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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, 2022March 31, 2023
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:
| | | | | | | | | | | | | | |
| 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.
| | | | | | | | | | | | | | | | | | | | |
| 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, 2022)(March 31, 2023):
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, 2022March 31, 2023
TABLE OF CONTENTS
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06/30/202203/31/2023 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:
| | | | | | | | |
| 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 |
| Samson I | | Samson I Solar Energy Center LLC |
| Sapphire Sky | | Sapphire Sky Wind Energy LLC |
| Tatanka Ridge | | Tatanka Ridge Wind LLC |
| Thunderhead | | Thunderhead Wind Energy 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 |
| | |
| | |
| 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 |
| | |
| Accounting Terms |
| AFUDC | | |
| | |
| | Allowance for Funds Used During Construction |
| 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 |
| CCR | | Coal Combustion Residuals |
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06/30/202203/31/2023 Form 10-Q | ii | WEC Energy Group, Inc. |
| | | | | | | | |
CO2 | | Carbon Dioxide |
| CWA | | Clean Water Act |
| ELG | | Steam Electric Effluent Limitation Guidelines |
| FGD | | Flue Gas Desulfurization |
| GHG | | Greenhouse Gas |
GMZLDC | | Groundwater Management ZoneLocal Distribution Company |
| MATS | | Mercury and Air Toxics Standards |
| NAAQS | | National Ambient Air Quality Standards |
| NOV | | Notice of Violation |
| NOx | | Nitrogen Oxide |
VNPM | | Violation NoticeParticulate Matter |
| WOTUS | | Waters of the United States |
| WPDES | | Wisconsin Pollutant Discharge Elimination System |
| ZLD | | Zero Liquid Discharge |
| | |
| Measurements |
| Bcf | | Billion Cubic Feet |
| Dth | | Dekatherm |
| lb/MMBtu | | Pound Per Million British Thermal Unit |
| MW | | Megawatt |
| MWh | | Megawatt-hourMegawatt-hours |
| µg/m3 | | Micrograms Per Cubic Meter |
| | |
| 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 |
| | |
| Chicago, IL-IN-WI | | Chicago, Illinois, Indiana, and Wisconsin |
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 |
DarienDER | | Darien Solar-Battery ParkDistributed Energy Resource |
EGUEPRI | | Electric Generating UnitPower Research Institute |
| ERGS | | Elm Road Generating Station |
ESG Progress Plan
| | WEC Energy Group's Capital Investment Plan for Efficiency, Sustainability, and Growth for 2022-20262023-2027 |
| 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 |
| FTR | | Financial Transmission Right |
GCRMIRA | | Gas Cost Recovery MechanismInflation Reduction Act |
| | |
| ITC | | Investment Tax Credit |
| LIBOR | | London Interbank Offered Rate |
| LNG | | Liquefied Natural Gas |
| Maple Flats | | Maple Flats Solar Energy Center LLC |
| MISO | | Midcontinent Independent System Operator, Inc. |
| | |
| OCPP | | Oak Creek Power Plant |
| | |
| | |
OC 7OMB | | Oak Creek Power Plant Unit 7Office of Management and Budget |
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 |
| Red Barn | | Red Barn Wind Park |
| RICE | | Reciprocating Internal Combustion Engine |
| RNG | | Renewable Natural Gas |
| ROE | | Return on Equity |
| S&P | | Standard & Poor's |
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06/30/202203/31/2023 Form 10-Q | iii | WEC Energy Group, Inc. |
| | | | | | | | |
S&PSIP | | Standard & Poor's |
Sapphire Sky | | Sapphire Sky Wind Energy LLCState Implementation Plan |
| SMP | | Safety Modernization Program |
| | |
| | |
| SPP | | Southwest Power Pool, Inc. |
| | |
| 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 |
| | |
| | |
| UFLPA | | Uyghur Forced Labor Prevention Act |
| West Riverside | | West Riverside Energy Center |
| Whitewater | | Whitewater Cogeneration Facility |
| WRO | | Withhold Release Order |
| | | | | | | | |
06/30/202203/31/2023 Form 10-Q | iv | 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 20212022 Annual Report on Form 10-K, and those identified below:
•Factors affecting utility and non-utility energy infrastructure 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 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, electrification initiatives and other efforts to reduce the use of natural gas, and tax laws, including those that affect our ability to use PTCs and ITCs;
•Federal, state, and local 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 impact of changing expectations and demands of our customers, regulators, investors, and other stakeholders, including heightened emphasis on environmental, social, and governance concerns;
•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 public health pandemics,crises, including any new developments relating to the COVID-19 pandemic,epidemics and pandemics, on our business functions, financial condition, liquidity, and results of operations;
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| 03/31/2023 Form 10-Q | 1 | WEC Energy Group, Inc. |
•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, the feasibility of competing generation 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, including natural gas and electricity;
•The availability and cost of sources of natural gas and other fossil fuels, purchased power, materials needed to operate environmental controls at our electric 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 or other physical 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, changes in the financial performance and/or creditworthiness of counterparties to the off-take agreements, the ability to replace expiring long-term PPAs under acceptable terms, and the availability of reliable interconnection and electricity grids;grids, and exposure to the rules and procedures of the power markets in which these facilities are located;
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| 03/31/2023 Form 10-Q | 2 | WEC Energy Group, Inc. |
•The risk associated with the values of goodwill and other intangiblelong-lived assets, long-livedincluding intangible 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 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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06/30/202203/31/2023 Form 10-Q | 3 | 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 |
| June 30 | | June 30 | | | March 31 |
| (in millions, except per share amounts) | (in millions, except per share amounts) | | 2022 | | 2021 | | 2022 | | 2021 | (in millions, except per share amounts) | | | 2023 | | 2022 |
| Operating revenues | Operating revenues | | $ | 2,127.9 | | | $ | 1,676.2 | | | $ | 5,036.0 | | | $ | 4,367.6 | | Operating revenues | | | $ | 2,888.1 | | | $ | 2,908.1 | |
| | Operating expenses | Operating expenses | | Operating expenses | | | |
| Cost of sales | Cost of sales | | 935.0 | | | 525.9 | | | 2,318.4 | | | 1,791.5 | | Cost of sales | | | 1,309.7 | | | 1,383.4 | |
| Other operation and maintenance | Other operation and maintenance | | 449.0 | | | 463.8 | | | 903.4 | | | 943.7 | | Other operation and maintenance | | | 534.0 | | | 454.4 | |
| Depreciation and amortization | Depreciation and amortization | | 279.6 | | | 266.2 | | | 557.7 | | | 527.6 | | Depreciation and amortization | | | 305.5 | | | 278.1 | |
| Property and revenue taxes | Property and revenue taxes | | 56.1 | | | 51.5 | | | 116.9 | | | 106.7 | | Property and revenue taxes | | | 69.6 | | | 60.8 | |
| Total operating expenses | Total operating expenses | | 1,719.7 | | | 1,307.4 | | | 3,896.4 | | | 3,369.5 | | Total operating expenses | | | 2,218.8 | | | 2,176.7 | |
| | Operating income | Operating income | | 408.2 | | | 368.8 | | | 1,139.6 | | | 998.1 | | Operating income | | | 669.3 | | | 731.4 | |
| | Equity in earnings of transmission affiliates | Equity in earnings of transmission affiliates | | 43.0 | | | 41.3 | | | 84.7 | | | 83.9 | | Equity in earnings of transmission affiliates | | | 43.8 | | | 41.7 | |
| Other income, net | Other income, net | | 19.8 | | | 39.7 | | | 59.4 | | | 72.5 | | Other income, net | | | 40.8 | | | 39.6 | |
| Interest expense | Interest expense | | 119.8 | | | 120.0 | | | 237.4 | | | 239.5 | | Interest expense | | | 172.2 | | | 117.6 | |
| Other expense | Other expense | | (57.0) | | | (39.0) | | | (93.3) | | | (83.1) | | Other expense | | | (87.6) | | | (36.3) | |
| | Income before income taxes | Income before income taxes | | 351.2 | | | 329.8 | | | 1,046.3 | | | 915.0 | | Income before income taxes | | | 581.7 | | | 695.1 | |
| Income tax expense | Income tax expense | | 63.4 | | | 54.1 | | | 190.5 | | | 129.0 | | Income tax expense | | | 74.1 | | | 127.1 | |
| Net income | Net income | | 287.8 | | | 275.7 | | | 855.8 | | | 786.0 | | Net income | | | 507.6 | | | 568.0 | |
| | 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 | |
| Net (income) loss attributed to noncontrolling interests | | — | | | 0.6 | | | (1.8) | | | 0.7 | | |
| Net loss (income) attributed to noncontrolling interests | | Net loss (income) attributed to noncontrolling interests | | | 0.2 | | | (1.8) | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 287.5 | | | $ | 276.0 | | | $ | 853.4 | | | $ | 786.1 | | Net income attributed to common shareholders | | | $ | 507.5 | | | $ | 565.9 | |
| | Earnings per share | Earnings per share | | Earnings per share | | | |
| Basic | Basic | | $ | 0.91 | | | $ | 0.88 | | | $ | 2.71 | | | $ | 2.49 | | Basic | | | $ | 1.61 | | | $ | 1.79 | |
| Diluted | Diluted | | $ | 0.91 | | | $ | 0.87 | | | $ | 2.70 | | | $ | 2.49 | | Diluted | | | $ | 1.61 | | | $ | 1.79 | |
| | 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 |
| Diluted | Diluted | | 316.2 | | 316.3 | | 316.2 | | 316.3 | Diluted | | | 315.9 | | 316.2 |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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06/30/202203/31/2023 Form 10-Q | 4 | 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 |
| June 30 | | June 30 | | | March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | | | 2023 | | 2022 |
| Net income | Net income | | $ | 287.8 | | | $ | 275.7 | | | $ | 855.8 | | | $ | 786.0 | | Net income | | | $ | 507.6 | | | $ | 568.0 | |
| | 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 | | | | | |
| | Reclassification of realized net derivative (gain) loss to net income, net of tax | | — | | | 1.0 | | | (0.1) | | | 2.0 | | |
| Reclassification of realized derivative gains to net income, net of tax | | Reclassification of realized derivative gains to net income, net of tax | | | (0.1) | | | (0.1) | |
| | 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 | | | 0.1 | | | 0.2 | | Amortization of pension and OPEB costs included in net periodic benefit cost, net of tax | | | — | | | 0.1 | |
| | Other comprehensive income, net of tax | | — | | | 1.1 | | | — | | | 2.2 | | |
| Other comprehensive loss, net of tax | | Other comprehensive loss, net of tax | | | (0.1) | | | — | |
| | Comprehensive income | Comprehensive income | | 287.8 | | | 276.8 | | | 855.8 | | | 788.2 | | Comprehensive income | | | 507.5 | | | 568.0 | |
| | 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 | |
| Comprehensive (income) loss attributed to noncontrolling interests | | — | | | 0.6 | | | (1.8) | | | 0.7 | | |
| Comprehensive loss (income) attributed to noncontrolling interests | | Comprehensive loss (income) attributed to noncontrolling interests | | | 0.2 | | | (1.8) | |
| Comprehensive income attributed to common shareholders | Comprehensive income attributed to common shareholders | | $ | 287.5 | | | $ | 277.1 | | | $ | 853.4 | | | $ | 788.3 | | Comprehensive income attributed to common shareholders | | | $ | 507.4 | | | $ | 565.9 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
| | | | | | | | |
06/30/202203/31/2023 Form 10-Q | 5 | WEC Energy Group, Inc. |
WEC ENERGY GROUP, INC.
| CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except share and per share amounts) | CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except share and per share amounts) | | June 30, 2022 | | December 31, 2021 | CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except share and per share amounts) | | March 31, 2023 | | December 31, 2022 |
| Assets | Assets | | | | | Assets | | | | |
| Current assets | Current assets | | Current assets | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 30.3 | | | $ | 16.3 | | Cash and cash equivalents | | $ | 35.7 | | | $ | 28.9 | |
| Accounts receivable and unbilled revenues, net of reserves of $175.8 and $198.3, respectively | | 1,447.7 | | | 1,505.7 | | |
| Accounts receivable and unbilled revenues, net of reserves of $213.8 and $199.3, respectively | | Accounts receivable and unbilled revenues, net of reserves of $213.8 and $199.3, respectively | | 1,780.6 | | | 1,818.4 | |
| Materials, supplies, and inventories | Materials, supplies, and inventories | | 572.2 | | | 635.8 | | Materials, supplies, and inventories | | 523.5 | | | 807.1 | |
| | Prepaid taxes | Prepaid taxes | | 193.0 | | | 182.1 | | Prepaid taxes | | 153.0 | | | 201.8 | |
| Other prepayments | Other prepayments | | 33.5 | | | 63.4 | | Other prepayments | | 64.9 | | | 69.8 | |
| Amounts recoverable from customers | | 134.2 | | | 102.3 | | |
| Derivative assets | | 189.8 | | | 107.0 | | |
| Collateral on deposit | | Collateral on deposit | | 214.2 | | | 122.4 | |
| Other | Other | | 41.8 | | | 44.1 | | Other | | 66.6 | | | 139.3 | |
| Current assets | Current assets | | 2,642.5 | | | 2,656.7 | | Current assets | | 2,838.5 | | | 3,187.7 | |
| | Long-term assets | Long-term assets | | 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 | | |
| Property, plant, and equipment, net of accumulated depreciation and amortization of $10,532.3 and $10,383.8, respectively | | Property, plant, and equipment, net of accumulated depreciation and amortization of $10,532.3 and $10,383.8, respectively | | 30,379.4 | | | 29,113.8 | |
| Regulatory assets (March 31, 2023 and December 31, 2022 include $90.9 and $92.4, respectively, related to WEPCo Environmental Trust) | | Regulatory assets (March 31, 2023 and December 31, 2022 include $90.9 and $92.4, respectively, related to WEPCo Environmental Trust) | | 3,313.1 | | | 3,264.6 | |
| Equity investment in transmission affiliates | Equity investment in transmission affiliates | | 1,837.2 | | | 1,789.4 | | Equity investment in transmission affiliates | | 1,921.7 | | | 1,909.2 | |
| Goodwill | Goodwill | | 3,052.8 | | | 3,052.8 | | Goodwill | | 3,052.8 | | | 3,052.8 | |
| Pension and OPEB assets | Pension and OPEB assets | | 942.1 | | | 881.3 | | Pension and OPEB assets | | 933.4 | | | 916.7 | |
| Other | Other | | 361.6 | | | 361.1 | | Other | | 357.0 | | | 427.3 | |
| Long-term assets | Long-term assets | | 36,964.6 | | | 36,331.8 | | Long-term assets | | 39,957.4 | | | 38,684.4 | |
| Total assets | Total assets | | $ | 39,607.1 | | | $ | 38,988.5 | | Total assets | | $ | 42,795.9 | | | $ | 41,872.1 | |
| | Liabilities and Equity | Liabilities and Equity | | Liabilities and Equity | |
| Current liabilities | Current liabilities | | Current liabilities | |
| Short-term debt | Short-term debt | | $ | 1,629.1 | | | $ | 1,897.0 | | Short-term debt | | $ | 1,261.2 | | | $ | 1,647.1 | |
| 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 | | |
| Current portion of long-term debt (March 31, 2023 and December 31, 2022 each include $8.9 related to WEPCo Environmental Trust) | | Current portion of long-term debt (March 31, 2023 and December 31, 2022 each include $8.9 related to WEPCo Environmental Trust) | | 808.2 | | | 881.2 | |
| Accounts payable | Accounts payable | | 1,078.2 | | | 1,005.7 | | Accounts payable | | 680.0 | | | 1,198.1 | |
| | Other | Other | | 936.1 | | | 680.9 | | Other | | 1,016.4 | | | 884.6 | |
| Current liabilities | Current liabilities | | 3,817.8 | | | 3,753.0 | | Current liabilities | | 3,765.8 | | | 4,611.0 | |
| | Long-term liabilities | Long-term liabilities | | 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 | | |
| Long-term debt (March 31, 2023 and December 31, 2022 each include $94.1 related to WEPCo Environmental Trust) | | Long-term debt (March 31, 2023 and December 31, 2022 each include $94.1 related to WEPCo Environmental Trust) | | 15,827.3 | | | 14,766.2 | |
| Deferred income taxes | Deferred income taxes | | 4,493.1 | | | 4,308.5 | | Deferred income taxes | | 4,703.2 | | | 4,625.6 | |
| Deferred revenue, net | Deferred revenue, net | | 378.7 | | | 389.2 | | Deferred revenue, net | | 367.0 | | | 370.7 | |
| Regulatory liabilities | Regulatory liabilities | | 4,000.1 | | | 3,946.0 | | Regulatory liabilities | | 3,689.8 | | | 3,735.5 | |
| Environmental remediation liabilities | Environmental remediation liabilities | | 504.3 | | | 532.6 | | Environmental remediation liabilities | | 491.7 | | | 499.6 | |
| Pension and OPEB obligations | Pension and OPEB obligations | | 222.2 | | | 219.0 | | Pension and OPEB obligations | | 168.5 | | | 171.6 | |
| Other | Other | | 1,176.9 | | | 1,203.2 | | Other | | 1,794.9 | | | 1,475.3 | |
| Long-term liabilities | Long-term liabilities | | 24,298.7 | | | 24,122.2 | | Long-term liabilities | | 27,042.4 | | | 25,644.5 | |
| | Commitments and contingencies (Note 21) | | 0 | | 0 | |
| Commitments and contingencies (Note 20) | | Commitments and contingencies (Note 20) | |
| | Common shareholders' equity | Common shareholders' equity | | Common shareholders' equity | |
| Common stock – $0.01 par value; 325,000,000 shares authorized; 315,434,531 shares outstanding | Common stock – $0.01 par value; 325,000,000 shares authorized; 315,434,531 shares outstanding | | 3.2 | | | 3.2 | | Common stock – $0.01 par value; 325,000,000 shares authorized; 315,434,531 shares outstanding | | 3.2 | | | 3.2 | |
| Additional paid in capital | Additional paid in capital | | 4,121.1 | | | 4,138.1 | | Additional paid in capital | | 4,113.6 | | | 4,115.2 | |
| Retained earnings | Retained earnings | | 7,169.5 | | | 6,775.1 | | Retained earnings | | 7,526.7 | | | 7,265.3 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (3.2) | | | (3.2) | | Accumulated other comprehensive loss | | (6.9) | | | (6.8) | |
| Common shareholders' equity | Common shareholders' equity | | 11,290.6 | | | 10,913.2 | | Common shareholders' equity | | 11,636.6 | | | 11,376.9 | |
| | Preferred stock of subsidiary | Preferred stock of subsidiary | | 30.4 | | | 30.4 | | Preferred stock of subsidiary | | 30.4 | | | 30.4 | |
| Noncontrolling interests | Noncontrolling interests | | 169.6 | | | 169.7 | | Noncontrolling interests | | 320.7 | | | 209.3 | |
| Total liabilities and equity | Total liabilities and equity | | $ | 39,607.1 | | | $ | 38,988.5 | | Total liabilities and equity | | $ | 42,795.9 | | | $ | 41,872.1 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
| | | | | | | | |
06/30/202203/31/2023 Form 10-Q | 6 | 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) | | Three Months Ended |
| | June 30 | | March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | (in millions) | | 2023 | | 2022 |
| Operating activities | Operating activities | | | | | Operating activities | | | | |
| Net income | Net income | | $ | 855.8 | | | $ | 786.0 | | Net income | | $ | 507.6 | | | $ | 568.0 | |
| 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 | | 557.7 | | | 527.6 | | Depreciation and amortization | | 305.5 | | | 278.1 | |
| Deferred income taxes and ITCs, net | Deferred income taxes and ITCs, net | | 163.2 | | | 164.4 | | Deferred income taxes and ITCs, net | | 56.5 | | | 103.8 | |
| Contributions and payments related to pension and OPEB plans | Contributions and payments related to pension and OPEB plans | | (8.6) | | | (7.6) | | Contributions and payments related to pension and OPEB plans | | (5.5) | | | (3.6) | |
| Equity income in transmission affiliates, net of distributions | Equity income in transmission affiliates, net of distributions | | (17.5) | | | (17.7) | | Equity income in transmission affiliates, net of distributions | | (6.4) | | | (7.7) | |
| Change in – | Change in – | | Change in – | |
| Accounts receivable and unbilled revenues, net | Accounts receivable and unbilled revenues, net | | 36.3 | | | 70.0 | | Accounts receivable and unbilled revenues, net | | 60.7 | | | (174.3) | |
| Materials, supplies, and inventories | Materials, supplies, and inventories | | 63.6 | | | 75.9 | | Materials, supplies, and inventories | | 293.6 | | | 267.0 | |
| Prepaid taxes | Prepaid taxes | | (10.9) | | | (46.8) | | Prepaid taxes | | 48.8 | | | 62.5 | |
| Other prepayments | | 29.9 | | | 26.5 | | |
| Amounts recoverable from customers | | (31.9) | | | (193.6) | | |
| Collateral on deposit | | Collateral on deposit | | (91.8) | | | 0.2 | |
| Other current assets | Other current assets | | 4.5 | | | 12.5 | | Other current assets | | 40.6 | | | 21.3 | |
| Accounts payable | Accounts payable | | 1.5 | | | (119.3) | | Accounts payable | | (424.7) | | | (293.8) | |
| Temporary LIFO liquidation credit | Temporary LIFO liquidation credit | | 107.6 | | | 26.7 | | Temporary LIFO liquidation credit | | 43.8 | | | 130.7 | |
| Collateral received | | Collateral received | | — | | | 132.5 | |
| Other current liabilities | Other current liabilities | | 128.4 | | | (9.5) | | Other current liabilities | | 19.9 | | | 26.3 | |
| Other, net | Other, net | | (117.0) | | | (68.9) | | Other, net | | (52.5) | | | (34.2) | |
| Net cash provided by operating activities | Net cash provided by operating activities | | 1,762.6 | | | 1,226.2 | | Net cash provided by operating activities | | 796.1 | | | 1,076.8 | |
| | Investing activities | Investing activities | | Investing activities | |
| Capital expenditures | Capital expenditures | | (1,028.8) | | | (1,010.1) | | Capital expenditures | | (499.4) | | | (383.5) | |
| Acquisition of Jayhawk | | — | | | (119.7) | | |
| Acquisition of Whitewater | | Acquisition of Whitewater | | (76.0) | | | — | |
| Acquisition of Sapphire Sky, net of cash acquired of $0.3 | | Acquisition of Sapphire Sky, net of cash acquired of $0.3 | | (442.6) | | | — | |
| Acquisition of Samson I, net of cash acquired of $5.2 | | Acquisition of Samson I, net of cash acquired of $5.2 | | (249.4) | | | — | |
| Capital contributions to transmission affiliates | Capital contributions to transmission affiliates | | (30.3) | | | — | | Capital contributions to transmission affiliates | | (6.1) | | | (21.1) | |
| Proceeds from the sale of assets | Proceeds from the sale of assets | | 65.0 | | | 20.8 | | Proceeds from the sale of assets | | 4.6 | | | 9.7 | |
| Proceeds from the sale of investments held in rabbi trust | Proceeds from the sale of investments held in rabbi trust | | 15.4 | | | 12.7 | | Proceeds from the sale of investments held in rabbi trust | | 10.4 | | | 15.4 | |
| Insurance proceeds received for property damage | Insurance proceeds received for property damage | | 41.3 | | | — | | Insurance proceeds received for property damage | | — | | | 41.0 | |
| Other, net | Other, net | | (0.1) | | | 21.7 | | Other, net | | (9.4) | | | 0.3 | |
| Net cash used in investing activities | Net cash used in investing activities | | (937.5) | | | (1,074.6) | | Net cash used in investing activities | | (1,267.9) | | | (338.2) | |
| | Financing activities | Financing activities | | Financing activities | |
| Exercise of stock options | Exercise of stock options | | 23.0 | | | 4.0 | | Exercise of stock options | | 0.9 | | | 11.8 | |
| Purchase of common stock | Purchase of common stock | | (48.4) | | | (11.3) | | Purchase of common stock | | (6.9) | | | (23.4) | |
| Dividends paid on common stock | Dividends paid on common stock | | (459.0) | | | (427.5) | | Dividends paid on common stock | | (246.1) | | | (229.6) | |
| Issuance of long-term debt | Issuance of long-term debt | | — | | | 1,018.8 | | Issuance of long-term debt | | 1,100.0 | | | — | |
| Retirement of long-term debt | Retirement of long-term debt | | (49.1) | | | (341.2) | | Retirement of long-term debt | | (35.2) | | | (15.4) | |
| Issuance of short-term loan | | 1.4 | | | — | | |
| Repayment of short-term loan | | — | | | (340.0) | | |
| Change in other short-term debt | | (269.3) | | | (12.4) | | |
| Change in commercial paper | | Change in commercial paper | | (385.4) | | | (447.9) | |
| Payments for debt issuance costs | | Payments for debt issuance costs | | (7.0) | | | (0.8) | |
| Other, net | Other, net | | (6.3) | | | (14.9) | | Other, net | | (2.7) | | | (1.2) | |
| Net cash used in financing activities | | (807.7) | | | (124.5) | | |
| Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | | 417.6 | | | (706.5) | |
| | Net change in cash, cash equivalents, and restricted cash | Net change in cash, cash equivalents, and restricted cash | | 17.4 | | | 27.1 | | Net change in cash, cash equivalents, and restricted cash | | (54.2) | | | 32.1 | |
| Cash, cash equivalents, and restricted cash at beginning of period | Cash, cash equivalents, and restricted cash at beginning of period | | 87.5 | | | 72.6 | | Cash, cash equivalents, and restricted cash at beginning of period | | 182.2 | | | 87.5 | |
| Cash, cash equivalents, and restricted cash at end of period | Cash, cash equivalents, and restricted cash at end of period | | $ | 104.9 | | | $ | 99.7 | | Cash, cash equivalents, and restricted cash at end of period | | $ | 128.0 | | | $ | 119.6 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
| | | | | | | | |
06/30/202203/31/2023 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 | |
| | | | | | | | |
06/30/2022 Form 10-Q | 8 | 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, 2022 | | $ | 3.2 | | | $ | 4,115.2 | | | $ | 7,265.3 | | | $ | (6.8) | | | $ | 11,376.9 | | | $ | 30.4 | | | $ | 209.3 | | | $ | 11,616.6 | |
| Net income attributed to common shareholders | | — | | | — | | | 507.5 | | | — | | | 507.5 | | | — | | | — | | | 507.5 | |
| Net loss attributed to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (0.2) | | | (0.2) | |
| Other comprehensive loss | | — | | | — | | | — | | | (0.1) | | | (0.1) | | | — | | | — | | | (0.1) | |
| Common stock dividends of $0.7800 per share | | — | | | — | | | (246.1) | | | — | | | (246.1) | | | — | | | — | | | (246.1) | |
| Exercise of stock options | | — | | | 0.9 | | | — | | | — | | | 0.9 | | | — | | | — | | | 0.9 | |
| Purchase of common stock | | — | | | (6.9) | | | — | | | — | | | (6.9) | | | — | | | — | | | (6.9) | |
| Acquisition of noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | 112.9 | | | 112.9 | |
| Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (1.3) | | | (1.3) | |
| Stock-based compensation and other | | — | | | 4.4 | | | — | | | — | | | 4.4 | | | — | | | — | | | 4.4 | |
| Balance at March 31, 2023 | | $ | 3.2 | | | $ | 4,113.6 | | | $ | 7,526.7 | | | $ | (6.9) | | | $ | 11,636.6 | | | $ | 30.4 | | | $ | 320.7 | | | $ | 11,987.7 | |
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| | 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, 2020 | | $ | 3.2 | | | $ | 4,143.7 | | | $ | 6,329.6 | | | $ | (6.8) | | | $ | 10,469.7 | | | $ | 30.4 | | | $ | 162.4 | | | $ | 10,662.5 | | |
| Balance at December 31, 2021 | | 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 | Net income attributed to common shareholders | | — | | | — | | | 510.1 | | | — | | | 510.1 | | | — | | | — | | | 510.1 | | Net income attributed to common shareholders | | — | | | — | | | 565.9 | | | — | | | 565.9 | | | — | | | — | | | 565.9 | |
| Net loss attributed to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (0.1) | | | (0.1) | | |
| Other comprehensive income | | — | | | — | | | — | | | 1.1 | | | 1.1 | | | — | | | — | | | 1.1 | | |
| Common stock dividends of $0.6775 per share | | — | | | — | | | (213.7) | | | — | | | (213.7) | | | — | | | — | | | (213.7) | | |
| Exercise of stock options | | — | | | 1.2 | | | — | | | — | | | 1.2 | | | — | | | — | | | 1.2 | | |
| Purchase of common stock | | — | | | (6.6) | | | — | | | — | | | (6.6) | | | — | | | — | | | (6.6) | | |
| Acquisition of a noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | — | | | 6.2 | | | 6.2 | | |
| Capital contributions from noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | — | | | 2.0 | | | 2.0 | | |
| Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (0.4) | | | (0.4) | | |
| Stock-based compensation and other | | — | | | 5.3 | | | — | | | — | | | 5.3 | | | — | | | — | | | 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 | | — | | | — | | | 276.0 | | | — | | | 276.0 | | | — | | | — | | | 276.0 | | |
| Net loss attributed to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (0.6) | | | (0.6) | | |
| Other comprehensive income | | — | | | — | | | — | | | 1.1 | | | 1.1 | | | — | | | — | | | 1.1 | | |
| Common stock dividends of $0.6775 per share | | — | | | — | | | (213.8) | | | — | | | (213.8) | | | — | | | — | | | (213.8) | | |
| Net income attributed to noncontrolling interests | | Net income attributed to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | 1.8 | | | 1.8 | |
| Common stock dividends of $0.7275 per share | | Common stock dividends of $0.7275 per share | | — | | | — | | | (229.6) | | | — | | | (229.6) | | | — | | | — | | | (229.6) | |
| Exercise of stock options | Exercise of stock options | | — | | | 2.8 | | | — | | | — | | | 2.8 | | | — | | | — | | | 2.8 | | Exercise of stock options | | — | | | 11.8 | | | — | | | — | | | 11.8 | | | — | | | — | | | 11.8 | |
| Purchase of common stock | Purchase of common stock | | — | | | (4.7) | | | — | | | — | | | (4.7) | | | — | | | — | | | (4.7) | | Purchase of common stock | | — | | | (23.4) | | | — | | | — | | | (23.4) | | | — | | | — | | | (23.4) | |
| Capital contributions from noncontrolling interest | Capital contributions from noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | — | | | 0.5 | | | 0.5 | | Capital contributions from noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | — | | | 0.4 | | | 0.4 | |
| Distributions to noncontrolling interests | Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (0.9) | | | (0.9) | | Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (1.0) | | | (1.0) | |
| Stock-based compensation and other | Stock-based compensation and other | | — | | | 2.4 | | | — | | | — | | | 2.4 | | | — | | | — | | | 2.4 | | Stock-based compensation and other | | — | | | 5.3 | | | — | | | — | | | 5.3 | | | — | | | — | | | 5.3 | |
| 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 | | |
| Balance at March 31, 2022 | | 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 | |
|
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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06/30/202203/31/2023 Form 10-Q | 98 | WEC Energy Group, Inc. |
WEC ENERGY GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2022March 31, 2023
NOTE 1—GENERAL INFORMATION
WEC Energy Group serves approximately 1.61.7 million electric customers and 3.0 million natural gas customers, owns approximately 60% of ATC, and owns majority interests in multiple windrenewable generating facilities as part of its non-utility energy infrastructure 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.parties in the renewable generating facilities that are included in our non-utility energy infrastructure segment.
