WEC Energy Group (NYSE:WEC) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
WEC Energy Group reported third quarter 2026 earnings of $1.18 per share, a significant increase from $0.83 per share in the third quarter of 2025, attributed to warmer-than-normal weather and operational efficiency.
The company raised its 2026 earnings guidance to a range of $5.60 to $5.64 per share, reflecting a 7.7% growth in EPS from the 2025 adjusted guidance midpoint.
WEC Energy Group announced a new five-year capital plan of $47.5 billion, a $10 billion increase from the previous plan, driven by large customer demand, particularly from Microsoft and Oracle.
Projected electric demand growth is 4.9 gigawatts from 2026 to 2031, with significant investments in regulated electric generation and transmission.
The company plans to grow its EPS at a compound annual growth rate of 7% to 9% through 2031 and maintain a dividend growth rate of 6.5% to 7%.
WEC Energy Group expects to generate $26 to $27 billion in cash from operations over the next five years, funding more than half of its cash needs.
The company plans to invest in modern natural gas generation, battery storage, and renewables to support economic growth and reliability.
Management expressed confidence in the company’s future growth, emphasizing strong financial security measures for very large customer tariffs.
Full Transcript
Scott Lauber (President and Chief Executive Officer)
Good afternoon, everyone, and thank you for joining us today as we review our results for the third quarter of 2026. Here with me are Xia Liu, our Chief Financial Officer, and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations. As you saw in our news release this morning, we reported third quarter 2026 earnings of $1.18 per share compared to $0.83 per share in the third quarter last year. These results were driven by warmer-than-normal weather, execution of our capital plan, and operating efficiency.
With another solid quarter, we remain on track to deliver strong results for 2026. Our continued focus on the fundamentals of our business is creating value for our customers and stockholders. Today we’re raising and narrowing our earnings guidance for 2026 to a range of $5.60 to $5.64 per share, assuming normal weather for the remainder of the year. This reflects 7.7% growth in earnings per share from our 2025 adjusted guidance midpoint. As a reminder, our previous guidance was in the range of $5.51 to $5.61 per share. I’m also pleased to share our new five-year capital plan.
Let’s start by talking about the economic growth that’s driving it. Overall, we expect our electric demand to grow 4.9 gigawatts between 2026 and 2031, an increase of 1 gigawatt compared to the prior plan. Microsoft continues to make good progress on its large data center complex in Mount Pleasant, Wisconsin, with the first facility operating. Construction is underway on additional facilities as Microsoft expands at the site. As a reminder, Microsoft has purchased more than 2,200 acres to date in the I-94 corridor south of Milwaukee.
Just last week, Microsoft announced its purchase of an additional 70 acres next to the site. We are preparing to serve forecasted demand of 3.2 gigawatts in the I-94 region through 2031, with opportunity for further expansion. That’s up 600 megawatts from the previous plan. You’ll notice an additional 400 megawatts in the new capital plan. We’re making good progress with another customer and you can expect more details in the future. Stay tuned. To the north of Milwaukee, you’ll recall that Vantage Data Centers is developing facilities for Oracle on approximately 1,900 acres. Construction continues on the initial phase of the data center project, which is being built on 670 acres. Vantage has stated that it expects to invest $15 billion to complete this phase. We currently have 1.3 gigawatts of demand for this Vantage site in our forecast through 2031. Looking to the future, it has the potential to reach 3.5 gigawatts of demand over time.
The project is well on its way, and Oracle has met its financial security obligations, which are consistent with the Wisconsin Commission’s very large customer tariff requirements. To serve this project, ATC has refiled a proposal with the Public Service Commission of Wisconsin. In addition to the transmission line, this filing includes proposed investment in a STATCOM system to maintain grid reliability. ATC is working through the process now with the Commission.
As a reminder, both Microsoft and Oracle have committed to paying their full share for energy costs. We solidified this through our very large customer tariff, which protects other customers. Microsoft, Vantage, and Oracle have made significant investments to support our communities. Just recently, we worked with Oracle to save our customers an estimated $300 million in fuel costs. Oracle agreed to subscribe to a portion of the energy we purchase from Point Beach Nuclear Power Plant. We expect the full details to be submitted to the Wisconsin Commission in the coming months. As we work with these hyperscalers, we are confident our very large customer tariff provides a strong framework for growth while maintaining affordable energy service for all our customers.
We continue to see local growth in small commercial and large businesses as well. For example, both Generac and Modine are expanding and adding jobs. We have designed our new capital plan to reliably serve our customers while supporting the significant growth we continue to see across our service areas. As you may have seen from our announcement this morning, we expect to invest $47.5 billion in capital projects between 2027 and 2031. This is an increase of $10 billion, more than 26% above our previous five-year plan. The majority of this increase is being driven, and therefore paid for, by our very large customers. The updated plan is expected to support asset-based growth at a 13.4% compound annual growth rate. This should drive compound annual earnings per share growth of 7 to 9-plus percent from 2027 through 2031.
This is based off the midpoint of our original 2026 guidance. The increase in our plan is mostly driven by investments in regulated electric generation and transmission, largely due to very large customer demand. Let me give you a few more details. Over the next five years, we’ll continue to take an all-of-the-above approach for generation and to support economic growth and reliability by investing in new natural gas, batteries, and renewables. Dispatchable generation is a key component of our reliability strategy. Between 2027 and 2031, we expect to invest an incremental $6.8 billion in modern, efficient natural gas generation versus the prior plan. This includes a combined cycle turbine project that we expect to come online by the end of the five-year forecast period, as well as combustion turbines and upgrades to our existing facilities.
