WEC Energy Group Q1 2024 Earnings Results & Report

WEC Energy Group EPS Results

• Actual EPS: $1.97
• Consensus EPS: $1.90
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: $1.61
• EPS Beat Rate: 7 of last 8 quarters

WEC Energy Group Revenue Results

• Actual Revenue: $2.68 billion
• Expected Revenue: $2.92 billion
• Beat/Miss: Missed by -$241.17 million
• YoY Revenue Growth: -7.20%

WEC Energy Group (NYSE:WEC) is an energy holding company headquartered in Milwaukee, Wisconsin. Through its operating companies, the company generates and delivers electricity and provides natural gas distribution, storage and related energy services to residential, commercial and industrial customers.

WEC Energy’s principal utility businesses include We Energies and Wisconsin Public Service in Wisconsin, Michigan Gas Utilities, Minnesota Energy Resources, Upper Michigan Energy Resources and North Dakota utility operations. The company operates electric generation and distribution infrastructure, natural gas pipelines and storage facilities, and a portfolio that includes natural gas, coal, renewable and other generating resources.

The company traces its origins to Wisconsin Energy Corporation, which was formed in 1981. Wisconsin Energy adopted the WEC Energy Group name in 2015 following its combination with Integrys Energy Group, expanding its regulated utility operations across the Upper Midwest. WEC Energy Group is led by President and Chief Executive Officer Scott J. LaFave.

WEC Energy Group Q1 2024 Earnings Call Transcript

Key Takeaways

• Q1 2024 EPS of $1.97 beat last year by $0.36 and the company reaffirmed full-year guidance of $4.80–$4.90 per share assuming normal weather.
• Launched a record $23.7 billion five-year ESG investment plan and filed over $2 billion of projects, including acquiring a 90% stake in the 300 MW Delilah 1 solar project for $459 million.
• Filed Wisconsin rate cases for 2025–26 targeting reliability, economic growth and EPA rules, plus proposed $1.2 billion in new gas turbines, with decisions expected by year-end, while Michigan and Illinois proceedings continue.
• Dividend hiked by 7% for the 21st consecutive year, maintaining a payout ratio of 65%–70% and underscoring confidence in cash flow growth.
• The warmest winter on record in Wisconsin cut EPS by an estimated $0.07, prompting a 3%–5% O&M cost reduction outlook and Q2 guidance of $0.60–$0.64 per share.

Presentation

[Operator]

Ladies and gentlemen, good afternoon and welcome to WEC Energy Group's conference call for Q1 2024 results. This call is being recorded for rebroadcast, and all participants are in a listen-only mode at this time. After the presentation, the conference will be open to analysts for questions and answers. In conjunction with this call, a package of detailed financial information is posted at wecenergygroup.com. A replay will be available approximately 2 hours after the conclusion of this call. Before the conference call begins, please note that all statements in the presentation, other than historical facts, are forward-looking statements that involve risks and uncertainties that are subject to change at any time. Such statements are based on management's expectations at the time they are made.

[Operator]

In addition to the assumptions and other factors referred to in connection with the statements, factors described in WEC Energy Group's latest Form 10-K and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated. During the discussions, referenced earnings per share will be based on diluted earnings per share unless otherwise noted. Now it is my pleasure to introduce Gale Klappa, Executive Chairman of WEC Energy Group.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Live from the Heartland, good afternoon, everyone. Thank you for joining us today as we review our results for the Q1 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. Now, as you saw from our news release this morning, we reported Q1 2024 earnings of $1.97 a share. Throughout the warmest winter in Wisconsin history, we remain laser-focused on financial discipline, operating efficiency, and customer satisfaction, and we're confident that we can deliver another year of strong results in line with our guidance for 2024. As a reminder, we're guiding to a range of $4.80-$4.90 a share for the full year.

[Gale Klappa, Executive Chairman at WEC Energy Group]

This, of course, assumes normal weather as always going forward. Switching gears now, we're off to a strong start moving forward with our ESG Progress Plan. It's the largest five-year investment plan in our history, totaling $23.7 billion for efficiency, sustainability, and growth. And as we've discussed, the plan is based on projects that are low risk and highly executable. In the past few weeks alone, we've filed with the Wisconsin Commission more than $2 billion of projects that are needed to meet customer demand across the region. In addition, just a few days ago, we announced that we plan to purchase a 90% ownership interest in the Delilah I Solar Project. Delilah is a 300-MW solar park in Northeast Texas. It will be the next addition to our WEC infrastructure segment.