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 18,17, 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, 2021.2022. 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, 2022,March 31, 2023, are not necessarily indicative of expected results for 20222023 due to seasonal variations and other 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. It was determined that all of the below acquisitions met the criteria of an asset acquisition. The purchase price of certain acquisitions below includes intangibles recorded as long-term liabilities related to PPAs and interconnection agreements.PPAs. See Note 17,16, Goodwill and Intangibles, for more information.
AcquisitionAcquisitions of Electric Generation FacilityFacilities in Wisconsin
In November 2021,April 2023, WPS, along with an unaffiliated utility, completed the acquisition of Red Barn, a commercially operational utility-scale wind-powered electric generating facility. The project is located in Grant County, Wisconsin and WPS owns 82 MWs of this project. WPS's share of the cost of this project was approximately $160 million. Red Barn qualifies for PTCs.
In February 2023, WPS, along with an unaffiliated entity, received approval from the PSCW to acquire 100 MWs of West Riverside's nameplate capacity, in the first of two potential option exercises. WPS also received approval to transfer its ownership interest to WE. The transaction is expected to close during the second quarter of 2023, and WE's investment is expected to be approximately $102 million. West Riverside is a commercially operational dual fueled combined cycle generation facility in Beloit, Wisconsin.
In January 2023, WE and WPS signed an asset purchase agreement to acquirecompleted the acquisition of Whitewater, a commercially operational 236.5 MW dual-fueleddual fueled (natural gas and low sulfur fuel oil) combined-cycle electricalcombined cycle electric generation facility in Whitewater, Wisconsin, for $72.7$76.0 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
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06/30/202203/31/2023 Form 10-Q | 109 | WEC Energy Group, Inc. |
Acquisition of a Solar Generation Facility in Texas
In February 2023, WECI completed the acquisition of an 80% ownership interest in Samson I, a commercially operational 250 MW solar generating facility in Lamar County, Texas, for approximately $249.4 million, which includes transaction costs and is net of cash acquired. The allocation of purchase price to the assets acquired and liabilities assumed was primarily to property, plant, and equipment and an intangible liability related to the PPA. The project has an offtake agreement for all of the energy to be produced by the facility for a period of 15 years. Samson I qualifies for PTCs and is included in the non-utility energy infrastructure segment.
Acquisitions of Electric Generation Facilities in Illinois
In February 2023, WECI completed the acquisition of a 90% ownership interest in Sapphire Sky, a commercially operational 250 MW wind generating facility in McLean County, Illinois, for a total investment of approximately $442.6 million, which includes transaction costs and is net of cash acquired. The allocation of purchase price to the assets acquired and liabilities assumed was primarily to property, plant, and equipment and an intangible liability related to the PPA. The project has an offtake agreement for all of the energy to be produced by the facility for a period of 12 years. Sapphire Sky qualifies for PTCs and is included in the non-utility energy infrastructure segment.
In October 2022, WECI signed an agreement to acquire an 80% ownership interest in Maple Flats, a 250 MW solar generating facility under construction in Clay County, Illinois, for approximately $360 million. The project has an offtake agreement for all of the energy to be produced by the facility for a period of 15 years. The transaction is subject to FERC approval and commercial operation is expected to begin in early 2024, at which time the transaction is expected to close. Sapphire SkyMaple Flats is expected to qualify for PTCs and 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 in Bourbon and Crawford counties, Kansas, for $119.9 million, which included transaction costs. The project became commercially operational in December 2021. Subsequent to the acquisition, WECI incurred an additional $153.6 million of capital expenditures as of June 30, 2022 for the project for a current total investment of $273.5 million. The project has an offtake agreement with an unaffiliated third party for all of the energy produced by the facility for a period of 10 years. WECI's investment in Jayhawk qualifies 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 it will be entitled to tax benefits equal to its ownership interest. Jayhawk is included in the non-utility energy infrastructure segment.
Acquisition of Wind Generation Facility in Nebraska
In August 2019,September 2022, WECI signed an agreement to acquire an 80%completed the acquisition of a 90% ownership interest in Thunderhead, a commercially operational 300 MW wind generating facility under construction in Antelope and Wheeler counties in Nebraska, for a total investmentNebraska. The purchase price was $382.0 million, which includes transaction costs and is net of approximately $338 million. In February 2020, WECI agreed to acquire an additional 10% ownership interest in Thunderhead for $43 million.cash acquired. The project has an offtake agreement for all of the energy to be produced by the facility for a period of 12 years. WECI's investment in Thunderhead is expected to qualifyqualifies for PTCs. The transaction was approved by FERC in April 2020,PTCs 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 in the fall 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 May 2022, we sold approximately 11 acres of real estate owned by PGL that was no longer being utilized in its operations, for $55.1 million. The real estate was located in Chicago, Illinois. As a result of the sale, a pre-tax gain in the amount of $54.5 million was recorded within other operation and maintenance expense on our income statement. The book value of the real estate included in the sale was not material and, therefore, was not presented as held for sale.
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06/30/2022 Form 10-Q | 11 | WEC Energy Group, Inc. |
NOTE 4—OPERATING REVENUES
For more information about our operating revenues, see Note 1(d), Operating Revenues, in our 20212022 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 havehas different expectations of service, energy and demand requirements, and can be impacted differently by regulatory activities within their jurisdictions.
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| (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, 2022 | | | | | | | | | | | | | | | | |
| Electric | | $ | 1,221.1 | | | $ | — | | | $ | — | | | $ | 1,221.1 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,221.1 | |
| Natural gas | | 329.5 | | | 442.2 | | | 95.8 | | | 867.5 | | | 12.0 | | | — | | | (11.0) | | | 868.5 | |
| Total regulated revenues | | 1,550.6 | | | 442.2 | | | 95.8 | | | 2,088.6 | | | 12.0 | | | — | | | (11.0) | | | 2,089.6 | |
| Other non-utility revenues | | — | | | — | | | 4.5 | | | 4.5 | | | 31.1 | | | — | | | (4.0) | | | 31.6 | |
| 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 | | 6.8 | | | 0.2 | | | (0.4) | | | 6.6 | | | 100.5 | | | 0.1 | | | (100.5) | | (1) | 6.7 | |
| Total operating revenues | | $ | 1,557.4 | | | $ | 442.4 | | | $ | 99.9 | | | $ | 2,099.7 | | | $ | 143.6 | | | $ | 0.1 | | | $ | (115.5) | | | $ | 2,127.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (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 | | | | | | | | | | | | | | | | |
| Electric | | $ | 1,083.2 | | | $ | — | | | $ | — | | | $ | 1,083.2 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,083.2 | |
| Natural gas | | 212.7 | | | 266.1 | | | 66.9 | | | 545.7 | | | 9.4 | | | — | | | (8.7) | | | 546.4 | |
| Total regulated revenues | | 1,295.9 | | | 266.1 | | | 66.9 | | | 1,628.9 | | | 9.4 | | | — | | | (8.7) | | | 1,629.6 | |
| Other non-utility revenues | | — | | | — | | | 4.4 | | | 4.4 | | | 24.2 | | | — | | | (3.9) | | | 24.7 | |
| 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 | | 11.6 | | | 9.4 | | | 0.8 | | | 21.8 | | | 99.9 | | | 0.1 | | | (99.9) | | (1) | 21.9 | |
| 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, 2022 | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2023 | | | | | | | | | | | | | | | | |
| Electric | Electric | | $ | 2,408.6 | | | $ | — | | | $ | — | | | $ | 2,408.6 | | | 0 | | $ | — | | | $ | — | | | $ | 2,408.6 | | Electric | | $ | 1,203.8 | | | $ | — | | | $ | — | | | $ | 1,203.8 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,203.8 | |
| Natural gas | Natural gas | | 1,076.3 | | | 1,122.1 | | | 334.0 | | | 2,532.4 | | | 27.3 | | | — | | | (25.8) | | | 2,533.9 | | Natural gas | | 784.4 | | | 577.7 | | | 245.0 | | | 1,607.1 | | | 21.3 | | | — | | | (21.1) | | | 1,607.3 | |
| Total regulated revenues | Total regulated revenues | | 3,484.9 | | | 1,122.1 | | | 334.0 | | | 4,941.0 | | | 27.3 | | | — | | | (25.8) | | | 4,942.5 | | Total regulated revenues | | 1,988.2 | | | 577.7 | | | 245.0 | | | 2,810.9 | | | 21.3 | | | — | | | (21.1) | | | 2,811.1 | |
| Other non-utility revenues | Other non-utility revenues | | — | | | — | | | 9.1 | | | 9.1 | | | 74.8 | | | — | | | (5.6) | | | 78.3 | | Other non-utility revenues | | — | | | — | | | 5.2 | | | 5.2 | | | 43.5 | | | — | | | (1.6) | | | 47.1 | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | | 3,484.9 | | | 1,122.1 | | | 343.1 | | | 4,950.1 | | | 102.1 | | | — | | | (31.4) | | | 5,020.8 | | Total revenues from contracts with customers | | 1,988.2 | | | 577.7 | | | 250.2 | | | 2,816.1 | | | 64.8 | | | — | | | (22.7) | | | 2,858.2 | |
| Other operating revenues | Other operating revenues | | 14.8 | | | 2.4 | | | (2.3) | | | 14.9 | | | 201.0 | | | 0.3 | | | (201.0) | | (1) | 15.2 | | Other operating revenues | | 8.1 | | | 22.0 | | | (0.2) | | | 29.9 | | | 101.4 | | | — | | | (101.4) | | (1) | 29.9 | |
| Total operating revenues | Total operating revenues | | $ | 3,499.7 | | | $ | 1,124.5 | | | $ | 340.8 | | | $ | 4,965.0 | | | $ | 303.1 | | | $ | 0.3 | | | $ | (232.4) | | | $ | 5,036.0 | | Total operating revenues | | $ | 1,996.3 | | | $ | 599.7 | | | $ | 250.0 | | | $ | 2,846.0 | | | $ | 166.2 | | | $ | — | | | $ | (124.1) | | | $ | 2,888.1 | |
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06/30/202203/31/2023 Form 10-Q | 1210 | 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, 2021 | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2022 | | | | | | | | | | | | | | | | |
| Electric | Electric | | $ | 2,178.2 | | | $ | — | | | $ | — | | | $ | 2,178.2 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,178.2 | | Electric | | $ | 1,187.5 | | | $ | — | | | $ | — | | | $ | 1,187.5 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,187.5 | |
| Natural gas | Natural gas | | 840.0 | | | 959.6 | | | 292.5 | | | 2,092.1 | | | 24.0 | | | — | | | (22.0) | | | 2,094.1 | | Natural gas | | 746.8 | | | 679.9 | | | 238.2 | | | 1,664.9 | | | 15.3 | | | — | | | (14.8) | | | 1,665.4 | |
| Total regulated revenues | Total regulated revenues | | 3,018.2 | | | 959.6 | | | 292.5 | | | 4,270.3 | | | 24.0 | | | — | | | (22.0) | | | 4,272.3 | | Total regulated revenues | | 1,934.3 | | | 679.9 | | | 238.2 | | | 2,852.4 | | | 15.3 | | | — | | | (14.8) | | | 2,852.9 | |
| Other non-utility revenues | Other non-utility revenues | | — | | | — | | | 9.1 | | | 9.1 | | | 47.4 | | | — | | | (5.5) | | | 51.0 | | Other non-utility revenues | | — | | | — | | | 4.6 | | | 4.6 | | | 43.7 | | | — | | | (1.6) | | | 46.7 | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | | 3,018.2 | | | 959.6 | | | 301.6 | | | 4,279.4 | | | 71.4 | | | — | | | (27.5) | | | 4,323.3 | | Total revenues from contracts with customers | | 1,934.3 | | | 679.9 | | | 242.8 | | | 2,857.0 | | | 59.0 | | | — | | | (16.4) | | | 2,899.6 | |
| 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 | | 8.0 | | | 2.2 | | | (1.9) | | | 8.3 | | | 100.5 | | | 0.2 | | | (100.5) | | (1) | 8.5 | |
| 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 | | $ | 1,942.3 | | | $ | 682.1 | | | $ | 240.9 | | | $ | 2,865.3 | | | $ | 159.5 | | | $ | 0.2 | | | $ | (116.9) | | | $ | 2,908.1 | |
(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 intoby customer class:
| | | Three Months Ended June 30 | | Six Months Ended June 30 | | Three Months Ended March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | | 2023 | | 2022 |
| Residential | Residential | | $ | 449.7 | | | $ | 419.0 | | | $ | 912.8 | | | $ | 842.7 | | Residential | | $ | 486.5 | | | $ | 463.1 | |
| Small commercial and industrial | Small commercial and industrial | | 378.4 | | | 346.6 | | | 748.5 | | | 678.0 | | Small commercial and industrial | | 393.6 | | | 370.1 | |
| Large commercial and industrial | Large commercial and industrial | | 268.1 | | | 224.5 | | | 497.3 | | | 434.0 | | Large commercial and industrial | | 229.8 | | | 229.2 | |
| Other | Other | | 7.2 | | | 6.9 | | | 15.0 | | | 14.7 | | Other | | 8.0 | | | 7.8 | |
| Total retail revenues | Total retail revenues | | 1,103.4 | | | 997.0 | | | 2,173.6 | | | 1,969.4 | | Total retail revenues | | 1,117.9 | | | 1,070.2 | |
| Wholesale | Wholesale | | 40.8 | | | 38.6 | | | 83.2 | | | 78.3 | | Wholesale | | 34.2 | | | 42.4 | |
| Resale | Resale | | 60.7 | | | 37.4 | | | 117.5 | | | 100.1 | | Resale | | 40.6 | | | 56.8 | |
| Steam | Steam | | 4.7 | | | 4.2 | | | 16.8 | | | 19.0 | | Steam | | 11.0 | | | 12.1 | |
| Other utility revenues | Other utility revenues | | 11.5 | | | 6.0 | | | 17.5 | | | 11.4 | | Other utility revenues | | 0.1 | | | 6.0 | |
| Total electric utility operating revenues | Total electric utility operating revenues | | $ | 1,221.1 | | | $ | 1,083.2 | | | $ | 2,408.6 | | | $ | 2,178.2 | | Total electric utility operating revenues | | $ | 1,203.8 | | | $ | 1,187.5 | |
Natural Gas Utility Operating Revenues
The following tables disaggregate natural gas utility operating revenues intoby 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, 2022 | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2023 | | | | | | | | |
| Residential | Residential | | $ | 198.5 | | | $ | 268.6 | | | $ | 63.5 | | | $ | 530.6 | | Residential | | $ | 554.8 | | | $ | 368.9 | | | $ | 164.5 | | | $ | 1,088.2 | |
| Commercial and industrial | Commercial and industrial | | 102.1 | | | 78.2 | | | 36.6 | | | 216.9 | | Commercial and industrial | | 295.2 | | | 117.9 | | | 91.5 | | | 504.6 | |
| Total retail revenues | Total retail revenues | | 300.6 | | | 346.8 | | | 100.1 | | | 747.5 | | Total retail revenues | | 850.0 | | | 486.8 | | | 256.0 | | | 1,592.8 | |
| Transportation | Transportation | | 18.0 | | | 54.5 | | | 6.0 | | | 78.5 | | Transportation | | 28.9 | | | 76.6 | | | 10.9 | | | 116.4 | |
Other utility revenues (1) | | 10.9 | | | 40.9 | | | (10.3) | | | 41.5 | | |
Other utility revenues (1) (2) | | Other utility revenues (1) (2) | | (94.5) | | | 14.3 | | | (21.9) | | | (102.1) | |
| Total natural gas utility operating revenues | Total natural gas utility operating revenues | | $ | 329.5 | | | $ | 442.2 | | | $ | 95.8 | | | $ | 867.5 | | Total natural gas utility operating revenues | | $ | 784.4 | | | $ | 577.7 | | | $ | 245.0 | | | $ | 1,607.1 | |
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06/30/202203/31/2023 Form 10-Q | 1311 | WEC Energy Group, Inc. |
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| (in millions) | | Wisconsin | | Illinois | | Other States | | Total Natural Gas Utility Operating Revenues |
| Three Months Ended June 30, 2021 | | | | | | | | |
| Residential | | $ | 188.6 | | | $ | 199.1 | | | $ | 37.9 | | | $ | 425.6 | |
| Commercial and industrial | | 90.2 | | | 51.5 | | | 17.3 | | | 159.0 | |
| Total retail revenues | | 278.8 | | | 250.6 | | | 55.2 | | | 584.6 | |
| Transportation | | 17.8 | | | 48.8 | | | 6.6 | | | 73.2 | |
Other utility revenues (1) | | (83.9) | | | (33.3) | | | 5.1 | | | (112.1) | |
| 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) | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Natural Gas Utility Operating Revenues | (in millions) | | Wisconsin | | Illinois | | Other States | | Total Natural Gas Utility Operating Revenues |
| Six Months Ended June 30, 2021 | | | | | | | | | |
| Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2022 | | | | | | | | |
| Residential | Residential | | $ | 536.2 | | | $ | 533.0 | | | $ | 125.8 | | | $ | 1,195.0 | | Residential | | $ | 502.5 | | | $ | 465.5 | | | $ | 161.3 | | | $ | 1,129.3 | |
| Commercial and industrial | Commercial and industrial | | 266.6 | | | 154.2 | | | 61.2 | | | 482.0 | | Commercial and industrial | | 272.5 | | | 158.3 | | | 86.8 | | | 517.6 | |
| Total retail revenues | Total retail revenues | | 802.8 | | | 687.2 | | | 187.0 | | | 1,677.0 | | Total retail revenues | | 775.0 | | | 623.8 | | | 248.1 | | | 1,646.9 | |
| Transportation | Transportation | | 42.2 | | | 123.0 | | | 17.6 | | | 182.8 | | Transportation | | 25.5 | | | 80.9 | | | 13.9 | | | 120.3 | |
Other utility revenues (1) | | (5.0) | | | 149.4 | | | 87.9 | | | 232.3 | | |
Other utility revenues (1) (3) | | Other utility revenues (1) (3) | | (53.7) | | | (24.8) | | | (23.8) | | | (102.3) | |
| Total natural gas utility operating revenues | Total natural gas utility operating revenues | | $ | 840.0 | | | $ | 959.6 | | | $ | 292.5 | | | $ | 2,092.1 | | Total natural gas utility operating revenues | | $ | 746.8 | | | $ | 679.9 | | | $ | 238.2 | | | $ | 1,664.9 | |
|
(1)Includes the revenues subject to the purchased gas recovery mechanisms of our utilities. The amounts for
(2)During the three months ended June 30, 2022 reflectfirst quarter of 2023, we over-collected natural gas costs at our Wisconsin segment due to these costs being lower than what was anticipated in rates. We also continued to recover higher natural gas costs incurred than werewe under-collected from customers in prior periods at our Other States segments. As these amounts are billed to customers, they are reflected in retail revenues with an offsetting decrease in other utility revenues. The positive amount at our Illinois segment reflects a decrease in natural gas costs during the first quarter of 2023, compared to what was anticipated in rates.
(3)During the six months ended June 30,first quarter of 2022, we continued to recover natural gas costs we under-collected from our customers in 2021 related to the extreme weather.weather experienced in February 2021, as well as higher natural gas costs incurred at the majority of our segments during 2021. As these amounts wereare billed to our customers, they wereare 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 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:
| | | Three Months Ended June 30 | | Six Months Ended June 30 | | Three Months Ended March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | | 2023 | | 2022 |
| Wind generation revenues | Wind generation revenues | | $ | 21.3 | | | $ | 14.5 | | | $ | 57.5 | | | $ | 30.3 | | Wind generation revenues | | $ | 36.0 | | | $ | 36.2 | |
We Power revenues (1) | We Power revenues (1) | | 5.8 | | | 5.8 | | | 11.7 | | | 11.6 | | We Power revenues (1) | | 5.9 | | | 5.9 | |
| Appliance service revenues | Appliance service revenues | | 4.5 | | | 4.4 | | | 9.1 | | | 9.1 | | Appliance service revenues | | 5.2 | | | 4.6 | |
| | Total other non-utility operating revenues | Total other non-utility operating revenues | | $ | 31.6 | | | $ | 24.7 | | | $ | 78.3 | | | $ | 51.0 | | Total other non-utility operating revenues | | $ | 47.1 | | | $ | 46.7 | |
(1)As part of the construction of the We Power EGUs,electric utility generating units, 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 March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | | 2023 | | 2022 |
| Late payment charges | Late payment charges | | $ | 16.3 | | | $ | 17.3 | | | $ | 29.9 | | | $ | 32.3 | | Late payment charges | | $ | 17.2 | | | $ | 13.6 | |
Alternative revenues (1) | Alternative revenues (1) | | (11.3) | | | 2.9 | | | (17.3) | | | 9.1 | | Alternative revenues (1) | | 11.8 | | | (6.0) | |
| Other | Other | | 1.7 | | | 1.7 | | | 2.6 | | | 2.9 | | Other | | 0.9 | | | 0.9 | |
| Total other operating revenues | Total other operating revenues | | $ | 6.7 | | | $ | 21.9 | | | $ | 15.2 | | | $ | 44.3 | | Total other operating revenues | | $ | 29.9 | | | $ | 8.5 | |
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| 03/31/2023 Form 10-Q | 12 | WEC Energy Group, Inc. |
(1)Negative 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.
NOTE 5—4—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 windrenewable 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.
We have included tables below that show our gross third-party receivable balances and the related allowance for credit losses at June 30, 2022March 31, 2023 and December 31, 2021,2022, 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, 2022 | | | | | | | | | | | | | | | |
| March 31, 2023 | | March 31, 2023 | | | | | | | | | | | | | | |
| Accounts receivable and unbilled revenues | Accounts receivable and unbilled revenues | | $ | 1,029.1 | | | $ | 485.2 | | | $ | 79.9 | | | $ | 1,594.2 | | | $ | 23.7 | | | $ | 5.6 | | | $ | 1,623.5 | | Accounts receivable and unbilled revenues | | $ | 1,232.2 | | | $ | 561.0 | | | $ | 143.5 | | | $ | 1,936.7 | | | $ | 50.0 | | | $ | 7.7 | | | $ | 1,994.4 | |
| Allowance for credit losses | Allowance for credit losses | | 78.0 | | | 91.0 | | | 6.8 | | | 175.8 | | | — | | | — | | | 175.8 | | Allowance for credit losses | | 90.9 | | | 116.5 | | | 6.4 | | | 213.8 | | | — | | | — | | | 213.8 | |
Accounts receivable and unbilled revenues, net (1) | Accounts receivable and unbilled revenues, net (1) | | $ | 951.1 | | | $ | 394.2 | | | $ | 73.1 | | | $ | 1,418.4 | | | $ | 23.7 | | | $ | 5.6 | | | $ | 1,447.7 | | Accounts receivable and unbilled revenues, net (1) | | $ | 1,141.3 | | | $ | 444.5 | | | $ | 137.1 | | | $ | 1,722.9 | | | $ | 50.0 | | | $ | 7.7 | | | $ | 1,780.6 | |
| Total accounts receivable, net – past due greater than 90 days (1) | Total accounts receivable, net – past due greater than 90 days (1) | | $ | 71.6 | | | $ | 66.8 | | | $ | 7.4 | | | $ | 145.8 | | | $ | — | | | $ | — | | | $ | 145.8 | | Total accounts receivable, net – past due greater than 90 days (1) | | $ | 67.9 | | | $ | 61.6 | | | $ | 1.7 | | | $ | 131.2 | | | $ | — | | | $ | — | | | $ | 131.2 | |
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) | | 97.2 | % | | 100.0 | % | | — | % | | 93.6 | % | | — | % | | — | % | | 93.6 | % | Past due greater than 90 days – collection risk mitigated by regulatory mechanisms (1) | | 97.5 | % | | 100.0 | % | | — | % | | 97.4 | % | | — | % | | — | % | | 97.4 | % |
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| (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Non-Utility Energy Infrastructure | | Corporate
and Other | | WEC Energy Group Consolidated |
| December 31, 2021 | | | | | | | | | | | | | | |
| 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 | | 84.0 | | | 105.5 | | | 8.8 | | | 198.3 | | | — | | | — | | | 198.3 | |
Accounts receivable and unbilled revenues, net (1) | | $ | 969.1 | | | $ | 417.6 | | | $ | 96.9 | | | $ | 1,483.6 | | | $ | 17.0 | | | $ | 5.1 | | | $ | 1,505.7 | |
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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) | | 97.6 | % | | 100.0 | % | | — | % | | 94.8 | % | | — | % | | — | % | | 94.8 | % |
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| 03/31/2023 Form 10-Q | 13 | WEC Energy Group, Inc. |
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| (in millions) | | Wisconsin | | Illinois | | Other States | | Total Utility
Operations | | Non-Utility Energy Infrastructure | | Corporate
and Other | | WEC Energy Group Consolidated |
| December 31, 2022 | | | | | | | | | | | | | | |
| Accounts receivable and unbilled revenues | | $ | 1,199.4 | | | $ | 624.2 | | | $ | 164.4 | | | $ | 1,988.0 | | | $ | 25.4 | | | $ | 4.3 | | | $ | 2,017.7 | |
| Allowance for credit losses | | 82.0 | | | 111.0 | | | 6.3 | | | 199.3 | | | — | | | — | | | 199.3 | |
Accounts receivable and unbilled revenues, net (1) | | $ | 1,117.4 | | | $ | 513.2 | | | $ | 158.1 | | | $ | 1,788.7 | | | $ | 25.4 | | | $ | 4.3 | | | $ | 1,818.4 | |
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Total accounts receivable, net – past due greater than 90 days (1) | | $ | 51.9 | | | $ | 52.9 | | | $ | 1.9 | | | $ | 106.7 | | | $ | — | | | $ | — | | | $ | 106.7 | |
Past due greater than 90 days – collection risk mitigated by regulatory mechanisms (1) | | 97.0 | % | | 100.0 | % | | — | % | | 96.8 | % | | — | % | | — | % | | 96.8 | % |
(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, 2022, $782.2March 31, 2023, $1,119.8 million, or 54.0%62.9%, of our net accounts receivable and unbilled revenues balance had regulatory protections in place to mitigate the exposure to credit losses.
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06/30/2022 Form 10-Q | 16 | WEC Energy Group, Inc. |
A rollforwardroll-forward of the allowance for credit losses by reportable segment is included below:
| 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 | | |
(in millions) | |
(in millions) | | Wisconsin | | Illinois | | Other States | | WEC Energy Group Consolidated |
| Balance at January 1, 2023 | | Balance at January 1, 2023 | | $ | 82.0 | | | $ | 111.0 | | | $ | 6.3 | | | $ | 199.3 | |
| Provision for credit losses | Provision for credit losses | | 11.8 | | | 7.1 | | | (0.1) | | | 18.8 | | Provision for credit losses | | 11.2 | | | 8.5 | | | 1.3 | | | 21.0 | |
| Provision for credit losses deferred for future recovery or refund | Provision for credit losses deferred for future recovery or refund | | (5.4) | | | (11.2) | | | — | | | (16.6) | | Provision for credit losses deferred for future recovery or refund | | 20.4 | | | 15.2 | | | — | | | 35.6 | |
| Write-offs charged against the allowance | Write-offs charged against the allowance | | (22.1) | | | (17.9) | | | (1.2) | | | (41.2) | | Write-offs charged against the allowance | | (28.9) | | | (23.0) | | | (1.6) | | | (53.5) | |
| Recoveries of amounts previously written off | Recoveries of amounts previously written off | | 8.0 | | | 6.0 | | | 0.2 | | | 14.2 | | Recoveries of amounts previously written off | | 6.2 | | | 4.8 | | | 0.4 | | | 11.4 | |
| 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 | | |
| Balance at March 31, 2023 | | Balance at March 31, 2023 | | $ | 90.9 | | | $ | 116.5 | | | $ | 6.4 | | | $ | 213.8 | |
On a consolidated basis, there was a $22.5$14.5 million decreaseincrease in the allowance for credit losses at June 30, 2022,March 31, 2023, compared to December 31, 2021. The decrease wasJanuary 1, 2023, driven by customer write-offs related to collection practices returning to pre-pandemic levelsan increase in 2021, includingpast due accounts receivable balances at our Wisconsin and Illinois reportable segments. An increase in past due balances is a trend we generally see over the restoration of our abilitywinter moratorium months, when we are not allowed to disconnect customers. Aftercustomer service as a customer is disconnected forresult 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.