We are increasing planned investment in renewable generation and battery storage by $1.1 billion, with the total planned battery storage increased by $3 billion while planned solar and wind investment decreased by $1.9 billion. Some of this decrease relates to the work already completed in 2026. Continuing our all-of-the-above approach, we also reached an agreement with NextEra that, pending regulatory approval, will support long-term electric reliability and customer savings. We plan to extend our purchase power agreement for approximately 1,000 megawatts of carbon-free baseload capacity from the Point Beach nuclear plant. The new PPA would extend the existing agreement by 20 years.
Outside of generation, American Transmission Company plans to continue investing in transmission capabilities to serve our region’s economic growth, connecting new facilities and strengthening the system. Our plan calls for us to invest approximately $5.3 billion in ATC projects between 2027 and 2031. This represents a $1.2 billion increase from the previous plan. Adding to strengthen reliability and support economic growth, we continue to invest in our electric and natural gas distribution networks.
Our plan includes an additional $1 billion to improve distribution infrastructure. This supports the continued investment in our pipe retirement program in Chicago. Recall the Illinois Commerce Commission directed us to focus on retiring more than 1,000 miles of older pipe by January 1, 2035. Now turning to the regulatory front, I have a couple of updates. Across our service area in Wisconsin, progress continues on the rate request we filed in April for forward-looking test years 2027 and 2028. The procedural calendar has now been completed. We expect final orders from the Commission by the end of the year, with new rates effective in January 2027 and 2028. We also have rate filings under review in Illinois for test year 2027 at Peoples Gas and North Shore Gas.
Recently, the Administrative Law Judge issued a proposed order that is largely consistent with the staff’s recommendation. The order recommends a 9.48% ROE and a 50% equity ratio at both utilities. We expect a final decision in December. Of course, we’ll keep you updated on future developments. In summary, we’re excited about the strong economic development in our region, and we believe our capital plan, along with our very large customer tariff, positions us well to support that growth. Now I’ll turn it over to Shah for more details.
Shah (Chief Financial Officer)
Thank you, Scott. Our third quarter 2026 earnings of $1.18 per share reflects a $0.35 increase compared to the third quarter of 2025. Our earnings package includes a comparison of third quarter results. On page 15, I’ll walk through the significant drivers, starting with our utility operations. Earnings were $0.28 higher versus the third quarter of 2025. Let me highlight a couple of factors. Weather favorably impacted quarter-over-quarter earnings by approximately $0.05 compared to normal conditions.
We estimate that weather had an $0.08 positive impact in 3Q26 compared to a $0.03 positive impact in the third quarter of 2025. Rate base growth contributed $0.19 to earnings. This includes $0.15 of growth from incremental AFUDC equity and cash returns associated with projects under construction. I’ll note that $0.12, or 80%, of these incremental returns are from projects for and supported by the VLCs. In addition, VLCs added $0.02 of margin quarter over quarter and favorable day-to-day O&M drove an $0.08 variance.
This was primarily driven by our stock-based plan, which could be timing. These positive drivers were partially offset by higher depreciation and amortization expense, higher interest expense, and tax and other items. Next, let me provide some additional color on our weather-normal retail electric deliveries compared to Q3 last year. Total weather-normal retail electric sales grew 4.1% driven by growth from the VLCs. Excluding the iron ore mine and VLC customers, we saw sales growth of 0.4% during the quarter. For the year, we continue to expect weather-normalized electric sales to be relatively flat with 2025.
At American Transmission Company, capital investment growth contributed an incremental $0.03 to Q3 earnings compared to 2025. And at our Energy Infrastructure segment, earnings were $0.02 higher in the third quarter compared to the same period in 2025. This was driven by additional capital investment at We Power and better operating income at WEC Energy Group. Lastly, you’ll see that earnings from the Corporate and Other segment increased $0.04, driven primarily by tax timing.
In terms of common equity, we locked in about $1.16 billion during the first nine months of the year. This includes $50 million issued under our dividend reinvestment and employee benefit plan. The remaining $1.1 billion is under the ATM program, which includes approximately $350 million from forward contracts that have been settled and $765 million still under forward contracts that will be settled in the future. As Scott noted, we are raising and narrowing our 2026 earnings guidance range to $5.60 to $5.64 per share, assuming normal weather for the rest of the year. Going forward, with the updated capital plan that Scott discussed earlier, we expect our long-term EPS growth to increase. Again, based off the midpoint of the original 2026 guidance range, $5.56 per share, our long-term EPS CAGR is expected to be 7% to 9% plus through 2031.
Now let me comment on the financing plan that supports this growth and the new capital plan. Slide 22 of the earnings package outlines the funding sources. Over the next five years, we expect to generate $26 to $27 billion in cash from operations, funding more than half of our cash needs. We expect $19 billion to come from incremental debt, including hybrid instruments, and we plan to fund the remaining cash needs with $5 to $5.5 billion of common equity.
Although our current capital plan increased $10 billion, we expect common equity needs to remain relatively flat with the prior plan. This is largely due to incremental cash from operations in the new plan. As projects are completed and placed in service in the planning horizon, they begin generating cash revenues, many of which are supported by the VLCs. That comes with a 10.48% to 10.98% ROE. The new plan also includes more projects for which the VLCs are expected to provide cash returns during construction rather than AFUDC.
