WISCONSIN ELECTRIC POWER CO - Quarter Report: 2022 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ___________________

Commission
File Number

Registrant; State of Incorporation;
Address; and Telephone Number

IRS Employer
Identification No.

001-01245

WISCONSIN ELECTRIC POWER COMPANY

39-0476280

(A Wisconsin Corporation)

231 West Michigan Street

P.O. Box 2046

Milwaukee, WI 53201

(414) 221-2345

Securities registered pursuant to Section 12(b) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

Common Stock, $10 Par Value,

33,289,327 shares outstanding at

March 31, 2022

All of the common stock of Wisconsin Electric Power Company is held by WEC Energy Group, Inc.

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WISCONSIN ELECTRIC POWER COMPANY

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended March 31, 2022

TABLE OF CONTENTS

Page

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

PART I.

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

Condensed Consolidated Income Statements

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Cash Flows

Condensed Consolidated Statements of Equity

Notes to Condensed Consolidated Financial Statements

Page

Regulatory Assets and Liabilities

Note 6

Property, Plant, and Equipment

Note 7

Common Equity

Note 8

Short-Term Debt and Lines of Credit

Note 9

Materials, Supplies, and Inventories

Note 10

Income Taxes

Note 11

Fair Value Measurements

Note 12

Derivative Instruments

Variable Interest Entities

Note 17

Commitments and Contingencies

Note 18

Supplemental Cash Flow Information

Note 19

Regulatory Environment

Note 20

New Accounting Pronouncements

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4.

CONTROLS AND PROCEDURES


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GLOSSARY OF TERMS AND ABBREVIATIONS

The abbreviations and terms set forth below are used throughout this report and have the meanings assigned to them below:


Affiliates




We Power						W.E. Power, LLC
WEC Energy Group						WEC Energy Group, Inc.
WEPCo Environmental Trust						WEPCo Environmental Trust Finance I, LLC

WPS						Wisconsin Public Service Corporation

Federal and State Regulatory Agencies
CBP						United States Customs and Border Protection Agency
DOC						United States Department of Commerce
EPA						United States Environmental Protection Agency



PSCW						Public Service Commission of Wisconsin
SEC						United States Securities and Exchange Commission
WDNR						Wisconsin Department of Natural Resources

Accounting Terms


ASU						Accounting Standards Update
FASB						Financial Accounting Standards Board
GAAP						United States Generally Accepted Accounting Principles
OPEB						Other Postretirement Employee Benefits
VIE						Variable Interest Entity

Environmental Terms
ACE						Affordable Clean Energy
BATW						Bottom Ash Transport Water

BTA						Best Technology Available

CASAC						Clean Air Scientific Advisory Committee
CO2						Carbon Dioxide
ELG						Steam Electric Effluent Limitation Guidelines
FGD						Flue Gas Desulfurization
GHG						Greenhouse Gas
NAAQS						National Ambient Air Quality Standards
NOx						Nitrogen Oxide
WOTUS						Waters of the United States
WPDES						Wisconsin Pollutant Discharge Elimination System

Measurements
Dth						Dekatherm
MW						Megawatt
MWh						Megawatt-hour

Other Terms and Abbreviations
AD/CVD						Antidumping and Countervailing Duties
AMI						Advanced Metering Infrastructure
Badger Hollow II						Badger Hollow Solar Park II

COVID-19						Coronavirus Disease – 2019
D.C. Circuit Court of Appeals						United States Court of Appeals for the District of Columbia Circuit
ERGS						Elm Road Generating Station


ESG Progress Plan						WEC Energy Group's Capital Investment Plan for Efficiency, Sustainability, and Growth for 2022-2026
ETB						Environmental Trust Bond


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EV						Electric Vehicle
Exchange Act						Securities Exchange Act of 1934, as amended
Executive Order 13990						Executive Order 13990 of January 20, 2021 – Protecting Public Health and the Environment and Restoring Science To Tackle the Climate Crisis
FTR						Financial Transmission Right
ITC						Investment Tax Credit
LIBOR						London Interbank Offered Rate
LNG						Liquefied Natural Gas
MISO						Midcontinent Independent System Operator, Inc.

