NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
NOTE 1—GENERAL INFORMATION
WEC Energy Group serves approximately 1.6 million electric customers and 2.9 million natural gas customers, owns approximately 60% of ATC, and owns majority interests in multiple wind generating facilities as part of its non-utility energy infrastructure business.
As used in these notes, the term "financial statements" refers to the condensed consolidated financial statements. This includes the income statements, statements of comprehensive income, balance sheets, statements of cash flows, and statements of equity, unless otherwise noted. In this report, when we refer to "the Company," "us," "we," "our," or "ours," we are referring to WEC Energy Group and all of its subsidiaries.
On our financial statements, we consolidate our majority-owned subsidiaries and reflect noncontrolling interests for the portion of entities that we do not own as a component of consolidated equity separate from the equity attributable to our shareholders. The noncontrolling interests that we reported as equity on our balance sheets related to the minority interests at Bishop Hill III, Coyote Ridge, and Upstream held by third parties. See Note 2, Acquisitions, for more information on Upstream.
We use the equity method to account for investments in companies we do not control but over which we exercise significant influence regarding their operating and financial policies. As a result of our limited voting rights, we account for ATC and ATC Holdco as equity method investments. See Note 19, Investment in Transmission Affiliates, for more information.
We have prepared the unaudited interim financial statements presented in this Form 10-Q pursuant to the rules and regulations of the SEC and GAAP. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and footnotes in our Annual Report on Form 10-K for the year ended December 31, 2019. Financial results for an interim period may not give a true indication of results for the year. In particular, the results of operations for the three and nine months ended September 30, 2020, are not necessarily indicative of expected results for 2020 due to seasonal variations and other factors, including any continuing financial impacts from the COVID-19 pandemic.
In management's opinion, we have included all adjustments, normal and recurring in nature, necessary for a fair presentation of our financial results.
NOTE 2—ACQUISITIONS
On January 1, 2018, we adopted ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01). The amendments in this update clarify the definition of a business and provide guidance on evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 also clarifies that transaction costs are capitalized in an asset acquisition but expensed in a business combination.
Acquisition of a Wind Energy Generation Facility in South Dakota
In July 2020, WECI signed an agreement to acquire an 85% ownership interest in Tatanka Ridge, a 155 MW wind generating facility under construction in Deuel County, South Dakota. We expect WECI's total investment to be approximately $235 million. Tatanka Ridge has long-term offtake agreements for all the energy produced with an affiliate of an investment grade multinational company and a well-established electric cooperative that serves utilities in multiple states. Under the Tax Legislation, WECI's investment in Tatanka Ridge is expected to qualify for production tax credits. The transaction was approved by FERC in October 2020 and is expected to close during the fourth quarter of 2020, with commercial operation expected to begin by early 2021. WECI will provide guarantees for certain construction obligations during the period between closing and commercial operation. Tatanka Ridge will be included in the non-utility energy infrastructure segment.
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09/30/2020 Form 10-Q
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9
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WEC Energy Group, Inc.
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Acquisition of Wind Generation Facilities in Nebraska
In August 2019, WECI signed an agreement to acquire an 80% ownership interest in Thunderhead, a 300 MW wind generating facility under construction in Antelope and Wheeler counties in Nebraska, for a total investment of approximately $338 million. In February 2020, WECI agreed to acquire an additional 10% ownership interest in Thunderhead for $43 million. The project has an offtake agreement with an unaffiliated third party for all of the energy to be produced by the facility for 12 years. Under the Tax Legislation, WECI's investment in Thunderhead is expected to qualify for production tax credits . The transaction was approved by FERC in April 2020, and commercial operation was initially expected to begin by the end of 2020. However, due to a court ruling suspending a key permit and the subsequent decision by the local utility to suspend construction of the required substation, the commercial operation of Thunderhead could be delayed until as late as the summer of 2021. The transaction is expected to close upon commercial operation. Thunderhead will be included in the non-utility energy infrastructure segment.
In January 2019, WECI completed the acquisition of an 80% ownership interest in Upstream, a commercially operational 202.5 MW wind generating facility, for $268.2 million, which included transaction costs and is net of cash and restricted cash acquired of $9.2 million. In April 2020, WECI completed the acquisition of an additional 10% ownership interest in Upstream for approximately $31.0 million. Upstream is located in Antelope County, Nebraska and supplies energy to the Southwest Power Pool. Upstream's revenue will be substantially fixed over 10 years through an agreement with an unaffiliated third party. Under the Tax Legislation, WECI's investment in Upstream qualifies for production tax credits. Upstream is included in the non-utility energy infrastructure segment.
The table below shows the allocation of the purchase price to the assets acquired and liabilities assumed at the date of the acquisition of the initial 80% ownership interest in Upstream.
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(in millions)
|
|
|
Current assets
|
|
$
|
0.4
|
|
Net property, plant, and equipment
|
|
341.6
|
|
Other long-term assets
|
|
14.8
|
|
Current liabilities
|
|
(4.6)
|
|
Long-term liabilities
|
|
(15.0)
|
|
Noncontrolling interest
|
|
(69.0)
|
|
Total purchase price
|
|
$
|
268.2
|
|
Acquisition of a Wind Energy Generation Facility in Illinois
In January 2020, WECI signed an agreement to acquire an 80% ownership interest in Blooming Grove, a 250 MW wind generating facility under construction in McLean County, Illinois, for a total investment of approximately $345 million. In February 2020, WECI agreed to acquire an additional 10% ownership interest in Blooming Grove for $44 million. Blooming Grove has long-term offtake agreements for all the energy produced with affiliates of two investment grade multinational companies. Under the Tax Legislation, WECI's investment in Blooming Grove is expected to qualify for production tax credits. The transaction was approved by FERC in October 2020 and commercial operation is expected to begin by the end of 2020, at which time the transaction is expected to close. Blooming Grove will be included in the non-utility energy infrastructure segment.
NOTE 3—DISPOSITION
Corporate and Other Segment – Sale of Certain WPS Power Development, LLC Solar Power Generation Facilities
In June 2019, we sold three solar power generation facilities owned by PDL for $20.0 million. These solar facilities were located in Massachusetts. During the second quarter of 2019, we recorded an after-tax gain on the sale of $4.9 million primarily related to the recognition of deferred investment tax credits, which were included as a reduction of income tax expense on our income statements. The assets included in the sale were not material and, therefore, were not presented as held for sale. The results of operations of these facilities remained in continuing operations through the sale date as the sale did not represent a shift in our corporate strategy and did not have a major effect on our operations and financial results.
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09/30/2020 Form 10-Q
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10
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WEC Energy Group, Inc.
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NOTE 4—OPERATING REVENUES
For more information about our operating revenues, see Note 1(d), Operating Revenues, in our 2019 Annual Report on Form 10-K.
Disaggregation of Operating Revenues
The following tables present our operating revenues disaggregated by revenue source. We do not have any revenues associated with our electric transmission segment, which includes investments accounted for using the equity method. We disaggregate revenues into categories that depict how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors. For our segments, revenues are further disaggregated by electric and natural gas operations and then by customer class. Each customer class within our electric and natural gas operations have different expectations of service, energy and demand requirements, and can be impacted differently by regulatory activities within their jurisdictions.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(in millions)
|
|
Wisconsin
|
|
Illinois
|
|
Other States
|
|
Total Utility
Operations
|
|
Non-Utility Energy Infrastructure
|
|
Corporate
and Other
|
|
Reconciling
Eliminations
|
|
WEC Energy Group Consolidated
|
Three Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
$
|
1,212.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,212.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,212.9
|
|
Natural gas
|
|
150.5
|
|
|
213.4
|
|
|
43.1
|
|
|
407.0
|
|
|
9.1
|
|
|
—
|
|
|
(8.3)
|
|
|
407.8
|
|
Total regulated revenues
|
|
1,363.4
|
|
|
213.4
|
|
|
43.1
|
|
|
1,619.9
|
|
|
9.1
|
|
|
—
|
|
|
(8.3)
|
|
|
1,620.7
|
|
Other non-utility revenues
|
|
—
|
|
|
0.1
|
|
|
4.2
|
|
|
4.3
|
|
|
14.7
|
|
|
0.5
|
|
|
(1.6)
|
|
|
17.9
|
|
Total revenues from contracts with customers
|
|
1,363.4
|
|
|
213.5
|
|
|
47.3
|
|
|
1,624.2
|
|
|
23.8
|
|
|
0.5
|
|
|
(9.9)
|
|
|
1,638.6
|
|
Other operating revenues
|
|
2.9
|
|
|
8.4
|
|
|
1.0
|
|
|
12.3
|
|
|
99.7
|
|
|
0.1
|
|
|
(99.7)
|
|
|
12.4
|
|
Total operating revenues
|
|
$
|
1,366.3
|
|
|
$
|
221.9
|
|
|
$
|
48.3
|
|
|
$
|
1,636.5
|
|
|
$
|
123.5
|
|
|
$
|
0.6
|
|
|
$
|
(109.6)
|
|
|
$
|
1,651.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Wisconsin
|
|
Illinois
|
|
Other States
|
|
Total Utility
Operations
|
|
Non-Utility Energy Infrastructure
|
|
Corporate
and Other
|
|
Reconciling
Eliminations
|
|
WEC Energy Group Consolidated
|
Three Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
$
|
1,185.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,185.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,185.4
|
|
Natural gas
|
|
151.1
|
|
|
190.0
|
|
|
43.8
|
|
|
384.9
|
|
|
8.9
|
|
|
—
|
|
|
(8.4)
|
|
|
385.4
|
|
Total regulated revenues
|
|
1,336.5
|
|
|
190.0
|
|
|
43.8
|
|
|
1,570.3
|
|
|
8.9
|
|
|
—
|
|
|
(8.4)
|
|
|
1,570.8
|
|
Other non-utility revenues
|
|
—
|
|
|
—
|
|
|
4.2
|
|
|
4.2
|
|
|
12.0
|
|
|
1.3
|
|
|
(0.7)
|
|
|
16.8
|
|
Total revenues from contracts with customers
|
|
1,336.5
|
|
|
190.0
|
|
|
48.0
|
|
|
1,574.5
|
|
|
20.9
|
|
|
1.3
|
|
|
(9.1)
|
|
|
1,587.6
|
|
Other operating revenues
|
|
2.8
|
|
|
8.0
|
|
|
0.9
|
|
|
11.7
|
|
|
98.5
|
|
|
—
|
|
|
(89.8)
|
|
|
20.4
|
|
Total operating revenues
|
|
$
|
1,339.3
|
|
|
$
|
198.0
|
|
|
$
|
48.9
|
|
|
$
|
1,586.2
|
|
|
$
|
119.4
|
|
|
$
|
1.3
|
|
|
$
|
(98.9)
|
|
|
$
|
1,608.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Wisconsin
|
|
Illinois
|
|
Other States
|
|
Total Utility Operations
|
|
Non-Utility Energy Infrastructure
|
|
Corporate and Other
|
|
Reconciling Eliminations
|
|
WEC Energy Group Consolidated
|
Nine Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
$
|
3,247.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,247.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,247.1
|
|
Natural gas
|
|
817.2
|
|
|
901.5
|
|
|
245.3
|
|
|
1,964.0
|
|
|
32.3
|
|
|
—
|
|
|
(30.6)
|
|
|
1,965.7
|
|
Total regulated revenues
|
|
4,064.3
|
|
|
901.5
|
|
|
245.3
|
|
|
5,211.1
|
|
|
32.3
|
|
|
—
|
|
|
(30.6)
|
|
|
5,212.8
|
|
Other non-utility revenues
|
|
—
|
|
|
0.1
|
|
|
12.8
|
|
|
12.9
|
|
|
48.2
|
|
|
1.7
|
|
|
(7.1)
|
|
|
55.7
|
|
Total revenues from contracts with customers
|
|
4,064.3
|
|
|
901.6
|
|
|
258.1
|
|
|
5,224.0
|
|
|
80.5
|
|
|
1.7
|
|
|
(37.7)
|
|
|
5,268.5
|
|
Other operating revenues
|
|
7.1
|
|
|
29.1
|
|
|
3.3
|
|
|
39.5
|
|
|
297.9
|
|
|
0.3
|
|
|
(297.9)
|
|
|
39.8
|
|
Total operating revenues
|
|
$
|
4,071.4
|
|
|
$
|
930.7
|
|
|
$
|
261.4
|
|
|
$
|
5,263.5
|
|
|
$
|
378.4
|
|
|
$
|
2.0
|
|
|
$
|
(335.6)
|
|
|
$
|
5,308.3
|
|
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
11
|
WEC Energy Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Wisconsin
|
|
Illinois
|
|
Other States
|
|
Total Utility Operations
|
|
Non-Utility Energy Infrastructure
|
|
Corporate and Other
|
|
Reconciling Eliminations
|
|
WEC Energy Group Consolidated
|
Nine Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
$
|
3,269.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,269.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,269.1
|
|
Natural gas
|
|
943.3
|
|
|
967.4
|
|
|
293.0
|
|
|
2,203.7
|
|
|
35.1
|
|
|
—
|
|
|
(32.2)
|
|
|
2,206.6
|
|
Total regulated revenues
|
|
4,212.4
|
|
|
967.4
|
|
|
293.0
|
|
|
5,472.8
|
|
|
35.1
|
|
|
—
|
|
|
(32.2)
|
|
|
5,475.7
|
|
Other non-utility revenues
|
|
—
|
|
|
0.1
|
|
|
12.5
|
|
|
12.6
|
|
|
40.6
|
|
|
3.6
|
|
|
(4.5)
|
|
|
52.3
|
|
Total revenues from contracts with customers
|
|
4,212.4
|
|
|
967.5
|
|
|
305.5
|
|
|
5,485.4
|
|
|
75.7
|
|
|
3.6
|
|
|
(36.7)
|
|
|
5,528.0
|
|
Other operating revenues
|
|