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(in millions) | | Wisconsin | | Illinois | | Other States | | WEC Energy Group Consolidated |
| Balance at January 1, 2022 | | $ | 84.0 | | | $ | 105.5 | | | $ | 8.8 | | | $ | 198.3 | |
| Provision for credit losses | | 11.8 | | | 11.3 | | | 0.2 | | | 23.3 | |
| Provision for credit losses deferred for future recovery or refund | | 8.8 | | | 12.1 | | | — | | | 20.9 | |
| Write-offs charged against the allowance | | (28.8) | | | (27.3) | | | (1.4) | | | (57.5) | |
| Recoveries of amounts previously written off | | 9.9 | | | 5.4 | | | 0.3 | | | 15.6 | |
| Balance at March 31, 2022 | | $ | 85.7 | | | $ | 107.0 | | | $ | 7.9 | | | $ | 200.6 | |
On a period of time without payment on their account, we will write off that customer balance. Partially offsetting the decreaseconsolidated basis, there was a $2.3 million increase in the allowance for credit losses weat March 31, 2022, compared to January 1, 2022, driven by an increase in past due accounts receivable balances at our Wisconsin and Illinois reportable segments. We believe that the highhigher year-over-year energy costs that customers arewere seeing, which have beenwere driven by high natural gas prices, contributed to the higher past due accounts receivable balances and a relatedbalances. As discussed above, an increase in the allowance for credit losses.
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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 | |
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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 tois also a trend we generally see over 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 was related to the start of normal collection practices in our Wisconsin and Illinois service territories.winter moratorium months.
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06/30/202203/31/2023 Form 10-Q | 1714 | WEC Energy Group, Inc. |
NOTE 6—5—REGULATORY ASSETS AND LIABILITIES
The following regulatory assets and liabilities were reflected on our balance sheets at June 30, 2022March 31, 2023 and December 31, 2021.2022. For more information on our regulatory assets and liabilities, see Note 6, Regulatory Assets and Liabilities, in our 20212022 Annual Report on Form 10-K.
| | (in millions) | (in millions) | | June 30, 2022 | | December 31, 2021 | (in millions) | | March 31, 2023 | | December 31, 2022 |
| Regulatory assets | Regulatory assets | | | | | Regulatory assets | | | | |
| Pension and OPEB costs | Pension and OPEB costs | | $ | 762.6 | | | $ | 802.3 | | Pension and OPEB costs | | $ | 701.9 | | | $ | 714.3 | |
| Plant retirement related items | Plant retirement related items | | 705.9 | | | 722.3 | | Plant retirement related items | | 677.9 | | | 688.6 | |
| Environmental remediation costs | Environmental remediation costs | | 621.6 | | | 630.9 | | Environmental remediation costs | | 590.6 | | | 610.7 | |
| Income tax related items | Income tax related items | | 457.0 | | | 458.8 | | Income tax related items | | 457.5 | | | 461.9 | |
| Derivatives | | Derivatives | | 196.5 | | | 133.8 | |
| Asset retirement obligations | Asset retirement obligations | | 180.6 | | | 194.2 | | Asset retirement obligations | | 171.1 | | | 169.7 | |
| System support resource | System support resource | | 126.7 | | | 129.5 | | System support resource | | 120.9 | | | 123.5 | |
| Energy costs recoverable through rate adjustments | | 120.0 | | | 85.4 | | |
| Uncollectible expense | | Uncollectible expense | | 95.9 | | | 69.3 | |
| Securitization | Securitization | | 96.1 | | | 100.7 | | Securitization | | 90.9 | | | 92.4 | |
Bluewater (1) | | Bluewater (1) | | 31.4 | | | 20.9 | |
| Energy efficiency programs | | Energy efficiency programs | | 30.0 | | | 33.9 | |
| MERC extraordinary natural gas costs | MERC extraordinary natural gas costs | | 47.1 | | | 59.7 | | MERC extraordinary natural gas costs | | 21.2 | | | 35.1 | |
Derivatives (1) | | 38.5 | | | 33.1 | | |
| Uncollectible expense | | 30.0 | | | 42.6 | | |
| Energy efficiency programs | | 23.9 | | | 22.0 | | |
| Other, net | Other, net | | 68.9 | | | 85.6 | | Other, net | | 139.5 | | | 152.8 | |
| Total regulatory assets | Total regulatory assets | | $ | 3,278.9 | | | $ | 3,367.1 | | Total regulatory assets | | $ | 3,325.3 | | | $ | 3,306.9 | |
| | Balance sheet presentation | Balance sheet presentation | | Balance sheet presentation | |
| Amounts recoverable from customers | | $ | 134.2 | | | $ | 102.3 | | |
| Other current assets | | Other current assets | | $ | 12.2 | | | $ | 42.3 | |
| Regulatory assets | Regulatory assets | | 3,144.7 | | | 3,264.8 | | Regulatory assets | | 3,313.1 | | | 3,264.6 | |
| Total regulatory assets | Total regulatory assets | | $ | 3,278.9 | | | $ | 3,367.1 | | Total regulatory assets | | $ | 3,325.3 | | | $ | 3,306.9 | |
(1)For most energy-related physicalPrimarily related to costs associated with the long-term service agreement our Wisconsin utilities have with Bluewater for natural gas storage services. The PSCW has approved escrow accounting for these costs. As a result, our Wisconsin utilities defer as a regulatory asset or liability the difference between actual storage costs 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.those included in rates until recovery or refund is authorized in a future rate proceeding.
| | | | | | | | | | | | | | |
| (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 | |
| | | | | | | | | | | | | | |
| (in millions) | | March 31, 2023 | | December 31, 2022 |
| Regulatory liabilities | | | | |
| Income tax related items | | $ | 1,945.4 | | | $ | 1,956.6 | |
| Removal costs | | 1,279.3 | | | 1,260.9 | |
| Pension and OPEB benefits | | 335.3 | | | 340.5 | |
Energy costs refundable through rate adjustments (1) | | 138.5 | | | 53.4 | |
| Derivatives | | 21.6 | | | 76.7 | |
| Decoupling | | 21.1 | | | 20.2 | |
| Uncollectible expense | | 20.1 | | | 24.0 | |
| Energy efficiency programs | | 18.5 | | | 10.4 | |
| Other, net | | 55.0 | | | 49.2 | |
| Total regulatory liabilities | | $ | 3,834.8 | | | $ | 3,791.9 | |
| | | | |
| Balance sheet presentation | | | | |
| Other current liabilities | | $ | 145.0 | | | $ | 56.4 | |
| Regulatory liabilities | | 3,689.8 | | | 3,735.5 | |
| Total regulatory liabilities | | $ | 3,834.8 | | | $ | 3,791.9 | |
(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 liabilities was primarily relateddue to lower natural gas costs incurred during 2022,the first quarter of 2023, compared to what was anticipated in rates.
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06/30/202203/31/2023 Form 10-Q | 1815 | 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 7—6—PROPERTY, PLANT, AND EQUIPMENT
Wisconsin Segment Plant to be Retired
Oak Creek Power Plant Units 5 – 8
As a result of a PSCW approval for the construction of a solar and battery project received in December 2022, retirement of the OCPP generating units 5 – 8 became probable. In early 2023, we received additional approvals for electric generation facilities, including West Riverside and the Koshkonong Solar-Battery Park. OCPP units 5 and 6 are expected to be retired by May 2024, while units 7 and 8 are expected to be retired by late 2025. The total net book value of WE's ownership share of units 5 – 8 was $812.9 million at March 31, 2023, which does not include deferred taxes. These amounts were classified as plant to be retired within property, plant, and equipment on our balance sheet. These units are included in rate base, and WE continues to depreciate them on a straight-line basis using the composite depreciation rates approved by the PSCW.
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 for unit 2. See Note 23, Regulatory Environment, for more information on the Columbia generating units' retirement. Thetotal net book value of WPS's ownership share of unitunits 1 and unit 2 was $86.6$268.7 million and $185.6 million, respectively, at June 30, 2022.March 31, 2023, which does not include deferred taxes. These amounts were classified as plant to be retired within property, plant, and equipment on our balance 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 AssetsSamson I Solar Energy Center LLC – Storm Damage
During a significant rain eventwind storm in May 2020,March 2023, certain sections across approximately 40% of our Samson I solar facility incurred some amount of damage. In the first quarter of 2023, we recognized 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 required significant repairs and restorations. Asimpairment of June 30, 2022, WE had incurred $95.3$21.4 million of costs related to these repairs and restorations.damage from this storm, which was substantially offset by a $20.7 million receivable for future insurance recoveries. In 2020, WE received $20.0 millionthe first quarter of insurance proceeds to cover a portion2023, the net impact of these costs and wrote off $12.5amounts, or $0.7 million, of costs that we do not intend to seek recovery for throughwas recorded in other operation and maintenance expense. In the first quarter of 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 costsA full damage assessment is expected to be recovered through rates.
In June 2021, we received approval from the PSCW to restore the PSBstill underway, but based on current damage and adjacent steam tunnel assets and to defer the project costs, net of insurance proceeds, as a component of rate base. As such, and in light of the agreement with insurers noted above,repair estimates, we do not currently expect a significant impact to our future results of operations. 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.
NOTE 8—7—COMMON EQUITY
Stock-Based Compensation
During the sixthree months ended June 30, 2022,March 31, 2023, the Compensation Committee of our Board of Directors awarded the following stock-based compensation to our directors, officers, and certain other key employees:
| | | | | | | | |
| Award Type | | Number of Awards |
Stock options (1) | | 437,269257,780 | |
Restricted shares (2) | | 72,21175,453 | |
| Performance units | | 171,492157,035 | |
(1)Stock options awarded had a weighted-average exercise price of $96.04$93.69 and a weighted-average grant date fair value of $14.71$19.58 per option.
(2)Restricted shares awarded had a weighted-average grant date fair value of $96.04$93.69 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; 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. Our utility subsidiaries, with the exception of UMERC and MGU, are prohibited from
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06/30/202203/31/2023 Form 10-Q | 1916 | WEC Energy Group, Inc. |
loaning funds to us, either directly or indirectly. See Note 11, Common Equity, in our 20212022 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.
Common Stock Dividends
On July 21, 2022,April 20, 2023, our Board of Directors declared a quarterly cash dividend of $0.7275$0.78 per share, payable on SeptemberJune 1, 2022,2023, to shareholders of record on AugustMay 12, 2022.2023.
NOTE 9—8—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, 2022 | | December 31, 2021 | (in millions, except percentages) | | March 31, 2023 | | December 31, 2022 |
| Commercial paper | Commercial paper | | | | | Commercial paper | | | | |
| Amount outstanding | Amount outstanding | | $ | 1,626.8 | | | $ | 1,896.1 | | Amount outstanding | | $ | 1,258.1 | | | $ | 1,643.5 | |
| Weighted-average interest rate on amounts outstanding | Weighted-average interest rate on amounts outstanding | | 1.90 | % | | 0.26 | % | Weighted-average interest rate on amounts outstanding | | 5.16 | % | | 4.64 | % |
| Operating expense loans | Operating expense loans | | Operating expense loans | |
Amount outstanding (1) | Amount outstanding (1) | | $ | 2.3 | | | $ | 0.9 | | Amount outstanding (1) | | $ | 3.1 | | | $ | 3.6 | |
|
(1)Coyote Ridge andWind, LLC, Tatanka Ridge, and Jayhawk 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 sixthree months ended June 30, 2022March 31, 2023 was $1,421.5$992.4 million with a weighted-average interest rate during the period of 0.68%4.84%.
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, 2022March 31, 2023 |
| WEC Energy Group | | September 2026 | | $ | 1,500.0 | |
| WE | | September 2026 | | 500.0 | |
WPS(1) | | September 2026 | | 400.0 | |
| WG | | September 2026 | | 350.0 | |
| PGL | | September 2026 | | 350.0 | |
| Total short-term credit capacity | | | | $ | 3,100.0 | |
| | | | |
| Less: | | | | |
| Letters of credit issued inside credit facilities | | | | $ | 2.3 | |
| Commercial paper outstanding | | | | 1,626.81,258.1 | |
| Available capacity under existing agreements | | | | $ | 1,470.91,839.6 | |
(1)In April 2022, WPS received approval from the PSCW to extend the maturity of its facility to September 2026.
NOTE 9—LONG-TERM DEBT
NOTE 10—LEASESWEC Energy Group, Inc.
WEIn January 2023, we issued $650.0 million of 4.75% Senior Notes due January 9, 2026, and WPS have partnered with an unaffiliated utility$450.0 million of 4.75% Senior Notes due January 15, 2028, and used the net proceeds to construct Paris, a utility-scale solar-powered electric generating facility with a battery energy storage system in Kenosha County, Wisconsin. WErepay short-term debt and WPS own 75% and 15%, respectively, of Paris. Once fully constructed, WE and WPS will collectively own 180 MW of solar generation and 99 MW of battery storage of this project. The PSCW has approved the acquisition and construction of Paris, and commercial operation for the solar portion of the project is targeted in 2023.other corporate purposes.
Related to their investment in Paris, WE and WPS, along with their unaffiliated utility partner, entered into several land leases in Kenosha County, Wisconsin that commenced in the second quarter of 2022. Each lease has an initial construction term that ends upon achieving commercial operation, then automatically extends for 25 years with an option forIn April 2023, we issued an additional 25-year extension.$350.0 million of our 4.75% Senior Notes due January 9, 2026, and used the net proceeds to repay short-term debt and for other corporate purposes.
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06/30/202203/31/2023 Form 10-Q | 2017 | WEC Energy Group, Inc. |
We 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.Integrys Holding, Inc.
In 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 amortizationMarch 2023, Integrys repurchased $18.9 million of the right$221.4 million outstanding of use assets has been modified from what would typically be recordedits 6.00% 2013 Junior Notes, prior to maturity for $18.6 million. Integrys recognized an insignificant gain on the early extinguishment of debt due to the debt being repurchased at a finance lease under Topic 842. The difference between the minimum lease payments and the sum of 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 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 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 11—10—MATERIALS, SUPPLIES, AND INVENTORIES
Our inventory consisted of:
| | (in millions) | (in millions) | | June 30, 2022 | | December 31, 2021 | (in millions) | | March 31, 2023 | | December 31, 2022 |
| Materials and supplies | | Materials and supplies | | $ | 276.6 | | | $ | 257.0 | |
| Natural gas in storage | Natural gas in storage | | $ | 244.4 | | | $ | 326.0 | | Natural gas in storage | | 137.0 | | | 446.3 | |
| Materials and supplies | | 242.7 | | | 225.3 | | |
| Fossil fuel | Fossil fuel | | 85.1 | | | 84.5 | | Fossil fuel | | 109.9 | | | 103.8 | |
| Total | Total | | $ | 572.2 | | | $ | 635.8 | | Total | | $ | 523.5 | | | $ | 807.1 | |
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, 2022,March 31, 2023, we had a temporary LIFO liquidation credit of $107.6$43.8 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 12—11—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, 2022 | | Three Months Ended June 30, 2021 | |
| (in millions) | | Amount | | Effective Tax Rate | | Amount | | Effective Tax Rate | |
| Statutory federal income tax | | $ | 73.7 | | | 21.0 | % | | $ | 69.1 | | | 21.0 | % | |
| State income taxes net of federal tax benefit | | 22.2 | | | 6.3 | % | | 20.8 | | | 6.3 | % | |
| PTCs | | (22.9) | | | (6.5) | % | | (13.5) | | | (4.1) | % | |
| Federal excess deferred tax amortization | | (8.4) | | | (2.4) | % | | (7.9) | | | (2.4) | % | |
| | Federal excess deferred tax amortization – Wisconsin unprotected | | (0.2) | | | — | % | | (16.3) | | | (5.0) | % | |
| | Other | | (1.0) | | | (0.3) | % | | 1.9 | | | 0.6 | % | |
| 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) | | Amount | | Effective Tax Rate | | Amount | | Effective Tax Rate | |
| Statutory federal income tax | | $ | 219.2 | | | 21.0 | % | | $ | 191.9 | | | 21.0 | % | |
| State income taxes net of federal tax benefit | | 65.8 | | | 6.3 | % | | 57.7 | | | 6.3 | % | |
| PTCs | | (67.7) | | | (6.5) | % | | (47.5) | | | (5.2) | % | |
| Federal excess deferred tax amortization | | (24.2) | | | (2.3) | % | | (22.5) | | | (2.5) | % | |
| | Federal excess deferred tax amortization – Wisconsin unprotected | | (0.5) | | | (0.1) | % | | (46.6) | | | (5.1) | % | |
| | Other | | (2.1) | | | (0.2) | % | | (4.0) | | | (0.4) | % | |
| Total income tax expense | | $ | 190.5 | | | 18.2 | % | | $ | 129.0 | | | 14.1 | % | |
| | | | | | | | Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2022 |
| (in millions) | | (in millions) | | Amount | | Effective Tax Rate | | Amount | | Effective Tax Rate |
| Statutory federal income tax | | Statutory federal income tax | | $ | 122.1 | | | 21.0 | % | | $ | 145.5 | | | 21.0 | % |
| State income taxes net of federal tax benefit | | State income taxes net of federal tax benefit | | 35.8 | | | 6.2 | % | | 43.6 | | | 6.3 | % |
| PTCs | | PTCs | | (66.2) | | | (11.4) | % | | (44.8) | | | (6.5) | % |
| Federal excess deferred tax amortization | | Federal excess deferred tax amortization | | (13.1) | | | (2.3) | % | | (15.8) | | | (2.3) | % |
| | Other, net | | Other, net | | (4.5) | | | (0.8) | % | | (1.4) | | | (0.2) | % |
| Total income tax expense | | Total income tax expense | | $ | 74.1 | | | 12.7 | % | | $ | 127.1 | | | 18.3 | % |
The effective tax rates of 18.1%12.7% and 18.2%18.3% for the three and six months ended June 30,March 31, 2023, and 2022, respectively, differ from the United States statutory federal income tax rate of 21%, primarily due to PTCs generated from ownership interests in windrenewable generation facilities in our non-utility energy infrastructure segmentand Wisconsin segments and the impact of the protected deferred tax benefits associated with the Tax Legislation, as discussed in more detail below. These items were partially offset by state income taxes.
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 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. Effective January 1, 2020, in accordance with the rate order received from the PSCW in December 2019, our Wisconsin utilities began 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 deferred tax 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 26, Regulatory Environment, in our 20212022 Annual Report on Form 10-K for additionalmore information on unprotected tax benefits.about the impact of the Tax Legislation.
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| 03/31/2023 Form 10-Q | 18 | WEC Energy Group, Inc. |
NOTE 13—12—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 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, such as FTRs and TCRs, 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.
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, 2022 | | March 31, 2023 |
| (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 | | $ | 108.0 | | | $ | 17.3 | | | $ | — | | | $ | 125.3 | | Natural gas contracts | | $ | 0.5 | | | $ | 2.5 | | | $ | — | | | $ | 3.0 | |
| FTRs and TCRs | | — | | | — | | | 19.9 | | | 19.9 | | |
| FTRs | | FTRs | | — | | | — | | | 3.0 | | | 3.0 | |
| Coal contracts | Coal contracts | | — | | | 74.8 | | | — | | | 74.8 | | Coal contracts | | — | | | 1.7 | | | — | | | 1.7 | |
| Total derivative assets | Total derivative assets | | $ | 108.0 | | | $ | 92.1 | | | $ | 19.9 | | | $ | 220.0 | | Total derivative assets | | $ | 0.5 | | | $ | 4.2 | | | $ | 3.0 | | | $ | 7.7 | |
| | Investments held in rabbi trust | Investments held in rabbi trust | | $ | 49.7 | | | $ | — | | | $ | — | | | $ | 49.7 | | Investments held in rabbi trust | | $ | 44.0 | | | $ | — | | | $ | — | | | $ | 44.0 | |
| | Derivative liabilities | Derivative liabilities | | Derivative liabilities | |
| Natural gas contracts | Natural gas contracts | | $ | 25.8 | | | $ | 9.6 | | | $ | — | | | $ | 35.4 | | Natural gas contracts | | $ | 153.5 | | | $ | 1.6 | | | $ | — | | | $ | 155.1 | |
| | Coal contracts | | Coal contracts | | — | | | 14.7 | | | — | | | 14.7 | |
| Total derivative liabilities | | Total derivative liabilities | | $ | 153.5 | | | $ | 16.3 | | | $ | — | | | $ | 169.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| (in millions) | | Level 1 | | Level 2 | | Level 3 | | Total |
| Derivative assets | | | | | | | | |
| Natural gas contracts | | $ | 46.4 | | | $ | 18.2 | | | $ | — | | | $ | 64.6 | |
| FTRs | | — | | | — | | | 2.4 | | | 2.4 | |
| Coal contracts | | — | | | 53.0 | | | — | | | 53.0 | |
| Total derivative assets | | $ | 46.4 | | | $ | 71.2 | | | $ | 2.4 | | | $ | 120.0 | |
| | | | | | | | |
| Investments held in rabbi trust | | $ | 79.6 | | | $ | — | | | $ | — | | | $ | 79.6 | |
| | | | | | | | |
| Derivative liabilities | | | | | | | | |
| Natural gas contracts | | $ | 8.4 | | | $ | 6.7 | | | $ | — | | | $ | 15.1 | |
| | | | | | | | |
06/30/202203/31/2023 Form 10-Q | 2319 | WEC Energy Group, Inc. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| (in millions) | | Level 1 | | Level 2 | | Level 3 | | Total |
| Derivative assets | | | | | | | | |
| Natural gas contracts | | $ | 16.3 | | | $ | 16.2 | | | $ | — | | | $ | 32.5 | |
| FTRs | | — | | | — | | | 7.8 | | | 7.8 | |
| Coal contracts | | — | | | 34.5 | | | — | | | 34.5 | |
| Total derivative assets | | $ | 16.3 | | | $ | 50.7 | | | $ | 7.8 | | | $ | 74.8 | |
| | | | | | | | |
| Investments held in rabbi trust | | $ | 50.9 | | | $ | — | | | $ | — | | | $ | 50.9 | |
| | | | | | | | |
| Derivative liabilities | | | | | | | | |
| Natural gas contracts | | $ | 81.4 | | | $ | 15.2 | | | $ | — | | | $ | 96.6 | |
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. 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 andMarkets. During the first quarter of 2023, we also held TCRs, which were used at certain of our non-utility wind parks to manage electric transmission congestion costs in the SPP Integrated Marketplace, respectively.but these TCRs settled prior to March 31, 2023.
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. DuringFor the three months ended June 30, 2022,March 31, 2023, we recorded $10.1$2.8 million of net unrealized lossesgains in earnings related to the investments held at the end of the period, compared with $5.8$3.3 million of net unrealized gainslosses 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 2021.2022.
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 March 31 | |
| (in millions) | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | | 2023 | | 2022 | |
| Balance at the beginning of the period | Balance at the beginning of the period | | $ | 1.0 | | | $ | 0.9 | | | $ | 2.4 | | | $ | 2.4 | | Balance at the beginning of the period | | $ | 7.8 | | | $ | 2.4 | | |
| Purchases | Purchases | | 21.9 | | | 6.0 | | | 21.9 | | | 6.1 | | Purchases | | 0.3 | | | — | | |
Realized and unrealized gains included in earnings (1) | | 1.8 | | | — | | | 1.8 | | | — | | |
Realized and unrealized net losses included in earnings (1) | | Realized and unrealized net losses included in earnings (1) | | (0.3) | | | — | | |
| Settlements | Settlements | | (4.8) | | | (1.5) | | | (6.2) | | | (3.1) | | Settlements | | (4.8) | | | (1.4) | | |
| Balance at the end of the period | Balance at the end of the period | | $ | 19.9 | | | $ | 5.4 | | | $ | 19.9 | | | $ | 5.4 | | Balance at the end of the period | | $ | 3.0 | | | $ | 1.0 | | |
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 | | | $ | — | | |
Unrealized net losses included in earnings attributable to Level 3 derivatives held at the end of the reporting period (1) | | Unrealized net losses included in earnings attributable to Level 3 derivatives held at the end of the reporting period (1) | | $ | (0.1) | | | $ | — | | |
(1)Amounts relate to FTRs and TCRs acquired by certain wind generating facilities included in our non-utility wind parks.energy infrastructure segment. These realized and unrealized gains andnet losses are recorded in operating revenues on our income statements.
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, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| (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 | | | $ | 26.4 | | | $ | 30.4 | | | $ | 30.3 | | Preferred stock of subsidiary | | $ | 30.4 | | | $ | 23.1 | | | $ | 30.4 | | | $ | 22.7 | |
Long-term debt, including current portion (1) | Long-term debt, including current portion (1) | | 13,518.7 | | | 12,530.8 | | | 13,563.4 | | | 14,819.4 | | Long-term debt, including current portion (1) | | 16,524.7 | | | 15,349.3 | | | 15,464.2 | | | 13,921.3 | |
(1)The carrying amount of long-term debt excludes finance lease obligations of $179.1$110.8 million and $129.7$183.2 million at June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
The fair values of our long-term debt and preferred stock are categorized within Level 2 of the fair value hierarchy.
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| 03/31/2023 Form 10-Q | 20 | WEC Energy Group, Inc. |
NOTE 14—13—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.
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06/30/2022 Form 10-Q | 24 | WEC Energy Group, Inc. |
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.items on our balance sheets. The following table shows our derivative assets and derivative liabilities. None of the derivatives shown below were designated as hedging instruments.
| | | June 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| (in millions) | (in millions) | | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities | (in millions) | | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
| Current | Current | | | | | | | | | Current | | | | | | | | |
Natural gas contracts (1) | | $ | 116.4 | | | $ | 30.0 | | | $ | 60.6 | | | $ | 14.0 | | |
| FTRs and TCRs | | 19.9 | | | — | | | 2.4 | | | — | | |
| Natural gas contracts | | Natural gas contracts | | $ | 2.7 | | | $ | 147.3 | | | $ | 32.5 | | | $ | 88.2 | |
| FTRs | | FTRs | | 3.0 | | | — | | | 7.8 | | | — | |
| Coal contracts | Coal contracts | | 53.5 | | | — | | | 44.0 | | | — | | Coal contracts | | 1.3 | | | 9.2 | | | 18.9 | | | — | |
| Total current | Total current | | 189.8 | | | 30.0 | | | 107.0 | | | 14.0 | | Total current | | 7.0 | | | 156.5 | | | 59.2 | | | 88.2 | |
| | Long-term | Long-term | | Long-term | |
Natural gas contracts (1) | | 8.9 | | | 5.4 | | | 4.0 | | | 1.1 | | |
| Natural gas contracts | | Natural gas contracts | | 0.3 | | | 7.8 | | | — | | | 8.4 | |
| Coal contracts | Coal contracts | | 21.3 | | | — | | | 9.0 | | | — | | Coal contracts | | 0.4 | | | 5.5 | | | 15.6 | | | — | |
| Total long-term | Total long-term | | 30.2 | | | 5.4 | | | 13.0 | | | 1.1 | | Total long-term | | 0.7 | | | 13.3 | | | 15.6 | | | 8.4 | |
| Total | Total | | $ | 220.0 | | | $ | 35.4 | | | $ | 120.0 | | | $ | 15.1 | | Total | | $ | 7.7 | | | $ | 169.8 | | | $ | 74.8 | | | $ | 96.6 | |
(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 regulatoryregulated utility operations are 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 and losses were as follows:
| | | Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2021 | | Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2022 |
| (in millions) | (in millions) | | Volumes | | Gains | | Volumes | | Gains | (in millions) | | Volumes | | Gains (Losses) | | Volumes | | Gains |
| Natural gas contracts | Natural gas contracts | | 41.1 Dth | | $ | 108.9 | | | 47.9 Dth | | $ | 4.8 | | Natural gas contracts | | 58.7 Dth | | $ | (75.3) | | | 59.5 Dth | | $ | 31.6 | |
| FTRs and TCRs | FTRs and TCRs | | 7.0 MWh | | 4.3 | | | 7.4 MWh | | 10.2 | | FTRs and TCRs | | 7.3 MWh | | 0.4 | | | 7.0 MWh | | 1.0 | |
| Total | Total | | $ | 113.2 | | | $ | 15.0 | | Total | | | | $ | (74.9) | | | | | $ | 32.6 | |
| | | Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 | |
| (in millions) | | Volumes | | Gains | | Volumes | | Gains (Losses) | |
| Natural gas contracts | | 100.6 Dth | | $ | 140.5 | | | 107.7 Dth | | $ | (2.7) | | |
| FTRs and TCRs | | 14.0 MWh | | 5.3 | | | 15.8 MWh | | 12.3 | | |
| 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, 2022March 31, 2023 and December 31, 2021,2022, we had posted cash collateral of $14.1$214.2 million and $13.9$122.4 million, 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 $98.5 million and $13.2 million, respectively. These amounts were recorded on our balance sheets in other current liabilities.deposit.
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| 03/31/2023 Form 10-Q | 21 | WEC Energy Group, Inc. |
The following table shows derivative assets and derivative liabilities if derivative instruments by counterparty were presented net on our balance sheets:
| | | June 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| (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 | | $ | 220.0 | | | $ | 35.4 | | | $ | 120.0 | | | $ | 15.1 | | | Gross amount recognized on the balance sheet | | $ | 7.7 | | | $ | 169.8 | | | $ | 74.8 | | | $ | 96.6 | | |
| Gross amount not offset on the balance sheet | Gross amount not offset on the balance sheet | | (110.1) | | (1) | (27.8) | | (2) | (15.2) | | (3) | (9.2) | | (4) | Gross amount not offset on the balance sheet | | (0.7) | | | (153.7) | | (1) | (17.5) | |
| (82.5) | | (2) |
| Net amount | Net amount | | $ | 109.9 | | | $ | 7.6 | | | $ | 104.8 | | | $ | 5.9 | | | Net amount | | $ | 7.0 | | | $ | 16.1 | | | $ | 57.3 | | | $ | 14.1 | | |
(1)Includes cash collateral receivedposted of $84.2$153.0 million.
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06/30/2022 Form 10-Q | 25 | WEC Energy Group, Inc. |
(2)Includes cash collateral posted of $1.9$65.0 million.
(3)Includes cash collateral received of $6.4 million.
(4)Includes cash collateral posted of $0.4 million.
Cash Flow Hedges
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 provided a fixed interest rate of 4.9765% on $250.0 million of the $500.0 million of outstanding 2007 Junior Notes. As these swaps qualified for cash flow hedge accounting treatment, the related gains and losses were deferred in accumulated other comprehensive loss and were amortized to interest expense as interest was 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 amountsderivative gains related to these cash flow hedges that wereswap agreements reclassified from accumulated other comprehensive loss 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) | | 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 twelvethree months $0.4 million willended March 31, 2023 and 2022 were not significant. At March 31, 2023, the amount expected to be reclassified from accumulated other comprehensive loss as a decrease to interest expense.expense over the next twelve months was also not significant.
