WEC ENERGY GROUP, INC.

WEC Energy Group: Key Regulatory Settlement in Illinois Impacts Future Earnings

WEC Energy Group recently announced a significant regulatory settlement in Illinois, impacting its financial outlook and operations. This summary breaks down the details for investors.

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What Happened?

WEC Energy Group announced a proposed settlement involving its Illinois natural gas companies, Peoples Gas Light and Coke Company (PGL) and North Shore Gas Company (NSG), and the Illinois Attorney General. This agreement aims to resolve long-standing legal and regulatory disputes concerning how these companies recovered costs for infrastructure upgrades and uncollectible customer bills.

As part of this proposed deal:

• Peoples Gas agreed to permanently remove $130 million in Qualified Infrastructure Plant (QIP) costs from its "rate base" starting in 2027. The rate base represents the total value of assets a utility can earn a regulated return on, so this reduction directly impacts future earnings potential from those specific assets.
• Customers will receive $75 million in bill credits from Peoples Gas, distributed over three years (2026-2028), to address past infrastructure cost recovery issues.
• Customers will also receive an additional $50 million ($49 million from PGL, $1 million from NSG) in bill credits over the same three-year period (2026-2028), resolving disputes related to uncollectible bills (Uncollectible Expense Adjustment or UEA).

This settlement will result in WEC Energy Group recording a $205 million pre-tax charge, or $0.46 per share, in its 2025 financial results. This charge is significantly higher than the approximately $150 million pre-tax charge the company had previously anticipated.

When Did This Happen?

WEC Energy Group recently announced the proposed settlement, filing an 8-K detailing these developments on February 3, 2024. While announced recently, the financial impacts and customer credits will phase in over several years.

Why Did This Happen?

This settlement represents a strategic move by WEC Energy Group to resolve ongoing legal and regulatory proceedings in Illinois, specifically the "QIP Proceedings" and "UEA Proceedings." These proceedings disputed the prudence and recovery of costs for Peoples Gas's pipeline modernization program (QIP) and how both companies accounted for bad debt (UEA).

By reaching this agreement, WEC aims to:

• Achieve regulatory stability: End prolonged litigation and uncertainty over cost recovery.
• Improve regulatory relationships: Foster a more predictable operating environment in Illinois.
• Provide customer relief: Address concerns from the Attorney General and consumer advocates regarding past charges.

Ultimately, this agreement aims to resolve past disputes and establish a clearer path forward for WEC's Illinois operations.

Why This Matters for Investors

This is a significant event for WEC Energy Group and its stakeholders:

• Material Financial Impact: The $205 million pre-tax charge ($0.46 per share) directly reduces WEC's 2025 earnings. This substantial hit exceeds previous expectations, and investors should compare it to WEC's typical annual earnings per share and any updated financial guidance.
• Long-Term Earnings Potential: The permanent removal of $130 million from Peoples Gas's rate base starting in 2027 reduces the asset base on which the company earns a regulated return. This will have a modest, ongoing negative impact on future earnings potential from the Illinois gas utilities.
• Regulatory Clarity and Risk Mitigation: While costly, resolving these long-standing regulatory disputes brings greater predictability to WEC's Illinois operations. It reduces the risk of adverse rulings from ongoing litigation and provides a clearer framework for future rate cases and infrastructure investments.
• Customer Impact: Customers of Peoples Gas and North Shore Gas will directly benefit from $125 million in bill credits over the next three years, which could improve customer sentiment.
• Precedent Setting: This settlement highlights the significant influence of regulatory bodies and consumer advocates on utility operations and pricing, a key consideration for investors in regulated utilities.

Who Is Affected?

• WEC Energy Group: The company's financial performance, particularly in 2025, and its long-term earnings potential in Illinois face direct impacts. Its overall strategy and future investment plans may also be influenced.
• Customers of Peoples Gas and North Shore Gas (in Illinois): Customers will receive tangible bill credits over the 2026-2028 period.
• Investors/Shareholders: The $0.46 per share charge directly reduces 2025 earnings, potentially affecting stock price, future earnings guidance, and dividend growth prospects.
• Illinois Commerce Commission (ICC): The ICC plays a crucial role in reviewing and approving the settlement.

What Happens Next?

The proposed settlement is not yet final. It requires a public review process and approval from the Illinois Commerce Commission (ICC). This process, which typically includes public hearings, can take several months. The ICC has the authority to approve the settlement as proposed, modify it, or even reject it.

If approved:

• WEC Energy will reflect the $205 million pre-tax charge in its 2025 financial results.
• WEC will begin distributing the bill credits to customers over the three-year period from 2026 to 2028.
• The $130 million rate base reduction for Peoples Gas commences in 2027.

Key Investor Considerations

Here's what investors should keep in mind regarding WEC Energy Group:

• Monitor Financial Guidance: The $0.46 per share charge directly reduces 2025 earnings. Investors should watch for any updated full-year 2025 earnings guidance from WEC Energy Group and assess how this charge impacts their overall financial outlook.
• Understand the Long-Term Trade-off: While the immediate financial hit is negative, resolving these long-standing regulatory issues could bring greater stability and predictability to WEC's Illinois operations, potentially reducing future regulatory risks and litigation costs.
• Regulatory Approval Risk: The settlement is contingent on ICC approval. ICC modifications or rejection could introduce new uncertainties or require further financial adjustments, highlighting the inherent regulatory risk in utility investments.
• Impact on Dividend Growth: While WEC has a strong history of dividend growth, significant charges and rate base reductions can influence a company's capacity for future dividend increases.
• Stay Informed: Keep an eye on WEC's future SEC filings, earnings calls, and press releases for updates on the ICC approval process and any revised financial forecasts or strategic implications.