WEC Energy Group Q3 2022 Earnings Call Transcript

Participants

Corporate Executives

• Gale E. Klappa, Executive Chairman
• Scott J. Lauber, President and Chief Executive Officer
• Xia Liu, Executive Vice President and Chief Financial Officer

Analysts

• Shar Pourreza, Guggenheim Partners
• Julien Dumoulin-Smith, Bank of America Co.
• Richard Sunderland, J.P. Morgan
• Durgesh Chopra, Evercore ISI
• Michael Lapides, The Goldman Sachs Group, Inc.
• Steve Fleishman, Wolfe Research
• Anthony Crowdell, Mizuho Bank
• Nicholas Campanella, Credit Suisse Group AG
• Jeremy Tonet, J.P. Morgan
• Vedula Murti, Hudson Bay Capital Management

Presentation

[Operator]

Good afternoon, and welcome to WEC Energy Group's Conference Call for Third Quarter 2022 Results. This call is being recorded for rebroadcast. [Operator Instructions]

Before the conference call begins, I'll remind you 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. 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.

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 made available approximately two hours after the conclusion of this call.

And now, it's my pleasure to introduce Gale Klappa, Executive Chairman of WEC Energy Group. Please go ahead.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Thank you, and good afternoon, everyone, and thank you for joining us today as we review our results for the third quarter of 2022. First, I'd like to introduce the members of our management team who are here with me. 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 third quarter 2022 earnings of $0.96 a share. Three major factors shaped another solid quarter, strong performance from our Infrastructure segment, an uptick from our ownership in American Transmission Company, plus a warm close to the summer in September. Of course, our balance sheet and cash flows remained strong and stable.

Now, I'll switch gears and provide you with some background on the Wisconsin rate settlements that we announced in October. As you recall, we filed rate reviews earlier this year with the Public Service Commission of Wisconsin for all our Wisconsin utilities. After the commission staff completed its analysis, we reached agreements with multiple parties, including the Citizens Utility Board and the Wisconsin Industrial Energy Group. In fact, more parties supported these settlements than any other settlement we've reached over the years. Scott will provide you with more detail on the terms in just a moment, but I would simply say that we view this as a very positive step forward. The process, it's now in the home stretch and we look forward to the commission's review which we expect in December.

Our other big news for the day is the rollout of our ESG Progress Plan for the period 2023 through 2027. As you may have seen from our announcement this morning, we expect to invest $20.1 billion with an ongoing focus on efficiency, sustainability, and growth. This is the largest capital plan in our history, an increase of $2.4 billion. That's more than 13.5% above our previous five-year plan.

Now, as we look forward, I would describe our growth trajectory as long and strong. In fact, our plan will now support compound earnings growth of 6.5% to 7% a year over the next five years without any need to issue equity. And as you've come to expect from us, this projected earnings growth will be a very high quality. Highlights of the plan include a significant increase in renewable energy projects for our regulated utilities from roughly 2,400 megawatts of capacity in our previous plan to nearly 3,300 megawatts in this plan.

And as we continue to decarbonize our system, it's important to point out that passage of the Inflation Reduction Act is a real true game-changer for customer affordability. We now project long-term customer savings of nearly $2 billion from our investment in renewables in this five-year plan. That's nearly double what we projected just a year ago.

We've also dedicated more capital to hardening our networks, our electric distribution networks so that we can deliver high level of reliability for our customers. And we've included in the new ESG Progress Plan an increase in transmission investment. Two major factors are driving this growth, renewable projects that require transmission and the long-range planning process being conducted by MISO, the Midwest grid operator. Add it all up, shake it all around, and we have what I really believe is a premium growth plan. The projects that are driving our growth are low-risk and highly executable. They are paving the way for greater sustainability, paving the way for an energy future that's affordable, reliable, and clean.

And now, before I turn it over to Scott, I'd like to cover a significant development in our Infrastructure segment. Just yesterday, you may have seen the news that we will acquire an 80% interest in the Maple Flats Solar Energy Center. That's a 250-megawatt project being developed by Invenergy in South Central Illinois. We plan to invest approximately $360 million for 80% ownership of the project. Maple Flats has an offtake agreement with a Fortune 100 company for the sale of all the energy it will produce, and under the Inflation Reduction Act, Maple Flats will qualify for production tax credits. The project of course meets all our financial criteria and we will further diversify the renewable assets in the Infrastructure segment of our business.

And finally, a brief look at the regional economy. Wisconsin added 14,400 private sector jobs in September and the unemployment rate in the state stands at 3.2%. That's well below the national average. We continue to see major investments from growing companies in our region and a wide range of developments is in the pipeline, so I would just say, watch this space.

And with that, I will turn the call over to Scott for more information on our regulatory developments, our operations, and our Infrastructure segment. Scott, all yours.

[Scott J. Lauber, President and Chief Executive Officer at WEC Energy Group]

Thank you, Gale. I'd like to start by reviewing where we stand on the regulatory front. First, let's get back to the details and the rate review. Pending commission approval, a partial settlement agreement would bring several other changes beyond the base rates. We've agreed to a common equity component of 53% for each of our Wisconsin utilities, consistent with our initial request. The settlement calls for the continuation of the revenue-sharing mechanism that has been in place this year.

The agreement also addresses the future cost recovery of the older units of our Oak Creek Power Plant. First, we've agreed to securitize $100 million of the book value of the plant's environmental controls. Second, after retirement, we would propose to levelize over 25 years, recovery of the remaining book value, which is approximately $400 million. We agreed with the settling parties that the commission should determine the return on equity for each utility along with the allocation of revenue among customer classes. We expect a commission review by mid-December.

In addition, today, we filed a rate review at one of our smaller utilities, Minnesota Energy Resources. We are seeking an overall bill increase of 7.9%, primarily driven by capital investments. We expect interim rates will go into effect January 1st.

Meanwhile, we're making good progress on a number of regulatory capital projects. In Wisconsin, work continues on our new reciprocating internal combustion engines, or as we call them RICE units, as well as our liquefied natural gas storage facilities. As we've discussed, these projects are needed to support the reliability of our electric and natural gas systems.