The additional cash from operations helps us keep common equity needs at a modest 10% of total cash sources and relatively flat compared with the prior plan. In closing, as Scott discussed previously, strong economic development and load growth in Wisconsin are the foundation of our new capital plan. As illustrated on page 21 of the earnings package, over the next five years, we expect to transform our business while staying true to our fundamentals. Our asset base is expected to more than double over the next five years, with the electric business representing 80% of the asset base by 2031. Furthermore, with almost half of the capital plan, or more than $20 billion, allocated to the VLCs, the asset base dedicated to these customers is projected to represent almost 30% of our total assets by 2031.
As you know, these assets are supported by the VLC tariff, which is designed to ensure that these large customers pay their full share of the costs and are not subsidized by other customers. In addition, the tariff provides very strong financial security and credit support requirements. We are excited about our company’s future and the investment opportunities ahead. With that, I’ll turn it back to Scott.
Scott Lauber (President and Chief Executive Officer)
Thank you, Shah. Finally, a quick reminder about the dividend. As usual, I expect we’ll provide our 2027 dividend plan and earnings guidance in December. We expect to grow the dividend at a rate of 6.5% to 7%, consistent with our past practice. This results in a projected payout ratio of 60% to 70% due to the forecasted earnings per share growing at a faster pace. Before I open it up for Q&A, I want to summarize some of the key highlights of the call.
Economic growth is driving another gigawatt of forecasted demand for a total 4.9 gigawatts of growth in our plan. This growth is adding $10 billion to our five-year capital plan, which is now at $47.5 billion. These developments give us confidence in our EPS compound annual growth rate of 7 to 9 plus percent. We remain committed to 6.5% to 7% dividend growth. We expect the total equity funding to be flat in our five-year plan versus the prior plan at approximately $5.5 billion. Maintaining a strong balance sheet, overall, we’re optimistic about our five-year plan and the longer-term outlook. We look forward to discussing our plan at the EEI conference.
Operator, we’re now ready for the question and answer portion of the call.
OPERATOR
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, please press star and then 1 on your telephone keypad to ask a question. The first question is from the line of Shah Pereza with Wells Fargo.
Your line is now open. Please go ahead.
Shah Pereza (Analyst at Wells Fargo)
Hey, guys. Hey, Scott.
Scott Lauber (President and Chief Executive Officer)
Hey, Shaw.
Shah Pereza (Analyst at Wells Fargo)
Hey. Just on the… I’m doing all right. Big congrats. I know this print was pretty amazing and you made Beth’s job a lot easier. Just on the updated guidance, you know, obviously you now see 7% to 9% plus. Just help us frame, you know, what is assumed in the plus. That’s always the question mark you get when you come out with a plus. The $10 billion is included in the range, but just help us frame the plus. And honestly, why even keep the 7 to 8 at this point?
Scott Lauber (President and Chief Executive Officer)
Sure, sure, it’s a great question. And as we look at it and we look at the capital projects we have and you saw our growth of another gigawatt, you know, we felt really confident with that 7 to 9 range and feel confident not only in this five-year plan, that we think it’ll continue. The second part is when you think about the plus, you really gotta look at the pattern of our growth of our capital plan that’s illustrated in our handout. You know, there’s a lot of projects that need regulatory approval, but if there’s an opportunity that we can get the approvals and move faster than we anticipate, there’s an opportunity that the growth may be a little faster, you know, in a couple years, maybe like in ’28 or ’29. So really depends on a lot of stuff. But I think there’s an opportunity, as we continue to execute on plan, for potential upside in some of those years.
Shah Pereza (Analyst at Wells Fargo)
Got it. No, that’s perfect. That’s what I was trying to get into. That’s perfect. And then, Scott, switching to Oracle. The ATC line project to serve the Vantage site is in its second application filing. It appears the filing is still under review with the commission. So I guess what’s the timeline there, and do you see a potential delay to the start of the project, or can the site start taking the megawatts before the line is completed? Thanks.
Scott Lauber (President and Chief Executive Officer)
So, great question. And, you know, they’re still working feverishly on the construction. So, listening to the Oracle conference call the last quarter, I don’t think it’s going to delay any of their projects in the timeline. We expect we’ll get a complete this year and it’ll get, you know, get approval and we’ll be right back on schedule. Just to put it in perspective, I mean, remember, this filing is a big filing. In addition, we just added the STATCOM to the filing to make sure we have true transparency.
And you think about it, there’s over 20,000 pages in the filing, so the commission having 35 questions, I think that’s pretty reasonable. So it’s really a complete filing. And understand, you know, we want to ask those questions up front and work it through so we can get a quick result here. So everything’s on schedule here. Although we had a little pause with that refiling, I feel good where we’re at.
Shah Pereza (Analyst at Wells Fargo)
Perfect. Appreciate it, guys. Yeah, really big congrats and it’s quite a report. So see you in a couple weeks.
Scott Lauber (President and Chief Executive Officer)
Sounds good. Thank you.
OPERATOR
Your next question is from the line of Nicholas Campanella with Barclays. Your line is now open. Please go ahead.
Nicholas Campanella (Analyst at Barclays)
Hey, good afternoon. Thanks for the updates. I just wanted to ask, you know, you’re raising the capital plan pretty significantly, and this is for about, you know, 1 gigawatt of incremental load in the forecast period. You also talked about progress with another customer. You also talked about the fact that Microsoft and Oracle could be expanding. Just does this capital plan build into that load, or would those expansions result in incremental capital?
