulatory order from the ICC in response to the COVID-19 pandemic.
•A $2.2$3.3 million increase in the invested capital tax adjustment rider, which did not impact net income as it was offset in property and revenue taxes. The invested capital tax adjustment rider is a mechanism that allows PGL and NSG to recover or refund the difference between the cost of invested capital tax incurred and the amount collected through base rates.
These increases in natural gas utility margins were partially offset by a $5.6 million decrease in fixed charges. | | | | | | | | |
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| 61 | WEC Energy Group, Inc. |
Other Operating Expenses (includes other operation and maintenance, depreciation and amortization, and property and revenue taxes)
Other operating expenses at the Illinois segment increased $3.7$0.5 million, net of the $4.1 million impact of the riders referenced in the table above, during the six months ended June 30, 2021,2022, compared with the same period in 2020.2021. The significant factors impacting the increase in operating expenses were:
•An $11.4 million increase in expenses associated with the settlement of legal claims.
•A $10.6$10.0 million increase in expenses related to charitable projects supporting our customers and the communities within our service territories.
•An $8.9 million increase in benefit costs, primarily due to higher pension and stock-based compensation costs.
•A $7.5 million increase in depreciation expense, primarily driven by PGL's continued capital investment in the SMP project.
•A $3.0$5.1 million increase in natural gas distribution maintenance costs, driven by the colder than normal weather during February 2021.
•A $2.0 million increase in customer service expense, primarily driven by higher call volumes and meteringmaintenance costs.
•A $2.0$4.7 million increase in costs associated with maintenance at the Manlove Gas Storage Field.
•A $4.5 million increase in property and revenue taxes, primarily driven by a $2.2 millionan increase in the invested capital tax related to higher plant placed in service during the six months ended June 30, 2021, compared with the same period in 2020.continued capital investment. This increase was offset in natural gas utility margins.
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| 06/30/2022 Form 10-Q | 65 | WEC Energy Group, Inc. |
These increases in operating expenses were partially offset by:
•An $8.8by a $54.5 million decrease in benefit costs, primarily due to lower pension and stock-based compensation costs.
•A $4.4 millionpre-tax gain on the sale of certain land parcels.real estate in Chicago.
Other Income, Net
Other income, net at the Illinois segment increased $5.6 million during the six months ended June 30, 2022, compared with the same period in 2021, driven by higher net credits from the non-service components of our net periodic pension and OPEB costs.
Interest Expense
Interest expense at the Illinois segment increased $1.0$2.6 million during the six months ended June 30, 2021,2022, compared with the same period in 2020,2021, primarily due to the$225.0 million of long-term debt issuance of $200.0 millionissuances in November 2020.2021.
Income Tax Expense
Income tax expense at the Illinois segment increased $5.7$5.9 million during the six months ended June 30, 2021,2022, compared with the same period in 2020,2021, driven by an increase in pretaxpre-tax income.
Other States Segment Contribution to Net Income Attributed to Common Shareholders
The other states segment's contribution to net income attributed to common shareholders forwas $34.2 million during the six months ended June 30, 2021 was $27.2 million,2022, representing a $1.9$7.0 million, or 6.5%25.7%, decreaseincrease over the prior year.same period in 2021. The decreaseincrease was driven by higher natural gas margins due to a rate increase at MGU, effective January 1, 2022, and higher sales volumes during the first half of 2022, compared with the same period in 2021. These positive impacts were partially offset by increases in operating expenses, including operation and maintenance, depreciation and amortization, and property taxes.as well as interest expense, as discussed below.
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Since the majority of MGUMERC and MERCMGU customers use natural gas for heating, operating income at the other states segment is sensitive to weather and is generally higher during the winter months.
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | B (W) | (in millions) | | 2022 | | 2021 | | B (W) |
| Natural gas revenues | Natural gas revenues | | $ | 305.4 | | | $ | 213.1 | | | $ | 92.3 | | Natural gas revenues | | $ | 340.8 | | | $ | 305.4 | | | $ | 35.4 | |
| Cost of natural gas sold | Cost of natural gas sold | | 194.1 | | | 103.0 | | | (91.1) | | Cost of natural gas sold | | 212.7 | | | 194.1 | | | (18.6) | |
| Total natural gas margins | Total natural gas margins | | 111.3 | | | 110.1 | | | 1.2 | | Total natural gas margins | | 128.1 | | | 111.3 | | | 16.8 | |
| | Other operation and maintenance | Other operation and maintenance | | 44.4 | | | 42.1 | | | (2.3) | | Other operation and maintenance | | 47.5 | | | 44.4 | | | (3.1) | |
| Depreciation and amortization | Depreciation and amortization | | 18.6 | | | 16.1 | | | (2.5) | | Depreciation and amortization | | 20.2 | | | 18.6 | | | (1.6) | |
| Property and revenue taxes | Property and revenue taxes | | 9.4 | | | 8.5 | | | (0.9) | | Property and revenue taxes | | 9.5 | | | 9.4 | | | (0.1) | |
| Operating income | Operating income | | 38.9 | | | 43.4 | | | (4.5) | | Operating income | | 50.9 | | | 38.9 | | | 12.0 | |
| | Other income, net | Other income, net | | 0.5 | | | 0.3 | | | 0.2 | | Other income, net | | 1.1 | | | 0.5 | | | 0.6 | |
| Interest expense | Interest expense | | 3.0 | | | 4.7 | | | 1.7 | | Interest expense | | 6.5 | | | 3.0 | | | (3.5) | |
| Income before income taxes | Income before income taxes | | 36.4 | | | 39.0 | | | (2.6) | | Income before income taxes | | 45.5 | | | 36.4 | | | 9.1 | |
| | Income tax expense | Income tax expense | | 9.2 | | | 9.9 | | | 0.7 | | Income tax expense | | 11.3 | | | 9.2 | | (2.1) | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 27.2 | | | $ | 29.1 | | | $ | (1.9) | | Net income attributed to common shareholders | | $ | 34.2 | | | $ | 27.2 | | | $ | 7.0 | |
The following table shows a breakdown of other operation and maintenance:
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | B (W) | (in millions) | | 2022 | | 2021 | | B (W) |
| Operation and maintenance not included in line item below | Operation and maintenance not included in line item below | | $ | 32.6 | | | $ | 33.5 | | | $ | 0.9 | | Operation and maintenance not included in line item below | | $ | 36.3 | | | $ | 32.6 | | | $ | (3.7) | |
Regulatory amortizations and other pass through expenses (1) | Regulatory amortizations and other pass through expenses (1) | | 11.8 | | | 8.6 | | | (3.2) | | Regulatory amortizations and other pass through expenses (1) | | 11.2 | | | 11.8 | | | 0.6 | |
| | Total other operation and maintenance | Total other operation and maintenance | | $ | 44.4 | | | $ | 42.1 | | | $ | (2.3) | | Total other operation and maintenance | | $ | 47.5 | | | $ | 44.4 | | | $ | (3.1) | |
(1)Regulatory amortizations and other pass through expenses are substantially offset in margins and therefore do not have a significant impact on net income.
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The following tables provide information on sales volumes by customer class and weather statistics:
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
| | Therms (in millions) | | Therms (in millions) |
| Natural Gas Sales Volumes | Natural Gas Sales Volumes | | 2021 | | 2020 | | B (W) | Natural Gas Sales Volumes | | 2022 | | 2021 | | B (W) |
| Customer Class | Customer Class | | | | | | | Customer Class | | | | | | |
| Residential | Residential | | 192.5 | | | 195.4 | | | (2.9) | | Residential | | 224.6 | | | 192.5 | | | 32.1 | |
| Commercial and industrial | Commercial and industrial | | 110.8 | | | 117.1 | | | (6.3) | | Commercial and industrial | | 140.8 | | | 110.8 | | | 30.0 | |
| Total retail | Total retail | | 303.3 | | | 312.5 | | | (9.2) | | Total retail | | 365.4 | | | 303.3 | | | 62.1 | |
| Transportation | Transportation | | 405.0 | | | 382.6 | | | 22.4 | | Transportation | | 425.9 | | | 405.0 | | | 20.9 | |
| Total sales in therms | Total sales in therms | | 708.3 | | | 695.1 | | | 13.2 | | Total sales in therms | | 791.3 | | | 708.3 | | | 83.0 | |
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| | Six Months Ended June 30 |
| | Degree Days |
Weather (1) | | 2021 | | 2020 | | B (W) |
| MERC | | | | | | |
| Heating (4,881 Normal) | | 4,696 | | | 4,786 | | | (1.9) | % |
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| MGU | | | | | | |
| Heating (3,940 Normal) | | 3,824 | | | 3,766 | | | 1.5 | % |
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| | Six Months Ended June 30 |
| | Degree Days |
Weather (1) | | 2022 | | 2021 | | B (W) |
| MERC | | | | | | |
| Heating (4,914 Normal) | | 5,424 | | | 4,696 | | | 15.5 | % |
| | | | | | |
| MGU | | | | | | |
| Heating (3,934 Normal) | | 4,030 | | | 3,824 | | | 5.4 | % |
(1)Normal heating degree days for MERC and MGU are based on a 20-year moving average and 15-year moving average, respectively, of monthly temperatures from various weather stations throughout their respective service territories.
Natural Gas Revenues
Natural gas revenues increased $35.4 million during the six months ended June 30, 2022, compared with the same period in 2021. Because prudently incurred natural gas costs are passed through to our customers in current rates, the changes are offset by comparable changes in revenues. See the discussion of natural gas utility margins below for the remaining drivers of changes in natural gas revenues.
Natural Gas Utility Margins
Natural gas utility margins increased $1.2$16.8 million during the six months ended June 30, 2021,2022, compared with the same period in 2020. This2021. The increase in margins was primarily driven by a $1.8by:
•An $8.8 million increase related to the new rates at MGU that went into effect in 2022.
•A $6.0 million increase related to higher sales volumes due to both continued economic recovery and colder weather during the six months ended June 30, 2022, as compared to the same period in 2021.
•A $1.5 million increase related to MERC CIP revenue, which was offset in operation and maintenance expense, as well as a $1.4 million increase in revenues relatedexpense. Rebates and programs are available to MERC's GUIC rider. These increases were partially offsetresidential and commercial customers of MERC through the CIP, which is funded by lower weather normalized sales volumesrate payers using the Conservation Cost Recovery Charge and lower late payment charges.the Conservation Cost Recovery Adjustment funds that are collected on their monthly billing statements.
Other Operating Expenses (includes other operation and maintenance, depreciation and amortization, and property and revenue taxes)
Other operating expenses at the other states segment increased $5.7$4.8 million during the six months ended June 30, 2021,2022, compared with the same period in 2020. This2021. The significant factors impacting the increase wasin operating expenses were:
•A $2.2 million increase in natural gas operations and customer service expense, driven by various operation and maintenance projects approved in part, by anMGU's rate case and higher labor and external contracting costs.
•A $1.6 million increase of $2.5 million in depreciation and amortization related to continued capital investment, as well as aninvestment.
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•A $1.5 million increase of $2.3 million in operation and maintenance expense primarily related to MERC's CIP program, which hadhas an offsetting increase in margins. Customer service expense and bad debt expense also increased during the first six months of 2021, compared with the same period
These increases in 2020. These increasesoperating expenses were partially offset by a $2.2 million decrease in operating expensesbad debt expense related to improvement in past due to effective cost control.receivables.
Interest Expense
Interest expense at the other states segment decreased $1.7increased $3.5 million during the six months ended June 30, 2021,2022, compared with the same period in 2020,2021, primarily due to the deferral of $2.4 million of interest expense relatedduring the first six months of 2021, as approved by the MPSC to capital investments made by MGU sincemitigate the impacts from delaying the filing of its last2021 rate case. See Note 22, Regulatory Environment, for more information. The decrease was partially offset by MERC andThis deferred interest expense is now being amortized over a four-year period as a result of MGU's long-term debt issuances in April 2020 of $50.0 million and $60.0 million, respectively. This increase in debt balances was primarily related to continued capital investments.approved rate increase.
Income Tax Expense
Income tax expense at the other states segment decreased $0.7increased $2.1 million during the six months ended June 30, 2021,2022, compared with the same period in 2020,2021, driven by an decreaseincrease in pretaxpre-tax income.
Electric Transmission Segment Contribution to Net Income Attributed to Common Shareholders
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30 |
| (in millions) | | 2021 | | 2020 | | B (W) |
| Net income attributed to common shareholders | | $ | 55.0 | | | $ | 58.5 | | | $ | (3.5) | |
Net income attributed to common shareholders at our electric transmission segment decreased $3.5 million during the six months ended June 30, 2021, compared with the same period in 2020, driven by an $8.8 million decrease in equity earnings from transmission affiliates, primarily due to the impact of the FERC order issued in May 2020 addressing complaints related to ATC's ROE. The order resulted in an increase in the base ROE that ATC is allowed to collect, retroactive to November 2013, and increased our earnings from ATC by $14.6 million during the second quarter of 2020. Continued capital investment by ATC partially offset the negative period-over-period impact from the FERC order.