And our Red Barn Wind development continues to move forward in Southwestern Wisconsin. We now expect to come online early next year. With an investment of $160 million, this project will provide about 80 megawatts of renewable energy to our system. Work continues on the Badger Hollow II Solar facility and the Paris Solar-Battery Park. We still expect these projects to go into service next year with the battery storage anticipated in 2024. Of course, we'll keep you updated on any future developments.

We're continuing to make strides in support of a low and no carbon generation. Just last month, we completed our pilot project, blending hydrogen and natural gas in one of our modern RICE units in Michigan's Upper Peninsula. This is a first-in-the-world test of its kind using this technology. As you'll recall, we partnered with the Electric Power Research Institute to lead this research. The project mixed hydrogen and natural gas in a 25% to 75% blend. We are still evaluating the data. However, our initial findings indicate that all project measures met or exceeded our expectations.

The units performed very well and efficiently. As expected, nitrogen oxide emissions increased, our equipment was able to take these emissions out, and of course, carbon dioxide emissions were reduced. Our research will help demonstrate the feasibility of this approach for potential generation at a larger scale in the future. We look forward to sharing the full results with our industry and the public early next year. And as we discussed, we've been able and working on to bring high-quality renewable natural gas to our customers. Just last month, we signed our fourth RNG contract, contributing to our goal of net-zero methane emissions. We plan to have RNG flow in our system by early next year.

Outside our utilities, we continue making good progress on projects in our WEC Infrastructure segment. I'm pleased to report we've completed the acquisition of the Thunderhead Wind Farm and expect it to enter commercial operations later this year. And we expect Sapphire Sky Wind to go into service early next year. Together, the two projects represent approximately $800 million of investment. And as Gale noted, we're excited to add our first solar project to this segment with Maple Flats.

And with that, I'll turn it back to Gale.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Scott, thank you very much. And as we head now into the final months of the year, we are narrowing our earnings guidance to a range of $4.38 to $4.40 a share and we expect to reach the top end of that range. And a quick reminder about our dividend. We continue to target a payout ratio of 65% to 70% of earnings. We're positioned very well within that range, so I expect our dividend growth will continue to be in line with the growth in our earnings per share.

Next up, Xia will provide you with more details on our third quarter financials. Xia, all yours.

[Xia Liu, Executive Vice President and Chief Financial Officer at WEC Energy Group]

Thanks, Gale. Our 2022 third quarter earnings of $0.96 per share increased $0.04 per share compared to the third quarter of 2021. Our earnings package includes a comparison of third quarter results on Page 17. I'll walk through the significant drivers.

Starting with our utility operations. Overall, earnings across our regulated businesses were down $0.03 when compared to the third quarter of 2021. While weather was favorable relative to normal, it negatively impacted earnings by an estimated $0.03 per share quarter over quarter. Outside of weather, earnings from our utility operations were flat quarter over quarter. Rate base growth contributed $0.09 to earnings. This was fully offset by higher depreciation and amortization expense, an increase in day-to-day O&M, and the timing of fuel expense and other items. In terms of sales, on a weather-normalized basis, retail electric deliveries in Wisconsin, excluding the iron ore mines, were up 0.003%. Sales to our large commercial and industrial customers grew 2.1% compared to last Q3. Overall, retail demand for electricity is tracking our forecast.

Regarding our investment in American Transmission Company, earnings increased $0.05 compared to the third quarter of 2021. Higher earnings were mostly related to the resolution of historical appeals pertaining to the ROE used by MISO transmission owners. As of the third quarter and going forward, we are recording ATC earnings at a 10.38% return on equity. Earnings at our Energy Infrastructure segment improved $0.02 in third quarter of 2022 compared to the third quarter of 2021. This was mainly driven by production tax credits from our Jayhawk Wind Farm that began commercial operation at the end of last year. Finally, you'll see that earnings at our Corporate and Other segments were flat quarter over quarter. Overall, we improved on our third quarter performance by $0.04 per share compared to last year.

Looking now at the cash flow statement on Page 6 of the earnings package. Net cash provided by operating activities increased $53 million. Recovery of natural gas costs drove this increase. And total capital expenditures and asset acquisitions were $2.1 billion for the first nine months of 2022, a $316 million increase as compared with the first nine months of 2021. As you can see, we have been executing well on our capital plan.

Looking forward, as Gale outlined earlier, we're excited about our plan to invest $20.1 billion over the next five years in key infrastructure. This ESG Progress Plan supports 7.4% annual growth in our asset base. Pages 18, 19, and 20 of the earnings packet provide a breakdown of the plan, which I will highlight here. As we continue to make our energy transition, over 70% of our capital plan is dedicated to sustainability, including $7.3 billion in renewable projects and another $7.3 billion in grid and fleet reliability.

Additionally, we dedicated $2.8 billion to electric and gas infrastructure to support customer growth. We also plan to invest $2.7 billion in technology and modernization of our systems to further generate long-term operating efficiency. This robust capital plan supports a higher and narrowed EPS growth rate of 6.5% to 7% over the long term. As always, we're using the midpoint of this year's original guidance as our base. To remind you, that number is $4.31 per share. With our strong economic development backdrop and our continued focus on efficiency, sustainability, and growth, we see a long runway of investment ahead even beyond the next five years. As Gale said before, this trajectory is long and strong.

In closing, I'd like to provide our earnings guidance. For the fourth quarter, we are expecting a range of $0.73 to $0.75 per share. As a reminder, we earned $0.71 per share in the fourth quarter last year. Also, let me reiterate our guidance for 2022. As Gale noted, the new range is $4.38 to $4.40 per share. Our expectation is that we'll reach the top end of the range. This assumes normal weather for the remainder of the year.

With that, I will turn it back to Gale.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Xia, thank you very much. And overall, folks, we're on track and focused on providing value for our customers and our stockholders. Operator, we're now ready for the Q&A portion of the call.

Questions and Answers

[Operator]

Thank you. [Operator Instructions] Our first question is from Shar Pourreza with Guggenheim Partners. Your line is open.

[Shar Pourreza, Analyst at Guggenheim Partners]

Hey, guys.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Rock and roll, Shar.

[Shar Pourreza, Analyst at Guggenheim Partners]

How you doing, Gale?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

We're good. How about you?

