WEC Energy Group, Inc. — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Ladies and gentlemen, good afternoon, and welcome to WEC Energy Group's Conference Call for First Quarter 2024 Results. This call is being recorded for rebroadcast.
Live from the Heartland. Good afternoon, everyone. Thank you for joining us today as we review our results for the first quarter of 2024. First, I'd like to introduce the members of our management team who are here with me today. We have Scott Lauber, our President and Chief Executive; Xia Liu, our Chief Financial Officer; and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations.
Thank you, Gale. I'd like to start with some updates on the regulatory front. In Wisconsin, we filed new rate reviews for test years 2025 and 2026 on April 12. Our request focus on addressing 3 major areas of need. First, improving reliability and reducing outages from increased storm activity; second, supporting Wisconsin's economic growth and job creation through investments in new generation and distribution projects; and lastly, complying with the new EPA mission rules by continuing the transition from coal generation to renewables and natural gas. We expect the decision by the end of the year with new rates effective January 1, 2025.
Scott, thank you very much. Now as you may recall, our Board of Directors at its January meeting raised our quarterly cash dividend by 7%. This marks, ladies and gentlemen, the 21st consecutive year that our company will reward shareholders with higher dividends. The increase is consistent with our policy of paying out 65% to 70% of our earnings in dividends and underscores our confidence in delivering a bright, sustainable future.
Thank you, Gale. Our 2024 first quarter earnings of $1.97 per share increased $0.36 per share compared to the first quarter of 2023. Our earnings package includes a comparison of first quarter results on Page 12. I'll walk through the significant drivers.
Great. Thank you, Xia. And now a final note. We did some quick math this morning. And today marks the 87th time that I've had the privilege of hosting an analyst call, starting back in the day at Brand X and then continuing through the past 21 years here at WEC. Together, we've covered a lot of history and a ton of progress.
[Operator Instructions]
It's actually James on for Shar. So the first -- the $400 million of the equity in your current 5-year plan was put there to true-up utility equity layers? In your current Wisconsin rate cases, you're asking for 53.5% equity or 50 basis points above where you indicate current levels to be. Could we see incremental equity being added to the current plan to true those utilities up that 50 basis points?
I think the short answer is no, Shar. I'm thinking of Shar in a closet somewhere. Xia, go ahead.
I mean, we filed for 53.5%. We hope to receive 53.5%. If that's the case, we'll look at the equity. But right now, we haven't changed the equity plan.
Got it. There's no change now, but if you were to get it, there's the possibility, it's not already included in the plan, I guess, is really what you just clarify.
No, but I wouldn't model in at this stage of the game or even after we get it. I wouldn't necessarily model in an increase in equity beyond that.
And I think when you look at it and you look at the details of our filing and -- when you look at the details of the filing and the regulatory ratio, it's about the same as it is this year, right now, you got to look at the financial and the regulatory ratios.
Yes. Did that help, James...
Perfect. Very clear. Absolutely. And then one more also on the rate cases. In your last set of Wisconsin cases, the settlements that you negotiated didn't quite hold up as filed, even though those in prior cases had. Given that precedent, but also that you have a new slate of commissioners in office, how should we think about settlements in Wisconsin today? And kind of what are some of the pushes and takes and maybe how should we think about potential timing for a settlement, if any, in these cases? And that's all I got.
Very good. Well, a couple of thoughts on your questions about settlements and timing. First of all, I think that our current a new chair of the commission, Summer Strand, has publicly stated that she's very open to stakeholder input and would certainly be open to discussions on settlement.
Probably near the end of summer, at the end of summer.
And of course, a final decision is not statutorily required until December in the case. So there's a window between the time of the staff audit and commission deliberations for all the appropriate stakeholders to get together. I hope that helps.
We will take our next question from Steve Fleishman with Wolfe Research.