The decrease in equity earnings from transmission affiliates was partially offset by a $5.2 million decrease in income tax expense during the six months ended June 30, 2021, compared with the same period in 2020, driven by $3.3 million of uncertain tax positions recorded in the second quarter of 2020, and a decrease in pretax earnings. | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30 |
| (in millions) | | 2022 | | 2021 | | B (W) |
| Equity in earnings of transmission affiliates | | $ | 84.7 | | | $ | 83.9 | | | $ | 0.8 | |
| | | | | | |
| Interest expense | | 9.7 | | | 9.7 | | | — | |
| Income before income taxes | | 75.0 | | | 74.2 | | | 0.8 | |
| | | | | | |
| Income tax expense | | 18.2 | | | 19.2 | | | 1.0 | |
| Net income attributed to common shareholders | | $ | 56.8 | | | $ | 55.0 | | | $ | 1.8 | |
Non-Utility Energy Infrastructure Segment Contribution to Net Income Attributed to Common Shareholders
| | | Six Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | B (W) | (in millions) | | 2022 | | 2021 | | B (W) |
| Operating income | | Operating income | | $ | 196.0 | | | $ | 176.2 | | | $ | 19.8 | |
| | Interest expense | | Interest expense | | 34.6 | | | 35.9 | | | 1.3 | |
| Income before income taxes | | Income before income taxes | | 161.4 | | | 140.3 | | | 21.1 | |
| | Income tax expense (benefit) | | Income tax expense (benefit) | | (12.2) | | | 0.8 | | | 13.0 | |
| Net (income) loss attributed to noncontrolling interests | | Net (income) loss attributed to noncontrolling interests | | (1.8) | | | 0.7 | | | (2.5) | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 140.2 | | | $ | 130.3 | | | $ | 9.9 | | Net income attributed to common shareholders | | $ | 171.8 | | | $ | 140.2 | | | $ | 31.6 | |
Operating Income
Operating income at the non-utility energy infrastructure segment increased $19.8 million during the six months ended June 30, 2022, compared with the same period in 2021. The increase was primarily due to the recognition of $15.2 million in revenue related to our Upstream wind park in the first quarter of 2022 that was associated with market settlements received from SPP in February 2021. These settlements were subject to a FERC complaint, so we were not able to recognize them as revenue until FERC issued an order denying that complaint in the first quarter of 2022. In addition, there was a $6.1 million positive impact from a sharing arrangement with one of our Blooming Grove customers resulting from strong energy prices.
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06/30/20212022 Form 10-Q | 6468 | WEC Energy Group, Inc. |
Interest Expense
Net income attributed to common shareholdersInterest expense at the non-utility energy infrastructure segment increased $9.9decreased $1.3 million during six months ended June 30, 2022, compared with the same period in 2021, primarily due to a lower principal balance as a result of the semi-annual principal payments on long-term debt.
Income Tax Expense (Benefit)
At the non-utility energy infrastructure segment, $12.2 million of income tax benefit was recorded during the six months ended June 30, 2021,2022, compared with $0.8 million of income tax expense recorded during the same period in 2020, related2021. The change was primarily due to a $17.9an $18.5 million increase in PTCs generated in 2021,2022, driven by our Blooming Grove and Tatanka Ridgethe Jayhawk wind parkspark that achieved commercial operation in December 2020 and January 2021, respectively. Partially offsetting this increase was a $12.7 millionan increase in operating lossesthe PTC rate related to the PTC inflation adjustment issued by the IRS, and higher generation at the Coyote Ridge, Tatanka Ridge, and Upstreamour other wind parks. The majority of earnings from our ownership interestsThis favorable change in the wind parks come inincome tax benefit was partially offset by higher pre-tax earnings during the form of the wind PTCs discussed previously. In addition, there was a $5.5 million increase in interest expense primarily due to WEC Infrastructure Wind Holding I LLC's debt issuance in December 2020.six months ended June 30, 2022.
Corporate and Other Segment Contribution to Net Income Attributed to Common Shareholders
| | | | | Six Months Ended June 30 | | | Six Months Ended June 30 |
| (in millions) | (in millions) | | 2021 | | 2020 | | B (W) | (in millions) | | 2022 | | 2021 | | B (W) |
| Operating loss | | Operating loss | | $ | (6.3) | | | $ | (8.5) | | | $ | 2.2 | |
| | Other income, net | | Other income, net | | 3.0 | | | 33.7 | | | (30.7) | |
| Interest expense | | Interest expense | | 47.2 | | | 48.8 | | | 1.6 | |
| | Loss before income taxes | | Loss before income taxes | | (50.5) | | | (23.6) | | | (26.9) | |
| | Income tax benefit | | Income tax benefit | | (34.8) | | | (28.8) | | | 6.0 | |
| Net income (loss) attributed to common shareholders | Net income (loss) attributed to common shareholders | | $ | 5.2 | | | $ | (39.7) | | | $ | 44.9 | | Net income (loss) attributed to common shareholders | | $ | (15.7) | | | $ | 5.2 | | | $ | (20.9) | |
Operating Loss
The operating loss at the corporate and other segment had $5.2decreased $2.2 million of net income attributed to common shareholders during the six months ended June 30, 2021,2022, compared with a $39.7 million net loss attributed to common shareholders during the same period in 2020.2021. The significant factors impactinglower operating loss was driven by a decrease in benefit costs related to deferred compensation, which is partially offset by increased losses from the $44.9 million increaseinvestments held in earnings were:the Integrys rabbi trust. These investment losses are included in the other income, net line item discussed below.
Other Income, Net
•
A $30.4
Other income, net at the corporate and other segment decreased $30.7 million increaseduring the six months ended June 30, 2022, compared with the same period in other income, net,2021. The decrease was driven by a $16.3$14.4 million increase in earnings from our equity method investment in a technology and energy-focused investment fund. Also contributing to the increase were $10.6 million of net gainsloss from the investments held in the Integrys rabbi trust during the first half of 2022, compared with a $10.6 million net gain during the same period in 2021. An $8.1 million decrease in earnings from our equity method investments in technology and energy-focused investment funds also contributed to the lower other income, net.
Interest Expense
Interest expense at the corporate and other segment decreased $1.6 million during six months ended June 30, 2021,2022, compared with $1.6 million of net losses during the same period in 2020.2021, as we refinanced long-term debt obligations during the fourth quarter of 2021 in order to take advantage of lower interest rates. This decrease is partially offset by an increase in short-term debt, driven by higher interest rates, compared with the same period in 2021.
•An $18.9 million decrease in interest expense, driven by the issuance of new debt in the second half of 2020 with lower interest rates than the debt retired during 2020. Also contributing to the decrease was lower interest rates on our short-term and variable-rate long-term debt.Income Tax Benefit
•A $3.4The income tax benefit at the corporate and other segment increased $6.0 million increase in operating income at Wispark due to higher gains on the sale of land during the six months ended June 30, 2021,2022, compared with the same period in 2020.
These increases2021, driven by a higher pre-tax loss. Also contributing to the increase in earnings were partially offset by an $8.8 million decrease inthe income tax benefits during the six months ended June 30, 2021, compared with the same period in 2020, driven by net income for the six months ended June 30, 2021, compared tobenefit was a net loss for the same period in 2020 and a $5.5$4.4 million decreaseincrease in excess tax benefits recognized related to stock option exercises. These decreases in income tax benefits were offset by a $6.6 million decrease in uncertain tax positionsexercises and a $6.3$1.5 million increase in the
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interim tax benefit recorded to adjust consolidated income tax expense to the projected, annualized consolidated effective income tax rate, during the six months ended June 30, 2021,2022, compared with the same period in 2020.2021. These increases in income tax benefits were partially offset by $8.2 million of uncertain tax positions in the first quarter of 2021.
LIQUIDITY AND CAPITAL RESOURCES
Overview
We expect to maintain adequate liquidity to meet our cash requirements for the operation of our businesses and implementation of our corporate strategy through the internal generation of cash from operations and access to the capital markets.
Cash Flows
The following table summarizes our cash flows during the six months ended June 30:
| | (in millions) | (in millions) | | 2021 | | 2020 | | Change in 2021 Over 2020 | (in millions) | | 2022 | | 2021 | | Change in 2022 Over 2021 |
| Cash provided by (used in): | Cash provided by (used in): | | | | | | | Cash provided by (used in): | | | | | | |
| Operating activities | Operating activities | | $ | 1,226.2 | | | $ | 1,379.6 | | | $ | (153.4) | | Operating activities | | $ | 1,762.6 | | | $ | 1,226.2 | | | $ | 536.4 | |
| Investing activities | Investing activities | | (1,074.6) | | | (1,006.2) | | | (68.4) | | Investing activities | | (937.5) | | | (1,074.6) | | | 137.1 | |
| Financing activities | Financing activities | | (124.5) | | | (393.3) | | | 268.8 | | Financing activities | | (807.7) | | | (124.5) | | | (683.2) | |
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Operating Activities
Net cash provided by operating activities decreased $153.4increased $536.4 million during the six months ended June 30, 2021,2022, compared with the same period in 2020,2021, driven by:
•A $221.5$690.2 million increase in payments for natural gascash from higher overall collections from customers as a result of an increase in sales volumes during the six months ended June 30, 2021,2022, compared with the same period in 2020. Natural2021, driven by colder weather and the continued economic recovery from the COVID-19 pandemic. We also over-collected natural gas costs increased significantly throughoutduring the central part ofsix months ended June 30, 2022, due to these costs being lower than what was anticipated in rates. In addition, we continued to recover on the countrynatural gas costs we under-collected from our Illinois and Minnesota customers related to the extreme weather conditions that occurred in February 2021, related to extreme weather conditions. We expect to recoverin accordance with orders from the majority of the increased gas costs by the end of 2021 through our existing recovery mechanisms. This increase in natural gas costs also drove higher payments for fuel used at our plants.ICC and MPUC, respectively. See Note 22,23, Regulatory Environment, for more information on the recovery of these natural gas costs.
•A $38.2$173.6 million decreaseincrease in cash relateddue to $28.2 million of income taxes paidrealized gains on derivative instruments as well as higher collateral received from counterparties during the six months ended June 30, 2021, compared with $10.0 million of income taxes refunded during the same period in 2020. This decrease in cash was primarily related to an increase in taxable income.
•A $16.1 million decrease in cash from2022, both driven by higher payments for operating and maintenance expenses. During the six months ended June 30, 2021, our payments were higher for transmission, customer service expense, and natural gas distribution and maintenance costs, compared with the same period in 2020.prices.
These decreasesincreases in net cash provided by operating activities were partially offset by:
•A $113.2$177.5 million increasedecrease in cash due to lower collateral requirements, driven by an increase in the fair value offrom higher payments for fuel and purchased power at our natural gas derivative assetsplants during the six months ended June 30, 2021,2022, compared with the same period in 2020.2021. Our plants incurred higher fuel costs during the six months ended June 30, 2022, as a result of an increase in the price of natural gas.
•A $12.5$107.3 million increasedecrease in cash duefrom higher payments for other operation and maintenance expenses. During the six months ended June 30, 2022, our payments were higher for storm restoration, benefit costs, natural gas distribution and maintenance costs, and natural gas storage maintenance costs.
•A $35.3 million decrease in cash related to lower cash paidhigher payments for interestenvironmental remediation from work completed on former manufactured gas plant sites during the six months ended June 30, 2021,2022, compared with the same period in 2020, driven by the issuance of new debt with lower interest rates than the debt retired as well as lower interest rates on our short-term and variable-rate long-term debt.2021.
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| 06/30/2022 Form 10-Q | 70 | WEC Energy Group, Inc. |
Investing Activities
Net cash used in investing activities increased $68.4decreased $137.1 million during the six months ended June 30, 2021,2022, compared with the same period in 2020,2021, driven by theby:
•The acquisition of a 90% ownership interest in Jayhawk in February 2021 for $119.7 million. See Note 2, Acquisitions, for more information.
This increase There were no acquisitions during the same period in net cash used in investing activities was partially offset by:2022.
•A $27.1 million decrease in cash paid for capital expenditures during the six months ended June 30, 2021, compared with the same period in 2020, which is discussed in more detail below.
•An $18.7$44.2 million increase in proceeds from the sale of assets during the six months ended June 30, 2021,2022, compared with the same period in 2020.2021.
•Insurance proceeds of $41.3 million received during the six months ended June 30, 2022 for property damage, primarily related to the PSB water damage claim. See Note 7, Property, Plant, and Equipment, for more information.