OCPP						Oak Creek Power Plant


OC 7						Oak Creek Power Plant Unit 7
OC 8						Oak Creek Power Plant Unit 8
PPA						Power Purchase Agreement
PSB						Public Service Building




PTC						Production Tax Credit
PWGS						Port Washington Generating Station
RICE						Reciprocating Internal Combustion Engine


Supreme Court						United States Supreme Court
Tax Legislation						Tax Cuts and Jobs Act of 2017
West Riverside						West Riverside Energy Center
Whitewater						Whitewater Cogeneration Facility
WRO						Withhold Release Order


03/31/2022 Form 10-Q			iii			Wisconsin Electric Power Company

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

In this report, we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, and future events or performance. These statements are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Readers are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements may be identified by reference to a future period or periods or by the use of terms such as "anticipates," "believes," "could," "estimates," "expects," "forecasts," "goals," "guidance," "intends," "may," "objectives," "plans," "possible," "potential," "projects," "seeks," "should," "targets," "will," or variations of these terms.

Forward-looking statements include, among other things, statements concerning management's expectations and projections regarding earnings, completion of capital projects, sales and customer growth, rate actions and related filings with regulatory authorities, environmental and other regulations, including associated compliance costs, legal proceedings, effective tax rates, pension and OPEB plans, fuel costs, sources of electric energy supply, coal and natural gas deliveries, remediation costs, climate-related matters, the ESG Progress Plan, liquidity and capital resources, and other matters.

Forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in the statements. These risks and uncertainties include those described in risk factors as set forth in our 2021 Annual Report on Form 10-K, and those identified below:

•Factors affecting utility operations such as catastrophic weather-related damage, environmental incidents, unplanned facility outages and repairs and maintenance, and electric transmission or natural gas pipeline system constraints;

•Factors affecting the demand for electricity and natural gas, including political or regulatory developments, varying, adverse, or unusually severe weather conditions, including those caused by climate change, changes in economic conditions, customer growth and declines, commodity prices, energy conservation efforts, and continued adoption of distributed generation by customers;

•The timing, resolution, and impact of rate cases and negotiations, including recovery of deferred and current costs and the ability to earn a reasonable return on investment, and other regulatory decisions impacting our regulated operations;

•The impact of federal, state, and local legislative and/or regulatory changes, including changes in rate-setting policies or procedures, deregulation and restructuring of the electric and/or natural gas utility industries, transmission or distribution system operation, the approval process for new construction, reliability standards, pipeline integrity and safety standards, allocation of energy assistance, energy efficiency mandates, and tax laws, including those that affect our ability to use PTCs and ITCs;

•Federal, state, and local legislative and regulatory changes relating to the environment, including climate change and other environmental regulations impacting generation facilities and renewable energy standards, the enforcement of these laws and regulations, changes in the interpretation of regulations or permit conditions by regulatory agencies, and the recovery of associated remediation and compliance costs;

•The ability to obtain and retain customers, including wholesale customers, due to increased competition in our electric and natural gas markets from retail choice and alternative electric suppliers, and continued industry consolidation;

•The timely completion of capital projects within budgets and the ability to recover the related costs through rates;

•The risk of delays and shortages, and increased costs of equipment, materials, or other resources that are critical to our business operations and corporate strategy, as a result of supply chain disruptions, inflation, and other factors;

•The impact of health pandemics, including any new developments relating to the COVID-19 pandemic, on our business functions, financial condition, liquidity, and results of operations;

•Factors affecting the implementation of WEC Energy Group's CO2 emission and/or methane emission reduction goals and opportunities and actions related to those goals, including related regulatory decisions, the cost of materials, supplies, and labor, technology advances, the feasibility of competing generation projects, and the ability to execute WEC Energy Group's capital plan;


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•The financial and operational feasibility of taking more aggressive action to further reduce GHG emissions in order to limit future global temperature increases;

•The risks associated with inflation and changing commodity prices, including natural gas and electricity;

•The availability and cost of sources of natural gas and other fossil fuels, purchased power, materials needed to operate environmental controls at our electric generating facilities, or water supply due to high demand, shortages, transportation problems, nonperformance by electric energy or natural gas suppliers under existing power purchase or natural gas supply contracts, or other developments;

•Any impacts on the global economy, supply chains and fuel prices, generally, from the ongoing conflict between Russia and Ukraine;

