WEC Energy Group, Inc (WEC) Q1 2025 Earnings Call Transcript

WEC Energy Group, Inc (NYSE: WEC) Q1 2025 Earnings Call dated May. 06, 2025

Corporate Participants:

Liu Xia — Executive Vice President and Chief Financial Officer

Scott Lauber — President & Chief Executive Officer (CEO)

Analysts:

Brian Russo — Analyst

Andrew Weisel — Analyst

Jeremy Tonet — Analyst

Anthony Crowdell — Analyst

Michael Sullivan — Analyst

Carly Davenport — Analyst

Durgesh Chopra — Analyst

Presentation:

operator

Good afternoon and welcome to WEC Energy Group’s conference call for first quarter 2025 results. This call is being recorded for rebroadcast and all participants are in a listen only mode at this time. After the presentation, this conference will be open to answers. Good afternoon and welcome to WEC Energy Group’s conference call for first quarter 2025 results. This call is being recorded for rebroadcast and all participants are in a listen only mode at this time. After the presentation, the conference will be open to analysts for questions and answers. In conjunction with this call, a package of detailed financial information is posted@wecnergygroup.com A replay will be available approximately two hours after the conclusion of this call.

Before the conference call begins, please note that all statements in the presentation other than historical facts are forward looking statements that involve risks and uncertainties that are subject to change at any time. Such statements are based on management’s expectations at the time they are made, in addition to the assumptions and other factors referred to in connection with the statements. Factors described in WEC Energy Group’s latest Form 10K and subsequent reports filed with the securities and Exchange Commission could cause actual results to differ materially from those contemplated during the discussion. Referenced earnings per share will be based on diluted earnings per share unless otherwise noted and now it is my pleasure to introduce Scott Lauber, President and Chief Executive Officer of WEC Energy Group.

Please go ahead.

Scott Lauber — President & Chief Executive Officer (CEO)

Good afternoon everyone and thank you for joining us today as we review our results for the first quarter of 2025. Here with me are Shaw Liu, our Chief Financial Officer, and Beth Sraka, Senior Vice President of Corporate Communications and Investor Relations. As you saw from our news release this morning, we reported first quarter 2025 earnings of $2.27 a share. We’re off to a solid start to the year. We remain laser focused on reliability, financial discipline and customer satisfaction and we’re on track to deliver another year of strong results in line with our 2025 earnings guidance of $5.17 to $5.27 a share.

This of course assumes normal weather going forward. We continue to target a 6.5 to 7% long term compound annual growth rate supported by our robust capital plan driven by strong economic growth in our region. In Wisconsin, the unemployment rate stands at 3.2%, continuing a long running trend below the national average. And as we’ve discussed, we’re continuing to see significant economic development along the i94 corridor between Milwaukee and Chicago. Microsoft is making good progress on its large data center complex and in southeast Wisconsin. Work has continued in the first phase of the project and we have confidence in our five year forecast of 1.8 gigawatts of demand growth in southeastern Wisconsin.

As you recall from last quarter, just to the north of Milwaukee, Cloverleaf has announced plans to develop approximately 1700 acres for another large data center campus. Cloverleaf has projected at least 1 gigawatt of electric demand for this development. We have not incorporated any of this investment related to Cloverleaf in our capital plan just yet, so stay tuned for the updated capital plan on our third quarter earnings call. And there is other notable growth in Wisconsin. As a reminder, Eli Lilly has announced a $3 billion expansion of its manufacturing facility in Wisconsin. And just recently, Uline announced another expansion in southeastern Wisconsin.

The company plans to build a 1.2 million square foot warehouse and distribution facility. We’re also off to a strong start on our current capital plan. It’s the largest five year investment plan in our history, totaling $28 billion dedicated to economic growth and reliability. As we’ve discussed, it’s based on projects that are low risk and highly executable. On the tariff front, we’re evaluating the impacts of tariffs on our supply chain and capital plan. For our $28 billion capital plan, we estimate the tariff exposure is approximately 2 to 3% overall. As you can expect, we are actively engaged to mitigate efforts and mitigation efforts through our contracts and various suppliers.

