WEC Energy Group, Inc.

Good afternoon and welcome to WEC Energy Group's conference call for third quarter 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 two 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 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 files 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. This call also will include non-GAAP financial information. The company has provided reconciliations to the most directly comparable gap measures in the materials posted on its website for this conference call. And now it's my pleasure to introduce Scott Lauber, President and Chief Executive Officer of WEC Energy Group.

Good afternoon, everyone, and thank you for joining us today as we review our results for the third quarter of 2024. Here with me are Shaw Liu, our Chief Financial Officer, and Beth Stracha, Senior Vice President and Chief in Corporate Communications and Investor Relations. As you saw from our newest release this morning, we reported third quarter 2024 adjusted earnings of 82 cents per share. This excludes a charge of 6 cents per share related to the disallowance of certain 2016 capital expenditures under the qualifying infrastructure plant writer in Illinois. With this solid quarter, we remain on track for a strong 2024. Our focus on executing the fundamentals of our business is creating real value for our customers and stockholders. Today, we're reaffirming our earnings guidance for the year on an adjusted basis. The range is $4.80 to $4.90 a share. Of course, this assumes normal weather through the remainder of 2024. We continue to see strong foundation of growth in the region. The unemployment rate in Wisconsin stands at 2.9%, continuing a long running trend below the national average. Microsoft is making good progress on its large data center complex in Southeast Wisconsin. The company has continued to increase its land holdings as part of this development. It has reported that Microsoft now owns for the 1,900 acres up from 1,300 acres at the beginning of the year, and work is well underway. We're seeing development elsewhere in the state as well. Amazon, for example, opened a 1.1 million square foot warehouse in Kenosha earlier this year. The company is growing steadily with additional distribution facilities and is also starting to use electric delivery vans in its fleet. And in Green Bay, Georgia Pacific completed a major mill expansion just last month with an investment of $550 million. Of course, this growth is spawning small commercial and residential development throughout the region. This highlights the strength and the potential of our local economy and underscores the need for the investments in our updated capital plan. And speaking of capital plan, we're very excited to roll out the plan for the period 2025 through 2029. As you may have seen from our announcement this morning, we expect to invest $28 billion over the next five years. This is the largest capital plan in our history, an increase of $4.3 billion above our previous five-year plan. That's more than an 18% increase. Once again, a major factor in our plan is the economic growth we're seeing in Southeastern Wisconsin. particularly in what we call the I-94 corridor between Milwaukee and the Illinois state line. This plan supports 1,800 megawatts of additional demand over the next five years. That's an incremental 400 megawatts from our previous plan. In our new five-year plan, we expect our asset base growth to an average rate of 8.8% a year. This supports our long-term projected earnings per share growth of 6.5% to 7% a year on a compound annual basis. As I mentioned, we increased our capital plan by $4.3 billion, driven by an increase in regulated electric generation, transmission, and distribution, and partially offset by a reduction in energy infrastructure. Let me give you a few updates on the details. Over the next five years, will continue to transform our power generation fleet to support economic growth, reliability, and compliance with EPA rules by investing in renewables and natural gas generation. Between 2025 and 2029, we plan to increase our investment in regulated renewables by $2.1 billion over our prior plan. In total, we plan to invest $9.1 billion in 2,900 megawatts of solar, 900 megawatts of wind, and almost 600 megawatts of battery storage. That adds up to 4,400 megawatts, more than quadrupling our carbon-free generation from where we are today. These resources save on fuel costs and provide benefits to customers through tax credits. To support economic growth and system reliability when the wind doesn't blow and the sun doesn't shine, and on those extreme weather days, we need dispatchable resources. We expect to spend an incremental $900 million on modern efficient natural gas generation over the next five years versus the prior plan. This includes both combustion turbines and reciprocating internal combustion engines or rice units. Also, we plan to invest an additional $400 million in liquefied natural gas capacity for another two PCF facility. This will be used to meet customer demand for heating and ensure gas supply for our power generation. In addition, American Transmission Company will be adding transmission capabilities to serve the region's robust economic growth, connecting new renewables and strengthening the system. Our plan calls for us to invest $3.2 billion in that effort between 2025 and 2029. This represents a $200 million increase from the previous plan. And to help assure reliability and support economic growth, we're continuing to invest in our distribution networks with an additional $700 million in the plan. Given the significant investment opportunity in our regulated businesses, we have reduced our planned investments in our infrastructure segment by $800 million compared to the last plan. This leaves us approximately $400 million in the plan for next year. And today I'm pleased to announce our plan to acquire a 90% interest in hardened solar three energy park located in Ohio. We expect to invest approximately $410 million to add 250 megawatts of renewable energy to our infrastructure portfolio when the projects come online. Currently expected in the first quarter of 2025. Our future is bright. Investment opportunity has never been stronger. and we're focused on execution. We look forward to providing more detail on our plan in just a few weeks at the EEI conference. Turning to the regulatory front, I have a few updates across our service areas. In Wisconsin, rate reviews are nearly complete for test years 2025 and 2026. All testimony and hearings are concluded in the case, and we expect a decision by the end of the year with new rates effective January 1, 2025. As you know, in Michigan, the Public Service Commission has now approved the settlements in the 2025 rate cases for both Michigan gas utilities and upper Michigan energy resources, each with an ROE of 9.86%. And in Illinois, we're actively engaged in two dockets. One is the review of the safety modernization program. The next steps are an ALJ proposed order at the end of November, final briefings to the ICC in December, and the Commission's final decision expected in the first quarter of 2025. The other docket is an evaluation of the future of natural gas in Illinois, which was initially planned to conclude next year. The ICC has extended this docket into 2026. Of course, we'll keep you updated on any further developments. Now I'll turn to Shaw to provide you with more details on our financial results and our financing plans.