13.6
|
|
|
9.9
|
|
|
(2.6)
|
|
|
20.9
|
|
|
294.8
|
|
|
0.3
|
|
|
(268.4)
|
|
|
47.6
|
|
Total operating revenues
|
|
$
|
4,226.0
|
|
|
$
|
977.4
|
|
|
$
|
302.9
|
|
|
$
|
5,506.3
|
|
|
$
|
370.5
|
|
|
$
|
3.9
|
|
|
$
|
(305.1)
|
|
|
$
|
5,575.6
|
|
Revenues from Contracts with Customers
Electric Utility Operating Revenues
The following table disaggregates electric utility operating revenues into customer class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric Utility Operating Revenues
|
|
|
Three Months Ended September 30
|
|
Nine Months Ended September 30
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Residential
|
|
$
|
500.8
|
|
|
$
|
454.7
|
|
|
$
|
1,324.4
|
|
|
$
|
1,218.1
|
|
Small commercial and industrial
|
|
373.6
|
|
|
385.6
|
|
|
1,004.3
|
|
|
1,050.8
|
|
Large commercial and industrial
|
|
244.0
|
|
|
237.9
|
|
|
626.4
|
|
|
668.0
|
|
Other
|
|
6.9
|
|
|
6.9
|
|
|
21.1
|
|
|
22.0
|
|
Total retail revenues
|
|
1,125.3
|
|
|
1,085.1
|
|
|
2,976.2
|
|
|
2,958.9
|
|
Wholesale
|
|
46.5
|
|
|
53.1
|
|
|
129.9
|
|
|
145.4
|
|
Resale
|
|
33.7
|
|
|
29.5
|
|
|
107.3
|
|
|
119.7
|
|
Steam
|
|
2.5
|
|
|
2.4
|
|
|
15.0
|
|
|
16.8
|
|
Other utility revenues
|
|
4.9
|
|
|
15.3
|
|
|
18.7
|
|
|
28.3
|
|
Total electric utility operating revenues
|
|
$
|
1,212.9
|
|
|
$
|
1,185.4
|
|
|
$
|
3,247.1
|
|
|
$
|
3,269.1
|
|
Natural Gas Utility Operating Revenues
The following tables disaggregate natural gas utility operating revenues into customer class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Wisconsin
|
|
Illinois
|
|
Other States
|
|
Total Natural Gas Utility Operating Revenues
|
Three Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
74.6
|
|
|
$
|
128.6
|
|
|
$
|
18.8
|
|
|
$
|
222.0
|
|
Commercial and industrial
|
|
28.3
|
|
|
28.6
|
|
|
10.2
|
|
|
67.1
|
|
Total retail revenues
|
|
102.9
|
|
|
157.2
|
|
|
29.0
|
|
|
289.1
|
|
Transport
|
|
15.7
|
|
|
40.0
|
|
|
5.3
|
|
|
61.0
|
|
Other utility revenues (1)
|
|
31.9
|
|
|
16.2
|
|
|
8.8
|
|
|
56.9
|
|
Total natural gas utility operating revenues
|
|
$
|
150.5
|
|
|
$
|
213.4
|
|
|
$
|
43.1
|
|
|
$
|
407.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
12
|
WEC Energy Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Wisconsin
|
|
Illinois
|
|
Other States
|
|
Total Natural Gas Utility Operating Revenues
|
Three Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
69.3
|
|
|
$
|
117.6
|
|
|
$
|
22.5
|
|
|
$
|
209.4
|
|
Commercial and industrial
|
|
30.0
|
|
|
29.3
|
|
|
11.5
|
|
|
70.8
|
|
Total retail revenues
|
|
99.3
|
|
|
146.9
|
|
|
34.0
|
|
|
280.2
|
|
Transport
|
|
14.4
|
|
|
44.3
|
|
|
5.6
|
|
|
64.3
|
|
Other utility revenues (1)
|
|
37.4
|
|
|
(1.2)
|
|
|
4.2
|
|
|
40.4
|
|
Total natural gas utility operating revenues
|
|
$
|
151.1
|
|
|
$
|
190.0
|
|
|
$
|
43.8
|
|
|
$
|
384.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Wisconsin
|
|
Illinois
|
|
Other States
|
|
Total Natural Gas Utility Operating Revenues
|
Nine Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
513.5
|
|
|
$
|
568.9
|
|
|
$
|
154.1
|
|
|
$
|
1,236.5
|
|
Commercial and industrial
|
|
226.6
|
|
|
156.5
|
|
|
78.5
|
|
|
461.6
|
|
Total retail revenues
|
|
740.1
|
|
|
725.4
|
|
|
232.6
|
|
|
1,698.1
|
|
Transport
|
|
56.8
|
|
|
159.0
|
|
|
22.8
|
|
|
238.6
|
|
Other utility revenues (1)
|
|
20.3
|
|
|
17.1
|
|
|
(10.1)
|
|
|
27.3
|
|
Total natural gas utility operating revenues
|
|
$
|
817.2
|
|
|
$
|
901.5
|
|
|
$
|
245.3
|
|
|
$
|
1,964.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Wisconsin
|
|
Illinois
|
|
Other States
|
|
Total Natural Gas Utility Operating Revenues
|
Nine Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
579.4
|
|
|
$
|
625.7
|
|
|
$
|
187.0
|
|
|
$
|
1,392.1
|
|
Commercial and industrial
|
|
285.5
|
|
|
190.6
|
|
|
104.0
|
|
|
580.1
|
|
Total retail revenues
|
|
864.9
|
|
|
816.3
|
|
|
291.0
|
|
|
1,972.2
|
|
Transport
|
|
52.5
|
|
|
178.3
|
|
|
23.0
|
|
|
253.8
|
|
Other utility revenues (1)
|
|
25.9
|
|
|
(27.2)
|
|
|
(21.0)
|
|
|
(22.3)
|
|
Total natural gas utility operating revenues
|
|
$
|
943.3
|
|
|
$
|
967.4
|
|
|
$
|
293.0
|
|
|
$
|
2,203.7
|
|
(1)Includes amounts collected from (refunded to) customers for purchased gas adjustment costs.
Other Natural Gas Operating Revenues
We have other natural gas operating revenues from Bluewater, which is in our non-utility energy infrastructure segment. Bluewater has entered into long-term service agreements for natural gas storage services with WE, WPS, and WG, and also provides limited service to unaffiliated customers. All amounts associated with services from affiliates have been eliminated at the consolidated level.
Other Non-Utility Operating Revenues
Other non-utility operating revenues consist primarily of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30
|
|
Nine Months Ended September 30
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Wind generation revenues
|
|
$
|
7.4
|
|
|
$
|
4.9
|
|
|
$
|
24.0
|
|
|
$
|
17.0
|
|
We Power revenues (1)
|
|
5.8
|
|
|
6.4
|
|
|
17.1
|
|
|
19.1
|
|
Appliance service revenues
|
|
4.2
|
|
|
4.2
|
|
|
12.8
|
|
|
12.5
|
|
Distributed renewable solar project revenues
|
|
0.3
|
|
|
1.3
|
|
|
1.4
|
|
|
3.6
|
|
Other
|
|
0.2
|
|
|
—
|
|
|
0.4
|
|
|
0.1
|
|
Total other non-utility operating revenues
|
|
$
|
17.9
|
|
|
$
|
16.8
|
|
|
$
|
55.7
|
|
|
$
|
52.3
|
|
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
13
|
WEC Energy Group, Inc.
|
(1)As part of the construction of the We Power electric generating units, we capitalized interest during construction, which is included in property, plant, and equipment. As allowed by the PSCW, we collected these carrying costs from WE's utility customers during construction. The equity portion of these carrying costs was recorded as a contract liability, and we continually amortize the deferred carrying costs to revenues over the related lease term that We Power has with WE. During the three and nine months ended September 30, 2020, we recorded $5.8 million and $17.1 million, respectively, of revenues related to these deferred carrying costs. During the three and nine months ended September 30, 2019, we recorded $6.4 million and $19.1 million, respectively, of revenues related to these deferred carrying costs. These contract liabilities are presented as deferred revenue, net on our balance sheets.
Other Operating Revenues
Other operating revenues consist primarily of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30
|
|
Nine Months Ended September 30
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Late payment charges (1)
|
|
$
|
6.0
|
|
|
$
|
9.7
|
|
|
$
|
18.1
|
|
|
$
|
34.9
|
|
Alternative revenues (2)
|
|
5.4
|
|
|
1.4
|
|
|
18.2
|
|
|
(17.2)
|
|
Other
|
|
1.0
|
|
|
9.3
|
|
|
3.5
|
|
|
29.9
|
|
Total other operating revenues
|
|
$
|
12.4
|
|
|
$
|
20.4
|
|
|
$
|
39.8
|
|
|
$
|
47.6
|
|
(1)The reduction in late payment charges is a result of various regulatory orders from our utility commissions in response to the COVID-19 pandemic, which include the suspension of late payment charges during a designated time period. The amount of late payment charges recorded as alternative revenues during the three and nine months ended September 30, 2020 were $1.7 million and $8.5 million, respectively. See Note 24, Regulatory Environment, for more information.
(2)Negative amounts can result from alternative revenues being reversed to revenues from contracts with customers as the customer is billed for these alternative revenues. Negative amounts can also result from revenues to be refunded to customers subject to decoupling mechanisms, wholesale true-ups, and conservation improvement rider true-ups, as discussed in Note 1(d), Operating Revenues, in our 2019 Annual Report on Form 10-K.
NOTE 5—CREDIT LOSSES
Effective January 1, 2020, we adopted FASB ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, using the modified retrospective transition method. This ASU amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables. The amendment requires entities to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of loss. The cumulative effect of adopting this standard was not significant to our financial statements.
Our exposure to credit losses is related to our accounts receivable and unbilled revenue balances, which are primarily generated from the sale of electricity and natural gas by our regulated utility operations. Credit losses associated with our utility operations are analyzed at the reportable segment level as we believe contract terms, political and economic risks, and the regulatory environment are similar at this level as our reportable segments are generally based on the geographic location of the underlying utility operations.
We have an accounts receivable and unbilled revenue balance associated with our non-utility energy infrastructure segment, related to the sale of electricity from our majority-owned wind generating facilities through agreements with several large high credit quality counterparties. At the corporate and other segment, the accounts receivable and unbilled revenue balance is related to the remaining PDL residential solar business.
We evaluate the collectability of our accounts receivable and unbilled revenue balances considering a combination of factors. For some of our larger customers and also in circumstances where we become aware of a specific customer's inability to meet its financial obligations to us, we record a specific allowance for credit losses against amounts due in order to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we use the accounts receivable aging method to calculate an allowance for credit losses. Using this method, we classify accounts receivable into different aging buckets and calculate a reserve percentage for each aging bucket based upon historical loss rates. The calculated reserve percentages are updated on at least an annual basis, in order to ensure recent macroeconomic, political, and regulatory trends are captured in the calculation, to the extent possible. Risks identified that we do not believe are reflected in the calculated reserve percentages, are assessed on a quarterly basis to determine whether further adjustments are required. At September 30, 2020, we had an incremental reserve of $2.9 million included within our allowance for credit losses specific to the economic risks associated with the
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
14
|
WEC Energy Group, Inc.
|
COVID-19 pandemic, which continues to evolve. We will continue to monitor the economic impacts of COVID-19 and the resulting effect that these impacts may have on the ability of our customers to pay their energy bills.
We monitor our ongoing credit exposure through active review of counterparty accounts receivable balances against contract terms and due dates. Our activities include timely account reconciliation, dispute resolution and payment confirmation. To the extent possible, we work with customers with past due balances to negotiate payment plans, but will disconnect customers for non-payment as allowed by our regulators if necessary, and employ collection agencies and legal counsel to pursue recovery of defaulted receivables. For our larger customers, detailed credit review procedures may be performed in advance of any sales being made. We sometimes require letters of credit, parental guarantees, prepayments or other forms of credit assurance from our larger customers to mitigate credit risk. See Note 24, Regulatory Environment, for information on certain regulatory actions that were and/or are being taken for the purpose of ensuring that essential utility services are available to our customers during the COVID-19 pandemic.
We have included a table below that shows our gross third-party receivable balances and the related allowance for credit losses at September 30, 2020, by reportable segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Wisconsin
|
|
Illinois
|
|
Other States
|
|
Total Utility
Operations
|
|
Non-Utility Energy Infrastructure
|
|
Corporate
and Other
|
|
WEC Energy Group Consolidated
|
Accounts receivable and unbilled revenues
|
|
$
|
766.8
|
|
|
$
|
272.8
|
|
|
$
|
34.8
|
|
|
$
|
1,074.4
|
|
|
$
|
6.5
|
|
|
$
|
4.2
|
|
|
$
|
1,085.1
|
|
Allowance for credit losses
|
|
88.5
|
|
|
80.2
|
|
|
4.4
|
|
|
173.1
|
|
|
—
|
|
|
0.2
|
|
|
173.3
|
|
Accounts receivable and unbilled revenues, net (1)
|
|
$
|
678.3
|
|
|
$
|
192.6
|
|
|
$
|
30.4
|
|
|
$
|
901.3
|
|
|
$
|
6.5
|
|
|
$
|
4.0
|
|
|
$
|
911.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accounts receivable, net – past due greater than 90 days (1)
|
|
$
|
71.5
|
|
|
$
|
53.6
|
|
|
$
|
7.1
|
|
|
$
|
132.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
132.2
|
|
Past due greater than 90 days – collection risk mitigated by regulatory mechanisms (1)
|
|
97.0
|
%
|
|
100.0
|
%
|
|
—
|
%
|
|
93.0
|
%
|
|
—
|
%
|
|
—
|
%
|
|
93.0
|
%
|
(1)Our exposure to credit losses for certain regulated utility customers is mitigated by regulatory mechanisms we have in place. Specifically, rates related to all of the customers in our Illinois segment, as well as the residential rates of WE, WPS, and WG in our Wisconsin segment include riders or other mechanisms for cost recovery or refund of uncollectible expense based on the difference between the actual provision for credit losses and the amounts recovered in rates. As a result, at September 30, 2020, $498.3 million, or 54.7%, of our net accounts receivable and unbilled revenues balance had regulatory protections in place to mitigate the exposure to credit losses. In addition, we have received specific orders related to the deferral of certain costs (including credit losses) incurred as a result of the COVID-19 pandemic. The additional protections related to our September 30, 2020 accounts receivable and unbilled revenue balances provided by these orders are subject to prudency reviews and are still being assessed. They are not reflected in the percentages in the above table or this note. See Note 24, Regulatory Environment, for more information on these orders.