[Gale Klappa, Executive Chairman at WEC Energy Group]

We expect to close on Delilah with an investment of $459 million when the project goes into service, and that's currently expected by the end of June. Since the beginning of the year, we also purchased an additional 10% interest in the Samson Solar Project. Now, that's part of the Samson and Delilah development in Northeast Texas. We plan to increase our ownership in the Maple Flats Solar Energy Center from 80%-90%. Just as a reminder, Maple Flats is under development in South Central Illinois. It has an offtake agreement with a Fortune 100 company for all the energy it will produce. The project should be in service by the end of this year. So to sum it up, with Delilah and with the increase in ownership of Samson and Maple Flats, we'll be investing an additional $560 million this year in our infrastructure segment.

[Gale Klappa, Executive Chairman at WEC Energy Group]

As you recall, we're reallocating away from our operations in Illinois a total of $800 million over the five-year period 2024 through 2028. These high-quality, zero-carbon projects clearly go a long way toward achieving that goal, and each of these projects meets our strict financial criteria. Overall, the building blocks of our capital plan show even stronger growth in our regulated electric business, and our plan fully supports our long-term earnings growth rate, which we project to be in the 6.5%-7% range on a Compound Average Annual Basis. Now turning to the regional economy, the unemployment rate in Wisconsin stands at 3%, continuing a long-running trend below the national average. In fact, Wisconsin recently reached a new record for employment: more people working than at any other time in state history. That includes a record, folks, for the number of construction jobs.

[Gale Klappa, Executive Chairman at WEC Energy Group]

That's a great sign of the growth and the potential we're seeing, particularly in what we call the I-94 corridor. To give you just one example of the new economic activity in the region, just a few weeks ago, electronic components that are used in fiber broadband networks began rolling off the assembly line at a state-of-the-art facility developed by Sanmina Corporation. These components help form the backbone for high-speed internet service. And we want to welcome Eli Lilly to our neighborhood. The pharmaceutical giant is purchasing a new production facility again in the I-94 corridor. And speaking of growth, Microsoft is moving full speed ahead on the construction of a massive data center complex in the I-94 corridor south of Milwaukee. In fact, in the next few weeks, Microsoft is planning an event here in the Milwaukee area to discuss its plans for new investments in Wisconsin.

[Gale Klappa, Executive Chairman at WEC Energy Group]

So stay tuned. Looking broadly across the landscape, I can tell you that the number of prospects looking at expanding or locating in the Milwaukee 7 region is stronger, literally, than at any time in the past two decades. With that, I'll turn the call over to Scott for more specifics on our regulatory calendar, our capital plan, and our operational highlights. Scott, all yours.

[Scott Lauber, President and CEO at WEC Energy Group]

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 12th. Our requests focus on addressing three 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 emission 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 1st, 2025. Last month, we submitted filings to the Wisconsin Commission for significant developments to support our electric generation business. Our proposed projects include two new sources of natural gas generation.

[Scott Lauber, President and CEO at WEC Energy Group]

The first request is for approval to construct 1,100 megawatts of modern simple cycle combustion turbines at our existing Oak Creek Power Plant site. The expected investment is $1.2 billion. To support that generation, we are proposing to build a 33-mile lateral with an expected investment of approximately $180 million. This lateral would provide firm reliability of natural gas to the Oak Creek site for those units, as well as our Power the Future units that we're converting to natural gas. To help assure reliability, we are proposing a new storage facility at Oak Creek. With a planned investment of approximately $460 million, this facility would have the capacity to store 2 billion cubic feet of liquefied natural gas to support both our generation and our gas distribution system.