•Changes in credit ratings, interest rates, and our ability to access the capital markets, caused by volatility in the global credit markets, our capitalization structure, and market perceptions of the utility industry or us;

•Changes in the method of determining LIBOR or the replacement of LIBOR with an alternative reference rate;

•Costs and effects of litigation, administrative proceedings, investigations, settlements, claims, and inquiries;

•The direct or indirect effect on our business resulting from terrorist attacks and cyber security intrusions, as well as the threat of such incidents, including the failure to maintain the security of personally identifiable information, the associated costs to protect our utility assets, technology systems, and personal information, and the costs to notify affected persons to mitigate their information security concerns and to comply with state notification laws;

•The risk of financial loss, including increases in bad debt expense, associated with the inability of our customers, counterparties, and affiliates to meet their obligations;

•Changes in the creditworthiness of the counterparties with whom we have contractual arrangements, including participants in the energy trading markets and fuel suppliers and transporters;

•The investment performance of our employee benefit plan assets, as well as unanticipated changes in related actuarial assumptions, which could impact future funding requirements;

•Factors affecting the employee workforce, including loss of key personnel, internal restructuring, work stoppages, and collective bargaining agreements and negotiations with union employees;

•Advances in technology, and related legislation or regulation supporting the use of that technology, that result in competitive disadvantages and create the potential for impairment of existing assets;

•The risk associated with the value of long-lived assets and their possible impairment;

•Potential business strategies to acquire and dispose of assets, which cannot be assured to be completed timely or within budgets;

•The timing and outcome of any audits, disputes, and other proceedings related to taxes;

•The effect of accounting pronouncements issued periodically by standard-setting bodies; and

•Other considerations disclosed elsewhere herein and in other reports we file with the SEC or in other publicly disseminated written documents.

Except as may be required by law, we expressly disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.


03/31/2022 Form 10-Q			2			Wisconsin Electric Power Company

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WISCONSIN ELECTRIC POWER COMPANY


CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)	Three Months Ended
	March 31
(in millions)		2022		2021
Operating revenues		$	1,072.0	$	1,005.2

Operating expenses
Cost of sales		444.2		404.2
Other operation and maintenance		192.6		209.3
Depreciation and amortization		119.1		110.7
Property and revenue taxes		27.0		25.4
Total operating expenses		782.9		749.6

Operating income		289.1		255.6

Other income, net		10.6		7.4
Interest expense		113.4		116.2
Other expense		(102.8)		(108.8)

Income before income taxes		186.3		146.8
Income tax expense		47.5		19.5
Net income		138.8		127.3

Preferred stock dividend requirements		0.3		0.3
Net income attributed to common shareholder		$	138.5	$	127.0

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.


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WISCONSIN ELECTRIC POWER COMPANY


CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except share and per share amounts)	March 31, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	6.0	$	—
Accounts receivable and unbilled revenues, net of reserves of $51.8 and $51.4, respectively	540.9		565.5
Accounts receivable from related parties	81.8		79.1
Materials, supplies, and inventories	206.5		246.4
Prepaid taxes	71.7		97.4

Derivative assets	75.3		48.7
Other	31.8		33.9
Current assets	1,014.0		1,071.0

Long-term assets
Property, plant, and equipment, net of accumulated depreciation and amortization of $5,232.0 and $5,136.4, respectively	10,162.9		10,115.5
Regulatory assets (March 31, 2022 and December 31, 2021 include $98.2 and $100.7, respectively, related to WEPCo Environmental Trust)	2,750.9		2,763.1
Pension and OPEB assets	103.9		96.8
Other	90.3		98.1
Long-term assets	13,108.0		13,073.5
Total assets	$	14,122.0	$	14,144.5

Liabilities and Equity
Current liabilities
Short-term debt	$	24.0	$	375.0
Current portion of long-term debt (March 31, 2022 and December 31, 2021 include $8.8, related to WEPCo Environmental Trust)	8.8		8.8
Current portion of finance lease obligations	109.3		109.3
Accounts payable	229.5		347.8
Accounts payable to related parties	192.2		170.9

Accrued interest	40.1		10.9
Other	203.2		144.7
Current liabilities	807.1		1,167.4