Fortunately, we have diversity in our business mix, capital plan and supply chain that should help to mitigate the overall effects on our customers. Our company has successfully navigated past periods of uncertainty and challenges, and you can certainly expect us to aim to do the same for this current environment. Now let me give you a few updates on our projects. In early March, the Dairy Engine, a Darien solar project, went into Service. This adds 225 megawatts of renewable generation to our regulated portfolio with an investment of approximately $427 million. And currently we have two solar projects in construction phase.

Kashkanan, a 300 megawatt project in southern Wisconsin, and Renegade 100 megawatt project in the Upper Peninsula of Michigan. We expect both of these projects to be placed into service next year. In addition, the Wisconsin Public Service Commission has approved our purchase of 90% of the high Noon solar and battery project for approximately $883 million. Construction is expected to be completed in 2027. Of course, we are closely monitoring the federal developments related to the Inflation Reduction act, and we’re actively seeking to safe harbor the projects in our Capital Plan at WEC Infrastructure we closed on the hardened 3 solar project in February.

We invested approximately $406 million for 90% ownership of the project which has a total capacity of 250megawatts. As a reminder, this project fulfills a our five year plan investment at WEC Infrastructure. Overall, we have a lot of confidence in our ability to execute on our capital plan. Now turning to the regulatory front. As a reminder, we currently have no active rate cases in Wisconsin. At the end of March, we filed a new tariff proposal with the Public Service Commission to accommodate the economic growth we discussed. The proposed Very Large Customer or VLC tariff would meet the needs of our very large load customers while protecting all of our other customers.

Our proposal would apply to customers with 500 megawatts or more of forecasted new load. The customer commits to subscribing to a portion of one or more dedicated generation resources. The terms of the agreements are 20 years for wind and solar and the depreciable lives for natural gas and battery storage assets. As filed, the tariffs provide for a fixed return on equity of 10.48% and the equity ratio of 57%. In addition, there are several other charges. These customers are responsible for administrative administrative charges, energy charges, transmission charges, and distribution charges. The proposed tariff is designed so that no cost to serve these very large customers would be subsidized by or shifted to other customers.

We worked with these large customers in the design of the tariff, which included the financial parameters. We believe this tariff is a key component to help make Wisconsin a prime spot for data center investments. We expect a decision by the Commission by the second quarter of next year. In Illinois, we received the Illinois Commerce Commission’s decision on our Safety Modernization program in February. The Commission lifted the pause on our work and directed Peoples Gas to focus on replacing all cast iron and ductile iron pipe that is a diameter under 36 inches by January 1, 2035.

The Commission also directed its staff to appoint a safety monitor to provide oversight by July of this year. Like other capital projects, our investments in pipe replacement will be reviewed in future rate proceedings. Under this pipe replacement program, approximately 1100 miles of older pipe, some dating back to the mid-1800s, will need to be replaced. We are currently developing engineering plans to execute the order. We will factor the updated pipeline replacement program capital into our fall update. Next up, Shah will provide more details on our financials.

Liu Xia — Executive Vice President and Chief Financial Officer

Thank you, Scott. Our first quarter 2025 earnings of $2.27 per share reflects a a 30 cent increase compared to the first quarter of 2024. Our earnings packet includes a comparison of first quarter results on page 12. I’ll walk through the significant drivers starting with our utility operations. Earnings were $0.28 higher versus the first quarter of 2024. Weather positively impacted quarter over quarter earnings by approximately $0.18 compared to normal conditions. We estimate that weather had a $0.01 positive impact in the first quarter of 2025 compared to a $0.17 negative impact in the first quarter of 2024.