[Scott Lauber, President and CEO at WEC Energy Group]

In addition, we requested approval to add 128 MW of state-of-the-art generation using reciprocating internal combustion engines, or as we call them, RACE units. We expect to invest approximately $280 million in that project near our Paris generation station. As a reminder, these investments are expected to earn AFUDC during the construction period. We also have smaller rate reviews in progress at our two Michigan utilities: Michigan Gas Utilities and Upper Michigan Energy Resources. These applications are primarily driven by our capital investments supporting reliability and safety. You recall our discussion last quarter on the recent developments in Illinois. There are three dockets we're actively engaged in at this time. First, the Illinois Commerce Commission granted us a limited rehearing focused on the request to restore $145 million for the Safety Modernization Program in 2024.

[Scott Lauber, President and CEO at WEC Energy Group]

This mostly relates to emergency work, work that was in progress, and work driven by public entities like the City of Chicago. This limited rehearing is now underway, and we expect to receive a final commission order by June 1st. The other two outstanding dockets are expected to span at least a year, and we are actively involved. One is a full review of the Safety Modernization Program, and the other is an evaluation of the future of gas in Illinois. Of course, we'll keep you updated on any further developments. Now turning to our capital plan. We're making good progress on a number of regulated projects in support of affordable, reliable, and clean energy. Our Ixonia LNG Storage Facility is now in service. This additional 1 BCF of storage will be necessary during the extreme weather events we see here in Wisconsin.

[Scott Lauber, President and CEO at WEC Energy Group]

Also, the Wisconsin Commission has approved our purchase of 100 MW of additional capacity at West Riverside Energy Center. We expect to invest approximately $100 million to add this capacity to our electric business in the Q2. At the same time, we're continuing the efforts to phase out older, less efficient coal generation. In fact, I'm happy to report that we're on track to retire unit 5 and 6 of our Oak Creek Power Plant later this month. These changes support our goals to reduce greenhouse gas emissions. It's a busy and strong start to the year. Our capital plan is robust and highly executable, and we continue to focus on the fundamentals of our business. With that, I'll turn things back to Gale.

[Gale Klappa, Executive Chairman at WEC Energy Group]

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%-70% of our earnings in dividends and underscores our confidence in delivering a bright, sustainable future. Next up, Xia will provide us with more details on our financial results for the quarter and our guidance for Q2. Xia?

[Xia Liu, CFO at WEC Energy Group]

Thank you, Gale. Our 2024 Q1 earnings of $1.97 per share increased $0.36 per share compared to the Q1 of 2023. Our earnings package includes a comparison of Q1 results on page 12. I'll walk through the significant drivers. Starting with our utility operations, our earnings were $0.28 higher compared to the Q1 of 2023. Weather had an estimated $0.07 negative impact quarter-over-quarter. As noted earlier, this past winter was the warmest in Wisconsin history. The milder weather, along with $0.09 from higher depreciation and amortization, interest expense, and day-to-day O&M expense, were more than offset by the following positive variances. Timing of fuel expense was a $0.09 increase quarter-over-quarter. Our fuel was in a positive recovered position at the end of Q1 this year compared to an under-recovered position at the end of Q1 last year.

[Xia Liu, CFO at WEC Energy Group]

Rate-based growth contributed $0.35 to earnings quarter-over-quarter. This includes the rate increases from Wisconsin, Illinois, and Michigan. One thing to note, as I mentioned on our year-end call, with the rate design changes at Peoples Gas, base revenues are even more concentrated in the first and Q4 when natural gas usage is the highest. This earnings shift is a significant driver for the quarter. Looking ahead, we'll see the opposite shift in Q2 and Q3. Before I turn to earnings at the other segments, let me briefly discuss our weather-normalized sales. You can find our sales information on page 9 of the earnings package. While weather was historically mild in the quarter, our weather-normalized gas and electric deliveries were both relatively flat and overall in line with our forecast.

[Xia Liu, CFO at WEC Energy Group]

However, on the electric side, our residential and small commercial and industrial segments are currently ahead of forecast. Now, at our energy infrastructure segment, earnings increased $0.02 in the Q1 of 2024 compared to the Q1 of 2023. Production tax credits were higher quarter-over-quarter, resulting from production at our Samson and Sapphire Sky renewable generation projects, both of which were acquired in February 2023. Finally, you'll see that earnings at our corporate and other segment rose $0.06, primarily driven by timing of tax. In closing, as Gale mentioned earlier, we are reaffirming our 2024 earnings guidance of $4.80-$4.90 per share, assuming normal weather for the rest of the year. To offset the mild Q1 weather impact, we're implementing a variety of initiatives.

