Earnings call transcript: WEC Energy Q1 2025 beats expectations, stock rises

WEC Energy Group reported a strong start to 2025, surpassing earnings expectations with an EPS of $2.27, beating the forecasted $1.97. The company’s revenue of $3.15 billion also exceeded projections of $2.87 billion. Following this announcement, WEC Energy’s stock saw a 1.77% increase, reflecting positive investor sentiment. According to InvestingPro data, WEC has maintained dividend payments for 55 consecutive years and trades at a P/E ratio of 22.9x, suggesting premium valuation relative to near-term earnings growth. For deeper insights into WEC’s valuation metrics and growth potential, investors can access the comprehensive Pro Research Report, which provides detailed analysis of what really matters for this $35.3 billion utility giant.

Key Takeaways

• WEC Energy reported an EPS of $2.27, surpassing the forecast by $0.30.
• Revenue reached $3.15 billion, exceeding expectations by $280 million.
• The stock price increased by 1.77% in pre-market trading.
• The company reaffirmed its 2025 earnings guidance of $5.17 to $5.27 per share.
• Significant investments in renewable energy projects and infrastructure are underway.

Company Performance

WEC Energy Group demonstrated robust performance in Q1 2025, with earnings per share growing by $0.30 compared to Q1 2024. The utility operations segment was a significant contributor, adding $0.28 to earnings. Favorable weather conditions and rate base growth also positively impacted results. The company’s strategic focus on renewable energy and infrastructure investments continues to drive its growth trajectory.

Financial Highlights

• Revenue: $3.15 billion, up from $2.87 billion forecasted
• Earnings per share: $2.27, up from $1.97 forecasted
• Utility operations earnings increased by $0.28
• Weather impact contributed $0.18 to earnings
• Rate base growth added $0.20 to earnings

Earnings vs. Forecast

WEC Energy’s actual EPS of $2.27 was significantly higher than the forecasted $1.97, marking a 15.2% positive surprise. This strong performance is a continuation of the company’s upward trend in earnings, driven by strategic investments and favorable operational conditions.

Market Reaction

The market responded positively to WEC Energy’s earnings report, with the stock price increasing by 1.77% in pre-market trading. Trading at $110.62, the stock sits just 1% below its 52-week high of $111, indicating strong investor confidence. InvestingPro analysis shows the stock generally trades with low price volatility, with a beta of 0.45, making it an attractive option for stability-focused investors. The rise aligns with broader market trends, where utility stocks have shown resilience. The stock has delivered an impressive 36.1% total return over the past year.

Outlook & Guidance

WEC Energy reaffirmed its 2025 earnings guidance, projecting EPS between $5.17 and $5.27. The company plans to issue $700-800 million in common equity and anticipates 4.5-5% annual electric sales growth by 2027. InvestingPro reveals that 4 analysts have recently revised their earnings upward for the upcoming period, with analyst targets ranging from $95.50 to $115 per share. The company’s Financial Health Score stands at FAIR, with particularly strong marks in profitability and price momentum metrics. Continued investments in renewable energy projects, such as the Darien Solar project and the upcoming Koshkonen and Renegade projects, are expected to bolster future performance.

Executive Commentary

Scott Lauber, CEO, noted, "We’re off to a solid start to the year," highlighting the company’s strategic focus on growth and innovation. He emphasized the importance of the proposed Very Large Customer tariff, stating, "We believe this tariff is a key component to help make Wisconsin a prime spot for data center investments."

Risks and Challenges

• Tariff exposure, estimated at 2-3% of the capital plan, could impact profitability.
• Regulatory changes in tax credit transferability may affect future financials.
• The ambitious $28 billion capital investment plan requires careful execution to avoid cost overruns.
• Potential supply chain disruptions could delay project timelines.
• Economic fluctuations may impact customer demand and growth projections.

Q&A

During the earnings call, analysts inquired about the progress of the Microsoft data center development and the impact of tariffs and IRA tax credits on future earnings. The management elaborated on the Illinois pipeline replacement program and the anticipated growth in large customer loads, reflecting a diversified sector approach.

Full transcript - WEC Energy Group Inc (WEC) Q1 2025:

Conference Operator: Good afternoon, and welcome to WEC Energy Group’s Conference Call for First Quarter twenty twenty five Results. This call is being recorded for rebroadcast and all participants are in a listen only mode at this time. After the presentation, this 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’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 ks and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated. During the discussion, referenced earnings per share will be based on diluted earnings per share unless otherwise noted. And now it is my pleasure to introduce Scott Lauber, President and Chief Executive Officer of WEC Energy Group.