NOTE 15—14—GUARANTEES
The following table shows our outstanding guarantees:
| | | Total Amounts Committed at June 30, 2022 | | Expiration | | | Total Amounts Committed at March 31, 2023 | | Expiration | |
| | (in millions) | (in millions) | | Less Than 1 Year | | 1 to 3 Years | | Over 3 Years | (in millions) | | Total Amounts Committed at March 31, 2023 | Less Than 1 Year | | 1 to 3 Years | | Over 3 Years |
Standby letters of credit (1) | Standby letters of credit (1) | | $ | 83.8 | | | $ | 10.5 | | | $ | 0.2 | | | $ | 73.1 | | | Standby letters of credit (1) | $ | 116.3 | | | $ | 9.5 | | | $ | 0.2 | | | $ | 106.6 | | |
Surety bonds (2) | Surety bonds (2) | | 12.9 | | | 12.9 | | | — | | | — | | | Surety bonds (2) | 33.8 | | | 33.7 | | | 0.1 | | | — | | |
Other guarantees (3) | Other guarantees (3) | | 9.5 | | | — | | | — | | | 9.5 | | | Other guarantees (3) | | 9.7 | | | — | | | — | | | 9.7 | | |
| Total guarantees | Total guarantees | | $ | 106.2 | | | $ | 23.4 | | | $ | 0.2 | | | $ | 82.6 | | | Total guarantees | | $ | 159.8 | | | $ | 43.2 | | | $ | 0.3 | | | $ | 116.3 | | |
(1)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.
(2)Primarily for environmental remediation, workers compensation self-insurance programs, and obtaining various licenses, permits, and rights-of-way. These amounts are not reflected on our balance sheets.
(3)Related 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 16—15—EMPLOYEE BENEFITS
The following tables show the components of net periodic benefit cost (credit) (including amounts capitalized to our balance sheets) for our benefit plans.
| | | Pension Benefits | | Pension Benefits |
| | Three Months Ended June 30 | | Six Months Ended June 30 | | Three Months Ended March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | | 2023 | | 2022 |
| Service cost | Service cost | | $ | 14.2 | | | $ | 13.6 | | | $ | 26.6 | | | $ | 27.5 | | Service cost | | $ | 6.6 | | | $ | 12.4 | |
| Interest cost | Interest cost | | 22.4 | | | 21.7 | | | 45.2 | | | 43.6 | | Interest cost | | 30.8 | | | 22.8 | |
| Expected return on plan assets | Expected return on plan assets | | (52.5) | | | (50.1) | | | (105.2) | | | (100.7) | | Expected return on plan assets | | (47.4) | | | (52.7) | |
| 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 | | 0.1 | | | 0.4 | |
| Amortization of net actuarial loss | Amortization of net actuarial loss | | 19.1 | | | 28.2 | | | 38.2 | | | 55.6 | | Amortization of net actuarial loss | | 7.4 | | | 19.1 | |
| Net periodic benefit cost | | $ | 5.8 | | | $ | 15.7 | | | $ | 7.8 | | | $ | 28.8 | | |
| Net periodic benefit cost (credit) | | Net periodic benefit cost (credit) | | $ | (2.5) | | | $ | 2.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | OPEB Benefits |
| | Three Months Ended June 30 | | Six Months Ended June 30 |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Service cost | | $ | 3.3 | | | $ | 3.6 | | | $ | 7.1 | | | $ | 7.8 | |
| Interest cost | | 3.8 | | | 3.6 | | | 7.7 | | | 7.2 | |
| Expected return on plan assets | | (17.3) | | | (16.6) | | | (34.5) | | | (33.0) | |
| | | | | | | | |
| Amortization of prior service credit | | (3.9) | | | (3.9) | | | (7.9) | | | (7.9) | |
| Amortization of net actuarial gain | | (6.3) | | | (6.5) | | | (12.3) | | | (12.2) | |
| Net periodic benefit credit | | $ | (20.4) | | | $ | (19.8) | | | $ | (39.9) | | | $ | (38.1) | |
| | | | | | | | |
| 03/31/2023 Form 10-Q | 22 | WEC Energy Group, Inc. |
| | | | | | | | | | | | | | |
| | OPEB Benefits |
| | Three Months Ended March 31 |
| (in millions) | | 2023 | | 2022 |
| Service cost | | $ | 2.5 | | | $ | 3.8 | |
| Interest cost | | 5.4 | | | 3.9 | |
| Expected return on plan assets | | (13.3) | | | (17.2) | |
| | | | |
| Amortization of prior service credit | | (3.7) | | | (4.0) | |
| Amortization of net actuarial gain | | (3.2) | | | (6.0) | |
| Net periodic benefit credit | | $ | (12.3) | | | $ | (19.5) | |
During the sixthree months ended June 30, 2022,March 31, 2023, we made contributions and payments of $5.7$4.9 million related to our pension plans and $2.9$0.6 million related to our OPEB plans. We expect to make contributions and payments of $5.5$9.6 million related to our pension plans and $1.5 million related to our OPEB plans during the remainder of 2022,2023, dependent upon various factors affecting us, including our liquidity position and possible tax law changes. We
Effective January 1, 2023, the PSCW approved escrow accounting for pension and OPEB costs. As a result, as of March 31, 2023, we recorded a $2.1 million regulatory asset for pension costs and a $3.7 million regulatory asset for OPEB costs. The above tables do not expect to makereflect any contributions or payments related to our OPEB plans duringadjustments for the remaindercreation of 2022.these regulatory assets.
NOTE 17—16—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, 2022.March 31, 2023. We had no changes to the carrying amount of goodwill during the sixthree months ended June 30, 2022.March 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (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 no accumulated impairment losses related to our goodwill as of June 30, 2022.March 31, 2023.
Intangible Assets
At June 30, 2022March 31, 2023 and December 31, 2021,2022, we had $5.7$29.3 million and $24.9 million, respectively, of indefinite-lived intangible assets, primarily relatedlargely consisting of spectrum frequencies. During the first quarter of 2023, we purchased additional spectrum frequencies for $4.4 million. The spectrum frequencies enable the utilities to transmit data and voice communications over a wavelength dedicated to us throughout our service territories. We also have $5.2 million of other indefinite-lived intangible assets, consisting of a MGU trade name obtained through an acquisition, which isfrom a previous acquisition. These indefinite-lived intangible assets are included in other long-term assets on our balance sheets. We had no changes to the carrying amount of these intangible assets during the six months ended June 30, 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.
| | | June 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| (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) | | $ | 87.9 | | | $ | (10.4) | | | $ | 77.5 | | | $ | 87.9 | | | $ | (6.5) | | | $ | 81.4 | | PPAs (1) | | $ | 653.9 | | | $ | (27.1) | | | $ | 626.8 | | | $ | 343.9 | | | $ | (16.9) | | | $ | 327.0 | |
Proxy revenue swap (2) | Proxy revenue swap (2) | | 7.2 | | | (2.4) | | | 4.8 | | | 7.2 | | | (2.1) | | | 5.1 | | Proxy revenue swap (2) | | 7.2 | | | (2.9) | | | 4.3 | | | 7.2 | | | (2.8) | | | 4.4 | |
Interconnection agreements (3) | Interconnection agreements (3) | | 4.7 | | | (0.6) | | | 4.1 | | | 4.7 | | | (0.5) | | | 4.2 | | Interconnection agreements (3) | | 4.7 | | | (0.8) | | | 3.9 | | | 4.7 | | | (0.7) | | | 4.0 | |
| Total intangible liabilities | Total intangible liabilities | | $ | 99.8 | | | $ | (13.4) | | | $ | 86.4 | | | $ | 99.8 | | | $ | (9.1) | | | $ | 90.7 | | Total intangible liabilities | | $ | 665.8 | | | $ | (30.8) | | | $ | 635.0 | | | $ | 355.8 | | | $ | (20.4) | | | $ | 335.4 | |
(1) Represents PPAs related to the acquisition of Blooming Grove Wind Energy Center LLC , Tatanka Ridge, Jayhawk, Thunderhead, Samson I, and JayhawkSapphire Sky expiring between 2030 and 2032.2037. The weighted-average remaining useful life of the PPAs is 1012 years.
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| 03/31/2023 Form 10-Q | 23 | WEC Energy Group, Inc. |
(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 sevensix years.
(3) Represents interconnection agreements related to the acquisitions of Tatanka Ridge and Bishop Hill Energy III LLC, 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 18 years.
Amortization related to these intangiblesintangible liabilities for the three and six months ended June 30,March 31, 2023, and 2022, was $2.1$10.4 million and $4.3 million, respectively. Amortization for the three and six months ended June 30, 2021, was $1.9 million and $3.7$2.2 million, respectively. Amortization for the next five years, including amounts recorded through June 30, 2022,March 31, 2023, is estimated to be:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ending December 31 |
| (in millions) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 |
| 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 | | 0.2 | | | 0.2 | | | 0.2 | | | 0.2 | | | 0.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ending December 31 |
| (in millions) | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 |
| Amortization to be recorded as an increase to operating revenues | | $ | 50.4 | | | $ | 53.4 | | | $ | 53.4 | | | $ | 53.4 | | | $ | 53.4 | |
| Amortization to be recorded as a decrease to other operation and maintenance | | 0.2 | | | 0.2 | | | 0.2 | | | 0.2 | | | 0.2 | |
| | | | | | | | |
06/30/2022 Form 10-Q | 28 | WEC Energy Group, Inc. |
NOTE 18—17—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) | | ATC | | ATC Holdco | | Total | |
| Balance at beginning of period | | $ | 1,795.0 | | | $ | 23.2 | | | $ | 1,818.2 | | |
| Add: Earnings from equity method investment | | 42.6 | | | 0.4 | | | 43.0 | | |
| Add: Capital contributions | | 9.2 | | | — | | | 9.2 | | |
| Less: Distributions | | 33.2 | | | — | | | 33.2 | | |
| | Balance at end of period | | $ | 1,813.6 | | | $ | 23.6 | | | $ | 1,837.2 | | |
| | | Three Months Ended June 30, 2021 | |
| (in millions) | | ATC | | ATC Holdco | | Total | |
| Balance at beginning of period | | $ | 1,741.9 | | | $ | 31.7 | | | $ | 1,773.6 | | |
| Add: Earnings from equity method investment | | 40.7 | | | 0.6 | | | 41.3 | | |
| | Less: Distributions | | 32.8 | | | — | | | 32.8 | | |
| | Less: Other | | 0.1 | | | — | | | 0.1 | | |
| Balance at end of period | | $ | 1,749.7 | | | $ | 32.3 | | | $ | 1,782.0 | | |
| | | | | | Six Months Ended June 30, 2022 | | Three Months Ended March 31, 2023 |
| (in millions) | (in millions) | | ATC | | ATC Holdco | | Total | (in millions) | | ATC | | ATC Holdco | | Total |
| Balance at beginning of period | Balance at beginning of period | | $ | 1,766.9 | | | $ | 22.5 | | | $ | 1,789.4 | | Balance at beginning of period | | $ | 1,884.6 | | | $ | 24.6 | | | $ | 1,909.2 | |
| Add: Earnings from equity method investment | Add: Earnings from equity method investment | | 83.6 | | | 1.1 | | | 84.7 | | Add: Earnings from equity method investment | | 42.9 | | | 0.9 | | | 43.8 | |
| Add: Capital contributions | Add: Capital contributions | | 30.3 | | | — | | | 30.3 | | Add: Capital contributions | | 6.1 | | | — | | | 6.1 | |
| Less: Distributions | Less: Distributions | | 67.2 | | | — | | | 67.2 | | Less: Distributions | | 37.4 | | | — | | | 37.4 | |
| | Balance at end of period | Balance at end of period | | $ | 1,813.6 | | | $ | 23.6 | | | $ | 1,837.2 | | Balance at end of period | | $ | 1,896.2 | | | $ | 25.5 | | | $ | 1,921.7 | |
| | | Six Months Ended June 30, 2021 | | Three Months Ended March 31, 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 | | $ | 1,733.5 | | | $ | 30.8 | | | $ | 1,764.3 | | 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 | | 82.4 | | | 1.5 | | | 83.9 | | Add: Earnings from equity method investment | | 41.0 | | | 0.7 | | | 41.7 | |
| | Add: Capital contributions | | Add: Capital contributions | | 21.1 | | | — | | | 21.1 | |
| Less: Distributions | Less: Distributions | | 66.2 | | | — | | | 66.2 | | Less: Distributions | | 34.0 | | | — | | | 34.0 | |
| | Balance at end of period | Balance at end of period | | $ | 1,749.7 | | | $ | 32.3 | | | $ | 1,782.0 | | Balance at end of period | | $ | 1,795.0 | | | $ | 23.2 | | | $ | 1,818.2 | |
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 March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | | | 2023 | | 2022 |
| Charges to ATC for services and construction | Charges to ATC for services and construction | | $ | 4.7 | | | $ | 5.7 | | | $ | 10.9 | | | $ | 11.7 | | Charges to ATC for services and construction | | | $ | 3.8 | | | $ | 6.2 | |
| Charges from ATC for network transmission services | Charges from ATC for network transmission services | | 90.8 | | | 89.1 | | | 181.9 | | | 181.7 | | Charges from ATC for network transmission services | | | 94.5 | | | 91.1 | |
|
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06/30/202203/31/2023 Form 10-Q | 2924 | 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, 2022 | | December 31, 2021 | (in millions) | | March 31, 2023 | | December 31, 2022 |
| Accounts receivable for services provided to ATC | Accounts receivable for services provided to ATC | | $ | 1.4 | | | $ | 2.0 | | Accounts receivable for services provided to ATC | | $ | 1.5 | | | $ | 1.2 | |
| | Accounts payable for services received from ATC | Accounts payable for services received from ATC | | 30.6 | | | 30.2 | | Accounts payable for services received from ATC | | 31.5 | | | 30.4 | |
Amounts due from ATC for transmission infrastructure upgrades (1) | Amounts due from ATC for transmission infrastructure upgrades (1) | | 14.9 | | | 13.0 | | Amounts due from ATC for transmission infrastructure upgrades (1) | | 29.3 | | | 26.6 | |
(1)TheThese transmission infrastructure upgrades were primarily related to the construction of WE's and WPS's construction of Paris, as well as WE's continued construction of Badger Hollow II.renewable energy projects.
Summarized financial data for ATC is included in the tables below:
| | | Three Months Ended June 30 | | Six Months Ended June 30 | | | Three Months Ended March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | | | 2023 | | 2022 |
| Income statement data | Income statement data | | | | | | | | | Income statement data | | | | | |
| Operating revenues | Operating revenues | | $ | 191.6 | | | $ | 185.9 | | | $ | 382.6 | | | $ | 374.6 | | Operating revenues | | | $ | 200.4 | | | $ | 191.0 | |
| Operating expenses | Operating expenses | | 95.2 | | | 92.4 | | | 190.7 | | | 187.5 | | Operating expenses | | | 99.1 | | | 95.5 | |
| Other expense, net | Other expense, net | | 28.8 | | | 28.1 | | | 56.8 | | | 56.6 | | Other expense, net | | | 32.5 | | | 28.0 | |
| Net income | Net income | | $ | 67.6 | | | $ | 65.4 | | | $ | 135.1 | | | $ | 130.5 | | Net income | | | $ | 68.8 | | | $ | 67.5 | |
| | (in millions) | (in millions) | | June 30, 2022 | | December 31, 2021 | (in millions) | | March 31, 2023 | | December 31, 2022 |
| Balance sheet data | Balance sheet data | | | | | Balance sheet data | | | | |
| Current assets | Current assets | | $ | 106.0 | | | $ | 89.8 | | Current assets | | $ | 100.2 | | | $ | 89.6 | |
| Noncurrent assets | Noncurrent assets | | 5,801.8 | | | 5,628.1 | | Noncurrent assets | | 6,070.8 | | | 5,997.8 | |
| Total assets | Total assets | | $ | 5,907.8 | | | $ | 5,717.9 | | Total assets | | $ | 6,171.0 | | | $ | 6,087.4 | |
| | Current liabilities | Current liabilities | | $ | 482.7 | | | $ | 436.9 | | Current liabilities | | $ | 459.7 | | | $ | 511.9 | |
| Long-term debt | Long-term debt | | 2,562.4 | | | 2,513.0 | | Long-term debt | | 2,712.5 | | | 2,613.0 | |
| Other noncurrent liabilities | Other noncurrent liabilities | | 438.5 | | | 422.0 | | Other noncurrent liabilities | | 502.5 | | | 485.8 | |
| Members' equity | Members' equity | | 2,424.2 | | | 2,346.0 | | Members' equity | | 2,496.3 | | | 2,476.7 | |
| Total liabilities and members' equity | Total liabilities and members' equity | | $ | 5,907.8 | | | $ | 5,717.9 | | Total liabilities and members' equity | | $ | 6,171.0 | | | $ | 6,087.4 | |
NOTE 19—18—SEGMENT INFORMATION
We use net income attributed to common shareholders to measure segment profitability and to allocate resources to our businesses. At June 30, 2022,March 31, 2023, we reported 6six 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 ownershipmajority interests in the following windmultiple renewable generating facilities: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,See Note 2, Acquisitions, for more information on recent WECI acquisitions.
▪90% ownership interest in Upstream, located in Antelope County, Nebraska,
| | | | | | | | |
06/30/202203/31/2023 Form 10-Q | 3025 | 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, located in Bourbon and Crawford counties, Kansas.
See Note 2, Acquisitions, for more information on 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, Wisvest LLC, Wisconsin Energy Capital Corporation, and WEC Business Services 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, 2022March 31, 2023 and 2021:2022:
| | | 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, 2022 | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2023 | | | | | | | | | | | | | | | | | | |
| External revenues | External revenues | | $ | 1,557.4 | | | $ | 442.4 | | | $ | 99.9 | | | $ | 2,099.7 | | | $ | — | | | $ | 28.1 | | | $ | 0.1 | | | $ | — | | | $ | 2,127.9 | | External revenues | | $ | 1,996.3 | | | $ | 599.7 | | | $ | 250.0 | | | $ | 2,846.0 | | | $ | — | | | $ | 42.1 | | | $ | — | | | $ | — | | | $ | 2,888.1 | |
| Intersegment revenues | Intersegment revenues | | — | | | — | | | — | | | — | | | — | | | 115.5 | | | — | | | (115.5) | | | — | | Intersegment revenues | | — | | | — | | | — | | | — | | | — | | | 124.1 | | | — | | | (124.1) | | | — | |
| Other operation and maintenance | Other operation and maintenance | | 337.9 | | | 79.1 | | | 22.9 | | | 439.9 | | | — | | | 13.9 | | | (0.9) | | | (3.9) | | | 449.0 | | Other operation and maintenance | | 380.8 | | | 113.7 | | | 24.7 | | | 519.2 | | | — | | | 17.8 | | | (1.4) | | | (1.6) | | | 534.0 | |
| Depreciation and amortization | Depreciation and amortization | | 187.7 | | | 57.4 | | | 10.2 | | | 255.3 | | | — | | | 34.3 | | | 6.8 | | | (16.8) | | | 279.6 | | Depreciation and amortization | | 207.3 | | | 58.5 | | | 10.4 | | | 276.2 | | | — | | | 42.7 | | | 5.1 | | | (18.5) | | | 305.5 | |
| Equity in earnings of transmission affiliates | Equity in earnings of transmission affiliates | | — | | | — | | | — | | | — | | | 43.0 | | | — | | | — | | | — | | | 43.0 | | Equity in earnings of transmission affiliates | | — | | | — | | | — | | | — | | | 43.8 | | | — | | | — | | | — | | | 43.8 | |
| Interest expense | Interest expense | | 135.6 | | | 18.0 | | | 3.2 | | | 156.8 | | | 4.8 | | | 17.4 | | | 24.6 | | | (83.8) | | | 119.8 | | Interest expense | | 150.6 | | | 21.6 | | | 4.2 | | | 176.4 | | | 4.8 | | | 19.9 | | | 55.6 | | | (84.5) | | | 172.2 | |
| Income tax expense (benefit) | Income tax expense (benefit) | | 49.3 | | | 21.2 | | | 0.9 | | | 71.4 | | | 9.3 | | | (7.3) | | | (10.0) | | | — | | | 63.4 | | Income tax expense (benefit) | | 65.9 | | | 42.0 | | | 11.2 | | | 119.1 | | | 9.7 | | | (17.8) | | | (36.9) | | | — | | | 74.1 | |
| Net income (loss) | Net income (loss) | | 148.7 | | | 56.4 | | | 2.7 | | | 207.8 | | | 29.0 | | | 80.3 | | | (29.3) | | | — | | | 287.8 | | Net income (loss) | | 257.5 | | | 113.1 | | | 33.2 | | | 403.8 | | | 29.3 | | | 88.3 | | | (13.8) | | | — | | | 507.6 | |
| Net income (loss) attributed to common shareholders | Net income (loss) attributed to common shareholders | | 148.4 | | | 56.4 | | | 2.7 | | | 207.5 | | | 29.0 | | | 80.3 | | | (29.3) | | | — | | | 287.5 | | Net income (loss) attributed to common shareholders | | 257.2 | | | 113.1 | | | 33.2 | | | 403.5 | | | 29.3 | | | 88.5 | | | (13.8) | | | — | | | 507.5 | |
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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 March 31, 2022 | | | | | | | | | | | | | | | | | | |
| External revenues | | $ | 1,942.3 | | | $ | 682.1 | | | $ | 240.9 | | | $ | 2,865.3 | | | $ | — | | | $ | 42.6 | | | $ | 0.2 | | | $ | — | | | $ | 2,908.1 | |
| Intersegment revenues | | — | | | — | | | — | | | — | | | — | | | 116.9 | | | — | | | (116.9) | | | — | |
| Other operation and maintenance | | 312.6 | | | 113.6 | | | 24.6 | | | 450.8 | | | — | | | 10.9 | | | (5.7) | | | (1.6) | | | 454.4 | |
| Depreciation and amortization | | 187.1 | | | 56.8 | | | 10.0 | | | 253.9 | | | — | | | 34.0 | | | 6.5 | | | (16.3) | | | 278.1 | |
| Equity in earnings of transmission affiliates | | — | | | — | | | — | | | — | | | 41.7 | | | — | | | — | | | — | | | 41.7 | |
| Interest expense | | 136.3 | | | 17.7 | | | 3.3 | | | 157.3 | | | 4.9 | | | 17.2 | | | 22.6 | | | (84.4) | | | 117.6 | |
| Income tax expense (benefit) | | 95.4 | | | 42.1 | | | 10.4 | | | 147.9 | | | 8.9 | | | (4.9) | | | (24.8) | | | — | | | 127.1 | |
| Net income | | 288.4 | | | 113.4 | | | 31.5 | | | 433.3 | | | 27.8 | | | 93.3 | | | 13.6 | | | — | | | 568.0 | |
| Net income attributed to common shareholders | | 288.1 | | | 113.4 | | | 31.5 | | | 433.0 | | | 27.8 | | | 91.5 | | | 13.6 | | | — | | | 565.9 | |
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06/30/202203/31/2023 Form 10-Q | 3126 | WEC Energy Group, Inc. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2021 | | | | | | | | | | | | | | | | | | |
| External revenues | | $ | 1,307.5 | | | $ | 275.5 | | | $ | 72.1 | | | $ | 1,655.1 | | | $ | — | | | $ | 21.0 | | | $ | 0.1 | | | $ | — | | | $ | 1,676.2 | |
| Intersegment revenues | | — | | | — | | | — | | | — | | | — | | | 112.5 | | | — | | | (112.5) | | | — | |
| Other operation and maintenance | | 346.1 | | | 90.8 | | | 21.2 | | | 458.1 | | | — | | | 12.4 | | | (2.8) | | | (3.9) | | | 463.8 | |
| 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 | | — | | | — | | | — | | | — | | | 41.3 | | | — | | | — | | | — | | | 41.3 | |
| Interest expense | | 139.8 | | | 16.6 | | | 1.5 | | | 157.9 | | | 4.8 | | | 17.9 | | | 24.6 | | | (85.2) | | | 120.0 | |
| Income tax expense | | 23.1 | | | 16.0 | | | 0.8 | | | 39.9 | | | 9.4 | | | 0.7 | | | 4.1 | | | — | | | 54.1 | |
| 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 | | 146.5 | | | 43.6 | | | 2.5 | | | 192.6 | | | 27.0 | | | 68.8 | | | (12.4) | | | — | | | 276.0 | |
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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, 2022 | | | | | | | | | | | | | | | | | | |
| External revenues | | $ | 3,499.7 | | | $ | 1,124.5 | | | $ | 340.8 | | | $ | 4,965.0 | | | $ | — | | | $ | 70.7 | | | $ | 0.3 | | | $ | — | | | $ | 5,036.0 | |
| Intersegment revenues | | — | | | — | | | — | | | — | | | — | | | 232.4 | | | — | | | (232.4) | | | — | |
| Other operation and maintenance | | 650.5 | | | 192.7 | | | 47.5 | | | 890.7 | | | — | | | 24.8 | | | (6.6) | | | (5.5) | | | 903.4 | |
| 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 | | — | | | — | | | — | | | — | | | 84.7 | | | — | | | — | | | — | | | 84.7 | |
| Interest expense | | 271.9 | | | 35.7 | | | 6.5 | | | 314.1 | | | 9.7 | | | 34.6 | | | 47.2 | | | (168.2) | | | 237.4 | |
| Income tax expense (benefit) | | 144.7 | | | 63.3 | | | 11.3 | | | 219.3 | | | 18.2 | | | (12.2) | | | (34.8) | | | — | | | 190.5 | |
| 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 | | 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 20—19—VARIABLE INTEREST ENTITIES
The primary beneficiary of a VIE 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 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-ownedwholly 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 sourcesources of funds to satisfy the debt obligation. The bondholders have no recourse to WE or any of WE's affiliates other than WEPCo Environmental Trust.affiliates.
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 charge. 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.Trust's indenture trustee.
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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) | (in millions) | | June 30, 2022 | | December 31, 2021 | | (in millions) | | March 31, 2023 | | December 31, 2022 | |
| Assets | Assets | | | | | | Assets | | | | | |
| Other current assets (restricted cash) | Other current assets (restricted cash) | | $ | 3.1 | | | $ | 2.4 | | | Other current assets (restricted cash) | | $ | 5.1 | | | $ | 3.0 | | |
| Regulatory assets | Regulatory assets | | 96.1 | | | 100.7 | | | Regulatory assets | | 90.9 | | | 92.4 | | |
| Other long-term assets (restricted cash) | Other long-term assets (restricted cash) | | 0.6 | | | 0.6 | | | Other long-term assets (restricted cash) | | 0.6 | | | 0.6 | | |
| | Liabilities | Liabilities | | | Liabilities | | |
| Current portion of long-term debt | Current portion of long-term debt | | 8.8 | | | 8.8 | | | Current portion of long-term debt | | 8.9 | | | 8.9 | | |
| | Accounts payable | | Accounts payable | | 0.1 | | | — | | |
| Other current liabilities (accrued interest) | Other current liabilities (accrued interest) | | 0.1 | | | 0.1 | | | Other current liabilities (accrued interest) | | 0.5 | | | 0.1 | | |
| Long-term debt | Long-term debt | | 98.4 | | | 102.7 | | | Long-term debt | | 94.1 | | | 94.1 | | |
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, 2022March 31, 2023 and December 31, 2021,2022, our
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equity investment in ATC was $1,813.6$1,896.2 million and $1,766.9$1,884.6 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, 2022March 31, 2023 and December 31, 2021,2022, our equity investment in ATC Holdco was $23.6$25.5 million and $22.5$24.6 million, respectively, which approximates our maximum exposure to loss as a result of our involvement with ATC Holdco.
See Note 18,17, 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 Commitment
On May 31, 2022, WE's PPA with LSP-Whitewater Limited Partnership that represented a variable interest expired. This agreement was for 236.5 MWs of firm capacity from a natural gas-fired cogeneration facility, and we accounted 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.facility. This asset purchase agreement is subject to regulatory approvalwas approved by the PSCW which is expected byin December 2022, and the endacquisition closed effective January 1, 2023. See Note 2, Acquisitions, for more information on the acquisition of 2022.this facility. The tolling agreement extends until the earlier of the closing of the asset purchase or December 31, 2022. The tolling agreement continues to representrepresented a variable interest until the facility was acquired since its terms arewere substantially similar to the terms of the PPA. After examiningBased on the risks of the entity, including operations, maintenance, dispatch, financing, fuel costs, and other factors, we have determined we arewere not the primary beneficiary of the entity. We dodid not hold an equity or debt interest in the entity, and there iswas no residual guarantee associated with the tolling agreement. Similar to the PPA, we accountaccounted for the tolling agreement as a finance lease.
We have $1.9 million of required capacity payments over the remaining term of the tolling agreement. We believe that the required capacity payments under the 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 21—20—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 windrenewable 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, 2022,March 31, 2023, including those of our subsidiaries, were approximately $10.5$10.4 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.
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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 MayIn March 2023, the EPA would establish a new trading program that would impose lowerissued its final Good Neighbor Plan, which requires significant reductions in ozone-forming emissions of NOx emissions budgets on states, at levels thatfrom power plants and industrial facilities. The rule took effect for the EPA projected would be achievable through full operation of existing EGU emissions control equipment beginning during2023 ozone season 2023, and through installation of additional control equipment at both EGU and non-EGU stationary sources by the startseason. After review 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,final rule, we anticipatebelieve that we should be ableare well positioned to comply withmeet the expanded rule requirements without procuring additional allowances on the open market.requirements.
Our RICE units in the Upper Peninsula of Michigan and planned RICE units in Wisconsin are not currently subject to thisthe final rule as proposed as each unit is expected to be less than 25 MW. We note that, toMWs. 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 monitorThe EPA has exempted LDCs from the final rule for any changesbut included new language defining an LDC that we are still evaluating.