[Shar Pourreza, Analyst at Guggenheim Partners]

Not too bad, not too bad. Just getting ready for EEI. So, Gale, just a couple of questions here. So your initial look at the five year capital plan shows pretty consistent spending at the infrastructure but a large jump on Wisconsin on the generation side. As we're sort of thinking about the drivers of the increase, is it more on the IRA-related side and if so, are you assuming more RFP wins, less reliance on tax equity, more regulated acquisitions? I guess what's driving this jump and what's the mix between solar, wind, and storage?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Okay. Great question, Shar, as always. And take your vitamins before EEI. Let me try to break that down into several pieces. The first is as you recall, because of our particular situation with our tax appetite, we never had the need for tax equity. So just set that aside. That was never in our capital plan. And then, secondly, in terms of what are the big drivers of the increase from $17.7 billion to $20 billion? Really, there are three as I kind of mentioned in the script but the first is continued decarbonization of our electric system in Wisconsin, the retirement of older coal-fired power plants in the future, and the need to have carbon-free generation to support the capacity needs of the state.

Xia can give you the breakdown of the renewable projects that we're laying out in the five-year plan between wind and solar and battery storage, but long story short, it's a continuation of the decarbonization of the system and very much enhanced in terms of customer affordability by the benefits of the Inflation Reduction Act. But clearly, the Inflation Reduction Act with the huge customer benefits that I mentioned over the long term, are really a factor in helping with bill headroom as we continue again to decarbonize the economy. So that's one big chunk.

And as I mentioned, we're going from, in the previous five-year plan, about 2,400 megawatts of renewables for our regulated customers to about 3,300 megawatts in this particular plan.

The second piece [Technical Issues] plan but also as more renewables get completed and online in Wisconsin, there is a need for upgraded transmission. And in addition to that, some of the transmission system here is of an age where it's going to need to be rebuilt. So we're seeing big uptick in transmission investment needs. And then, the third is we had outlined a while back a $700 million plan to harden our electric distribution network and that will continue. So I hope that responds to your question.

Xia, do you want to give a quick breakdown of the 3,300 megawatts in terms of wind, solar, and batteries?

[Xia Liu, Executive Vice President and Chief Financial Officer at WEC Energy Group]

Yeah, I'd be happy to. So we assumed about 1,900 megawatts of solar. So that's a little over 440 megawatts increase compared to the last plan. We assumed around 670 megawatts of wind and 720 megawatts of battery. So that adds up to about 3,300. So I'm giving you some round numbers. So higher solar, higher wind, slightly lower battery compared to the prior plan.

[Shar Pourreza, Analyst at Guggenheim Partners]

Got it. And then, just a detailed breakout when you provided EEI, should we just expect a step up in generation spending will be more back-end loaded or will it be an increase across the periods? I guess, how do we layer this in as we're thinking about your updated growth guide?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Well, great question, Shar. As you know, we've got a number of renewable projects in flight right now. So I think this is not a back-end loading kind of a thing. It's pretty pro-rata across the five years.

[Shar Pourreza, Analyst at Guggenheim Partners]

Okay. Perfect. And then, Gale, lastly is just on as we're thinking about the Infrastructure segment, historically, it's been ahead of your planning budget but we could see some softness there. Especially, as many of the regulated peers it competes with in other states are now obviously more competitive post-IRA. First, I guess do you agree with that, and then what are your thoughts on essentially all of your peers kind of exiting these non-utility businesses and what seems to be fairly healthy transaction multiples? Thanks.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Shar, I always respect your opinion but in terms of future softness in our Infrastructure segment, we just don't see it. We honestly don't see it. And I think a good example of that is I mean coming out of the gate on the Inflation Reduction Act. And we mentioned to you and others that the Inflation Reduction Act, by allowing a choice for solar projects between investment tax credits and production tax credits, that choice could open up a whole lane of additional investment for us in the Infrastructure segment, and shazam, it did with our announcement of Maple Flats. But honestly, we don't see for our company a softness there.

And, you're right. Some other companies have decided to exit that business but to be honest with you, I think a lot of that -- it was very good transaction multiples, obviously, but a lot of that is to avoid equity, a lot of that is to avoid dilution. We're not in that position, and so we think it's a very good business for us. It's meeting all of our financial criteria but I would just add one thing that I think is really important and that we probably don't emphasize enough. We're building flexibility here.

[Shar Pourreza, Analyst at Guggenheim Partners]

Right.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Post-2030, when a number of the contracts that are in place for these Infrastructure segment renewables, when they roll off, we're going to have the potential to roll some of these projects at a very good price into our regulated asset base. So we're building carbon-free flexibility for the future and carbon-free capacity for the future. We'll have a lot of options with these assets and frankly, given the multiples we're seeing, they're probably worth a lot more than we're seeing in our own value.

[Shar Pourreza, Analyst at Guggenheim Partners]

Very fair points. Thanks, Gale. We'll see you in a couple of weeks.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Look forward to it. Thank you, Shar.

[Operator]

The next question is from Julien Dumoulin-Smith with Bank of America. Your line is open.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Hello, Julien.

[Julien Dumoulin-Smith, Analyst at Bank of America]

Hey. Afternoon, Gale and team.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

How's it going?

[Julien Dumoulin-Smith, Analyst at Bank of America]

Thank you, guys, for the time. Quite well. Thank you. Appreciate it.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Yeah. Terrific. And I'm still married, still in Houston, right?

[Julien Dumoulin-Smith, Analyst at Bank of America]

You bet so. Making a new life off it, indeed. So a couple of questions for you. Let me just start off where we sort of left a little bit. I mean if you think about the extent of the IRA opportunities, obviously, you guys have increased the regulatory utility outlook to $3.3 million from $2.4 million. But is that the full extent of it? I mean can we expect a little bit more?

And then related to that, as you look at the higher-rate environment today, you talk about meeting the financial criteria with the solar investment here. I mean what kind of ROEs and IRRs are you seeing out there? Should we calibrate -- recalibrate ourselves in this elevated rate environment out there or is that still a bit TBD on this project and kind of the go-forward wacky investments?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

No. To answer your second question -- and I'm going to have Scott give you his thoughts as well on -- particularly, on the trajectory of additional renewables beyond our five-year plan in Wisconsin, which I think is robust. But long story short, back to your question on the IRRs on our infrastructure projects, I mentioned this particular project, $360 million solar facility in Southern Illinois, this meets all of our financial criteria. So roughly 8% levered IRR and again returns that exceed the returns in our regulated business and, as I mentioned, gives us tremendous flexibility in the 12 to 15 years ahead of us.