A rollforward of the allowance for credit losses by reportable segment for the three and nine months ended September 30, 2020, is included below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Wisconsin
|
|
Illinois
|
|
Other States
|
|
Total Utility
Operations
|
|
Corporate
and Other
|
|
WEC Energy Group Consolidated
|
Balance at June 30, 2020
|
|
$
|
77.9
|
|
|
$
|
82.7
|
|
|
$
|
4.0
|
|
|
$
|
164.6
|
|
|
$
|
0.1
|
|
|
$
|
164.7
|
|
Provision for credit losses
|
|
14.8
|
|
|
6.3
|
|
|
1.0
|
|
|
22.1
|
|
|
0.1
|
|
|
22.2
|
|
Provision for credit losses deferred for future recovery or refund
|
|
2.5
|
|
|
(3.2)
|
|
|
—
|
|
|
(0.7)
|
|
|
—
|
|
|
(0.7)
|
|
Write-offs charged against the allowance
|
|
(14.5)
|
|
|
(10.0)
|
|
|
(0.9)
|
|
|
(25.4)
|
|
|
—
|
|
|
(25.4)
|
|
Recoveries of amounts previously written off
|
|
7.8
|
|
|
4.4
|
|
|
0.3
|
|
|
12.5
|
|
|
—
|
|
|
12.5
|
|
Balance at September 30, 2020
|
|
$
|
88.5
|
|
|
$
|
80.2
|
|
|
$
|
4.4
|
|
|
$
|
173.1
|
|
|
$
|
0.2
|
|
|
$
|
173.3
|
|
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
15
|
WEC Energy Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Wisconsin
|
|
Illinois
|
|
Other States
|
|
Total Utility
Operations
|
|
Corporate
and Other
|
|
WEC Energy Group Consolidated
|
Balance at December 31, 2019
|
|
$
|
59.9
|
|
|
$
|
75.9
|
|
|
$
|
4.1
|
|
|
$
|
139.9
|
|
|
$
|
0.1
|
|
|
$
|
140.0
|
|
Provision for credit losses
|
|
40.8
|
|
|
28.3
|
|
|
2.1
|
|
|
71.2
|
|
|
0.1
|
|
|
71.3
|
|
Provision for credit losses deferred for future recovery or refund
|
|
11.6
|
|
|
22.4
|
|
|
—
|
|
|
34.0
|
|
|
—
|
|
|
34.0
|
|
Write-offs charged against the allowance
|
|
(52.2)
|
|
|
(59.5)
|
|
|
(2.9)
|
|
|
(114.6)
|
|
|
—
|
|
|
(114.6)
|
|
Recoveries of amounts previously written off
|
|
28.4
|
|
|
13.1
|
|
|
1.1
|
|
|
42.6
|
|
|
—
|
|
|
42.6
|
|
Balance at September 30, 2020
|
|
$
|
88.5
|
|
|
$
|
80.2
|
|
|
$
|
4.4
|
|
|
$
|
173.1
|
|
|
$
|
0.2
|
|
|
$
|
173.3
|
|
The increase in the allowance for credit losses at our Wisconsin and Illinois reportable segments in 2020, was driven by an increase in past due accounts receivable balances from December 31, 2019 to September 30, 2020. This is a trend we generally see over the winter moratorium months, when we are not allowed to disconnect customer service as a result of non-payment. In Wisconsin, the winter moratorium begins on November 1 and ends on April 15, and in Illinois the winter moratorium begins on December 1 and ends on March 31. However, as a result of the COVID-19 pandemic and related regulatory orders we have received, we were also unable to disconnect any of our Wisconsin and Illinois customers during the second and third quarters of 2020. See Note 24, Regulatory Environment, for more information.
NOTE 6—REGULATORY ASSETS AND LIABILITIES
The following regulatory assets and liabilities were reflected on our balance sheets at September 30, 2020 and December 31, 2019. For more information on our regulatory assets and liabilities, see Note 5, Regulatory Assets and Liabilities, in our 2019 Annual Report on Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
September 30, 2020
|
|
December 31, 2019
|
Regulatory assets
|
|
|
|
|
Pension and OPEB costs
|
|
$
|
986.0
|
|
|
$
|
1,066.6
|
|
Plant retirements
|
|
841.7
|
|
|
856.4
|
|
Environmental remediation costs
|
|
696.6
|
|
|
685.5
|
|
Income tax related items
|
|
456.0
|
|
|
457.8
|
|
Asset retirement obligations
|
|
201.2
|
|
|
137.5
|
|
SSR
|
|
137.4
|
|
|
151.5
|
|
Uncollectible expense
|
|
66.3
|
|
|
52.2
|
|
COVID-19 (1)
|
|
23.3
|
|
|
—
|
|
Derivatives
|
|
11.6
|
|
|
33.8
|
|
We Power generation
|
|
7.1
|
|
|
25.8
|
|
Other, net
|
|
57.2
|
|
|
60.5
|
|
Total regulatory assets
|
|
$
|
3,484.4
|
|
|
$
|
3,527.6
|
|
|
|
|
|
|
Balance sheet presentation
|
|
|
|
|
Other current assets
|
|
$
|
22.2
|
|
|
$
|
20.9
|
|
Regulatory assets
|
|
3,462.2
|
|
|
3,506.7
|
|
Total regulatory assets
|
|
$
|
3,484.4
|
|
|
$
|
3,527.6
|
|
(1)See Note 24, Regulatory Environment, for more information.
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
16
|
WEC Energy Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
September 30, 2020
|
|
December 31, 2019
|
Regulatory liabilities
|
|
|
|
|
Income tax related items
|
|
$
|
2,163.8
|
|
|
$
|
2,248.8
|
|
Removal costs
|
|
1,213.3
|
|
|
1,181.5
|
|
Pension and OPEB benefits
|
|
337.8
|
|
|
354.9
|
|
Energy costs refundable through rate adjustments
|
|
76.8
|
|
|
89.8
|
|
Electric transmission costs
|
|
70.8
|
|
|
42.2
|
|
Derivatives
|
|
35.5
|
|
|
6.7
|
|
Uncollectible expense
|
|
34.1
|
|
|
39.1
|
|
Earnings sharing mechanisms
|
|
33.6
|
|
|
43.5
|
|
Decoupling
|
|
25.6
|
|
|
36.8
|
|
Energy efficiency programs
|
|
13.3
|
|
|
30.7
|
|
Other, net
|
|
7.8
|
|
|
6.4
|
|
Total regulatory liabilities
|
|
$
|
4,012.4
|
|
|
$
|
4,080.4
|
|
|
|
|
|
|
Balance sheet presentation
|
|
|
|
|
Other current liabilities
|
|
$
|
73.1
|
|
|
$
|
87.6
|
|
Regulatory liabilities
|
|
3,939.3
|
|
|
3,992.8
|
|
Total regulatory liabilities
|
|
$
|
4,012.4
|
|
|
$
|
4,080.4
|
|
NOTE 7—PROPERTY, PLANT, AND EQUIPMENT
During a significant rain event in May 2020, an underground steam tunnel in downtown Milwaukee flooded and steam vented into WE’s Public Service Building. The damage to the building from the flooding and steam was extensive and will require significant repairs and restorations. As of September 30, 2020, WE had incurred $16.8 million of costs related to these repairs and restorations, and we have received insurance proceeds sufficient to cover these costs. We are working closely with our insurance carriers, and we anticipate that any current and future expenditures required to restore the Public Service Building will largely be covered by insurance. As such, we do not currently expect a significant impact to our results of operations, and although we may experience differences between periods in the timing of cash flows, we also do not currently expect a significant impact to our long-term cash flows from this event.
NOTE 8—COMMON EQUITY
Stock-Based Compensation
During the nine months ended September 30, 2020, the Compensation Committee of our Board of Directors awarded the following stock-based compensation awards to our directors, officers, and certain other key employees:
|
|
|
|
|
|
|
|
|
Award Type
|
|
Number of Awards
|
Stock options (1)
|
|
554,594
|
|
Restricted shares (2)
|
|
91,873
|
|
Performance units
|
|
153,465
|
|
(1)Stock options awarded had a weighted-average exercise price of $91.51 and a weighted-average grant date fair value of $10.94 per option.
(2)Restricted shares awarded had a weighted-average grant date fair value of $91.54 per share.
Restrictions
Our ability as a holding company to pay common stock dividends primarily depends on the availability of funds received from our utility subsidiaries, We Power, ATC Holding LLC, which holds our ownership interest in ATC, and WECI. Various financing arrangements and regulatory requirements impose certain restrictions on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans, or advances. All of our utility subsidiaries, with the exception of UMERC and MGU, are prohibited from loaning funds to us, either directly or indirectly. See Note 10, Common Equity, in our 2019 Annual Report on Form 10-K for additional information on these and other restrictions.
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
17
|
WEC Energy Group, Inc.
|
We do not believe that these restrictions will materially affect our operations or limit any dividend payments in the foreseeable future.
Common Stock Dividends
On October 15, 2020, our Board of Directors declared a quarterly cash dividend of $0.6325 per share, payable on December 1, 2020, to shareholders of record on November 13, 2020.
NOTE 9—SHORT-TERM DEBT AND LINES OF CREDIT
The following table shows our short-term borrowings and their corresponding weighted-average interest rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except percentages)
|
|
September 30, 2020
|
|
December 31, 2019
|
Commercial paper
|
|
|
|
|
Amount outstanding
|
|
$
|
431.0
|
|
|
$
|
830.8
|
|
Weighted-average interest rate on amounts outstanding
|
|
0.15
|
%
|
|
2.00
|
%
|
Term loan
|
|
|
|
|
Amount outstanding
|
|
$
|
340.0
|
|
|
$
|
—
|
|
Weighted-average interest rate on amounts outstanding
|
|
0.97
|
%
|
|
N/A
|
Our average amount of commercial paper borrowings based on daily outstanding balances during the nine months ended September 30, 2020 was $772.7 million with a weighted-average interest rate during the period of 1.08%.
In order to enhance our liquidity position in response to the COVID-19 pandemic, in March 2020, WEC Energy Group entered into a $340.0 million 364-day term loan that will mature on March 29, 2021. The proceeds from this term loan were used to pay down commercial paper. The weighted-average interest rate on the term loan during the nine months ended September 30, 2020 was 1.59%.
The information in the table below relates to our term loan agreement and our revolving credit facilities used to support our commercial paper borrowing programs, including available capacity under these credit agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Maturity
|
|
September 30, 2020
|
Term loan agreement (WEC Energy Group)
|
|
March 2021
|
|
$
|
340.0
|
|
Revolving credit facility (WEC Energy Group)
|
|
October 2022
|
|
1,200.0
|
|
Revolving credit facility (WE)
|
|
October 2022
|
|
500.0
|
|
Revolving credit facility (WPS)
|
|
October 2022
|
|
400.0
|
|
Revolving credit facility (WG)
|
|
October 2022
|
|
350.0
|
|
Revolving credit facility (PGL)
|
|
October 2022
|
|
350.0
|
|
Total short-term credit capacity
|
|
|
|
$
|
3,140.0
|
|
Less:
|
|
|
|
|
Letters of credit issued inside credit facilities
|
|
|
|
$
|
2.3
|
|
Term loan outstanding
|
|
|
|
340.0
|
|
Commercial paper outstanding
|
|
|
|
431.0
|
|
Available capacity under existing credit agreements
|
|
|
|
$
|
2,366.7
|
|
NOTE 10—LONG-TERM DEBT
WEC Energy Group, Inc.
In May 2020, we redeemed at par all $400.0 million outstanding of our 2.45% Senior Notes due June 15, 2020.
In September 2020, we issued $700.0 million of 0.55% Senior Notes due September 15, 2023, and used the net proceeds to repay commercial paper and for working capital and other general corporate purposes.
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
18
|
WEC Energy Group, Inc.
|
In October 2020, we issued $500.0 million of 1.375% Senior Notes due October 15, 2027, and $450.0 million of 1.800% Senior Notes due October 15, 2030. We used the net proceeds to redeem our $600.0 million of 3.375% Senior Notes due June 15, 2021 and our $350.0 million of 3.10% Senior Notes due March 8, 2022, and for other general corporate purposes. As a result of redeeming our 3.375% Senior Notes and our 3.10% Senior Notes prior to their maturity dates, we recognized a $27.9 million loss on early extinguishment of debt in October 2020. The loss is comprised of the make-whole premium associated with the early redemptions and the write-off of unamortized debt discounts and debt issuance costs as of the redemption date.
The Peoples Gas Light and Coke Company
In August 2020, PGL redeemed at par all $50.0 million outstanding of its 1.875% Series WW Bonds due February 1, 2033.
Minnesota Energy Resources Corporation
In April 2020, MERC issued $50.0 million of 2.69% Senior Notes due May 1, 2025, and used the net proceeds to repay intercompany short-term debt to its parent, Integrys, and for general corporate purposes, including capital expenditures.
Michigan Gas Utilities Corporation
In April 2020, MGU issued $60.0 million of 2.69% Senior Notes due May 1, 2025, and used the net proceeds to repay intercompany short-term debt to its parent, Integrys, and for general corporate purposes, including capital expenditures.
NOTE 11—LEASES
WE has partnered with an unaffiliated utility to construct Badger Hollow II in Iowa County, Wisconsin. Once constructed, WE will own 100 MW of this project. The PSCW approved the acquisition of Badger Hollow II in March 2020 and commercial operation is targeted for December 2022.
Related to its investment in Badger Hollow II, WE, along with its unaffiliated utility partner, entered into several land leases in Iowa County, Wisconsin that commenced in the second quarter of 2020. The leases are for a total of approximately 1,500 acres of land. Each lease has an initial construction term that ends upon achieving commercial operation, then automatically extends for 25 years with an option for an additional 25-year extension. We expect the optional extension to be exercised, and, as a result, the land leases are being amortized over the extended term of the leases. The lease payments will be recovered through rates.
Our total obligation under the land related finance leases for Badger Hollow II was $22.9 million at September 30, 2020, and will decrease to zero over the remaining lives of the leases. Long-term lease liabilities related to our finance leases for Badger Hollow II were included in long-term debt on the balance sheets. Our finance lease right of use asset related to Badger Hollow II was $22.7 million as of September 30, 2020, and was included in property, plant, and equipment on our balance sheets.
In accordance with Accounting Standard Codification Subtopic 980-842, Regulated Operations – Leases (Subtopic 980-842), the expense recognition pattern associated with the Badger Hollow II leases resembles that of an operating lease, as amortization of the right of use assets has been modified from what would typically be recorded for a finance lease under Topic 842. The difference between the minimum lease payments and the sum of imputed interest and unadjusted amortization costs calculated under Topic 842 is deferred as a regulatory asset in accordance with Subtopic 980-842 on our balance sheet.
At September 30, 2020, our weighted-average discount rate for the Badger Hollow II finance leases was 3.44%. We used the fully collateralized incremental borrowing rates based upon information available for similarly rated companies in determining the present value of lease payments.
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
19
|
WEC Energy Group, Inc.
|
Future minimum lease payments and the corresponding present value of our net minimum lease payments under the finance leases for Badger Hollow II as of September 30, 2020, were as follows:
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
2021
|
|
$
|
0.3
|
|
2022
|
|
0.3
|
|
2023
|
|
0.7
|
|
2024
|
|
0.7
|
|
2025
|
|
0.7
|
|
Thereafter
|
|
55.0
|
|
Total minimum lease payments
|
|
57.7
|
|
Less: Interest
|
|
(34.8)
|
|
Present value of minimum lease payments
|
|
22.9
|
|
Less: Short-term lease liabilities
|
|
—
|
|
Long-term lease liabilities
|
|
$
|
22.9
|
|
NOTE 12—MATERIALS, SUPPLIES, AND INVENTORIES
Our inventory consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
September 30, 2020
|
|
December 31, 2019
|
Natural gas in storage
|
|
$
|
251.9
|
|
|
$
|
227.7
|
|
Materials and supplies
|
|
247.3
|
|
|
234.2
|
|
Fossil fuel
|
|
74.2
|
|
|
87.9
|
|
Total
|
|
$
|
573.4
|
|
|
$
|
549.8
|
|
PGL and NSG price natural gas storage injections at the calendar year average of the costs of natural gas supply purchased. Withdrawals from storage are priced on the LIFO cost method. For interim periods, the difference between current projected replacement cost and the LIFO cost for quantities of natural gas temporarily withdrawn from storage is recorded as a temporary LIFO liquidation debit or credit. At September 30, 2020, all LIFO layers were replenished, and the LIFO liquidation balance was zero.