Gale, well, finally, the day came. Well, I appreciate all 87 of those calls, which I probably either listen to or read the transcript of all of them. So -- but wish you the best. But I'm not going to let you get away without answering some questions.
Yes. Terrific. Great question, Steve. I mean, first of all, to answer your second question, yes, we will be the supplier for all of the energy that Microsoft will need at their site inside the Wisconsin Technology Park, which, as you know, is about 20 miles south of our headquarter city.
Yes. No, that's great. Just -- can you just remind me just for the first 315 acres, how much capital is in your plan to basically make the investment to serve that?
Yes. Essentially, there's other -- as we've talked about, there's other significant economic growth in that area as well. So in the capital plan, for -- to meet what we see on the ground. This is not speculation about future economic growth. This is what we see on the ground, what we knew from Microsoft back in November, what we're actually seeing from HARIBO, from -- now from Eli Lilly and others, we added 1,400 megawatts of dispatchable capacity to the plan.
Okay. And then one other question just on Illinois. The -- obviously, the order late last year disappointing, but staff on rehearing kind of seemed okay. So just feeling that likely the commission will be reasonable there. And I guess, maybe more importantly, there's been a lot of labor pushback on the capital -- on the work reductions. And just is that making any impact on just how the state is looking at things for your business?
Well, I'll ask Scott to give his view on this as well. From my observation, Steve, I would say that every intervener has taken a position. As you say, the staff is supportive of the work continuing that we asked to have allowed to be continued and to be recovered. Virtually all of the intervenors have suggested that at least some amount of work continue. But this is the first time on our rehearing that this particular commission is going to make a decision. So time will tell, but we won't have to wait long.
Yes, it should -- we should hear something here by the end of May, early part June on the decision here. And I know safety and reliability is at their forefront. And we hear a lot of that in the future of natural gas that they talk about safety and reliability on those cases, too. So looking forward to a good decision, but we'll see what happens.
And Steve, my gut tells me that there's an element of practicality, just Midwest practicality here as it relates to making sure that, that system stays safe.
We will take our next question from Neil Kalton with Wells Fargo Securities.
So anyway, a question just kind of following on, on some of the earlier conversation on the new generation that you're adding about 1,400 megawatts. I understand that's for what you see on the ground. At that point in time, what will the reserve margins look like? Basically, what I'm trying to get at is there seems like there's a lot of additional activity that could happen. And what would your -- what would be your ability to serve or would we be looking at new generation requirements if that were to come online?
Well, the 14 -- based on the demand forecast we had when we put the 5-year plan together, remember, we rolled that out in November. Basically, the 5-year plan took us to what we call a balanced reserve margin. meeting the capacity requirements that we're expected to have and to be accredited by MISO. So any -- I think the bottom line for -- at least from my view, and we'll ask Scott to give you his. But the bottom line from my view is if we see, as we roll forward here in the next few months, which I think which we're seeing, I mean, additional economic development and projects going in, then that's going to mean we have to build more. Scott?
You're exactly correct, Gale. As we continue to look at it, and we did size our plan with the required reserve margins, looking at the seasonal capacity that's required from the Midwest operator here. So any additional load, we will need some generation to make sure we have that capacity available.
So stay tuned. There'll be a new update coming in the fall.
We will take our next question from Durgesh Chopra with Evercore ISI.
So listen, so Gale, do you -- I guess, just from your perspective and the team's perspective, do you worry about the pace at which the data center deployment is projected to kind of occur? I'm thinking about how fast they're building, you just alluded to your active conversations versus sort of your construction cycle, getting approvals and all the sort of the road blocks or the milestones that you need to kind of check to get the generation there. Is that something that concerns you?
Just in terms of the amount of time it takes to get approvals. Is that what you're referring to, Durgesh?
Yes. Just the generation, whatever distribution assets you need, the approvals and just the expedited time line of these hyperscalers.