Recall that our 2024 winter was the warmest in Wisconsin history. On record. Rate base growth contributed $0.20 more to earnings. This was driven primarily by the Wisconsin Rate Review outcome that was effective on January 1, 2025. Tax and other items added another 4 cents. These positive drivers were partially offset by a total of $0.14 from O& M expense, depreciation and amortization and timing of fuel expense. Our day to day O and M for the year is still expected to grow 8 to 10% when compared to actual O&M in 2024. As a reminder, this year over year growth is largely driven by a few factors, our continued focus on commission approved vegetation management, new assets coming online and measures we took last year to offset the mild weather impact.

And let me give you some color on our weather normal retail electric deliveries excluding the iron ore mine compared to last Q1 and adjusting for leap year, we saw 0.7% growth this quarter led by the large commercial and industrial class which grew 2.3% in the quarter. This is right in line with our forecast. Remember, we expect our weather normal annual electric sales growth to reach 4.5 to 5% starting in 2027 and we’re on track to reach that over the next couple of years. At American Transmission Company earnings increased $0.02 compared to 1Q24. $0.01 was related to continued capital investment and the other penny is related to a modest gain from selling and interest in the PAS 15 transmission line in California in the first quarter this year.

Turning to our energy infrastructure segment, earnings increased $0.05 in 1Q25 compared to the first quarter of 2024 largely from higher production tax credits. Remember, we completed our investment in the Maple Flats and Delilah Solar projects in the fourth quarter of 2024 as well as the hardened 3 solar project this February. Next you’ll see that earnings from the corporate and other segment decreased $0.03. This was driven by higher interest expense partially offset by favorable tax timing and other items. Finally, there was $0.02 of dilution primarily associated with our common equity issuances. We issued about $200 million in 2024 and about $140 million in Q1 this year, including the Q1 issuances.

As a reminder, we expect to raise a total of 7 to $800 million of common equity in 2025 via our ATM program as well as the dividend reinvestment and employee benefit plans. This is a part of the 2.7 to $3.2 billion total common equity we expect to issue through 2029 to finance the capital investment. As we refresh our capital plan this fall, we continue to expect any incremental capital will be funded with 50% equity content finally, let me comment on earnings guidance. As Scott mentioned earlier, we are reaffirming our 2025 earnings guidance of $5.17 to $5.27 per share, assuming normal weather for the rest of the year.

We’re also reaffirming our long term eps CAGR of 6.5 to 7%. For the second quarter, we are expecting a range of 63 to 69 cents per share. This accounts for April weather and assumes normal weather for the rest of the quarter. With that, I’ll turn it back to Scott.

Scott Lauber — President & Chief Executive Officer (CEO)

Thank you, Shah. Now, as you may recall, our board at its January meeting increased the dividend by 6.9%. This marks the 22nd consecutive year that our shareholders will be rewarded with higher dividends. Overall, we’re optimistic about continued growth in our region and our company’s growth and future. Operator we are now ready for question and answer portion of the call.

Questions and Answers:

operator

Thank you. Now we will take your questions. The question and answer session will be conducted electronically. To ask a question, please press the star key followed by the digit 1 on your phone. If you are using a speakerphone, turn off your mute function to allow your signal to reach our equipment. We will take as many questions as time permits. Once again, press star and then one on your phone to ask a question. Your first question comes from Julian Demoulin Smith of Jeffries. Your line is open.

Brian Russo

Yeah, hi, it’s Brian Roussillon for Julian.

Scott Lauber

Sounds good. How you doing?

Brian Russo

Good, thanks. Hey, just on the recent MISO capacity auction results, can we get your thoughts on your base generation CAPEX spend or any upside Capex maybe data centers and then you know how that plays into the whole long term strategy for the power of the future assets and Port Washington and maybe maybe also the nuclear PPA negotiations?

Scott Lauber

Sure, there’s a lot built into that. When you looked at the MISO auction, especially when you looked at the summer part of the auction, it was really a tight Auction overall, you know, we were long on one company and a little bit short on the other, but nothing material. All in the right kind of, all in the right direction overall. You know, we build to make sure we have enough capacity to meet our demand. And that’s why we’ve been working with our very large customers and looking at our forecast for several years now as we get orders in place to build new generation capacity.