Substantially all other natural gas in storage, materials and supplies, and fossil fuel inventories are recorded using the weighted-average cost method of accounting.
NOTE 13—INCOME TAXES
The provision for income taxes differs from the amount of income tax determined by applying the applicable United States statutory federal income tax rate to income before income taxes as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Three Months Ended September 30, 2019
|
(in millions)
|
|
Amount
|
|
Effective Tax Rate
|
|
Amount
|
|
Effective Tax Rate
|
Statutory federal income tax
|
|
$
|
65.9
|
|
|
21.0
|
%
|
|
$
|
51.5
|
|
|
21.0
|
%
|
State income taxes net of federal tax benefit
|
|
19.7
|
|
|
6.3
|
%
|
|
20.3
|
|
|
8.2
|
%
|
Federal excess deferred tax amortization – Wisconsin unprotected
|
|
(12.5)
|
|
|
(4.0)
|
%
|
|
—
|
|
|
—
|
%
|
Wind production tax credits
|
|
(11.2)
|
|
|
(3.6)
|
%
|
|
(6.8)
|
|
|
(2.8)
|
%
|
Federal excess deferred tax amortization
|
|
(8.3)
|
|
|
(2.6)
|
%
|
|
(12.0)
|
|
|
(4.9)
|
%
|
Uncertain tax positions
|
|
(5.1)
|
|
|
(1.6)
|
%
|
|
0.3
|
|
|
0.1
|
%
|
Excess tax benefits – stock options
|
|
(0.6)
|
|
|
(0.2)
|
%
|
|
(3.9)
|
|
|
(1.6)
|
%
|
Tax repairs
|
|
0.9
|
|
|
0.3
|
%
|
|
(30.7)
|
|
|
(12.5)
|
%
|
Other
|
|
(1.9)
|
|
|
(0.7)
|
%
|
|
(7.4)
|
|
|
(2.9)
|
%
|
Total income tax expense
|
|
$
|
46.9
|
|
|
14.9
|
%
|
|
$
|
11.3
|
|
|
4.6
|
%
|
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
20
|
WEC Energy Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Nine Months Ended September 30, 2019
|
(in millions)
|
|
Amount
|
|
Effective Tax Rate
|
|
Amount
|
|
Effective Tax Rate
|
Statutory federal income tax
|
|
$
|
242.0
|
|
|
21.0
|
%
|
|
$
|
206.1
|
|
|
21.0
|
%
|
State income taxes net of federal tax benefit
|
|
72.1
|
|
|
6.3
|
%
|
|
66.8
|
|
|
6.8
|
%
|
Federal excess deferred tax amortization – Wisconsin unprotected
|
|
(45.7)
|
|
|
(4.0)
|
%
|
|
—
|
|
|
—
|
%
|
Wind production tax credits
|
|
(39.0)
|
|
|
(3.4)
|
%
|
|
(26.4)
|
|
|
(2.7)
|
%
|
Federal excess deferred tax amortization
|
|
(30.2)
|
|
|
(2.6)
|
%
|
|
(32.7)
|
|
|
(3.3)
|
%
|
Excess tax benefits – stock options
|
|
(6.9)
|
|
|
(0.6)
|
%
|
|
(15.5)
|
|
|
(1.6)
|
%
|
Uncertain tax positions
|
|
(5.8)
|
|
|
(0.5)
|
%
|
|
(2.6)
|
|
|
(0.3)
|
%
|
Tax repairs
|
|
2.4
|
|
|
0.2
|
%
|
|
(90.7)
|
|
|
(9.2)
|
%
|
Other
|
|
1.8
|
|
|
0.1
|
%
|
|
(13.5)
|
|
|
(1.4)
|
%
|
Total income tax expense
|
|
$
|
190.7
|
|
|
16.5
|
%
|
|
$
|
91.5
|
|
|
9.3
|
%
|
The effective tax rates of 14.9% and 16.5% for the three and nine months ended September 30, 2020, respectively, differ from the United States statutory federal income tax rate of 21%, primarily due to the recognition of certain unprotected deferred tax benefits created as a result of the Tax Legislation. In accordance with the rate order received from the PSCW in December 2019, our Wisconsin utilities are amortizing the unprotected deferred tax benefits over periods ranging from two years to four years, to reduce near-term rate impacts to their customers. In addition, wind production tax credits generated from ownership interests in wind generation facilities in our non-utility energy infrastructure segment and the impact of the protected benefits associated with the Tax Legislation, as discussed in more detail below, drove a decrease in the effective tax rate, which was partially offset by state income taxes.
The effective tax rates of 4.6% and 9.3% for the three and nine months ended September 30, 2019, respectively, differ from the United States statutory federal income tax rate of 21%, primarily due to the flow through of tax repairs in connection with the 2017 Wisconsin rate settlement, the impact of the protected benefits associated with the Tax Legislation, as discussed in more detail below, and wind production tax credits generated from ownership interests in wind generation facilities in our non-utility energy infrastructure segment, partially offset by state income taxes.
The Tax Legislation required our regulated utilities to remeasure their deferred income taxes and we began to amortize the resulting excess protected deferred income taxes beginning in 2018 in accordance with normalization requirements (see federal excess deferred tax amortization line above).
See Note 24, Regulatory Environment, for more information.
NOTE 14—FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).
Fair value accounting rules provide a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are defined as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 – Pricing inputs are observable, either directly or indirectly, but are not quoted prices included within Level 1. Level 2 includes those financial instruments that are valued using external inputs within models or other valuation methods.
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methods that result in management's best estimate of fair value. Level 3 instruments include those that may be more structured or otherwise tailored to customers' needs.
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
21
|
WEC Energy Group, Inc.
|
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We use a mid-market pricing convention (the mid-point price between bid and ask prices) as a practical measure for valuing certain derivative assets and liabilities. We primarily use a market approach for recurring fair value measurements and attempt to use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
When possible, we base the valuations of our derivative assets and liabilities on quoted prices for identical assets and liabilities in active markets. These valuations are classified in Level 1. The valuations of certain contracts not classified as Level 1 may be based on quoted market prices received from counterparties and/or observable inputs for similar instruments. Transactions valued using these inputs are classified in Level 2. Certain derivatives are categorized in Level 3 due to the significance of unobservable or internally-developed inputs.
The following tables summarize our financial assets and liabilities that were accounted for at fair value on a recurring basis, categorized by level within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
(in millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Derivative assets
|
|
|
|
|
|
|
|
|
Natural gas contracts
|
|
$
|
32.4
|
|
|
$
|
3.2
|
|
|
$
|
—
|
|
|
$
|
35.6
|
|
FTRs
|
|
—
|
|
|
—
|
|
|
4.0
|
|
|
4.0
|
|
Coal contracts
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
0.5
|
|
Total derivative assets
|
|
$
|
32.4
|
|
|
$
|
3.7
|
|
|
$
|
4.0
|
|
|
$
|
40.1
|
|
|
|
|
|
|
|
|
|
|
Investments held in rabbi trust
|
|
$
|
72.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
72.6
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
|
|
|
|
|
|
|
Natural gas contracts
|
|
$
|
0.9
|
|
|
$
|
3.9
|
|
|
$
|
—
|
|
|
$
|
4.8
|
|
Coal contracts
|
|
—
|
|
|
2.4
|
|
|
—
|
|
|
2.4
|
|
Interest rate swaps
|
|
—
|
|
|
8.3
|
|
|
—
|
|
|
8.3
|
|
Total derivative liabilities
|
|
$
|
0.9
|
|
|
$
|
14.6
|
|
|
$
|
—
|
|
|
$
|
15.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(in millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Derivative assets
|
|
|
|
|
|
|
|
|
Natural gas contracts
|
|
$
|
1.4
|
|
|
$
|
2.0
|
|
|
$
|
—
|
|
|
$
|
3.4
|
|
FTRs
|
|
—
|
|
|
—
|
|
|
3.1
|
|
|
3.1
|
|
Coal contracts
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
0.4
|
|
Total derivative assets
|
|
$
|
1.4
|
|
|
$
|
2.4
|
|
|
$
|
3.1
|
|
|
$
|
6.9
|
|
|
|
|
|
|
|
|
|
|
Investments held in rabbi trust
|
|
$
|
85.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
85.3
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
|
|
|
|
|
|
|
Natural gas contracts
|
|
$
|
21.4
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
22.7
|
|
Coal contracts
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
Interest rate swaps
|
|
—
|
|
|
6.0
|
|
|
—
|
|
|
6.0
|
|
Total derivative liabilities
|
|
$
|
21.4
|
|
|
$
|
7.5
|
|
|
$
|
—
|
|
|
$
|
28.9
|
|
The derivative assets and liabilities listed in the tables above include options, swaps, futures, physical commodity contracts, and other instruments used to manage market risks related to changes in commodity prices and interest rates. They also include FTRs, which are used to manage electric transmission congestion costs in the MISO Energy and Operating Reserves Markets.
We hold investments in the Integrys rabbi trust. These investments are restricted as they can only be withdrawn from the trust to fund participants' benefits under the Integrys deferred compensation plan and certain Integrys non-qualified pension plans. These investments are included in other long-term assets on our balance sheets. For the three months ended September 30, 2020 and 2019, the net unrealized gains included in earnings related to the investments held at the end of the period were $5.7 million and
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
22
|
WEC Energy Group, Inc.
|
$0.7 million, respectively. For the nine months ended September 30, 2020 and 2019, the net unrealized gains included in earnings related to the investments held at the end of the period were $2.9 million and $12.1 million, respectively.
The following table summarizes the changes to derivatives classified as Level 3 in the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30
|
|
Nine Months Ended September 30
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Balance at the beginning of the period
|
|
$
|
6.5
|
|
|
$
|
10.4
|
|
|
$
|
3.1
|
|
|
$
|
7.4
|
|
Purchases
|
|
—
|
|
|
—
|
|
|
7.5
|
|
|
12.8
|
|
Settlements
|
|
(2.5)
|
|
|
(4.2)
|
|
|
(6.6)
|
|
|
(14.0)
|
|
Balance at the end of the period
|
|
$
|
4.0
|
|
|
$
|
6.2
|
|
|
$
|
4.0
|
|
|
$
|
6.2
|
|
Fair Value of Financial Instruments
The following table shows the financial instruments included on our balance sheets that were not recorded at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
(in millions)
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
Preferred stock of subsidiary
|
|
$
|
30.4
|
|
|
$
|
29.9
|
|
|
$
|
30.4
|
|
|
$
|
29.5
|
|
Long-term debt, including current portion (1)
|
|
12,184.1
|
|
|
14,007.9
|
|
|
11,858.3
|
|
|
13,035.9
|
|
(1)The carrying amount of long-term debt excludes finance lease obligations of $64.6 million and $45.9 million at September 30, 2020 and December 31, 2019, respectively.
The fair values of our long-term debt and preferred stock are categorized within Level 2 of the fair value hierarchy.
NOTE 15—DERIVATIVE INSTRUMENTS
We use derivatives as part of our risk management program to manage the risks associated with the price volatility of interest rates, purchased power, generation, and natural gas costs for the benefit of our customers and shareholders. Our approach is non-speculative and designed to mitigate risk. Regulated hedging programs are approved by our state regulators.
We record derivative instruments on our balance sheets as an asset or liability measured at fair value unless they qualify for the normal purchases and sales exception and are so designated. We continually assess our contracts designated as normal and will discontinue the treatment of these contracts as normal if the required criteria are no longer met. Changes in the derivative's fair value are recognized currently in earnings unless specific hedge accounting criteria are met or we receive regulatory treatment for the derivative. For most energy-related physical and financial contracts in our regulated operations that qualify as derivatives, our regulators allow the effects of fair value accounting to be offset to regulatory assets and liabilities.
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|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
23
|
WEC Energy Group, Inc.
|
None of our derivatives are designated as hedging instruments, with the exception of our interest rate swaps, which have been designated as cash flow hedges. The following table shows our derivative assets and derivative liabilities, along with their classification on our balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
(in millions)
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
Derivative Assets
|
|
Derivative Liabilities
|
Other current
|
|
|
|
|
|
|
|
|
Natural gas contracts
|
|
$
|
31.1
|
|
|
$
|
4.7
|
|
|
$
|
3.4
|
|
|
$
|
21.8
|
|
FTRs
|
|
4.0
|
|
|
—
|
|
|
3.1
|
|
|
—
|
|
Coal contracts
|
|
0.2
|
|
|
1.3
|
|
|
0.2
|
|
|
0.2
|
|
Interest rate swaps
|
|
—
|
|
|
6.6
|
|
|
—
|
|
|
2.8
|
|
Total other current (1)
|
|
35.3
|
|
|
12.6
|
|
|
6.7
|
|
|
24.8
|
|
|
|
|
|
|
|
|
|
|
Other long-term
|
|
|
|
|
|
|
|
|
Natural gas contracts
|
|
4.5
|
|
|
0.1
|
|
|
—
|
|
|
0.9
|
|
Coal contracts
|
|
0.3
|
|
|
1.1
|
|
|
0.2
|
|
|
—
|
|
Interest rate swaps
|
|
—
|
|
|
1.7
|
|
|
—
|
|
|
3.2
|
|
Total other long-term (1)
|
|
4.8
|
|
|
2.9
|
|
|
0.2
|
|
|
4.1
|
|
Total
|
|
$
|
40.1
|
|
|
$
|
15.5
|
|
|
$
|
6.9
|
|
|
$
|
28.9
|
|
(1)On our balance sheets, we classify derivative assets and liabilities as other current or other long-term based on the maturities of the underlying contracts.
Realized gains (losses) on derivatives not designated as hedging instruments are primarily recorded in cost of sales on the income statements. Our estimated notional sales volumes and realized gains (losses) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Three Months Ended September 30, 2019
|
(in millions)
|
|
Volumes
|
|
Gains (Losses)
|
|
Volumes
|
|
Gains (Losses)
|
Natural gas contracts
|
|
36.2 Dth
|
|
$
|
(12.0)
|
|
|
37.8 Dth
|
|
$
|
(13.2)
|
|
FTRs
|
|
8.3 MWh
|
|
1.1
|
|
|
7.8 MWh
|
|
7.6
|
|
Total
|
|
|
|
$
|
(10.9)
|
|
|
|
|
$
|
(5.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Nine Months Ended September 30, 2019
|
(in millions)
|
|
Volumes
|
|
Gains (Losses)
|
|
Volumes
|
|
Gains (Losses)
|
Natural gas contracts
|
|
139.3 Dth
|
|
$
|
(53.9)
|
|
|
137.7 Dth
|
|
$
|
(16.8)
|
|
FTRs
|
|
22.7 MWh
|
|
3.1
|
|
|
23.9 MWh
|
|
12.9
|
|
Total
|
|
|
|
$
|
(50.8)
|
|
|
|
|
$
|
(3.9)
|
|
On our balance sheets, the amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral are not offset against the fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. At September 30, 2020, we had received cash collateral of $14.6 million in our margin accounts. This amount was recorded on our balance sheet in other current liabilities. At December 31, 2019, we had posted cash collateral of $34.4 million in our margin accounts. This amount was recorded on our balance sheet in other current assets.