Please go ahead.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Good afternoon, everyone, and thank you for joining us today as we review our results for the first quarter of twenty twenty five. Here with me are Xiao Lu, our Chief Financial Officer and Beth Schrokka, Senior Vice President of Corporate Communications and Investor Relations. As you saw from our news release this morning, we reported first quarter twenty twenty five earnings of $2.27 a share. We’re off to a solid start to the year. We remain laser focused on reliability, financial discipline and customer satisfaction.

And we’re on track to deliver another year of strong results in line with our 2025 earnings guidance of $5.17 to $5.27 a share. This of course assumes normal weather going forward. We continue to target a 6.5% to 7% long term compound annual growth rate supported by our robust capital plan driven by strong economic growth in our region. In Wisconsin, the unemployment rate stands at 3.2% continuing a long running trend below the national average. And as we’ve discussed, we’re continuing to see significant economic development along the I-ninety 4 corridor between Milwaukee and Chicago.

Microsoft is making good progress on its large data center complex in Southeast Wisconsin. Work has continued in the first phase of the project and we have confidence in our five year forecast of 1.8 gigawatts of demand growth in Southeastern Wisconsin. As you recall from last quarter, just to the North of Milwaukee, Cloverleaf has announced plans to develop approximately 1,700 acres for another large data center campus. Cloverleaf has projected at least one gigawatt of electric demand for this development. We have not incorporated any of this investment related to Cloverleaf in our capital plan just yet.

So stay tuned for the updated capital plan on our third quarter earnings call. And there is other notable growth in Wisconsin. As a reminder, Eli Lilly has announced a 3,000,000,000 expansion of its manufacturing facility in Wisconsin. And just recently, Uline announced another expansion in Southeastern Wisconsin. The company plans to build a 1,200,000 square foot warehouse and distribution facility.

We’re also off to a strong start on our current capital plan. It’s the largest five year investment plan in our history, $28,000,000,000 dedicated to economic growth and reliability. As we’ve discussed, it’s based on projects that are low risk and highly executable. On the tariff front, we’re evaluating the impacts of tariffs on our supply chain and capital plan. For our $28,000,000,000 capital plan, we estimate the tariff exposure is approximately 2% to 3% overall.

As you can expect, we are actively engaged to mitigate efforts and mitigation efforts through our contracts and various suppliers. Fortunately, we have diversity in our business mix, capital plan and supply chain that should help to mitigate the overall effects on our customers. Our company has successfully navigated past periods of uncertainty and challenges, and you can certainly expect us to aim to do the same for this current environment. Now let me give you a few updates on our projects. In early March, the Darien Solar project went into service.

This adds two twenty five megawatts of renewable generation to our regulated portfolio with an investment of approximately $427,000,000 And currently, we have two solar projects in construction phase. Koshkonen, a 300 megawatt project in Southern Wisconsin and Renegade, a 100 megawatt project in the Upper Peninsula Of Michigan. We expect both of these projects to be placed into service next year. In addition, the Wisconsin Public Service Commission has approved our purchase of 90% of the High Noon solar and battery project for approximately $883,000,000 Construction is expected to be completed in 2027. Of course, we are closely monitoring the federal developments related to the Inflation Reduction Act and we’re actively seeking to safe harbor the projects in our capital plan.

At WEC Infrastructure, we closed on the Hardin III solar project in February. We invested approximately $4.00 $6,000,000 for 90% ownership of the project, which has a total capacity of two fifty megawatts. As a reminder, this project fulfills our five year plan investment at WEC infrastructure. Overall, we have a lot of confidence in our ability to execute on our capital plan. Now turning to the regulatory front.

As a reminder, we currently have no active rate cases. In Wisconsin at the March, we filed a new tariff proposal with the Public Service Commission to accommodate the economic growth we discussed. The proposed very large customer or VLC tariff would meet the needs of our very large load customers while protecting all of our other customers. Our proposal would apply to customers with 500 megawatts or more of forecasted new load. The customer commits to subscribing to a portion of one or more dedicated generation resources.

The terms of the agreements are twenty years for wind and solar and the depreciable lives for natural gas and battery storage assets. As filed, the tariffs provide for a fixed return on equity of 10.48% and the equity ratio of 57%. In addition, there are several other charges these customers are responsible for, administrative charges, energy charges, transmission charges and distribution charges. The proposed tariff is designed so that no cost to serve these very large customers would be subsidized by or shifted to other customers. We worked with these large customers in the design of the tariff, which included the financial parameters.