So as we think about it, looking forward, you know, we are looking forward to some of the decisions by the commission in we expect, oh, end of June, early July here on some of the additional gas generation needs that we have from the combustion turbines and the rice units are at the commission to help us build that needed capacity to meet this large customer load along with the other economic development in the region. So we are actively working to procure and we’re already started talking about 2030, 2031 and how we look at the capacity needs.

As you start thinking about our part of the future assets and some of the other assets that we have, you know, we are looking at and we have successfully tested gas at a about 30% blend and the power, the future coal units. And we’re looking to our plans to make that 100% gas by 2029 and the same thing looking at the Western 4 units converting it to gas. So we’re looking at how do we strategically have the capacity in the region, which also includes the capacity we’ll get from batteries and wind and solar. So we are, we’re planning and we’re looking to the future to make sure we’re ahead of that capacity auction.

Does that help you?

Brian Russo

Yeah. Yes, it does. Thank you very much.

operator

The next question comes from Andrew Wiesel with Scotiabank. Your line is open.

Scott Lauber

Hey, Andrew. Hey.

Andrew Weisel

Good afternoon.

Scott Lauber

Good afternoon.

Andrew Weisel

First question. In Illinois, the ICC recently concluded its review of the pipeline safety modernization program. They authorized you to replace a good amount of the older pipe. I know it’s not exactly the same as the prior program, but might represent some upside to the capex. Scott, I know you mentioned that we’ll have to wait for the CAPEX refresh this fall, but my question is any early thoughts on roughly how big of an opportunity that might be and how quickly you might be able to get those efforts going. I know you have to rehire, retrain and redeploy, I think thousands of employees, so you can’t just do it immediately, but when might that work start to resume?

Scott Lauber

Excellent question. And we can give you a little color what we’re looking at now, so we’re going through the process and we had a couple projects that of course were stale, that we’re going running it back through some of the permitting process as you have to go through the permitting process. And we’re going through to see if we can, you know, kick off a few of them this year. But of course we’re going through that hiring process and our planning. We’ll see the program ramp up in 26 and 27 and get to what we think will be a full run rate.

And we’re still pulling the numbers together in 28, but we expect that’ll probably be a little over $500 million, $500 million a year going forward. And remember, our old program was about 280 to $300 million. But in order to get this program completed by, you know, beginning of 2035, we, we really have a lot of spending to do because we were expecting it to be closer to that 20:40 time frame. So it’ll be ramping up over 26 and 27 with hopefully we get to that run rate in 20:28.

Andrew Weisel

Okay, great. Next, on Microsoft, I think you briefly mentioned that things are going smoothly there. Can you just elaborate on that maybe what you’re hearing and seeing from the company? I know there’s a lot of questions among investors about pauses of various phases and potential global slowdown, all those types of questions. Maybe if you could just tell us how your latest conversations with them have been going both around the current phase one that goes through 26 and what the company is doing and seeing around those future phases in your neck of the woods.

Scott Lauber

Sure. And Microsoft, you know, we’ve been working with them for a couple years now and they reiterated to us that the economic development and the demand that we have in our forecast over the five year period that supports that, southeastern Wisconsin, that 1.8 gigawatts is still solid. We have worked with them on building substation ourselves, American Transmission Company and that work progresses. So I have no concerns that that site is still going to be very, very strong and a very core part of Microsoft’s development, you know, and I learned, you know, a lot just listening to the Microsoft conference call because they talk about, you know, timing and the going in and out of, you know, some of their build cycles and how they manage it.

It just sounds like now with AI and all the hyperscalers being the talk and how it affects the electric utilities, people are talking about it a lot more, but I think they’ve always managed it. So I encourage you to Listen to Microsoft conference call. I thought it was really interesting how they described some of the things. But I have no concerns in southeastern Wisconsin here.