The following table shows derivative assets and derivative liabilities if derivative instruments by counterparty were presented net on our balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
(in millions)
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
Gross amount recognized on the balance sheet
|
|
$
|
40.1
|
|
|
$
|
15.5
|
|
|
$
|
6.9
|
|
|
$
|
28.9
|
|
|
Gross amount not offset on the balance sheet
|
|
(15.6)
|
|
(1)
|
(1.0)
|
|
|
(1.4)
|
|
|
(21.4)
|
|
(2)
|
Net amount
|
|
$
|
24.5
|
|
|
$
|
14.5
|
|
|
$
|
5.5
|
|
|
$
|
7.5
|
|
|
(1)Includes cash collateral received of $14.6 million.
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
24
|
WEC Energy Group, Inc.
|
(2)Includes cash collateral posted of $20.0 million.
Cash Flow Hedges
As of September 30, 2020, we had two interest rate swaps with a combined notional value of $250.0 million to hedge the variable interest rate risk associated with our 2007 Junior Notes. The swaps provide a fixed interest rate of 4.9765% on $250.0 million of the $500.0 million of outstanding 2007 Junior Notes through November 15, 2021. As these swaps qualify for cash flow hedge accounting treatment, the related gains and losses are being deferred in accumulated other comprehensive loss and are being amortized to interest expense as interest is accrued on the 2007 Junior Notes.
We previously entered into forward interest rate swap agreements to mitigate the interest rate exposure associated with the issuance of long-term debt related to the acquisition of Integrys. These swap agreements were settled in 2015, and we continue to amortize amounts out of accumulated other comprehensive loss into interest expense over the periods in which the interest costs are recognized in earnings.
The table below shows the amounts related to these cash flow hedges recorded in other comprehensive loss and in earnings, along with our total interest expense on the income statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30
|
|
Nine Months Ended September 30
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Derivative losses recognized in other comprehensive loss
|
|
$
|
—
|
|
|
$
|
(0.5)
|
|
|
$
|
(5.8)
|
|
|
$
|
(5.3)
|
|
Net derivative gains (losses) reclassified from accumulated other comprehensive loss to interest expense
|
|
(1.3)
|
|
|
0.2
|
|
|
(2.0)
|
|
|
1.0
|
|
Total interest expense line item on the income statements
|
|
122.0
|
|
|
125.8
|
|
|
375.8
|
|
|
374.3
|
|
We estimate that during the next twelve months $5.1 million will be reclassified from accumulated other comprehensive loss as an increase to interest expense.
NOTE 16—GUARANTEES
The following table shows our outstanding guarantees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration
|
|
(in millions)
|
|
Total Amounts Committed at September 30, 2020
|
|
Less Than 1 Year
|
|
1 to 3 Years
|
|
Over 3 Years
|
Guarantees
|
|
|
|
|
|
|
|
|
|
Guarantees supporting transactions of
subsidiaries (1)
|
|
$
|
28.1
|
|
|
$
|
5.9
|
|
|
$
|
1.2
|
|
|
$
|
21.0
|
|
|
Standby letters of credit (2)
|
|
69.5
|
|
|
0.4
|
|
|
0.2
|
|
|
68.9
|
|
|
Surety bonds (3)
|
|
9.8
|
|
|
9.7
|
|
|
0.1
|
|
|
—
|
|
|
Other guarantees (4)
|
|
11.0
|
|
|
0.9
|
|
|
—
|
|
|
10.1
|
|
|
Total guarantees
|
|
$
|
118.4
|
|
|
$
|
16.9
|
|
|
$
|
1.5
|
|
|
$
|
100.0
|
|
|
(1)Consists of $2.7 million, $4.2 million, and $21.2 million to support the business operations of Bluewater, UMERC, and WECI, respectively.
(2)At our request or the request of our subsidiaries, financial institutions have issued standby letters of credit for the benefit of third parties that have extended credit to our subsidiaries. These amounts are not reflected on our balance sheets.
(3)Primarily for workers compensation self-insurance programs and obtaining various licenses, permits, and rights-of-way. These amounts are not reflected on our balance sheets.
(4)Consists of $11.0 million related to other indemnifications, for which a liability of $10.1 million related to workers compensation coverage was recorded on our balance sheets.
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
25
|
WEC Energy Group, Inc.
|
NOTE 17—EMPLOYEE BENEFITS
The following tables show the components of net periodic benefit cost (credit) for our benefit plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Three Months Ended September 30
|
|
Nine Months Ended September 30
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Service cost
|
|
$
|
12.5
|
|
|
$
|
11.6
|
|
|
$
|
37.3
|
|
|
$
|
34.7
|
|
Interest cost
|
|
25.6
|
|
|
30.3
|
|
|
77.8
|
|
|
91.1
|
|
Expected return on plan assets
|
|
(47.4)
|
|
|
(48.3)
|
|
|
(143.0)
|
|
|
(145.2)
|
|
Loss on plan settlement
|
|
5.2
|
|
|
7.8
|
|
|
15.5
|
|
|
9.6
|
|
Amortization of prior service cost
|
|
0.4
|
|
|
0.5
|
|
|
1.2
|
|
|
1.6
|
|
Amortization of net actuarial loss
|
|
26.1
|
|
|
18.9
|
|
|
75.8
|
|
|
56.6
|
|
Net periodic benefit cost
|
|
$
|
22.4
|
|
|
$
|
20.8
|
|
|
$
|
64.6
|
|
|
$
|
48.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPEB Benefits
|
|
|
Three Months Ended September 30
|
|
Nine Months Ended September 30
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Service cost
|
|
$
|
3.8
|
|
|
$
|
4.1
|
|
|
$
|
11.4
|
|
|
$
|
12.3
|
|
Interest cost
|
|
4.7
|
|
|
6.5
|
|
|
14.0
|
|
|
19.3
|
|
Expected return on plan assets
|
|
(15.0)
|
|
|
(13.7)
|
|
|
(45.2)
|
|
|
(41.0)
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credit
|
|
(3.8)
|
|
|
(3.9)
|
|
|
(11.3)
|
|
|
(11.6)
|
|
Amortization of net actuarial gain
|
|
(5.6)
|
|
|
(2.0)
|
|
|
(16.8)
|
|
|
(4.7)
|
|
Net periodic benefit credit
|
|
$
|
(15.9)
|
|
|
$
|
(9.0)
|
|
|
$
|
(47.9)
|
|
|
$
|
(25.7)
|
|
During the nine months ended September 30, 2020, we made contributions and payments of $9.0 million related to our pension plans and $1.1 million related to our OPEB plans. We expect to make contributions and payments of $2.5 million related to our pension plans during the remainder of 2020, dependent upon various factors affecting us, including our liquidity position and possible tax law changes. We do not expect to make any contributions and payments related to our OPEB plans during the remainder of 2020.
NOTE 18—GOODWILL
Goodwill represents the excess of the cost of an acquisition over the fair value of the identifiable net assets acquired. The table below shows our goodwill balances by segment at September 30, 2020. We had no changes to the carrying amount of goodwill during the nine months ended September 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Wisconsin
|
|
Illinois
|
|
Other States
|
|
Non-Utility Energy Infrastructure
|
|
Total
|
Goodwill balance (1)
|
|
$
|
2,104.3
|
|
|
$
|
758.7
|
|
|
$
|
183.2
|
|
|
$
|
6.6
|
|
|
$
|
3,052.8
|
|
(1)We had no accumulated impairment losses related to our goodwill as of September 30, 2020.
In the third quarter of 2020, annual impairment tests were completed at all of our reporting units that carried a goodwill balance as of July 1, 2020. No impairments resulted from these tests.
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
26
|
WEC Energy Group, Inc.
|
NOTE 19—INVESTMENT IN TRANSMISSION AFFILIATES
We own approximately 60% of ATC, a for-profit, transmission-only company regulated by the FERC for cost of service and certain state regulatory commissions for routing and siting of transmission projects. We also own approximately 75% of ATC Holdco, a separate entity formed in December 2016 to invest in transmission-related projects outside of ATC's traditional footprint. The following tables provide a reconciliation of the changes in our investments in ATC and ATC Holdco:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
(in millions)
|
|
ATC
|
|
ATC Holdco
|
|
Total
|
Balance at beginning of period
|
|
$
|
1,713.3
|
|
|
$
|
31.4
|
|
|
$
|
1,744.7
|
|
Add: Earnings from equity method investment
|
|
39.6
|
|
|
0.5
|
|
|
40.1
|
|
Add: Capital contributions
|
|
6.2
|
|
|
—
|
|
|
6.2
|
|
Less: Distributions
|
|
39.9
|
|
|
—
|
|
|
39.9
|
|
Less: Return of capital
|
|
—
|
|
|
0.6
|
|
|
0.6
|
|
Less: Other
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Balance at end of period
|
|
$
|
1,719.1
|
|
|
$
|
31.3
|
|
|
$
|
1,750.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
(in millions)
|
|
ATC
|
|
ATC Holdco
|
|
Total
|
Balance at beginning of period
|
|
$
|
1,656.6
|
|
|
$
|
39.9
|
|
|
$
|
1,696.5
|
|
Add: Earnings from equity method investment
|
|
38.3
|
|
|
0.4
|
|
|
38.7
|
|
Add: Capital contributions
|
|
15.1
|
|
|
0.3
|
|
|
15.4
|
|
Less: Distributions
|
|
30.3
|
|
|
—
|
|
|
30.3
|
|
Add: Other
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Balance at end of period
|
|
$
|
1,679.8
|
|
|
$
|
40.6
|
|
|
$
|
1,720.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
(in millions)
|
|
ATC
|
|
ATC Holdco
|
|
Total
|
Balance at beginning of period
|
|
$
|
1,684.7
|
|
|
$
|
36.1
|
|
|
$
|
1,720.8
|
|
Add: Earnings from equity method investment
|
|
131.7
|
|
|
1.1
|
|
|
132.8
|
|
Add: Capital contributions
|
|
15.2
|
|
|
—
|
|
|
15.2
|
|
Less: Distributions
|
|
112.5
|
|
|
—
|
|
|
112.5
|
|
Less: Return of capital
|
|
—
|
|
|
5.9
|
|
|
5.9
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,719.1
|
|
|
$
|
31.3
|
|
|
$
|
1,750.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
(in millions)
|
|
ATC
|
|
ATC Holdco
|
|
Total
|
Balance at beginning of period
|
|
$
|
1,625.3
|
|
|
$
|
40.0
|
|
|
$
|
1,665.3
|
|
Add: Earnings (loss) from equity method investment
|
|
112.2
|
|
|
(0.5)
|
|
|
111.7
|
|
Add: Capital contributions
|
|
36.2
|
|
|
1.1
|
|
|
37.3
|
|
Less: Distributions
|
|
93.9
|
|
|
—
|
|
|
93.9
|
|
Balance at end of period
|
|
$
|
1,679.8
|
|
|
$
|
40.6
|
|
|
$
|
1,720.4
|
|
We pay ATC for network transmission and other related services it provides. In addition, we provide a variety of operational, maintenance, and project management work for ATC, which is reimbursed by ATC. We are required to pay the cost of needed transmission infrastructure upgrades for new generation projects while the projects are under construction. ATC reimburses us for these costs when the new generation is placed in service.
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
27
|
WEC Energy Group, Inc.
|
The following table summarizes our significant related party transactions with ATC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30
|
|
Nine Months Ended September 30
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Charges to ATC for services and construction
|
|
$
|
5.7
|
|
|
$
|
9.2
|
|
|
$
|
18.7
|
|
|
$
|
16.5
|
|
Charges from ATC for network transmission services
|
|
85.5
|
|
|
86.9
|
|
|
252.0
|
|
|
261.0
|
|
Our balance sheets included the following receivables and payables for services received from or provided to ATC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
September 30, 2020
|
|
December 31, 2019
|
Accounts receivable for services provided to ATC
|
|
$
|
2.1
|
|
|
$
|
3.5
|
|
|
|
|
|
|
Accounts payable for services received from ATC
|
|
30.0
|
|
|
29.0
|
|
Amounts due from ATC for transmission infrastructure upgrades (1)
|
|
5.1
|
|
|
2.8
|
|
(1)In connection with WPS's construction of its two new solar projects, Badger Hollow I and Two Creeks, and WE's construction of its new solar project, Badger Hollow II, WPS and WE are required to initially fund the construction of the transmission infrastructure upgrades needed for the new generation. ATC owns these transmission assets and will reimburse WPS and WE for these costs after the new generation has been placed in service.
Summarized financial data for ATC is included in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30
|
|
Nine Months Ended September 30
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Income statement data
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
187.8
|
|
|
$
|
184.9
|
|
|
$
|
577.7
|
|
|
$
|
544.8
|
|
Operating expenses
|
|
93.0
|
|
|
94.7
|
|
|
285.7
|
|
|
278.7
|
|
Other expense, net
|
|
28.1
|
|
|
28.7
|
|
|
82.0
|
|
|
86.1
|
|
Net income
|
|
$
|
66.7
|
|
|
$
|
61.5
|
|
|
$
|
210.0
|
|
|
$
|
180.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
September 30, 2020
|
|
December 31, 2019
|
Balance sheet data
|
|
|
|
|
Current assets
|
|
$
|
92.5
|
|
|
$
|
84.7
|
|
Noncurrent assets
|
|
5,375.2
|
|
|
5,244.2
|
|
Total assets
|
|
$
|
5,467.7
|
|
|
$
|
5,328.9
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
349.9
|
|
|
$
|
502.6
|
|
Long-term debt
|
|
2,512.1
|
|
|
2,312.8
|
|
Other noncurrent liabilities
|
|
335.0
|
|
|
298.9
|
|
Members' equity
|
|
2,270.7
|
|
|
2,214.6
|
|
Total liabilities and members' equity
|
|
$
|
5,467.7
|
|
|
$
|
5,328.9
|
|
NOTE 20—SEGMENT INFORMATION
We use operating income to measure segment profitability and to allocate resources to our businesses. At September 30, 2020, we reported six segments, which are described below.
•The Wisconsin segment includes the electric and natural gas utility operations of WE, WPS, WG, and UMERC.
•The Illinois segment includes the natural gas utility operations of PGL and NSG.
•The other states segment includes the natural gas utility and non-utility operations of MERC and MGU.