So at the moment, and again we can be very, very selective with these projects. We have eight wind farms that are either in operation or we've committed to and now, the solar facility, but we are -- again, by being selective, by working with great partners like Invenergy, I think we've got a really solid future and I don't see at the moment the kind of softness that perhaps some of the others are seeing but it may be because we can be particularly selective. Scott?

[Scott J. Lauber, President and Chief Executive Officer at WEC Energy Group]

No, you're exactly right. A lot of opportunities as you saw, we just announced Maple Flats solar project. As you think about the long-term and the benefits of the IRA, as Gale mentioned in the prepared remarks, we have over the 20 years, over $2 billion of customer savings. For the projects that we've announced, that goes through 2027. I think there's a lot more opportunities as you look at the last half of the decade here. So probably more to come, a lot of good savings, and when we look at that $2 billion of savings for our customers, it factors in the IRA and we think a very conservative only $4 gas cost. So the benefits are even more as we look at more renewables, as we see $5, $6, $7 gas costs. So a lot of opportunities here. Hope that's helpful.

[Julien Dumoulin-Smith, Analyst at Bank of America]

Thanks. Yeah, absolutely, absolutely. Excellent. And then, if I may here, just pivoting back to the Illinois side of the equation or more focused on Peoples Gas in Chicago, any updated regulatory strategy there following the expiration of the existing pipe replacement rider the end of next year?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

No, as you mentioned, the pipe replacement rider, which we call the QIP, the qualified investment plan rider, by legislation is set to expire at the end of 2023. So we are still in the process of evaluating what's appropriate and certainly, with the election well underway and just a few days away, practically, we need to wait till after the election really have the appropriate conversations with the right folks.

The only thing I will say is the work needs to continue. Whether it's through a rider or whether it's through a rate case with forward looking test period, the work needs to continue. And as you remember, the Illinois Commerce Commission asked us to have an independent engineering study done. More than 80% in that study, which was extensive and it took over a year to complete by an independent engineering firm. That firm found that more than 80% of the remaining pipes under the City of Chicago have a useful life left of less than 15 years. So the work must go on. We're on target with it and we'll just continue to work the process as we move into next year.

[Julien Dumoulin-Smith, Analyst at Bank of America]

All right. Fair enough. I'll leave it there. Thank you, guys. See you soon.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Thanks, Julien. Take care. See you.

[Operator]

The next question is from Jeremy Tonet with J.P. Morgan. Your line is open.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Greetings, Jeremy. How you doing today?

[Richard Sunderland, Analyst at J.P. Morgan]

Hi. Good afternoon. It's actually Rich Sunderland on for Jeremy. Thanks for the time, Gale.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

You're welcome.

[Richard Sunderland, Analyst at J.P. Morgan]

Thinking about the narrowed growth rate here. Curious on a couple different considerations. One is you walk from the greater than 7% asset-based growth, I know you've typically outlined parent financing cost is the delta down to the growth rate. But that's ticked up at the high end of the EPS growth remaining 7%. Any thoughts around the considerations to moving that higher than 7% or what else we might not be thinking of in terms of offsets from asset-based EPS?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Well, it kind of starts -- well, first of all, as you know, our new 6.5% to 7% growth rate is probably the tightest projected growth rate in the industry. And I think that's a reflection of our ability to execute, our ability to build projects on time and on budget, our track record of consistency. So I see the narrow growth rate as again very, very strong in our confidence of our ability to deliver.

In terms of the actual math, you start with -- as you know, you start with what is the average growth rate in the asset base, and that is 7.4% a year. And then, we back -- we have no need for equity, which I think is a particularly distinguishing factor for us in the industry. But we have to back off financing costs, not just at the parent, but also debt costs at the individual utilities and at the Infrastructure segment. So you put it all together and with our -- what I think is our conservative interest rate assumptions, it gets you to that 6.5% to 7% growth rate.

Xia, anything you'd like to add to that?

[Xia Liu, Executive Vice President and Chief Financial Officer at WEC Energy Group]

No, I think you covered it, Gale.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

I hope that helps to respond to your question.

[Richard Sunderland, Analyst at J.P. Morgan]

No, that's very helpful. And maybe just picking up the last thread there on the financing side. Where do you see FFO to debt standing currently and maybe through this plan period as well, especially consideration of the higher capex here?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Yes. Xia has got the detail for you.

[Xia Liu, Executive Vice President and Chief Financial Officer at WEC Energy Group]

Yeah. We are still -- remember, I talked about it in the last quarter earnings call that the IRA provides balance sheet flexibility from several fronts, the PTC for solar, then stand-alone ITC for battery investment, and also the transferability. So all those things provide more flexibility for us. So basically, the financial plan accommodates two things. One is IRA, two is higher interest rates and also the higher capital, and we're still looking at the target FFO to debt over the longer term. And by the way, the higher interest rates are already factored in the Wisconsin settlement, as you probably already knew.

[Richard Sunderland, Analyst at J.P. Morgan]

Got it. Thank you very much for the color there.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

You're more than welcome.

[Operator]

The next question is from Durgesh Chopra with Evercore ISI. Your line is open.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Durgesh, the Eagles still undefeated. But I heard that you're not going to change your jersey until they lost, so I'm hoping that you've taken a shower anyway.

[Durgesh Chopra, Analyst at Evercore ISI]

No comments, Gale. Don't jinx the Eagles. Hey. Just I wanted to quickly follow up. Xia, thank you for sharing the 3.3 gigawatts worth of renewable generation editions. I just wanted to kind of get a sense of what's included in the current rate settlement and then what should we -- how should we think about regulatory approvals in terms of timeline and sort of key dates for us to watch as you execute on that 3.3-gigawatt portfolio that you just articulated?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Xia has got the full breakdown. I can tell you, though, a pretty significant percentage of the 3.3 gigawatts is already in flight. But we have a number of them coming, and Xia has got the breakdown for you.