Andrew Weisel

Okay, great. Appreciate the confidence on there. One last one, if I may. If I could squeeze one in for shah on equity. 140 million in the quarter, obviously that’s a bit less than the 25% of the full year guidance. You mentioned that the 700 to 800 million. How should we think about that? Is that any kind of reflection on the market? Uncertainty in tariffs view on your stock price or maybe a function of cash needs ramping up as the year goes on? Any thoughts on the timing there?

Liu Xia

Yeah, Andrew, it’s all of the above. We’re targeting 7 to $800 million. And so stock price plays a role in that. Through the access to the ATM program, our cash need plays a role. So we’re managing it very, very tightly. But we feel very confident that through our ATM and the employee benefit plans, we could access the 7 to $800 million fairly easily throughout the rest of the year.

Andrew Weisel

Great. Thank you very much, everybody. Thank you.

operator

The next question comes from Jeremy Tonette with J.P. morgan. Your line is open.

Scott Lauber

Hi, good afternoon. Good afternoon.

Jeremy Tonet

The ira, you know, has been in focus for the market for some time here in tax credit transferability as well. Just wondering, any updated thoughts you could provide here if transferability or other parts. Of the IRA were to be repealed. In how you think about this with impacting the plan or offsets that you could offer?

Scott Lauber

Sure. And I’ll start and then Shaal can walk you through a little bit more of the numbers. But when you think of the IRA and a lot of projects that we have in our plan, we’ve been anticipating the IRA benefits and I think a lot of our customers are anticipating too. Remember, all the PTCs and ITCs for the projects going forward go back to our customers. And so, you know, I could see that there would be a phase out of the IRA and PTCs and ITCs in the future. But, you know, it’s pretty well integrated in a lot of the projects that people had assumed going forward.

And transferability, you know, there’s other ways to look at moving those tax benefits to others, whether it’s tax equity or transferability. Tax equity is just a little more complicated. It gets in. It ends up in the same result. I think it’s a little more costly for our customers where transferability has been very clean and easy to execute. And actually we’ve been able to benefit some of our local companies, too, with the benefits of those tax benefits. So hopefully there’s a transition period and transferability stays for a while because I think it’s really beneficial to our customers.

And Shaw can give you a little more detail on some of the numbers.

Liu Xia

Absolutely. So on the phase out point, like Scott mentioned, we’re actively seeking safe harboring, the upcoming renewable project. So once we do that, we could, hopefully we could qualify the project for 100% of PTCs through at least 2029. So we’re actively seeking that in terms of the transferability. As you knew that we, we have been able to transfer about $200 million of PTCs annually to third parties over the past several years. And as we build more projects, that number ramps up slightly in the plan. However, if you think about the projects, we, we have almost 80% of the planned PTC transfer transfer from projects already in service from 2025 and prior.

So as we all know, we don’t believe Congress likes to change the economics of projects already placed in service. Assume that depending on the law, obviously, but assume that transferability were to only impact projects put in service from 2026 or 2027 or later, we, we would have very limited credits that we would not be able to sell. So we think the impact would be pretty limited. And also like Scott mentioned for the utility projects, if transferability were repealed, it would make renewable projects more costly for the customers. So I think we would have to take a step back and think about the optimal generation project mix from a customer affordability standpoint.

So I think all in all we’re managing it just. But watching the development, but also managing very actively. We’re not concerned at this point.

Jeremy Tonet

Okay, got it. So the FFO impact is something that you think would be, I guess, manageable in the grand scheme of things. Everything you talk about.

Liu Xia

Yeah, depending on the law. Yeah, absolutely.

Scott Lauber

We’re all anxiously waiting to see what the final law is.

Jeremy Tonet

Yeah, got it. Thank you for that. And then just want to pivot towards the VLC tariff. And you know, I think it’s key that customers were involved in the creation here.

Andrew Weisel

Right.