•The electric transmission segment includes our approximate 60% ownership interest in ATC, a for-profit, transmission-only company regulated by the FERC for cost of service and certain state regulatory commissions for routing and siting of transmission
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
28
|
WEC Energy Group, Inc.
|
projects, and our approximate 75% ownership interest in ATC Holdco, which was formed to invest in transmission-related projects outside of ATC's traditional footprint.
•The non-utility energy infrastructure segment includes:
◦We Power, which owns and leases generating facilities to WE,
◦Bluewater, which owns underground natural gas storage facilities in Michigan that provide approximately one-third of the current storage needs for our Wisconsin natural gas utilities, and
◦WECI, which holds our ownership interests in the following wind generating facilities:
▪90% ownership interest in Bishop Hill III, located in Henry County, Illinois,
▪80% ownership interest in Coyote Ridge, located in Brookings County, South Dakota, and
▪90% ownership interest in Upstream, located in Antelope County, Nebraska.
See Note 2, Acquisitions, for more information on Upstream.
•The corporate and other segment includes the operations of the WEC Energy Group holding company, the Integrys holding company, the Peoples Energy, LLC holding company, Wispark LLC, Wisvest LLC, Wisconsin Energy Capital Corporation, WEC Business Services LLC, and PDL. In 2019, we sold certain PDL solar power generating facilities. See Note 3, Disposition, for more information on these sales.
All of our operations are located within the United States. The following tables show summarized financial information related to our reportable segments for the three and nine months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility Operations
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Wisconsin
|
|
Illinois
|
|
Other States
|
|
Total Utility
Operations
|
|
Electric Transmission
|
|
Non-Utility Energy Infrastructure
|
|
Corporate
and Other
|
|
Reconciling
Eliminations
|
|
WEC Energy Group Consolidated
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External revenues
|
|
$
|
1,366.3
|
|
|
$
|
221.9
|
|
|
$
|
48.3
|
|
|
$
|
1,636.5
|
|
|
$
|
—
|
|
|
$
|
13.9
|
|
|
$
|
0.6
|
|
|
$
|
—
|
|
|
$
|
1,651.0
|
|
Intersegment revenues
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
109.6
|
|
|
—
|
|
|
(109.6)
|
|
|
—
|
|
Other operation and maintenance
|
|
363.8
|
|
|
109.2
|
|
|
20.4
|
|
|
493.4
|
|
|
—
|
|
|
5.9
|
|
|
1.0
|
|
|
(1.6)
|
|
|
498.7
|
|
Depreciation and amortization
|
|
169.7
|
|
|
49.9
|
|
|
8.5
|
|
|
228.1
|
|
|
—
|
|
|
24.5
|
|
|
6.5
|
|
|
(14.1)
|
|
|
245.0
|
|
Operating income (loss)
|
|
349.0
|
|
|
24.5
|
|
|
(2.0)
|
|
|
371.5
|
|
|
—
|
|
|
91.3
|
|
|
(6.9)
|
|
|
(85.7)
|
|
|
370.2
|
|
Equity in earnings of transmission affiliates
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40.1
|
|
Interest expense
|
|
139.1
|
|
|
15.6
|
|
|
2.7
|
|
|
157.4
|
|
|
4.9
|
|
|
15.0
|
|
|
30.4
|
|
|
(85.7)
|
|
|
122.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
29
|
WEC Energy Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility Operations
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Wisconsin
|
|
Illinois
|
|
Other States
|
|
Total Utility
Operations
|
|
Electric Transmission
|
|
Non-Utility Energy Infrastructure
|
|
Corporate
and Other
|
|
Reconciling
Eliminations
|
|
WEC Energy Group Consolidated
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External revenues
|
|
$
|
1,339.3
|
|
|
$
|
198.0
|
|
|
$
|
48.9
|
|
|
$
|
1,586.2
|
|
|
$
|
—
|
|
|
$
|
20.5
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
1,608.0
|
|
Intersegment revenues
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
98.9
|
|
|
—
|
|
|
(98.9)
|
|
|
—
|
|
Other operation and maintenance
|
|
400.2
|
|
|
101.8
|
|
|
22.0
|
|
|
524.0
|
|
|
—
|
|
|
3.9
|
|
|
1.3
|
|
|
—
|
|
|
529.2
|
|
Depreciation and amortization
|
|
155.6
|
|
|
45.7
|
|
|
6.8
|
|
|
208.1
|
|
|
—
|
|
|
23.3
|
|
|
6.0
|
|
|
(3.6)
|
|
|
233.8
|
|
Operating income (loss)
|
|
290.8
|
|
|
24.8
|
|
|
(2.2)
|
|
|
313.4
|
|
|
—
|
|
|
90.3
|
|
|
(6.0)
|
|
|
(86.8)
|
|
|
310.9
|
|
Equity in earnings of transmission affiliates
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38.7
|
|
Interest expense
|
|
142.9
|
|
|
14.7
|
|
|
2.3
|
|
|
159.9
|
|
|
3.0
|
|
|
15.5
|
|
|
35.9
|
|
|
(88.5)
|
|
|
125.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility Operations
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Wisconsin
|
|
Illinois
|
|
Other States
|
|
Total Utility Operations
|
|
Electric Transmission
|
|
Non-Utility Energy Infrastructure
|
|
Corporate and Other
|
|
Reconciling Eliminations
|
|
WEC Energy Group Consolidated
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External revenues
|
|
$
|
4,071.4
|
|
|
$
|
930.7
|
|
|
$
|
261.4
|
|
|
$
|
5,263.5
|
|
|
$
|
—
|
|
|
$
|
42.8
|
|
|
$
|
2.0
|
|
|
$
|
—
|
|
|
$
|
5,308.3
|
|
Intersegment revenues
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
335.6
|
|
|
—
|
|
|
(335.6)
|
|
|
—
|
|
Other operation and maintenance
|
|
1,044.0
|
|
|
306.5
|
|
|
62.5
|
|
|
1,413.0
|
|
|
—
|
|
|
18.7
|
|
|
2.9
|
|
|
(7.1)
|
|
|
1,427.5
|
|
Depreciation and amortization
|
|
502.7
|
|
|
146.0
|
|
|
24.6
|
|
|
673.3
|
|
|
—
|
|
|
73.4
|
|
|
19.0
|
|
|
(39.1)
|
|
|
726.6
|
|
Operating income (loss)
|
|
1,053.4
|
|
|
245.6
|
|
|
41.4
|
|
|
1,340.4
|
|
|
—
|
|
|
274.2
|
|
|
(20.1)
|
|
|
(258.9)
|
|
|
1,335.6
|
|
Equity in earnings of transmission affiliates
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
132.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
132.8
|
|
Interest expense
|
|
422.2
|
|
|
47.7
|
|
|
7.4
|
|
|
477.3
|
|
|
14.6
|
|
|
45.4
|
|
|
98.1
|
|
|
(259.6)
|
|
|
375.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility Operations
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Wisconsin
|
|
Illinois
|
|
Other States
|
|
Total Utility Operations
|
|
Electric Transmission
|
|
Non-Utility Energy Infrastructure
|
|
Corporate and Other
|
|
Reconciling Eliminations
|
|
WEC Energy Group Consolidated
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External revenues
|
|
$
|
4,226.0
|
|
|
$
|
977.4
|
|
|
$
|
302.9
|
|
|
$
|
5,506.3
|
|
|
$
|
—
|
|
|
$
|
65.4
|
|
|
$
|
3.9
|
|
|
$
|
—
|
|
|
$
|
5,575.6
|
|
Intersegment revenues
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
305.1
|
|
|
—
|
|
|
(305.1)
|
|
|
—
|
|
Other operation and maintenance
|
|
1,156.8
|
|
|
337.0
|
|
|
73.0
|
|
|
1,566.8
|
|
|
—
|
|
|
14.5
|
|
|
2.1
|
|
|
—
|
|
|
1,583.4
|
|
Depreciation and amortization
|
|
459.5
|
|
|
135.2
|
|
|
20.0
|
|
|
614.7
|
|
|
—
|
|
|
68.8
|
|
|
18.4
|
|
|
(11.8)
|
|
|
690.1
|
|
Operating income (loss)
|
|
922.8
|
|
|
205.3
|
|
|
43.9
|
|
|
1,172.0
|
|
|
—
|
|
|
274.3
|
|
|
(17.0)
|
|
|
(261.0)
|
|
|
1,168.3
|
|
Equity in earnings of transmission affiliates
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
111.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
111.7
|
|
Interest expense
|
|
429.0
|
|
|
43.4
|
|
|
6.5
|
|
|
478.9
|
|
|
8.3
|
|
|
46.7
|
|
|
107.5
|
|
|
(267.1)
|
|
|
374.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
30
|
WEC Energy Group, Inc.
|
NOTE 21—VARIABLE INTEREST ENTITIES
The primary beneficiary of a variable interest entity must consolidate the entity's assets and liabilities. In addition, certain disclosures are required for significant interest holders in variable interest entities.
We assess our relationships with potential variable interest entities, such as our coal suppliers, natural gas suppliers, coal transporters, natural gas transporters, and other counterparties related to power purchase agreements, investments, and joint ventures. In making this assessment, we consider, along with other factors, the potential that our contracts or other arrangements provide subordinated financial support, the obligation to absorb the entity's losses, the right to receive residual returns of the entity, and the power to direct the activities that most significantly impact the entity's economic performance.
Investment in Transmission Affiliates
We own approximately 60% of ATC, a for-profit, electric transmission company regulated by the FERC and certain state regulatory commissions. We have determined that ATC is a variable interest entity but consolidation is not required since we are not ATC's primary beneficiary. As a result of our limited voting rights, we do not have the power to direct the activities that most significantly impact ATC's economic performance. Therefore, we account for ATC as an equity method investment. At September 30, 2020 and December 31, 2019, our equity investment in ATC was $1,719.1 million and $1,684.7 million, respectively, which approximates our maximum exposure to loss as a result of our involvement with ATC.
We also own approximately 75% of ATC Holdco, a separate entity formed in December 2016 to invest in transmission-related projects outside of ATC's traditional footprint. We have determined that ATC Holdco is a variable interest entity but consolidation is not required since we are not ATC Holdco's primary beneficiary. As a result of our limited voting rights, we do not have the power to direct the activities that most significantly impact ATC Holdco's economic performance. Therefore, we account for ATC Holdco as an equity method investment. At September 30, 2020 and December 31, 2019, our equity investment in ATC Holdco was $31.3 million and $36.1 million, respectively, which approximates our maximum exposure to loss as a result of our involvement with ATC Holdco.
See Note 19, Investment in Transmission Affiliates, for more information, including any significant assets and liabilities related to ATC and ATC Holdco recorded on our balance sheets.
Power Purchase Agreement
We have a power purchase agreement that represents a variable interest. This agreement is for 236 MWs of firm capacity from a natural gas-fired cogeneration facility, and we account for it as a finance lease. The agreement includes no minimum energy requirements over the remaining term of approximately two years. We have examined the risks of the entity, including operations, maintenance, dispatch, financing, fuel costs, and other factors, and have determined that we are not the primary beneficiary of the entity. We do not hold an equity or debt interest in the entity, and there is no residual guarantee associated with the power purchase agreement.
We have $15.8 million of required capacity payments over the remaining term of this agreement. We believe that the required capacity payments under this contract will continue to be recoverable in rates, and our maximum exposure to loss is limited to these capacity payments.
NOTE 22—COMMITMENTS AND CONTINGENCIES
We and our subsidiaries have significant commitments and contingencies arising from our operations, including those related to unconditional purchase obligations, environmental matters, and enforcement and litigation matters.
Unconditional Purchase Obligations
Our electric utilities have obligations to distribute and sell electricity to their customers, and our natural gas utilities have obligations to distribute and sell natural gas to their customers. The utilities expect to recover costs related to these obligations in future customer rates. In order to meet these obligations, we routinely enter into long-term purchase and sale commitments for various quantities and lengths of time.
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
31
|
WEC Energy Group, Inc.
|
The wind generation facilities that are part of our non-utility energy infrastructure segment have obligations to distribute and sell electricity through long-term offtake agreements with their customers for all of the energy produced. These projects also enter into related easements and other agreements associated with the generating facilities.
Our minimum future commitments related to these purchase obligations as of September 30, 2020, including those of our subsidiaries, were approximately $10.9 billion.
Environmental Matters
Consistent with other companies in the energy industry, we face significant ongoing environmental compliance and remediation obligations related to current and past operations. Specific environmental issues affecting us include, but are not limited to, current and future regulation of air emissions such as sulfur dioxide, nitrogen oxide, fine particulates, mercury, and GHGs; water intake and discharges; management of coal combustion products such as fly ash; and remediation of impacted properties, including former manufactured gas plant sites.
Air Quality
National Ambient Air Quality Standards
After completing its review of the 2008 ozone standard, the EPA released a final rule in October 2015, which lowered the limit for ground-level ozone, creating a more stringent standard than the 2008 National Ambient Air Quality Standards. The EPA issued final nonattainment area designations in April 2018. The following counties within our service territories were designated as partial nonattainment with the 2015 standard: Door, Kenosha, Manitowoc, and Northern Milwaukee/Ozaukee. This re-designation was challenged in the D.C. Circuit Court of Appeals in Clean Wisconsin et al. v. U.S. Environmental Protection Agency. Petitioners in that case have argued that additional portions of Milwaukee, Waukesha, Ozaukee, and Washington Counties (among others) should be designated as nonattainment for ozone. In November 2019, the D.C. Circuit Court of Appeals heard oral arguments for that case. A decision was issued in July 2020 remanding the rule to the EPA for further evaluation. We expect that any subsequent EPA re-designation, if necessary, would take place in 2021. The State of Wisconsin submitted the "infrastructure" portion of its state implementation plan outlining how it will implement, maintain, and enforce the 2015 Ozone standard. The plan is subject to EPA review and approval. We believe we are well positioned to meet the requirements associated with the ozone standard and do not expect to incur significant costs to comply.
Mercury and Air Toxics Standards
In May 2020, the EPA finalized revisions to the Supplemental Cost Finding for the MATS rule as well as the CAA required RTR. The EPA was required by the United States Supreme Court to review both costs and benefits of complying with the MATS rule. After its review of costs, the EPA determined that it is not appropriate and necessary to regulate hazardous air pollutant emissions from power plants under Section 112 of the CAA. As a result, under the final rule, the emission standards and other requirements of the MATS rule first enacted in 2012 remain in place. The EPA did not remove coal- and oil-fired power plants from the list of sources that are regulated under Section 112. The EPA also determined that no revisions to MATS are warranted based on the results of the RTR. As a result, we do not expect the rule to have a material impact on our financial condition or results of operations.