[Xia Liu, Executive Vice President and Chief Financial Officer at WEC Energy Group]

Yeah. So out of the 3,300, the amount that we will file in the future is about 2,100. So that gives you a sense that over 1,200 megawatts are already either under development or we have already filed and we'll address those in the rate tease test year '23, and also we have a limited reopener in '24.

[Durgesh Chopra, Analyst at Evercore ISI]

Got it. So 1,200 already underway and then 2,100, what's the -- kind of what's the timing of those? Are those like -- you said reopener '24. So are those like '25 and beyond type sort of approvals?

[Xia Liu, Executive Vice President and Chief Financial Officer at WEC Energy Group]

I think like Gale mentioned, this is a pretty balanced generation reshaping plan. So I think our spend in Wisconsin generation is pretty balanced over the five years. So you would think that it's incremental each year over the five-year period.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

No. Yeah, absolutely. So again, we have a number of projects in the pipeline, and we're very optimistic. But really, I mentioned earlier the benefits of the legislation in terms of customer affordability are really significant. And, Scott, you might want to just talk about the timeframe. I mean, the quicker we put these in, the quicker the benefits flow.

[Scott J. Lauber, President and Chief Executive Officer at WEC Energy Group]

Sure. Absolutely, Gale. So we -- as we talked about earlier, we have three projects that are actually in construction right now. And then, there's two significant commission right now waiting for their review to go through the process. But when you look at the $2 billion of savings, as we get these in, those production tax credits, as you can imagine, are probably starting in that '25, '26, '27 timeframe as the projects start going into service. And we already factored some of those in for the ones that are in construction now. So about $2 billion of savings over the 20 years, but as you remember, using those production tax credits for solar, we're going to be able to give those back to customers much faster.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Over 10 years, think of that.

[Scott J. Lauber, President and Chief Executive Officer at WEC Energy Group]

10 years and it'll hit right away versus 30 years with the investment tax credit. So very favorable for customers long term.

[Durgesh Chopra, Analyst at Evercore ISI]

That's very helpful. Thank you...

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Durgesh, I hope that helps respond. Thank you. Take care.

[Durgesh Chopra, Analyst at Evercore ISI]

It does. Thank you.

[Operator]

The next question is from Michael Lapides with Goldman Sachs. Your line is open.

[Michael Lapides, Analyst at The Goldman Sachs Group]

Hey, Gale. Hey...

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Greeting...

[Michael Lapides, Analyst at The Goldman Sachs Group]

Thank you, Gale. Good to hear from you as always. Sorry to cut you off there. Hey, I really had two questions. One was on the gas side and one on the financing side. This is one of your first five-year plans where capital spend on the gas distribution system, not only didn't go up, it was flattish, maybe even down a little bit. Well, if I go back and look over the last number of years, you would add increasing levels of gas-related spend -- capital spend for reliability purposes, not just Illinois, but Wisconsin as well. Just curious what you're seeing there and what some of the drivers behind that are.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Sure. And I'll ask Scott and Xia to give their view as well. But long story short, Michael, you are correct. When you look at the allocation of capital across the five-year plan, the gas distribution part of that capital is pretty flat. But I think it reflects two things. First of all, it reflects the real investment need and opportunity as we continue to decarbonize the system, the electric system in Wisconsin. So that is a driving need, which has really grown the capital portion so renewable generation is way up in the capital allocation compared to prior years.

We've continued to make progress but again, with the benefits of the Inflation Reduction Act and our continued focus on retiring older coal-fired units, the opportunity and the need for renewable investment has grown. So that's, in my mind, the biggest factor.

And then the fact that the gas distribution piece is flat, I think, reflects two things. One, reflects that we have a quite modern system, but we're also bolstering that system and we're not too far from the end of building LNG storage facilities for our gas distribution network in Wisconsin. But that spending, I mean, where construction is going very well and that spending will tail off as those LNG storage facilities come into service. And then, of course, the spending on the pipe replacement program in Chicago continues apace but at about the same level. Scott, anything you'd like to add?

[Scott J. Lauber, President and Chief Executive Officer at WEC Energy Group]

You're exactly correct, Gale. I think the key item is remember those liquified natural gas storage tanks are going in construction, going well, going to add capacity for our distribution system and a majority of that spending is being done this year.

[Michael Lapides, Analyst at The Goldman Sachs Group]

Got it. And then I have a follow-on question. Just for holding company-related debt as well as debt at the Energy Infrastructure segments, just can you remind us kind of what's the percent of raw dollar amount that's floating at either of those two boxes and what's the level of maturities and kind of how you're thinking about refinancing levels just given the broader move in rates?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Yeah. Well, Xia's got the exact details sitting right in front of her, but let me frame that for you because I think you're asking a very good question. And again, it's an area where I think we separate ourselves from some other companies because, as you know, we've always used conservative financing techniques, conservative financing plans. And so, our percentage of floating rate debt compared to the total debt outstanding is really quite low. So I'll let Xia give you the details.

[Xia Liu, Executive Vice President and Chief Financial Officer at WEC Energy Group]

Yeah. I think you know we have a target holding company to total debt around 30%, so we're managing around that number. And to Gale's point, the risk capital percentage is pretty modest for us. So I think that helps us from a rising interest rate environment. And again, we try to assume pretty conservative interest rates in the forecast period, both at the utilities and the holding company at key level. So I think we're addressing the interest rate exposure that way.

[Michael Lapides, Analyst at The Goldman Sachs Group]

Got it. And then last question, just on the increase in the ATC, the transmission spend. Should we assume that a large chunk of that is a little bit on the back-end loaded side just due to siding and permitting?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Actually, if you'd asked that question two years ago or even a year ago, I think Scott and I would have said, yeah, that -- particularly with Tranche 1 from the MISO long-term planning process, we would have probably said it's way out into the decade. But now, I think you're going to see some of that spending really uptick in 2025 and beyond.

[Scott J. Lauber, President and Chief Executive Officer at WEC Energy Group]

Yeah. And we'll be putting a slide together in our new investor deck, but you're actually going to start seeing it in '25, '26 as it relates to Tranche 1, but actually, some additional investments in American Transmission Company starting in 2024. So it's a good -- the long plan in American Transmission Company just came out with their 10-year assessment that even shows a longer growth period here. So it's actually up about 50% from last year's 10-year assessment. So a real positive, and I think it's going to be a longer-term plan. It starts earlier and longer.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

And part of that -- Michael, you're asking a great question. Part of that is because some of the early opportunities that have been identified through the MISO Tranche 1 are really upgrades or additions or expansions on existing rights of way with transmission already in place and that helps tremendously in terms of just being able to get things moving, not have to get new permits in terms of new rights of way. So there's a real positive development coming out of Tranche 1 that you see beginning to be reflected in our five-year plan.