Long-term liabilities
Long-term debt (March 31, 2022 and December 31, 2021 include $102.8 and $102.7, respectively, related to WEPCo Environmental Trust)	2,863.9		2,863.3
Finance lease obligations	2,708.0		2,717.9
Deferred income taxes	1,417.4		1,401.6
Regulatory liabilities	1,746.2		1,723.2
Pension and OPEB obligations	38.0		38.8
Other	287.6		287.6
Long-term liabilities	9,061.1		9,032.4

Commitments and contingencies (Note 17)

Common shareholder's equity
Common stock – $10 par value; 65,000,000 shares authorized; 33,289,327 shares outstanding	332.9		332.9
Additional paid in capital	1,571.6		1,290.9
Retained earnings	2,318.9		2,290.5
Common shareholder's equity	4,223.4		3,914.3

Preferred stock	30.4		30.4
Total liabilities and equity	$	14,122.0	$	14,144.5

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.


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WISCONSIN ELECTRIC POWER COMPANY


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	Three Months Ended
	March 31
(in millions)	2022		2021
Operating activities
Net income	$	138.8	$	127.3
Reconciliation to cash provided by operating activities
Depreciation and amortization	119.1		110.7
Deferred income taxes and ITCs, net	16.0		(14.4)


Change in –
Accounts receivable and unbilled revenues, net	(19.0)		(96.8)
Materials, supplies, and inventories	39.9		34.8
Prepaid taxes	25.7		24.1
Amounts recoverable from customers	1.2		(40.6)
Other current assets	4.0		8.4
Accounts payable	(105.9)		0.3
Accrued taxes	31.2		32.6

Accrued interest	29.2		24.0
Other current liabilities	30.1		(0.1)
Other, net	(2.1)		(7.1)
Net cash provided by operating activities	308.2		203.2

Investing activities
Capital expenditures	(139.5)		(180.6)

Proceeds from assets transferred to affiliates	—		11.3

Insurance proceeds received for property damage	41.0		—
Other, net	(0.6)		2.1
Net cash used in investing activities	(99.1)		(167.2)

Financing activities
Change in short-term debt	(351.0)		10.5


Payments for finance lease obligations	(18.6)		(16.0)
Equity contribution from parent	280.0		30.0
Payment of dividends to parent	(110.0)		(60.0)
Other, net	(0.3)		(0.4)
Net cash used in financing activities	(199.9)		(35.9)

Net change in cash, cash equivalents, and restricted cash	9.2		0.1
Cash, cash equivalents, and restricted cash at beginning of period	3.0		7.2
Cash, cash equivalents, and restricted cash at end of period	$	12.2	$	7.3

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.


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WISCONSIN ELECTRIC POWER COMPANY


CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

	Wisconsin Electric Power Company Common Shareholder's Equity
(in millions)	Common Stock		Additional Paid In Capital		Retained Earnings		Total Common Shareholder's Equity		Preferred Stock		Total Equity
Balance at December 31, 2021	$	332.9	$	1,290.9	$	2,290.5	$	3,914.3	$	30.4	$	3,944.7
Net income attributed to common shareholder	—		—		138.5		138.5		—		138.5
Payment of dividends to parent	—		—		(110.0)		(110.0)		—		(110.0)
Equity contribution from parent	—		280.0		—		280.0		—		280.0
Stock-based compensation and other	—		0.7		(0.1)		0.6		—		0.6









Balance at March 31, 2022	$	332.9	$	1,571.6	$	2,318.9	$	4,223.4	$	30.4	$	4,253.8


	Wisconsin Electric Power Company Common Shareholder's Equity
(in millions)	Common Stock		Additional Paid In Capital		Retained Earnings		Total Common Shareholder's Equity		Preferred Stock		Total Equity
Balance at December 31, 2020	$	332.9	$	1,060.1	$	2,269.2	$	3,662.2	$	30.4	$	3,692.6
Net income attributed to common shareholder	—		—		127.0		127.0		—		127.0
Payment of dividends to parent	—		—		(60.0)		(60.0)		—		(60.0)
Equity contribution from parent	—		30.0		—		30.0		—		30.0
Stock-based compensation and other	—		0.5		0.1		0.6		—		0.6










Balance at March 31, 2021	$	332.9	$	1,090.6	$	2,336.3	$	3,759.8	$	30.4	$	3,790.2

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.