Climate Change
The ACE rule became effective in September 2019. This rule provides existing coal-fired generating units with standards for achieving GHG emission reductions. The rule was finalized in conjunction with two other separate and distinct rulemakings, (1) the repeal of the Clean Power Plan, and (2) revised implementing regulations for ACE, ongoing emissions guidelines, and all future emission guidelines for existing sources issued under CAA section 111(d). Every state's plan to implement ACE is required to focus on reducing GHG emissions by improving the efficiency of fossil-fueled power plants. The rule is being litigated in challenges brought in the D.C. Circuit Court of Appeals by 22 states (including Illinois, Michigan, Minnesota, and Wisconsin), local governments, and certain nongovernmental organizations. In the meantime, the Wisconsin Department of Natural Resources continues to work with state utilities and has begun the process of developing the implementation plan with respect to the ACE rule.
In December 2018, the EPA proposed to revise the New Source Performance Standards for GHG emissions from new, modified, and reconstructed fossil-fueled power plants. The EPA determined that the BSER for new, modified, and reconstructed coal units is highly efficient generation that would be equivalent to supercritical steam conditions for larger units and subcritical steam conditions for
|
|
|
|
|
|
|
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|
09/30/2020 Form 10-Q
|
32
|
WEC Energy Group, Inc.
|
smaller units. This proposed BSER would replace the determination from the previous rule, which identified BSER as partial carbon capture and storage. The EPA has reviewed comments and intends to take final action on the proposed rule later in 2020.
We have a plan, referred to as our ESG progress plan, which includes the retirement of older, fossil-fueled generation, to be replaced with the construction of zero-carbon emitting renewable generation and clean natural gas-fired generation. We have already retired more than 1,800 MW of coal-fired generation since the beginning of 2018, which included the March 2019 retirement of the PIPP as well as the 2018 retirements of the Pleasant Prairie power plant, the Pulliam power plant, and the jointly-owned Edgewater Unit 4 generating units. We expect to retire approximately 1,800 MW of additional fossil-fueled generation by 2025. The retirements will contribute to meeting a new, near-term goal of reducing CO2 emissions from our electric generation by 55% below 2005 levels by 2025. In 2019, we met and surpassed our original goal to reduce CO2 emissions by 40% below 2005 levels by 2030. In July 2020, we announced a new goal to reduce CO2 emissions from our electric generation by 70% below 2005 levels by 2030 and to be net carbon neutral by 2050. In addition to retiring these older, fossil-fueled plants, we expect to invest in low-cost renewable energy in Wisconsin. Our plan is to replace a portion of the retired capacity by building and owning a combination of clean, natural gas-fired generation and zero-carbon-emitting renewable generation facilities.
We also have a goal to decrease the rate of methane emissions from the natural gas distribution lines in our network by 30% per mile by the year 2030 from a 2011 baseline. We were over half way toward meeting that goal at the end of 2019.
National Emission Standards for Hazardous Air Pollutants for Stationary Combustion Turbines
Effective in March 2020, the EPA issued a final regulation, The Combustion Turbine Rule. The Combustion Turbine Rule was issued to complete the RTR required by the CAA every five years, and applies only to combustion turbines constructed or reconstructed after January 14, 2003. The Combustion Turbine Rule clarifies certain performance testing, semi-annual and excess emission reporting requirements, implements electronic reporting requirements, and changes certain requirements applicable during startup, shutdown, and malfunction. We have evaluated the rule and do not expect the rule will have a material impact on our financial condition or results of operations.
Water Quality
Clean Water Act Cooling Water Intake Structure Rule
In August 2014, the EPA issued a final regulation under Section 316(b) of the Clean Water Act that requires the location, design, construction, and capacity of cooling water intake structures at existing power plants to reflect the BTA for minimizing adverse environmental impacts. The rule became effective in October 2014 and applies to all of our existing generating facilities with cooling water intake structures, except for the ERGS units, which were permitted under the rules governing new facilities.
We have received BTA determinations for OC 5 through OC 8, Weston Units 2, 3, and 4, and Valley power plant. Although we currently believe that existing technology at the Port Washington Generating Station satisfies the BTA requirements, final determinations will not be made until the discharge permit is renewed for this facility, which is expected to be in 2021. We anticipate that the permit renewal will include a final BTA determination to address all of the Section 316(b) rule requirements.
As a result of past capital investments completed to address Section 316(b) compliance at WE and WPS, we believe our fleet overall is well positioned to meet the regulation and do not expect to incur significant additional costs to comply with this regulation.
Steam Electric Effluent Limitation Guidelines
The EPA's final 2015 ELG rule took effect in January 2016. This rule created new requirements for several types of power plant wastewaters. The two new requirements that affect WE and WPS relate to discharge limits for BATW and wet FGD wastewater. As a result of past capital investments at WE and WPS, we believe our fleet is well positioned to meet the existing ELG regulations. Our power plant facilities already have advanced wastewater treatment technologies installed that meet many of the discharge limits established by this rule. There will, however, need to be modifications to the BATW systems at Weston Unit 3 and OC 7 and OC 8. Also, a wastewater treatment system modification may be required for the wet FGD discharges from the six units that make up the OCPP and ERGS. Based on preliminary engineering, we estimate that compliance with the current rule will require $60 million in capital costs.
The ELG requirements for BATW and wet FGD systems were being re-evaluated by the EPA. In September 2017, the EPA issued a final rule (Postponement Rule) to postpone the earliest compliance date to November 1, 2020 for the BATW and wet FGD
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
33
|
WEC Energy Group, Inc.
|
wastewater requirements while it re-evaluated the ELG rule. The Postponement Rule left unchanged the latest ELG rule compliance date of December 31, 2023. In August 2020, the EPA Administrator signed the ELG Reconsideration Rule to revise the treatment technology requirements related to BATW and wet FGD wastewaters at existing facilities. This rule is effective December 14, 2020 and includes provisions that:
•Exempt facility owners from the new BATW and wet FGD requirements if a generating unit is retired by December 31, 2028.
•Would limit the investment required to meet these new rule requirements if the coal-fueled unit has a low utilization rate where the 2-year average annual capacity utilization rating is less than 10%.
•Modified the Voluntary Incentives Program to provide the certainty of more time (until December 31, 2028) to implement new requirements if a company adopts additional process changes and controls that achieve more stringent limitations on mercury, arsenic, selenium, nitrate/nitrite, bromide, and total dissolved solids in FGD wastewater.
We are currently evaluating what impact, if any, the rule may have on our estimated compliance cost of $60 million noted above.
Land Quality
Manufactured Gas Plant Remediation
We have identified sites at which our utilities or a predecessor company owned or operated a manufactured gas plant or stored manufactured gas. We have also identified other sites that may have been impacted by historical manufactured gas plant activities. Our natural gas utilities are responsible for the environmental remediation of these sites, some of which are in the EPA Superfund Alternative Approach Program. We are also working with various state jurisdictions in our investigation and remediation planning. These sites are at various stages of investigation, monitoring, remediation, and closure.
In addition, we are coordinating the investigation and cleanup of some of these sites subject to the jurisdiction of the EPA under what is called a "multisite" program. This program involves prioritizing the work to be done at the sites, preparation and approval of documents common to all of the sites, and use of a consistent approach in selecting remedies. At this time, we cannot estimate future remediation costs associated with these sites beyond those described below.
The future costs for detailed site investigation, future remediation, and monitoring are dependent upon several variables including, among other things, the extent of remediation, changes in technology, and changes in regulation. Historically, our regulators have allowed us to recover incurred costs, net of insurance recoveries and recoveries from potentially responsible parties, associated with the remediation of manufactured gas plant sites. Accordingly, we have established regulatory assets for costs associated with these sites.
We have established the following regulatory assets and reserves for manufactured gas plant sites:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
September 30, 2020
|
|
December 31, 2019
|
Regulatory assets
|
|
$
|
696.6
|
|
|
$
|
685.5
|
|
Reserves for future environmental remediation
|
|
589.4
|
|
|
589.2
|
|
Consent Decrees
Wisconsin Public Service Corporation – Weston and Pulliam Power Plants
In November 2009, the EPA issued an NOV to WPS, which alleged violations of the CAA's New Source Review requirements relating to certain projects completed at the Weston and Pulliam power plants from 1994 to 2009. WPS entered into a Consent Decree with the EPA resolving this NOV. This Consent Decree was entered by the United States District Court for the Eastern District of Wisconsin in March 2013.
With the retirement of Pulliam Units 7 and 8 in October 2018, WPS completed the mitigation projects required by the Consent Decree and received a completeness letter from the EPA in October 2018. We are working with the EPA on a closeout process for the Consent Decree.
|
|
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|
|
|
|
|
|
09/30/2020 Form 10-Q
|
34
|
WEC Energy Group, Inc.
|
Joint Ownership Power Plants – Columbia and Edgewater
In December 2009, the EPA issued an NOV to Wisconsin Power and Light, the operator of the Columbia and Edgewater plants, and the other joint owners of these plants, including Madison Gas and Electric, WE (former co-owner of an Edgewater unit), and WPS. The NOV alleged violations of the CAA's New Source Review requirements related to certain projects completed at those plants. WPS, along with Wisconsin Power and Light, Madison Gas and Electric, and WE, entered into a Consent Decree with the EPA resolving this NOV. This Consent Decree was entered by the United States District Court for the Western District of Wisconsin in June 2013. As a result of the continued implementation of the Consent Decree related to the jointly owned Columbia and Edgewater plants, the Edgewater 4 generating unit was retired in September 2018.
Enforcement and Litigation Matters
We and our subsidiaries are involved in legal and administrative proceedings before various courts and agencies with respect to matters arising in the ordinary course of business. Although we are unable to predict the outcome of these matters, management believes that appropriate reserves have been established and that final settlement of these actions will not have a material impact on our financial condition or results of operations.
NOTE 23—SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30
|
(in millions)
|
|
2020
|
|
2019
|
Cash paid for interest, net of amount capitalized
|
|
$
|
332.4
|
|
|
$
|
317.9
|
|
Cash paid for income taxes, net
|
|
27.6
|
|
|
15.4
|
|
Significant non-cash investing and financing transactions:
|
|
|
|
|
Accounts payable related to construction costs
|
|
177.8
|
|
|
162.7
|
|
Non-cash capital contributions from noncontrolling interest
|
|
—
|
|
|
14.6
|
|
The statements of cash flows include our activity related to cash, cash equivalents, and restricted cash. Our restricted cash primarily consists of the cash held in the Integrys rabbi trust, which is used to fund participants' benefits under the Integrys deferred compensation plan and certain Integrys non-qualified pension plans. All assets held within the rabbi trust are restricted as they can only be withdrawn from the trust to make qualifying benefit payments. Our restricted cash also includes the restricted cash we received when WECI acquired ownership interests in Bishop Hill III and Upstream during August 2018 and January 2019, respectively. This cash is restricted as it can only be used to pay for any remaining costs associated with the construction of these wind generation facilities. See Note 2, Acquisitions, for more information on the acquisition of Upstream.
The following table reconciles the cash, cash equivalents, and restricted cash amounts reported within the balance sheets to the total of these amounts shown on the statements of cash flows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
September 30, 2020
|
|
December 31, 2019
|
Cash and cash equivalents
|
|
$
|
13.1
|
|
|
$
|
37.5
|
|
|
|
|
|
|
Restricted cash included in other long term assets
|
|
48.1
|
|
|
44.8
|
|
Cash, cash equivalents, and restricted cash
|
|
$
|
61.2
|
|
|
$
|
82.3
|
|
NOTE 24—REGULATORY ENVIRONMENT
Coronavirus Disease – 2019
The global outbreak of COVID-19 was declared a pandemic by the WHO and the CDC. COVID-19 has spread globally, including throughout the United States and, in turn, our service territories. Each of the states in which our regulated utilities operate declared a public health emergency and issued shelter-in-place orders in response to the COVID-19 pandemic. All of the shelter-in-place orders have since expired or been lifted. The PSCW, the ICC, the MPUC, and the MPSC have all issued written orders requiring certain actions to ensure that essential utility services were, and continue to be, available to customers in their respective jurisdictions. A summary of these orders is included below.
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09/30/2020 Form 10-Q
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35
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WEC Energy Group, Inc.
|
Wisconsin
On March 24, 2020, the PSCW issued two orders in response to the COVID-19 pandemic. The first order required all public utilities in the state of Wisconsin, including WE, WPS, and WG, to temporarily suspend disconnections, the assessment of late fees, and deposit requirements for all customer classes. In addition, it required utilities to reconnect customers that were previously disconnected, offer deferred payment arrangements to all customers, and streamline the application process for customers applying for utility service.
In the second order issued on March 24, 2020, the PSCW authorized Wisconsin utilities to defer expenditures and certain foregone revenues resulting from compliance with the first order, and expenditures as otherwise incurred to ensure safe, reliable, and affordable access to utility services during the declared public health emergency. The PSCW has affirmed that this authorization for deferral includes the incremental increase in uncollectible expense above what is currently being recovered in rates. As WE, WPS, and WG already have a cost recovery mechanism in place to recover uncollectible expense for residential customers, this new deferral only impacts the recovery of uncollectible expense for their commercial and industrial customers. The PSCW will review the recoverability and examine the prudency of any deferred amounts in future rate proceedings. As of September 30, 2020, the total amount deferred at our Wisconsin utilities related to the COVID-19 pandemic was $4.6 million.
On June 26, 2020, the PSCW issued a written order providing a timeline for the lifting of the temporary provisions required in the first March 24, 2020 order. Utilities were allowed to disconnect commercial and industrial customers and require deposits for new service as of July 25, 2020 and July 31, 2020, respectively. After August 15, 2020, utilities were no longer required to offer deferred payment arrangements to all customers. Additionally, utilities were authorized to reinstate late fees except for the period between the first order and this supplemental order. Our Wisconsin utilities resumed charging late payment fees in late August 2020. Late payment fees were not charged on outstanding balances that were billed between the first order and late August 2020.
The PSCW extended the moratorium on disconnections of residential customers until November 1, 2020. In accordance with Wisconsin regulations, utilities are generally not allowed to disconnect residential customers for non-payment during the winter moratorium, which begins on November 1 and ends on April 15. Utilities are allowed to continue assessing late fees during the winter moratorium.
Illinois
On March 18, 2020, the ICC issued an order to all Illinois utilities, including PGL and NSG, requiring, among other things, a moratorium on disconnections of utility service and a suspension of late fees and penalties during the declared public health emergency. These provisions applied to all utility customer classes. Illinois utilities were also required to temporarily enact more flexible credit and collections procedures.
On June 18, 2020, the ICC issued a written order approving a settlement agreement negotiated by Illinois utilities, ICC staff, and certain intervenors. The key terms of the settlement agreement included the following:
•The moratorium on disconnections and the suspension of late fees and penalties were extended until July 26, 2020.
•Customers disconnected after June 18, 2019 could be reconnected without being assessed a reconnection fee if reconnection was requested prior to August 25, 2020.
•Flexible deferred payment arrangements are required to be offered to residential and commercial and industrial customers for an extended period of time and with reduced down payment requirements.
•Deposit requirements were waived until August 25, 2020 for all residential customers, and will be waived for an additional four months for residential customers that verbally express financial hardship.
