WEC Energy(US:WEC)2020-08-05 21:46PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Presents WEC Energy Group's unaudited condensed consolidated financial statements, reporting $694.1 million net income for the six months ended June 30, 2020 Condensed Consolidated Income Statement Highlights (Six Months Ended June 30) | Indicator (in millions, except EPS) | 2020 | 2019 | | :--- | :--- | :--- | | Operating Revenues | $3,657.3 | $3,967.6 | | Operating Income | $965.4 | $857.4 | | Net Income Attributed to Common Shareholders | $694.1 | $655.8 | | Diluted Earnings Per Share (EPS) | $2.19 | $2.07 | Condensed Consolidated Balance Sheet Highlights | Indicator (in millions) | June 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $35,042.0 | $34,951.8 | | Total Liabilities | $24,549.3 | $24,697.2 | | Common Shareholders' Equity | $10,383.7 | $10,113.4 | Condensed Consolidated Cash Flow Highlights (Six Months Ended June 30) | Indicator (in millions) | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $1,379.6 | $1,291.2 | | Net Cash Used in Investing Activities | $(1,006.2) | $(1,066.4) | | Net Cash Used in Financing Activities | $(393.3) | $(280.2) | Notes to Condensed Consolidated Financial Statements Detailed notes support financial statements, covering acquisitions, COVID-19 impacts on credit losses and regulatory actions, debt, segment performance, and environmental matters - In July 2020, WECI signed an agreement to acquire an 85% ownership interest in Tatanka Ridge, a 155 MW wind generating facility in South Dakota, for approximately $235 million. The transaction is expected to close in Q4 202045 - WECI is also acquiring a 90% ownership interest in the 300 MW Thunderhead wind facility in Nebraska and a 90% interest in the 250 MW Blooming Grove wind facility in Illinois4650 - Due to economic risks from the COVID-19 pandemic, the company recorded a $3.4 million increase to its allowance for credit losses as of June 30, 202069 - Regulators in Wisconsin, Illinois, Minnesota, and Michigan issued orders in response to COVID-19, generally requiring suspension of disconnections and late fees, and authorizing deferral of certain incremental costs and foregone revenues for future recovery182183188 - The Board of Directors declared a quarterly cash dividend of $0.6325 per share, payable on September 1, 202083 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial condition, strategy, and liquidity, noting Q2 2020 earnings growth driven by Illinois and transmission affiliates, with $13.7 billion projected capital expenditures - The company updated its carbon reduction goals to reduce CO2 emissions from electricity generation by 70% below 2005 levels by 2030, with a long-term goal for its electric generation fleet to be net carbon neutral by 2050163225 - Total capital expenditures for regulated utility and non-utility energy infrastructure businesses are expected to be approximately $13.7 billion from 2020 to 2024236 Q2 2020 vs Q2 2019 Earnings Comparison | Metric (in millions, except EPS) | Q2 2020 | Q2 2019 | Change | | :--- | :--- | :--- | :--- | | Net Income Attributed to Common Shareholders | $241.6 | $235.7 | $5.9 | | Diluted EPS | $0.76 | $0.74 | $0.02 | - In response to market instability from COVID-19, the company enhanced its liquidity by entering into a $340 million 364-day term loan in March 202085338365 Results of Operations Net income for Q2 2020 increased by $5.9 million to $241.6 million, driven by Illinois segment and transmission affiliates, partially offset by Wisconsin segment declines - The Illinois segment's operating income increased by $16.9 million in Q2 2020, driven by lower O&M costs and higher margins from the System Modernization Program (SMP) capital investments243270271 - Earnings from transmission affiliates (ATC) increased by $16.0 million in Q2 2020, primarily due to a retroactive base ROE increase ordered by FERC in May 2020243281 - The Wisconsin segment's operating income decreased, primarily due to lower electric and natural gas margins from reduced sales volumes related to the COVID-19 pandemic and the impact of new rate orders246 Operating Income by Segment (Three Months Ended June 30) | Segment (in millions) | 2020 | 2019 | | :--- | :--- | :--- | | Wisconsin | $277.6 | $270.2 | | Illinois | $59.5 | $42.6 | | Other states | $6.0 | $4.6 | | Non-utility energy infrastructure | $91.4 | $91.3 | | Total Operating Income | $338.8 | $314.6 | Liquidity and Capital Resources The company maintains strong liquidity, with