[Xia Liu, CFO at WEC Energy Group]

For example, we now expect our 2024 day-to-day O&M to be 3%-5% higher than 2023 versus our previous expectation of 6%-7% higher. The lion's share of the reduction is expected to come in the second half of the year. For the Q2, we're expecting a range of $0.60-$0.64 per share. This accounts for April weather and assumes normal weather for the rest of the quarter. As a reminder, we earned $0.92 per share in the Q2 last year. While the Q2 guidance range is lower, if you combine Q1 actual and Q2 guidance, we expect to be $0.04-$0.08 ahead of the Q1 of 2023. With that, I'll turn it back to Gale.

[Gale Klappa, Executive Chairman at WEC Energy Group]

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. I can tell you that your thoughtful questions and your thorough analysis have helped us to build and sustain a premier company on a mission that truly matters. And for that, I'm grateful. Going forward on these calls, you'll be hearing from Scott and Xia. They're ready, and it's their time to shine. And operator, we're all ready for the question-and-answer portion of the call.

[Operator]

Thank you. Now we will take your questions. The question-and-answer session will be conducted electronically. To ask a question, please press the star key followed by the number 1 on your telephone. If you are using a speakerphone, please turn off your mute function to allow your signal to reach our equipment, and we will take as many questions as time permits. Once again, press star 1 to ask a question. We will take our first question from Shar Pourreza with Guggenheim Partners. Your line is open.

[James Blanco, Senior Managing Director at Guggenheim Capital LLC]

Rock and roll, Xia.

[James Blanco, Senior Managing Director at Guggenheim Capital LLC]

Hi, guys. Hi, Gale. It's actually Jameson on for Shar. How are you?

[Gale Klappa, Executive Chairman at WEC Energy Group]

Terrific. What have you done with Shar? Is he in a closet somewhere?

[James Blanco, Senior Managing Director at Guggenheim Capital LLC]

The weather got to him. He's on the road, as always, busy as ever, traveling, and a storm got him. I mean, it's only a force of nature that's going to hold him. So we just have a couple of questions for you.

[Gale Klappa, Executive Chairman at WEC Energy Group]

That's the truth. All right, Jameson.

[James Blanco, Senior Managing Director at Guggenheim Capital LLC]

Thank you. So the first $400 million of the equity in your current five-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?

[Gale Klappa, Executive Chairman at WEC Energy Group]

I think the short answer is no, Xia. Yeah, Xia, I'm thinking of Xia in a closet somewhere. Xia, go ahead.

[Xia Liu, CFO at WEC Energy Group]

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.

[James Blanco, Senior Managing Director at Guggenheim Capital LLC]

Got it. So 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've just clarified.

[Gale Klappa, Executive Chairman at WEC Energy Group]

No, but I wouldn't model in at this stage of the game or even after we get. I wouldn't necessarily model in an increase in equity beyond that.

[Scott Lauber, President and CEO at WEC Energy Group]

No. 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.

[James Blanco, Senior Managing Director at Guggenheim Capital LLC]

Yeah. Perfect.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Does that help, Jameson?

[James Blanco, Senior Managing Director at Guggenheim Capital LLC]

Absolutely. And then we have 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've got.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Very good. Well, a couple of thoughts on your questions about settlements and timing. First of all, I think that our current and 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. So I think, essentially, the door is open for negotiations at the appropriate time. And then in terms of timing itself, historically, the best time for really candid and thorough discussions comes after the staff audit is complete. And Scott, when would you expect on this particular case the staff audit to come out? Midsummer, maybe?

[Scott Lauber, President and CEO at WEC Energy Group]

It'd probably be near the end of summer.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Yeah, end of summer. Of course, a final decision is not statutorily required until December in the case. 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.

[James Blanco, Senior Managing Director at Guggenheim Capital LLC]

It does. Thank you very much, all. Appreciate it. Best of luck, Gale, in your future endeavors.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Well, thank you so much.