We believe this tariff is a key component to help make Wisconsin a prime spot for data center investments. We expect the decision by the commission by the second quarter of next year. In Illinois, we received the Illinois Commerce Commission’s decision on our safety modernization program in February. The Commission lifted the pause on our work and directed Peoples Gas to focus on replacing all cast iron and ductile iron pipe that is a diameter under 36 inches by 01/01/2035. The Commission also directed its staff to appoint a safety monitor to provide oversight by July of this year.

Like other capital projects, our investments in pipe replacement will be reviewed in future rate proceedings. Under this pipe replacement program, approximately 1,100 miles of older pipe, some dating back to the mid-1800s, will need to be replaced. We are currently developing engineering plans to execute the order. We will factor the updated pipeline replacement program capital into our fall update. Next up, Xia will provide more details on our financials.

Xiao Lu, Chief Financial Officer, WEC Energy Group: Thank you, Scott. Our first quarter twenty twenty five earnings of $2.27 per share reflects a $0.30 increase compared to the first quarter of twenty twenty four. Our earnings packet includes a comparison of first quarter results on Page 12. I’ll walk through the significant drivers. Starting with our utility operations, earnings were $0.28 higher versus the first quarter of twenty twenty four.

Weather positively impacted quarter over quarter earnings by approximately $0.18 Compared to normal conditions, we estimate that weather had a $01 positive impact in the first quarter of twenty twenty five compared to a $0.17 negative impact in the first quarter of twenty twenty four. Recall that our 2024 winter was the warmest in Wisconsin history on record. Rate based growth contributed $0.20 more to earnings. This was driven primarily by the Wisconsin rate review outcome that was effective on 01/01/2025. Tax and other items added another $04 These positive drivers were partially offset by a total of $0.14 from O and M expense, depreciation and amortization and timing of fuel expense.

Our day to day O and M for the year is still expected to grow 8% to 10% when compared to actual O and M in 2024. As a reminder, this year over year growth is largely driven by a few factors. Our continued focus on commission approved vegetation management, new assets coming online and measures we took last year to offset the mild weather impact. And let me give you some color on our weather normal retail electric delivery, excluding the iron ore mine. Compared to last Q1 and adjusting for leap year, we saw 07% growth this quarter led by the large commercial and industrial class, which grew 2.3% in the quarter.

This is right in line with our forecast. Remember, we expect our weather normal annual electric sales growth to reach 4.5 to 5% starting in 2027, and we’re on track to reach that over the next couple of years. At American Transmission Company, earnings increased $02 compared to the first quarter of twenty twenty four. Zero point ’1 was related to continued capital investment and the other penny is related to a modest gain from selling and interest in the PAS fifteen transmission line in California in the first quarter this year. Turning to our Energy Infrastructure segment, earnings increased $05 in the first quarter of twenty twenty five compared to the first quarter of twenty twenty four, largely from higher production tax credits.

Remember, we completed our investment in the Maple Flat and Delilah solar projects in the fourth quarter of twenty twenty four as well as the Hardin III solar project this February. Next, you’ll see that earnings from the Corporate and Other segment decreased $03 This was driven by higher interest expense, partially offset by favorable tax timing and other items. Finally, there was $02 of dilution primarily associated with our common equity issuances. We issued about $200,000,000 in 2024 and about $140,000,000 in Q1 this year. Including the Q1 issuances, as a reminder, we expect to raise a total of 700 to $800,000,000 of common equity in 2025 via our ATM program as well as the dividend reinvestment and employee benefit plans.

This is a part of the 2,700,000,000.0 to $3,200,000,000 total common equity we expect to issue through 2029 to finance the capital investment. As we refresh our capital plan this fall, we continue to expect any incremental capital will be funded with 50% equity content. Finally, let me comment on earnings guidance. As Scott mentioned earlier, we are reaffirming our 2025 earnings guidance of $5.17 to $5.27 per share assuming normal weather for the rest of the year. We’re also reaffirming our long term EPS CAGR of 6.5% to 7%.

