Executive Summary / Key Takeaways

• WEC Energy Group is strategically positioned to capitalize on robust economic growth in its service territory, particularly driven by significant data center development and AI-related demand along the I-94 corridor in Wisconsin, underpinning a projected 4.5% to 5% weather-normal annual electric sales growth starting in 2027.
• The company's record $28 billion five-year capital plan (2025-2029) is designed to meet this surging demand and advance its clean energy transition goals through substantial investments in regulated renewables, efficient natural gas generation, transmission, and distribution infrastructure, supporting a targeted 6.5% to 7% long-term EPS CAGR.
• WEC leverages technological integration, including AI for grid management and exploring long-duration storage solutions like organic solid flow batteries, to enhance operational efficiency, improve reliability, and potentially gain a competitive edge in serving data-intensive customers.
• Despite strong Q1 2025 earnings driven by favorable rate orders and weather, the company faces regulatory uncertainties in Illinois regarding natural gas infrastructure investment recovery and the future of gas, as well as potential impacts from trade policies and environmental regulations on project costs and timelines.
• WEC maintains financial discipline with a focus on a balanced financing plan (including $2.7 billion to $3.2 billion in common equity through 2029) and a consistent dividend policy, aiming to provide reliable value to shareholders amidst significant investment requirements and a dynamic operating environment.

A Utility Forging Its Future in a Growth Corridor

WEC Energy Group stands as a diversified holding company rooted in regulated natural gas and electric utility operations across Wisconsin, Illinois, Michigan, and Minnesota. Its strategic footprint also extends to electric transmission through a significant ownership stake in ATC and non-utility energy infrastructure assets, including renewable generation. The company's history, marked by strategic acquisitions and a deliberate shift away from older fossil fuels, has culminated in a clear focus on environmental stewardship, reliability, operating efficiency, and growth. This strategy is now intensely focused on leveraging the burgeoning economic activity within its service areas, particularly the vibrant I-94 corridor stretching between Milwaukee and Chicago, which is becoming a hotbed for energy-intensive industries like data centers.

The utility sector is undergoing a profound transformation driven by decarbonization mandates, grid modernization needs, and surging demand from electrification and advanced technologies like Artificial Intelligence. WEC operates within this dynamic landscape, competing with major players like Dominion Energy (D), Duke Energy (DUK), Southern Company (SO), and NextEra Energy (NEE). While these rivals also pursue clean energy and infrastructure investments, WEC is carving out a distinct position by strategically integrating technological advancements, particularly in serving the unique demands of large data center customers.

WEC's competitive stance is bolstered by its proactive approach to AI integration within its infrastructure planning and operations. While specific quantitative metrics on AI's direct impact on grid efficiency or cost savings were not detailed, the strategic intent is clear: to enhance load management, improve reliability, and potentially offer a differentiated service to data-intensive customers. The company is also exploring emerging technologies like organic solid flow batteries for long-duration energy storage through a pilot program expected to continue through 2025. This initiative aims to test the technology's ability to store and discharge energy for extended periods, a critical need for grid stability as intermittent renewables grow. These technological explorations, while early, signal a commitment to innovation that could provide a competitive edge, particularly against peers like Southern Company, which has been slower to adopt renewables and AI integration. However, WEC faces challenges in operational costs and innovation speed compared to leaders like NextEra Energy, which boasts faster innovation cycles in renewables. WEC's strength in regulatory relationships and its AI focus provide potential moats, enabling it to capture growth opportunities and manage costs effectively within its regulated framework.

Performance Reflecting Strategic Execution and Market Dynamics

WEC Energy Group commenced 2025 with solid financial performance, reporting net income attributed to common shareholders of $724.2 million, or $2.27 per diluted share, for the first quarter ended March 31, 2025. This represents a significant increase from $622.3 million, or $1.97 per diluted share, in the prior-year period. This growth was primarily fueled by strong contributions from the Wisconsin segment, which saw earnings increase by $93.5 million. This surge was largely attributable to the favorable impact of the Wisconsin rate orders effective January 1, 2025, and higher retail sales volumes driven by colder winter weather compared to the unusually warm Q1 2024. The non-utility energy infrastructure segment also contributed positively, with a $14.5 million increase in earnings, primarily due to higher production tax credits from recent renewable project acquisitions and improved operating income at WECI.

Conversely, the Illinois segment experienced a $9.4 million decrease in earnings. This decline was mainly due to higher operating expenses, including the year-over-year impact of a favorable legal claim settlement in Q1 2024, increased property and revenue taxes, and higher natural gas distribution and maintenance costs. The Corporate and Other segment also saw a decrease in earnings, down $8.0 million, largely due to higher interest expense and unfavorable investment performance in the Integrys rabbi trust and equity method investment funds.

From a liquidity perspective, net cash provided by operating activities saw a healthy increase of $299.0 million in Q1 2025 compared to Q1 2024. This improvement was driven by higher customer collections (reflecting rate increases and weather-driven sales), increased cash from collateral received, and lower environmental remediation payments. However, net cash used in investing activities increased by $665.6 million, primarily due to the $406.1 million acquisition of the Hardin III solar project and a $256.6 million increase in capital expenditures, particularly in the Wisconsin segment for renewable energy projects and electric distribution upgrades. Financing activities reflected lower long-term debt retirements and higher common stock issuances, partially offset by lower net commercial paper borrowings and increased dividend payments. While current liabilities exceeded current assets at March 31, 2025, the company maintains confidence in its liquidity position through operating cash flow, credit facilities, and access to capital markets.