These decreases in net cash used in investing activities were partially offset by:
•Capital contributions paid to transmission affiliates of $30.3 million during the six months ended June 30, 2022. See Note 18, Investment in Transmission Affiliates, for more information. There were no payments to transmission affiliates during the same period in 2021.
•An $18.7 million increase in cash paid for capital expenditures during the six months ended June 30, 2022, compared with the same period in 2021, which is discussed in more detail below.
Capital Expenditures
Capital expenditures by segment for the six months ended June 30 were as follows:
| Reportable Segment (in millions) | Reportable Segment (in millions) | | 2021 | | 2020 | | Change in 2021 Over 2020 | Reportable Segment (in millions) | | 2022 | | 2021 | | Change in 2022 Over 2021 |
| Wisconsin | Wisconsin | | $ | 632.5 | | | $ | 633.7 | | | $ | (1.2) | | Wisconsin | | $ | 716.2 | | | $ | 632.5 | | | $ | 83.7 | |
| Illinois | Illinois | | 251.1 | | | 325.9 | | | (74.8) | | Illinois | | 232.9 | | | 251.1 | | | (18.2) | |
| Other states | Other states | | 36.0 | | | 65.0 | | | (29.0) | | Other states | | 36.3 | | | 36.0 | | | 0.3 | |
| Non-utility energy infrastructure | Non-utility energy infrastructure | | 84.8 | | | 5.2 | | | 79.6 | | Non-utility energy infrastructure | | 36.8 | | | 84.8 | | | (48.0) | |
| Corporate and other | Corporate and other | | 5.7 | | | 7.4 | | | (1.7) | | Corporate and other | | 6.6 | | | 5.7 | | | 0.9 | |
| Total capital expenditures | Total capital expenditures | | $ | 1,010.1 | | | $ | 1,037.2 | | | $ | (27.1) | | Total capital expenditures | | $ | 1,028.8 | | | $ | 1,010.1 | | | $ | 18.7 | |
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The decreaseincrease in cash paid for capital expenditures at the Wisconsin segment during the six months ended June 30, 2021,2022, compared with the same period in 2020,2021, was primarily driven by higher payments for capital expenditures related to Paris, the new natural gas-fired generation facility being constructed at the Weston power plant, WG's LNG facility, and renewable energy projects. These increases were partially offset by lower capital expenditures related to Badger Hollow I,the restoration of WE's PSB and upgrades to WE's and WPS's natural gas and electric distribution system, ansystems. See Note 7, Property, Plant, and Equipment, for more information technology project created to improveon the billing, call center, and credit collection functions, upgrades to WG's gas distribution system, and upgrades of WPS's automated meter reading devices during the six months ended June 30, 2021. These decreases in cash paid for capital expenditures were substantially offset by an increase in cash paid for capital expenditures during the six months ended June 30, 2021, related to upgrades to WE's natural gas distribution system.PSB.
The decrease in cash paid for capital expenditures at the Illinois segment during the six months ended June 30, 2021,2022, compared with the same period in 2020,2021, was primarily driven by lower capital expenditures related to facilities projects andupgrades at the Manlove Gas Storage Field, partially offset by increased capital expenditures for upgrades to thePGL's natural gas distribution system during the six months ended June 30, 2021.system.
The decrease in cash paid for capital expenditures at the other states segment during the six months ended June 30, 2021, compared with the same period in 2020, was primarily driven by a decrease in installations of automated meter reading devices during the six months ended June 30, 2021.
The increase in cash paid for capital expenditures at the non-utility energy infrastructure segment during the six months ended June 30, 2021,2022, compared with the same period in 2020,2021, was primarily driven by lower capital expenditures related to the construction of Jayhawk.Jayhawk, which went into commercial operation in December 2021. See Note 2, Acquisitions, for more information about Jayhawk.
See Capital Resources and Requirements – Capital Requirements – Significant Capital Projects for more information.
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| 06/30/2022 Form 10-Q | 71 | WEC Energy Group, Inc. |
Financing Activities
Net cash used in financing activities decreased $268.8increased $683.2 million during the six months ended June 30, 2021,2022, compared with the same period in 2020,2021, driven by:
•A $908.8$1,018.8 million increasedecrease in cash due to higher issuancesthe issuance of long-term debt during the six months ended June 30, 2021, compared with2021. We did not issue any long-term debt during the same period in 2020.2022.
•A $77.0$256.9 million increasedecrease in cash due to lowerhigher net repayments of long-term debtcommercial paper during the six months ended June 30, 2021,2022, compared with the same period in 2020.2021.
•A $39.0$37.1 million increasedecrease in cash due to a decreasean increase in the number and cost of shares of our common stock purchased during the six months ended June 30, 2021,2022, compared with the same period in 2020,2021, to satisfy requirements of our stock-based compensation plans.
•The acquisition of an additional 10% ownership interest in Upstream in April 2020 for $31.0 million. See Note 2, Acquisitions, for more information.
These increases in cash were partially offset by:
•A $680.0 million decrease in cash due to a $340.0 million repayment of a 364-day term loan during the six months ended June 30, 2021, compared with its issuance during the same period in 2020, to enhance our liquidity position in response to the COVID-19 pandemic.
•A $53.1 million decrease in cash due to $12.4 million of net repayments of commercial paper during the six months ended June 30, 2021, compared with $40.7 million of net borrowings of commercial paper during the same period in 2020.
•A $28.5$31.5 million decrease in cash due to higher dividends paid on our common stock during the six months ended June 30, 2021,2022, compared with the same period in 2020.2021. In January 2021,2022, our Board of Directors increased our quarterly dividend by $0.045$0.05 per share (7.1%(7.4%) effective with the March 20212022 dividend payment.
These increases in net cash used in financing activities were partially offset by:
•A $340.0 million increase in cash due to a repayment of a 364-day term loan during the six months ended June 30, 2021. We did not repay any loans during the same period in 2022.
•A $16.3$292.1 million increase in cash due to a decrease in retirements of long-term debt during the six months ended June 30, 2022, compared with the same period in 2021.
•A $19.0 million increase in cash fromproceeds related to stock options exercised during the six months ended June 30, 2021,2022, compared with the same period in 2020.2021.
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06/30/2021 Form 10-Q | 67 | WEC Energy Group, Inc. |
Significant Financing Activities
For more information on our financing activities, see Note 9, Short-Term Debt and Lines of Credit.
Cash Requirements
We require funds to support and grow our businesses. Our significant cash requirements primarily consist of capital and investment expenditures, payments to retire and pay interest on long-term debt, the payment of common stock dividends to our shareholders, and the funding of our ongoing operations. See the discussion below and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Cash Requirements in our 2021 Annual Report on Form 10-K for additional information regarding our significant cash requirements.
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| 06/30/2022 Form 10-Q | 72 | WEC Energy Group, Inc. |
Significant Capital Projects
We have several capital projects that will require significant capital expenditures over the next three years and beyond. All projected capital requirements are subject to periodic review and may vary significantly from estimates, depending on a number of factors. These factors include environmental requirements, regulatory restraints and requirements, changes in tax laws and regulations, acquisition and development opportunities, market volatility, economic trends, supply chain disruptions, the COVID-19 pandemic, inflation, and interest rates. Our estimated capital expenditures and acquisitions for the next three years are reflected below. These amounts include anticipated expenditures for environmental compliance and certain remediation issues. For a discussion of certain environmental matters affecting us, see Note 21, Commitments and Contingencies.
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| (in millions) | | 2022 (1) | | 2023 | | 2024 | | | | | |
| Wisconsin | | $ | 2,131.7 | | | $ | 2,148.0 | | | $ | 2,114.1 | | | | | | |
| Illinois | | 573.1 | | | 586.8 | | | 635.0 | | | | | | |
| Other states | | 119.1 | | | 103.6 | | | 106.4 | | | | | | |
| Non-utility energy infrastructure | | 870.8 | | | 325.7 | | | 297.5 | | | | | | |
| Corporate and other | | 22.0 | | | 17.5 | | | 4.3 | | | | | | |
| Total | | $ | 3,716.7 | | | $ | 3,181.6 | | | $ | 3,157.3 | | | | | | |
(1)This includes actual capital expenditures already incurred in 2022, as well as estimated capital expenditures for the remainder of the year.
Our utilities continue to upgrade their electric and natural gas distribution systems to enhance reliability. These upgrades include addressing our aging infrastructure and system hardening and the AMI program. AMI is an integrated system of smart meters, communication networks, and data management systems that enable two-way communication between utilities and customers.
We are committed to investing in solar, wind, battery storage, and clean natural gas-fired generation. Below are examples of projects that are proposed or currently underway.
•We have received approval to invest in 100 MW of utility-scale solar within our Wisconsin segment. WE has partnered with an unaffiliated utility to construct a solar project, Badger Hollow II, that will be located in Iowa County, Wisconsin. Once constructed, WE will own 100 MW of this project. WE's share of the cost of this project is estimated to be approximately $151 million. Commercial operation of Badger Hollow II is targeted for the first half of 2023.
•WE and WPS, along with an unaffiliated utility, received PSCW approval to acquire and construct Paris, a utility-scale solar-powered electric generating facility with a battery energy storage system. The project will be located in Kenosha County, Wisconsin and once fully constructed, WE and WPS will collectively own 180 MW of solar generation and 99 MW of battery storage of this project. WE's and WPS's combined share of the cost of this project is estimated to be approximately $390 million, with construction of the solar portion expected to be completed in 2023.
•WE and WPS have received approval to accelerate capital investments in two wind parks. The investment is expected to be approximately $154 million to repower major components of Blue Sky Green Field Wind Park and Crane Creek Wind Park, which are expected to be completed by the end of 2022.
•In March 2021, WE and WPS, along with an unaffiliated utility, filed an application with the PSCW for approval to acquire and construct Darien, a utility-scale solar-powered electric generating facility with a battery energy storage system. The project will be located in Rock and Walworth counties, Wisconsin and once fully constructed, WE and WPS will collectively own 225 MW of solar generation and 68 MW of battery storage of this project. If approved, WE's and WPS's combined share of the cost of this project is estimated to be approximately $400 million, with construction of the solar portion expected to be completed in 2024.
•WPS, along with an unaffiliated utility, received PSCW approval to acquire the Red Barn Wind Park, a utility-scale wind-powered electric generating facility. The project will be located in Grant County, Wisconsin and once constructed, WPS will own 82 MW of this project. WPS's share of the cost of this project is estimated to be approximately $160 million, with construction expected to be completed by the end of 2022.
•In April 2021, WE and WPS, along with an unaffiliated utility, filed an application with the PSCW for approval to acquire the Koshkonong Solar-Battery Park, a utility-scale solar-powered electric generating facility with a battery energy storage system. The project will be located in Dane County, Wisconsin and once fully constructed, WE and WPS will collectively own 270 MW of solar
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| 06/30/2022 Form 10-Q | 73 | WEC Energy Group, Inc. |
generation and 149 MW of battery storage of this project. If approved, WE's and WPS's combined share of the cost of this project is estimated to be approximately $585 million, with construction of the solar portion expected to be completed in 2025.
•WE and WPS received PSCW approval to construct 128 MWs of natural gas-fired generation at WPS's existing Weston power plant site in northern Wisconsin. The new facility will consist of seven RICE units. We estimate the cost of this project to be approximately $170 million, with construction expected to be completed in 2023.
•In November 2021, WE and WPS signed an asset purchase agreement to acquire Whitewater, a commercially operational 236.5 MW dual-fueled (natural gas and low sulfur fuel oil) combined-cycle electrical generation facility in Whitewater, Wisconsin. In December 2021, WE and WPS filed an application with the PSCW for approval to acquire Whitewater. If approved, the cost of this facility will be $72.7 million, with the transaction expected to close in early 2023.
•In January 2022, WPS, along with an unaffiliated utility, filed an application with the PSCW for approval to acquire a portion of West Riverside's nameplate capacity. WPS is also requesting approval to assign the option to purchase part of West Riverside to WE. If approved, WPS or WE would acquire 100 MW of capacity, in the first of two potential option exercises. West Riverside is a combined-cycle natural gas plant recently completed by an unaffiliated utility in Rock County, Wisconsin. If approved, our share of the cost of this ownership interest is approximately $91 million, with the transaction expected to close in the second quarter of 2023. In addition, WPS could exercise a second option to acquire an additional 100 MW of capacity.
In March 2022, the DOC opened an investigation into whether new tariffs should be imposed on solar panels and cells imported from multiple southeast Asian countries. See Factors Affecting Results, Liquidity, and Capital Resources – Regulatory, Legislative, and Legal Matters – United States Department of Commerce Complaint and Factors Affecting Results, Liquidity, and Capital Resources – Regulatory, Legislative, and Legal Matters – Uyghur Forced Labor Prevention Act for information on the potential impacts to our solar projects as a result of the DOC investigation and CBP actions related to solar panels, respectively. The expected in-service dates identified above already reflect some of these impacts.