For the second quarter, we are expecting a range of $0.63 to $0.69 per share. This accounts for April weather and assumes normal weather for the rest of the quarter. With that, I’ll turn it back to Scott.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Thank you, Shah. Now as you may recall, our Board at its January meeting increased the dividend by 6.9%. This marks the twenty second consecutive year that our shareholders will be rewarded with higher dividends. Overall, we’re optimistic about continued growth in our region and our company’s growth and future. Operator, we are now ready for question and answer portion of the call.

Conference Operator: Thank you. Now we will take your questions. The question and answer session will be conducted electronically. Your first question comes from Julien Dumoulin Smith of Jefferies. Your line is open.

Brian Musil, Analyst, Jefferies: Hi, it’s Brian Musil on for Julien.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Sounds good. How are you doing?

Brian Musil, Analyst, Jefferies: Good. Thanks. Hey, just on the recent MISO capacity auction results, can we get your thoughts your base generation CapEx spend or any upside CapEx maybe for data centers? And then how that plays into the whole longer term strategy for the power of the future assets and and Port Washington and maybe maybe also the the nuclear PPA negotiations? Sure.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: There’s a lot lot built into that. When you looked at the MISO auction, especially when you look at the summer part of the auction, it was really a tight auction. Overall, you know, we were long on one company and a little bit short on the other, but nothing material, all in the right kinda all in the right direction overall. You know, we build to make sure we have enough capacity to beat our demand, and that’s why we’ve been working with our very large customers and looking at our forecast for, oh, several years now as we get orders in place to build new generation capacity. So as we think about it looking forward, you know, we are looking forward to some of the decisions, by the commission in we expect, oh, June, early July here on some of the additional gas generation needs that we have from the combustion turbines and the rice units that are at the commission to help us build that needed capacity to meet this large customer load along with the other economic development in the region.

So we are actively working to procure and we already started talking about 02/3231 and how we look at the capacity needs. As you start thinking about our power of the future assets and some of the other assets that we have, you know, we are looking at and we have successfully tested gas at about 30% blend on the Power of the Future coal units, and we’re looking to our plans to make that 100% gas by 2029, and the same thing looking at the Westin four units converting it to gas. So we’re looking at how do we strategically have the capacity in the region, which also includes the capacity we’ll get from batteries and wind and solar. So we’re planning and we’re looking to the future to make sure we’re ahead of that capacity auction. Does that help you?

Brian Musil, Analyst, Jefferies: Yes, it does. Thank you very much.

Conference Operator: The next question comes from Andrew Wiesel with Scotiabank. Your line is open.

Andrew Wiesel, Analyst, Scotiabank: Hey, Andrew. Hey, good afternoon.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Good afternoon.

Andrew Wiesel, Analyst, Scotiabank: First question, in Illinois, the ICC recently concluded its review of the pipeline safety modernization program. They authorized you to replace a good amount of the older pipe. I know it’s not exactly the same as the prior program, but it might represent some upside to the CapEx. Scott, I know you mentioned that we’ll have to wait for the CapEx refresh this fall. But my question is any early thoughts on roughly how big of an opportunity that might be and how quickly you might be able to get those efforts going?

I know you have to rehire, retrain, and redeploy, I think, thousands of employees, so you can’t just do it immediately. But when might that work start to resume?

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Oh, excellent question. And we can give you a little color what we’re looking at now. So we’re going through the process, and and we had a couple projects that, of course, were stale that we’re going running it back through some of the permitting process as you have to go through the permitting process, and we’re going through to see if we can, you know, kick off a few of them this year. But, of course, we’re going through that hiring process and our planning. We’ll see the program ramp up in ’26 and ’27 and get to what we think will be a full run rate.

And we’re still pulling the numbers together in ’28, but we expect that’ll probably be a little over $500,000,000 a bit $500,000,000 a year going forward. And remember, our old program was about 280 to 3 hundred million dollars. But in order to get this program completed by, you know, beginning of twenty thirty five, we really have a lot of spending to do because we were expecting it to be closer to that 2040 time frame. So it’ll be ramping up over ’26 and ’27 with, hopefully, we get to that run rate in 2028.

Andrew Wiesel, Analyst, Scotiabank: Okay. Great. Next on Microsoft, I think you briefly mentioned that things are going smoothly there. Can you just elaborate on that, maybe what you’re hearing and seeing from the company? I know there’s a lot of questions among investors about pauses of various phases and potential global slowdown, all those types of questions.

