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    WEC Energy Group Inc (WEC)

    Q4 2023 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$80.76Last close (Jan 31, 2024)
    Post-Earnings Price$79.45Open (Feb 1, 2024)
    Price Change
    $-1.31(-1.62%)

    What went well

    • WEC Energy is actively redeploying capital into high-quality projects, including a 300 MW solar project currently in final due diligence, expected to contribute to earnings growth in 2024.
    • The company targets a robust 6.5% to 7% annual EPS growth over the next five years, with opportunities to invest in infrastructure projects yielding an 8% unlevered IRR, slightly higher than the regulated business.
    • WEC Energy is confident in recovering from the Illinois rate order setback by aiming for the high end of their 2024 EPS guidance of $4.80 to $4.90 per share, and plans to leverage investments in Wisconsin, supported by favorable regulatory conditions and economic growth in the region.

    What went wrong

    • Expected increase in O&M expenses by 6% to 7% in 2024, driven by new assets, infrastructure projects, and storm costs, which could impact earnings.
    • Lower contributions from Peoples Gas expected in Q2 and Q3 of 2024 due to rate design changes under the latest commission order, potentially affecting profitability in those quarters.
    • Uncertainty regarding the size of the upcoming Wisconsin rate increase, with management unable to provide specifics and acknowledging potential inflation impacts, which could imply regulatory risks.

    Q&A Summary

    1. Illinois CapEx Reduction
      Q: Is the $800 million CapEx reduction in Illinois related to S&P?
      A: Yes, the $800 million reduction is almost entirely due to the cessation of work on the Safety Modernization Program (SMP) in Illinois. This pause reflects uncertainty around future spending with S&P.

    2. Growth Outlook and EPS Guidance
      Q: Can you achieve top-end EPS growth despite CapEx timing?
      A: We remain optimistic about our levers and opportunities for 2024. Reaching the top end of our guidance at $490 million would virtually recover the entire impact from the Illinois rate order.

    3. Capital Allocation Shift
      Q: Will reduced Illinois CapEx be replaced elsewhere?
      A: We're reallocating capital to high-quality projects, adding $300 million primarily in regulated investments in Wisconsin. This supports significant economic growth, especially along the I-94 corridor.

    4. Illinois Regulatory Outlook
      Q: What's your view on Illinois as a regulatory jurisdiction?
      A: We're encouraged by upcoming open, productive discussions in dockets reviewing the SMP and the future of gas. We anticipate practical outcomes supporting necessary investments.

    5. Equity Issuance Plans
      Q: How does increased CapEx affect equity issuance timing?
      A: For 2024, we expect to issue $100 million to $200 million through dividend reinvestment and benefit plans. Incremental equity due to higher CapEx is planned for 2025 and beyond.

    6. Energy Infrastructure Investments
      Q: Are you targeting higher returns in Infrastructure segment?
      A: Yes, we aim for an unlevered IRR of around 8%, slightly higher than our regulated business. We see significant opportunities in renewables that complement our regulated operations.

    7. Wisconsin Commission Changes
      Q: Will PSC turnover affect your rate case timing?
      A: No, recent changes at the Wisconsin PSC won't impact our rate case timing. We view the new appointments as balanced and look forward to working with them.

    8. 2024 O&M Increase
      Q: What's driving the 2024 O&M increase?
      A: The majority is due to asset additions already recovered in rates. About 1% is from storm costs, equating to approximately $0.02 per share.

    9. Upcoming Wisconsin Rate Case
      Q: Expected size of the Wisconsin rate increase?
      A: While still finalizing, we anticipate the rate increase to be in line with or slightly less than the last case. Detailed filings will be made in the second quarter.

    10. CapEx Breakdown and Spending
      Q: When will detailed CapEx numbers be provided?
      A: We'll include annual CapEx breakdowns in our upcoming 10-K and February investor deck, offering clarity on our five-year spending plan.

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