[Operator]

We will take our next question from Steve Fleishman with Wolfe Research. Your line is open.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Hey, Steve.

[Steve Fleishman, Stock analyst at Wolfe Research]

Hey, all. Wow, finally the day came. Well, I appreciate all 87 of those calls, which I've probably either listened 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. So just you brought up the Microsoft announcement potentially coming soon. And I guess there's already kind of been announcements, but just could you give a little more color kind of what else they might be talking about? Is there kind of an expansion of maybe the buildout that they're looking at?

[Steve Fleishman, Stock analyst at Wolfe Research]

Just how do we think about just from a supply standpoint, are you basically the supplier for all their electricity, and are you kind of how are you making sure that you're kind of doing it at the right margins and just how we should think about both the tariff margin and the CapEx potential? Yeah.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Yep. 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 headquarters city. In terms of what's changed, what's different, I mean, Microsoft early on in their whole process here in Wisconsin acquired 315 acres of property adjacent to the area that Foxconn is developing in that technology park. So what you see in our current five-year capital plan is the generation that we expect to need to add to essentially serve what is being built, and it's being built quickly. My gosh, there are like 10-12 cranes active. The construction site's incredibly active right now, but it's active on that first 315 acres Microsoft has developed.

[Gale Klappa, Executive Chairman at WEC Energy Group]

So we're thinking about that pending ongoing discussions with Microsoft as kind of the first phase because Microsoft has now acquired substantial additional acreage. In fact, they control 1,345 acres now in that technology park. And they're clearly working very hard and have discussions with our folks every single week as they develop their plans for the rest of that development. And I think we'll hear more from Microsoft on their broader plan for Wisconsin here in the next few weeks. So I hope that helps. And how are we planning to make sure we're serving their needs? I mean, literally, their technical folks and ours are in weekly discussions. Very encouraging. Hope that responds, Steve.

[Steve Fleishman, Stock analyst at Wolfe Research]

Yeah. No, that's great. 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?

[Gale Klappa, Executive Chairman at WEC Energy Group]

Yeah. Essentially, as we've talked about, there's other significant economic growth in that area as well. So in the capital plan to meet what we see on the ground now, 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, now from Eli Lilly and others. We added 1,400 megawatts of dispatchable capacity to the plan.

[Steve Fleishman, Stock analyst at Wolfe Research]

Okay. And then one other question just on Illinois. Obviously, the order late last year disappointing, but staff on rehearing kind of seemed okay. So just you 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 work reductions. And just is that making any impact on just how the state is looking at things for your business?

[Gale Klappa, Executive Chairman at WEC Energy Group]

Well, I'll ask Scott to give his view on this as well. From my observation, Steve, I would say that every intervenor 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 a rehearing that this particular commission is going to make a decision. So time will tell, but we won't have to wait long. Scott, I believe we're looking at probably the end of May.

[Steve Fleishman, Stock analyst at Wolfe Research]

Yeah. We should hear something here by the end of May, early part of June on the decision here. I know safety and reliability is at their forefront. We hear a lot of that in the future of natural gas that they talk about safety and reliability on those cases too. Looking forward to a good decision, but we'll see what happens.

[Gale Klappa, Executive Chairman at WEC Energy Group]

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.

[Steve Fleishman, Stock analyst at Wolfe Research]

Great. Thank you very much. And best to you, Gale, and the team. Thank you.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Thank you, Steve.

[Operator]

We will take our next question from Neil Kalton with Wells Fargo Securities. Your line is open.

[Neil Kalton, Managing Director at Wells Fargo Securities]

Yeah. Hi, everyone.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Hi, Neil. How you doing?

[Neil Kalton, Managing Director at Wells Fargo Securities]

Good.

[Gale Klappa, Executive Chairman at WEC Energy Group]

How you doing, Neil?

[Neil Kalton, Managing Director at Wells Fargo Securities]

Yeah. We're going to miss you. I'm doing really well. We're going to miss your soothing voice at 1:00 P.M. Central in the afternoons during rainy seasons. So, wish you the best going forward.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Thanks, Neil. I'll just put in a plug. You can still listen to Courtside with the Bucks anytime you want on demand.