WE and WG have received PSCW approval to each construct its own LNG facility. Each facility would provide approximately one billion cubic feet of natural gas supply to meet anticipated peak demand without requiring the construction of additional interstate pipeline capacity. These facilities are expected to reduce the likelihood of constraints on WE's and WG's natural gas systems during the highest demand days of winter. The total cost of both projects is estimated to be approximately $370 million, with approximately half being invested by each utility. Commercial operation of the WE and WG LNG facilities is targeted for the end of 2023 and 2024, respectively.
PGL is continuing work on the SMP, a project under which PGL is replacing approximately 2,000 miles of Chicago's aging natural gas pipeline infrastructure. PGL currently recovers these costs through a surcharge on customer bills pursuant to an ICC approved QIP rider, which is in effect through 2023. PGL's projected average annual investment through 2024 is between $280 million and $300 million.
The non-utility energy infrastructure line item in the table above includes WECI's planned investments in Thunderhead and Sapphire Sky. See Note 2, Acquisitions, for more information on these wind projects.
We expect to provide total capital contributions to ATC (not included in the above table) of approximately $115 million from 2022 through 2024. We do not expect to make any contributions to ATC Holdco during that period.
Long-Term Debt
There were no material changes in our outstanding long-term debt during the six months ended June 30, 2022.
Common Stock Dividends
Our current quarterly dividend rate is $0.7275 per share, which equates to an annual dividend of $2.91 per share. For information related to our most recent common stock dividend declared, see Note 8, Common Equity.
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| 06/30/2022 Form 10-Q | 74 | WEC Energy Group, Inc. |
Other Significant Cash Requirements
See Note 21, Commitments and Contingencies, for information regarding our minimum future commitments related to purchase obligations for the procurement of fuel, power, and gas supply, as well as the related storage and transportation. There were no material changes to our other significant commitments outside the ordinary course of business during the six months ended June 30, 2022.
Off-Balance Sheet Arrangements
We are a party to various financial instruments with off-balance sheet risk as a part of our normal course of business, including financial guarantees and letters of credit that support construction projects, commodity contracts, and other payment obligations. We believe that these agreements do not have, and are not reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. For additional information, see Note 9, Short-Term Debt and Lines of Credit, Note 15, Guarantees, and Note 9, Long-Term Debt.20, Variable Interest Entities.
Capital Resources and Requirements
Capital ResourcesSources of Cash
Liquidity
We anticipate meeting our capitalshort-term and long-term cash requirements forto operate our existingbusinesses and implement our corporate strategy through internal generation of cash from operations through internally generated funds and short-term borrowings, supplemented by the issuance of intermediate or long-term debt securities, depending on market conditions and other factors.
We currently have access to the capital markets, which allows us to obtain external short-term borrowings, including commercial paper and have been ableterm loans, and intermediate or long-term debt securities. Cash generated from operations is primarily driven by sales of electricity and natural gas to generate funds both internally and externallyour utility customers, reduced by costs of operations. Our access to meet ourthe capital requirements. Our ability to attract the necessary financial capital at reasonable termsmarkets is critical to our overall strategic plan. We currently believe that we have adequate capacityplan and allows us to fund oursupplement cash flows from operations for the foreseeable future through our existing borrowing arrangements, accesswith external borrowings to manage seasonal variations, working capital markets,needs, commodity price fluctuations, unplanned expenses, and internally generated cash. See Factors Affecting Results, Liquidity, and Capital Resources – Coronavirus Disease – 2019, for additional information on the impacts of the COVID-19 pandemic.unanticipated events.
WEC Energy Group, WE, WPS, WG, and PGL maintain bank back-up credit facilities, which provide liquidity support for each company's obligations with respect to commercial paper and for general corporate purposes. We review our bank back-up credit facility needs on an ongoing basis and expect to be able to maintain adequate credit facilities to support our operations. In March 2020,
The amount, type, and timing of any financings in order2022, as well as in subsequent years, will be contingent on investment opportunities and our cash requirements and will depend upon prevailing market conditions, regulatory approvals for certain subsidiaries, and other factors. Our regulated utilities plan to enhancemaintain capital structures consistent with those approved by their respective regulators. For more information on our liquidity positionutilities approved capital structures, see Item 1. Business – E. Regulation in responseour 2021 Annual Report on Form 10-K.
The issuance of securities by our utility companies is subject to the COVID-19 pandemic andapproval of the ensuing volatility inapplicable state commissions or FERC. Additionally, with respect to the commercial paper market,public offering of securities, WEC Energy Group, entered into a $340WE, and WPS file registration statements with the SEC under the Securities Act of 1933, as amended (1933 Act). The amounts of securities authorized by the appropriate regulatory authorities, as well as the securities registered under the 1933 Act, are closely monitored and appropriate filings are made to ensure flexibility in the capital markets.
At June 30, 2022, our current liabilities exceeded our current assets by $1,175.3 million. We do not expect this to have an impact on our liquidity as we currently believe that our cash and cash equivalents, our available capacity of $1,470.9 million 364-day term loan, which was usedunder existing revolving credit facilities, cash generated from ongoing operations, and access to pay down commercial paper. In March 2021, we repaid the term loan using the net proceeds from the issuance ofcapital markets are adequate to meet our 0.80% Senior Notes.short-term and long-term cash requirements.
See Note 8,9, Short-Term Debt and Lines of Credit, for more information about theseour credit agreementsfacilities and Note 9, Long-Term Debt, forcommercial paper.
Investments in Outside Trusts
We maintain investments in outside trusts to fund the obligation to provide pension and certain OPEB benefits to current and future retirees. These trusts had investments consisting of fixed income and equity securities that are subject to the volatility of the stock market and interest rates. For more information, about the issuancesee Investments in Outside Trusts in Item 7. Management's Discussion and Analysis
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| 06/30/2022 Form 10-Q | 75 | WEC Energy Group, Inc. |
of Financial Condition and Results of Operations – Liquidity and Capital Resources – Sources of Cash in our 0.80% Senior Notes.2021 Annual Report on Form 10-K.
Capitalization Structure
The following table shows our capitalization structure as of June 30, 2021,2022, as well as an adjusted capitalization structure that we believe is consistent with how a majority of the rating agencies currently view our 2007 Junior Notes:
| | (in millions) | (in millions) | | Actual | | Adjusted | (in millions) | | Actual | | Adjusted |
| Common shareholders' equity | Common shareholders' equity | | $ | 10,830.9 | | | $ | 11,080.9 | | Common shareholders' equity | | $ | 11,290.6 | | | $ | 11,540.6 | |
| Preferred stock of subsidiary | Preferred stock of subsidiary | | 30.4 | | | 30.4 | | Preferred stock of subsidiary | | 30.4 | | | 30.4 | |
| Long-term debt (including current portion) | Long-term debt (including current portion) | | 13,189.3 | | | 12,939.3 | | Long-term debt (including current portion) | | 13,697.8 | | | 13,447.8 | |
| Short-term debt | Short-term debt | | 1,424.5 | | | 1,424.5 | | Short-term debt | | 1,629.1 | | | 1,629.1 | |
| Total capitalization | Total capitalization | | $ | 25,475.1 | | | $ | 25,475.1 | | Total capitalization | | $ | 26,647.9 | | | $ | 26,647.9 | |
| | Total debt | Total debt | | $ | 14,613.8 | | | $ | 14,363.8 | | Total debt | | $ | 15,326.9 | | | $ | 15,076.9 | |
| | Ratio of debt to total capitalization | Ratio of debt to total capitalization | | 57.4 | % | | 56.4 | % | Ratio of debt to total capitalization | | 57.5 | % | | 56.6 | % |
Included in long-term debt on our balance sheet as of June 30, 2021,2022, is $500.0 million principal amount of the 2007 Junior Notes. The adjusted presentation attributes $250.0 million of the 2007 Junior Notes to common shareholders' equity and $250.0 million to long-term debt.
The adjusted presentation of our consolidated capitalization structure is included as a complement to our capitalization structure presented in accordance with GAAP. Management evaluates and manages our capitalization structure, including our total debt to total capitalization ratio, using the GAAP calculation as adjusted to reflect the treatment of the 2007 Junior Notes by the majority of rating agencies. Therefore, we believe the non-GAAP adjusted presentation reflecting this treatment is useful and relevant to investors in understanding how management and the rating agencies evaluate our capitalization structure.
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Working CapitalDebt Covenants
AsCertain of our short-term and long-term debt agreements contain financial covenants that we must satisfy, including debt to capitalization ratios and debt service coverage ratios. At June 30, 2022, we were in compliance with all such covenants related to outstanding short-term and long-term debt. We expect to be in compliance with all such debt covenants for the foreseeable future. See Note 13, Short-Term Debt and Lines of Credit, Note 14, Long-Term Debt, and Note 11, Common Equity, in our 2021 Annual Report on Form 10-K, for more information regarding our current liabilities exceeded our current assets by $1.1 billion. We do not expect this to have any impact on our liquidity since we believe we have adequate back-up lines of credit in place for our ongoing operations. We also believe that we can access the capital markets to finance our construction programs and to refinance current maturities of long-term debt if necessary.covenants.
Credit Rating RiskOff-Balance Sheet Arrangements
We are a party to various financial instruments with off-balance sheet risk as a part of our normal course of business, including financial guarantees and letters of credit that support construction projects, commodity contracts, and other payment obligations. We believe that these agreements do not have, any credit agreements that would requireand are not reasonably likely to have, a current or future material effect on our financial condition, changes in payment schedulesfinancial condition, revenues or terminations as a resultexpenses, results of a credit rating downgrade. However, we have certain agreements in the formoperations, liquidity, capital expenditures, or capital resources. For additional information, see Note 9, Short-Term Debt and Lines of commodity contractsCredit, Note 15, Guarantees, and employee benefit plans that could require collateral or a termination payment in the event of a credit rating change to below BBB- at S&P Global Ratings, a division of S&P Global Inc., and/or Baa3 at Moody's Investors Service, Inc. We also have other commodity contracts that, in the event of a credit rating downgrade, could result in a reduction of our unsecured credit granted by counterparties.Note 20, Variable Interest Entities.
In addition,
Sources of Cash
Liquidity
We anticipate meeting our short-term and long-term cash requirements to operate our businesses and implement our corporate strategy through internal generation of cash from operations and access to the capital markets, at a reasonable costwhich allows us to obtain external short-term borrowings, including commercial paper and term loans, and intermediate or long-term debt securities. Cash generated from operations is determinedprimarily driven by sales of electricity and natural gas to our utility customers, reduced by costs of operations. Our access to the capital markets is critical to our overall strategic plan and allows us to supplement cash flows from operations with external borrowings to manage seasonal variations, working capital needs, commodity price fluctuations, unplanned expenses, and unanticipated events.
WEC Energy Group, WE, WPS, WG, and PGL maintain bank back-up credit facilities, which provide liquidity support for each company's obligations with respect to commercial paper and for general corporate purposes. We review our bank back-up credit facility needs on an ongoing basis and expect to be able to maintain adequate credit facilities to support our operations.
The amount, type, and timing of any financings in large part2022, as well as in subsequent years, will be contingent on investment opportunities and our cash requirements and will depend upon prevailing market conditions, regulatory approvals for certain subsidiaries, and other factors. Our regulated utilities plan to maintain capital structures consistent with those approved by credit quality. Any credit ratings downgrade could impacttheir respective regulators. For more information on our abilityutilities approved capital structures, see Item 1. Business – E. Regulation in our 2021 Annual Report on Form 10-K.
The issuance of securities by our utility companies is subject to accessthe approval of the applicable state commissions or FERC. Additionally, with respect to the public offering of securities, WEC Energy Group, WE, and WPS file registration statements with the SEC under the Securities Act of 1933, as amended (1933 Act). The amounts of securities authorized by the appropriate regulatory authorities, as well as the securities registered under the 1933 Act, are closely monitored and appropriate filings are made to ensure flexibility in the capital markets.
Subject to other factors affecting the credit markets as a whole, we believeAt June 30, 2022, our current ratings should provide a significant degreeliabilities exceeded our current assets by $1,175.3 million. We do not expect this to have an impact on our liquidity as we currently believe that our cash and cash equivalents, our available capacity of flexibility in obtaining funds on competitive terms. However, these security ratings reflect$1,470.9 million under existing revolving credit facilities, cash generated from ongoing operations, and access to the views of the rating agency only. An explanation of the significance of these ratings may be obtained from the rating agency. Such ratingscapital markets are not a recommendationadequate to buy, sell, or hold securities. Any rating can be revised upward or downward or withdrawn at any time by a rating agency.meet our short-term and long-term cash requirements.