[Michael Lapides, Analyst at The Goldman Sachs Group]

Got it. Thank you, guys. Much appreciated.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Thank you. Take care, Michael.

[Operator]

The next question is from Steve Fleishman with Wolfe Research. Your line is open.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Steve, did you survive the Wolfe conference? Got a chance to go to lunch at all?

[Steve Fleishman, Analyst at Wolfe Research]

I'm just about to have lunch finally. But no, we have to do it again next year. I'll wait another year. So actually, I think the last time I saw you, Gale, you talked about sitting around waiting for panels to come out of a warehouse.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Yeah.

[Steve Fleishman, Analyst at Wolfe Research]

So maybe you could just kind of talk a little bit about how you're doing on the kind of current renewables projects in terms of just the supply chain and flipper?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Yeah. Great question. And you're right. The last time you and I were together actually at the Wolfe Conference in late September, we were talking about kind of how are we going to keep, for example, the construction of Badger Hollow II, very large, regulated solar farm in Southwestern Wisconsin under construction but badly needing delivery of solar panels. And Scott has some good news for you on the developments out of the warehouse in Chicago.

[Scott J. Lauber, President and Chief Executive Officer at WEC Energy Group]

Yes, Gale. So we've got about 50 megawatts in a warehouse in Chicago. The first 30 megawatts have been released. They just saw a picture yesterday. They're starting to be assembled on-site, so that's really good news. We're working on the remaining 20 megawatts. So construction continues at that site. And we have orders placed now. We figured out -- we think we have the path figured out for the other solar panels. So orders are placed and getting things moving along here. So it's great to see them start the construction at the -- their site.

[Steve Fleishman, Analyst at Wolfe Research]

Okay. And so, just like overall, in terms of timeline for start-up, where are you now versus where you might have been before on Badger Hollow?

[Scott J. Lauber, President and Chief Executive Officer at WEC Energy Group]

Yeah. We're still looking at in early 2023. It will all depend upon the weather and the supply chain. But right now, we think we have a path for supply chain. The weather may even be more of a factor here in Wisconsin for Badger Hollow II. But we're watching it very closely here.

[Steve Fleishman, Analyst at Wolfe Research]

Okay.

[Scott J. Lauber, President and Chief Executive Officer at WEC Energy Group]

But right now, we're not really changing our timeline at this time.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

And the good news, Steve, as Scott said, things are starting to move...

[Steve Fleishman, Analyst at Wolfe Research]

Okay.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

For the first time in months.

[Steve Fleishman, Analyst at Wolfe Research]

Okay. That's good. And then, just one other question. I know you've got a governor election in Wisconsin next week. So just -- and I'm sure energy has not been one of the top three, four, or 10 topics in the election. But just curious if it were to switch back Republican, do you see any change in emphasis in the state that would impact your business?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

The short answer, Steve, is we really don't see a change. And the race is -- by all public polling and all of the information we've seen, the race is a toss-up. Depending upon which poll you look at, there's a 1 or 2 percentage point difference in terms of support for each of the candidates. Governor Evers, of course, the sitting governor, has been very supportive of our transition plan, our decarbonization plan, but also understands that natural gas is going to be needed for reliability, both in heating and on power generation in Wisconsin. So the governor has had a very balanced approach. And as you say, energy is really not a major issue that's being debated.

I think the top two certainly would be crime and inflation. The Republican candidate, Tim Michels, I think the best description of Tim Michels is he's an infrastructure guy. He and his family, I think his grandfather perhaps, started Michels construction. They now have 8,000 employees, and they literally are an infrastructure construction company. They worked on the Keystone Pipeline. I mean, he's a individual that understands the need for reliable infrastructure. So whichever way the election goes, I think we're going to be in very good shape.

[Steve Fleishman, Analyst at Wolfe Research]

Great. Thank you.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Thanks, Steve. Take care. See you in EEI.

[Steve Fleishman, Analyst at Wolfe Research]

You bet.

[Operator]

The next question is from Anthony Crowdell with Mizuho. Your line is open.

[Anthony Crowdell, Analyst at Mizuho Bank]

Good afternoon, Gale.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Anthony, you've been to Hagen?

[Anthony Crowdell, Analyst at Mizuho Bank]

I'm still married and living in Staten Island. I know how Julian feels.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Well, we're two for two then. I'm really glad to hear that.

[Anthony Crowdell, Analyst at Mizuho Bank]

That's right. I was going to ask you why Shar is already packing for EEI, but a quick question, most of them have been answered, just I guess, on inflation. You guys have maintained guidance, you're navigating all the challenges that maybe some others are stumbling over. Just what is the most challenging part of like handling the cost pressures? Is it on labor, is it on materials, supply chain, or is it really just interest rates? What gives you the biggest problems going to bed at night on these inflation pressures?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Well, and we'll ask Scott and Xia to give you their idea of what keeps them up at night. I would say for us, in my mind, we've been most concerned about getting solar panels moved, getting solar panels to our construction sites. I mean for most of the projects that we have underway, and we've got several billion dollars of projects underway, I mean we have locked in much of the cost. I mean there's some -- there's obviously some movement in solar panel costs, etc. But to me, the biggest thing that was keeping me up at night was actually being able to complete these solar projects that are important to our capacity and to our meeting summer demand simply because of the holdup in the freezing, if you will, of the movement of solar panels. To me, that was the biggest issue.

On interest rates, I mean, they have moved dramatically. That's probably a classic British understatement. But again, given the forward-looking test periods in Wisconsin, I mean, as Xia said earlier, we projected reasonable interest rates given the inflationary environment we're in, and that's part of the rate settlement that we've come to with the major parties in the case. So in terms of interest rate increases, I think we're covered there because of the whole mechanism of putting the rate cases in place. We're starting to see solar panels move. And, Scott, I assume we're going to see some increase in some of the commodity costs that affect the overall capital program.