[Neil Kalton, Managing Director at Wells Fargo Securities]

Absolutely. Absolutely. So anyway, question just kind of following on some of the earlier conversation on the new generation that you're adding about 1,400 megawatts. And 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 be your ability to serve, or would we be looking at new generation requirements if that were to come online?

[Gale Klappa, Executive Chairman at WEC Energy Group]

Well, based on the demand forecast we had when we put the five-year plan together, remember, we rolled that out in November. Basically, the five-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 I think the bottom line for at least for my view and we'll ask Scott to give you his, but the bottom line for my view is if we see, as we roll forward here in the next few months, which I think we're seeing, I mean, additional economic development and projects going in, then that's going to mean we have to build more, Scott.

[Scott Lauber, President and CEO at WEC Energy Group]

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.

[Gale Klappa, Executive Chairman at WEC Energy Group]

So stay tuned, Neil. There'll be a new update coming in the fall.

[Neil Kalton, Managing Director at Wells Fargo Securities]

Yep. Thank you very much.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Thanks, Neil.

[Operator]

We will take our next question from Durgesh Chopra with Evercore ISI. Your line is open.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Hi, Durgesh.

[Durgesh Chopra, Stock Analyst at Evercore ISI Group]

Hey, Gale. Just like Neil said, I'm going to miss hearing your voice as well. Good luck to you.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Thank you, Durgesh. Appreciate it. And are you pulling for the 76ers?

[Durgesh Chopra, Stock Analyst at Evercore ISI Group]

I am for every Philly team, including the 76ers. Excellent.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Terrific.

[Durgesh Chopra, Stock Analyst at Evercore ISI Group]

Excellent. So, listen, Gale, 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 ongoing conversations versus sort of your construction cycle, getting approvals, and all sorts of roadblocks or the milestones that you need to kind of check to get the generation there. Is that something that concerns you?

[Gale Klappa, Executive Chairman at WEC Energy Group]

Just in terms of the amount of time it takes to get approvals, is that what you're referring to, Durgesh?

[Durgesh Chopra, Stock Analyst at Evercore ISI Group]

Yeah. Just the generation, whatever distribution assets you need, the approvals, and just the expedited timeline of these hyperscalers.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Yeah. Good question. And I would kind of, and Scott should give you his view as well. I would kind of break it down into three buckets. I mean, 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 particularly key transmission and distribution pieces of equipment that will be needed. Secondly, very positively so, in this particular technology park, we're allowed to build certain distribution assets and transmission assets that do not have to take a year of approval. So that's really already underway. And then the other piece would be just the regulatory approval. And in Wisconsin, to get what we call a CPCN, basically approval to build generation, the CPCN can take up to a year. I will say this.

[Gale Klappa, Executive Chairman at WEC Energy Group]

I think the staff and the commissioners here in Wisconsin are very aware of the need for speed here. The governor has himself promised Microsoft that the state will do what's necessary to help them be successful here. Clearly, this is major. I mean, clearly, there's a lot of work to be done. Right now, we're off to a really good start. I think the backdrop here and the regulatory support will be very strong to make sure that we meet the need and serve as Foxconn for all of the folks there, but not only Foxconn, but Microsoft well. Scott?

[Scott Lauber, President and CEO at WEC Energy Group]

Oh, I agree, Gale. And I think the other key is we have the site selection at that 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 and the orders placed, which is good.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Yeah. Scott's 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 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. Hope that responds, Durgesh.

[Durgesh Chopra, Stock Analyst at Evercore ISI Group]

That is very, very helpful. I appreciate all the color there. Thank you. Maybe can I just quickly follow up on Illinois, the limited rehearing? Is there a potential for a settlement there?

[Gale Klappa, Executive Chairman at WEC Energy Group]

Sure.

[Durgesh Chopra, Stock Analyst at Evercore ISI Group]

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?

[Gale Klappa, Executive Chairman at WEC Energy Group]

Oh, 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.

[Durgesh Chopra, Stock Analyst at Evercore ISI Group]

Got it. Thanks so much. Appreciate the time.

[Gale Klappa, Executive Chairman at WEC Energy Group]

You take care, Durgesh.

