01—Abstract
Summary
Summary of the 10-K filed February 28, 2018. Cited figures are marked; the original filing is the authoritative source.
WEC Energy Group, Inc. (WEC) reported 2017 operating revenues of $7,648.5 milliona and net income attributed to common shareholders of $1,203.7 million, or $3.79 diluted earnings per share, up from $939.0 million, or $2.96 per diluted share, in 2016.
The increase was driven in large part by a $206.7 millionb one-time net reduction in income tax expense from revaluing deferred taxes under the Tax Cuts and Jobs Act of 2017, and by higher operating income at the Wisconsin, Illinois, and non-utility energy infrastructure segments. The company's effective tax rate fell to 24.1% in 2017 from 37.6% in 2016. Total assets rose to $31,590.5 million, and long-term debt excluding the current portion declined to $8,746.6 million.
The company is pursuing a generation reshaping plan that calls for retiring approximately 1,800 MW of coal generation by 2020 and reducing CO2 emissions by approximately 40% below 2005 levels by 2030. Management expects total capital expenditures for its regulated utility and non-utility energy infrastructure businesses to be almost $12 billionc from 2018 to 2022. Its 2018 estimated capital expenditures total $2,465.0 million.
The Board increased the quarterly dividend to $0.5525d per share, or $2.21 annually, and targets a dividend payout ratio of 65.0–70.0% of earnings. Key risks flagged in the filing include the uncertain effects of the Tax Legislation on credit ratings and regulatory treatment, Moody's July 2017 downgrades of several subsidiaries' senior unsecured ratings to A2 from A1, ongoing regulatory outcomes for the ATC return-on-equity complaints, and environmental regulation of greenhouse gases, including the Clean Power Plan, which faces uncertainty after federal policy changes.
02—Key points
Key Highlights
- Net income attributed to common shareholders rose to $1,203.7 million in 2017 from $939.0 million in 2016; diluted EPS was $3.79 versus $2.96.
- A $206.7 million one-time net reduction in income tax expense from revaluing deferred taxes after the Tax Cuts and Jobs Act lowered the effective tax rate to 24.1% from 37.6%.
- Operating revenues were $7,648.5 million in 2017, up from $7,472.3 million in 2016; operating income was $1,785.2 million versus $1,682.1 million.
- Planned generation reshaping includes retiring about 1,800 MW of coal generation by 2020 and reducing CO2 emissions by approximately 40% below 2005 levels by 2030.
- Management expects almost $12 billion in capital expenditures for regulated utility and non-utility energy infrastructure businesses from 2018 to 2022.
- The Board raised the quarterly dividend to $0.5525 per share ($2.21 annualized) and reaffirmed a 65.0–70.0% payout ratio target.
- Acquired Bluewater natural gas storage in Michigan for $226.0 million on June 30, 2017; the Forward Wind Energy Center purchase is pending PSCW approval.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Wec Energy Group kept $0.16.
- Revenue$7.65B100.0%
- Cost of revenue−$2.82B36.9%
- Gross profit$4.83B63.1%
- Operating costs−$3.05B39.9%
- Operating income$1.78B23.2%
- Interest, other & tax−$572.4M7.5%
- Net income$1.20B15.7%
Where FY2017 revenue went
$7.65B- Operating costs: $3.05B, 40% of revenue
- Cost of revenue: $2.82B, 37% of revenue
- Net income: $1.20B, 16% of revenue
- Interest, other & tax: $572.4M, 7.5% of revenue
Kept 16% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 28, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $7.65B$7.47B | +2.4% |
| Cost of Revenue | $2.82B$2.65B | +6.6% |
| Gross Profit | $4.83B$4.82B | 0.0% |
| Operating Expenses | $5.87B$5.78B | +1.7% |
| Operating Income | $1.78B$1.70B | +4.7% |
| Interest Expense | $415.70M$402.70M | +3.2% |
| Net Income | $1.20B$939.00M | +28.2% |
| EPS (Basic) | $3.81$2.98 | +27.9% |
| EPS (Diluted) | $3.79$2.96 | +28.0% |
| Shares Outstanding (Basic) | 315.60M315.60M | 0.0% |
| Shares Outstanding (Diluted) | 317.20M316.90M | +0.1% |
05—Questions
Frequently Asked Questions
How did the Tax Cuts and Jobs Act affect WEC's 2017 results?
The filing reports a $206.7 million one-time net reduction in income tax expense from revaluing deferred taxes, primarily at the non-utility energy infrastructure and corporate and other segments. The company estimated a $2,450 million tax benefit for its regulated utilities, which will be returned to ratepayers through refunds, bill credits, riders, or reductions in regulatory assets. The filing notes the legislation's effects remain provisional under SAB 118.
What is WEC's capital spending outlook?
Management expects total capital expenditures for its regulated utility and non-utility energy infrastructure businesses to be almost $12 billion from 2018 to 2022. Estimated capital expenditures are $2,465.0 million for 2018, $1,971.0 million for 2019, and $2,690.0 million for 2020. Major projects include WPS's System Modernization and Reliability Project, PGL's Gas System Modernization Program, and the UMERC generation solution in Michigan.
Are there credit rating concerns for WEC?
In July 2017, Moody's downgraded the senior unsecured ratings of WE, WPS, and WG to A2 from A1 and affirmed WEC Energy Group's A3 rating with a negative outlook change. In January 2018, Moody's moved WG's outlook to negative. The company states these changes should not have a material impact on its ability to access capital markets, but it notes that a downgrade could raise borrowing costs and trigger collateral requirements.
What is the status of WEC's coal fleet and environmental compliance costs?
WEC expects to retire about 1,800 MW of coal generation by 2020, including Pleasant Prairie, PIPP, Pulliam, and the jointly owned Edgewater Unit 4. The Pleasant Prairie plant must shut down by April 10, 2018. Management says it does not expect significant costs to comply with several air and water regulations, but it estimates about $70 million will be required for compliance with the steam electric effluent limitation guidelines. The Clean Power Plan's future is uncertain following federal policy changes.
06—Continue