Yes. Good question. And I would kind of -- and Scott should give you his view as well. I would kind of break it down into 3 buckets. And the first bucket is obviously availability of equipment. And there we're fortunate in that we have already placed a number of orders for some of the key -- particularly key transmission and distribution pieces of equipment that will be needed.
I agree, Gale. And I think the other key is we have the site selection at the Oak Creek site for a significant part of our assets. And we've done a lot of the filings already. So really, things are moving ahead very quickly. But we got a process in place in the orders placed, which is good.
Yes. Scott is actually making a very good point about site selection. I mean we've had a power generation campus at Oak Creek literally for the last 70 years. We have buffer property there. We have a property that will easily house, particularly the combustion turbines that Scott talked about earlier. The 1,100 megawatts of combustion turbines that will be an important part of the next addition of assets that we need to have.
That is very, very helpful. I appreciate all the color there. Maybe can I just quickly follow up on Illinois, the limited rehearing. Is there a potential for settlement there? Can you settle with the parties potentially those Part A and Part B? Does it have to be 0 or 145? Or can it be sort of a spend number, which is in between?
No, it can be a spend number anywhere in between. There really is in this limited rehearing process, if you will. There's really no avenue for settlement. But you're right, it's not a binary thing. It's not 0 or 145. The commissioners can use judgment on any number from 0 to 145 or in between.
We will take our next question from Carly Davenport with Goldman Sachs.
Maybe just to start, I wanted to just ask on the electric sales this quarter, you walked through some of the weather impacts, but anything else that you flag driving some of the C&I load for the quarter, particularly for the larger customers there? And then as you just think about some of these economic development opportunities, how you think about really that timing for an inflection in load growth?
Well, we've already -- and we will ask Xia to give you, she's got a couple of very good important details, particularly about the large industrial activity that we saw in Q1 here. Let me just say 2 quick things.
Yes. So on Q1, so to your point, Carly, the weather normal LC&I electric sales was minus 1.8%, which was behind our forecast. But if you -- we looked pretty hard on the specifics. So it turned out that the underperformance was concentrated in really a couple of customers, one in primary metal, the other in the paper sector. And one of them actually is in the process of transition into a very -- a much bigger expanded presence in the region. So Q1 was kind of a transition period for them. So that's really just timing.
Got it. Okay. That's super helpful. Maybe if I could just squeeze one more in. You referenced the new EPA rules in terms of some spend there in the Wisconsin rate cases just filed. I guess, do you expect those new rules to have any impact on the views on gas capacity additions going forward or the capital needs associated with that?
No. It's a good question. And the short answer is no, compared to what we filed. And I will say a real shout out to our generation and environmental planning folks. They've done a great job of anticipating the new EPA rules. And Scott, based on everything we've seen that's come out in the last couple of weeks, we're right on track.
No, our plan that we filed and the plan we have in our 5-year plan lines up right in line with the EPA rules that just came out were finalized. So I'm very happy to see that come together.
And we will take our next question from Anthony Crowdell with Mizuho.
Congratulations and best of luck and best of luck to Shar in the closet also. So great news all around. I guess also Neil and Steve's question, I apologize if you answered it, just I guess you talked about you have an adequate reserve margin in the service territory and if a large data center hyperscale that comes in, and they eat up that entire reserve margin and now the generations need to get back. Just on the allocation of cost for the data center moving in there and maybe eating up that reserve margin, does the rest of this jurisdiction bear the cost of now building back up the reserve margin?
No. And I'm glad you asked the question actually because we should be very, very clear about that. First of all, Microsoft has said time and time and again that they want to and will pay their fair share. And we're working on a specific rate for them that will have several components. It will have essentially a component for generation capacity basically, they'll have to pay for their fair share of the generation that's needed. They will have to pay a small amount. There will be a little bit of distribution, but they will pay for the distribution investment that serves them.