•PGL and NSG established a bill payment assistance program with approximately $12.0 million and $1.2 million, respectively, available for eligible residential customers to provide relief from high arrearages.
In addition to the above, the settlement agreement authorized PGL and NSG to implement a SPC rider for the recovery of incremental direct costs resulting from COVID-19, foregone late fees and reconnection charges, and the costs associated with their bill payment assistance programs. PGL and NSG began recovering costs under the SPC rider on October 1, 2020. Amounts deferred under the SPC rider are being recovered over 36 months and will be subject to review and reconciliation by the ICC. As of September 30, 2020, PGL and NSG had deferred $18.5 million, collectively, related to the COVID-19 pandemic.
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09/30/2020 Form 10-Q
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36
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WEC Energy Group, Inc.
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Subsequent to the approval of the settlement agreement, and at the request of the ICC, PGL and NSG agreed to extend the moratorium on disconnections for qualified low-income residential customers and residential customers expressing financial hardship through March 31, 2021. The annual winter moratorium in Illinois that generally prohibits PGL and NSG from disconnecting residential customers for non-payment begins on December 1 and ends on March 31.
Minnesota
On May 22, 2020, the MPUC issued a written order authorizing Minnesota utilities, including MERC, to track and defer COVID-19 related expenses and certain foregone revenues. The MPUC will review the recoverability and examine the prudency of any deferred amounts in future rate proceedings. As of September 30, 2020, amounts deferred at MERC related to the COVID-19 pandemic were not significant.
On June 18, 2020, the MPUC verbally ordered Minnesota utilities to temporarily suspend disconnections and waive reconnection fees, service deposits, late fees, interest, and penalties for all residential customers. In addition, utilities were required to immediately reconnect residential customers that were previously disconnected. On August 13, 2020, the MPUC issued a written order affirming these temporary provisions. The order will remain in effect until 60 days after Minnesota's declared peacetime emergency expires. Currently, the peacetime order is set to expire on November 12, 2020, meaning the MPUC's order would expire on January 11, 2021; however, the annual winter moratorium in Minnesota that generally prohibits MERC from disconnecting residential customers for non-payment began on October 15, 2020 and does not end until April 15, 2021. The expiration date of Minnesota's peacetime emergency, and the corresponding expiration date of the MPUC order, are subject to change.
Prior to the verbal order issued by the MPUC, MERC had voluntarily taken actions to ensure its customers continued to receive utility services during the pandemic. These actions included, but were not limited to, temporarily suspending disconnections and waiving late payment fees for residential and small commercial and industrial customers that entered into payment plans.
Michigan
On April 15, 2020, the MPSC issued a written order requiring Michigan utilities, including MGU and UMERC, to put certain minimum protections in place during the COVID-19 pandemic. The minimum protections required by the order include the suspension of disconnections, late payment fees, deposits, and reconnection fees for certain vulnerable customers. In addition, utilities are required to extend access to and enhance the flexibility of payment plans to customers financially impacted by COVID-19. The order will remain in effect until further notice from the MPSC.
As required in the MPSC order, MGU and UMERC filed responses with the MPSC on April 20, 2020 affirming the actions they are taking to protect customers. The actions being taken by MGU and UMERC provide protections to more customers than required by the MPSC order. These actions include suspending disconnections for all residential customers, waiving deposit requirements for new service, suspending the assessment of late fees for customers that have entered into payment plans, and enhancing payment plan options for all customers.
The April 15, 2020 MPSC order also authorized all Michigan utilities to defer, for potential future recovery, uncollectible expense incurred on or after March 24, 2020 that exceeds the amounts being recovered in rates. On July 23, 2020, the MPSC issued an order denying Michigan utilities' ability to defer additional COVID-19 related expenses and certain foregone revenues. The MPSC indicated that utilities can still seek recovery of these costs and foregone revenues by filing additional information on the specifics of their request by November 2, 2020. MGU and UMERC filed comments with the MPSC on November 2, 2020 indicating that they have not experienced any material additional COVID-19 related expenses or foregone revenues, but that they will continue to monitor these expenses and foregone revenues and will notify the MPSC if they become material. At September 30, 2020, our Michigan utilities had not recorded any deferrals related to the COVID-19 pandemic.
Wisconsin Electric Power Company, Wisconsin Public Service Corporation, and Wisconsin Gas LLC
2020 and 2021 Rates
In March 2019, WE, WPS, and WG filed applications with the PSCW to increase their retail electric, natural gas, and steam rates, as applicable, effective January 1, 2020. In August 2019, all three utilities filed applications with the PSCW for approval of settlement agreements entered into with certain intervenors to resolve several outstanding issues in each utility's respective rate case. In December 2019, the PSCW issued written orders that approved the settlement agreements without material modification and
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|
|
09/30/2020 Form 10-Q
|
37
|
WEC Energy Group, Inc.
|
addressed the remaining outstanding issues that were not included in the settlement agreements. The new rates became effective January 1, 2020. The final orders reflect the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WE
|
|
WPS
|
|
WG
|
2020 Effective rate increase (decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric (1) (2)
|
|
$
|
15.3
|
million
|
/
|
0.5%
|
|
$
|
15.8
|
million
|
/
|
1.6%
|
|
N/A
|
Gas (3)
|
|
$
|
10.4
|
million
|
/
|
2.8%
|
|
$
|
4.3
|
million
|
/
|
1.4%
|
|
$
|
(1.5)
|
million
|
/
|
(0.2)%
|
Steam
|
|
$
|
1.9
|
million
|
/
|
8.6%
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE
|
|
10.0%
|
|
10.0%
|
|
10.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity component average on a financial basis
|
|
52.5%
|
|
52.5%
|
|
52.5%
|
(1)Amounts are net of certain deferred tax benefits from the Tax Legislation that were utilized to reduce near-term rate impact. The WE and WPS rate orders reflect the majority of the unprotected deferred tax benefits from the Tax Legislation being amortized over two years. For WE, approximately $65 million of tax benefits will be amortized in each of 2020 and 2021. For WPS, approximately $11 million of tax benefits are being amortized in 2020 and approximately $39 million will be amortized in 2021. The unprotected deferred tax benefits related to the unrecovered balances of WE's recently retired plants and its SSR regulatory asset were used to reduce the related regulatory asset. Unprotected deferred tax benefits by their nature are eligible to be returned to customers in a manner and timeline determined to be appropriate by our regulators.
(2)The WPS rate order is net of $21 million of refunds related to its 2018 earnings sharing mechanism. These refunds will be made to customers evenly over two years, with half being returned in 2020 and the remainder in 2021.
(3)The WE amount includes certain deferred tax expense from the Tax Legislation, and the WPS and WG amounts are net of certain deferred tax benefits from the Tax Legislation that were utilized to reduce near-term rate impact. The rate orders for all three gas utilities reflect all of the unprotected deferred tax expense and benefits from the Tax Legislation being amortized evenly over four years. For WE, approximately $5 million of previously deferred tax expense will be amortized each year. For WPS and WG, approximately $5 million and $3 million, respectively, of previously deferred tax benefits will be amortized each year. Unprotected deferred tax expense and benefits by their nature are eligible to be recovered from or returned to customers in a manner and timeline determined to be appropriate by our regulators.
In accordance with its rate order, WE filed an application with the PSCW on July 20, 2020 requesting a financing order to securitize $100 million of Pleasant Prairie power plant's book value, plus the carrying costs accrued on the $100 million during the securitization process and related fees. The securitization is expected to reduce the carrying costs for the $100 million, benefiting customers. In its meeting on November 5, 2020, the PSCW verbally approved WE's application without any known material adverse conditions. The terms of this approval are subject to our receipt and review of the final written order from the PSCW, which WE expects to receive by November 17, 2020, the statutory deadline for an order to be issued in this proceeding.
The WPS rate order allows WPS to collect the previously deferred revenue requirement for ReACT™ costs above the authorized $275.0 million level. The total cost of the ReACT™ project was $342 million. This regulatory asset will be collected from customers over eight years.
All three Wisconsin utilities will continue having an earnings sharing mechanism through 2021. The earnings sharing mechanism was modified from its previous structure to one that is consistent with other Wisconsin investor-owned utilities. Under the new earnings sharing mechanism, if the utility earns above its authorized ROE: (i) the utility retains 100.0% of earnings for the first 25 basis points above the authorized ROE; (ii) 50.0% of the next 50 basis points is refunded to customers; and (iii) 100.0% of any remaining excess earnings is refunded to customers. In addition, the rate orders also require WE, WPS, and WG to maintain residential and small commercial electric and natural gas customer fixed charges at previously authorized rates and to maintain the status quo for WE's and WPS's electric market-based rate programs for large industrial customers through 2021.
2018 and 2019 Rates
During April 2017, WE, WPS, and WG filed an application with the PSCW for approval of a settlement agreement they made with several of their commercial and industrial customers regarding 2018 and 2019 base rates. In September 2017, the PSCW issued an order that approved the settlement agreement, which froze base rates through 2019 for electric, natural gas, and steam customers of WE, WPS, and WG. Based on the PSCW order, the authorized ROE for WE, WPS, and WG remained at 10.2%, 10.0%, and 10.3%, respectively, and the capital cost structure for all of our Wisconsin utilities remained unchanged through 2019.
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|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
38
|
WEC Energy Group, Inc.
|
In addition to freezing base rates, the settlement agreement extended and expanded the electric real-time market pricing program options for large commercial and industrial customers and mitigated the continued growth of certain escrowed costs at WE during the base rate freeze period by accelerating the recognition of certain tax benefits. WE was flowing through the tax benefit of its repair-related deferred tax liabilities in 2018 and 2019, to maintain certain regulatory asset balances at their December 31, 2017 levels. While WE would typically follow the normalization accounting method and utilize the tax benefits of the deferred tax liabilities in rate-making as an offset to rate base, benefiting customers over time, the federal tax code does allow for passing these tax repair-related benefits to ratepayers much sooner using the flow through accounting method. The flow through treatment of the repair-related deferred tax liabilities offset the negative income statement impact of holding the regulatory assets level, resulting in no change to net income.
The agreement also allowed WPS to extend through 2019, the deferral for the revenue requirement of ReACT™ costs above the authorized $275.0 million level, and other deferrals related to WPS's electric real-time market pricing program and network transmission expenses.
Pursuant to the settlement agreement, WPS also agreed to adopt, beginning in 2018, the earnings sharing mechanism that had been in place for WE and WG since January 2016, and all three utilities agreed to keep the mechanism in place through 2019. Under this earnings sharing mechanism, if WE, WPS, or WG earned above its authorized ROE, 50% of the first 50 basis points of additional utility earnings were required to be refunded to customers. All utility earnings above the first 50 basis points were also required to be refunded to customers.
Liquefied Natural Gas Facilities
In November 2019, WE and WG filed a joint application with the PSCW requesting approval for each company to construct its own LNG facility. If approved, each facility would provide one billion cubic feet of natural gas supply to meet peak demand without requiring the construction of additional interstate pipeline capacity. These facilities are expected to reduce the likelihood of constraints on WE's and WG's natural gas systems during the highest demand days of winter. The total cost of both projects is estimated to be approximately $370 million, with approximately half being invested by each utility. Commercial operation of the LNG facilities is targeted for the end of 2023.
Solar Generation Project
In August 2019, WE, along with an unaffiliated utility, filed an application with the PSCW for approval to acquire an ownership interest in a proposed solar project, Badger Hollow II, that will be located in Iowa County, Wisconsin. Once constructed, WE will own 100 MW of this project. WE's share of the cost of this project is estimated to be $130 million. The PSCW issued a written order approving the acquisition of this project in March 2020. Commercial operation of Badger Hollow II is targeted for December 2022.
The Peoples Gas Light and Coke Company and North Shore Gas Company
North Shore Gas Company 2021 Rate Case
On October 15, 2020, NSG filed a request with the ICC to increase its natural gas rates. NSG's request is targeting a rate increase of $7.6 million (8.5%) and reflects a 10.0% ROE and a common equity component average of 52.5%. The proposed natural gas rate increase is primarily driven by NSG's ongoing significant investment in its distribution system since its last rate review that resulted in revised base rates effective January 1, 2015. New rates are expected to be effective in September 2021.
Qualifying Infrastructure Plant Rider
In July 2013, Illinois Public Act 98-0057, The Natural Gas Consumer, Safety & Reliability Act, became law. This law provides natural gas utilities with a cost recovery mechanism that allows collection, through a surcharge on customer bills, of prudently incurred costs to upgrade Illinois natural gas infrastructure. In January 2014, the ICC approved a QIP rider for PGL, which is in effect through 2023.
PGL's QIP rider is subject to an annual reconciliation whereby costs are reviewed for accuracy and prudency. In March 2020, PGL filed its 2019 reconciliation with the ICC, which, along with the 2018, 2017, and 2016 reconciliations, are still pending.
As of September 30, 2020, there can be no assurance that all costs incurred under PGL's QIP rider during the open reconciliation years will be deemed recoverable by the ICC.
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|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
39
|
WEC Energy Group, Inc.
|
Michigan Gas Utilities Corporation
2021 Rate Application
In February 2020, MGU provided notification to the MPSC of its intent to file an application requesting an increase to MGU's natural gas rates to be effective January 1, 2021. However, MGU decided that it would not file a rate case during the COVID-19 pandemic and will re-evaluate the timing of the rate filing at a later date.
In May 2020, MGU filed an application with the MPSC requesting approval to defer $5.0 million of depreciation and interest expense during 2021 related to capital investments made by MGU since its last rate case. In July 2020, the MPSC issued a written order approving MGU's request. The deferral of these costs will help to mitigate the impacts from delaying the filing of the rate case.
NOTE 25—NEW ACCOUNTING PRONOUNCEMENTS
Cloud Computing
In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The standard allows entities who are customers in hosting arrangements that are service contracts to apply the existing internal-use software guidance to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The guidance specifies classification for capitalizing implementation costs and related amortization expense within the financial statements and requires additional disclosures. The adoption of ASU 2018-15, effective January 1, 2020, did not have a significant impact on our financial statements and related disclosures.
Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, Disclosure Framework: Changes to the Disclosure Requirements for Defined Benefit Plans. The pronouncement modifies the disclosure requirements for defined benefit pension and OPEB plans. The guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. The modifications affect annual period disclosures and must be applied on a retrospective basis to all periods presented. The guidance will be effective for annual reporting periods ending after December 15, 2020, with early adoption permitted. We are currently evaluating the effects of this pronouncement on the notes to our financial statements.
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The new standard removes certain exceptions for performing intraperiod allocation and calculating income taxes in interim periods and also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The guidance will be effective for annual and interim periods beginning after December 15, 2020. We plan to adopt the new standard effective January 1, 2021, and do not expect the adoption to have a material impact on our financial statements and related disclosures.
Reference Rate Reform
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact this guidance may have on our financial statements and related disclosures.
|
|
|
|
|
|
|
|
|
09/30/2020 Form 10-Q
|
40
|
WEC Energy Group, Inc.
|