Jeremy Tonet

Just wondering, you know, as it stands, you know, how you think that impacts Wisconsin, how does Wisconsin stand relative to other states in trying to win this business with this tariff? Just wondering if you could expand on that.

Scott Lauber

You know, I think the key is you hit it. We worked with our very large customers with the basic understanding that we cannot have this, you know, this very large load get subsidized at all by any other customers. So we worked on the fundamentals and that’s how we came up on the tariff. I think it’s a fair tariff for our customers, for the very large customers and for our shareholders. So we try to be a very balanced approach. I think in what we’ve heard from some of the developers is that it’s a very fair and straightforward and clean tariff.

So I’m very happy with it. I think our team did a great job and really appreciate both sides as we balance it through with the large customers and our internal team. So I’m really optimistic with it.

Jeremy Tonet

Got it. Great. Thank you for that.

Scott Lauber

Thank you.

operator

The next question comes from Anthony Crowdell with Mizuho. Your line is open.

Anthony Crowdell

Hey, good afternoon team.

Scott Lauber

Good afternoon.

Anthony Crowdell

Hey, just two quick questions. One is a really strong residential electric load growth there. I think five and a half percent. Just wondering if you go through some of the drivers or was that mainly driven by weather?

Scott Lauber

Yeah, and Shaw has looked at these numbers. But remember last year was such a warm first quarter. So the growth I think is just getting back to normal weather. I’m happy to see normal. And I think when you look at the normalization for the quarter, that is also anomaly of how that weather affected last year’s normalization because it was so extreme as the warmest we had in like 134 years. So we’re seeing good customer growth, good customer connections. So I’m, I’m not, you know, I don’t think there’s anything to read one way or the other other than some pretty extreme weather between last year and this year.

Shaw, anything to add?

Liu Xia

No, it’s all mostly weather driven. Great.

Anthony Crowdell

And then if I could just follow up on Cloverleaf, just you gave some acreage and maybe projected about a 1 gigawatt of demand. Just curious, would that mostly be met with, you know, gas or a combination of gas and renewables or any type of clarity you could provide on the generation needs there?

Scott Lauber

Sure. So a couple things is one, yeah, it’s about 1700 acres of developing. They talked initially about one gigawatt of load we expect. They also say the site can hold up to probably about three and a half gigawatts of load. So flow relief is in the process of marketing the land and the location. We expect in the next couple months to see who potentially is a longer term purchaser of that spot or a purchaser of that location. And then we’ll work on the details of the generation mix of that. That will hopefully factor in. Then to our fall update in the third quarter, call the capital plan.

So things are Moving along very well there. I think it’ll be a combination, of course, of gas and renewables, just because you need that firm capacity ability. But I also think they’ll have some renewables in there too, just to help with the energy part of the bill too. So I think it’ll be a combination, but more to come as we continue to work with that and whoever purchased.

Anthony Crowdell

That location and the timing of when maybe that load would come online, that was something we get more on the third quarter call.

Scott Lauber

Correct, correct. And they’re trying to move very fast to get that purchaser in the next couple months and then we’ll have more clarity as we work with them to develop their plans. But we’ve been working with the potential purchasers of the sites. I can’t mention any names, of course, but all high quality companies and you know, they’re just reviewing the plans that we would have to serve those sites.

Anthony Crowdell

Great. Thanks for taking my questions.

Scott Lauber

Absolutely. Thank you.

operator

The next question comes from Michael Sullivan with Wolf Research. Your line is open.

Michael Sullivan

Hey, good afternoon.

Scott Lauber

Good afternoon, Michael. How are you?

Michael Sullivan

Hey, Scott. Doing well. Thanks. Wanted to start with maybe just a little more color on where you’re seeing the tariff impacts in your capital plan. And if it’s primarily around the renewables, just remind us kind of what the process is for updating costs on that front as you seek to recover.

