Michael Sullivan

Michael Sullivan from Wolfe Research inquired about the likelihood of settling the current Illinois rate cases, how WEC Energy Group plans to offset the headwind from the recent Illinois rider settlement, and whether the Microsoft ramp could potentially lower rates for general customers, along with any insights on the size of the upcoming Wisconsin rate case.

Answer

Scott Lauber, CEO of WEC Energy Group, stated it's too early to consider settlements for the Illinois rate cases. He affirmed that the 7%-8% long-term growth rate, bolstered by $1 billion in new hyperscaler-driven growth, will offset the Illinois settlement headwinds. Mr. Lauber explained that while data centers paying their fair share will incrementally benefit customers long-term by spreading corporate allocations, it's hard to quantify now. He added that Wisconsin rate case numbers are still being compiled with affordability in mind.

Michael Sullivan inquired about the possibility of settling the current Illinois rate cases and how the headwinds from the recent rider settlement's bill credits and rate base reduction would be offset. He also asked if the Microsoft ramp-up could potentially lower rates for other customers and for any indication of the size of the upcoming Wisconsin rate case.

Answer

CEO Scott Lauber stated it's too early to consider settlements for the current Illinois rate case. He clarified that the reaffirmed 7-8% long-term growth rate already factored in the settlement's headwinds, which are being offset by the additional $1 billion growth from hyperscalers who pay their fair share. Mr. Lauber explained that as data centers contribute significantly to the rate base (14-15% in the five-year plan), corporate allocations will spread across a larger footprint, incrementally benefiting other customers long-term, but did not provide specific numbers for the Wisconsin rate case.

Michael Sullivan asked about the extent to which zoning regulations pose an impediment to data center development in CMS Energy's service territory. He also inquired about CMS Energy's regulatory strategy, specifically regarding the potential for more frequent settlements in rate cases to reduce volatility and the possibility of spacing out rate cases over longer periods.

Answer

Garrick Rochow (CEO, CMS Energy) stated that zoning is not an impediment, clarifying that reported issues often refer to areas outside their service territory. He explained that CMS Energy guides data centers to pro-investment communities and that moratoriums are typically short due diligence processes, citing Mason, Michigan, as an example of a community that adopted a new zoning ordinance for data centers. Regarding regulatory strategy, Mr. Rochow expressed openness to settlements but confidence in achieving constructive outcomes even without them, noting that Michigan's rate increases are among the lowest nationally. He suggested that annual rate cases, with smaller increases, allow for better management of affordability and passing savings to customers, though he acknowledged early, non-serious talks about longer spacing.

Michael Sullivan asked about the impact of zoning on data center development in Michigan, specifically if it acts as an impediment or gating factor. He also inquired about CMS Energy's regulatory strategy, including the potential for more frequent settlements to reduce volatility from ALJ decisions and the possibility of spacing out rate cases more, given past commission commentary.

Answer

Garrick Rochow, President and CEO, stated that zoning is not an impediment, clarifying that a Wall Street Journal article referenced Howell, Michigan, which is outside their service territory. He explained that CMS Energy guides data centers to pro-investment communities and that zoning moratoriums are typically short (30-180 days) due processes that often lead to new ordinances, citing Mason, Michigan, as a successful example. Regarding regulatory strategy, Mr. Rochow expressed openness to settlements but confidence in achieving constructive outcomes even without them, given Michigan's regulatory environment. He noted that Michigan's rate increases are among the lowest nationally, and annual rate cases allow for smaller, inflation-aligned increases and passing savings to customers. He mentioned early, but not serious, talks about expanding rate case intervals with the right construct.

The analyst asked about the company's credit metrics following the new plan, the status and timing of the Meade pipeline asset sale, and whether there were any changes to the leverage on that asset.

Answer

The executives stated that credit metrics are expected to remain consistent with current ratings, which have been affirmed by agencies. They confirmed the Meade sale is targeted for Q4 and that there is no change to the asset's leverage.

Asked if the 2024 guidance represents a clean base for long-term growth, inquired about the 2023 FFO to debt metric and future targets, and requested quantification of the expected O&M optimization in 2024.

Answer

The 2024 guidance is a clean base for growth, excluding any one-time gains. The 2023 FFO to debt was around 14% on a pro forma basis, impacted by non-cash-generating CapEx, and is expected to improve with new rate cases. O&M optimization aims for a rate below inflation, with more specifics to be shared at the March Investor Day.

Inquired about the accounting for uncollectibles, the reasons for changes in financial forecasts following the New York rate case, and the status of the asset sale gain assumed in the 2023 guidance.

Answer

Executives clarified the uncollectible adjustment is a standard accounting change, not related to COVID, to neutralize earnings impact. The guidance update reflects better year-end visibility post-rate case, and the rate base forecast changed due to project timing. The asset sale gain is based on specific transactions, and the sale will only proceed if target valuations are met.