Mercury and Air Toxics Standards
In 2012, the EPA issued the MATS to limit emissions of mercury, acid gases, and other hazardous air pollutants. In April 2023, the EPA issued the pre-publication version of a proposed rule to strengthen and update MATS to reflect recent developments in control technologies and performance of coal and oil-fired units. The EPA proposed three revisions including a proposal to lower the PM limit from 0.03 lb/MMBtu to 0.01 lb/MMBtu, which could have an adverse effect on our utilities. The EPA is also seeking comments on an even lower limit of 0.006 lb/MMBtu. We are still evaluating the proposed rule.rule revisions to understand the impacts, if any, to our operations.
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,November 2022, the EPA's 2022 CASAC Ozone Review Panel issued a draft report supporting a previously issued EPA completed its 5-year reviewstaff-written Integrated Science Assessment for ozone which supported the reconsideration of the ozone standard and2015 standard. The EPA staff issued a final decision to retain, without any changes,draft Policy Assessment in March 2023 in support of revisiting 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. In October 2021, the EPA announced that it will reconsider the December 2020 decision to retain the 2015 ozone standards with no changes and indicated that it is targeting the end of 2023they intend to complete this reconsideration.publish their reconsideration in early 2024, with an anticipated final rule by early 2025.
The EPA issued final nonattainment area designations forIn February 2022, revisions to the Wisconsin Administrative Code to adopt the 2015 ozone standard in April 2018.were finalized. The following counties within our Wisconsin service territories were designated as partial nonattainment: Door, Kenosha, Sheboygan, Manitowoc, and Northern Milwaukee/Ozaukee.amended regulations incorporated by reference the federal air pollution monitoring requirements related to the standard. The 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 remandingWDNR submitted the rule updates as a SIP revision to the EPA, for further evaluation. As a result of the July 2020 remand, in June 2021,which the EPA published its final action to revise the nonattainment area designations and/or boundaries for 13 counties associated with 6 nonattainment areas, including severalapproved in Illinois and Wisconsin. Under the new designations, all of Milwaukee and Ozaukee counties are now listed as nonattainment and portions of Racine, Waukesha, and Washington counties have been added to the nonattainment area. Additionally, the Chicago, IL-IN-WI nonattainment area now includes an expanded portion of Kenosha County, and the partial nonattainment areas of Sheboygan, Door, and Manitowoc counties were also expanded.February 2023.
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 willshould be adjusted to "moderate" nonattainment status for the 2015 standard. In October 2022, the EPA published its final reclassifications from "marginal" to "moderate" for these areas, effective November 7, 2022. Accordingly, Wisconsin mustthe WDNR was required to submit State Implementation Plan revisionsa SIP revision to the EPA to address the reclassifications. A final rulemaking for the designations is expectedmoderate nonattainment status, which it did in OctoberDecember 2022.
In February 2022, revisions to the Wisconsin Administrative Code to adopt the 2015 standard were finalized. The amended regulations adopted the standard and incorporated by reference the federal air pollution monitoring requirements related to the 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 and federal rules.
Particulate Matter
In December 2020, the EPA completed its 5-year review of the 2012 annual and 24-hour standards for fine particulate matter. The EPAPM and determined that no revisions were necessary to the current 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 matterPM NAAQS to below the current level of 12 µg/m3, while retaining the 24-hour standard. In March 2022, the EPA’s CASAC sent a letter toJanuary 2023, the EPA finalizingannounced its peer reviewproposed decision to revise the primary (health-based) annual PM2.5 standard from its current level of the particulate matter standards. Based on their review, the majority of the members of the CASAC found that lowering the annual standard12 µg/m3 to within athe range of 89 to 10 µg/m3 was appropriate, while a minority of. The EPA also proposed not to change the members ofcurrent secondary (welfare-based) annual PM2.5 standard, primary and secondary 24-hour PM2.5 standards, and primary and secondary PM10 standards. The EPA is also taking comments on the committee found that afull range of 10 to(between 8 and 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) included in the 10 to 12 µg/mCASAC's3 range or in the 8 to 10 µg/m3 range.
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latest report. The EPA has announced it plans to issue a final rule is expecteddecision on the reconsideration in springsummer 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-attainmentnonattainment areas that may affect permitting of some smaller ancillary equipment located at our facilities. After finalization of the rule, the WDNR will need to draft and submit a SIP for the EPA's approval.
Climate Change
The ACE rule, which replaced the Clean Power Plan, was vacated by the D.C. Circuit Court of Appeals in January 2021. In October 2021, the Supreme Court agreed to review the D.C. Circuit Court's ruling vacating the EPA's ACE rule and in June 2022, the Supreme Court issued its decision. The Supreme Court found that the 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 aA new GHG replacement rule to be proposed in March 2023.for existing sources is under review by the OMB.
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; however, it was vacated by the D.C. Circuit Court of Appeals in April 2021. Based on an
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updated EPA regulatory timeline, we expect aA new GHG replacement rule to be proposed in March 2023.for new, modified, and reconstructed sources is under review by the OMB. We continue to move forward on the ESG Progress Plan, which is heavily focused on reducing GHG emissions.
The EPA released proposed regulations for the Mandatory Greenhouse Gas Reporting Rule, 40 Code of Federal Regulations Part 98, in June 2022. The proposed revisions could impact the reporting required of our local natural gas distribution companies and underground natural gas storage facilities. The EPA intends to issue a new supplemental notice of proposed rulemaking in the second quarter of 2023 with an anticipated final rule to be issued in the fourth quarter of 2023 for all subparts of this rule.
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 MW1,900 MWs of coal-fired generation since the beginning of 2018. Through our ESG Progress Plan, we expect to retire approximately 1,600 MW1,500 MWs of additional fossil-fueled generation by the end of 2026, 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,6, Property, Plant, and Equipment, for more information on the timing of the retirements. In May 2021, we announced goals to achieve reductions in carbon emissions from our electric generation fleet by 60% by the end of 2025 and by 80% 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.
We also continue to reduce methane emissions by improving our natural gas distribution system,systems, and have set a 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.
We are also required to report CO2 equivalent emissions related to the natural gas that our natural gas utilities distribute and sell. We reported aggregated CO2 equivalent emissions of 29.3 million metric tonnes to the EPA for 2022.
Water Quality
Clean Water Act Cooling Water Intake Structure Rule
In August 2014, theThe EPA issued a final regulation under Section 316(b) of the Clean Water ActCWA that became effective in October 2014 and 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,Pursuant to a WDNR rule, which became effective in June 2020, the WDNR initiated a state rulemaking process to incorporate therequirements of federal Section 316(b) requirementsof the CWA were incorporated into the Wisconsin Administrative Code. This new stateThe WDNR applies this 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 PWGS, OCPP Units 5-8, and Weston Units 2, 3 and 4. We believe that existing technology at the PWGS satisfies the BTA requirements; however, a final determination will not be made until the WPDES permit is renewed for this facility, which is expected to be by the third quarter of 2022. We also believe that existing technology installed at the OCPP facility meets the BTA requirements;
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however, depending on the timing of the permit reissuance, all 4four generating units at the OCPP 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 result in a final BTA determination during the WPDES permit reissuance in 2023.
We are engaged in discussions with the WDNR regarding the current status of the BTA determination at PWGS. There is uncertainty about whether existing technology meets all of the WDNR's BTA requirements. We will not be in a position to determine what, if any, modifications may be needed at PWGS until the WDNR issues the WPDES permit renewal for PWGS, expected during the second quarter of 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.regulation.
Steam Electric Effluent Limitation Guidelines
The EPA's final 2015 ELG rule, took effect ineffective January 2016 and was modified in 2020, to reviserevised the treatment technology requirements related to BATW and wet FGD wastewaters at existing facilities. This rulefacilities and created new requirements for several types of power plant wastewaters. The 2two new requirements that affect WE and WPSus relate to discharge limits for BATW and wet FGD wastewater. OurAlthough 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 berule, certain facility modifications are necessary to meet water permit requirements for the ELG rule requirements. Through 2023, we expect that compliance costs associated with the ELG rule will require $110 million in capital investment. A $10 million BATW system at Weston Unit 3, which is expected to be completed by December 2023. Modificationsmodification to OC 7 and OC 8 werewas completed and placed in-service in mid-2021. Wastewater treatment system modifications also will be required for wet FGD dischargesmid-2021, and site wastewater from the ERGS units. Based on engineering cost estimates, we expect that compliance with the ELG rule will require $100 millionin capital investment. In December 2021, the PSCW Division of Energy Regulation and Analysis issued a Certificate of Authority approving the $90 million ERGS FGD wastewater treatment system modification. The BATW modifications, including $10 million of modifications at Weston Unit 3, 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,March 2023, the EPA announcedissued the proposed "supplemental ELG rule." The rule would replace the existing 2020 ELG rule and, as proposed, would establish stricter limitations on: 1) BATW; 2) FGD wastewater; 3) CCR leachate; and 4) legacy wastewaters. The most significant proposed ELG rule change is a ZLD requirement for FGD wastewater. Under the proposed rule, this new ZLD requirement must be met by a date determined by the permitting authority (the WDNR for WE) that it intends to initiate rulemaking to reviseis as soon as possible beginning 60 days following publication of 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 revisedfinal rule, in the fall of 2022.but no later than December 31, 2029.
The proposed rule would also create a subcategory for "early adopters" that have already installed a compliant biological treatment system by the date of the proposed rule (March 29, 2023). Early adopters would not be required to install further FGD wastewater treatment, provided the facility owner also agrees to permanently cease combustion of coal by December 31, 2032. Although we are currently completing a $90 million biological treatment system at ERGS, which we expect to be complete later this year, the expected timing of the project's completion would not comply with the deadline imposed by the EPA to qualify for early adopter status. In addition, we do not believe that, upon its completion, the biological treatment system would be compliant with FGD wastewater treatment requirements as proposed. We are assessing the potential impact, as well as working with the Edison Electric Institute to submit comments to the EPA, regarding this proposed rule revision.
If the supplemental ELG rule is finalized as proposed, we anticipate that our coal fueled facilities either meet, or will meet, the proposed rule provisions that apply to BATW. Once the Weston 3 BATW project is complete, currently expected by the end of 2023, we anticipate that ERGS, Weston 3, and OCPP Units 5 and 6 will have compliant dry bottom ash transport systems. At this time, we do not anticipate significant costs related to complying with the proposed rule as it relates to CCR leachate and legacy wastewater.
Waters of the United States
In December 2021,January 2023, the EPA and the United States Army Corps of Engineers together released a proposedfinal rule to repealrevising the April 2020 Navigable Waters Protection Ruledefinition of WOTUS. This rule became effective on March 20, 2023. The final rule states that defined WOTUS. The purposeit is based on the pre-2015 definition 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."waters of the United States." 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.
The recent rulemaking could be affected by a significant pending Supreme Court case involving WOTUS determination. In JanuaryOctober 2022, the Supreme Court granted certiorariheard oral arguments in a case,Sackett v. Environmental Protection Agency, to evaluate the proper test for determining whether wetlands are WOTUS. A decision by the Supreme Court is expected during the second quarter of 2023.
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At this point, our projects requiring federal permits are moving ahead, but we are monitoring these recent developments to better understand potential future impacts. ThisThe Sackett case, once decided, should provide some 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.
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, 2022 | | December 31, 2021 | (in millions) | | March 31, 2023 | | December 31, 2022 |
| Regulatory assets | Regulatory assets | | $ | 621.6 | | | $ | 630.9 | | Regulatory assets | | $ | 590.6 | | | $ | 610.7 | |
| Reserves for future environmental remediation | Reserves for future environmental remediation | | 504.3 | | | 532.6 | | Reserves for future environmental remediation | | 491.7 | | | 499.6 | |
Coal Combustion Residuals Rule
In January 2023, the EPA released a notice regarding their intent to revise the CCR rule. The EPA is drafting regulations for CCR storage at inactive generating units or "legacy units." The EPA is also considering proposing corrective action requirements for all CCR contamination at any regulated facility, regardless of how or when the CCR was placed at such site. Our legacy units are currently regulated by the states in which they are located. The proposed rule is expected in summer 2023.
In February 2023, the EPA published notice in the Federal Register of a proposed consent decree to resolve a citizen suit related to conducting a review of Resource Conservation and Recovery Act regulations pertaining to the CCR rule. We are still evaluating the proposed language to understand the impact, if any, to our operations.
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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06/30/2022 Form 10-Q | 38 | WEC Energy Group, Inc. |
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
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| 03/31/2023 Form 10-Q | 32 | WEC Energy Group, Inc. |
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 and expect that process to be completedbegin later 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 expects to startstarted the process to close out this Consent Decree in early 2023.
NOTE 22—21—SUPPLEMENTAL CASH FLOW INFORMATION
| | | | | | | | | | | | | | |
| | 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 | | | — | |
Non-Cash Transactions
| | | | | | | | | | | | | | |
| | Three Months Ended March 31 |
| (in millions) | | 2023 | | 2022 |
| Cash paid for interest, net of amount capitalized | | $ | 107.5 | | | $ | 68.3 | |
| Cash paid for income taxes, net | | 1.0 | | | 0.7 | |
| Significant non-cash investing and financing transactions: | | | | |
| Accounts payable related to construction costs | | 123.0 | | | 118.7 | |
| | | | |
| Increase in receivable related to insurance proceeds | | 20.7 | | | 0.3 | |
| | | | |
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Restricted Cash
The statements of cash flows include our activity related to cash, cash equivalents, and restricted cash. 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) | | March 31, 2023 | | December 31, 2022 |
| Cash and cash equivalents | | $ | 35.7 | | | $ | 28.9 | |
| Restricted cash included in other current assets | | 39.2 | | | 25.6 | |
| Restricted cash included in other long-term assets | | 53.1 | | | 127.7 | |
| Cash, cash equivalents, and restricted cash | | $ | 128.0 | | | $ | 182.2 | |
Our restricted cash primarily consistsconsisted of the cashfollowing:
•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
•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
•Cash we received when WECI acquired ownership interests in certain windrenewable generation projects is included in our restricted cash as well.projects. This cash is restricted as it can only be used to pay for any remaining costs associated with the construction of the windrenewable generation facilities.
The following table reconciles theCash used by WE and WPS during January 2023 to purchase a natural gas-fired cogeneration facility located in Whitewater, Wisconsin. This cash cash equivalents, and restricted cash amounts reported within the balance sheets to the total of these amounts shownwas included in other long-term assets at December 31, 2022. See Note 2, Acquisitions, for more information on the statementspurchase of cash flows:
| | | | | | | | | | | | | | |
| (in millions) | | June 30, 2022 | | December 31, 2021 |
| Cash and cash equivalents | | $ | 30.3 | | | $ | 16.3 | |
| Restricted cash included in other current assets | | 21.9 | | | 19.6 | |
| Restricted cash included in other long term assets | | 52.7 | | | 51.6 | |
| Cash, cash equivalents, and restricted cash | | $ | 104.9 | | | $ | 87.5 | |
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06/30/202203/31/2023 Form 10-Q | 3933 | WEC Energy Group, Inc. |
NOTE 23—22—REGULATORY ENVIRONMENT
Recovery of NaturalThe Peoples Gas Costs
Due to the cold temperatures, wind, snow,Light 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.
In March 2021, WECoke Company and WG received 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 over a period of three months, beginning in April 2021. In March 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 were recovered over a period of 12 months, which started on April 1, 2021. PGL's and NSG's natural gas costs are being reviewed for prudency by the ICC as part of their annual natural gas cost reconciliation. The ICC could order the refund of any costs determined to be imprudent as part of the reconciliation. 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. In August 2021, the MPUC issued a written order approving a joint proposal filed by MERC and 4 other Minnesota utilities to recover their respective excess natural gas costs. MERC will 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 of 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.
Wisconsin Electric PowerNorth Shore Gas Company Wisconsin Public Service Corporation, and Wisconsin Gas LLC
2023 and 2024 RatesRate Case
In April 2022, WE, WPS,On January 6, 2023, PGL and WGNSG filed requests with the PSCWICC to increase their retail electric, natural gas rates. They are requesting incremental rate increases of $194.7 million (13.0%) and steam rates, as applicable, effective January 1, 2023.$18.7 million (7.8%), respectively. The requested rate increases in electric rates wereare primarily driven by capital investments in new wind, solar,made to strengthen the safety 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 oureach utility’s natural gas distribution system. PGL is also seeking to recover costs incurred to upgrade its natural gas storage field and operations facilities and to continue improving customer service.
In July 2022, WE, WPS,Both companies are requesting an ROE of 9.90% and WG updated their rate requests to reflect recent developments that impacted, as applicable, the respective utility's original proposal for rate increases in 2023. These recent developments included:
•Delays in the 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 expected 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 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 updated rate request proposals include aggregate increases of approximately $30 million for WE, $6 million for WPS, and $2 million for WG from the original proposals and are reflected in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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) The proposed ROEs are consistent with each utilities' currently authorized ROE. The common equity component average of 54.0%. PGL is not seeking an extension of the QIP rider. Instead, PGL will return to the traditional rate making process to recover the costs of necessary infrastructure improvements. See the Qualifying Infrastructure Plant Rider section below for each utility is currently 52.5%.more information on the QIP rider.
The utilities are proposing to continue using an earnings sharing mechanism. Under the proposed earnings sharing mechanism, if the utility earns above its authorized ROE: (i) the utility would retain 100.0% of earnings for the first 25 basis points above the authorized ROE; (ii) 50.0% of the next 50 basis points would be required to be refunded to ratepayers; and (iii) 100.0% of any remaining excess earnings would be required to be refunded to 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.
We expect aAn ICC decision from the PSCWis anticipated in the fourth quarter of 2022,2023, with any rate adjustments expected to be effective January 1, 2023.2024.
The Peoples Gas Light and Coke Company
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 will not seek an extension of the rider beyond 2023.
PGL's QIP rider is subject to an annual reconciliation whereby costs are reviewed for accuracy and prudency. In March 2022,2023, PGL filed its 20212022 reconciliation with the ICC, which, along with the 2020, 2019, 2018, 2017, andreconciliations from 2016 reconciliations,through 2021, are still pending.
As of June 30, 2022,March 31, 2023, there can be no assurance that all costs incurred under PGL's QIP rider during the open reconciliation years, which include 2016 through 2022, will be deemed recoverable by the ICC.
Minnesota Energy Resources Corporation
2023 Rate Case
In November 2022, MERC initiated a rate proceeding with the MPUC to increase its retail natural gas base rates by $40.3 million (9.9%). MERC's request reflected a 10.3% ROE and a common equity component average of 53.0%. The proposed retail natural gas rate increase is primarily driven by increased capital investments as well as inflationary pressure on operating costs. In December 2022, the MPUC approved MERC's request for interim rates totaling $37.0 million, subject to refund. The interim rates went into effect on January 1, 2023.
In April 2023, MERC reached a settlement with certain intervenors. The settlement reflects a natural gas base rate increase of $28.8 million (7.1%), along with a 9.65% ROE and a common equity component average of 53.0%. Under the agreed upon settlement, MERC will continue the use of its decoupling mechanism for residential customers, and it will be expanded to include certain small commercial and industrial customers. The settlement is pending MPUC approval, and we expect a decision in the fourth quarter of 2023.
Michigan Gas Utilities Corporation
2023 Rate Case
On March 3, 2023, MGU filed a request with the MPSC to increase its retail natural gas base rates by $19.1 million (9.1%). MGU's request reflects a 10.4% ROE and a common equity component average of 51.4%. The proposed natural gas rate increase is primarily driven by capital investments made to strengthen the safety and reliability of MGU's natural gas distribution system and to provide service to additional customers. Inflationary pressure on operating costs also contributed to the proposed rate increase.
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| 03/31/2023 Form 10-Q | 34 | WEC Energy Group, Inc. |
As part of MGU's rate application, it also requested changes to its Main Replacement Program rider. The changes include updates for projects that are expected to be placed in service during 2023 and 2024 and included in MGU's base rates, updates to remaining project costs to address inflation, and an extension of the rider for an additional two years (new expiration of 2029).
An MPSC decision is anticipated in the fourth quarter of 2023, with any rate adjustments expected to be effective January 1, 2024.
NOTE 24—23—NEW ACCOUNTING PRONOUNCEMENTS
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 to provide relief 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 areUnder ASU No. 2020-04, this relief was effective for all entities as ofbeginning March 12, 2020 through December 31, 2022. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the relief for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform to December 31, 2024. We are currently evaluating the impact this guidance may have on our financial statements and related disclosures.
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06/30/202203/31/2023 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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06/30/2022 Form 10-Q | 4235 | WEC Energy Group, Inc. |
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 20212022 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)Wisconsin that it leases to Wisconsin Electric Power Company (WE)), 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 windrenewable 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 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 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. 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.
In May 2021, weWe have announced goals to achieve reductions in carbon emissions from our electric generation fleet by 60% by the end of 2025 and by 80% 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 retired more than 1,800 megawatts (MW)1,900 MWs 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. Through our ESG Progress Plan, we expect to retire approximately 1,600 MW1,500 MWs of additional fossil-fueled generation by the end of 2026, which includes the planned retirement in 2024-2025 of Oak Creek Power Plant Units 5-8 and the planned retirement inby June 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 $3.5$5.4 billion from 2022-20262023-2027 in regulated renewable energy in Wisconsin. Our plan is to replace a portion of the retired capacity by building and owning zero-carbon-emitting renewable generation facilities that are anticipated to include the following new investments:
•1,400 MW1,900 MWs of utility-scale solar;
•800 MW700 MWs of battery storage; and
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| 03/31/2023 Form 10-Q | 36 | WEC Energy Group, Inc. |
•100 MW700 MWs of wind.
We also plan on investing in a combination of clean, natural gas-fired generation, including:
•100 MWMWs of reciprocating internal combustion engine (RICE) natural gas-fueled generation; and
•the planned purchase of up to 200 MWMWs of capacity in the West Riverside Energy Center — a combined-cyclecombined cycle natural gas plant recently completed by Alliant Energy in 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.Wisconsin.
The new investments discussed above are in addition to the renewable projects currently underway. For more details, see Liquidity and Capital Resources – Cash Requirements – Significant Capital Projects.
In addition, we are investing in 300 MW of utility-scale solar within our Wisconsin segment. Wisconsin Public Service Corporation (WPS) partnered with an unaffiliated utility to construct two solar projects now in service in Wisconsin: Two Creeks Solar Park (Two Creeks) and Badger Hollow Solar Park I (Badger Hollow I). WPS owns 100 MW of Two Creeks and 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, which is expected to enter commercial operation in 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 MWMWs 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 2325 Solar Now projects and currently has another threefour under construction, together totaling more than 29 MW.30 MWs. The second program, the Dedicated Renewable Energy Resource (DRER) pilot, would allow large commercial and industrial customers to access renewable resources that WE would operate, addingand was adjusted down from 150 MWs to up to 150 MW35 MWs of renewables that could be added to WE's portfolio, and helpingportfolio. The DRER pilot would help 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. We set a 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 natural gas utility systems. In 2022, we received approval from the PSCW for our RNG pilots and wepilots. We have since signed our first threefive contracts for RNG for our natural gas distribution business, which will be transporting the output of local dairy farms onto our gas distribution system.systems. The RNG supplied will directly replace higher-emission methane from natural gas that would have entered our pipes. These threeOur first five contracts represent approximately 80 percentbring us to a total of one Bcf of RNG planned to enter our 2030 goal for methane reduction. Wesystems, and we expect to have RNG flowing in 2023, supporting our goal to our distribution network by the end of 2022.reduce methane emissions.
As part of our effort to look for new opportunities in sustainable energy, during 2022 we arecompleted 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 partneringpartnered with the Electric Power Research Institute (EPRI) in this research that could help create another viable option for decarbonizing the economy. The project is being carried outresults of this testing were recently shared by EPRI and in 2022, and the results will be shared across the industry.various industry presentations.
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06/30/2022 Form 10-Q | 44 | WEC Energy Group, Inc. |
We are planning a pilot program for the fourth-quarter of 2023 with EPRI and CMBlu Energy, a Germany-based designer and manufacturer, to test a new form of long-duration energy storage on the U.S. electric grid. The program will test battery system performance, including the ability to store and discharge energy for up to twice as long as the typical lithium-ion batteries in use today.
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 recently completed.
•WE and Wisconsin Gas LLC (WG) have received approval to each construct their own liquefied natural gas (LNG) facility to meet anticipated peak demand. Commercial operation of the WE and WG LNG facilities is targeted for the end of 2023 and 2024, respectively.
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| 03/31/2023 Form 10-Q | 37 | WEC Energy Group, Inc. |
•The Peoples Gas Light and Coke Company continues to work on its Safety 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.
•Our utilities continue to upgrade their electric and natural gas distribution systems to enhance reliability.
We expect to spend approximately $3.4$3.6 billion from 20222023 to 20262027 on reliability related projects with continued investment anticipated over the next decade. For more details, see Liquidity and Capital Resources – Cash 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 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.
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 and two solar parks, with total available capacity of more than 1,550 MW.2,000 MWs. These renewable energy assets represent more than $2.3$2.9 billion in committed investments and have long-term agreements to serve customers outside our traditional service areas. Production tax credits from these windrenewable investments reduce our cash tax expense. In addition, we anticipate that credits generated in 2023 and beyond will be eligible to be transferred to third parties in exchange for cash. See Note 2, Acquisitions, for information on recent and pending transactions.
We expect total capital expenditures for our regulated utility and non-utility energy infrastructure businesses to be approximately $16.4$18.1 billion from 20222023 to 2026.2027. In addition, we currently forecast that our share of ATC's projected capital expenditures over the next five years will be $1.3approximately $2.0 billion. Specific projects included in the $17.7$20.1 billion ESG Progress Plan are discussed in more detail below under Liquidity and Capital Resources – Cash 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.
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| 03/31/2023 Form 10-Q | 38 | WEC Energy Group, Inc. |
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2022MARCH 31, 2023
Consolidated Earnings
The following table compares our consolidated results for the secondfirst quarter of 20222023 with the secondfirst quarter of 2021,2022, including favorable or better, "B", and unfavorable or worse, "W", variances:
| | | Three Months Ended June 30 | | Three Months Ended March 31 |
| (in millions, except per share data) | (in millions, except per share data) | | 2022 | | 2021 | | B (W) | (in millions, except per share data) | | 2023 | | 2022 | | B (W) |
| Wisconsin | Wisconsin | | $ | 148.4 | | | $ | 146.5 | | | $ | 1.9 | | Wisconsin | | $ | 257.2 | | | $ | 288.1 | | | $ | (30.9) | |
| Illinois | Illinois | | 56.4 | | | 43.6 | | | 12.8 | | Illinois | | 113.1 | | | 113.4 | | | (0.3) | |
| Other states | Other states | | 2.7 | | | 2.5 | | | 0.2 | | Other states | | 33.2 | | | 31.5 | | | 1.7 | |
| Electric transmission | Electric transmission | | 29.0 | | | 27.0 | | | 2.0 | | Electric transmission | | 29.3 | | | 27.8 | | | 1.5 | |
| Non-utility energy infrastructure | Non-utility energy infrastructure | | 80.3 | | | 68.8 | | | 11.5 | | Non-utility energy infrastructure | | 88.5 | | | 91.5 | | | (3.0) | |
| Corporate and other | Corporate and other | | (29.3) | | | (12.4) | | | (16.9) | | Corporate and other | | (13.8) | | | 13.6 | | | (27.4) | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 287.5 | | | $ | 276.0 | | | $ | 11.5 | | Net income attributed to common shareholders | | $ | 507.5 | | | $ | 565.9 | | | $ | (58.4) | |
| | Diluted earnings per share | Diluted earnings per share | | $ | 0.91 | | | $ | 0.87 | | | $ | 0.04 | | Diluted earnings per share | | $ | 1.61 | | | $ | 1.79 | | | $ | (0.18) | |
Earnings increased $11.5decreased $58.4 million during the secondfirst quarter of 2022,2023, compared with the same quarter in 2021.2022. The significant factors impacting the $11.5$58.4 million increasedecrease in earnings were:
•A $12.8$30.9 million increasedecrease in net income attributed to common shareholders at the IllinoisWisconsin 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. See Note 3, Disposition, for more information on the sale. These positive impacts were partially offset by increases in various operating expenses, including expenses related to transmission, depreciation and amortization, and regulatory amortizations. A decrease in electric and natural gas margins due to lower sales volumes, driven by warmer winter weather during the settlementfirst quarter of legal claims, charitable projects,2023, compared with the same quarter in 2022, and benefit costs.a negative quarter-over-quarter impact from collections of fuel and purchased power costs, also contributed to the lower earnings. These negative impacts were partially offset by an increase in electric and natural gas margins related to the impact of the Wisconsin rate orders approved by the PSCW, effective January 1, 2023. See Note 26, Regulatory Environment, in our 2022 Annual Report on Form 10-K for more information on the 2023 rate orders.
•An $11.5A $13.8 million increase in net incomeloss attributed to common shareholders at the non-utility energy infrastructurecorporate and other segment during the first quarter of 2023, compared with $13.6 million of net income during the same quarter in 2022. The decrease in earnings was driven by an increasehigher interest expense and lower earnings from our equity method investments in PTCstechnology and energy-focused investment funds. These negative impacts were partially offset by net gains from the investments held in the Integrys rabbi trust during 2022,the first quarter of 2023, compared with net losses during the same quarter in 2022. The gains and losses from the investments held in the rabbi trust partially offset the changes in benefit costs related to deferred compensation, which are primarily due toincluded in other operation and maintenance expense in our utility segments. See Note 12, Fair Value Measurements, for more information on our investments held in the Jayhawk wind park that achieved commercial operation inIntegrys rabbi trust.
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06/30/202203/31/2023 Form 10-Q | 4639 | WEC Energy Group, Inc. |
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.Expected 2023 Annual Effective Tax Rate
•A $1.9 million increaseWe expect our 2023 annual effective tax rate to be between 13.0% and 14.0%. Our effective tax rate calculations are revised every quarter based on the best available year-end tax assumptions, adjusted 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 duefollowing year after returns are filed. Tax accrual estimates are trued-up to the continued economic recovery in Wisconsin fromactual amounts claimed on the COVID-19 pandemic,tax returns and further adjusted after examinations by taxing authorities, 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.