Scott Lauber

Sure, sure. And as you think about it, as we look at our capital plan, a lot of the electric and gas distribution is mainly domestically sourced. When you start thinking about some of the remaining part of our plan, largely in the generation, you know, a lot of it’s labor, probably 50 to 60% is labor, but then the remaining are the materials. And you know, as you know, of course we have to see final clarity on the tariffs, the solar for the near term projects, if you’re very comfortable, those are in flight. We got processes and manufacturing and panels lined up, the farther ones out.

Of course we have been working with other developers and suppliers to really onshore a lot of the, a lot of the production of these panels. The challenge of course is, you know, where do you get the polysilicon and the wafers, except the cells, et cetera. So we’ve been working with everyone to get that. If there would be a cost increase, we would of course notify our regulators, the commission as soon as possible of that, of that cost increase and then go through a prudency review process which we’ve done at other projects for force majeure situation.

So at this time we don’t have anything that, you know, notable that to talk about on the other aspect, probably the last item are the batteries. Remember we have the smallest part of our generation plan is probably the batteries. A little about little under a billion dollars. In fact we have our first battery installation going in the end of this month, about 100 megawatts of that. Those batteries are a little more tricky across the industry and we’ll just manage the batteries as we get some more clarity on the tariffs. And of course we’re working with vendors on those batteries and of course working with some of the very large customers.

Also we could see them looking at renewables and batteries too as they look at PCAs and long term generation needs. So, so we’re kind of looking at all the above. But probably the biggest potential charges coming from the tariffs could be related to batteries or the solar projects.

Michael Sullivan

Appreciate the caller there, very helpful and then wanted to ask also on the reconciliation bill, potential impacts of a lower corporate tax rate. Can you give us any sense there if that were to happen?

Scott Lauber

Sure. And shock and walk you through the details. It’s basically the same that we kind of went through several years ago at the lower tax rate. Right. So in general, you know, you’re going to get a lot of the benefits will go back to our customers but that lower tax rate through the regulatory model and in general then there will be a little less of a tax shield at the parent company for some of the deductions up there and the interest expense. That’s kind of the high level story, I don’t think.

Remember last time it was a little bigger change in taxes. So I don’t think it’s going to be that big of effect. But Shaw, any additional color?

Liu Xia

Yeah, I think Michael and Steve published a report which really correctly stated the potential impact like Scott mentioned long term benefit for customers because customers would pay less under that situation. It would have some earnings impact particularly for the tax shield earnings benefit from the non customer deductions at the holding company that would decrease over the longer term, but the earnings would increase at the utility because your rate base would be higher over the longer term. So in terms of the cash flows, obviously the lower the corporate tax rate, you would collect less from the customer.

So everything else being equal, there will be slightly less cash flow for the company, for the, for the company overall. So I think, you know, we’re watching that very closely and you know, in case that we went that way, we would be ready to handle and deal with it.

Michael Sullivan

Okay, great. Appreciate the shout out.

Scott Lauber

Take care.

operator

Thanks Meg, the next question comes from Carly Davenport with Goldman Sachs. Your line is open.

Carly Davenport

Hey, good afternoon. Thanks for taking the questions. Maybe just, you know, the commentary on the data center front in terms of your conversations with customers was super clear. Could you talk a little bit about conversations with other large load customers outside of the data center center industry? Anything changing there in terms of their plans to progress on new projects, either from a timing or a magnitude of their power needs perspective and then any sort of dispersion across the diverse set of industries that you serve would be helpful.

Scott Lauber

Sure. And you know, thanks for the question, Carly. As we look at it, and as you know, we are attracting customers in about 16, 17 sectors and we have a relationship that we talk to our large customers. I’d say right now most of the customers are cautious on what’s going on with the tariffs and what kind of clarity. So I think people are cautious before they overreact one way or the other. You saw unemployment in Wisconsin that 3.2%, way below the national average. And the large significant projects outside of the data centers are still progressing and people are, you know, the Eli Lilly, etc.