Scott Lauber (President and Chief Executive Officer)
Sure, sure. And when you look at it, you know, if there’d be potential expansions, we factored in the 400 megawatts on this to-be-announced, and we’re making progress on that customer there. But we do have some long lead-time equipment in here anticipating we’ll have some spending done. But those megawatts probably won’t come in until, like, that 2032, 2033. But true transparency, we think this growth will extend beyond 2031 and opportunities in 2032 and 2033.
So we have a little bit of long lead-time equipment, as you can see in some of the public filings of plants being filed. So more to come on that. So I think as we grow, there’ll continue to be upside if there’s additional data center growth beyond 2031.
Nicholas Campanella (Analyst at Barclays)
Okay, thank you. And then just with the plan being out to 2031 now, you talked about the long lead-time equipment, and you still have some chunky generation you’re probably going to be building in 2032. You also have some load ramping by then. How do equity needs look like kind of beyond this plan? Is there something idiosyncratic that’s causing you to, you know, basically have flat to declining needs on the capex raise, or is this type of, you know, capex increase to equity needs sustainable on a roll-forward, if you understand my point?
Scott Lauber (President and Chief Executive Officer)
Yeah, that’s a great question. And I’ll start and then Shah will bat cleanup. As we’re in the Brewer Fever year, when you think about it, we really worked hard getting more cash up front and getting some cash returns with some of our very large customers. And as we always said, having plants go into service was also going to help with our cash. So this was kind of a step change to get into that, you know, realign our cash needs and working with our very large customers who have been great partners here.
As we go forward though, Shah has looked at what additional capital would mean and potential there.
Shah (Chief Financial Officer)
Yeah. So just to build on that, we think that we traditionally guided you that every $1 million of incremental capital would require 50, 50 cents with equity content. With the factors that Scott just outlined, we expect that number to come down over time. So I would be comfortable to say it could be around 40%. So every incremental dollar would come with 40% of equity content comfortably. So that would be the going-forward guidance for you.
Vic
Nick, if I could just squeeze one more in. Just in response to kind of Char’s question before on the plus, just is it really, with the capital plan essentially peaking here in ’28, is it ’29 and beyond that you’d really be in that plus range if things go correctly? We’re just trying to make sure we heard that right. I’m sorry.
Scott Lauber (President and Chief Executive Officer)
Sure, sure. You know, I think it all depends upon, you know, when we can get some regulatory approvals. Potentially ’28, more likely ’29. And as we continue, you can see our capital plan actually falls down a little bit in 2030 and ’31. I wouldn’t read too much into that because as we look at 2032, et cetera, there’ll be more opportunities there. So, you know, I feel the most confident in that ’28, ’29 time frame. But, you know, ’30 and ’31 aren’t that far off.
So we have some time here to look at those also.
Vic
Thank you very much.
Scott Lauber (President and Chief Executive Officer)
Thanks, Vic.
OPERATOR
Your next question is from the line of Steve Danbrosi with RBC Capital Markets. Your line is now open. Please go ahead.
Steve Danbrosi (Analyst at RBC Capital Markets)
Hey, Scott and Shah, thanks very much for taking my question. Good afternoon.
Scott Lauber (President and Chief Executive Officer)
Good afternoon.
Steve Danbrosi (Analyst at RBC Capital Markets)
Just had a quick one, a couple quick ones. Just in terms of Microsoft and the 600 megawatt expansion of the 3.2-ish of gigawatts of load. Can you just talk maybe at a high level about, you know, how much of the acreage that relates to or, you know, they keep adding acreage, but it also seems like power density per acre, you know, is moving up with newer generations of racks. So just how we can think about, you know, you’ve given a good estimate of what Vantage could potentially size to.
But just interested about Microsoft on the other side.
Scott Lauber (President and Chief Executive Officer)
Sure, sure. And Microsoft hasn’t, you know, disclosed anything in particular. This is more us just looking at other comparable sites. You know, I think those sites—and they’ve talked about, you know, that you just saw them buy another 70 acres right next door—I think the opportunity for these sites to, you know, have another, not another, but in total 4.5 to 5 gigawatts. So right now southeastern Wisconsin is about 3.2. Potentially that could get up to 4.5 to 5.
As you see, they just bought some more land. So I agree with you. I think the technology continues to get more capacity on the same location. So more to come on that. But those are just our kind of rough estimates. But right now we’re very comfortable with the 3.2 that’s in the plan for southeastern Wisconsin.
Steve Danbrosi (Analyst at RBC Capital Markets)
And then just obviously more to come, I guess, on the 400 megawatts. But can you talk about whether it’s within WEPCO or WPS’s service territory or any color on just what that could look like? Understand that we’ll get more details soon.
Scott Lauber (President and Chief Executive Officer)
Yeah, we’ll get more details, too. I know, you know, people are looking at locations in both territories. So once again, you got to make sure you have a community that’s excited about it and interested in it. You got to make sure the transmission lines are available in the capacity. So there’s a lot of factors going in. So I don’t want to really get much more there. More to come on this, though.
Steve Danbrosi (Analyst at RBC Capital Markets)
Totally appreciate it. Thanks very much, Scott.
Scott Lauber (President and Chief Executive Officer)
Thank you.