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WISCONSIN ELECTRIC POWER COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2022

NOTE 1—GENERAL INFORMATION

Wisconsin Electric Power Company serves approximately 1.1 million electric customers and 0.5 million natural gas customers.

As used in these notes, the term "financial statements" refers to the condensed consolidated financial statements. This includes the income statements, balance sheets, statements of cash flows, and statements of equity, unless otherwise noted. In this report, when we refer to "the Company," "us," "we," "our," or "ours," we are referring to Wisconsin Electric Power Company and its subsidiary.

On our financial statements, we consolidate VIEs of which we are the primary beneficiary.

We have prepared the unaudited interim financial statements presented in this Form 10-Q pursuant to the rules and regulations of the SEC and GAAP. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and footnotes in our Annual Report on Form 10-K for the year ended December 31, 2021. Financial results for an interim period may not give a true indication of results for the year. In particular, the results of operations for the three months ended March 31, 2022, are not necessarily indicative of expected results for 2022 due to seasonal variations and other factors.

In management's opinion, we have included all adjustments, normal and recurring in nature, necessary for a fair presentation of our financial results.

NOTE 2—ACQUISITION

In accordance with Topic 805: Clarifying the Definition of a Business (ASU 2017-01), transactions are evaluated and are accounted for as acquisitions (or disposals) of assets or businesses, and transaction costs are capitalized in asset acquisitions.

Acquisition of Electric Generation Facility in Wisconsin

In November 2021, we, along with WPS, signed an asset purchase agreement to acquire Whitewater, a commercially operational 236.5 MW dual fueled (natural gas and low sulfur fuel oil) combined cycle electrical generation facility in Whitewater, Wisconsin. In December 2021, we, along with WPS, filed an application with the PSCW for approval to acquire Whitewater. If approved, our share of the cost of this facility is estimated to be $36.3 million for 50% of the capacity. The transaction is expected to close in January 2023.

NOTE 3—OPERATING REVENUES

For more information about our operating revenues, see Note 1(d), Operating Revenues, in our 2021 Annual Report on Form 10-K.


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Disaggregation of Operating Revenues

The following tables present our operating revenues disaggregated by revenue source for our utility segment. We do not have any revenues associated with our other segment. We disaggregate revenues into categories that depict how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors. Revenues are further disaggregated by electric and natural gas operations and then by customer class. Each customer class within our electric and natural gas operations have different expectations of service, energy and demand requirements, and can be impacted differently by regulatory activities within their jurisdictions.


	Three Months Ended March 31
(in millions)		2022		2021
Wisconsin Electric Power Company
Electric utility		$	831.1	$	783.5
Natural gas utility		235.9		215.8
Total revenues from contracts with customers		1,067.0		999.3
Other operating revenues		5.0		5.9
Total operating revenues		$	1,072.0	$	1,005.2

Revenues from Contracts with Customers

Electric Utility Operating Revenues

The following table disaggregates electric utility operating revenues into customer class:


	Three Months Ended March 31
(in millions)		2022		2021
Residential		$	335.4	$	312.2
Small commercial and industrial		268.0		242.5
Large commercial and industrial		136.8		129.1
Other		5.4		5.6
Total retail revenues		745.6		689.4
Wholesale		20.6		20.8
Resale		51.0		56.5
Steam		12.1		14.8
Other utility revenues		1.8		2.0
Total electric utility operating revenues		$	831.1	$	783.5

Natural Gas Utility Operating Revenues

The following table disaggregates natural gas utility operating revenues into customer class:


	Three Months Ended March 31
(in millions)		2022		2021
Residential		$	165.7	$	112.7
Commercial and industrial		83.3		52.6
Total retail revenues		249.0		165.3
Transportation		5.6		5.3
Other utility revenues (1)		(18.7)		45.2
Total natural gas utility operating revenues		$	235.9	$	215.8

(1)Includes the revenues subject to our purchased gas recovery mechanism. The amounts for the three months ended March 31, 2021 reflect the higher natural gas costs that were incurred as a result of the extreme winter weather conditions in February 2021. As these amounts are billed to customers, they are reflected in retail revenues with an offsetting decrease in other utility revenues. In addition, during the first quarter of 2022 we over-collected natural gas costs due to these costs being lower than what was anticipated in rates.


