By Amanda Durish Cook
WEC Energy Group turned a larger profit in the first quarter despite warm weather and slumping electricity demand in the company’s Midwest markets — coupled with an ongoing rate freeze.
The company reported $356.6 million ($1.12/share) in net income for the first three months of this year, up from $346.2 million ($1.09/share) during the same period in 2016. Revenue increased 5% to $2.3 billion.
However, retail deliveries of electricity for WEC’s Wisconsin and Michigan utilities were down 1.1% year-over-year, excluding consumption at iron ore mines in Michigan’s Upper Peninsula. Residential use was down 2.1%.
CEO Allen Leverett attributed the extra income to more effective cost controls, better-than-forecasted electric fuel recoveries and the decoupling mechanisms at WEC’s Illinois and Minnesota gas utilities — all of which helped to offset the effects of warm weather. Decoupling separates a utility’s profits from energy commodity sales, with rates of return adjusted to meet revenue targets.
Leverett said WEC will have to continue to operate tightly over the next two years after its We Energies subsidiary last month filed a settlement with Wisconsin regulators agreeing to freeze all business and residential base rates. Twenty-four of the utility’s largest business customers have so far signed on to the agreement, which will hold base rates steady through 2019.
“This will make for a total of four years that base rates will be flat,” Leverett said during a May 2 earnings call. “This would essentially give our customers price certainty through 2019 and require us to continue to manage our costs aggressively.”
The proposed agreement would extend current earnings-sharing mechanisms in which return on equity is shared equally between customers and shareholders, while earnings above a 10.5% return are given back to customers. That arrangement would be extended through 2019 at Wisconsin Electric and Wisconsin Gas, with a similar two-year mechanism put in place next year at Wisconsin Public Service.
“Settlements are uncommon in Wisconsin, but at this point, I expect the process to move expeditiously,” Leverett said, adding that the deal will allow customers with expiring pricing options to avoid a price increase.
WEC’s bid for regulatory approval for the construction of two new gas-fired plants in Michigan’s Upper Peninsula is also moving as expected, Leverett said. The two plants will serve the newly formed Upper Michigan Energy Resources Corp., a partnership of WEC subsidiaries Wisconsin Electric Power Co. and Wisconsin Public Service. (See Michigan Upper Peninsula Getting its Own Utility.)
The company has obtained all local approvals for the plants and is just awaiting a go-ahead from the Michigan Public Service Commission, which Leverett anticipates will happen.
“As you may recall, our last several major proceedings in Michigan have resulted in settlements which the commission approved. We would welcome a similar outcome in this case,” he said.
WEC will also invest about $300 million to modernize the Peoples Gas distribution system in the Chicago area. Leverett said that program is continuing as planned, even while the company awaits a review decision from the Illinois Commerce Commission that should come later this year.