[Operator]

We will take our next question from Carly Davenport with Goldman Sachs. Your line is open.

[Carly Davenport, Vice President at Goldman Sachs]

Hey. Good afternoon. Thanks so much for taking the questions.

[Gale Klappa, Executive Chairman at WEC Energy Group]

You're welcome, Carly. Hey, Carly, you're not old enough to have heard the first of the 75 calls, but we appreciate you calling in on this one.

[Carly Davenport, Vice President at Goldman Sachs]

I'm glad that I made it just in time. We appreciate it. Maybe just to start, wanted to just ask on the electric sales this quarter. We walked through some of the weather impacts. But anything else that you'd flag driving some of the CNI load for the quarter, particularly for the larger customers there? And then as you just think about some of these economic development opportunities, how do you think about really that timing for an inflection in load growth?

[Gale Klappa, Executive Chairman at WEC Energy Group]

Well, we will ask Shaw 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 two quick things. First of all, as mild as the weather was and as far from normal as it was, I would suggest that you take the actual weather-normal sales numbers with a bit of a grain of salt. Some of you heard me say this forever, but our weather normalization techniques that are used in our industry just don't bear up well when you get 1.5, 2 standard deviations away from norm. So read our numbers for Q1 on weather-normal as more precise than accurate.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Secondly, we've already shown, as you probably saw as we've gone through some of our plans, we've already shown a nice uptick in annual projections of energy sales starting in 2026. You remember, we basically, for the past decade or so, have been growing at 0.5%, 0.7% in terms of annual kilowatt-hour sales. We moved that up based on everything we were seeing last November on the ground. We moved that up to 4.5%-5% starting in 2026. I'm guessing that you'll see that number grow when the plan gets updated as we normally do in the fall, I mean, just from everything else that seems to be occurring here post when we put the plan together last fall. And then in terms of specifics on Q1 in terms of industrial, Shaw?

[Beth Straka, Senior VP of Corporate Communications and Investor Relations at WEC Energy Group]

Yes. So to your point, Carly, the weather-normal LC&I electric sales was -1.8%, which was behind our forecast. But 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 much bigger expanded presence in the region. So Q1 was kind of a transition period for them. So that's really just timing. If you excluded those customers, LC&I sales would have been 0.4% higher compared to Q1 last year. So we're not worried about the LC&I sales trend.

[Carly Davenport, Vice President at Goldman Sachs]

Got it. Okay. That's really helpful.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Carly, does that.

[Carly Davenport, Vice President at Goldman Sachs]

For that detail? Yeah. No, that's.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Thank you, Carly.

[Carly Davenport, Vice President at Goldman Sachs]

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?

[Gale Klappa, Executive Chairman at WEC Energy Group]

No. It's a good question. The short answer is no compared to what we filed. 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. Scott, based on everything we've seen that's come out in the last couple of weeks, we're right on track.

[Scott Lauber, President and CEO at WEC Energy Group]

No. Our plan that we filed and the plan we have in our five-year plan lines up right in line with the EPA rules that just came out, were finalized. So very happy to see that come together.

[Carly Davenport, Vice President at Goldman Sachs]

Great. Thank you so much for that color.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Take care, Carly.

[Operator]

We will take our next question from Anthony Crowdell with Mizuho. Your line is open.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Greetings, Anthony. How are you?

[Anthony Crowdell, Managing Director at Mizuho]

Good. Congratulations and best of luck. And best of luck to Shar in the closet also. So great news all around. I guess off of Neil and Steve's question, apologize if you answered it. Just I guess if you talk about you have an adequate reserve margin in the service territory and if a large data center hyperscaler comes in and they eat up that entire reserve margin, and now the generation is needed 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?

[Gale Klappa, Executive Chairman at WEC Energy Group]

No. 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 again that they want to and will pay their fair share. 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 generations that's needed. They will have to pay a small amount. There'll be a little bit of distribution, but they will pay for the distribution investment that serves them. Energy will be a pass-through as it is for many, many of our large industrial customers that we have on what we call real-time pricing. So essentially, we're working on very specific components of a rate.