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Other Operating Revenues

Other operating revenues consist primarily of the following:


	Three Months Ended March 31
(in millions)		2022		2021
Late payment charges		$	3.5	$	3.7
Alternative revenues (1)		0.9		1.4
Rental revenues		0.6		0.8
Total other operating revenues		$	5.0	$	5.9

(1)See Note 1(d), Operating Revenues, in our 2021 Annual Report on Form 10-K for more information on alternative revenues.

NOTE 4—CREDIT LOSSES

Our exposure to credit losses is related to our accounts receivable and unbilled revenue balances, which are generated from the sale of electricity and natural gas by our regulated utility operations. Our regulated utility operations are included in our utility segment. No accounts receivable and unbilled revenue balances were reported in the other segment at March 31, 2022 and December 31, 2021.

We evaluate the collectability of our accounts receivable and unbilled revenue balances considering a combination of factors. For some of our larger customers and also in circumstances where we become aware of a specific customer's inability to meet its financial obligations to us, we record a specific allowance for credit losses against amounts due in order to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we use the accounts receivable aging method to calculate an allowance for credit losses. Using this method, we classify accounts receivable into different aging buckets and calculate a reserve percentage for each aging bucket based upon historical loss rates. The calculated reserve percentages are updated on at least an annual basis, in order to ensure recent macroeconomic, political, and regulatory trends are captured in the calculation, to the extent possible. Risks identified that we do not believe are reflected in the calculated reserve percentages, are assessed on a quarterly basis to determine whether further adjustments are required.

We monitor our ongoing credit exposure through active review of counterparty accounts receivable balances against contract terms and due dates. Our activities include timely account reconciliation, dispute resolution and payment confirmation. To the extent possible, we work with customers with past due balances to negotiate payment plans, but will disconnect customers for non-payment as allowed by the PSCW, if necessary, and employ collection agencies and legal counsel to pursue recovery of defaulted receivables. For our larger customers, detailed credit review procedures may be performed in advance of any sales being made. We sometimes require letters of credit, parental guarantees, prepayments or other forms of credit assurance from our larger customers to mitigate credit risk.

We have included a table below that shows our gross third-party receivable balances and related allowance for credit losses.


(in millions)	March 31, 2022			December 31, 2021
Accounts receivable and unbilled revenues	$	592.7		$	616.9
Allowance for credit losses	51.8			51.4
Accounts receivable and unbilled revenues, net (1)	$	540.9		$	565.5

Total accounts receivable, net – past due greater than 90 days (1)	$	34.3		$	32.9
Past due greater than 90 days – collection risk mitigated by regulatory mechanisms (1)	99.7		%	98.3		%

(1)Our exposure to credit losses for certain regulated utility customers is mitigated by a regulatory mechanism we have in place. Specifically, our residential tariffs include a mechanism for cost recovery or refund of uncollectible expense based on the difference between actual uncollectible write-offs and the amounts recovered in rates. As a result, at March 31, 2022, $260.1 million, or 48.1%, of our net accounts receivable and unbilled revenues balance had regulatory protections in place to mitigate the exposure to credit losses.


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A rollforward of the allowance for credit losses for the three months ended March 31, 2022 and 2021 is included below:


	Three Months Ended
(in millions)	March 31, 2022		March 31, 2021
Balance at January 1	$	51.4	$	59.3
Provision for credit losses	6.1		8.1
Provision for credit losses deferred for future recovery or refund	7.1		17.4
Write-offs charged against the allowance	(18.8)		(11.5)
Recoveries of amounts previously written off	6.0		5.5
Balance at March 31	$	51.8	$	78.8

Our allowance for credit losses did not change significantly at March 31, 2022, compared to January 1, 2022. The increase in our allowance for credit losses at March 31, 2021, compared to January 1, 2021, was driven by higher past due accounts receivable balances, primarily related to residential customers. This increase in accounts receivable balances in arrears was driven by the continued economic disruptions caused by the COVID-19 pandemic, including high unemployment rates. Also, as a result of the winter moratorium rules In Wisconsin (the winter moratorium begins on November 1 and ends on April 15), and the COVID-19 pandemic and related regulatory orders we received, we were unable to disconnect any of our residential customers in the first quarter of 2021 and during all of 2020.