net cash from operations increasing to $1.38 billion for the first six months of 2020, and projected capital expenditures of $3.1 billion in 2020 - Net cash from operating activities increased by $88.4 million in the first six months of 2020 compared to 2019, driven by lower payments for O&M expenses and fuel326327 - Net cash used in investing activities decreased by $60.2 million, largely because the prior year period included the $268.2 million acquisition of the Upstream wind facility329330 Projected Capital Expenditures (2020-2022) | Segment (in millions) | 2020 | 2021 | 2022 | | :--- | :--- | :--- | :--- | | Wisconsin | $1,482.0 | $1,881.1 | $1,630.5 | | Illinois | $779.0 | $619.4 | $586.7 | | Other states | $117.4 | $111.6 | $87.4 | | Non-utility energy infrastructure | $706.5 | $440.7 | $258.0 | | Corporate and other | $24.6 | $22.7 | $2.7 | | Total | $3,109.5 | $3,075.5 | $2,565.3 | - Significant capital projects include utility-scale solar projects (Badger Hollow I & II, Two Creeks), the Lakeshore Lateral natural gas main project, new LNG facilities, and PGL's System Modernization Program in Chicago349352353354 Factors Affecting Results, Liquidity, and Capital Resources Key factors affecting results include COVID-19 impacts on energy demand and regulatory mitigation, PGL's QIP rider recovery risk, and FERC's revised 10.02% ROE for ATC - The COVID-19 pandemic has led to reduced energy demand, particularly from commercial and industrial customers, but regulatory mechanisms in all states of operation help mitigate the financial impact by allowing deferral of incremental costs and bad debt363368369 - In May 2020, FERC issued an order increasing the base ROE for MISO transmission owners, including ATC, to 10.02% (from a previously reduced 9.88%), effective retroactively to September 28, 2016. This positively impacted earnings from transmission affiliates390392 - PGL's QIP rider, a key cost recovery mechanism for its System Modernization Program, has pending reconciliations for 2016 through 2019, creating regulatory recovery risk383385 Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures from the 2019 Form 10-K, except for risks associated with the COVID-19 pandemic - There have been no material changes related to market risk from the disclosures presented in the 2019 Annual Report on Form 10-K, aside from risks associated with the COVID-19 pandemic396 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes in internal control over financial reporting - Disclosure controls and procedures were deemed effective as of the end of the period covered by this report397 - No changes in internal control over financial reporting occurred during the second quarter of 2020 that materially affected, or are reasonably likely to materially affect, internal controls398 PART II. OTHER INFORMATION Legal Proceedings Discusses legal proceedings, primarily PGL's Manlove Field natural gas leak remediation, which is not expected to materially impact financial statements - PGL is addressing a natural gas leak from its Manlove Gas Storage Field that occurred in 2016. The company is working with the Illinois AG and IEPA on remediation and anticipates its Groundwater Management Zone (GMZ) application will be approved in Q3 2020402 - Management believes that the ultimate resolution of ongoing legal proceedings, including the Manlove Field matter, will not have a material effect on the company's financial statements401404 Risk Factors Updates risk factors, emphasizing the COVID-19 pandemic's potential adverse impacts on energy demand, supply chains, and capital markets, with uncertain full extent - The COVID-19 pandemic poses a significant risk, with potential adverse impacts including reduced energy demand (especially from commercial and industrial customers), supply chain disruptions, and impaired access to capital markets406409 - Adverse investment performance of pension plan assets due to market volatility could increase plan costs and funding requirements410 - The full impact of the COVID-19 pandemic on the business is currently undeterminable as it depends on factors beyond the company's control, such as the duration of the outbreak and related government responses412 Exhibits Lists exhibits filed with the Form 10-Q, including material contracts, Sarbanes-Oxley certifications, and Inline XBRL data files - The exhibits filed with this report include a consulting agreement, certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and Inline XBRL data files414