[Scott J. Lauber, President and Chief Executive Officer at WEC Energy Group]

No, that's exactly correct, Gale. And like Gale have said, the solar panels are probably the biggest one to see them move and start getting on-site at Badger Hollow II, getting put in service is really positive. We are seeing some cost increases from inflation. We, of course, factor that all into our rate case filing and our filing -- our supplemental filing we did in the end of June to factor that in.

The other item and the team has done a great job from the supply chain to our operations, really working with our vendors on supply chain and delivering different distribution parts. We haven't had any significant issues. There's just a lot of day-to-day conversations, week-to-week conversations to make sure the supply is what we need for our construction move forward. So everything is going along really well here. But all that inflation was factored into the test year.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

And, Anthony, it was great to see one other quick thought for what it's worth. It was great to see in the last few weeks, a pretty sizable decline in spot prices for natural gas. So perhaps the winter gas costs will be less onerous than some earlier projections. And I will say though, one of the things very pleased about, we've talked with the state regulators and our state commissioners about this, we're in good shape from a supply standpoint for winter heating for natural gas. You've seen in some other parts of the country, particularly in the Northeast, where that may not be the case regardless of price. So I think we're going to see perhaps some moderation in natural gas prices overall for the winter for heating season, and a supply that we believe we can count on and keep people warm.

[Anthony Crowdell, Analyst at Mizuho Bank]

Great. And if I could just sneak one last one in before you end up with a Jimmy Carter sweater to keep warm, but higher prices. But just are you noticing any change in valuations, public versus private valuations in some of the assets now that we've seen rising rates? I'm sure you get a lot of bankers pitching you a lot of assets to buy or sell. And just wondering if you're seeing any change as rates have risen that maybe the private market use some assets as less desirable versus this recent rise in rates?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Well, let me answer it this way. In some ways, the increase in interest rates is helpful to us on the infrastructure side of the business because some of the competitors that we might face for some of these high-quality assets load on a lot more debt in their capital plan than we do. So again, we finance our Infrastructure segment just like we finance our overall enterprise, about 50% equity and 50% debt, roughly.

So as interest rates have risen, that changes the economics of a competitor for an infrastructure project that is loading on a ton of debt. We don't do that. We haven't done that. And so, I think actually, in some perverse way, the higher interest rates has even been beneficial in terms of our competitive position for the Infrastructure segments. Scott, Xia, anything you'd like to add?

[Scott J. Lauber, President and Chief Executive Officer at WEC Energy Group]

No. I agree, Gale. I think our approach, our consistency, it really helps as we look at the infrastructure. And as you can see, we were able to announce another deal today -- yesterday.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

And one that we're very excited about.

[Anthony Crowdell, Analyst at Mizuho Bank]

Thanks so much for the time, Gale. Looking forward to seeing you at EEI.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Sounds great. Thank you. Take care.

[Operator]

The next question is from Nicholas Campanella with Credit Suisse. Your line is open.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Greetings, Nick. How are you?

[Nicholas Campanella, Analyst at Credit Suisse Group]

Hey, greetings. Good afternoon. Reporting from Brooklyn, not married.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Well, let me ask you this. Are there any prospects and does the IRA help you on that?

[Nicholas Campanella, Analyst at Credit Suisse Group]

You are engaged.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

All right.

[Nicholas Campanella, Analyst at Credit Suisse Group]

Oh, man. So listen, I just -- I wanted to -- just a couple follow-up questions. So just going back to Xia's comments on just the credit side and reflecting IRA, and I know you're still kind of working through the FFO to debt target over the long term. Some of your peers have communicated a cash flow uplift in the near years of the five-year plan. And I'm just curious as you see it today, is that a similar dynamic that's going on in WEC?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

We'll ask Xia to give you her view.

[Xia Liu, Executive Vice President and Chief Financial Officer at WEC Energy Group]

Absolutely. If you keep the capital the same and just look at the IRA impact, if you just layer IRA on top of the existing capital plan, you definitely would see that uptick on cash flow profile. So what I -- as I said just now, it allows us to finance the increased capital plan and still maintain the long-term FFO to debt metrics, if that makes any sense to you.

[Nicholas Campanella, Analyst at Credit Suisse Group]

Yeah. Got it. All right. Thanks a lot. And then, Xia, just while I have you, you mentioned the 10.3% return on equity at ATC going forward. Does that not include any adders and just how do we think about kind of total ROE?

[Xia Liu, Executive Vice President and Chief Financial Officer at WEC Energy Group]

That's the total ROE, 10.38% just to be precise, that includes the 50 basis point adder.

[Nicholas Campanella, Analyst at Credit Suisse Group]

Got it. Okay. And then, I guess my last one is a follow-up on kind of the M&A question, but more on the regulated side. Gale, you've had a really successful M&A playbook over the last decade, it's driven size and scale efficiencies for your customers and for investors. And my question isn't about your main criteria, whether or not it's changed or not, but just like how is the executive team viewing M&A in this current environment with cost of capital being so high Obviously, the industry is dealing with customer bill pressures and it's becoming apparent across every state, but does that drive more consolidation in your mind and create opportunity or just -- how should we kind of think about that from a higher level? Thanks.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Yeah, it's a great question. And I'll bore everybody, but I will not repeat the three criteria. You all know them. But maybe at EEI, we can put it on a wall. But to your question, which is a good one, I do think over time and history shows that we are in a consolidating industry. I mean, goodness, if you turn the clock back to 1995, there were literally 100 publicly traded investor-owned utilities like ours in the United States. Today, there are roughly 37. So we are in a scale business, scale and efficiency matter. Particularly, in an era of increased capital spend, scale and efficiency matter because you know the formula, it's 1 for 8. We call it the power of 1 to 8.

For every dollar of O&M efficiency you can drive through the enterprise, it makes room for $8 of capital without customer rate pressure. So over time, I do think we will continue to consolidate in the industry. But in the interim here, the folks are dealing with a fairly sizable -- I think, across the board, fairly sizable capital plans. And the question is, can those plans be more cost-effectively implemented if you have greater size and scale and a strong balance sheet? So I think over time, the answer is going to be more consolidation.