NOTE 5—REGULATORY ASSETS AND LIABILITIES

The following regulatory assets and liabilities were reflected on our balance sheets at March 31, 2022 and December 31, 2021. For more information on our regulatory assets and liabilities, see Note 6, Regulatory Assets and Liabilities, in our 2021 Annual Report on Form 10-K.


(in millions)	March 31, 2022		December 31, 2021
Regulatory assets
Finance leases	$	1,042.3	$	1,032.6
Plant retirement related items	653.7		659.1
Income tax related items	384.6		387.3
Pension and OPEB costs	378.5		386.1
System support resource	128.4		129.5
Securitization	98.2		100.7
Asset retirement obligations	42.1		42.0
Other, net	23.1		27.1
Total regulatory assets	$	2,750.9	$	2,764.4

Balance sheet presentation
Other current assets	$	—	$	1.3
Regulatory assets	2,750.9		2,763.1
Total regulatory assets	$	2,750.9	$	2,764.4


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(in millions)	March 31, 2022		December 31, 2021
Regulatory liabilities
Income tax related items	$	726.5	$	728.6
Removal costs	703.5		697.8
Pension and OPEB benefits	147.3		148.4
Derivatives (1)	85.6		55.6
Electric transmission costs (2)	50.4		64.4
Energy costs refundable through rate adjustments (3)	23.8		0.3
Uncollectible expense	10.5		17.8
Other, net	16.1		10.3
Total regulatory liabilities	$	1,763.7	$	1,723.2

Balance sheet presentation
Other current liabilities	$	17.5	$	—
Regulatory liabilities	1,746.2		1,723.2
Total regulatory liabilities	$	1,763.7	$	1,723.2

(1) For most energy-related physical and financial contracts that qualify as derivatives, the PSCW allows the effects of fair value accounting to be offset to regulatory assets and liabilities. See Note 12, Derivative Instruments, for more information on our derivative asset and liability balances.

(2) The decrease in this regulatory liability balance was primarily related to the PSCW's approval of certain accounting treatments that allowed us to forego applying for a 2022 base rate increase, and instead maintain base rates consistent with 2021 levels. Among the accounting treatments approved was the amortization of our electric transmission regulatory liability balance in 2022, to offset a portion of our forecasted revenue deficiency. See Note 22, Regulatory Environment, in our 2021 Annual Report on Form 10-K for additional information on our 2022 base rates.

(3) The increase in these regulatory liabilities was primarily related to lower natural gas costs incurred in the first quarter of 2022, compared to what was anticipated in rates.

NOTE 6—PROPERTY, PLANT, AND EQUIPMENT

During a significant rain event in May 2020, an underground steam tunnel in downtown Milwaukee flooded and steam vented into our PSB. The damage to the building and adjacent steam tunnel assets from the flooding and steam was extensive and required significant repairs and restorations. As of March 31, 2022, we had incurred $95.3 million of costs related to these repairs and restorations. In 2020, we received $20.0 million of insurance proceeds to cover a portion of these costs and wrote off $12.5 million of costs that we do not intend to seek recovery for through other operation and maintenance expense. In the first quarter of 2022, we received $41.0 million of insurance proceeds as a result of a settlement that was reached in February 2022. The remaining $21.8 million of costs is expected to be recovered through rates.

In June 2021, we received approval from the PSCW to restore the PSB and adjacent steam tunnel assets and to defer the project costs, net of insurance proceeds, as a component of rate base. As such, and in light of the agreement with insurers noted above, we do not currently expect a significant impact to our future results of operations.

NOTE 7—COMMON EQUITY

Various financing arrangements and regulatory requirements impose certain restrictions on our ability to transfer funds to WEC Energy Group in the form of cash dividends, loans, or advances. In addition, Wisconsin law prohibits us from making loans to or guaranteeing obligations of WEC Energy Group or its subsidiaries. See Note 9, Common Equity, in our 2021 Annual Report on Form 10-K for additional information on these and other restrictions.

We do not believe that these restrictions will materially affect our operations or limit any dividend payments in the foreseeable future.


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NOTE 8—SHORT-TERM DEBT AND LINES OF CREDIT

The following table shows our short-term borrowings and their corresponding weighted-average interest rates:


(in millions, except percentages)	March 31, 2022			December 31, 2021
Commercial paper
Amount outstanding	$	24.0		$	375.0
Weighted-average interest rate on amounts outstanding	0.45		%	0.21		%

Our average amount of commercial paper borrowings based on daily outstanding balances during the three months ended March 31, 2022 was $133.0 million with a weighted-average interest rate during the period of 0.19%.