There’s still a lot of expansion and housing development southeastern Wisconsin. So as you drive around, it still looks very positive and constructive. I think the question is going to be as people see more clarity on what’s going on with tariffs, et cetera, that’ll be, you know, a question on people’s mind, but cautiously optimistic, I would say. And I think Shah has analyzed the first quarter on where we’re seeing. So I’ll let Shah walk you through what we’re seeing on the large group in the first quarter.

Liu Xia

Yeah, Carly, we are all over that. So as you know, we follow about 16 different sectors in the state it covers from food, paper printing all the way to health services and education. So out of the 16, 10, 10 of those had a quarter over quarter positive growth, some with double digit growth. There are two or three sectors that experienced some negative growth. I think they’re not driven by macro environment, mostly driven by the individual decisions made by those customers. So overall we thank you. We remain very optimistic about the long term growth in our region.

Carly Davenport

Great, thanks so much for the comprehensive answer there. And then just a quick follow up on the conversation earlier on Illinois, just on the future of gas. Anything that you’d flag from the most recent series of workshops there that you think could impact the final outcome early next year?

Scott Lauber

I would say right now I haven’t seen anything that that has gone one way or the other. I mean, the workshops, as you know, it got postponed now, not the workshops, but the final decision to next year. I think everyone’s looking at the economic development and what’s needed for gas. They’ve approved our pipe replacement program for these very large pipe. I think that’s, that’s positive. So I don’t, I’m not expecting anything that I’ve seen recently to change that momentum.

Carly Davenport

Great. Thank you so much for the time.

Scott Lauber

Absolutely. Thank you.

operator

Your final question comes from Durgesh Chopra with Evercore isi. Your line is open.

Durgesh Chopra

Hey, good afternoon, team. Thanks for taking my questions. Just Scott, a lot of eyes on the, the tariff filing in Wisconsin, the ELT filing. Maybe just a little bit color on the higher ROE. How do you come up with 70 basis points higher than, you know, the current authorized and the customer feedback on that higher roe? Just any color or thoughts there would be really appreciated.

Scott Lauber

Sure, sure. And remember, so we worked with the customers at coming up with this agreement on the ROEs and the equity layers. And when you think about it, you know, it’s a long term. So we’re talking 20 years to, you know, to the depreciable life, which should be, you know, up to 30 years or more on some of these projects. So they’re looking for certainty and we don’t know what the future would bring. But you know, we think the roes, when you look at interest rates over a long period of time are, you know, near one of the lower spots now at that 9.8.

So having something locked in for a longer period of time, we came up with that 10.48 and thought it was reasonable for both of us to lock into that, to that number. But remember, this is, you know, for 20 to 30 years. So it’s a long, it’s a long investment. But it also gives them certainty on what they’re putting into their models.

Durgesh Chopra

Thank you. That’s helpful. Yep, it does. Thank you. And then maybe just quickly in Illinois, can you just remind us the higher 500 million per year rate that you get to in 27, 28? That is not, that is not going to be recovered by a tracker. Correct. That’s part one. And if not, what’s the, what’s the rate case strategy on undercovering that higher level of spending? Because it is indeed wrapping up quite a bit.

Scott Lauber

Correct, correct. So you are correct. It’s not covered under a tracker in Illinois. We’ll have to file forward looking test years on the rate case we’re evaluating right now when our next test year filing will be. But you’ll of course, we’ll have to forecast that into the test year. That’ll, you know, it’s forward looking test year. But it also gives us a chance that the commission and the ICC will be able to review what our plans are again, along with having that safety monitor on site to actually review our projects too as they go in.

So I think it adds a lot of color and a lot of opportunities to prove the prudency on a front end basis also as we go through these capital projects. So it’ll be more of an ongoing annual rate case in the future.

Durgesh Chopra

Thank you for taking my questions, Scott.

Scott Lauber

Thank you. All right, everybody, that concludes our conference call for today. Thank you for participating. If you have any more questions, please feel free to reach out to Beth Stracha at 414-221-4639.

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