If we are unable to successfully take actions to manage any additional impacts from the COVID-19 pandemic, theSee Note 9, Short-Term Debt and Lines of Credit, for more information about our credit rating agencies could place our or our subsidiaries’ credit ratings on negative outlook or downgrade our or our subsidiaries' credit ratings. Any such actions by credit rating agencies may make it more difficultfacilities and costly for us and our subsidiaries to issue future debt securities and certain other types of financing and could increase borrowing costs under our and our subsidiaries’ credit facilities.commercial paper.
Capital Requirements
Significant Capital ProjectsInvestments in Outside Trusts
We have several capital projectsmaintain investments in outside trusts to fund the obligation to provide pension and certain OPEB benefits to current and future retirees. These trusts had investments consisting of fixed income and equity securities that will require significant capital expenditures over the next three years and beyond. All projected capital requirements are subject to periodic reviewthe volatility of the stock market and may vary significantly from estimates, depending on a number of factors. These factors include environmental requirements, regulatory restraintsinterest rates. For more information, see Investments in Outside Trusts in Item 7. Management's Discussion and requirements, changes in tax laws and regulations, acquisition and development opportunities, market volatility, economic trends, and the COVID-19 pandemic. Our estimated capital expenditures and acquisitions for the next three years are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2021 | | 2022 | | 2023 | | | | | |
| Wisconsin | | $ | 1,763.4 | | | $ | 1,844.6 | | | $ | 2,070.2 | | | | | | |
| Illinois | | 573.9 | | | 581.8 | | | 660.9 | | | | | | |
| Other states | | 98.4 | | | 106.8 | | | 92.5 | | | | | | |
| Non-utility energy infrastructure | | 359.0 | | | 897.9 | | | 397.1 | | | | | | |
| Corporate and other | | 17.1 | | | 10.1 | | | 3.7 | | | | | | |
| Total | | $ | 2,811.8 | | | $ | 3,441.2 | | | $ | 3,224.4 | | | | | | |
WE, WPS, and WG continue to upgrade their electric and natural gas distribution systems to enhance reliability. These upgrades include the AMI program. AMI is an integrated system of smart meters, communication networks, and data management systems that enable two-way communication between utilities and customers. WPS is also continuing work on the System Modernization and Reliability Project. This project includes modernizing parts of its electric distribution system, including burying or upgrading lines. The project focuses on constructing facilities to improve the reliability of electric service WPS provides to its customers. In 2021, WPS expects to invest approximately $50 million on this project at which time it will be substantially complete.
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06/30/20212022 Form 10-Q | 6975 | WEC Energy Group, Inc. |
We are committed to investing in solar, wind, battery storage,of Financial Condition and clean natural gas-fired generation. Below are examplesResults of projects that are proposed or currently underway.
•We have received approval to invest in 200 MW of utility-scale solar within our Wisconsin segment. WPS has partnered with an unaffiliated utility to construct a solar project, Badger Hollow I, that will be located in Iowa County, Wisconsin. Once constructed, WPS will own 100 MW of this project. WPS's share of the cost of this project is estimated to be approximately $130 million. Commercial operation of Badger Hollow I is expected in the fourth quarter of 2021. WE has partnered with an unaffiliated utility to construct a solar project, Badger Hollow II, that will be located in Iowa County, Wisconsin. Once constructed, WE will own 100 MW of this project. WE's share of the cost of this project is estimated to be approximately $130 million. Commercial operation of Badger Hollow II is targeted for December 2022.
•In February 2021, WE and WPS, along with an unaffiliated utility, filed an application with the PSCW for approval to acquire and construct the Paris Solar-Battery Park, a utility-scale solar-powered electric generating facility with a battery energy storage system. The project will be located in Kenosha County, Wisconsin and once constructed, WE and WPS will collectively own 180 MW of solar generation and 99 MW of battery storage of this project. If approved, WE and WPS's combined share of the cost of this project is estimated to be approximately $385 million, with construction expected to begin in 2022 and completed by the end of 2023.
•In February 2021, WE and WPS filed an application with the PSCW for approval to accelerate capital investments in two wind parks. If approved, the investment is expected to be approximately $154 million to repower major components of Blue Sky Green Field Wind Park and Crane Creek Wind Park, which are expected to be completed by the end of 2022.
•In March 2021, WE and WPS, along with an unaffiliated utility, filed an application with the PSCW for approval to acquire and construct the Darien Solar-Battery Park, a utility-scale solar-powered electric generating facility with a battery energy storage system. The project will be located in Kenosha County, Wisconsin and once constructed, WE and WPS will collectively own 225 MW of solar generation and 68 MW of battery storage of this project. If approved, WE and WPS's combined share of the cost of this project is estimated to be approximately $400 million, with construction expected to begin in late 2021 and completed by the end of 2023.
•In March 2021, WPS, along with an unaffiliated utility, filed an application with the PSCW for approval to acquire the Red Barn Wind Park, a utility-scale wind-powered electric generating facility. The project will be located in Grant County, Wisconsin and once constructed, WPS will own 82 MW of this project. If approved, WPS's share of the cost of this project is estimated to be approximately $140 million, with construction expected to begin in early 2022 and completed by the end of 2022.
•In April 2021, WE and WPS, along with an unaffiliated utility, filed an application with the PSCW for approval to acquire the Koshkonong Solar-Battery Park, a utility-scale solar-powered electric generating facility with a battery energy storage system. The project will be located in Dane County, Wisconsin and once constructed, WE and WPS will collectively own 270 MW of solar generation and 149 MW of battery storage of this project. If approved, WE and WPS's combined share of the cost of this project is estimated to be approximately $585 million, with construction expected to begin in late 2022 and completed by the second quarter of 2024.
•In April 2021, WE and WPS filed an application with the PSCW for approval to construct 128 MWs of natural gas-fired generation at WPS's existing Weston Power Plant site in northern Wisconsin. The new facility will consist of seven reciprocating internal combustion engines. If approved, we estimate the cost of this project to be approximately $170 million, with construction expected to begin in 2022 and completed in 2023.
WE is constructing approximately 46 miles of natural gas transmission main to increase the quantity and reliability of natural gas service in southeastern Wisconsin. This project, which was approved by the PSCW in June 2020, has been designated as the Lakeshore Lateral Project. The cost of the project is estimated to be between $174 and $180 million. Construction for the project began in December 2020, and the project is expected to be completed by the end of 2021.
WE and WG each plan to construct its own LNG facility. Subject to PSCW approval, each facility would provide approximately one billion cubic foot of natural gas supply to meet anticipated peak demand without requiring the construction of additional interstate pipeline capacity. These facilities are expected to reduce the likelihood of constraints on WE's and WG's natural gas systems during the highest demand days of winter. The total cost of both projects is estimated to be approximately $370 million, with approximately half being invested by each utility. If approved, construction is expected to begin in fall of 2021 with commercial operation for the LNG facilities targeted for the end of 2023.
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06/30/2021 Form 10-Q | 70 | WEC Energy Group, Inc. |
PGL is continuing work on the SMP, a project under which PGL is replacing approximately 2,000 miles of Chicago's aging natural gas pipeline infrastructure. PGL currently recovers these costs through a surcharge on customer bills pursuant to an ICC approved QIP rider, which is in effect through 2023. PGL's projected average annual investment through 2023 is between $280 million and $300 million.
The non-utility energy infrastructure line item in the table above includes WECI's planned investments in Thunderhead, Jayhawk, and Sapphire Sky. See Note 2, Acquisitions, for more information on these wind projects.
We expect to provide total capital contributions to ATC (not included in the above table) of approximately $45 million from 2021 through 2023. We do not expect to make any contributions to ATC Holdco during that period.
See Factors Affecting Results,Operations – Liquidity and Capital Resources – Coronavirus Disease – 2019, for additional informationSources of Cash in our 2021 Annual Report on the impacts to our capital projects as a result of the COVID-19 pandemic.Form 10-K.
Common Stock DividendsCapitalization Structure
Our current quarterly dividend rateThe following table shows our capitalization structure as of June 30, 2022, as well as an adjusted capitalization structure that we believe is $0.6775 per share, which equatesconsistent with how a majority of the rating agencies currently view our 2007 Junior Notes:
| | | | | | | | | | | | | | |
| (in millions) | | Actual | | Adjusted |
| Common shareholders' equity | | $ | 11,290.6 | | | $ | 11,540.6 | |
| Preferred stock of subsidiary | | 30.4 | | | 30.4 | |
| Long-term debt (including current portion) | | 13,697.8 | | | 13,447.8 | |
| Short-term debt | | 1,629.1 | | | 1,629.1 | |
| Total capitalization | | $ | 26,647.9 | | | $ | 26,647.9 | |
| | | | |
| Total debt | | $ | 15,326.9 | | | $ | 15,076.9 | |
| | | | |
| Ratio of debt to total capitalization | | 57.5 | % | | 56.6 | % |
Included in long-term debt on our balance sheet as of June 30, 2022, is $500.0 million principal amount of the 2007 Junior Notes. The adjusted presentation attributes $250.0 million of the 2007 Junior Notes to an annual dividendcommon shareholders' equity and $250.0 million to long-term debt.
The adjusted presentation of $2.71 per share. For information relatedour consolidated capitalization structure is included as a complement to our most recent common stock dividend declared, see Note 7, Common Equity.capitalization structure presented in accordance with GAAP. Management evaluates and manages our capitalization structure, including our total debt to total capitalization ratio, using the GAAP calculation as adjusted to reflect the treatment of the 2007 Junior Notes by the majority of rating agencies. Therefore, we believe the non-GAAP adjusted presentation reflecting this treatment is useful and relevant to investors in understanding how management and the rating agencies evaluate our capitalization structure.
Debt Covenants
Certain of our short-term and long-term debt agreements contain financial covenants that we must satisfy, including debt to capitalization ratios and debt service coverage ratios. At June 30, 2022, we were in compliance with all such covenants related to outstanding short-term and long-term debt. We expect to be in compliance with all such debt covenants for the foreseeable future. See Note 13, Short-Term Debt and Lines of Credit, Note 14, Long-Term Debt, and Note 11, Common Equity, in our 2021 Annual Report on Form 10-K, for more information regarding our debt covenants.
Off-Balance Sheet Arrangements
We are a party to various financial instruments with off-balance sheet risk as a part of our normal course of business, including financial guarantees and letters of credit that support construction projects, commodity contracts, and other payment obligations. We believe that these agreements do not have, and are not reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. For additional information, see Note 8,9, Short-Term Debt and Lines of Credit, Note 15, Guarantees, and Note 20, Variable Interest Entities.
Sources of Cash
Liquidity
We anticipate meeting our short-term and long-term cash requirements to operate our businesses and implement our corporate strategy through internal generation of cash from operations and access to the capital markets, which allows us to obtain external short-term borrowings, including commercial paper and term loans, and intermediate or long-term debt securities. Cash generated from operations is primarily driven by sales of electricity and natural gas to our utility customers, reduced by costs of operations. Our access to the capital markets is critical to our overall strategic plan and allows us to supplement cash flows from operations with external borrowings to manage seasonal variations, working capital needs, commodity price fluctuations, unplanned expenses, and unanticipated events.
WEC Energy Group, WE, WPS, WG, and PGL maintain bank back-up credit facilities, which provide liquidity support for each company's obligations with respect to commercial paper and for general corporate purposes. We review our bank back-up credit facility needs on an ongoing basis and expect to be able to maintain adequate credit facilities to support our operations.
The amount, type, and timing of any financings in 2022, as well as in subsequent years, will be contingent on investment opportunities and our cash requirements and will depend upon prevailing market conditions, regulatory approvals for certain subsidiaries, and other factors. Our regulated utilities plan to maintain capital structures consistent with those approved by their respective regulators. For more information on our utilities approved capital structures, see Item 1. Business – E. Regulation in our 2021 Annual Report on Form 10-K.
The issuance of securities by our utility companies is subject to the approval of the applicable state commissions or FERC. Additionally, with respect to the public offering of securities, WEC Energy Group, WE, and WPS file registration statements with the SEC under the Securities Act of 1933, as amended (1933 Act). The amounts of securities authorized by the appropriate regulatory authorities, as well as the securities registered under the 1933 Act, are closely monitored and appropriate filings are made to ensure flexibility in the capital markets.
At June 30, 2022, our current liabilities exceeded our current assets by $1,175.3 million. We do not expect this to have an impact on our liquidity as we currently believe that our cash and cash equivalents, our available capacity of $1,470.9 million under existing revolving credit facilities, cash generated from ongoing operations, and access to the capital markets are adequate to meet our short-term and long-term cash requirements.