OPERATOR
Your next question is from the line of Michael Sullivan with Wolfe Research. Your line is now open. Please go ahead.
Michael Sullivan (Analyst at Wolfe Research)
Hey, good afternoon. Sorry, I got to try one more. Hey, Scott, I got to try one more on the growth rate. So is the takeaway here, the plus as it stands now is for one, maybe two years, and then you’re back within more of the seven to nine in all the other years?
Scott Lauber (President and Chief Executive Officer)
So I feel, you know, I feel good that we’re going to get a couple years out of here, but once again, you know, we’ll have another update in a year here on our capital plan or maybe interim as we get more, more customers here. So a little too early to tell, but feel really good that it’ll be into that nine plus, probably the upper end or a plus sign based on where we’re currently at.
Michael Sullivan (Analyst at Wolfe Research)
Okay. And on the equity piece, can you just maybe unpack a little more about what changed here for the nearer term that you were able to—I mean, because you really have two large customers. And so I guess there was a negotiation with one or both that brought the needs down and then like, why that wouldn’t sustain if you expand with those same customers out in future years.
Shah (Chief Financial Officer)
Yeah, Michael, I’ll take that one. So remember, the tariff allows us to recognize AFUDC or current returns. So we have the options there. We’ve been assuming conservatively before that most of the projects would come with AFUDC. And in this plan, to your point, we’ve been working with our VLC customers to try to charge more cash returns. So as a result, you’re basically reducing the AFUDC originally assumed in the prior plan and increasing cash returns in this plan.
So it’s kind of like a—like Scott mentioned, it’s a step change. So that’s why it’s a relative equity. Even though we have added $10 billion going forward, you wouldn’t be doing this unwinding AFUDC and adding cash return thing, but we will continue to encourage the customers to pay cash returns. So incrementally, you would need a little more equity as a result. I don’t know if that makes sense.
Michael Sullivan (Analyst at Wolfe Research)
Thank you. And the last thing just for me, the 400 megawatts, is that all with one customer? And then just any detail on the gating items there?
Scott Lauber (President and Chief Executive Officer)
Sure. And right now, it’s anticipated to be all with one customer. You know, more to come on this. They’re still working with the different communities on this. So it’s anticipated to be with one customer, but more to come.
Michael Sullivan (Analyst at Wolfe Research)
Okay, thank you.
Scott Lauber (President and Chief Executive Officer)
Thank you.
OPERATOR
Your next question is from the line of Andrew Weisel with Scotiabank. Your line is now open. Please go ahead.
Andrew Weisel (Analyst at Scotiabank)
Hey, good afternoon, everyone. Congrats to the Brewers. Not a lot of love there, but quite a World Series. Congrats to the Brewers and congrats to you guys. They’re not the only ones winning in Milwaukee. Great updates.
Scott Lauber (President and Chief Executive Officer)
Thank you. Thank you. The Brewers have been exciting and fun to watch, and glad to bring a World Series home. That’s great.
Andrew Weisel (Analyst at Scotiabank)
So my first question is on the sales growth. You added a gigawatt to the outlook there, and yet the forecast still shows 6% to 8%. Why wouldn’t that be increasing the 6% to 8%? I understand there’s a roll forward, but why didn’t that number come up? And can you talk a little bit about why the pace of gas growth came down a little bit from the prior forecast? This is all in Wisconsin, I believe, not Illinois. So could you please talk to those two numbers?
Shah (Chief Financial Officer)
Happy to. So on the first one, remember, we continue to add sales along the way between now and 2029. So when you look at ’29 to ’31, the base is very high. So when you grow from a very high base, you continue to have a 6% to 8%. So it’s really just a timing of the growth rate on the gas sales side. Nothing to read too much into it. We forecasted pretty flat gas sales this year, and through the three quarters—remember, we had a mild quarter in the first quarter, and the next two quarters were really not gas-focused.
Our normalization process is never perfect. So there was a little bit of that in there. But we don’t see any trend in the gas sales side to make us question the growth rate. So just don’t read too much into it. And remember, on the electric side, the very large customers are really—remember the way our tariff is set up, the very large customers, you got to really look at the returns on the assets versus the volume metric. The volumetric does make a difference, but a lot of that volumetric is completely passed through as it relates to energy prices, etc. It’s really the return on those assets is where the earnings come from.
Andrew Weisel (Analyst at Scotiabank)
Great, that makes a lot of sense on the electric side. Sorry, Shah, for gas, I was talking about the ’29 to ’31 outlook. You’re now saying 0.5% to 0.8%. You previously said 0.1% to 0.7%. Is it the same story about the ’28?
Shah (Chief Financial Officer)
Yeah, yeah, it’s still in that neighborhood. As I said, from last year to this year, we’re expecting that to be even, so growing from that, we feel good about the 0.5% to 0.8%. It could be better than that.
Scott Lauber (President and Chief Executive Officer)
Yeah, I think we’re just making sure we factor in conservation, where the price of gas may go, you know, factoring in what could happen. Usually use per customer continues to go down a little bit. This is largely driven by customer growth, so I’m not too concerned about it. And remember, on those gas sales, we’ll factor all that into future rate cases as we look at it.
Andrew Weisel (Analyst at Scotiabank)
Right, good point. That’s a full rate case cycle away. Okay then, one more on equity, if I may. How should we think about the timing of this? Your commentary on the magnitude and the customers was pretty clear. But given all that, how should we think about the timing of when the equity would be drawn down and common equity versus GIS end within this cycle? Should it be ratable or would it be more back-end loaded within the five-year plan?