Thank you, Scott. Turning now to earnings. Our third quarter 2024 adjusted earnings were 82 cents per share. This excludes the six cents per share charge related to the disallowance of certain 2016 capital expenditures under the QIP rider in Illinois. While this was a decrease of 18 cents per share quarter over quarter, we did exceed our Q3 guidance range. driven by more favorable September weather, financing, and timing of tax items compared to the guidance. As Scott indicated, we remain on track to meet our 2024 adjusted earnings guidance. Now let's look at our quarter over quarter variances. Our earnings package includes a comparison of adjusted third quarter results on page 16. I'll walk through the significant drivers. Starting with our utility operations, adjusted earnings in the third quarter of 2024 were 18 cents lower when compared to 2023. This decrease was driven by the Illinois rate design change, higher O&M, depreciation and amortization, and interest expense. These items more than offset favorable weather, timing of fuel expense, taxes, and other items. Specifically on weather, compared to normal conditions, we estimate that weather had a two-cent positive impact in the third quarter of 2024 compared to a one-cent positive impact in 2023. Also, as I reminded you on the last few calls, with the rate design changes at People's Gas, base revenues are now more concentrated in the first and fourth quarters when natural gas usage is the highest. This shift resulted in lower third quarter earnings when compared to the prior year. Before I turn to earnings at the other segments, let me briefly discuss our weather normal electric sales for the quarter. Retail electric deliveries in Wisconsin, excluding the iron ore mine, were up four-tenths of 1% quarter over quarter. Sales from residential and small C&I segments both slightly increased compared to Q3 last year. Overall, year to date, retail electric volumes are in line with our forecast. Looking at ATC, continued capital investment contributed an incremental penny to Q3 earnings compared to 2023. Remember, we have been recognizing earnings at 10.38% ROE. I'll discuss in a few minutes that we have some tailwind in Q4 related to FERC's recent decision of 10.48% ROE. And in our energy infrastructure segment, earnings improved 6 cents in the third quarter of 24 compared to the third quarter of 2023. This was primarily driven by production tax credit resulting from higher PTC rates approved by the IRS in the third quarter as well as a quarter-over-quarter increase in production from our renewable generation facilities. Finally, you'll see that earnings at our corporate and other segments decreased seven cents as a result of the impact of tax timing and higher interest expense. As Scott noted, we are reaffirming our 2024 annual guidance on an adjusted basis. That range is $4.80 to $4.90 per share. This includes October weather and assumes normal weather for the remainder of the year. Year-to-date, compared to last year, we're 7 cents behind, largely due to weather. However, looking ahead, we have some tailwinds in Q4 this year. This will help us to achieve our adjusted earnings guidance. For example, as I mentioned just now, we have been recognizing earnings at ATC assuming a 10.38% ROE. With FERC's decision on the 10.48%, we will be able to unwind a reserve at ATC in Q4 to reflect this change. This item is about 5 cents a share that we have included in our guidance. And recall, weather was 7 cents unsavorable in Q4 last year. Assuming normal weather for the remainder of this year, it also should be a tailwind. Overall, we remain on track to meet our 2024 adjusted earnings guidance. Now, turning to our financing plan. For 2024, we continue to utilize dividend reinvestment and employee benefit plans to issue common equity. Also, we have now formally put in place an ATM program, which we plan to tap into during this quarter. Overall, we still project that our common equity issuance will be up to $200 million for 2024. Beyond 2024, Scott has outlined our new five-year capital plan. I'll spend a few minutes discussing our anticipated financing plan. You can find this information on page 22 of the earnings package. As you can see on the chart, over the next five years, we expect cash from operations to fund $18.5 to $19.5 billion or about 60% of our cash needs. About $9.5 to $10 billion or 31% of the funding is expected to come from incremental debt. This could include some junior subordinate notes or other instruments with equity content. And the remaining 9% of cash is expected to be funded by common equity. This range is between $2.7 billion to $3.2 billion. As I said previously, the cadence of common equity is a function of capital. Given the strong capital plan in 2025, we expect common equity to be between $700 to $800 million. All in all, compared to the prior five-year plan, we expect about 50% of the $4.3 billion additional capital to be financed with increased equity content. Finally, as shown on page 21 of the earnings package, Through our capital allocation, we expect the percent of asset base in our regulated electric businesses to grow faster over the next five years. This is driven by the strong economic development and demand growth in Wisconsin and our continued energy transition plans. At the same time, the percent of asset base in gas distribution and contracted renewables is expected to decline. Particularly, you can see that we expect our asset base in Illinois to decline from 16% in 2023 to 10% in 2029, with only 9% at People's Gas. In closing, we're excited about our company's future and the investment opportunities ahead of us. With that, I'll turn it back to Scott.