See Note 9, Short-Term Debt and Lines of Credit, for more information about our credit facilities and commercial paper.
Investments in Outside Trusts
We maintain investments in outside trusts to fund the obligation to provide pension and certain OPEB benefits to current and future retirees. These trusts had investments consisting of fixed income and equity securities that are subject to the volatility of the stock market and interest rates. For more information, see Investments in Outside Trusts in Item 7. Management's Discussion and Analysis
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| 06/30/2022 Form 10-Q | 75 | WEC Energy Group, Inc. |
of Financial Condition and Results of Operations – Liquidity and Capital Resources – Sources of Cash in our 2021 Annual Report on Form 10-K.
Capitalization Structure
The following table shows our capitalization structure as of June 30, 2022, as well as an adjusted capitalization structure that we believe is consistent with how a majority of the rating agencies currently view our 2007 Junior Notes:
| | | | | | | | | | | | | | |
| (in millions) | | Actual | | Adjusted |
| Common shareholders' equity | | $ | 11,290.6 | | | $ | 11,540.6 | |
| Preferred stock of subsidiary | | 30.4 | | | 30.4 | |
| Long-term debt (including current portion) | | 13,697.8 | | | 13,447.8 | |
| Short-term debt | | 1,629.1 | | | 1,629.1 | |
| Total capitalization | | $ | 26,647.9 | | | $ | 26,647.9 | |
| | | | |
| Total debt | | $ | 15,326.9 | | | $ | 15,076.9 | |
| | | | |
| Ratio of debt to total capitalization | | 57.5 | % | | 56.6 | % |
Included in long-term debt on our balance sheet as of June 30, 2022, is $500.0 million principal amount of the 2007 Junior Notes. The adjusted presentation attributes $250.0 million of the 2007 Junior Notes to common shareholders' equity and $250.0 million to long-term debt.
The adjusted presentation of our consolidated capitalization structure is included as a complement to our capitalization structure presented in accordance with GAAP. Management evaluates and manages our capitalization structure, including our total debt to total capitalization ratio, using the GAAP calculation as adjusted to reflect the treatment of the 2007 Junior Notes by the majority of rating agencies. Therefore, we believe the non-GAAP adjusted presentation reflecting this treatment is useful and relevant to investors in understanding how management and the rating agencies evaluate our capitalization structure.
Debt Covenants
Certain of our short-term and long-term debt agreements contain financial covenants that we must satisfy, including debt to capitalization ratios and debt service coverage ratios. At June 30, 2022, we were in compliance with all such covenants related to outstanding short-term and long-term debt. We expect to be in compliance with all such debt covenants for the foreseeable future. See Note 13, Short-Term Debt and Lines of Credit, Note 14, Guarantees,Long-Term Debt, and Note 19, Variable Interest Entities.11, Common Equity, in our 2021 Annual Report on Form 10-K, for more information regarding our debt covenants.
Contractual ObligationsCredit Rating Risk
For information about our commitments, see Contractual Obligations in Item 7. Management's DiscussionCash collateral postings and Analysisprepayments made with external parties, including postings related to exchange-traded contracts, and cash collateral posted by external parties were immaterial as of Financial Condition and Results of Operations – Capital Resources and Requirements in our 2020 Annual Report on Form 10-K. There were no material changes to our commitments outside the ordinary course of business during the six months ended June 30, 2021.2022. From time to time, we may enter into commodity contracts that could require collateral or a termination payment in the event of a credit rating change to below BBB- at S&P Global Ratings, a division of S&P Global Inc., and/or Baa3 at Moody’s Investors Service, Inc. If WE had a sub-investment grade credit rating at June 30, 2022, it could have been required to post $100 million of additional collateral or other assurances pursuant to the terms of a PPA. We also have other commodity contracts that, in the event of a credit rating downgrade, could result in a reduction of our unsecured credit granted by counterparties.
In addition, access to capital markets at a reasonable cost is determined in large part by credit quality. Any credit ratings downgrade could impact our ability to access capital markets.
Subject to other factors affecting the credit markets as a whole, we believe our current ratings should provide a significant degree of flexibility in obtaining funds on competitive terms. However, these security ratings reflect the views of the rating agency only. An explanation of the significance of these ratings may be obtained from the rating agency. Such ratings are not a recommendation to buy, sell, or hold securities. Any rating can be revised upward or downward or withdrawn at any time by a rating agency.
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FACTORS AFFECTING RESULTS, LIQUIDITY, AND CAPITAL RESOURCES
The following is a discussion of certain factors that may affect our results of operations, liquidity, and capital resources. This discussion should be read together with the information in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Factors Affecting Results, Liquidity, and Capital Resources in our 20202021 Annual Report on Form 10-K, which provides a more complete discussion of factors affecting us, including market risks and other significant risks, competitive markets, environmental matters, critical accounting policies and estimates, and other matters.
Coronavirus Disease – 2019COVID-19 Pandemic
TheWe have taken steps to mitigate the impact of the global outbreak of COVID-19 was declared a pandemic by the WHO and the CDC and has spread globally, including throughout the United States. There are still questions regardingpandemic. However, the extent and duration ofto which the COVID-19 pandemic itself, as well as the measures currently in place to try to contain the virus. Shelter-in-place and other orders limiting the capacity of various businesses that were in effect for our service territories have now expired. Similar orders could be adopted in the future depending on how the virus continues to mutate and spread. The effects of the COVID-19 pandemic and related government responses significantly disrupted economic activity in our service territories in 2020 and continuescontinue to impact our results of operations and liquidity is largely dependent upon the ability of our customers to resume or maintain normal operations. Adverse impacts to us and our subsidiaries from a prolonged COVID-19 pandemic environment could include a decrease in 2021.revenues, increased bad debt expense, increases in past due accounts receivable balances, and access to the capital markets at unfavorable terms or rates.
LiquidityWe will continue to monitor COVID-19 pandemic-related developments affecting our workforce, customers, and Financial Marketssuppliers and will implement additional actions that we determine to be necessary in order to mitigate any additional impacts. We cannot predict the full extent of the impacts of COVID-19, which will depend on, among other things, its duration through new variants, the rate and the effectiveness of both vaccinations and treatments, future regulatory and governmental actions, and the ability to maintain normal business activity.
Upon
Regulatory, Legislative, and Legal Matters
Regulatory Recovery
Our utilities account for their regulated operations in accordance with accounting guidance under the initial enactmentRegulated Operations Topic of the FASB Accounting Standard Codification. Regulated entities are allowed to defer certain COVID-19costs that would otherwise be charged to expense if the regulated entity believes the recovery of those costs is probable. We record regulatory assets pursuant to generic and/or specific orders issued by our regulators. Recovery of the deferred costs in future rates is subject to the review and approval by those regulators. We assume the risks and benefits of ultimate recovery of these items in future rates. If the recovery of the deferred costs, including those referenced below, is not approved by our regulators, the costs would be charged to income in the current period. Regulators can impose liabilities on a prospective basis for amounts previously collected from customers and for amounts that are expected to be refunded to customers. We record these items as regulatory liabilities. As of June 30, 2022, our regulatory assets were $3,278.9 million, and our regulatory liabilities were $4,084.0 million.
In January 2014, the ICC approved PGL's use of the QIP rider as a recovery mechanism for costs incurred related shelter-in-placeto investments in QIP. This rider is subject to an annual reconciliation whereby costs are reviewed for accuracy and prudency. In March 2022, PGL filed its 2021 reconciliation with the ICC, which, along with the 2020, 2019, 2018, 2017, and 2016 reconciliations, are still pending. As of June 30, 2022, there can be no assurance that all costs incurred under the QIP rider during the open reconciliation years will be deemed recoverable by the ICC.
See Note 23, Regulatory Environment, in this report, and Note 26, Regulatory Environment, in our 2021 Annual Report on Form 10-K for more information regarding recent and pending rate proceedings, orders, and investigations involving our utilities.
Climate and Equitable Jobs Act
On September 15, 2021, the state of Illinois signed into law the Climate and Equitable Jobs Act. This new legislation includes, among other things, a path for Illinois to move towards 100% clean energy, expanded commitments to energy efficiency and renewable energy, additional consumer protections, and expanded ethics reform. The provisions in earlythis legislation with the potential to mid-March 2020, commercial paper markets became more expensivehave the most significant financial impact on PGL and related terms became less flexible.NSG relate to the new consumer protection requirements.
Effective September 15, 2021, the new legislation prohibits utilities from charging customers a fee when they elect to pay for service with a credit card. Utilities are now required to incur these expenses and seek recovery through a rate proceeding or by establishing a recovery mechanism. In responseDecember 2021, the ICC approved the use of a TPTFA rider for PGL. The TPTFA rider allows PGL to these signs of market instability, the Federalrecover
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Reserve implemented certain measures, including a reduction inthe costs incurred for these third-party transaction fees, effective December 27, 2021. NSG recovers costs related to these third-party transaction fees through its benchmark Federal Funds rate and the establishment of various programs to restore liquidity and stability into the short-term funding markets. These measures continue to have a mitigating effect on commercial paperbase rates, and availability. In addition, the initial disruption in the long-term debt markets as a result of the COVID-19 pandemic has subsided.effective September 15, 2021.
Allowance for Credit Losses
In accordance with the new legislation, effective January 1, 2023, natural gas utilities will also no longer be allowed to charge late payment fees to low-income residential customers. We evaluateare currently evaluating the collectability of our accounts receivable and unbilled revenue balances considering a combination of factors. Risks identified that we do not believe are reflected in historical reserve percentages are assessed on a quarterly basis to determine whether further adjustments are required. Economic disruptions caused by the COVID-19 pandemic, including higher unemployment rates and the inability of some businesses to recover from the pandemic,impact this legislation may have caused a higher percentage of our accounts receivable to become uncollectible. Although impacts on our future results of operations related to uncollectible receivable balances are mitigated by regulatory mechanisms and certain COVID-19 specific regulatory orders we have received, the increase in past due receivables we have experienced has resulted in higher working capital requirements. However, with normal collection practices underway in our Wisconsin and Illinois service territories, our working capital position improved in the second quarter of 2021 from where we were at the end of the first quarter of 2021, and we expect working capital to continue to improve throughout the remainder of the year as normal collection activities resume in all of our service territories.
Our exposure to credit losses for certain regulated utility customers is mitigated by regulatory mechanisms we have in place. Specifically, rates related to all of the customers in our Illinois segment, as well as the residential rates of WE, WPS, and WG in our Wisconsin segment include riders or other mechanisms for cost recovery or refund of uncollectible expense based on the difference between the actual provision for credit losses and the amounts recovered in rates. In addition, we have received specific orders related to the deferral of certain costs (including credit losses) and foregone revenues related to the COVID-19 pandemic. The additional protections provided by these COVID-19 specific regulatory orders are still being assessed and will be subject to prudency reviews. See Note 22, Regulatory Environment, for more information on these orders.
Loss of Business
We saw a decrease in the consumption of electricity and natural gas by some of our commercial and industrial customers as a result of the COVID-19 pandemic. Although many of these customers have started to recover, the extent to which this decreased consumption continues to impact our results of operations and liquidity is dependent upon the duration of the COVID-19 pandemic and the ability of our customers to resume and continue normal operations.
Supply Chain and Capital Projects
We have not yet experienced a significant disruption in our supply chain as a result of the COVID-19 pandemic. However, if the pandemic significantly impacts our key suppliers’ ability to manufacture or deliver critical equipment and supplies or provide services, we could experience delays in our ability to perform certain maintenance and capital project activities.Uyghur Forced Labor Prevention Act
The timingCBP issued a WRO in June 2021, applicable to certain silica-based products originating from the Xinjiang Uyghur Autonomous Region of Badger Hollow IChina (Xinjiang), such as polysilicon, included in the manufacturing of solar panels. In June 2022, the WRO was impactedsuperseded by the COVID-19 pandemic.implementation of the UFLPA, which was signed into law by President Biden in December 2021. The parties agreedUFLPA establishes a rebuttable presumption that any imports wholly or partially manufactured in Xinjiang are prohibited from entering the United States. While our suppliers were able to delayprovide the expected commercial operation date from December 2020 so that initial staffing increases couldCBP sufficient documentation to meet WRO compliance requirements, and we expect the same will be minimizedtrue for UFLPA purposes, we cannot currently predict what, if any, impact the UFLPA will have on the overall supply of solar panels into the United States and the related timing and cost of solar projects included in light of state mandated COVID-19 orders. We now expect Badger Hollow I to be placed into commercial operation during the fourth quarter of 2021. We are not currently aware of any other major delays or changes related to our capital plan as a result of the COVID-19 pandemic, although we are continuing to monitor potential impacts on an ongoing basis.plan.