These increases in earnings were partially offset by a $16.9 million increase in net loss attributed to common shareholders at the corporate and other segment, driven by net losses from the investments held in the Integrys rabbi trust during the second quarter of 2022, compared with net gains during the same quarter in 2021. The gains and losses from the investments held in the rabbi trust partially offset the changes in benefits costs related to deferred compensation, which are included in other operation and maintenance expense in our operating segments. See Note 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.needed.
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 secondfirst quarter of 20222023 and 2021:2022:
| | | Three Months Ended June 30 | | Three Months Ended March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | (in millions) | | 2023 | | 2022 |
| Wisconsin | Wisconsin | | $ | 309.1 | | | $ | 291.5 | | Wisconsin | | $ | 441.8 | | | $ | 497.7 | |
| Illinois | Illinois | | 91.9 | | | 74.9 | | Illinois | | 175.4 | | | 168.2 | |
| Other states | Other states | | 6.3 | | | 4.6 | | Other states | | 48.3 | | | 44.6 | |
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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| 03/31/2023 Form 10-Q | 40 | 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 was $148.4$257.2 million during the secondfirst quarter of 2022,2023, representing a $1.9$30.9 million, or 1.3%10.7%, increasedecrease over the same quarter in 2021.2022. The higherlower earnings were driven by an increaseincreases in various operating expenses, including expenses related to transmission, depreciation and amortization, and regulatory amortizations. A decrease in electric and natural gas margins relateddue to higher retaillower sales volumes, primarily due to the continued economic recovery in Wisconsin
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06/30/2022 Form 10-Q | 47 | WEC Energy Group, Inc. |
from the COVID-19 pandemic, as well as colderdriven by warmer winter weather during the secondfirst quarter of 2022,2023, compared with the same quarter in 2021. Also contributing2022, and a negative quarter-over-quarter impact from collections of fuel and purchased power costs, also contributed to the lower earnings. These negative impacts were partially offset by an increase in earnings was lower operationelectric and maintenance expense, driven bynatural gas margins related to 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 amortizationimpact of the regulatory liabilities wasWisconsin rate orders approved by the PSCW, in order to forego filing for 2022 base rate increases.effective January 1, 2023. See Note 26, Regulatory Environment, in our 20212022 Annual Report on Form 10-K for additionalmore 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.2023 rate orders.
| | | Three Months Ended June 30 | | Three Months Ended March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | | B (W) | (in millions) | | 2023 | | 2022 | | B (W) |
| Electric revenues | Electric revenues | | $ | 1,225.5 | | | $ | 1,092.0 | | | $ | 133.5 | | Electric revenues | | $ | 1,208.9 | | | $ | 1,193.0 | | | $ | 15.9 | |
| Fuel and purchased power | Fuel and purchased power | | 472.9 | | | 346.1 | | | (126.8) | | Fuel and purchased power | | 411.7 | | | 406.9 | | | (4.8) | |
| Total electric margins | Total electric margins | | 752.6 | | | 745.9 | | | 6.7 | | Total electric margins | | 797.2 | | | 786.1 | | | 11.1 | |
| | Natural gas revenues | Natural gas revenues | | 331.9 | | | 215.5 | | | 116.4 | | Natural gas revenues | | 787.4 | | | 749.3 | | | 38.1 | |
| Cost of natural gas sold | Cost of natural gas sold | | 209.2 | | | 106.4 | | | (102.8) | | Cost of natural gas sold | | 508.6 | | | 496.8 | | | (11.8) | |
| Total natural gas margins | Total natural gas margins | | 122.7 | | | 109.1 | | | 13.6 | | Total natural gas margins | | 278.8 | | | 252.5 | | | 26.3 | |
| | Total electric and natural gas margins | Total electric and natural gas margins | | 875.3 | | | 855.0 | | | 20.3 | | Total electric and natural gas margins | | 1,076.0 | | | 1,038.6 | | | 37.4 | |
| | Other operation and maintenance | Other operation and maintenance | | 337.9 | | | 346.1 | | | 8.2 | | Other operation and maintenance | | 380.8 | | | 312.6 | | | (68.2) | |
| Depreciation and amortization | Depreciation and amortization | | 187.7 | | | 179.8 | | | (7.9) | | Depreciation and amortization | | 207.3 | | | 187.1 | | | (20.2) | |
| Property and revenue taxes | Property and revenue taxes | | 40.6 | | | 37.6 | | | (3.0) | | Property and revenue taxes | | 46.1 | | | 41.2 | | | (4.9) | |
| Operating income | Operating income | | 309.1 | | | 291.5 | | | 17.6 | | Operating income | | 441.8 | | | 497.7 | | | (55.9) | |
| | Other income, net | Other income, net | | 24.5 | | | 18.2 | | | 6.3 | | Other income, net | | 32.2 | | | 22.4 | | | 9.8 | |
| Interest expense | Interest expense | | 135.6 | | | 139.8 | | | 4.2 | | Interest expense | | 150.6 | | | 136.3 | | | (14.3) | |
| Income before income taxes | Income before income taxes | | 198.0 | | | 169.9 | | | 28.1 | | Income before income taxes | | 323.4 | | | 383.8 | | | (60.4) | |
| | Income tax expense | Income tax expense | | 49.3 | | | 23.1 | | | (26.2) | | Income tax expense | | 65.9 | | | 95.4 | | | 29.5 | |
| 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 | | $ | 148.4 | | | $ | 146.5 | | | $ | 1.9 | | Net income attributed to common shareholders | | $ | 257.2 | | | $ | 288.1 | | | $ | (30.9) | |
The following table shows a breakdown of other operation and maintenance:
| | | Three Months Ended June 30 | | Three Months Ended March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | | B (W) | (in millions) | | 2023 | | 2022 | | B (W) |
| Operation and maintenance not included in line items below | Operation and maintenance not included in line items below | | $ | 172.0 | | | $ | 156.1 | | | $ | (15.9) | | Operation and maintenance not included in line items below | | $ | 155.0 | | | $ | 146.7 | | | $ | (8.3) | |
Transmission (1) | Transmission (1) | | 107.4 | | | 127.6 | | | 20.2 | | Transmission (1) | | 138.1 | | | 107.9 | | | (30.2) | |
Regulatory amortizations and other pass through expenses (2) | Regulatory amortizations and other pass through expenses (2) | | 36.6 | | | 33.0 | | | (3.6) | | Regulatory amortizations and other pass through expenses (2) | | 53.1 | | | 35.8 | | | (17.3) | |
We Power (3) | We Power (3) | | 27.3 | | | 29.4 | | | 2.1 | | We Power (3) | | 35.5 | | | 27.6 | | | (7.9) | |
Earnings sharing mechanisms (4) | Earnings sharing mechanisms (4) | | (5.4) | | | — | | | 5.4 | | Earnings sharing mechanisms (4) | | (0.9) | | | (5.4) | | | (4.5) | |
| Total other operation and maintenance | Total other operation and maintenance | | $ | 337.9 | | | $ | 346.1 | | | $ | 8.2 | | Total other operation and maintenance | | $ | 380.8 | | | $ | 312.6 | | | $ | (68.2) | |
(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 secondfirst quarter of 2023 and 2022, and 2021, $130.1$127.3 million and $124.8$126.5 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. Effective January 1, 2023, the PSCW approved escrow accounting for pension and OPEB costs as well as certain costs associated with our jointly-owned Columbia plant. As a result, our Wisconsin utilities defer as a regulatory asset or liability, the difference between these actual costs and those included in rates until recovery or refund is authorized in a future rate proceeding.
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06/30/202203/31/2023 Form 10-Q | 4841 | WEC Energy Group, Inc. |
(3)Represents costs associated with the We Power generation units, including operating and maintenance costs recognized by WE. During the secondfirst quarter of 2023 and 2022, and 2021, $26.1$26.6 million and $25.7$24.8 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)RepresentsThe first quarter 2022 amortization represented 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 20212022 Annual Report on Form 10-K for additional information on 2022 Wisconsin base rates.more information.
The following tables provide information on delivered sales volumes by customer class and weather statistics:
| | | Three Months Ended June 30 | | Three Months Ended March 31 |
| | MWh (in thousands) | | MWh (in thousands) |
| Electric Sales Volumes | Electric Sales Volumes | | 2022 | | 2021 | | B (W) | Electric Sales Volumes | | 2023 | | 2022 | | B (W) |
| Customer Class | Customer Class | | | | | Customer Class | | | | |
| Residential | Residential | | 2,657.1 | | | 2,655.6 | | | 1.5 | | Residential | | 2,679.4 | | | 2,844.0 | | | (164.6) | |
Small commercial and industrial (1) | Small commercial and industrial (1) | | 3,106.5 | | | 3,084.8 | | | 21.7 | | Small commercial and industrial (1) | | 3,095.1 | | | 3,205.6 | | | (110.5) | |
Large commercial and industrial (1) | Large commercial and industrial (1) | | 2,988.4 | | | 3,144.7 | | | (156.3) | | Large commercial and industrial (1) | | 2,908.3 | | | 2,982.1 | | | (73.8) | |
| Other | Other | | 28.9 | | | 29.7 | | | (0.8) | | Other | | 37.5 | | | 40.2 | | | (2.7) | |
Total retail (1) | Total retail (1) | | 8,780.9 | | | 8,914.8 | | | (133.9) | | Total retail (1) | | 8,720.3 | | | 9,071.9 | | | (351.6) | |
| Wholesale | Wholesale | | 639.4 | | | 707.1 | | | (67.7) | | Wholesale | | 474.5 | | | 718.5 | | | (244.0) | |
| Resale | Resale | | 855.4 | | | 1,344.7 | | | (489.3) | | Resale | | 1,259.0 | | | 1,238.8 | | | 20.2 | |
Total sales in MWh (1) | Total sales in MWh (1) | | 10,275.7 | | | 10,966.6 | | | (690.9) | | Total sales in MWh (1) | | 10,453.8 | | | 11,029.2 | | | (575.4) | |
(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 March 31 |
| | Therms (in millions) | | Therms (in millions) |
| Natural Gas Sales Volumes | Natural Gas Sales Volumes | | 2022 | | 2021 | | B (W) | Natural Gas Sales Volumes | | 2023 | | 2022 | | B (W) |
| Customer Class | Customer Class | | | | | | | Customer Class | | | | | | |
| Residential | Residential | | 175.9 | | | 142.9 | | | 33.0 | | Residential | | 493.9 | | | 565.3 | | | (71.4) | |
| Commercial and industrial | Commercial and industrial | | 106.4 | | | 83.6 | | | 22.8 | | Commercial and industrial | | 298.5 | | | 346.2 | | | (47.7) | |
| Total retail | Total retail | | 282.3 | | | 226.5 | | | 55.8 | | Total retail | | 792.4 | | | 911.5 | | | (119.1) | |
| Transportation | Transportation | | 321.0 | | | 311.1 | | | 9.9 | | Transportation | | 408.8 | | | 446.6 | | | (37.8) | |
| Total sales in therms | Total sales in therms | | 603.3 | | | 537.6 | | | 65.7 | | Total sales in therms | | 1,201.2 | | | 1,358.1 | | | (156.9) | |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30 |
| | Degree Days |
| Weather | | 2022 | | 2021 | | B (W) |
WE and WG (1) | | | | | | |
| Heating (923 Normal) | | 840 | | | 738 | | | 13.8 | % |
| Cooling (171 Normal) | | 259 | | | 303 | | | (14.5) | % |
| | | | | | |
WPS (2) | | | | | | |
| Heating (963 Normal) | | 908 | | | 854 | | | 6.3 | % |
| Cooling (144 Normal) | | 249 | | | 242 | | | 2.9 | % |
| | | | | | |
UMERC (3) | | | | | | |
| Heating (1,197 Normal) | | 1,232 | | | 1,093 | | | 12.7 | % |
| Cooling (82 Normal) | | 115 | | | 156 | | | (26.3) | % |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31 |
| | Degree Days |
| Weather | | 2023 | | 2022 | | B (W) |
WE and WG (1) | | | | | | |
| Heating (3,283 Normal) | | 2,833 | | | 3,325 | | | (14.8) | % |
| | | | | | |
| | | | | | |
WPS (2) | | | | | | |
| Heating (3,667 Normal) | | 3,356 | | | 3,843 | | | (12.7) | % |
| | | | | | |
| | | | | | |
UMERC (3) | | | | | | |
| Heating (3,990 Normal) | | 3,638 | | | 4,339 | | | (16.2) | % |
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(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 $6.7 million during the second quarter of 2022, compared with the same quarter in 2021. The significant factors impacting the higher electric utility margins were:
•An $18.3 million increase in margins related to the impact of unprotected excess deferred taxes during the second quarter of 2021, which we agreed to return to customers in 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 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 increased $13.6 million during the second quarter of 2022, compared with the same quarter in 2021. The significant factors impacting the higher natural gas utility margins were:
•An $11.4 million increase in margins from higher sales volumes, driven by the 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 2022 was 13.8% and 6.3% colder than the same quarter in 2021 in the Milwaukee area and Green Bay area, respectively.
•A $2.5 million increase in margins related to amortization 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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06/30/2022 Form 10-Q | 50 | WEC Energy Group, Inc. |
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.
Other Operating Expenses (includes other operation and maintenance, depreciation and amortization, and property and revenue taxes)
Other operating expenses at the Wisconsin segment increased $2.7 million during the second quarter of 2022, compared with the same quarter in 2021. The significant factors impacting the increase in operating expenses were:
•A $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, an increase related to the We Power 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 $3.6 million increase in regulatory 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 driven by higher stock-based compensation and pension costs, partially offset by lower deferred compensation costs.
These increases in other operating expenses were partially offset by:
•A $20.2 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 $5.4 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.
Other Income, Net
Other income, net at the Wisconsin segment increased $6.3 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 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 $26.2 million during the second quarter of 2022, compared with the same quarter in 2021. The increase in income tax expense was due to an approximate $18 million negative impact related to the lower 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 impact
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06/30/2022 Form 10-Q | 51 | WEC Energy Group, Inc. |
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 was $56.4 million during the second quarter of 2022, representing a $12.8 million, or 29.4%, increase over the 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. See Note 3, Disposition, for more information on the sale. These positive impacts were partially offset by increases in various operating expenses, including expenses related to the settlement of legal claims, charitable projects, and 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 |
| (in millions) | | 2022 | | 2021 | | B (W) |
| Natural gas revenues | | $ | 442.4 | | | $ | 275.5 | | | $ | 166.9 | |
| Cost of natural gas sold | | 205.6 | | | 49.0 | | | (156.6) | |
| Total natural gas margins | | 236.8 | | | 226.5 | | | 10.3 | |
| | | | | | |
| Other operation and maintenance | | 79.1 | | | 90.8 | | | 11.7 | |
| Depreciation and amortization | | 57.4 | | | 54.0 | | | (3.4) | |
| Property and revenue taxes | | 8.4 | | | 6.8 | | | (1.6) | |
| Operating income | | 91.9 | | | 74.9 | | | 17.0 | |
| | | | | | |
| Other income, net | | 3.7 | | | 1.3 | | | 2.4 | |
| Interest expense | | 18.0 | | | 16.6 | | | (1.4) | |
| Income before income taxes | | 77.6 | | | 59.6 | | | 18.0 | |
| | | | | | |
| Income tax expense | | 21.2 | | | 16.0 | | | (5.2) | |
| 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 |
| (in millions) | | 2022 | | 2021 | | B (W) |
| Operation and maintenance not included in the line items below | | $ | 53.3 | | | $ | 68.7 | | | $ | 15.4 | |
Riders (1) | | 26.4 | | | 22.7 | | | (3.7) | |
Regulatory amortizations (1) | | (0.6) | | | (0.6) | | | — | |
| | | | | | |
| 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 |
| | Therms (in millions) |
| Natural Gas Sales Volumes | | 2022 | | 2021 | | B (W) |
| Customer Class | | | | | |
| Residential | | 145.2 | | | 117.7 | | | 27.5 | |
| Commercial and industrial | | 52.5 | | | 42.0 | | | 10.5 | |
| Total retail | | 197.7 | | | 159.7 | | | 38.0 | |
| Transportation | | 133.9 | | | 125.7 | | | 8.2 | |
| Total sales in therms | | 331.6 | | | 285.4 | | | 46.2 | |
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06/30/2022 Form 10-Q | 52 | WEC Energy Group, Inc. |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30 |
| | Degree Days |
Weather (1) | | 2022 | | 2021 | | B (W) |
| 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 $3.7 million impact of the riders referenced in the table above, increased $6.6 million during the second quarter of 2022, compared with the same quarter in 2021. The increase in margins was primarily driven by:
•A $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 $1.8 million increase related to the impact of the NSG rate order approved by the ICC, effective September 15, 2021, which includes the Variable Income Tax Adjustment Rider in base rates. See Note 26, Regulatory Environment, in our 2021 Annual Report on Form 10-K for additional information on the 2021 rate order.
These increases in natural gas utility margins were partially offset by a $2.2 million decrease in fixed charges during the second quarter of 2022, compared with the same quarter in 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 $10.4 million, net of the $3.7 million impact of the riders referenced in the table above, during the second quarter of 2022, compared with the same quarter in 2021. The significant factor impacting the decrease in operating expenses was a $54.5 million pre-tax gain on the sale of certain real estate in 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 $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 $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 volumes.
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06/30/2022 Form 10-Q | 53 | WEC Energy Group, Inc. |
•A $1.6 million increase in property and revenue 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 $1.4 million during the second quarter of 2022, compared with the same quarter in 2021, primarily due to $225.0 million of long-term debt issuances in November 2021.
Income Tax Expense
Income tax expense at the Illinois segment increased $5.2 million during the second quarter of 2022, compared with the same quarter in 2021, driven by an increase in pre-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 during the second quarter of 2022 was $2.7 million, representing a $0.2 million, or 8.0%, increase over the same quarter in 2021. The increase was 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, as well as interest expense, as discussed below.
Since the majority of MERC and MGU 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 |
| (in millions) | | 2022 | | 2021 | | B (W) |
| Natural gas revenues | | $ | 99.9 | | | $ | 72.1 | | | $ | 27.8 | |
| Cost of natural gas sold | | 55.8 | | | 32.4 | | | (23.4) | |
| Total natural gas margins | | 44.1 | | | 39.7 | | | 4.4 | |
| | | | | | |
| Other operation and maintenance | | 22.9 | | | 21.2 | | | (1.7) | |
| Depreciation and amortization | | 10.2 | | | 9.4 | | | (0.8) | |
| Property and revenue taxes | | 4.7 | | | 4.5 | | | (0.2) | |
| Operating income | | 6.3 | | | 4.6 | | | 1.7 | |
| | | | | | |
| Other income, net | | 0.5 | | | 0.2 | | | 0.3 | |
| Interest expense | | 3.2 | | | 1.5 | | | (1.7) | |
| Income before income taxes | | 3.6 | | | 3.3 | | | 0.3 | |
| | | | | | |
| Income tax expense | | 0.9 | | | 0.8 | | (0.1) | |
| 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 |
| (in millions) | | 2022 | | 2021 | | B (W) |
| Operation and maintenance not included in line item below | | $ | 18.9 | | | $ | 16.5 | | | $ | (2.4) | |
Regulatory amortizations and other pass through expenses (1) | | 4.0 | | | 4.7 | | | 0.7 | |
| | | | | | |
| Total other operation and maintenance | | $ | 22.9 | | | $ | 21.2 | | | $ | (1.7) | |
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06/30/2022 Form 10-Q | 54 | WEC Energy Group, Inc. |
(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 |
| | Therms (in millions) |
| Natural Gas Sales Volumes | | 2022 | | 2021 | | B (W) |
| Customer Class | | | | | | |
| Residential | | 52.6 | | | 43.5 | | | 9.1 | |
| Commercial and industrial | | 37.8 | | | 25.1 | | | 12.7 | |
| Total retail | | 90.4 | | | 68.6 | | | 21.8 | |
| Transportation | | 164.9 | | | 170.8 | | | (5.9) | |
| Total sales in therms | | 255.3 | | | 239.4 | | | 15.9 | |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30 |
| | Degree Days |
Weather (1) | | 2022 | | 2021 | | B (W) |
| MERC | | | | | | |
| Heating (956 Normal) | | 1,112 | | | 911 | | | 22.1 | % |
| | | | | | |
| MGU | | | | | | |
| 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.
Natural Gas Revenues
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 $4.4 million during the second quarter of 2022, compared to the same quarter in 2021. The increase in margins was primarily driven by:
•A $2.3 million increase related to the new rates at MGU that went into effect in 2022.
•A $1.6 million increase related to higher retail sales volumes due to both colder weather in our Minnesota service territories and continued economic recovery during the second quarter of 2022, as compared to the same quarter in 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 $2.7 million during the second quarter of 2022, compared to the same quarter in 2021. The significant factors impacting the increase in operating expenses were:
•A $1.5 million increase in natural gas operations and customer service expense, driven by various operation and maintenance projects approved in MGU's rate case and higher labor and external contracting costs.
•A $0.8 million increase in depreciation and amortization related to continued capital investment.
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06/30/2022 Form 10-Q | 55 | WEC Energy Group, Inc. |
Interest Expense
Interest expense at the other states segment increased $1.7 million during the second quarter of 2022, compared with the same quarter in 2021, primarily due to the deferral of $1.2 million of interest expense in the second quarter of 2021, as approved by the MPSC to mitigate the impacts from delaying the filing of its 2021 rate case. See Note 26, Regulatory Environment, in our 2021 Annual Report on Form 10-K for additional information. This deferred interest expense is now being amortized over a 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) | | 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 |
| (in millions) | | 2022 | | 2021 | | B (W) |
| Operating income | | $ | 90.4 | | | $ | 86.8 | | | $ | 3.6 | |
| | | | | | |
| Interest expense | | 17.4 | | | 17.9 | | | 0.5 | |
| Income before income taxes | | 73.0 | | | 68.9 | | | 4.1 | |
| | | | | | |
| Income tax expense (benefit) | | (7.3) | | | 0.7 | | | 8.0 | |
| Net loss attributed to noncontrolling interests | | — | | | 0.6 | | | (0.6) | |
| 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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06/30/2022 Form 10-Q | 56 | WEC Energy Group, Inc. |
Corporate and Other Segment Contribution to Net Income Attributed to Common Shareholders
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30 |
| (in millions) | | 2022 | | 2021 | | B (W) |
| Operating loss | | $ | (5.8) | | | $ | (3.6) | | | $ | (2.2) | |
| | | | | | |
| Other income (expense), net | | (8.9) | | | 19.9 | | | (28.8) | |
| Interest expense | | 24.6 | | | 24.6 | | | — | |
| | | | | | |
| Loss before income taxes | | (39.3) | | | (8.3) | | | (31.0) | |
| | | | | | |
| Income tax expense (benefit) | | (10.0) | | | 4.1 | | | 14.1 | |
| Net loss attributed to common shareholders | | $ | (29.3) | | | $ | (12.4) | | | $ | (16.9) | |
Operating Loss
The operating loss at the corporate and other segment increased $2.2 million during the second quarter of 2022, compared with the same quarter in 2021. The higher operating loss was driven by $2.6 million of gains on land sales at Wispark during the second quarter of 2021, which did not reoccur in the second quarter of 2022.
Other Income (Expense), Net
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 other income was driven by a $9.7 million net loss from the investments held in the Integrys rabbi trust during the second quarter of 2022, compared with a $6.0 million net gain during the same quarter in 2021. The gains and losses from the investments held in the rabbi trust partially offset the changes in benefits costs related to deferred compensation, which are included in other operation and maintenance expense in our operating segments. See Note 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)
The corporate and other segment recorded a $10.0 million income tax benefit during the second quarter of 2022, compared with $4.1 million of income tax expense during the same quarter in 2021. The positive change in income taxes was driven by a higher pre-tax loss. Also contributing to the favorable change in the income tax benefit were a $2.0 million increase in excess tax benefits recognized related to stock option exercises and a $1.9 million increase in the 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, 2022, compared with the same period in 2021.
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06/30/2022 Form 10-Q | 57 | WEC Energy Group, Inc. |
SIX MONTHS ENDED JUNE 30, 2022
Consolidated Earnings
The following table compares our consolidated results for the six months ended June 30, 2022 with the six months ended June 30, 2021, including favorable or better, "B", and unfavorable or worse, "W", variances:
| | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30 |
| (in millions, except per share data) | | 2022 | | 2021 | | B (W) | |
| Wisconsin | | $ | 436.5 | | | $ | 402.8 | | | $ | 33.7 | | |
| Illinois | | 169.8 | | | 155.7 | | | 14.1 | | |
| Other states | | 34.2 | | | 27.2 | | | 7.0 | | |
| Electric transmission | | 56.8 | | | 55.0 | | | 1.8 | | |
| Non-utility energy infrastructure | | 171.8 | | | 140.2 | | | 31.6 | | |
| Corporate and other | | (15.7) | | | 5.2 | | | (20.9) | | |
| Net income attributed to common shareholders | | $ | 853.4 | | | $ | 786.1 | | | $ | 67.3 | | |
| | | | | | | |
Diluted Earnings Per Share | | $ | 2.70 | | | $ | 2.49 | | | $ | 0.21 | | |
Earnings increased $67.3 million during the six months ended June 30, 2022, compared with the same period in 2021. The significant factors impacting the $67.3 million increase in earnings were:
•A $33.7 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 the continued economic recovery in Wisconsin from the COVID-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 in order to forego filing for 2022 base rate increases. These increases in earnings were partially offset by higher depreciation and amortization and the negative impact from actual fuel and purchased power costs compared with costs collected in rates.
•A $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 NSG's rate increase, effective September 15, 2021. These positive impacts were partially offset by increases in various operating expenses, including expenses related to the settlement of legal claims, charitable projects, and benefit costs.
These increases in earnings were partially offset by a $20.9 million decrease in earnings from the corporate and other segment, 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 equity method investments in technology and energy-focused investment funds also contributed to the decrease in earnings.
Expected 2022 Annual Effective Tax Rate
We expect our 2022 annual effective tax rate to be between 18.5% and 19.5%. Our effective tax rate calculations 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 actual 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, 2022 and 2021:
| | | | | | | | | | | | | | |
| | Six Months Ended June 30 |
| (in millions) | | 2022 | | 2021 |
| Wisconsin | | $ | 806.8 | | | $ | 719.2 | |
| Illinois | | 260.1 | | | 243.1 | |
| 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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06/30/2022 Form 10-Q | 59 | 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 was $436.5 million during the six months ended June 30, 2022, representing a $33.7 million, or 8.4%, increase over the same period in 2021. The higher earnings were driven by an increase in natural gas margins related to higher retail sales volumes, primarily due to the continued economic recovery in Wisconsin from the COVID-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 in order to forego filing for 2022 base rate increases. These increases in earnings were partially offset by higher depreciation and amortization and the negative impact from actual fuel and purchased power costs compared with costs collected in rates.
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30 |
| (in millions) | | 2022 | | 2021 | | B (W) |
| Electric revenues | | $ | 2,418.5 | | | $ | 2,193.8 | | | $ | 224.7 | |
| Fuel and purchased power | | 879.8 | | | 695.5 | | | (184.3) | |
| Total electric margins | | 1,538.7 | | | 1,498.3 | | | 40.4 | |
| | | | | | |
| Natural gas revenues | | 1,081.2 | | | 845.4 | | | 235.8 | |
| Cost of natural gas sold | | 706.0 | | | 504.3 | | | (201.7) | |
| Total natural gas margins | | 375.2 | | | 341.1 | | | 34.1 | |
| | | | | | |
| Total electric and natural gas margins | | 1,913.9 | | | 1,839.4 | | | 74.5 | |
| | | | | | |
| Other operation and maintenance | | 650.5 | | | 688.0 | | | 37.5 | |
| Depreciation and amortization | | 374.8 | | | 356.0 | | | (18.8) | |
| Property and revenue taxes | | 81.8 | | | 76.2 | | | (5.6) | |
| Operating income | | 806.8 | | | 719.2 | | | 87.6 | |
| | | | | | |
| Other income, net | | 46.9 | | | 35.3 | | | 11.6 | |
| Interest expense | | 271.9 | | | 279.9 | | | 8.0 | |
| Income before income taxes | | 581.8 | | | 474.6 | | | 107.2 | |
| | | | | | |
| Income tax expense | | 144.7 | | | 71.2 | | | (73.5) | |
| Preferred stock dividends of subsidiary | | 0.6 | | | 0.6 | | | — | |
| 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 |
| (in millions) | | 2022 | | 2021 | | B (W) |
| Operation and maintenance not included in line items below | | $ | 318.7 | | | $ | 303.4 | | | $ | (15.3) | |
Transmission (1) | | 215.3 | | | 255.3 | | | 40.0 | |
Regulatory amortizations and other pass through expenses (2) | | 72.4 | | | 70.5 | | | (1.9) | |
We Power (3) | | 54.9 | | | 58.8 | | | 3.9 | |
| | | | | | |
| | | | | | |
Earnings sharing mechanism (4) | | (10.8) | | | — | | | 10.8 | |
| 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, $256.6 million and $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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(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, $50.9 million and $51.6 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.
The following tables provide information on delivered sales volumes by customer class and weather statistics:
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30 |
| | MWh (in thousands) |
| Electric Sales Volumes | | 2022 | | 2021 | | B (W) |
| Customer Class | | | | | | |
| Residential | | 5,501.1 | | | 5,464.4 | | | 36.7 | |
Small commercial and industrial (1) | | 6,312.1 | | | 6,171.9 | | | 140.2 | |
Large commercial and industrial (1) | | 5,970.5 | | | 6,126.6 | | | (156.1) | |
| Other | | 69.1 | | | 73.6 | | | (4.5) | |
Total retail (1) | | 17,852.8 | | | 17,836.5 | | | 16.3 | |
| Wholesale | | 1,357.9 | | | 1,437.4 | | | (79.5) | |
| Resale | | 2,094.2 | | | 3,282.2 | | | (1,188.0) | |
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 |
| | Therms (in millions) |
| Natural Gas Sales Volumes | | 2022 | | 2021 | | B (W) |
| Customer Class | | | | | | |
| Residential | | 741.2 | | | 658.4 | | | 82.8 | |
| Commercial and industrial | | 452.6 | | | 386.6 | | | 66.0 | |
| Total retail | | 1,193.8 | | | 1,045.0 | | | 148.8 | |
| Transportation | | 767.6 | | | 738.4 | | | 29.2 | |
| Total sales in therms | | 1,961.4 | | | 1,783.4 | | | 178.0 | |
| | | | | | | | | | | | | | | | | | | | |
| | 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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(3)Normal degree days are based on a 20-year moving average of monthly temperatures from the Iron Mountain, Michigan weather station.
