Dear Shareholders,
Gale Klappa
Executive Chairman
Scott Lauber
President and Chief Executive Officer
To our stockholders,
We’re pleased to report that we delivered an exceptional year on virtually every meaningful measure — from employee safety to customer satisfaction to growth in earnings per share. And looking ahead, we see a long runway of opportunity as we usher in a new era of affordable, reliable and clean energy.
Through the questions and answers below, we’d like to share with you a few key thoughts about our company and the future of the energy industry.
Company Performance in 2022
Gale: Our focus on the fundamentals again resulted in a year of solid results. Our employees recorded their safest year since the company doubled its size through a major acquisition in 2015. We delivered record net income and earnings per share. And we exceeded our forecast.
In November, we updated our ESG Progress Plan — the largest five-year investment plan in our history — totaling $20.1 billion for efficiency, sustainability and growth. We expect the plan to drive earnings growth of 6.5 to 7 percent a year from 2023 through 2027.
A key part of the plan is a major commitment to renewable generation projects in both our regulated business and our infrastructure segment.
Dividend Outlook
Gale: At its January meeting, our board of directors raised our quarterly cash dividend by 7.2 percent to a new annual rate of $3.12 per share. This marks the 20th consecutive year that our company will reward shareholders with higher dividends. We expect this dividend increase to rank in the top decile of our industry.
We continue to target a payout ratio of 65 to 70 percent of earnings. We’re in the middle of the range now, so we expect our dividend growth will continue to be in line with the growth in earnings per share.
Assuring Reliability and Strengthening Infrastructure
Scott: We’re dedicating significant resources in our capital investment plan to strengthen the reliability of our networks. Between 2023 and 2027, we expect to invest $3.6 billion to address aging electric infrastructure and further our system hardening. We also are continuing to upgrade our natural gas infrastructure. In Chicago, work continues on our long-term Safety Modernization Program, which is replacing old, corroding iron pipes with safe, state-of-the-art materials.
In addition to infrastructure upgrades, we have planned investments to meet the energy needs of our customers — particularly at times of peak energy demand. For example, construction is underway on two liquefied natural gas storage facilities to provide additional gas supply in Wisconsin — on track to go into service later this year and in 2024.
Growth in WEC Infrastructure Segment
Scott: A key part of our capital plan is investing in renewable projects outside of our traditional footprint — projects that have long-term contracts with creditworthy customers such as Microsoft, Google and Verizon.
Just last month, we announced that our infrastructure group will acquire an 80 percent ownership interest in phase one of the Samson Solar Energy Center in northeast Texas. Samson I has a capacity of 250 megawatts. It entered commercial service in May 2022 and has a long-term power purchase agreement with AT&T. Pending regulatory approval, we plan to invest approximately $250 million early in 2023.
Role in Technology Development
Gale: We’re active in exploring promising technologies that may help shape the future of clean energy. In February, we announced an important pilot project to test a new form of long-duration energy storage. This experiment will take place at our Valley Power Plant in Milwaukee. We’re collaborating with EPRI, an independent energy research and development institute, and CMBlu Energy, the developer and manufacturer of the long-duration battery based in California and Germany.
This 1- to 2-megawatt-hour pilot project will be one of the first of its kind on the U.S. electric grid. The project will test the performance of the battery system, including discharge durations of five to 10 hours — up to twice as long as the typical batteries in use today.
Scott: And I’m pleased to share with you that the hydrogen pilot we outlined for you last year was completed successfully. Hydrogen and natural gas were tested in blends of up to 25/75 percent to power a reciprocating combustion engine — a modern generating unit that serves customers in the Upper Peninsula of Michigan. The results of this project are a strong indicator that this technology — which produces energy on demand — could run efficiently on very low- and no-carbon fuels.
EPRI will share a complete analysis of both projects with interested parties across the energy industry.
Positioning for Potential Recession
Gale: First, I would say that our management team has a strong track record of managing through the ups and downs of economic cycles. Our focus is on the fundamentals. On execution. On financial discipline. In addition, the economy in our region is remarkably diverse. These factors position us well for uncertain times.
As we move forward, we remain committed to a mission that matters — strengthening the fabric of the communities we serve, leading by example, and delivering affordable, reliable and clean energy to the millions of customers who depend on us every day.
Thank you for your confidence, your support and your investment in WEC Energy Group.
Sincerely,
Gale E. Klappa
Executive Chairman
March 3, 2023
Scott J. Lauber
President and Chief Executive Officer
Read the original letter here.