Maybe if you could just tell us how your latest conversations with them have been going both around the current phase one that goes through ’26 and what the company is doing and seeing, around those future phases in your neck of the woods.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Sure. And and Microsoft, you know, we’ve been working with them for for a couple years now, and they reiterated to us that the economic development and the demand that we have in our forecast over the five year period that supports that Southeastern Wisconsin, that 1.8 gigawatts is still solid. We have worked with them on building substation ourselves, American Transmission Company, and that work progresses. So I have no concerns that that site is still gonna be very, very strong and a very core part of Microsoft development. You know?

And I learned, you know, a lot just listening to the Microsoft conference call because they talk about, you know, timing and the going in and out of, you know, some of their build cycles and how they manage it. It just sounds like now with AI and all the hyperscalers being the talk and how it affects the electric utilities, people are talking about it a lot more, but I think they’ve always managed it. So I encourage you to listen to Microsoft conference call. I thought it was really interesting how they describe some of the things, but I have no concerns in in Southeastern Wisconsin here.

Andrew Wiesel, Analyst, Scotiabank: Okay. Great. Appreciate the confidence on there. One last one, if I may. If I could squeeze one in for Shah.

On equity, 140,000,000 in the quarter, obviously, that’s a bit less than the 25% of the full year guidance. You mentioned that 700,000,000 to $800,000,000 How should we think about that? Is that any kind of reflection on the market uncertainty in tariffs, view on your stock price, or maybe a function of cash needs ramping up as the year goes on? Any any thoughts on the timing there?

Xiao Lu, Chief Financial Officer, WEC Energy Group: Yeah. Andrew, it’s all of the above. We’re targeting 700 to $800,000,000, and so stock price plays a role in that through the access phase to the ATM program. Our cash needs plays a role, so we’re managing it very, very tightly. But we we feel very confident that through our ATM and the employee benefit plans, could access the 700 to $800,000,000 fairly easily throughout the rest of the year.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Thank you.

Conference Operator: The next question comes from Jeremy Tonet with JPMorgan. Your line is open.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Hi. Good afternoon. Hi, Jeremy. Good afternoon.

Jeremy Tonet, Analyst, JPMorgan: Hey. The IRA, you know, has been in focus for the market for some time here in tax credit transferability as well. Just wondering any updated thoughts you you could provide here, if if transferability or other parts of the IRA were to be repealed and how you think about this with impact in the plan or offsets that you could, offer?

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Sure. And I’ll I’ll start and then and Shaul can walk you through a little bit more of the numbers. So when you think of the IRA and a lot of projects that we have in our plan, you know, we had we’ve been anticipating the the IRA benefits, and I think a lot of our customers are anticipated too. Remember, all the PTCs and ITCs for the projects going forward go back to our customers. So, you know, I could see that there would be a phase out of the IRA and PTCs and ITCs in the future, But, you know, it’s pretty well integrated in a lot of the projects that people had assumed going forward.

In transferability, you know, there’s other ways to look at moving those tax benefits to others, whether it’s tax equity or transferability. Tax equity is just a little more complicated. It gets it ends up in the same result. I think it’s a little more costly for our customers where transferability has been very clean and easy to execute. And, actually, we’ve been able to benefit some of our local companies too with the benefits of those tax benefits.

So hopefully, there’s a transition period and transferability stays for a while because I think it’s really beneficial to our customers. And Chuck can give you a little more details on some of the numbers.

Xiao Lu, Chief Financial Officer, WEC Energy Group: Absolutely. So the on the phase out point, like Scott mentioned, we’re actively seeking safe harboring the the upcoming renewable projects. So once we do that, we could hopefully, we could qualify the project for a % of PTCs through at least 2029. So we’re actively seeking that. In terms of the transferability, as you knew that we we have been able to transfer about $200,000,000 of PTCs annually to third parties over the over the past several years.

And as we build more projects, that number ramps up slightly in the plan. However, if you think about the projects, we we have almost 80% of the planned PTC transfer transfer from projects already in service from 2025 and prior. So as we all know, we don’t believe Congress likes to change the economics of projects already placed in service. Assume that depending on the law, obviously, but assume that transferability were to only impact projects put in service from 2026 or 2027 or later, we would have very limited credits that we would not be able to sell. So we think the impact would be pretty limited.

And also, like Scott mentioned, for the utility projects, if transferability were repealed, it would make renewable projects more costly for the customers. So I think we would have to take a step back and think about the optimal generation project mix from a customer affordability standpoint. So I think all in all, we’re managing it just but watching the development, but also managing We’re not concerned at this point.

