WEC Energy Group continues focus on capital investment plan, impact of bonus tax depreciation

WEC Energy Group CEO Allen Leverett, during the company’s 2Q16 earnings call on July 27, said that the company’s long-term goal is to grow earnings per share at a compound annual growth rate of 5% to 7%, off a base of $2.72 per share in 2015.

“Key to delivering this growth is the execution of our capital investment plan and addressing the impact of bonus tax depreciation,” he said, adding, “We believe that approximately $1bn in cash tax benefits will be generated from the bonus depreciation extension. About two-thirds of this benefit will occur this year and in 2017. Although we do not expect bonus depreciation to have any significant impact on earnings this year, we are taking steps to modify our capital plan to minimize any impacts in 2017, as well as in following years.”
Leverett noted that the company has advanced a number of beneficial projects into 2016 and 2017, adding that the estimated investment associated with those projects is $500m.

“In addition, we have made progress in the later years of our five-year forecast,” he said. “We now expect to extend our electric System Modernization and Reliability Project at Wisconsin Public Service. This should represent another $100m of capital investment in the 2019 and 2020 period. I would add that this is a popular program with customers at Wisconsin Public Service, who are seeing significant benefits in the form of greatly reduced outages during storms.”

According to Wisconsin Public Service’s website, while electric system reliability at the company is generally good, the company is modernizing parts of its electric distribution system by burying or upgrading lines.

The company said that it applied for a certificate of authority (CA) for the five-year System Modernization and Reliability Project with the Public Service Commission of Wisconsin in late 2012. The commission approved the project in July 2013, and construction began in 2014. The company also said that each year of construction will involve many "segments" of electric lines. The company noted that its proposal involves electric lines that have the lowest reliability in its system – primarily in its rural areas that are heavily forested.

In the affected areas, electric reliability is lower than state and national averages, the company said, adding that the areas targeted are those in which customers are repeatedly faced with the loss of power due to storms – sometimes for several days.

Wisconsin Public Service said that it plans to convert about 1,000 miles to 1,250 miles of electric distribution lines through the project, which began in 2014.

Leverett said during the call: “I expect that we will continue to identify projects that can be advanced into our current five-year forecast. We plan to provide a complete update to our five-year capital forecast no later than the November EEI finance conference.”

ROE

Among other things, Leverett also discussed matters pending at FERC, noting that at the end of June, an administrative law judge (ALJ) issued an initial decision involving a “second pending complaint” on return on equity (ROE).

The ALJ’s “recommendation was for a 9.7% base ROE, and [American Transmission Company] (ATC) could add a 50 basis point adder, for a total of 10.2% ROE,” Leverett said. “We have updated our reserves to reflect this.”

As noted in that June 30 initial decision, the initial decision addresses a complaint filed under section 206 of the Federal Power Act (FPA) and Rule 206 of the commission’s Rules of Practice and Procedure. The complaint seeks to lower the base return on common equity (base ROE) of transmission-owning members (Midcontinent ISO (MISO) TOs) of MISO.

All of the MISO TOs, except ATC, are authorized to collect a base ROE of 12.38%; ATC is authorized to collect a base ROE of 12.20%. The complainants (joint customer complainants) asked that the MISO TOs’ base ROE be lowered to 8.67%, the initial decision added.

The initial decision noted that MISO, in conjunction with the MISO TOs, in December 2001 filed proposed changes to the MISO Tariff to, inter alia, increase the base ROE received by MISO TOs from 10.5% to 13% for all MISO pricing zones, except for that of ATC. As relevant in the proceeding, the initial decision said that FERC set the base ROE for hearing and subsequently affirmed an initial decision, which approved a base ROE of 12.38% for MISO TOs.

The 12.38% base ROE is located in Attachment O of the MISO Tariff and is collected by all MISO TOs, except for ATC, whose base ROE of 12.2% was established as part of a settlement agreement that was filed with the commission in March 2004.

The joint customer complainants in February 2015 filed the complaint, and by order dated June 18, 2015, the commission set the matter for hearing, and prescribed an effective date of Feb. 12, 2015, for the 15-month refund period. By order dated June 24, 2015, the chief judge directed that an initial decision be issued by June 30, 2016.

The initial decision authorizes the MISO TOs to collect a base ROE of 9.7%.

Absent the filing of briefs on exceptions to the initial decision, within 60 days of the issuance of the initial decision, MISO is to refund, with interest, the difference between the revenues it collected from Feb. 12, 2015 through Aug. 11, 2016, and what it would have collected had it implemented the base ROE of 9.7% during that period, the initial decision added.

Earnings report

WEC Energy Group, which was formed last June when Wisconsin Energy completed the acquisition of Integrys, said on July 27 that it recorded net income based on generally accepted accounting principles (GAAP) of $181.4m, or 57 cents per share, for 2Q16, compared with $80.9m, or 35 cents per share, for 2Q15. WEC Energy Group, according to the statement.

WEC Energy Group said that its earnings per share for the second quarter, excluding acquisition costs, decreased by 1 cent per share, from 58 cents in 2Q15, to 57 cents in 2Q16. 

About Corina Rivera-Linares 3111 Articles
Corina Rivera-Linares, chief editor for TransmissionHub, has covered the U.S. power industry for the past 15 years. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines. She can be reached at clinares@endeavorb2b.com.