A $28 Billion Blueprint for Growth and Transition

The cornerstone of WEC Energy Group's investment thesis is its ambitious $28 billion capital plan spanning 2025 through 2029. This represents the largest investment program in the company's history and is strategically designed to meet the escalating energy demands of its service territory, particularly the significant load growth anticipated from data centers and other economic development along the I-94 corridor. The plan allocates approximately $24.4 billion towards regulated utility businesses and an estimated $3.2 billion towards its share of ATC's projected capital expenditures.

A significant portion of this investment, approximately $9.1 billion, is earmarked for regulated renewable energy projects in Wisconsin, aiming to add 2900 MW of solar, 900 MW of wind, and 565 MW of battery storage capacity. This aligns with the company's aggressive goals to reduce carbon emissions from its electric generation fleet by 60% by the end of 2025 and 80% by the end of 2030 from a 2005 baseline, with a long-term target of net carbon neutrality by 2050 and eliminating coal as an energy source by the end of 2032. To complement intermittent renewables and ensure reliability, the plan also includes substantial investments in clean natural gas-fired generation, such as 1100 MW of combustion turbines at the OCPP site and additional RICE units, along with proposed LNG facilities totaling approximately 6 Bcf of storage capacity to enhance natural gas supply reliability during peak demand. Investments in electric and natural gas distribution systems, including addressing aging infrastructure and implementing the AMI program, are also critical components of the plan, with approximately $4.5 billion allocated for electric distribution reliability through 2029.

This robust capital program underpins management's reaffirmed 2025 earnings guidance of $5.17 to $5.27 per share and its long-term EPS CAGR target of 6.5% to 7%. The company anticipates funding this plan through a combination of cash from operations, debt, and common equity issuances, targeting $2.7 billion to $3.2 billion in common equity through 2029, with approximately $700 million to $800 million expected in 2025. Incremental capital is expected to be funded with roughly 50% equity content. Management's confidence in achieving these targets is based on the executable nature of the projects, the supportive regulatory framework in Wisconsin, and the strong underlying economic growth driving demand. The recently proposed Very Large Customer (VLC) tariff in Wisconsin is a strategic initiative designed to facilitate large load connections like data centers while ensuring cost recovery and protecting existing customers, a key factor in enabling this growth.

Navigating Headwinds and Regulatory Complexities

Despite a clear strategic direction and significant investment opportunities, WEC Energy Group faces several pertinent risks and challenges that could impact its outlook. Regulatory uncertainty, particularly within the Illinois segment, remains a notable headwind. The outcomes of the ongoing Safety Modernization Program review and the "Future of Gas" proceeding could significantly influence the scope and recoverability of future natural gas infrastructure investments in the state. Past disallowances under the QIP rider and required refunds under the UEA rider highlight the potential for adverse regulatory decisions to impact financial results. The proposed Chicago Clean and Affordable Buildings Ordinance (CABO), if passed, could also materially impact future natural gas demand in a key service area.

Environmental regulations continue to evolve, with potential compliance costs associated with new rules related to air quality (Good Neighbor Rule, MATS, NAAQS), water quality (ELG), and land quality (CCR Rule, MGP remediation). While the company is actively working to comply and expects cost recovery through rates, the timing and final requirements of these regulations, some of which are subject to ongoing legal challenges and potential deregulatory actions, introduce uncertainty.

External factors such as trade policies, including tariffs on solar panels and the UFLPA, can affect the cost and availability of materials, potentially impacting project timelines and budgets. Inflation and supply chain disruptions also pose ongoing risks to capital project execution and operating expenses. Furthermore, proceedings at the FERC regarding the allowed ROE for transmission owners, including ATC, could prospectively impact earnings from this segment, although the company notes potential offsetting reductions in transmission costs for its utilities. While management expresses confidence in mitigating these risks through proactive measures, regulatory outcomes, economic fluctuations, and external market dynamics warrant close monitoring.

Conclusion

WEC Energy Group is charting a course for significant growth, anchored by a record capital investment plan designed to meet the escalating energy demands of a thriving regional economy, particularly driven by the proliferation of data centers and AI infrastructure. The company's strategic focus on transitioning its generation fleet towards renewables and efficient natural gas, coupled with investments in transmission and distribution reliability, positions it to capitalize on these trends while advancing its sustainability goals. Strong Q1 2025 performance underscores the positive impact of recent rate orders and favorable market conditions.

While the path forward involves navigating complex regulatory landscapes, particularly in Illinois, and managing external risks like trade policies and inflation, WEC's commitment to financial discipline, operational efficiency, and technological integration provides a solid foundation. The ambitious capital plan, supported by a balanced financing strategy and a consistent dividend policy, illuminates a clear trajectory for asset base and earnings growth. Investors should watch for key regulatory decisions, the successful execution of the capital projects, and the continued trajectory of economic development in its core service territories as critical indicators of the company's ability to deliver on its long-term value proposition.