Jeremy Tonet, Analyst, JPMorgan: Okay. Got it. So the FFO impact is something that you think would be, I guess, manageable in the grand scheme of things, everything you talk about?

Xiao Lu, Chief Financial Officer, WEC Energy Group: Yeah. Depending on the law. Yeah. Absolutely.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: And we’re all anxiously waiting to see what the final law is.

Xiao Lu, Chief Financial Officer, WEC Energy Group: Yeah.

Jeremy Tonet, Analyst, JPMorgan: Got it. Thank you for that. And then just want to pivot towards the VLC tariff and, you know, I think it’s key that customers are involved in the creation here. Right? Just wondering, you know, as it stands, you know, how how you think that impacts Wisconsin?

How does Wisconsin stand relative to other states in trying to win this business with this tariff? Just wondering if you could expand on that.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: You know, I think the key is you hit it. We worked with our very large customers with with the basic understanding that we cannot have this, you know, this very large load get subsidized at all by any other customers. So we worked on the fundamentals, and that’s how we came up on the tariff. I think it’s a a fair tariff, for our customers, for the very large customers, and for our shareholders. So we try to be a very balanced approach.

I think in what we’ve heard from some of the developers is that it’s a very fair and straightforward and clean tariff. So I’m I’m very happy with it. I think our team did a great job and and really appreciate both sides as we balance it through with the large customers and our internal team. So I’m really optimistic with it.

Jeremy Tonet, Analyst, JPMorgan: Got it. Great. Thank you for that.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Thank you.

Conference Operator: The next question comes from Anthony Crowdell with Mizuho. Your line is open.

Anthony Crowdell, Analyst, Mizuho: Hey, good afternoon team.

Durgesh Chopra, Analyst, Evercore ISI: Good afternoon.

Anthony Crowdell, Analyst, Mizuho: Hey, just two quick questions. One is really strong residential electric load growth there, I think 5.5%. Just wondering if you could go through some of the drivers or was that mainly driven by weather?

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Yes. And Shaw has looked at these numbers, but remember last year was such a warm first quarter. So the growth, think, is just getting back to normal weather. I’m happy to see normal. And I think when you look at the normalization for the the quarter, that is also anomaly of how that weather affected last year’s normalization because it was so extreme.

It was the warmest we had in, like, a hundred and thirty four years. So we’re seeing good customer growth, good customer connections. So I’m I’m not you know, I don’t think there’s anything to read one way or the other other than some pretty extreme weather between last year and this year. Shaw, anything to add?

Xiao Lu, Chief Financial Officer, WEC Energy Group: No. It’s all mostly weather driven.

Anthony Crowdell, Analyst, Mizuho: Great. And then if I could just follow-up on Cloverleaf. Just you gave some acreage and maybe projected about a one gigawatt of demand. Just curious, would that mostly be met with gas or a combination of gas and renewables or any type of clarity you could provide on the generation needs there?

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Sure. So a couple of things is one, yeah, it’s about 1,700 acres of developing. They talked initially about one gigawatt of load. We expect they they also say that they can hold up to probably about three and a half gigawatts of load. So SolarLeaf is in the process of marketing the the land and the location.

We expect in the next couple months to see who potentially is a longer term purchaser of that spot or a purchaser of that location. And then we’ll work on the details of the generation mix of that that will hopefully factor in then to our fall update in the third quarter call of the capital plan. So things are moving along very well there. I think it’ll be a combination, of course, of of gas and renewables just because you need that firm capacity ability. But I also think they’ll have some renewables in there too just to to help with the the energy part of the the bill too.

So I think it’ll be a combination, but more to come as we continue to work with that and whoever purchased that location.

Anthony Crowdell, Analyst, Mizuho: And the timing of when you when maybe that load would come online, that was something we get more on that third quarter call?

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Correct. Correct. And they’re trying to move very fast, to get that, purchaser in the next couple months, and then we’ll have more clarity as we work with them to develop their plans. But we’ve been working with the potential purchasers of the sites. I can’t mention any names, of course, but all high quality companies and they’re just reviewing the plans that we would have to serve those sites.

Anthony Crowdell, Analyst, Mizuho: Great. Thanks for taking my questions.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Absolutely. Thank you.

Conference Operator: The next question comes from Michael Sullivan with Wolfe Research. Your line is open.

Michael Sullivan, Analyst, Wolfe Research: Hey, good afternoon.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Good afternoon, Michael. How are you?