[Gale Klappa, Executive Chairman at WEC Energy Group]

It's not hugely, Scott, it's not hugely dissimilar from what we're doing for other large industrial customers.

[Scott Lauber, President and CEO at WEC Energy Group]

Now, 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 bill does 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.

[Gale Klappa, Executive Chairman at WEC Energy Group]

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%-5% increase that we're projecting in annual kilowatt-hour sales starting in 2026? That's also going to be helpful as well to our overall customer base.

[Anthony Crowdell, Managing Director at Mizuho]

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.

[Gale Klappa, Executive Chairman at WEC Energy Group]

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.

[Anthony Crowdell, Managing Director at Mizuho]

Great. Thanks again. And again, congratulations.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Right. Thank you. Appreciate it very much, Anthony. You take care.

[Operator]

We will take our next question from Paul Patterson with Glenrock Associates. Your line is open.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Hi, Paul.

[Paul Patterson, Analyst at Glenrock Associates LLC]

Hi. How are you doing? Congratulations.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Thank you, Paul.

[Paul Patterson, Analyst at Glenrock Associates LLC]

I guess my question is the future of gas. You brought it up. I know it's kind of early procedurally, but any sense as to when that might be wrapped up in Illinois?

[Gale Klappa, Executive Chairman at WEC Energy Group]

Oh, yeah. 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 subsubjects or subsubject matters that should have broad discussion from all the stakeholders going forward. So the scoping itself, I think, is going to take till midsummer. Our guess is probably what do you think, Scott? At least a year.

[Scott Lauber, President and CEO at WEC Energy Group]

Yeah. The scoping is going to go till about the end of August. And then it'll be another year after that that they'll go 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.

[Gale Klappa, Executive Chairman at WEC Energy Group]

I did notice, Paul, yesterday or the 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.

[Paul Patterson, Analyst at Glenrock Associates LLC]

Yeah. I guess, also considering that so much of your CapEx is safety-oriented, I would assume that the idea that this is going on doesn't really probably impact your current investment in the business, if you follow what I'm saying.

[Gale Klappa, Executive Chairman at WEC Energy Group]

I think that's reasonably.

[Paul Patterson, Analyst at Glenrock Associates LLC]

Yeah.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Yeah. That's reasonably accurate, Paul. Yes.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Okay. And then just one of the things that we've been seeing a lot of officials talking about recently, the first commissioner, a lot about this grid enhancement technologies. And I'm 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 guys are thinking about just to serve longer-term what you guys see this as being how it might be playing a role or not in your business.

[Paul Patterson, Analyst at Glenrock Associates]

Well, early days, Paul, but my sense and we'll get Scott's view as well. My sense is probably the first application may be in transmission. What do you think, Scott?

[Scott Lauber, President and CEO at WEC Energy Group]

Yeah. 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 when they 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.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Near term, Scott's mentioned the Dynamic Line Ratings. I think pay attention to that because I think that could be very helpful. But 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.

[Paul Patterson, Analyst at Glenrock Associates LLC]

Absolutely. I appreciate it. Once again, congratulations and good luck.

[Gale Klappa, Executive Chairman at WEC Energy Group]

Thank you, Paul. You take care. All right. Well, folks, that concludes our conference call for today. Thank you so much for taking part. If you have more questions, feel free to contact Beth Straka. She can be reached at 414-221-4639. So long, everybody.

[Operator]

Ladies and gentlemen, that concludes today's call. We thank you for your participation. You may now disconnect.

Participants

Executives

• Gale Klappa, Executive Chairman
• Scott Lauber, President and CEO
• Xia Liu, CFO
• Beth Straka, Senior VP of Corporate Communications and Investor Relations

Analysts

• James Blanco, Senior Managing Director at Guggenheim Capital LLC
• Steve Fleishman, Stock analyst at Wolfe Research
• Neil Kalton, Managing Director at Wells Fargo Securities
• Durgesh Chopra, Stock Analyst at Evercore ISI Group
• Carly Davenport, Vice President at Goldman Sachs
• Anthony Crowdell, Managing Director at Mizuho
• Paul Patterson, Analyst at Glenrock Associates LLC
• Paul Patterson, Analyst at Glenrock Associates