I would expect though, it would look more like MOEs, modified -- or modified mergers of equals as opposed to the old style of M&A, which was, in some cases, driven by debt and driven by leverage and driven by low-interest costs. So I think the flavor of M&A may be different long term, I suspect it will be, but it will come in fits and starts. At least that's my view. And thank you for the question.

[Nicholas Campanella, Analyst at Credit Suisse Group]

Thanks for the answer and looking forward to seeing you down in Florida. Take care.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Sounds great. Thank you.

[Operator]

The next question is from Jeremy Tonet from J.P. Morgan. Your line is open.

[Jeremy Tonet, Analyst at J.P. Morgan]

Hi there. Good afternoon. Sorry about missing you before.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

No problem. One of your colleagues was impersonating you, I thought it was Halloween again.

[Jeremy Tonet, Analyst at J.P. Morgan]

No. And yeah, still married, Stuyvesant Town, New York City if we're keeping track here, which it seems like we are, but anyways, moving on. I was just thinking from a higher level here. Just wanted to touch on your expertise on the space, right? And thinking about the transmission needs broadly after talking about significant customer benefits from IRA, how do you see the seams issue impacting transmission development overall? And just any other thoughts on how to address this or other roadblocks to really effectively get into regional projects and planning going?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Yeah. Jeremy, interesting question. I'll give you two thoughts for what they're worth. The first is the seams issue, I think goes back to the days of Edison. I mean there have been seams issues for as long as I can remember in this industry. The regional power grids, if you will, I think, have made some progress, but the seams issues are real. And I think it is a matter that FERC is very interested in resolving. These things take a tremendous amount of time. But my guess is that you're going to see much more interpower-grid cooperation or forced cooperation, one or the other, and these seams issues, while they will continue on simply because of the nature of the grids are going to be less and less and less in my view over the next 10 years. I think they simply will have to be.

Scott, your view on that?

[Scott J. Lauber, President and Chief Executive Officer at WEC Energy Group]

No, I agree with you Gale. I think as more and more transmission gets built, they're going to see it's even natural to hook more of it together. So it may fall into place, but it will take a long time.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

The other point I would make is that the gestation period for new transmission that's not an upgrade of existing transmission or an expansion of existing transmission, the gestation period is simply just too long. We've talked about this. There's a transmission project, for example, that was first envisioned more than 10 years ago in our region that is still not fully constructed. It's gone through all of the approvals, but it's going through a very arduous court process right now. So I think there are two areas that really have to be worked on to continue to decarbonize the system and keep electricity reliable across the country. One is the seams issue but also it's just the lengthy period it takes to basically build greenfield transmission. Hope that helps.

[Jeremy Tonet, Analyst at J.P. Morgan]

That's very helpful. I'll leave it there. Thank you.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Thank you.

[Operator]

Our final question for today is from Vedula Murti with Hudson Bay Capital. Your line is open.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Vedula, you are last but not least.

[Vedula Murti, Analyst at Hudson Bay Capital Management]

I appreciate that thank you.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

How you doing, Vedula?

[Vedula Murti, Analyst at Hudson Bay Capital Management]

I'm okay. In terms of the renewables build-out, can you help us in terms of like over the period here, how much the capacity factors and credit that you'd be able to get from MISO for system availability, things of that nature have improved? I mean because if we go back to ERCOT early on, wind was like 10%, 12%, 15%, whatever, stuff like that. So just wanted -- kind of get a sense of what kind of rule of thumb is, and as we go forward, whether there's any -- whether repower intent or emerging technologies actually provide a step function opportunity.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Well, first of all, one of these days, when we're on a call with you and I ask how you're doing, I know you're going to say wonderful and award-winning, but we'll wait for that day.

[Vedula Murti, Analyst at Hudson Bay Capital Management]

Okay.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

And, Vedula, I'm not sure I completely understood your question in terms -- I think what you were asking, but please clarify if I'm off base here. I think what you're asking is, do we have an opportunity to repower some of our existing assets to get more capacity credit in the Midwest power grid? Is that your question, Vedula?

[Vedula Murti, Analyst at Hudson Bay Capital Management]

That's the second part. And the first part is the 3,400 megawatts, both wind and solar, what type of capacity credit do you anticipate now from MISO as opposed to what it might have been like five years ago or something like that in terms of the improvement?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Okay. Well, we have -- the MISO has been very specific about the particular capacity credit for a particular type of renewables. Scott?

[Scott J. Lauber, President and Chief Executive Officer at WEC Energy Group]

No. Exactly, Gale. And I think when you think about when that peak capacity in the summertime is around 14%, 15%, 16%, or solar is in that 65% to 70%. But as you know, we're going through a process now of looking at more seasonal capacity. So you need to look at the fall, the spring, the winter, and the summer. And we're currently working through all those. I think the final discuss -- the final information is going to come out closer in December on how these seasonal capacities will be looked at. But the capacity here, it's at 14%, 15% for the summer for the wind and that 65%, 70% for the solar.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

I hope that responds to your question, Vedula.

[Vedula Murti, Analyst at Hudson Bay Capital Management]

Yeah. And I guess one last thing tied to that. If to the extent that you have repowering opportunities, I guess, I'm wondering how that's going to compete with capital allocation relative to newer projects and as we go forward here, especially as you have more critical scale across that business line?

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

There will be some repowering opportunities, no question, particularly with some of the older renewables. When I say older, 10 to 15 years ago. For example, we're the largest owner and operator of wind farms in the State of Wisconsin and some of those came on more than a decade ago.

So as the technology has improved and as wind turbines have become even more efficient, for example, there are going to be opportunities going forward. But long story short, I don't see this as crowding out. I don't see that opportunity in any way as crowding out because we have so much need to reshape our generation system and to continue to meet those goals, the aggressive environmental goals of an 80% reduction in CO2 emissions done in a way that's affordable, reliable, and clean by the end of 2030.

[Vedula Murti, Analyst at Hudson Bay Capital Management]

Okay. Thank you very much and I'll see you in Florida.

[Gale E. Klappa, Executive Chairman at WEC Energy Group]

Terrific. Thank you so much. Well, ladies and gentlemen, that concludes our call for today. We look forward to seeing you at EEI. And in the meantime, thanks again, everybody. Take care.

[Operator]

[Operator Closing Remarks]