Now it's -- we're laying out a plan for that, like Gale said, they want to pay their fair share. I wouldn't characterize it as them eating into reserve margins. Some of this builders support that. So we always look at our plan and make sure we have the appropriate reserve margin and we look at this economic development. Once again, that's what drove some of the generation here. So I don't think they ate into anything. It's just all additive for everybody here.
And then, Anthony, as you know well because you've been around a long time, when you have substantial kilowatt hour sales growth, that actually is helpful to your customer base. Because it spreads those additional costs over a much broader base of kilowatt hour sales. So there's also as we work our way through this, remember that 4.5% to 5% increase that we're projecting in annual kilowatt hour sales starting in '26. That's also going to be helpful as well to our overall customer base.
Got it. And then if I could just one follow-up. Steve's question earlier about maybe some of the pushback in Illinois from the labor group. I'm just wondering, do you believe labor still has maybe the same, I don't know political leverage is the right term, but the same maybe sway that they've had in years past. Do you think it's more or just kind of the same? And I'll leave it there.
Anthony, it's very hard to tell. I mean, incrementally one way or the other. But I will say this, labor has and will continue to have, I believe, a strong voice in Illinois, and they are passionate about the need for us to continue the safety modernization program.
Great. And again, congratulations.
And we will take our next question from Paul Patterson with Glenrock Associates.
Congratulations. So I guess my question is the future of gas. You brought it up. And I know it's kind of early procedurally, but any sense as to when that might be wrapped up in Illinois?
A long time. What is going on right now and started a couple of months ago is really what they would call a scoping phase. So they're having almost weekly meetings to identify and get broad input on all the different sub subjects or sub subject matters that should have broad discussion from all the stakeholders going forward. So the scoping itself, I think, is going to take until mid-summer. Our guess is probably when do you think Scott, at least a year.
Yes. It's supposed to -- the scoping is going to go to about the end of August, and then it will be another year after that, that they built through the investigation and the policy that may have to come out of it. But one of the things the ICC is really doing though is making sure they hear everybody's voice in this. So they're getting a lot of people involved, which is good to get all the different issues and circumstances on the table. So they're trying to be a real robust process here.
I did notice, Paul yesterday or day before that one of the environmental groups and again -- multiple stakeholders taking place in the scoping process but one of the environmental groups on the record did say that they believe there would have to be a very long transition and that natural gas would play a significant role for a long period of time, which I thought was both practical, accurate and encouraging.
Yes. And I guess, also considering that so much of your CapEx is safety-oriented. I would assume that it doesn't really -- the idea that this is going on doesn't really probably impact your current investment in the business? If you follow...
I think that's reasonably -- yes, that's reasonably accurate, Paul. Yes.
Okay. And then just one of the things that we've been seeing a lot of officials talking about recently per commissioner about -- a lot about this enhanced grid enhancement technologies. And I was just wondering how you guys as an industry leader are sort of thinking about the deployment of this and how it might impact the industry as you're -- as you guys are thinking about just sort of longer term -- what do you guys see this as being -- how it might be playing a role or not in your business?
Well, early days, Paul, but my sense -- and we'll get Scott for you as well, my sense is probably the first application maybe in transmission. What do you think, Scott?
Yes. We're going to have a lot of technology on the system. So it's hard to decide what exactly new technology will be coming, but we have a lot of automation that we put on the system that you can really see are very effective when there is a storm that rolls through. So I think the technology will continue to improve and I think transmission and whether you do dynamic line ratings and stuff, you're going to continue to see the benefits of technology. And I think just like anything else, it continues to evolve here and we get better and better at it.
In near term, as Scott has mentioned the dynamic line ratings, I think, pay attention to that because I think that could be very helpful. But there's a lot -- as you know, there's a lot of R&D underway to try to enhance both reliability and stability. So I hope that gives you at least a broad answer to the question, Paul.
Absolutely. I appreciate it. Once again, congratulations, and good luck.
Thank you, Paul. You take care.
And ladies and gentlemen, that concludes today's call. We thank you for your participation. You may now disconnect.