Shah (Chief Financial Officer)
We always say that equity goes with capital, so it could be a little bit front-end loaded because we are still in the construction phase in the front end of the planning horizon. So again, as we continue to place the projects in service, you have more cash coming in in the latter part of the plan. So overall it’s a little bit front-end loaded on equity.
Andrew Weisel (Analyst at Scotiabank)
Okay, thank you very much. That’s helpful. Thank you.
OPERATOR
Your next question is from the line of Anthony Crowdell with Mizuho. Your line is now open. Please go ahead.
Anthony Crowdell (Analyst at Mizuho)
Hey, good afternoon. I reiterate Andrew’s comments. Congrats on the World Series. Must be nice. I think I wanted to follow up one of Stevie D’s questions earlier on Microsoft and Oracle. I think Steve was kind of talking on the Microsoft angle. I guess my question is between Microsoft and Oracle or Vantage, which customer has the greatest potential to exceed the load currently in your plan right now and what would trigger that?
Scott Lauber (President and Chief Executive Officer)
And you know, that’s hard. I mean, they’re both building extremely fast. They both have their construction sites under construction extremely fast here. So I think when you look at it, probably Microsoft has a lot more individual construction sites going. Oracle’s really concentrated on that first 670 acres, really concentrated on that first 1.3 gigawatts. As you notice, we didn’t increase anything in the plan here. They want to get that up and running, get that transmission line.
So I would say right now, potential, Microsoft has a little more opportunity, especially as they continue to buy more land. If you think of our current five-year plan,
Anthony Crowdell (Analyst at Mizuho)
Great. And just one follow up, I guess it’s on—and I hope I have these numbers right—the customer concentration. I think by, like, 2031, you know, nearly like 30% of your assets could be supporting very large customers. I mean, is there a point maybe you become concerned with maybe customer concentration, whether it’s from a regulatory perspective or a credit perspective?
Scott Lauber (President and Chief Executive Officer)
That’s a great question. And we do get that question. But part of our comfort level going up to that 29, 30% is the very large customer tariff we have with the strong financial requirements and the credits needed in those financial requirements in addition to the length of how people have to sign up for the length of those assets. So we don’t have any stranded assets for our customers, our other customers, or our investors. So having renewables, wind and solar, sign up for 20 years and the natural gas and batteries, the depreciable life matched with that credit support, are very comfortable. Having a concentration of the very large customers and having two of them also helps. Having a little diversity with that group.
Thank you.
OPERATOR
Your next question is from Brian Russo with Jefferies. Your line is now open. Please go ahead.
Brian Russo (Analyst at Jefferies)
Good afternoon. Just to follow up. Hey Scott, just to follow up on the cadence of the EPS growth, is it kind of following the same pattern as the prior 7 to 8% and kind of follows the capital plan on slide 22, but as the VLC generation investments ramp up, that requires, in theory, less equity because you’re getting some upfront cash recovery from those customers. Is that how to think about it?
Scott Lauber (President and Chief Executive Officer)
Yeah, I would really go with the pattern of the capital plan, I think. And if we can do something and some more capital can come in a little earlier, I think there’s opportunities to be in that plus section. So I would look at the capital plan because that’s a return on those assets. And then the equity is, as we’ve talked about, it’s really a step change here to get more of that cash flow from our very large customers, to stick to that balanced approach here. And then I think as you go forward, as we get more in service, the equity needs will continue to go lower.
Brian Russo (Analyst at Jefferies)
Okay, understood. And then could you be more specific on the actual construction time needed for that ATC line? You know, I could see on the CapEx, it looks like majority might be in ’27 and ’28. You know, just with the incomplete CCN filing and refiling, just want to make sure that there’s adequate time, which is an already condensed timeline for construction.
Scott Lauber (President and Chief Executive Officer)
Yeah. And I don’t have the exact timeline in my mind here. I imagine it’s going to take 12 to 15 months. I have not flushed that out completely, but I know American Transmission Company is ready. They have people working on other projects. So we’re maintaining the workforce so that when this project does get approved, that we have the go ahead, we’re ready to go with it. We have the equipment ready to go with the construction. So as soon as we get approval, there will be no delay in starting.
We’ll be able to keep moving. So it’s probably about 12 to 15 months.
Brian Russo (Analyst at Jefferies)
Okay, great. And then lastly, any insights into this DNR environmental review following the Port Washington settlement? It seems like it’s not an obstacle for this new 400 megawatt customer. Just wondering what you’re hearing or seeing on the ground related to that.
Scott Lauber (President and Chief Executive Officer)
Yeah, so this environmental review, I don’t see it as an obstacle at all. And actually we kind of welcome having a reasonable environmental review to get the facts out. So having a study, getting all the clarity on the facts and the environmental impact, I think is positive. And hopefully there’s even clarity of what rules have to be filed for future environmental reviews so there’s less interpretation. So we see this as net positive. It shouldn’t affect any of the current sites.
I think everyone thinks it’s going to be very manageable. We expect the environmental review to be on a reasonable basis. It sounds like it should be done very quickly by, you know, beginning of ’28. So I think all of that and having the facts out there and having the true on an environmental review is all net positive.
Brian Russo (Analyst at Jefferies)
Got it. Thank you very much.
Scott Lauber (President and Chief Executive Officer)
Thank you.
