WEC Energy Group Inc. plans to expand its renewable generation portfolio over the next five years as solar prices have dropped enough to make the resource a "cost-effective" option for its customers, company Chairman and CEO Gale Klappa said on Jan. 31.
Klappa told investors that the company envisions two "pretty sizable sites" for utility-scale solar projects, of which one might be in subsidiary Wisconsin Public Service Corp.'s service territory in northern Wisconsin, but that it is still talking to developers. "We expect to make some final decisions and file for construction authority approval with the Wisconsin [Public Service Commission] this spring," Klappa added.
In November 2017, WEC Energy announced an $11.8 billion capital expenditure plan for 2018 to 2022, not including investments in American Transmission Co. LLC, of which WEC Energy is an equity owner.
Already within the plan are funds for utility-scale solar. "Yes, it is in our five-year plan and it's really in a couple of segments," WEC Energy Executive Vice President and CFO Scott Lauber said in response to an investor's question. "Early on, I would say about $300 million to $400 million in the first few years, and then we have about $350 million in the later part of the five-year plan."
On Jan. 16, the Federal Energy Regulatory Commission approved WPS, Alliant Energy Corp. subsidiary Wisconsin Power and Light Co., and MGE Energy Inc.'s Madison Gas and Electric Co. buying the Forward Energy Center in Wisconsin from current owner, Invenergy LLC. The purchase still requires approval from the Wisconsin Public Service Commission, Klappa said.
When asked if WEC plans to own more renewable assets instead of contracting through power purchase agreements, Klappa said, "Well, I would say not necessarily in 2018, but watch this space."
Electric and gas sales
Lower operations and maintenance costs helped offset lower electric sales in 2017 due to cooler summer weather, executives said.
Colder weather at the end of 2017 helped raise fourth quarter retail sales at its Wisconsin utilities by 1.5%, according to WEC Energy's earnings package. "The colder-than-normal temperatures particularly between Christmas [2017] and New Year's added 2 cents a share and drove us above the top end of our guidance range," Klappa said.
But full-year retail sales at its Wisconsin and Michigan utilities fell by 1.6% from levels in 2016 because of a "significantly" cooler summer, officials said in a news release. The full-year retail sales exclude sales to an iron ore mine in Michigan's Upper Peninsula.
The company reported overall adjusted net income for full-year 2017 of $997 million, or $3.14 per share, up from $941.1 million, or $2.97 per share in 2016. The S&P Capital IQ consensus normalized EPS estimate for 2017 was $3.11 per share.
Unlike power sales, natural gas deliveries in Wisconsin rose year over year, particularly commercial and industrial sales. Natural gas delivered across its Wisconsin, Illinois and utility operations in other states rose about 1.8% in 2017 compared to 2016, according to an investor packet. At its Wisconsin utilities, natural gas for heating and industrial use rose by 4.3% from levels in 2016 and excluded consumption for power generation, according WEC's release.
WEC Energy maintained its 5% to 7% annual growth rate and reported a 2018 guidance of $3.26 per share to $3.30 per share, according to the earnings release.
Tax reform impact
In the fourth quarter of 2017, the company recorded a loss in net income of $206.7 million due to the federal Tax Cuts and Jobs Act that President Donald Trump signed Dec. 22, 2017.
"I'll also point out that our reported earnings of $3.14 a share exclude a onetime noncash gain of 65 cents a share from the tax reform law that was signed in December. This one-time noncash gain reflects the application of the new tax law to the company's nonutility assets and to the assets of the parent company," Klappa said.
The company plans to file a plan with the Wisconsin PSC on Feb. 9 with the full impact of tax reform on its Wisconsin utilities, Klappa added.
In response to various investor questions on tax reform impacts to cash flow and credit metrics, Lauber said, "We now expect our [funds from operations]-to-debt metric to be in the range of 16% to 18%." Lauber and Klappa were comfortable the company could stay in that range over the next five years without having to issue new equity.