Andrew Wiesel, Analyst, Scotiabank: Hey, Scott. Doing well, thanks.

Michael Sullivan, Analyst, Wolfe Research: Wanted to start with maybe just a little more color on where you’re seeing the tariff impacts in your capital plan. And if it’s primarily around the renewables, just remind us kind of what the process is for updating costs on that front as you seek to recover?

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Sure. Sure. And as you think about it, as we look at our capital plan, the a lot of the, you know, electric and gas distribution is mainly domestically sourced. When you start thinking about some of the remaining part of our plan largely in the generation, you know, a lot of it’s labor, probably 50 to 60% is labor, but then the remaining are the materials. And, you know, as you know, of course, we have to see final clarity on the tariffs.

The solar for the near term projects, you’re very comfortable, those are in flight. We got processes and manufacturing and and panels lined up. The farther ones out, of course, we have been working with other developers and suppliers to really onshore a lot of the a lot of the production of these panels. The challenge, of course, is, you know, where do you get the polysilicon and the the wafers except the cells, etcetera. So we’ve been working with everyone to get that.

If there would be a cost increase, we would, of course, notify our regulators, the commission as soon as possible of that of that cost increase and then go through a prudency review process, which we’ve done on other projects for force majeure situation. So at this time, we don’t have anything that, you know, notable that to talk about. On the other aspect, probably the last item are the batteries. Remember, we have the smallest part of our generation plan is probably the batteries, a little about little under a billion dollars. In fact, we have our first battery installation going in the end of this month, about a hundred megawatts of that.

Those batteries are a little more tricky across the industry, and we’ll just manage the batteries as we get some more clarity on the tariffs. And, of course, we’re working with vendors on those batteries. And, of course, working with some of the very large customers also, we could see them looking at renewables and batteries too as they look at PCAs and long term generation needs. So we’re kinda looking at all the above, but probably the biggest potential charges coming from the tariffs could be related batteries or the solar projects.

Michael Sullivan, Analyst, Wolfe Research: Appreciate the color there. Very helpful. And then wanted to ask also on the reconciliation bill, potential impacts of a lower corporate tax rate. Can you give us any sense there if that were to happen?

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Sure. And Chuck can walk you through the details. It’s basically the same that we kinda went through several years ago with the lower tax rate. Right? So in general, you know, you’re gonna get a lot of the benefits will go back to our our customers for that lower tax rate to the regulatory model.

And in general, then there will be a little less of a tax shield, at the parent company, for some of the the deductions up there and the interest expense. That’s that’s kind of the high level story. I don’t think remember last time, it was a little big bigger change in taxes, so I don’t think it’s gonna be that big of effect. But, Shah, any additional color?

Xiao Lu, Chief Financial Officer, WEC Energy Group: Yeah. I think Mike Michael and and Steve published a report which really correctly stated the potential impact. Like like Scott mentioned, long term benefit for customers because customers would pay less under that situation. It would have some earnings impact, particularly for the tax shield earnings benefit from the non customer deductions at the holding company that would decrease over the longer term. But the earnings would increase at the utility because your rate base would be higher over the longer term.

So in terms of the cash flows, obviously, the lower the corporate tax rate, you would collect less from the customer. So everything else being equal, there will be slightly less cash flow for the company for the for the company overall. So I I think, you know, we’re watching that very closely and, you know, in in case that we went that way, we would be ready to to handle and deal with it.

Michael Sullivan, Analyst, Wolfe Research: Okay. Great. Appreciate the shout out. Take care.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Thanks, Mike.

Conference Operator: The next question comes from Carly Davenport with Goldman Sachs. Your line is open.

Carly Davenport, Analyst, Goldman Sachs: Hey. Hey, good afternoon. Thanks for taking the questions. Maybe just the commentary on the data center front in terms of your conversations with customers was super clear. Could you talk a little bit about conversations with other large load customers outside of of the data center industry.

Anything changing there in terms of their plans to progress on new projects, either from a timing or a magnitude of their their power needs perspective? And then any sort of dispersion across the the diverse set of industries that you serve would be helpful.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Sure. And, you know, thanks for the question, Carly. As we as we look at it and we as you know, we are tracking customers at about sixteen, seventeen sectors, and we have a relationships that we talk to our large customers. I’d say right now, most of the customers are cautious on what’s going on with the tariffs and what kind of clarity. So I I think people are cautious before they overreact one way or the other.