OPERATOR
Your next question is from the line of Jeremy Turnet with J.P. Morgan. Your line is now open. Please go ahead.
Diana Niles (Analyst at J.P. Morgan)
Hi there. Good afternoon, this is Diana Niles on the call for Jeremy. Thank you for taking our questions today.
Scott Lauber (President and Chief Executive Officer)
Absolutely.
Diana Niles (Analyst at J.P. Morgan)
If you could elaborate more on the relatively unchanged equity in this plan and maybe more broadly on the financing plan puts and takes. When considering the allocation of debt and equity under a higher rate environment, would it be possible to speak to that and potentially speak to rate exposure?
Scott Lauber (President and Chief Executive Officer)
Sure, sure. And Shah will kind of look at how it’s all laid out and some concepts here, but in reality we kind of look at it every day. We’re going to do some financing. What’s the most efficient? So, Shah, why don’t you kind of lay out some of our base concepts?
Shah (Chief Financial Officer)
Oh, absolutely. On the debt front, we are keenly aware of the increase in the interest rate. And as a matter of fact, as we’ve been working with the PSCW, we filed the incremental information related to the increase in interest rates. So we’re hoping that the commission will take up that information and reflect the higher interest rate environment in the rate case outcome for tax year 27-28. Putting that aside, in the five-year plan we assumed some very conservative interest rates, in some cases in the upper 6% range, just to make sure we could capture the current interest rate environment. So we have taken into consideration all of that related to the cost of debt. On the equity front, I don’t know if you have a specific question you wanted me to address.
Diana Niles (Analyst at J.P. Morgan)
I think that generally covers it. It was more, I guess, the decision to increase the percentage of the debt in the financing plan while decreasing the percentage of equity. But understand there are puts and takes there.
Shah (Chief Financial Officer)
Yeah. It’s all driven by the cash flow forecast. So as we pick up more cash from operations, and that could be in the form of current returns as we talked about, or incremental revenue and cash, or selling the ITCs and PTCs, whatever we do in the plan that increases the cash flows, that gives us the capacity to increase a little bit of the debt and still maintain really strong financial metrics, credit metrics. So it’s really a function of the cash flows.
Diana Niles (Analyst at J.P. Morgan)
Okay, got it. Thank you. If I may ask one? Thanks. Thank you. Are there any particularities to consider when it comes to cash inflows from VLC customers, either in terms of upfront payments or cash recovery, when it comes to how the rating agencies look at your cash flow statements?
Shah (Chief Financial Officer)
In the plan, we’re not assuming any of the upfront payments from the VLCs. We are assuming that they would pay cash returns on CWIP. So it would be really just like earning a return on the rate base. But nothing like upfront payment from the VLC. But we think those cash returns on the CWIP will be received positively from the rating agencies. I think they’ll consider that very positive.
Diana Niles (Analyst at J.P. Morgan)
Understood.
Scott Lauber (President and Chief Executive Officer)
Yeah. Thank you.
OPERATOR
Your next question is from the line of Steve Fleishman with Wolfe Research. Your line is now open. Please go ahead.
Steve Fleishman (Analyst at Wolfe Research)
Thank you. Sorry for the double teaming question here. And congrats on the Brewers, by the way. Just to kind of tie up maybe some of the questions on the growth rate and CAGR, instead of looking year by year or looking more at the five-year CAGR, is the plus on the table with a plan as it is for the five-year growth rate or is the plus more representative of ’28 to ’29, so to speak?
Scott Lauber (President and Chief Executive Officer)
So right now I would say the plus is more representative of the ’28 to ’29, but feel comfortable over that five-year growth rate, assuming we don’t have any wildcards here, would be at that upper end of the 9%.
Steve Fleishman (Analyst at Wolfe Research)
Got it. And then of course, as you update plans, you probably fill in more in the latter parts as well.
Scott Lauber (President and Chief Executive Officer)
Exactly, exactly, exactly. As we update plans and get more clarity on very large customer and very large customers.
Steve Fleishman (Analyst at Wolfe Research)
Thank you. That was helpful.
Scott Lauber (President and Chief Executive Officer)
Thank you. Yep, appreciate it.
OPERATOR
Your next question is from the line of Carly Davenport with Goldman Sachs. Your line is now open. Please go ahead.
Carly Davenport (Analyst at Goldman Sachs)
Hey, good afternoon. Thanks so much for taking the questions and for all the updates. Just one quick one from me. Just on the capital plan, I think you quantified the amount of distribution and generation CapEx tied to the VLCs. Do you have a comparable number that you’re sharing for the transmission piece of the plan?
Scott Lauber (President and Chief Executive Officer)
I think in our plan right now for the transmission specifically related to economic development is about $1.4 billion in our plan right now. So I think as you look across the state of Wisconsin, I think there’s potential upside as more VLCs come in. It all depends upon how much—of course you’re going to need substation—but what kind of transmission will be needed or their location of it. So right now we only have $1.4 billion.
Carly Davenport (Analyst at Goldman Sachs)
Got it. Okay, great. Thank you so much. I’ll leave it there.
Scott Lauber (President and Chief Executive Officer)
Thank you.
OPERATOR
Your next question is from the line of Richard Sunderland with Truist Securities. Your line is now open. Please go ahead.
