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    WEC ENERGY GROUP (WEC)

    Q2 2024 Earnings Summary

    Reported on Jul 31, 2024 (Before Market Open)
    Pre-Earnings Price$85.60Last close (Jul 30, 2024)
    Post-Earnings Price$85.60Open (Jul 31, 2024)
    Price Change
    $0.00(0.00%)

    What went well

    • WEC Energy Group remains confident in offsetting the 6-month delay of the Delilah I Solar Project and has reaffirmed its annual earnings guidance of $4.80 to $4.90 per share, focusing on O&M management and cost controls.
    • Anticipated increased capital expenditures in 2024-2026, driven by projects supporting economic development, including Microsoft opportunities and additional renewables, indicating strong growth potential.
    • Significant opportunities in transmission investments through American Transmission Company (ATC), with MISO Tranche 2 projects expected to be larger than Tranche 1, potentially increasing capital spending and earnings growth.

    What went wrong

    • Regulatory uncertainties and challenges in Illinois could negatively impact WEC's investment plans and earnings growth. The Illinois Commerce Commission approved only $28.5 million out of the requested $145 million for the Safety Modernization program, and WEC has appealed this decision. Additionally, they removed $800 million from their 5-year capital plan due to regulatory issues, and future spending in Illinois may decrease further.
    • Delays in project timelines, such as the 6-month delay of the Delilah I Solar project, could impact WEC's earnings and growth prospects. Although the company plans to offset the downside and reaffirmed their guidance, such delays pose risks to project completion and returns.
    • Potential regulatory pushback in Wisconsin on preconstruction costs may affect project costs and timelines. The Wisconsin PSC denied WEC's request for AFUDC on preconstruction costs for certain projects, and while WEC plans to ask for reconsideration, this could indicate potential regulatory hurdles impacting project economics.

    Q&A Summary

    1. Microsoft Opportunity
      Q: How will Microsoft's expansion impact your plans?
      A: WEC is collaborating with Microsoft, which announced spending $3.3 billion through 2024–2026 on their initial 315 acres purchase. Microsoft subsequently bought an additional 1,030 acres last fall and another 173 acres recently. WEC's current plans only include the energy and capacity needs for the first 315 acres, but they are developing their next 5-year plan to incorporate these expansions.

    2. Illinois SMP CapEx
      Q: What's included in the plan for Illinois Safety Modernization Program?
      A: WEC's current plan includes $100–$120 million per year for the safety program. They previously removed about $800 million from the plan and are refreshing it to reflect the commission's recent approval of only $28.5 million out of $145 million requested , potentially reducing spending over the next five years.

    3. Transmission Opportunities
      Q: How do you view transmission opportunities with MISO Tranche 2?
      A: Tranche 2 is expected to be larger than Tranche 1, offering proportionately larger opportunities for American Transmission Company. Spending likely won't occur until 2030+. Current drivers for ATC include regional economic development and renewable integration, which are impacting capital plans more immediately.

    4. Delilah I Solar Project Delay
      Q: What caused the Delilah I delay, and can it be offset?
      A: A 6-month delay occurred due to a hail event during construction, causing damage being repaired. WEC is confident in offsetting the downside through O&M management, financing costs, and taxes, reaffirming annual guidance of $4.80 to $4.90. They anticipate project completion by year-end, barring further events.

    5. O&M Cost Savings
      Q: How is O&M outlook improving despite earlier expectations?
      A: Projected O&M expense increase is now 2–3%, down from earlier estimates of 3–5% and originally 6–7%. Savings stem from lower benefit costs, optimizing contractor versus internal labor, and efficiency improvements. These are both onetime initiatives and sustainable efficiencies.

    6. CapEx and Equity Needs
      Q: How will higher CapEx impact equity needs?
      A: Incremental CapEx will be financed consistent with utility capital structures. WEC will align equity needs with capital spending, supporting long-term growth opportunities.

    7. PSC's AFUDC Denial
      Q: Any implications from PSC's denial of AFUDC on preconstruction costs?
      A: WEC doesn't see significant implications. They plan to request reconsideration and refile with additional information , emphasizing customer value in early orders for cost savings and delivery timing.

    8. CapEx Allocation amid Illinois Uncertainty
      Q: When might you reallocate capital back to Illinois?
      A: With the SMP decision expected in Q1 2025, WEC will be conservative in Illinois capital plans. They focus on opportunities outside Illinois until there's more clarity.

    9. Point Beach PPA Negotiations
      Q: Any updates on Point Beach PPA with NextEra?
      A: WEC is in productive discussions with NextEra regarding the Point Beach PPA but has nothing definitive to report.

    10. Illinois Gas Appeal Timing
      Q: When is the Illinois gas appeal resolution expected?
      A: WEC anticipates the appellate court decision may take 1–2 years.

    Analyst Coverage

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