Employee Safety
United States Department of Commerce Complaints
In August 2021, a group of anonymous domestic solar manufacturers filed a petition (AD/CVD) with the DOC seeking to impose new tariffs on solar panels and cells imported from several countries, including Malaysia, Vietnam, and Thailand. The petitioners claimed that Chinese solar manufacturers are shifting products to these countries to avoid the tariffs required on products imported from China. In November 2021, the DOC rejected this petition. In denying the petition, the DOC cited the anonymous group’s refusal of the DOC’s request to provide more detail and identify its members due to concerns about retribution from the dominant Chinese solar industry.
In February 2022, a California based company filed a petition (AD/CVD) with the DOC seeking to impose new tariffs on solar panels and cells imported from multiple countries, including Malaysia, Vietnam, Thailand, and Cambodia. While the petition is similar to the one rejected by the DOC in November 2021, there are notable differences. The group added Cambodia to the petition and is requesting that the DOC conduct a country-wide inquiry into each of the four countries. In March 2022, the DOC decided to act on the February petition and investigate the claim. A DOC decision is expected by January 2023. If the DOC determines that the petition has merit, it would be able to apply any final tariffs retroactively to November 4, 2021. If imposed, the new tariffs are expected to further disrupt the supply of solar modules to the United States, and could impact the cost and timing of our solar projects.
In June 2022, the Biden Administration used its executive powers to issue a 24-month tariff moratorium on solar panels manufactured in Cambodia, Malaysia, Thailand, and Vietnam. The moratorium comes as a direct response to concerns raised about the adverse impact from the ongoing DOC complaint on the U.S. solar industry. As the DOC will continue its investigation discussed above, companies may still be subject to tariffs after the moratorium ends; however, U.S. companies will reportedly be exempt from any retroactive tariffs that previously could have applied. The Biden Administration also announced that it will invoke the Defense Production Act to accelerate the production of solar panels in the U.S. The Biden Administration's actions did not address whether WROs applied to panels under previous complaints would be affected.
Infrastructure Investment and Jobs Act
In November 2021, President Biden signed into law the Infrastructure Investment and Jobs Act, which provides for approximately $1.2 trillion of federal spending over the next five years, including approximately $85 billion for investments in power, utilities, and renewables infrastructure across the United States. We expect funding from this Act will support the work we are doing to reduce GHG emissions, increase EV charging, and strengthen and protect the energy grid. Funding in the Act should also help to expand emerging technologies, like hydrogen and carbon management, as we continue the transition to a clean energy future. We believe the Infrastructure Investment and Jobs Act will accelerate investment in projects that will help us meet our net zero emission goals to the benefit of our customers, the communities we serve, and our company.
Return on Equity Incentive for Membership in a Transmission Organization
The health and safety of our employees during the COVID-19 pandemic is paramount and enables usFERC currently allows transmission utilities, including ATC, to continueincrease their ROE by 50 basis points as an incentive for membership in a transmission organization, such as MISO. This incentive was established to provide critical services to our customers.
We are following CDC guidelines and have taken precautions with regard to employee hygiene and facility cleanliness, imposed travel limitations on our employees, provided additional employee benefits, and implemented remote-work policies where appropriate. We have an incident management team and updated our pandemic continuity plan, which includes identifying critical work groups and ensuring safe-harbor plans are in place. We have minimized the unnecessary risk of exposure to COVID-19 by implementing self-quarantine measures and have adopted additional precautionary measures for our critical work groups.
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Additional protocols have been implementedand to support the evolving electric grid. However, a Notice of Proposed Rulemaking was issued by the FERC on April 15, 2021 proposing to limit the 50 basis point increase in ROE to only be available to transmission utilities initially joining a transmission organization for the first three years of membership. If this proposal becomes a final rule, ATC would be required to submit, within 30 days of the final rule's effective date, a compliance filing eliminating the 50 basis point incentive from its tariff. As a result, this proposal, if adopted, would reduce our field employees who travelfuture after-tax equity earnings from ATC by approximately $7 million annually. The transmission costs WE and WPS are required to customer premises in order to protect them, our customers, andpay ATC after the public. We have modified our work protocols to ensure compliance with social distancing and face covering recommendations.effective date would also be reduced by this proposal.
We continue to provide educational information to employees to encourage them to obtain the COVID-19 vaccine. We are developing return-to-the workplace strategies for those employees currently working remotely, taking into consideration factors such as any updated CDC guidelines, the delta variant, any increases in COVID-19 cases in our service territories, and the overall level of risk to our employees and customers.American Transmission Company Allowed Return on Equity Complaints
All of these safety measures have caused usOn November 21, 2019, the FERC issued an order (November 2019 Order) related to incurthe methodology used to calculate the base ROE for all MISO transmission owners, including ATC. Based on this order, the FERC expanded its base ROE methodology to include the capital-asset pricing model in addition to the discounted cash flow model to better reflect how investors make their investment decisions. The FERC's modified methodology reduced the base ROE that ATC is allowed to collect on a going-forward basis, as discussed below. In response to the FERC's decision, requests for the FERC to rehear the November 2019 Order in its entirety were filed by various parties.
On May 21, 2020, the FERC issued an order (May 2020 Order) that granted in part and denied in part the requests to rehear the November 2019 Order. In the May 2020 Order, the FERC made additional costs that, depending uponrevisions to its base ROE methodology, including adding the durationuse of the COVID-19 pandemic,risk premium model. As discussed below, the additional revisions made by the FERC increased ATC's base ROE authorized in the November 2019 Order on a going-forward basis. Various parties filed requests to rehear certain parts of the May 2020 Order with the FERC, but the FERC issued an order in response to the rehearing requests during November 2020 (November 2020 Order) that confirmed the ROE authorized in the May 2020 Order. Petitions for review of the November 2019 Order, relevant parts of the May 2020 Order, and the November 2020 Order have also been filed with the D.C. Circuit Court of Appeals.
First Return on Equity Complaint
In November 2013, a group of MISO industrial customer organizations filed a complaint with the FERC requesting to reduce the base ROE used by MISO transmission owners, including ATC, from 12.2% to 9.15%. In September 2016, the FERC issued an order requiring MISO transmission owners to collect a reduced base ROE of 10.32%. This order also allowed the continued collection of any previously authorized ROE incentive adders. For MISO transmission owners, a 0.5% incentive adder was approved by the FERC in January 2015. The FERC then issued the November 2019 Order after directing MISO transmission owners and other stakeholders to provide briefs and comments on a proposed change to the methodology for calculating base ROE. The November 2019 Order further reduced the base ROE for all MISO transmission owners, including ATC, to 9.88%, effective as of September 28, 2016 and prospectively. The November 2019 Order also continued to allow the collection of previously authorized ROE incentive adders, but ATC's ROE incentive adder of 0.5% only applies to revenues collected after January 6, 2015. In response to the rehearing requests filed related to the November 2019 Order, the FERC issued another order in May 2020. This May 2020 Order increased the base ROE for all MISO transmission owners, including ATC, from the 9.88% authorized in the November 2019 Order to 10.02%, effective as of September 28, 2016 and prospectively. The May 2020 Order also allowed the continued collection of previously authorized ROE incentive adders. However, ATC's 0.5% ROE incentive adder may be eliminated going forward, as discussed above.
ATC was required to provide refunds, with interest, for the 15-month refund period from November 12, 2013 through February 11, 2015 and for the period from September 28, 2016 through November 19, 2020. In January 2022, ATC completed providing WE and WPS with net refunds related to the transmission costs they paid during the two refund periods. These refunds were applied to WE's and WPS's PSCW-approved escrow accounting for transmission expense.
Second Return on Equity Complaint
In February 2015, a second complaint was filed with the FERC requesting a reduction in the base ROE used by MISO transmission owners, including ATC, to 8.67%, with a refund effective date retroactive to February 12, 2015. The FERC also addressed this second complaint in the November 2019 Order. Similar to the first complaint, the November 2019 Order stated that the base ROE of 9.88% and the collection of previously authorized ROE incentive adders, such as ATC's 0.5% adder, were reasonable for the period covered by the second complaint, February 12, 2015 through May 10, 2016. However, in the November 2019 Order, the FERC relied on certain provisions of the Federal Power Act to dismiss the second complaint and to determine that refunds were not allowed for this period. In its May 2020 Order, the FERC stated the new base ROE of 10.02% and the collection of previously authorized ROE incentive adders were reasonable for the period covered by the second complaint. However, the FERC relied on the same provisions of the Federal Power Act to again dismiss the complaint and determine that refunds were not allowed for this period. The FERC also
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denied the requests to rehear both the dismissal of the second complaint and the determination that no refunds are allowed for the second complaint period.
Due to the various outstanding petitions related to the November 2019 Order, May 2020 Order, and November 2020 Order, refunds could still be required for the second complaint period. Therefore, our financials continue to reflect a liability of $39.1 million, reducing our equity earnings from ATC. This liability is based on a 10.52% ROE for the second complaint period. If it is ultimately determined that a refund is required for the second complaint period, we would not expect any such refund to have a material impact on our financial statements or results of operations and liquidity.
Regulatory Environment
Our utilities took actions to ensure that essential utility services were available to customers in their service territories during the COVID-19 pandemic.future. In addition, the PSCW, the ICC, the MPUC,WE and the MPSC all issued written orders regarding certain measures required in their respective jurisdictions. See Note 22, Regulatory Environment, for more information on these orders and the potential recovery of expenditures incurred asWPS would be entitled to receive a resultportion of the measures taken.refund from ATC for the benefit of their customers.
Environmental Matters
See Note 21, Commitments and Contingencies, for a discussion of certain environmental matters affecting us, including rules and regulations relating to air quality, water quality, land quality, and climate change.
Market Risks and Other Significant Risks
We are exposed to market and other significant risks as a result of the nature of our businesses and the environments in which those businesses operate. These risks include, but are not limited to, the regulatory recovery riskinflation and supply chain disruptions described below. In addition, there is continuing uncertainty over the impact that the ongoing conflict between Russia and Ukraine will have on the global economy, supply chains, and fuel prices. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Factors Affecting Results, Liquidity, and Capital Resources – Market Risks and Other Significant Risks in our 20202021 Annual Report on Form 10-K for a discussion of market and other significant risks applicable to us.
Regulatory Recovery
Our utilities account for their regulated operations in accordance with accounting guidance under the Regulated Operations Topic of the FASB Accounting Standards Codification. Regulated entities are allowed to defer certain costs that would otherwise be charged to expense if the regulated entity believes the recovery of those costs is probable. We record regulatory assets pursuant to generic and/or specific orders issued by our regulators. Recovery of the deferred costs in future rates is subject to the reviewInflation and approval by those regulators. We assume the risks and benefits of ultimate recovery of these items in future rates. If the recovery of the deferred costs, including those referenced below, is not approved by our regulators, the costs would be charged to income in the current period. Regulators can impose liabilities on a prospective basis for amounts previously collected from customers and for amounts that are expected to be refunded to customers. We record these items as regulatory liabilities.Supply Chain Disruptions
We expectcontinue to request or have requested recoverymonitor the impact of inflation and supply chain disruptions. We monitor the costs of medical plans, fuel, transmission access, construction costs, regulatory and environmental compliance costs, and other costs in order to minimize inflationary effects in future years, to the extent possible, through pricing strategies, productivity improvements, and cost reductions. We monitor the global supply chain, and related disruptions, in order to ensure we are able to procure the necessary materials and other resources necessary to both maintain our energy services in a safe and reliable manner and to grow our infrastructure in accordance with our capital plan. For additional information concerning risks related to inflation and supply chain disruptions, see the following projects discussedtwo risk factors below that are disclosed in recent or pending rate proceedings, orders, and investigations involvingPart I of our utilities:2021 Annual Report on Form 10-K.
•Prior to its acquisition by us, Integrys initiated an information technology project with the goal of improving the customer experience at its subsidiaries. Specifically, the project is expected to provide functional and technological benefitsItem 1A. Risk Factors – Risks Related to the billing, call center,Operation of Our Business – Our operations and credit collection functions. As of June 30, 2021, we had not received any significant disallowances of the costs incurred for this project. WPScorporate strategy may be adversely affected by supply chain disruptions and MERC received approval to recover these costs in their most recent rate orders; however, the costs incurred for this project in our other regulatory jurisdictions are still subject to approval by the applicable regulators.inflation.
•In January 2014, the ICC approved PGL's use of the QIP rider as a recovery mechanism for costs incurred relatedItem 1A. Risk Factors – Risks Related to investments in QIP. This rider is subject to an annual reconciliation whereby costs are reviewed for accuracyEconomic and prudency. In March 2021, PGL filed its 2020 reconciliation with the ICC, which, along with the 2019, 2018, 2017,Market Volatility – Fluctuating commodity prices could negatively impact our electric and 2016 reconciliations, are still pending. As of June 30, 2021, there can be no assurance that all costs incurred under the QIP rider during the open reconciliation years will be deemed recoverable by the ICC.natural gas utility operations.