Richard Sunderland (Analyst at Truist Securities)
Hey, good afternoon. Thanks for the time today. Just one cleanup question on the VLC side of disclosures: that 29% asset-based component in 2031, does that include the 400 megawatts kind of unidentified customer and that longer lead time equipment, I think you call it out for like a 2030–2033 basis. Is that all in that 29%?
Scott Lauber (President and Chief Executive Officer)
Yes, it is. Yes, it is. It’s all part that we think is going to be paid for by those very large customers. And that’s all part of the 29%.
Richard Sunderland (Analyst at Truist Securities)
Okay, understood. That’s helpful. And then I guess I’d be remiss if I didn’t ask on the Illinois pipe work and just year-to-date progress there, both on a restaffing perspective and how that’s informing rate case discussions as well. Could you speak a little bit to the workflows there?
Scott Lauber (President and Chief Executive Officer)
Sure, sure. So Illinois — and you’ve seen a couple updates in our Illinois filing — the capital amount has gone down a little bit this year just because we’re ramping up, and it’s been hard to get resources for some of the occupations since the economy is strong and there’s a lot of construction progress going on across the country, largely in Wisconsin and other places also. So it’s been hard to ramp that up. We’ve updated the forecast, tried to have that true transparency to the commission down there of the timeline of that. But we’re making really good progress. It’s going to continue to ramp up, and in the plans in here ramp up to about $500 million a year spending starting in that ’28 time frame as we continue to ramp. So making progress, it’s been a little slower than what we’d like to, but we got to make sure we have the quality and the right resources to do it.
And we’ve put in programs to help get new resources in by working with trade associations and other colleges and training to get more beginning workers up to speed to be able to help us on the program.
Richard Sunderland (Analyst at Truist Securities)
Great. Appreciate all that.
Scott Lauber (President and Chief Executive Officer)
Thank you. Thank you.
OPERATOR
The final question will be from the line of Paul Patterson with Glenrock Associates. Your line is now open. Please go ahead.
Paul Patterson (Analyst at Glenrock Associates)
Hey, good afternoon.
Scott Lauber (President and Chief Executive Officer)
Hey Paul, can you hear me?
Paul Patterson (Analyst at Glenrock Associates)
Hey, how you doing? So my—just to sort of follow up and I apologize, but just trying to connect all the dots—the 1 gigawatt of demand and the $10 billion of CapEx incremental CapEx, the $10 billion. It sounds, if I heard you guys correctly, the 1 gigawatt is not directly—there’s more than just the 1 gigawatt of demand because you’re getting more demand that’s not in the forecast period in 2032 and what have you. Am I thinking about that correctly?
Shah (Chief Financial Officer)
There’s a combination. We’ve got the 1 gigawatt of demand. We need to get about 1.4 to 1.5 gigawatts to make sure we meet the MISO requirements, so it’s a little bit more to make sure we have the MISO requirements for that capacity need. We also have the transmission in there to serve this that’s up, plus there’s a little bit of long lead-time equipment in addition to that. Plus we have some distribution, so significantly related to generation, but some of it’s in transmission also and a little bit in this long lead-time equipment.
So kind of all of the above.
Paul Patterson (Analyst at Glenrock Associates)
Okay, but most of that $10 billion is associated with VLCC customers, and could you guys just— I saw the rate base pie charts and everything, but just in general, when we think about this incremental number, how much should we think about as, roughly speaking, associated with the VLCC guys?
Shah (Chief Financial Officer)
I think as you look at the $10 billion increase, probably about $8-plus billion is related to the VLCCs.
Paul Patterson (Analyst at Glenrock Associates)
Okay, fair enough.
Shah (Chief Financial Officer)
If you think about the entire 47.5% of the capital, about 45% is VLCC. That’s another way to look at it.
Paul Patterson (Analyst at Glenrock Associates)
Of the total capital, not the incremental. Okay. And then—I think this question was answered—but you mentioned that really the OPEX differentials really have to do simply with QIP versus AFUDC, and there’s no deposits or collateral or anything like that in that large OPEX increase other than, obviously, some growth. But is that the way that I understood that correctly?
Shah (Chief Financial Officer)
So there is no customer deposit or prepayment for that. It’s all related to current return on AFUDC. However, as you think of the credit requirements, if there’s a credit requirement need, we do have letters of credit as required under the commission order to make sure we have the credit requirements met. So you have to think of two different ones: one is your credit requirement and one is the cash flow to support it. And that credit requirement is just on the side for security. That’s not part of our financials—anywhere in the financials that we represent to you.
Paul Patterson (Analyst at Glenrock Associates)
Awesome. Thanks so much. And then I just noticed on the footnote on page 20, electric distribution includes $200 million in substations dedicated to VLCCs, a portion of which—whatever. Is there any CIAC or anything in any of these things that we should be thinking about? Or is this pretty much net of any CIAC or contribution in aid of construction or anything like that?
Shah (Chief Financial Officer)
Yeah, there’s really just—there are no contributions in that. That is just miscellaneous distribution capital. We need it to serve some of the very large customers that’s dedicated to them. We just want to make sure, as you tie stuff out, you recognize that.
Paul Patterson (Analyst at Glenrock Associates)
Okay, just wanted to make sure. Thanks so much. I really appreciate it.
Shah (Chief Financial Officer)
All right, thank you.
OPERATOR
Well, thank you, everyone. That concludes our conference call today. Thank you for participating. If you have more questions, please feel free to contact Beth Straka at 414-221-4639. Thank you. This concludes today’s call. Thank you for attending. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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