You saw unemployment in Wisconsin at 3.2%, way below the national average. And the large significant projects outside of the data centers are still progressing and people are, you know, the Eli Lilly, etcetera. There’s still a lot of expansion in in housing development in Southeastern Wisconsin. So as you drive around, it still looks very positive and constructive. I think the question is gonna be as people see more clarity on what’s going on with tariffs, etcetera.

That’ll be, you know, a question on people’s mind. But cautiously optimistic, I would say. And I think Xia has analyzed the first quarter on where we’re seeing. So I’ll let Xia walk you through what we’re seeing on the large group in the first quarter.

Xiao Lu, Chief Financial Officer, WEC Energy Group: Yeah. Carly, we are all over that. So as you know, we follow about 16 different sectors in in the state. It covers from food, paper, printing, all the way to health services and education. So out of the sixteen, ten of those had a quarter over quarter positive growth, some with double digit growth.

There there are two or three sectors that experienced some negative growth. I think they’re not driven by macro macro environment, mostly driven by the individual decisions made by those customers. So overall, we we think we we remain very optimistic about the the long term growth in our region.

Carly Davenport, Analyst, Goldman Sachs: Great. Thanks so much for the comprehensive answer there. And then just a quick follow-up on on the conversation earlier on Illinois. Just on the future of gas, anything that you flag from the most recent series of workshops there that you think could could impact the final outcome early next year?

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: I would say, right now, I haven’t seen anything that that has gone one way or the other. I mean, the workshops, as you know, it got postponed now, not the workshops, but the final decision to next year. I think everyone’s looking at the economic development and what’s needed for gas. They’ve approved our pipe replacement program for these very large pipe. I think that’s that’s positive.

So I don’t don’t I’m not expecting anything that I’ve seen recently to change that momentum.

Carly Davenport, Analyst, Goldman Sachs: Great. Thank you so much for the time.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Absolutely. Thank you.

Conference Operator: Your final question comes from Durgesh Chopra with Evercore ISI. Your line is open.

Durgesh Chopra, Analyst, Evercore ISI: Hey, good afternoon team. Thanks for taking my questions. Just Scott, a lot of eyes on the tariff filing in Wisconsin, the VLC filing. Maybe just a little bit color on the higher ROE, how do you come up with 70 basis points higher you know, the current authorized and, you know, the customer feedback on that higher ROE? Just any color or thoughts there would be really appreciated.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Sure. Sure. And and remember, so we worked with the customers at at coming up with this agreement on the the ROEs and the equity layers. And when you think about it, you know, it’s a long term. So we’re talking twenty years to, you know, to the depreciable life, which should be, you know, up to thirty years or more on some of these projects.

So they’re looking for certainty, and we don’t know what the future would bring. But, you know, we think the ROEs, when you look at interest rates over a long period of time, are, you know, near one of the lower spots now at that 9.8. So having something locked in for a longer period of time, we came up with that 10.48 and thought it was reasonable for both of us to lock into that to that number. But remember, this is, you know, for twenty to thirty years. So it’s a long it’s a long investment, but it also gives them certainty on on what they’re putting into their model.

Durgesh Chopra, Analyst, Evercore ISI: Thank you. That makes sense. Helpful. Yep. It does.

Thank you. And then maybe just quickly in Illinois, can you just remind us the the higher 500,000,000 per year rate that you get to in ’27, ’20 ’8, that is not that is not gonna be recovered by a tracker. Correct? That’s part one. And if not, what’s the what’s the rate case strategy on on recovering that higher level of spending because it is indeed wrapping up quite a bit.

Scott Lauber, President and Chief Executive Officer, WEC Energy Group: Correct. Correct. So you are correct. It’s not covered under under a tracker. In Illinois, we’ll have to file forward looking test years on the rate case.

We’re evaluating right now when our next test year filing will be, but you’ll of course, we’ll have to forecast that into the test year. That’ll you know, it’s forward looking test year, but it also gives us a chance that the commission and the ICC will be able to review what our plans are again along with having that safety monitor on-site to actually review our projects too as they go in. So I think it adds a lot of color and a lot of opportunities to prove the prudency on a front end basis also as we go through these capital projects. So it’ll be more of an ongoing annual rate case in the future. All right, everybody.

That concludes our conference call for today. Thank you for participating. If you have any more questions, please feel free to reach out to Beth Straka at (414) 221-4639.

Conference Operator: This concludes today’s conference call. Thank you for joining. You may now disconnect.

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