Electric Revenues
Electric revenues increased $224.7$15.9 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. To the extent that changes in fuel and purchased power costs are passed through to customers, the changes are offset by comparable changes in
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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 $40.4$11.1 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. The significant factorsfactor impacting the higher electric utility margins were:
•A $54.1was an $81.5 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 customersWisconsin rate orders approved by the PSCW, effective January 1, 2023. See Note 26, Regulatory Environment, in our PSCW-approved2022 Annual Report on Form 10-K for more information on the 2023 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, driven by the impact of favorable weather during the six months ended June 30, 2022, compared with the same period in 2021. As measured by heating degree days, the six months ended June 30, 2022 were 8.0% and 9.6% colder than the same period in 2021 in the Milwaukee area and Green Bay area, respectively.
These increases in margins werewas partially offset by:
•An $18.4A $31.0 million period-over-periodquarter-over-quarter negative impact from actualcollections of 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.
•A $26.6 million decrease in margins related to lower sales volumes, driven by the impact of warmer winter weather during the first quarter of 2023, compared with the same quarter in 2022. As measured by heating degree days, the first quarter of 2023 was 14.8% and 12.7% warmer than the same quarter in 2022 in the Milwaukee area and Green Bay area, respectively.
•Lower margins of $7.4$7.1 million driven by the expiration of certaina wholesale contracts.contract.
•A $5.1 million decrease in other revenues, primarily related to a FERC order in January 2023 that eliminated reactive power compensation MISO was required to pay to generators, including our electric utilities.
Natural Gas Revenues
Natural gas revenues increased $235.8$38.1 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. 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 23%approximately 18% during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. 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 increased $34.1$26.3 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. The most significant factorsfactor impacting the higher natural gas utility margins were:
•A $29.7 million increase in margins from higher sales volumes, primarily driven by the continued economic recovery in Wisconsin from the COVID-19 pandemic, as well as colder weather during the six months ended June 30, 2022, compared with the same period in 2021.
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•A $5.0was a $55.7 million increase in margins related to amortizationthe impact of the Wisconsin rate orders approved by the PSCW, effective January 1, 2023. This increase in margins was partially offset by a certain portion$27.7 million decrease in margins from lower sales volumes, driven by warmer winter weather during the first quarter of WG's regulatory liability consisting of credit balances associated2023, compared 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 revenue deficienciessame quarter in order to forego filing for 2022 base rate increases.2022.
Other Operating Expenses (includes other operation and maintenance, depreciation and amortization, and property and revenue taxes)
Other operating expenses at the Wisconsin segment decreased $13.1increased $93.3 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. The significant factors impacting the decreaseincrease in operating expenses were:
•A $40.0$30.2 million decreaseincrease in transmission expense as approved in the PSCW's 2023 rate orders, effective January 1, 2023. See the notes under the other operation and maintenance table above for more information.
•A $20.2 million increase in depreciation and amortization, driven by the amortizationassets being placed into service as we continue to execute on our capital plan.
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•A $17.3 million increase in regulatory amortizations and WPS's regulatory liabilities associated with transmission escrow balances,other pass through expenses, as discussed in the notes under the other operation and maintenance table above.
•A $10.8$7.9 million decreaseincrease 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 $5.2 million increase in other operating and maintenance related to our power plants, driven by increased maintenance, including a planned outage at the Weston power plant, and operating costs associated with Whitewater, which was purchased in January 2023.
•A $5.0 million increase in benefit costs, primarily driven by higher medical and deferred compensation costs.
•A $4.9 million increase in property and revenue taxes, driven by higher gross receipt taxes during the first quarter of 2023.
•A $4.5 million increase in expense driven by amortization during the amortizationfirst quarter of 2022 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, an increase related to the We Power 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 $5.6 million increase in property and revenue taxes, driven by higher gross receipt taxes.
Other Income, Net
Other income, net at the Wisconsin segment increased $11.6$9.8 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021,2022, driven by higher net credits from the non-service components of our net periodic pension and OPEB costs.AFUDC–Equity due to continued capital investment.
Interest Expense
Interest expense at the Wisconsin segment decreased $8.0increased $14.3 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021,2022, primarily due to WE and WPS issuing long-term debt during the third and fourth quarters of 2022, respectively, and higher short-term debt interest rates. Also contributing to the increase was the deferral in the first quarter of 2022 of $2.0 million 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 lowerincreases. This deferred interest expense is now being amortized over a two-year period. See Note 26, Regulatory Environment, in our 2022 Annual Report on finance lease liabilities, primarily relatedForm 10-K for more information. These increases were partially offset by higher AFUDC–Debt due to the WE Power leases, as finance lease liabilities decrease each year as payments are made.continued capital investment.
Income Tax Expense
Income tax expense at the Wisconsin segment increased $73.5decreased $29.5 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. The increasedecrease in income tax expense was primarily due to an approximate $50 million negative impact related to the lower 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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unprotected excess deferred tax benefits in 2021 from the Tax Legislation did not impact earnings as there was an offsetting impact in operating income. Also contributing to the increase was higher pre-tax income and a $10.0 million increase in 2022.PTCs.
Illinois Segment Contribution to Net Income Attributed to Common Shareholders
The Illinois segment's contribution to net income attributed to common shareholders was $169.8$113.1 million during the six months ended June 30, 2022,first quarter of 2023, representing a $14.1$0.3 million, or 9.1%0.3%, increasedecrease over the same periodquarter in 2021.2022. The increase waslower earnings were driven by a gain onan increase in interest expense, lower net credits from the salenon-service components of certain real estate in Chicago, as well asour net periodic pension and OPEB costs, and higher operating expenses. These negative impacts were partially offset by higher natural gas margins, due todriven by PGL's continued capital investment in the SMP project under its QIP rider and NSG's rate increase, effective September 15, 2021. These positive impacts were partially offset by increases in various operating expenses, including expenses related to the settlement of legal claims, charitable projects, and benefit costs.rider.
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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 | | Three Months Ended March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | | B (W) | (in millions) | | 2023 | | 2022 | | B (W) |
| Natural gas revenues | Natural gas revenues | | $ | 1,124.5 | | | $ | 978.9 | | | $ | 145.6 | | Natural gas revenues | | $ | 599.7 | | | $ | 682.1 | | | $ | (82.4) | |
| Cost of natural gas sold | Cost of natural gas sold | | 536.6 | | | $ | 412.6 | | | (124.0) | | Cost of natural gas sold | | 239.2 | | | 331.0 | | | 91.8 | |
| Total natural gas margins | Total natural gas margins | | 587.9 | | | $ | 566.3 | | | 21.6 | | Total natural gas margins | | 360.5 | | | 351.1 | | | 9.4 | |
| | Other operation and maintenance | Other operation and maintenance | | 192.7 | | | 200.1 | | | 7.4 | | Other operation and maintenance | | 113.7 | | | 113.6 | | | (0.1) | |
| Depreciation and amortization | Depreciation and amortization | | 114.2 | | | 106.7 | | | (7.5) | | Depreciation and amortization | | 58.5 | | | 56.8 | | | (1.7) | |
| Property and revenue taxes | Property and revenue taxes | | 20.9 | | | 16.4 | | | (4.5) | | Property and revenue taxes | | 12.9 | | | 12.5 | | | (0.4) | |
| Operating income | Operating income | | 260.1 | | | 243.1 | | | 17.0 | | Operating income | | 175.4 | | | 168.2 | | | 7.2 | |
| | Other income, net | Other income, net | | 8.7 | | | 3.1 | | | 5.6 | | Other income, net | | 1.3 | | | 5.0 | | | (3.7) | |
| Interest expense | Interest expense | | 35.7 | | | 33.1 | | | (2.6) | | Interest expense | | 21.6 | | | 17.7 | | | (3.9) | |
| Income before income taxes | Income before income taxes | | 233.1 | | | 213.1 | | | 20.0 | | Income before income taxes | | 155.1 | | | 155.5 | | | (0.4) | |
| | Income tax expense | Income tax expense | | 63.3 | | | 57.4 | | | (5.9) | | Income tax expense | | 42.0 | | | 42.1 | | | 0.1 | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 169.8 | | | $ | 155.7 | | | $ | 14.1 | | Net income attributed to common shareholders | | $ | 113.1 | | | $ | 113.4 | | | $ | (0.3) | |
The following table shows a breakdown of other operation and maintenance:
| | | Six Months Ended June 30 | | Three Months Ended March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | | B (W) | (in millions) | | 2023 | | 2022 | | B (W) |
| Operation and maintenance not included in the line items below | Operation and maintenance not included in the line items below | | $ | 123.8 | | | $ | 135.5 | | | $ | 11.7 | | Operation and maintenance not included in the line items below | | $ | 70.7 | | | $ | 70.5 | | | $ | (0.2) | |
Riders (1) | Riders (1) | | 69.9 | | | 65.8 | | | (4.1) | | Riders (1) | | 43.2 | | | 43.5 | | | 0.3 | |
Regulatory amortizations (1) | Regulatory amortizations (1) | | (1.0) | | | (1.2) | | | (0.2) | | Regulatory amortizations (1) | | (0.2) | | | (0.4) | | | (0.2) | |
| | Total other operation and maintenance | Total other operation and maintenance | | $ | 192.7 | | | $ | 200.1 | | | $ | 7.4 | | Total other operation and maintenance | | $ | 113.7 | | | $ | 113.6 | | | $ | (0.1) | |
(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 | | Three Months Ended March 31 |
| | Therms (in millions) | | Therms (in millions) |
| Natural Gas Sales Volumes | Natural Gas Sales Volumes | | 2022 | | 2021 | | B (W) | Natural Gas Sales Volumes | | 2023 | | 2022 | | B (W) |
| Customer Class | Customer Class | | | | | | | Customer Class | | | | | |
| Residential | Residential | | 575.0 | | | 529.6 | | | 45.4 | | Residential | | 373.9 | | | 429.8 | | | (55.9) | |
| Commercial and industrial | Commercial and industrial | | 225.4 | | | 202.0 | | | 23.4 | | Commercial and industrial | | 151.1 | | | 172.9 | | | (21.8) | |
| Total retail | Total retail | | 800.4 | | | 731.6 | | | 68.8 | | Total retail | | 525.0 | | | 602.7 | | | (77.7) | |
| Transportation | Transportation | | 492.6 | | | 456.5 | | | 36.1 | | Transportation | | 306.1 | | | 358.7 | | | (52.6) | |
| Total sales in therms | Total sales in therms | | 1,293.0 | | | 1,188.1 | | | 104.9 | | Total sales in therms | | 831.1 | | | 961.4 | | | (130.3) | |
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| | | Six Months Ended June 30 | | Three Months Ended March 31 |
| | Degree Days | | Degree Days |
Weather (1) | Weather (1) | | 2022 | | 2021 | | B (W) | Weather (1) | | 2023 | | 2022 | | B (W) |
| Heating (3,819 Normal) | | 3,931 | | | 3,655 | | | 7.6 | % | |
| Heating (3,119 Normal) | | Heating (3,119 Normal) | | 2,719 | | | 3,209 | | | (15.3) | % |
(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 $145.6decreased $82.4 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. 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%decreased 17% during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. The remaining drivers of changes in natural gas revenues are described in the discussion of margins below.
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| 03/31/2023 Form 10-Q | 45 | WEC Energy Group, Inc. |
Natural Gas Utility Margins
Natural gas utility margins at the Illinois segment, net of the $4.1$0.3 million impact of the riders referenced in the table above, increased $17.5$9.7 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. The increase in margins was primarily driven by:
•A $12.4$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 22, Regulatory Environment, for more information.
•A $7.7$2.5 million increase related to late payment charges during the impactfirst quarter of 2023, compared with the NSG rate order approved by the ICC, effective September 15, 2021, which includes the Variable Income Tax Adjustment Ridersame quarter in base rates.2022.
•A $3.3$1.5 million increase related to fixed customer charges during the first quarter of 2023, compared with the same quarter 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.2022.
These increases in natural gas utility margins were partially offset by a $5.6 million decrease in fixed charges.
Other Operating Expenses (includes other operation and maintenance, depreciation and amortization, and property and revenue taxes)
Other operating expenses at the Illinois segment increased $0.5$2.5 million, net of the $4.1$0.3 million impact of the riders referenced in the table above, during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. The significant factors impacting the increase in operating expenses were:
•An $11.4A $3.5 million increasepre-tax gain on the sale of certain real estate in expenses associated withChicago during the settlement of legal claims.first quarter in 2022.
•A $10.0$1.7 million increase in expenses related to charitable projects supporting our customersdepreciation 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 depreciationamortization expense, primarily driven by PGL's continued capital investment in the SMP project.
•A $5.1These increases in operating expenses were partially offset by a $2.7 million increasedecrease in natural gas distribution and maintenance costs.
•A $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 an increase in the invested capital tax related to continued capital investment. This increase was offset inwork on the natural gas utility margins.
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These increases in operating expenses were offset by a $54.5 million pre-tax gain on the sale of certain real estate in Chicago.infrastructure.
Other Income, Net
Other income, net at the Illinois segment increased $5.6decreased $3.7 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021,2022, driven by higherlower net credits from the non-service components of our net periodic pension and OPEB costs. See Note 15, Employee Benefits, for more information on our benefit costs.
Interest Expense
Interest expense at the Illinois segment increased $2.6$3.9 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021,2022, primarily due to $225.0 million ofincreased short-term debt interest rates and PGL issuing long-term debt issuances in November 2021.
Income Tax Expense
Income tax expense at the Illinois segment increased $5.9 million during the six months ended June 30, 2022, compared with the same period in 2021, driven by an increase in pre-tax income.December 2022.
Other States Segment Contribution to Net Income Attributed to Common Shareholders
The other states segment's contribution to net income attributed to common shareholders was $34.2$33.2 million during the six months ended June 30, 2022,first quarter of 2023, representing a $7.0$1.7 million, or 25.7%5.4%, increase over the same periodquarter in 2021.2022. The increase in earnings was driven by higher natural gas margins due to aan interim rate increase at MGU,MERC, effective January 1, 2022, and higher sales volumes during the first half of 2022, compared with the same period in 2021. These2023. This positive impacts wereimpact was partially offset by increasesa decrease in operating expenses, as well as interest expense, as discussed below.natural gas margins due to lower sales volumes and an increase in property taxes.
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Since the majority of MERC and MGU customers use natural gas for heating, operatingnet income attributed to common shareholders at the other states segment is sensitive to weather and is generally higher during the winter months.
| | | Six Months Ended June 30 | | Three Months Ended March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | | B (W) | (in millions) | | 2023 | | 2022 | | B (W) |
| Natural gas revenues | Natural gas revenues | | $ | 340.8 | | | $ | 305.4 | | | $ | 35.4 | | Natural gas revenues | | $ | 250.0 | | | $ | 240.9 | | | $ | 9.1 | |
| Cost of natural gas sold | Cost of natural gas sold | | 212.7 | | | 194.1 | | | (18.6) | | Cost of natural gas sold | | 159.2 | | | 156.9 | | | (2.3) | |
| Total natural gas margins | Total natural gas margins | | 128.1 | | | 111.3 | | | 16.8 | | Total natural gas margins | | 90.8 | | | 84.0 | | | 6.8 | |
| | Other operation and maintenance | Other operation and maintenance | | 47.5 | | | 44.4 | | | (3.1) | | Other operation and maintenance | | 24.7 | | | 24.6 | | | (0.1) | |
| Depreciation and amortization | Depreciation and amortization | | 20.2 | | | 18.6 | | | (1.6) | | Depreciation and amortization | | 10.4 | | | 10.0 | | | (0.4) | |
| Property and revenue taxes | Property and revenue taxes | | 9.5 | | | 9.4 | | | (0.1) | | Property and revenue taxes | | 7.4 | | | 4.8 | | | (2.6) | |
| Operating income | Operating income | | 50.9 | | | 38.9 | | | 12.0 | | Operating income | | 48.3 | | | 44.6 | | | 3.7 | |
| | Other income, net | Other income, net | | 1.1 | | | 0.5 | | | 0.6 | | Other income, net | | 0.3 | | | 0.6 | | | (0.3) | |
| Interest expense | Interest expense | | 6.5 | | | 3.0 | | | (3.5) | | Interest expense | | 4.2 | | | 3.3 | | | (0.9) | |
| Income before income taxes | Income before income taxes | | 45.5 | | | 36.4 | | | 9.1 | | Income before income taxes | | 44.4 | | | 41.9 | | | 2.5 | |
| | Income tax expense | Income tax expense | | 11.3 | | | 9.2 | | (2.1) | | Income tax expense | | 11.2 | | | 10.4 | | | (0.8) | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 34.2 | | | $ | 27.2 | | | $ | 7.0 | | Net income attributed to common shareholders | | $ | 33.2 | | | $ | 31.5 | | | $ | 1.7 | |
The following table shows a breakdown of other operation and maintenance:
| | | Six Months Ended June 30 | | Three Months Ended March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | | B (W) | (in millions) | | 2023 | | 2022 | | B (W) |
| Operation and maintenance not included in line item below | Operation and maintenance not included in line item below | | $ | 36.3 | | | $ | 32.6 | | | $ | (3.7) | | Operation and maintenance not included in line item below | | $ | 16.5 | | | $ | 17.4 | | | $ | 0.9 | |
Regulatory amortizations and other pass through expenses (1) | Regulatory amortizations and other pass through expenses (1) | | 11.2 | | | 11.8 | | | 0.6 | | Regulatory amortizations and other pass through expenses (1) | | 8.2 | | | 7.2 | | | (1.0) | |
| | Total other operation and maintenance | Total other operation and maintenance | | $ | 47.5 | | | $ | 44.4 | | | $ | (3.1) | | Total other operation and maintenance | | $ | 24.7 | | | $ | 24.6 | | | $ | (0.1) | |
(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 delivered sales volumes by customer class and weather statistics:
| | | Six Months Ended June 30 | | Three Months Ended March 31 |
| | Therms (in millions) | | Therms (in millions) |
| Natural Gas Sales Volumes | Natural Gas Sales Volumes | | 2022 | | 2021 | | B (W) | Natural Gas Sales Volumes | | 2023 | | 2022 | | B (W) |
| Customer Class | Customer Class | | | | | | | Customer Class | | | | | | |
| Residential | Residential | | 224.6 | | | 192.5 | | | 32.1 | | Residential | | 145.6 | | | 172.0 | | | (26.4) | |
| Commercial and industrial | Commercial and industrial | | 140.8 | | | 110.8 | | | 30.0 | | Commercial and industrial | | 92.8 | | | 103.0 | | | (10.2) | |
| Total retail | Total retail | | 365.4 | | | 303.3 | | | 62.1 | | Total retail | | 238.4 | | | 275.0 | | | (36.6) | |
| Transportation | Transportation | | 425.9 | | | 405.0 | | | 20.9 | | Transportation | | 219.6 | | | 261.0 | | | (41.4) | |
| Total sales in therms | Total sales in therms | | 791.3 | | | 708.3 | | | 83.0 | | Total sales in therms | | 458.0 | | | 536.0 | | | (78.0) | |
| | | Six Months Ended June 30 | | | Three Months Ended March 31 |
| | Degree Days | | Degree Days |
Weather (1) | Weather (1) | | 2022 | | 2021 | | B (W) | Weather (1) | | 2023 | | 2022 | | B (W) |
| MERC | MERC | | | | | | | MERC | | | | | | |
| Heating (4,914 Normal) | | 5,424 | | | 4,696 | | | 15.5 | % | |
| Heating (3,958 Normal) | | Heating (3,958 Normal) | | 3,882 | | | 4,312 | | | (10.0) | % |
| | MGU | MGU | | MGU | |
| Heating (3,934 Normal) | | 4,030 | | | 3,824 | | | 5.4 | % | |
| Heating (3,188 Normal) | | Heating (3,188 Normal) | | 2,738 | | | 3,234 | | | (15.3) | % |
(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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| 03/31/2023 Form 10-Q | 47 | WEC Energy Group, Inc. |
Natural Gas Revenues
Natural gas revenues increased $35.4$9.1 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. 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 approximately 17% during the first quarter of 2023, compared with the same quarter in 2022. 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 $16.8$6.8 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. The significant factors impacting the increase in natural gas utility margins was primarily driven by:were:
•An $8.8A $9.0 million increase related to an interim rate increase at MERC that was effective January 1, 2023. See Note 22, Regulatory Environment, for more information about the new rates at MGU that went into effect in 2022.pending rate case.
•A $6.0$0.9 million increase in revenues 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.late payment charges.
•A $1.5These increases in natural gas utility margins were partially offset by a $3.8 million increasedecrease related to MERC CIP revenue, which was offsetlower sales volumes, primarily driven by warmer weather during the first quarter of 2023, compared with the same quarter 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.2022.
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 $4.8$3.1 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. The significant factors impacting the increase in operating expenses were:
•A $2.2$2.6 million increase in natural gas operationsproperty and customer service expense,revenue taxes, driven by various operation and maintenance projects approved in MGU's rate case and higher labor and external contracting costs.property taxes at MERC.
•A $1.6$1.1 million increase in depreciation and amortization related to continued capital investment.
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06/30/2022 Form 10-Q | 67 | WEC Energy Group, Inc. |
•A $1.5 million increase in operation and maintenance expense related to MERC's CIP program, which has an offsetting increase in margins.
These increases in operating expenses were partially offset by a $2.2 million decrease in bad debt expense related to improvement in past due receivables.expense.
Interest Expense
Interest expense at the other states segment increased $3.5$0.9 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021,2022, primarily due to the deferral of $2.4 million ofhigher short-term debt interest expense during the first six months of 2021, as approved by the MPSC to mitigate the impacts from delaying the filing of its 2021 rate case. This deferred interest expense is now being amortized over a four-year period as a result of MGU's approved rate increase.rates.
Income Tax Expense
Income tax expense at the other states segment increased $2.1$0.8 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021,2022, driven by an increase in pre-tax income.
Electric Transmission Segment Contribution to Net Income Attributed to Common Shareholders
| | | Six Months Ended June 30 | | Three Months Ended March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | | B (W) | (in millions) | | 2023 | | 2022 | | B (W) |
| Equity in earnings of transmission affiliates | Equity in earnings of transmission affiliates | | $ | 84.7 | | | $ | 83.9 | | | $ | 0.8 | | Equity in earnings of transmission affiliates | | $ | 43.8 | | | $ | 41.7 | | | $ | 2.1 | |
| | Other expense | | Other expense | | — | | | (0.1) | | | 0.1 | |
| Interest expense | Interest expense | | 9.7 | | | 9.7 | | | — | | Interest expense | | 4.8 | | | 4.9 | | | 0.1 | |
| Income before income taxes | Income before income taxes | | 75.0 | | | 74.2 | | | 0.8 | | Income before income taxes | | 39.0 | | | 36.7 | | | 2.3 | |
| | Income tax expense | Income tax expense | | 18.2 | | | 19.2 | | | 1.0 | | Income tax expense | | 9.7 | | | 8.9 | | | (0.8) | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 56.8 | | | $ | 55.0 | | | $ | 1.8 | | Net income attributed to common shareholders | | $ | 29.3 | | | $ | 27.8 | | | $ | 1.5 | |
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| 03/31/2023 Form 10-Q | 48 | WEC Energy Group, Inc. |
Equity in Earnings of Transmission Affiliates
Equity in earnings of transmission affiliates increased $2.1 million during the first quarter of 2023, compared with the same quarter in 2022. This increase was primarily due to continued capital investment by ATC.
Income Tax Expense
Income tax expense at the electric transmission segment increased $0.8 million during the first quarter of 2023, compared with the same quarter in 2022, driven by an increase in pre-tax income.
Non-Utility Energy Infrastructure Segment Contribution to Net Income Attributed to Common Shareholders
| | | Six Months Ended June 30 | | Three Months Ended March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | | B (W) | (in millions) | | 2023 | | 2022 | | B (W) |
| Operating income | Operating income | | $ | 196.0 | | | $ | 176.2 | | | $ | 19.8 | | Operating income | | $ | 90.4 | | | $ | 105.6 | | | $ | (15.2) | |
| | Interest expense | Interest expense | | 34.6 | | | 35.9 | | | 1.3 | | Interest expense | | 19.9 | | | 17.2 | | | (2.7) | |
| Income before income taxes | Income before income taxes | | 161.4 | | | 140.3 | | | 21.1 | | Income before income taxes | | 70.5 | | | 88.4 | | | (17.9) | |
| | Income tax expense (benefit) | | (12.2) | | | 0.8 | | | 13.0 | | |
| Income tax benefit | | Income tax benefit | | (17.8) | | | (4.9) | | | 12.9 | |
| Net (income) loss attributed to noncontrolling interests | Net (income) loss attributed to noncontrolling interests | | (1.8) | | | 0.7 | | | (2.5) | | Net (income) loss attributed to noncontrolling interests | | 0.2 | | | (1.8) | | | 2.0 | |
| Net income attributed to common shareholders | Net income attributed to common shareholders | | $ | 171.8 | | | $ | 140.2 | | | $ | 31.6 | | Net income attributed to common shareholders | | $ | 88.5 | | | $ | 91.5 | | | $ | (3.0) | |
Operating Income
Operating income at the non-utility energy infrastructure segment increased $19.8decreased $15.2 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. The increasedecrease 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
Interest Expense
Interest expense at the non-utility energy infrastructure segment increased $2.7 million during the first quarter of 2023, compared with the same quarter in 2022, primarily due to WEC Infrastructure Wind Holding II LLC issuing long-term debt in December 2022.
Income Tax Benefit
The income tax benefit at the non-utility energy infrastructure segment increased $12.9 million during the first quarter of 2023, compared with the same quarter in 2022. The increase was a $6.1primarily due to an $8.6 million positive impact from a sharing arrangementincrease in PTCs in 2023, driven by the acquisition of three additional renewable generation facilities in the second half of 2022 and the first quarter of 2023, which are discussed further in Note 2, Acquisitions. Also contributing to the favorable income tax variance were lower pre-tax earnings during the first quarter of 2023, compared with one of our Blooming Grove customers resulting from strong energy prices.the same quarter in 2022.
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06/30/202203/31/2023 Form 10-Q | 6849 | WEC Energy Group, Inc. |
Interest Expense
Interest expense at the non-utility energy infrastructure segment decreased $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, 2022, compared with $0.8 million of income tax expense recorded during the same period in 2021. The change was primarily due to an $18.5 million increase in PTCs in 2022, driven by 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. This favorable change in the income tax benefit was partially offset by higher pre-tax earnings during the six months ended June 30, 2022.
Corporate and Other Segment Contribution to Net Income Attributed to Common Shareholders
| | | | | Six Months Ended June 30 | | | Three Months Ended March 31 |
| (in millions) | (in millions) | | 2022 | | 2021 | | B (W) | (in millions) | | 2023 | | 2022 | | B (W) |
| Operating loss | Operating loss | | $ | (6.3) | | | $ | (8.5) | | | $ | 2.2 | | Operating loss | | $ | (3.6) | | | $ | (0.5) | | | $ | (3.1) | |
| | Other income, net | Other income, net | | 3.0 | | | 33.7 | | | (30.7) | | Other income, net | | 8.5 | | | 11.9 | | | (3.4) | |
| Interest expense | Interest expense | | 47.2 | | | 48.8 | | | 1.6 | | Interest expense | | 55.6 | | | 22.6 | | | (33.0) | |
| | Loss before income taxes | Loss before income taxes | | (50.5) | | | (23.6) | | | (26.9) | | Loss before income taxes | | (50.7) | | | (11.2) | | | (39.5) | |
| | Income tax benefit | Income tax benefit | | (34.8) | | | (28.8) | | | 6.0 | | Income tax benefit | | (36.9) | | | (24.8) | | | 12.1 | |
| Net income (loss) attributed to common shareholders | Net income (loss) attributed to common shareholders | | $ | (15.7) | | | $ | 5.2 | | | $ | (20.9) | | Net income (loss) attributed to common shareholders | | $ | (13.8) | | | $ | 13.6 | | | $ | (27.4) | |
Operating Loss
The operating loss at the corporate and other segment decreased $2.2increased $3.1 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021. The lower operating loss was2022, driven by a $3.3 million decrease in benefit costsoperating income at Wispark, primarily due to lower gains related to deferred compensation, which is partially offset by increased losses from the investments held in the Integrys rabbi trust. These investment losses are included in thesale of land and other income, net line item discussed below.assets.
Other Income, Net
Other income, net at the corporate and other segment decreased $30.7$3.4 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. The decrease was driven by a $14.4$3.1 million net loss from our equity method investments in technology and energy-focused investment funds during the first quarter of 2023, compared with $11.3 million of net earnings during the same quarter in 2022. This decrease in other income, net was partially offset by a $4.0 million net gain from the investments held in the Integrys rabbi trust during the first halfquarter of 2022,2023, compared with a $10.6$4.6 million net gainloss during the same periodquarter in 2021. An $8.1 million decrease2022. The gains and losses from the investments held in earnings fromthe rabbi trust partially offset the changes in benefit costs related to deferred compensation, which are primarily included in other operation and maintenance expense in our equity methodutility segments. See Note 12, Fair Value Measurements, for more information on our investments held in technology and energy-focused investment funds also contributed to the lower other income, net.Integrys rabbi trust.
Interest Expense
Interest expense at the corporate and other segment decreased $1.6increased $33.0 million during six months ended June 30, 2022,the first quarter of 2023, compared with the same periodquarter in 2021, as we refinanced2022, due to long-term debt obligations during the fourth quarter of 2021issuances in order to take advantage of lower interest rates. This decrease is partially offset by an increase inSeptember 2022 and January 2023 and higher short-term debt driven by higher interest rates, compared with the same period in 2021.rates.