See Note 22, Regulatory Environment, for moreFor additional information regarding recent and pending rate proceedings, orders, and investigations involving our utilities.
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Environmental Matters
See Note 20, Commitments and Contingencies, for a discussion of certain environmental matters affecting us, including rules and regulations relating to air quality, water quality, land quality, and climate change.
Other Matters
Return on Equity Incentive for Membership in a Transmission Organization
The FERC currently allows transmission utilities, including ATC, to increase their ROE by 50 basis points as an incentive for membership in a transmission organization, such as MISO. This incentive was established to stimulate infrastructure development and to support the evolving electric grid. However, a Notice of Proposed Rulemaking was issued by the FERC on April 15, 2021 proposing to limit the 50 basis point increase in ROE to only be available to transmission utilities initially joining a transmission organization for the first three years of membership. If this proposal becomes a final rule, ATC would be required to submit, within 30 days of the final rule's effective date, a compliance filing eliminating the 50 basis point incentive from its tariff. As a result, this proposal, if adopted, would reduce our after-tax equity earnings from ATC by approximately $7 million annually. The transmission costs WE and WPS are required to pay ATC after the effective date would also be reduced by this proposal.
American Transmission Company Allowed Return on Equity Complaints
On November 21, 2019, the FERC issued an order (November 2019 Order) related to the methodology used to calculate the base ROE for all MISO transmission owners, including ATC. Based on this order, the FERC expanded its base ROE methodology to include the capital-asset pricing model in addition to the discounted cash flow model to better reflect how investors make their investment decisions. The FERC's modified methodology reduced the base ROE that ATC is allowed to collect on a going-forward basis, as discussed below. In response to the FERC's decision, requests for the FERC to rehear the November 2019 Order in its entirety were filed by various parties.
On May 21, 2020, the FERC issued an order (May 2020 Order) that granted in part and denied in part the requests to rehear the November 2019 Order. In the May 2020 Order, the FERC made additional revisions to its base ROE methodology, including adding the use of the risk premium model. As discussed below, the additional revisions made by the FERC increased ATC's base ROE authorized in the November 2019 Order on a going-forward basis. Various parties filed requests to rehear certain parts of the May 2020 Order with the FERC, but the FERC issued an order in response to the rehearing requests during November 2020 (November 2020 Order) that confirmed the ROE authorized in the May 2020 Order. Petitions for review of the November 2019 Order, relevant parts of the May 2020 Order, and the November 2020 Order have also been filed with the D.C. Circuit Court of Appeals.
First Return on Equity Complaint
In November 2013, a group of MISO industrial customer organizations filed a complaint with the FERC requesting to reduce the base ROE used by MISO transmission owners, including ATC, from 12.2% to 9.15%. In September 2016, the FERC issued an order requiring MISO transmission owners to collect a reduced base ROE of 10.32%. This order also allowed the continued collection of any previously authorized ROE incentive adders. For MISO transmission owners, a 0.5% incentive adder was approved by the FERC in January 2015. The FERC then issued the November 2019 Order after directing MISO transmission owners and other stakeholders to provide briefs and comments on a proposed change to the methodology for calculating base ROE. The November 2019 Order further reduced the base ROE for all MISO transmission owners, including ATC, to 9.88%, effective as of September 28, 2016 and prospectively. The November 2019 Order also continued to allow the collection of previously authorized ROE incentive adders, but ATC's ROE incentive adder of 0.5% only applies to revenues collected after January 6, 2015. In response to the rehearing requests filed related to the November 2019 Order, the FERC issued another order in May 2020. This May 2020 Order increased the base ROE for all MISO transmission owners, including ATC, from the 9.88% authorized in the November 2019 Order to 10.02%, effective as of September 28, 2016 and prospectively. The May 2020 Order also allowed the continued collection of previously authorized ROE incentive adders. However, ATC's 0.5% ROE incentive adder may be eliminated going forward, as discussed above.
ATC is required to provide refunds, with interest, for the 15-month refund period from November 12, 2013 through February 11, 2015 and for the period from September 28, 2016 through November 19, 2020. As a result, ATC is expected to continue providing WE and WPS with net refunds related to the transmission costs they paid during the two refund periods through the end of February 2022. These refunds are being applied to WE's and WPS's PSCW-approved escrow accounting for transmission expense.
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Second Return on Equity Complaint
In February 2015, a second complaint was filed with the FERC requesting a reduction in the base ROE used by MISO transmission owners, including ATC, to 8.67%, with a refund effective date retroactive to February 12, 2015. The FERC also addressed this second complaint in the November 2019 Order. Similar to the first complaint, the November 2019 Order stated that the base ROE of 9.88% and the collection of previously authorized ROE incentive adders, such as ATC's 0.5% adder, were reasonable for the period covered by the second complaint, February 12, 2015 through May 10, 2016. However, in the November 2019 Order, the FERC relied on certain provisions of the Federal Power Act to dismiss the second complaint and to determine that refunds were not allowed for this period. In its May 2020 Order, the FERC stated the new base ROE of 10.02% and the collection of previously authorized ROE incentive adders were reasonable for the period covered by the second complaint. However, the FERC relied on the same provisions of the Federal Power Act to again dismiss the complaint and determine that refunds were not allowed for this period. The FERC also denied the requests to rehear both the dismissal of the second complaint and the determination that no refunds are allowed for the second complaint period.
Due to the various outstanding petitions related to the November 2019 Order, May 2020 Order, and November 2020 Order, refunds could still be required for the second complaint period. Therefore, our financials continue to reflect a liability of $39.1 million, reducing our equity earnings from ATC. This liability is based on a 10.52% ROE for the second complaint period. If it is ultimately determined that a refund is required for the second complaint period, we would not expect any such refund to have a material impact on our financial statements or results of operations in the future. In addition, WE and WPS would be entitled to receive a portion of the refund from ATC for the benefit of their customers.report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes related to market risk from the disclosures presented in our 20202021 Annual Report on Form 10-K. In addition to the Form 10-K disclosures, see Management's Discussion and Analysis of Financial Condition and Results of Operations – Factors Affecting Results, Liquidity, and Capital Resources – Coronavirus Disease – 2019COVID-19 Pandemic and Market Risks and Other Significant Risks in Item 2 of Part I of this report, as well as Note 12,13, Fair Value Measurements, Note 13,14, Derivative Instruments, and Note 14,15, Guarantees, in this report for information concerning our market risk exposures.
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective: (i) in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act; and (ii) to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the second quarter of 20212022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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06/30/20212022 Form 10-Q | 7581 | WEC Energy Group, Inc. |
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following should be read in conjunction with Item 3. Legal Proceedings in Part I of our 20202021 Annual Report on Form 10-K. See Note 20,21, Commitments and Contingencies, and Note 22,23, Regulatory Environment, in this report for additional information on material legal proceedings and matters related to us and our subsidiaries.
In addition to those legal proceedings discussed in Note 20,21, Commitments and Contingencies, Note 22,23, Regulatory Environment, and below, we are currently, and from time to time, subject to claims and suits arising in the ordinary course of business. Although the results of these additional legal proceedings cannot be predicted with certainty, management believes, after consultation with legal counsel, that the ultimate resolution of these proceedings will not have a material effectimpact on our financial statements.
Employee Retirement Savings Plan Matter
In May 2022, a putative class action, Munt, et al. v. WEC Energy Group, Inc., et al., was filed in the United States District Court for the Eastern District of Wisconsin - Milwaukee Division. The plaintiffs allege that WEC Energy Group, members of its Board of Directors, and others breached their fiduciary duties with respect to the operation and oversight of the Employee Retirement Saving Plan (the “Plan”) in violation of the Employee Retirement Income Security Act of 1974, as amended. The class is alleged to be participants in the Plan from May 10, 2016 through the date of judgment. The complaint seeks injunctive relief, damages, interest, costs, and attorneys' fees. The Company intends to vigorously defend against the allegations made in this lawsuit. Management is currently not in a position to assess the probability of an adverse outcome or reasonably estimate the amount of any potential loss at this time with respect to this lawsuit.
Environmental Matters
Manlove Field Matter
In September 2017, the Illinois Department of Natural Resources, Office of Oil and Gas Resource Management, issued a VN to PGL related to a leak of natural gas from a well located at the PGL Manlove Gas Storage Field in December 2016. PGL quickly shut down and permanently plugged the well to contain the leak after it was discovered. The leak resulted in the migration of natural gas from the well to the Mahomet Aquifer located in central Illinois and impacted residential freshwater wells. PGL has been working with residents potentially impacted by the natural gas leak and the Illinois state agencies, to investigate and remediate the impacts of the natural gas leak to the Mahomet Aquifer. In October 2017, the Illinois AG filed a complaint against PGL alleging certain violations of the Illinois Environmental Protection Act and the Oil and Gas Act. PGL entered into an Agreed Interim Order with the State of Illinois in October 2017 and a First Amended Agreed Interim Order in September 2019 whereby PGL agreed, among other things, to continue actions it was already undertaking proactively, including the submittal of a GMZ application to the IEPA. A supplemental filing was sent to the IEPA in December 2019. In September 2020, the IEPA sent PGL a letter conditionally approving the GMZ application. PGL has taken steps to implement the requirements of the approved GMZ project.
In addition, in December 2017, the IEPA issued a VN to PGL alleging the same violations as the AG. Lastly, in January 2018, the IEPA issued a VN alleging certain violations of Illinois air emission rules arising from the construction and operation of flaring equipment at the leak site. Both of the IEPA VN matters have been referred to the AG for enforcement.
In the complaint, as is customary in these types of actions,PGL and the AG citedagreed to the statutory penalties allowed by law. Ultimately, the pursuitterms of any civil penalties is at the AG’s discretion. In the event the AG pursues penalties in connection with a final consent order, we believe that PGL's high levelwhich was entered by the court in June 2022. PGL has agreed to pay an aggregate of cooperation and quick action$575,000, including a civil penalty of $175,000. The consent order also requires PGL to remedycomplete the situationGMZ and to work withcontinue to provide methane detection devices, bottled water and gas/water separators to affected homeowners, as defined in the potentially impacted homeowners would be taken into account. At this time, we believe that civil penalties, if any, will not have a material impact on our financial statements.final consent order, until certain conditions are satisfied.
ITEM 1A. RISK FACTORS
There were no material changes from the risk factors disclosed in Item 1A. Risk Factors in Part I of our 20202021 Annual Report on Form 10-K.
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06/30/20212022 Form 10-Q | 7682 | WEC Energy Group, Inc. |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth information regarding the purchases of our equity securities made by or on behalf of us or any affiliated purchaser (as defined in Exchange Act Rule 10b-18) during the three months ended June 30, 2022:
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| Issuer Purchases of Equity Securities |
| 2022 | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| April 1 – April 30 | | — | | | — | | | — | | | $ | — | |
| May 1 – May 31 | | — | | | — | | | — | | | — | |
| June 1 – June 30 | | 5,304 | | | $ | 104.92 | | | — | | | — | |
Total (1) | | 5,304 | | | $ | 104.92 | | | — | | | |
(1)All shares were surrendered by employees to satisfy tax withholding obligations upon vesting of restricted stock.
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| ITEM 6. EXHIBITS |
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The following exhibits are filed or furnished with or incorporated by reference in the report with respect to WEC Energy Group, Inc. (File No. 001-09057). An asterisk (*) indicates that the exhibit has previously been filed with the SEC and is incorporated herein by reference. Each management contract and compensatory plan or arrangement required to be filed as an exhibit to this report is identified below by two asterisks (**) following the description of the exhibit. |
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4 | | Instruments Defining the Rights of Security Holders, Including Indentures |
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10 | | Material Contracts |
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| 31 | | Rule 13a-14(a) / 15d-14(a) Certifications |
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| 32 | | Section 1350 Certifications |
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| 101 | | Interactive Data Files |
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| | 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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| | 101.SCH | Inline XBRL Taxonomy Extension Schema |
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| | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase |
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| | 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase |
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| | 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase |
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| | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase |
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| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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06/30/20212022 Form 10-Q | 7783 | WEC Energy Group, Inc. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | WEC ENERGY GROUP, INC. |
| | (Registrant) |
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| | /s/ WILLIAM J. GUC |
| Date: | August 5, 20214, 2022 | William J. Guc |
| | Vice President and Controller |
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| | (Duly Authorized Officer and Chief Accounting Officer) |
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06/30/20212022 Form 10-Q | 7884 | WEC Energy Group, Inc. |