Income Tax Benefit
The income tax benefit at the corporate and other segment increased $6.0$12.1 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021,2022, driven by a higher pre-tax loss. Also contributing to theloss and a $2.1 million quarter-over-quarter increase in the income tax benefit was a $4.4 million increase in excess tax benefits recognized related to stock option exercises and a $1.5 million increase in the
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06/30/2022 Form 10-Q | 69 | WEC Energy Group, Inc. |
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, 2022, compared with the same period in 2021.rate. These increases in income tax benefitsbenefit were partially offset by $8.2a $2.6 million of uncertaindecrease in excess tax positions inbenefits recognized related to stock option exercises during the first quarter of 2021.2023, compared with the same quarter in 2022.
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.
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| 03/31/2023 Form 10-Q | 50 | WEC Energy Group, Inc. |
Cash Flows
The following table summarizes our cash flows during the sixthree months ended June 30:March 31:
| | (in millions) | (in millions) | | 2022 | | 2021 | | Change in 2022 Over 2021 | (in millions) | | 2023 | | 2022 | | Change in 2023 Over 2022 |
| Cash provided by (used in): | Cash provided by (used in): | | | | | | | Cash provided by (used in): | | | | | | |
| Operating activities | Operating activities | | $ | 1,762.6 | | | $ | 1,226.2 | | | $ | 536.4 | | Operating activities | | $ | 796.1 | | | $ | 1,076.8 | | | $ | (280.7) | |
| Investing activities | Investing activities | | (937.5) | | | (1,074.6) | | | 137.1 | | Investing activities | | (1,267.9) | | | (338.2) | | | (929.7) | |
| Financing activities | Financing activities | | (807.7) | | | (124.5) | | | (683.2) | | Financing activities | | 417.6 | | | (706.5) | | | 1,124.1 | |
Operating Activities
Net cash provided by operating activities increased $536.4decreased $280.7 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021,2022, driven by:
•A $690.2$363.8 million increasedecrease in cash fromdriven by higher overall collections from customers as a result of an increase in sales volumescollateral paid to counterparties during the six months ended June 30, 2022,first quarter of 2023, compared with collateral received from counterparties during the same periodquarter in 2021, driven by colder weather and the continued economic recovery from the COVID-19 pandemic. We also over-collected natural gas costs2022, as well as realized losses on derivative instruments recognized during the six months ended June 30, 2022, due to these costs being lower than what was anticipated in rates. In addition, we continued to recover onfirst quarter of 2023, compared with realized gains recognized during the natural gas costs we under-collected from our Illinois and Minnesota customers related to the extreme weather conditions that occurred in February 2021, in accordance with orders from the ICC and MPUC, respectively. See Note 23, Regulatory Environment, for more information on the recoveryfirst quarter of these natural gas costs.2022.
•A $173.6 million increase in cash due to realized gains on derivative instruments as well as higher collateral received from counterparties during the six months ended June 30, 2022, both driven by higher natural gas prices.
These increases in net cash provided by operating activities were partially offset by:
•A $177.5 million decrease in cash from higher payments for fuel and purchased power at our plants during the six months ended June 30, 2022, compared with the same period in 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 $107.3$74.2 million decrease in cash from higher payments for other operation and maintenance expenses. During the six months ended June 30, 2022,first quarter of 2023, our payments were higher for storm restoration,charitable projects accrued for at the end of 2022 and benefit costs, natural gas distribution and maintenance costs, and natural gas storage maintenance costs.as well as due to the timing of payments for accounts payable.
•A $35.3$39.2 million decrease in cash related tofrom higher payments for environmental remediation from work completed on former manufactured gas plant sitesinterest, driven by the issuance of long-term debt during the six months ended June 30,third quarter of 2022, and higher short-term debt interest rates during the first quarter of 2023, compared with the same periodquarter in 2022.
These decreases in net cash provided by operating activities were partially offset by a $203.2 million increase in cash from higher overall collections from customers during the first quarter of 2023, compared with the same quarter in 2022. This increase was driven by the Wisconsin rate orders approved by the PSCW, effective January 1, 2023, an increase in the per-unit cost of natural gas during the first quarter of 2023, and continued recovery on the natural gas costs we under-collected from our Minnesota customers related to the extreme weather conditions that occurred in February 2021. See Note 26, Regulatory Environment, in our 2022 Annual Report on Form 10-K for more information on the 2023 rate orders.
Investing Activities
Net cash used in investing activities increased $929.7 million during the first quarter of 2023, compared with the same quarter in 2022, driven by:
•The acquisition of a 90% ownership interest in Sapphire Sky in February 2023 for $442.6 million, net of cash acquired of $0.3 million. See Note 2, Acquisitions, for more information.
•The acquisition of an 80% ownership interest in Samson I in February 2023 for $249.4 million, net of cash acquired of $5.2 million. See Note 2, Acquisitions, for more information.
•A $115.9 million increase in cash paid for capital expenditures during the first quarter of 2023, which is discussed in more detail below.
•The acquisition of Whitewater in January 2023 for $76.0 million. See Note 2, Acquisitions, for more information.
•Insurance proceeds of $41.0 million received during the first quarter of 2022 for property damage, primarily related to the Public Service Building water damage claim.
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06/30/202203/31/2023 Form 10-Q | 7051 | WEC Energy Group, Inc. |
Investing Activities
Net cash used in investing activities decreased $137.1 million during the six months ended June 30, 2022, compared with the same period in 2021, driven by:
•The acquisition of a 90% ownership interest in Jayhawk in February 2021 for $119.7 million. See Note 2, Acquisitions, for more information. There were no acquisitions during the same period in 2022.
•A $44.2 million increase in proceeds from the sale of assets during the six months ended June 30, 2022, compared with the same period in 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 sixthree months ended June 30March 31 were as follows:
| Reportable Segment (in millions) | Reportable Segment (in millions) | | 2022 | | 2021 | | Change in 2022 Over 2021 | Reportable Segment (in millions) | | 2023 | | 2022 | | Change in 2023 Over 2022 |
| Wisconsin | Wisconsin | | $ | 716.2 | | | $ | 632.5 | | | $ | 83.7 | | Wisconsin | | $ | 375.0 | | | $ | 254.8 | | | $ | 120.2 | |
| Illinois | Illinois | | 232.9 | | | 251.1 | | | (18.2) | | Illinois | | 90.8 | | | 98.6 | | | (7.8) | |
| Other states | Other states | | 36.3 | | | 36.0 | | | 0.3 | | Other states | | 14.9 | | | 11.5 | | | 3.4 | |
| Non-utility energy infrastructure | Non-utility energy infrastructure | | 36.8 | | | 84.8 | | | (48.0) | | Non-utility energy infrastructure | | 12.6 | | | 15.9 | | | (3.3) | |
| Corporate and other | Corporate and other | | 6.6 | | | 5.7 | | | 0.9 | | Corporate and other | | 6.1 | | | 2.7 | | | 3.4 | |
| Total capital expenditures | Total capital expenditures | | $ | 1,028.8 | | | $ | 1,010.1 | | | $ | 18.7 | | Total capital expenditures | | $ | 499.4 | | | $ | 383.5 | | | $ | 115.9 | |
The increase in cash paid for capital expenditures at the Wisconsin segment during the six months ended June 30, 2022,first quarter of 2023, compared with the same period in 2021,quarter of 2022, was primarily driven by higher payments for capital expenditures related to Paris, the new natural gas-fired generation facility being constructed at theWPS's existing Weston power plant WG's LNG facility, and renewable energy projects. These increases were partially offset by lower capital expenditures related to the restoration of WE's PSB andsite, upgrades to WE's electric and WPS's natural gas distribution systems, and electric distribution systems. See Note 7, Property, Plant, and Equipment, for more information on the PSB.construction of WG's LNG facility.
The decrease in cash paid for capital expenditures at the Illinois segment during the six months ended June 30, 2022,first quarter of 2023, compared with the same period in 2021,quarter of 2022, was primarily driven by lower capital expenditurespayments related to upgrades at the Manlove Gas Storage Field, partially offset by increased capital expenditures for upgrades to PGL's natural gas distribution system.
The decrease in cash paid for capital expenditures at the non-utility energy infrastructure segment during the six months ended June 30, 2022, compared with the same period in 2021, was primarily driven by lower capital expenditures related to the construction of Jayhawk, which went into commercial operation in December 2021. See Note 2, Acquisitions, for more information about Jayhawk.AMI program.
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 inrelated to financing activities increased $683.2$1,124.1 million during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021,2022, driven by:
•A $1,018.8$1,100.0 million decreaseincrease in cash due to the issuanceissuances of long-term debt during the six months ended June 30, 2021.first quarter of 2023. We did not issue any long-term debt during the first quarter of 2022.
•A $62.5 million increase in cash due to lower net repayments of commercial paper during the first quarter of 2023, compared with the same periodquarter in 2022.
•A $256.9$16.5 million decreaseincrease in cash due to higher net repayments of commercial paper during the six months ended June 30, 2022, compared with the same period in 2021.
•A $37.1 milliona decrease in cash due to an increase in common stock purchased during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021,2022, to satisfy requirements of our stock-based compensation plans.
These increases in cash were partially offset by:
•A $31.5$19.8 million decrease in cash due to higher retirements of long-term debt during the first quarter of 2023, compared with the same quarter in 2022.
•A $16.5 million decrease in cash due to higher dividends paid on our common stock during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022. In January 2022,2023, our Board of Directors increased our quarterly dividend by $0.05$0.0525 per share (7.4%(7.2%) effective with the March 20222023 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 $292.1$10.9 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 proceeds related to stock options exercised during the six months ended June 30, 2022,first quarter of 2023, compared with the same periodquarter in 2021.2022.
Significant Financing Activities
For more information on our financing activities, see Note 9,8, Short-Term Debt and Lines of Credit.Credit, and Note 9, Long-Term Debt.
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,
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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 20212022 Annual Report on Form 10-K for additional information regarding our significant cash requirements.
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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 21,20, Commitments and Contingencies.
| | (in millions) | (in millions) | | 2022 (1) | | 2023 | | 2024 | | (in millions) | | 2023 (1) | | 2024 | | 2025 | |
| Wisconsin | Wisconsin | | $ | 2,131.7 | | | $ | 2,148.0 | | | $ | 2,114.1 | | | Wisconsin | | $ | 2,530.7 | | | $ | 2,432.8 | | | $ | 2,445.5 | | |
| Illinois | Illinois | | 573.1 | | | 586.8 | | | 635.0 | | | Illinois | | 557.1 | | | 659.5 | | | 614.0 | | |
| Other states | Other states | | 119.1 | | | 103.6 | | | 106.4 | | | Other states | | 111.8 | | | 115.0 | | | 104.7 | | |
| Non-utility energy infrastructure | Non-utility energy infrastructure | | 870.8 | | | 325.7 | | | 297.5 | | | Non-utility energy infrastructure | | 747.0 | | | 683.8 | | | 217.2 | | |
| Corporate and other | Corporate and other | | 22.0 | | | 17.5 | | | 4.3 | | | Corporate and other | | 28.1 | | | 17.0 | | | 2.7 | | |
| Total | Total | | $ | 3,716.7 | | | $ | 3,181.6 | | | $ | 3,157.3 | | | Total | | $ | 3,974.7 | | | $ | 3,908.1 | | | $ | 3,384.1 | | |
(1)This includes actual capital expenditures already incurred in 2022,through March 31, 2023, 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.underway:
•We have received approval to invest in 100 MWMWs 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 MWMWs 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 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 fully constructed, WE and WPS will collectively own 180 MWMWs of solar generation and 99 MWMWs 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 thereceived PSCW for approval to acquire and construct Darien Solar-Battery Park, 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 MWMWs of solar generation and 68 MWMWs 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.
•In April 2023, WPS, along with an unaffiliated utility, received PSCW approval to acquirecompleted the acquisition of Red Barn, Wind Park, a commercially operational utility-scale wind-powered electric generating facility. The project will beis located in Grant County, Wisconsin and once constructed, WPS will ownowns 82 MWMWs of this project. WPS's share of the cost of this project is estimated to bewas approximately $160 million, with construction expected to be completed by the end of 2022.million.
•In April 2021, WE and WPS, along with an unaffiliated utility, filed an application with thereceived 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 MWMWs of solar generation and 149 MWs of battery
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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,January 2023, WE and WPS signed an asset purchase agreement to acquirecompleted the acquisition of Whitewater, a commercially operational 236.5 MW dual-fueleddual fueled (natural gas and low sulfur fuel oil) combined-cyclecombined 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, theThe cost of this facility will be $72.7 million, with the transaction expected to close in early 2023.was $76.0 million.
•In January 2022,February 2023, WPS, along with an unaffiliated utility, filed an application with thereceived PSCW for approval to acquire a portion of West Riverside's nameplate capacity. WPS is also requestingreceived approval to assign the option to purchase part of West Riverside to WE. If approved, WPS or WE wouldwill acquire 100 MWMWs of capacity in the first of two potential option exercises. West Riverside is a combined-cyclecombined cycle natural gas plant recently completed by an unaffiliated utility in Rock County, Wisconsin. If approved, ourWE's share of the cost of this ownership interest is expected to be approximately $91$102 million, with the transaction expected to close in the second quarter of 2023. In addition,addition, WPS could exercise a second option to acquire an additional 100 MWMWs of capacity. If approved, our share of the cost of this ownership interest is approximately $100 million, with the transaction expected to close in 2024.
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 feetBcf 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. After 2023, PGL will return to the traditional ratemaking process to recover the costs of necessary infrastructure improvements. PGL's projected average annual investment through 20242025 is between $280 million and $300 million.
The non-utility energy infrastructure line item in the table above includes WECI's plannedrecent investments in ThunderheadSapphire Sky and Sapphire Sky.Samson I, and its planned investment in Maple Flats. 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$244 million from 20222023 through 2024.2025. We do not expect to make any contributions to ATC Holdco during that period.
Long-Term Debt
There were no materialSee Note 9, Long-Term Debt, for information regarding the changes in our outstanding long-term debt during the sixthree months ended June 30, 2022.March 31, 2023.
Common Stock Dividends
Our current quarterly dividend rate is $0.7275$0.78 per share, which equates to an annual dividend of $2.91$3.12 per share. For information related to our most recent common stock dividend declared, see Note 8,7, Common Equity.
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Other Significant Cash Requirements
See Note 21,20, 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 sixthree months ended June 30, 2022.March 31, 2023.
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 9,8, Short-Term Debt and Lines of Credit, Note 15,14, Guarantees, and Note 20,19, 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,for the remainder of 2023, 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 20212022 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,March 31, 2023, our current liabilities exceeded our current assets by $1,175.3$927.3 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$1,839.6 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 9,8, Short-Term Debt and Lines of Credit and Note 9, Long-Term Debt, for more information about our credit facilities, commercial paper, and commercial paper.debt securities.
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
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market and interest rates. For more information, see Investments in Outside Trusts in Item 7. Management's Discussion and Analysis
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of Financial Condition and Results of Operations – Liquidity and Capital Resources – Sources of Cash in our 20212022 Annual Report on Form 10-K.
Capitalization Structure
The following table shows our capitalization structure as of June 30, 2022,March 31, 2023, 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 | | $ | 11,290.6 | | | $ | 11,540.6 | | Common shareholders' equity | | $ | 11,636.6 | | | $ | 11,886.6 | |
| 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) | | 13,697.8 | | | 13,447.8 | | Long-term debt (including current portion) | | 16,635.5 | | | 16,385.5 | |
| Short-term debt | Short-term debt | | 1,629.1 | | | 1,629.1 | | Short-term debt | | 1,261.2 | | | 1,261.2 | |
| Total capitalization | Total capitalization | | $ | 26,647.9 | | | $ | 26,647.9 | | Total capitalization | | $ | 29,563.7 | | | $ | 29,563.7 | |
| | Total debt | Total debt | | $ | 15,326.9 | | | $ | 15,076.9 | | Total debt | | $ | 17,896.7 | | | $ | 17,646.7 | |
| | Ratio of debt to total capitalization | Ratio of debt to total capitalization | | 57.5 | % | | 56.6 | % | Ratio of debt to total capitalization | | 60.5 | % | | 59.7 | % |
Included in long-term debt on our balance sheet as of June 30, 2022,March 31, 2023, 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,March 31, 2023, 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 20212022 Annual Report on Form 10-K, for more information regarding our debt covenants.
Credit Rating Risk
Cash collateral postings and prepayments made with external parties, including postings related to exchange-traded contracts, and cash collateral posted by external parties were immaterial as of June 30, 2022.March 31, 2023. 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,March 31, 2023, 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.
On May 2, 2023, S&P Global Inc. affirmed WEC Energy Group’s ratings and revised its outlook to negative from stable, citing weakening financial measures. The ratings outlooks on our utilities remain stable. We do not believe the change in ratings outlook at WEC Energy Group will have a material impact on our ability to access capital markets.
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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 20212022 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.
COVID-19 Pandemic
We have taken steps to mitigate the impact of the global COVID-19 pandemic. However, the extent to which the COVID-19 pandemic could continue 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 revenues, increased bad debt expense, increases in past due accounts receivable balances, and access to the capital markets at unfavorable terms or rates.
We will continue to monitor COVID-19 pandemic-related developments affecting our workforce, customers, and suppliers 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.
Regulatory, Legislative, and Legal Matters
Regulatory Recovery
Our utilities account for their regulated operations in accordance with accounting guidance under the Regulated Operations Topic of the FASB Accounting Standard 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 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,See Note 5, Regulatory Assets and Liabilities, for more information on our regulatory assets were $3,278.9 million, and our regulatory liabilities were $4,084.0 million.liabilities.
In January 2014, the ICC approved PGL's use of the QIP rider as a recovery mechanism for costs incurred related to investments in QIP. This rider is subject to an annual reconciliation whereby costs are reviewed for accuracy and prudency. In March 2022,2023, PGL filed its 20212022 reconciliation with the ICC, which, along with the 2020, 2019, 2018, 2017, andreconciliations from 2016 reconciliations,through 2021, are still pending. As of June 30, 2022,March 31, 2023, there can be no assurance that all costs incurred under the QIP rider during the open reconciliation years, which include 2016 through 2022, will be deemed recoverable by the ICC.
See Note 23,22, Regulatory Environment, in this report, and Note 26, Regulatory Environment, in our 20212022 Annual Report on Form 10-K for more information regarding recent and pending rate proceedings, orders, and investigations involving our utilities.
Petitions Before PSCW Regarding Third-Party Financed Distributed Energy Resources
In May 2022, two petitions were filed with the PSCW requesting a declaratory ruling that the owner of a third-party financed DER is not a "public utility" as defined under Wisconsin law and, therefore, is not subject to the PSCW’s jurisdiction under any statute or rule regulating public utilities. The parties that filed the petitions provide financing to their customers for installation of DERs (including solar panels and energy storage) on the customer’s property. A DER is connected to the host customer’s utility meter and is used for the customer’s energy needs. It may also be connected to the grid for distribution.
In July 2022, the PSCW found that the specific facts and circumstances merited the opening of a docket for each petition to consider whether to grant all or part of the requested declaratory ruling.
On December 1, 2022, the PSCW granted one petitioner’s request for a declaratory ruling, finding that the owner of the third-party financed DER at issue in the petitioner’s brief is not a public utility under Wisconsin law. The ruling was limited to the specific facts and circumstances of the lease presented in that petition. A recent petition by several utilities to reopen or rehear the case expired without action by the PSCW. The second petition is also currently being considered. Although the finding in the first petition was limited to the specific facts and circumstances of the lease presented in that petition, similar findings or a broader policy position could adversely impact our business operations.
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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 this legislation with the potential to have the most significant financial impact on PGL and 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 December 2021, the ICC approved the use of a TPTFA rider for PGL. The TPTFA rider allows PGL to recover
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the costs incurred for these third-party transaction fees, effective December 27, 2021. NSG recovers costs related to these third-party transaction fees through its base rates, effective September 15, 2021.
In accordance with the new legislation, effective January 1, 2023, natural gas utilities will alsoare no longer be allowed to charge late payment fees to certain low-income residential customers. We are currently evaluating the impact this legislation may have on our future results of operations.
Uyghur Forced Labor Prevention Act
The CBP issued a WRO in June 2021, applicable to certain silica-based products originating from the Xinjiang Uyghur Autonomous Region of China (Xinjiang), such as polysilicon, included in the manufacturing of solar panels. In June 2022, the WRO was superseded by the implementation of the UFLPA, which was signed into law by President Biden in December 2021. The UFLPA 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 provide the CBP sufficient documentation to meet WRO compliance requirements, and we expect the same will be true for UFLPA purposes, we cannot currently predict what, if any, long-term impact the UFLPA will have on the overall supply of solar panels into the United States and the related long-term impact to timing and cost of solar projects included in our capital plan. However, we are seeing some delays in the release of solar panels by the CBP, which are having an impact on the timing of certain of our solar projects.
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. WhileThe petitioners claimed that Chinese solar manufacturers are shifting products to these countries to avoid the petition is similar to the one rejected by the DOC in November 2021, there are notable differences. The group added Cambodia to the petitiontariffs required on products imported from China and is requestingrequested 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. AOn December 2, 2022, the DOC decision is expected by January 2023.announced its preliminary determination that certain companies are circumventing anti-dumping and countervailing duty orders on solar cells and modules from China. If the DOC determinesmakes a final determination, which is currently expected in the second quarter of 2023, that the petition has merit,such circumvention is occurring it would be able to apply any final tariffs retroactively to November 4, 2021. If imposed, the new tariffs are expected tocould 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 willplans to 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.
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Inflation Reduction Act
In August 2022, President Biden signed into law the IRA, which provides for $258 billion in energy-related provisions over a 10-year period. The provisions of the IRA are intended to, among other things, lower gasoline and electricity prices, incentivize domestic clean energy investment, manufacturing, and production, and promote reductions in carbon emissions. We believe that we and our customers can benefit from the IRA’s provisions that extend tax benefits for renewable technologies, increase or restore higher rates for PTCs, add an option to claim PTCs for solar projects, expand qualified ITC facilities to include standalone energy storage, and its provision to allow companies to transfer tax credits generated from renewable projects. The IRA also implements a 15% corporate alternative minimum tax and a 1% excise tax on stock repurchases. Although significant regulatory guidance is expected on the tax provisions in the IRA, we currently believe the provisions on alternative minimum tax and stock repurchases will not have a material impact on us. Overall, we believe the IRA will help reduce our cost of investing in projects that will support our commitment to reduce emissions and provide customers affordable, reliable, and clean energy over the longer term.
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
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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, we estimate that this proposal, if adopted, would reduce our future after-tax equity earnings from ATC by approximately $7 million annually.annually on a prospective basis. The transmission costs WE, WPS, and WPSUMERC are required to pay ATC after the effective date would also be reduced by this proposal.
American Transmission Company Allowed Return on Equity Complaints
The ROE allowed by the FERC helps determine how much transmission owners, such as ATC, earn on their transmission assets as well as how much consumers pay for those assets. When two complaints were filed arguing the base ROE for MISO transmission owners, including ATC, was too high, the FERC started analyzing the base ROE for these transmission owners.
The base ROEs listed in the two ROE complaint sections below do not include the 50 basis point ROE incentive currently provided for membership in a transmission organization. See the Return on Equity Incentive for Membership in a Transmission Organization section above for more information on this incentive.
First Return on Equity Complaint
In November 2013, a group of MISO industrial customers filed a complaint with the FERC asking that the FERC order a reduction to the base ROE used by MISO transmission owners, including ATC, from 12.2% to 9.15%. Due to this complaint, the FERC and the D.C. Circuit Court of Appeals issued the following orders and opinion. The refunds resulting from these orders and opinion are also described below.
•Orders Issued by the FERC
◦September 2016 Order – On September 28, 2016, the FERC issued an order reducing the base ROE for MISO transmission owners to 10.32% for the period covered by the first complaint, November 12, 2013 through February 11, 2015 and September 28, 2016 going forward.
◦November 2019 Order – On November 21, 2019, the FERC issued ananother order (November 2019 Order) relatedafter directing MISO transmission owners and other stakeholders to provide briefs and comments on a proposed change to the methodology used to calculate thefor calculating base ROE for all MISO transmission owners, including ATC. Based onROE. In 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 also rejected the use of the risk premium model as part of its base ROE methodology in this order. The FERC's modified methodology further reduced the base ROE thatfor all MISO transmission owners, including ATC, is allowed to collect on a going-forward basis, as discussed below.9.88% for the period covered by the first complaint. In response to the FERC'sthis FERC decision, requests for the FERC to rehear the November 2019 Order in its entirety were filed by various parties.
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| 03/31/2023 Form 10-Q | 59 | WEC Energy Group, Inc. |
◦May 2020 Order – 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 thethis May 2020 Order, the FERC made additional revisions to its base ROE methodology, including addingreinstating the use of the risk premium model. As discussed below, theThe 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 for the period covered by the first complaint. Various parties then filed requests to rehear certain parts of September 28, 2016 and prospectively. Thethe May 2020 Order also allowedwith 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.FERC.
◦November 2020 Order – In response to the rehearing requests filed concerning certain parts of the May 2020 Order, the FERC issued an order in November 2020 that confirmed the ROE previously authorized in its May 2020 Order.
◦Refunds – Due to the base ROE changes resulting from these FERC orders, 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, WPS, and WPSUMERC with the net refunds related to the transmission costs they paid during the two refund periods. Theseperiod covered by the first complaint. The refunds were applied to WE's and WPS's PSCW-approved escrow accounting for transmission expense.
Second Return on Equity Complaint•Opinion Issued by the D.C. Circuit Court of Appeals
In February 2015, a second complaint was◦August 2022 Decision – Since several petitions for review were filed with the FERC requesting a reduction in the baseD.C. Circuit Court of Appeals concerning this 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 thatD.C. Circuit Court of Appeals issued an opinion on August 9, 2022 addressing these petitions. In its August 2022 Decision, the base ROED.C. Circuit Court 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,Appeals ruled the FERC relied on certain provisionsfailed to adequately explain why it reinstated the use of the Federal Power Act to dismiss the second complaint and to determine that refunds were not allowed for this period. Inrisk premium model as part of its ROE methodology in its May 2020 Order after previously rejecting the model in its November 2019 Order. Due to this ruling, the D.C. Circuit Court of Appeals vacated the FERC’s previous orders and remanded the issue of determining an appropriate base ROE for MISO transmission owners back to the FERC statedfor additional proceedings. As of March 31, 2023, the new base ROE of 10.02% andFERC had not provided a ruling in response to the collection of previously authorized ROE incentive adders were reasonable for the period coveredAugust 2022 Decision issued by the second complaint. However, the FERC relied on the same provisionsD.C. Circuit Court 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◦Refunds – Since the FERC is required to the various outstanding petitions related to the November 2019 Order, May 2020 Order, and November 2020 Order,conduct more proceedings, additional refunds could still be required for the second complaint period.15-month period from November 12, 2013 through February 11, 2015 and for the period from September 28, 2016 until the date of any future order. Therefore, our financials continue to reflectATC recorded a liability of $39.1 million, reducingon its financials for these potential refunds, which reduced our equity earnings from ATC. ThisATC by $18.6 million during the third quarter of 2022. The liability recorded by ATC is based on a 10.52%9.88% base ROE for the secondfirst complaint period. If it is ultimately determined that a refund is required for the secondfirst 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, WPS, and WPSUMERC would be entitled to receive a portion of the refund from ATC for the benefit of their customers.
Environmental Matters
See Note 21,20, 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.
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 inflation 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 20212022 Annual Report on Form 10-K for a discussion of market and other significant risks applicable to us.
Inflation and Supply Chain Disruptions
We continue to monitor 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
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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 twothree risk factors below that are disclosed in Part I of our 20212022 Annual Report on Form 10-K.
•Item 1A. Risk Factors – Risks Related to the Operation of Our Business – Our operations and corporate strategy may be adversely affected by supply chain disruptions and inflation.
•Item 1A. Risk Factors – Risks Related to the Operation of Our Business – We are actively involved with multiple significant capital projects, which are subject to a number of risks and uncertainties that could adversely affect project costs and completion of construction projects.
•Item 1A. Risk Factors – Risks Related to Economic and Market Volatility – Fluctuating commodity prices could negatively impact our electric and natural gas utility operations.
For additional information concerning risk factors, including market risks, see the Cautionary Statement Regarding Forward-Looking Information at the beginning of this 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 20212022 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 – COVID-19 Pandemic and Market Risks and Other Significant Risks in Item 2 of Part I of this report, as well as Note 13,12, Fair Value Measurements, Note 14,13, Derivative Instruments, and Note 15,14, 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 secondfirst quarter of 20222023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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 20212022 Annual Report on Form 10-K. See Note 21,20, Commitments and Contingencies, and Note 23,22, 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 21,20, Commitments and Contingencies, Note 23,22, 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 impact 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 tois vigorously defenddefending 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 Oillawsuit 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.
PGL and the AG agreed to the terms of a final consent order, which was entered by the court in June 2022. PGL has agreed to pay an aggregate of $575,000, including a civil penalty of $175,000. The consent order also requires PGL to complete the GMZ andintends to continue to provide methane detection devices, bottled water and gas/water separators to affected homeowners, as defined in the final consent order, until certain conditions are satisfied.do so.
ITEM 1A. RISK FACTORS
There were no material changes from the risk factors disclosed in Item 1A. Risk Factors in Part I of our 20212022 Annual Report on Form 10-K.
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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:March 31, 2023:
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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 | | | — | | | |
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| Issuer Purchases of Equity Securities |
| 2023 | | 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 |
| January 1 – January 31 | | 17,270 | | | $ | 93.88 | | | — | | | $ | — | |
| February 1 – February 28 | | — | | | — | | | — | | | — | |
| March 1 – March 31 | | — | | | — | | | — | | | — | |
Total (1) | | 17,270 | | | $ | 93.88 | | | — | | | |
(1)All shares were surrendered by employees to satisfy tax withholding obligations upon vesting of restricted stock.
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| 03/31/2023 Form 10-Q | 62 | WEC Energy Group, Inc. |
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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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| 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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06/30/202203/31/2023 Form 10-Q | 8363 | 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: | AugustMay 4, 20222023 | William J. Guc |
| | Vice President and Controller |
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| | (Duly Authorized Officer and Chief Accounting Officer) |
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06/30/202203/31/2023 Form 10-Q | 8464 | WEC Energy Group, Inc. |