The information in the table below relates to our revolving credit facility used to support our commercial paper borrowing program, including available capacity under this facility:


(in millions)	Maturity	March 31, 2022
Revolving credit facility	September 2026	$	500.0

Less:
Letters of credit issued inside credit facility		1.0
Commercial paper outstanding		24.0
Available capacity under existing credit facility		$	475.0

NOTE 9—MATERIALS, SUPPLIES, AND INVENTORIES

Our inventory consisted of:


(in millions)	March 31, 2022		December 31, 2021
Materials and supplies	$	140.9	$	138.2
Fossil fuel	53.0		54.7
Natural gas in storage	12.6		53.5
Total	$	206.5	$	246.4

Substantially all materials and supplies, fossil fuel, and natural gas in storage inventories are recorded using the weighted-average cost method of accounting.

NOTE 10—INCOME TAXES

The provision for income taxes differs from the amount of income tax determined by applying the applicable United States statutory federal income tax rate to income before income taxes as a result of the following:


	Three Months Ended March 31, 2022				Three Months Ended March 31, 2021
(in millions)	Amount		Effective Tax Rate		Amount		Effective Tax Rate
Statutory federal income tax	$	39.1	21.0	%	$	30.8	21.0	%
State income taxes net of federal tax benefit	11.6		6.2	%	9.3		6.3	%
Domestic production activities deferral	2.0		1.1	%	2.1		1.4	%
Federal excess deferred tax amortization – Wisconsin unprotected	1.7		0.9	%	(14.3)		(9.8)	%
Federal excess deferred tax amortization	(7.5)		(4.0)	%	(7.8)		(5.3)	%
PTCs	(0.5)		(0.3)	%	(2.4)		(1.6)	%
Other	1.1		0.6	%	1.8		1.3	%
Total income tax expense	$	47.5	25.5	%	$	19.5	13.3	%

The effective tax rate of 25.5% for the three months ended March 31, 2022, differs from the United States statutory federal income tax rate of 21%, primarily due to state income taxes. This item was partially offset by the impact of the protected deferred tax benefits associated with the Tax Legislation, as discussed in more detail below.


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The effective tax rate of 13.3% for the three months ended March 31, 2021, differs from the United States statutory federal income tax rate of 21%, primarily due to the recognition of certain unprotected deferred tax benefits created as a result of the Tax Legislation. Effective January 1, 2020, in accordance with the rate order received from the PSCW in December 2019, we began amortizing the unprotected deferred tax benefits over periods ranging from two years to four years, to reduce near-term rate impacts to our customers. In addition, the impact of the protected benefits associated with the Tax Legislation, as discussed in more detail below, drove a decrease in the effective tax rate. These items were partially offset by state income taxes.

The Tax Legislation required us to remeasure the deferred income taxes at our utility segment and we began to amortize the resulting excess protected deferred income taxes beginning in 2018 in accordance with normalization requirements (see federal excess deferred tax amortization line above).

See Note 22, Regulatory Environment, in our 2021 Annual Report on Form 10-K for additional information on unprotected tax benefits.

NOTE 11—FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

Fair value accounting rules provide a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are defined as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Pricing inputs are observable, either directly or indirectly, but are not quoted prices included within Level 1. Level 2 includes those financial instruments that are valued using external inputs within models or other valuation methods.

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methods that result in management's best estimate of fair value. Level 3 instruments include those that may be more structured or otherwise tailored to customers' needs.

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We use a mid-market pricing convention (the mid-point price between bid and ask prices) as a practical measure for valuing certain derivative assets and liabilities. We primarily use a market approach for recurring fair value measurements and attempt to use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

When possible, we base the valuations of our derivative assets and liabilities on quoted prices for identical assets and liabilities in active markets. These valuations are classified in Level 1. The valuations of certain contracts not classified as Level 1 may be based on quoted market prices received from counterparties and/or observable inputs for similar instruments. Transactions valued using these inputs are classified in Level 2. Certain derivatives are categorized in Level 3 due to the significance of unobservable or internally-developed inputs.


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The following tables summarize our financial assets and liabilities that were accounted for at fair value on a recurring basis, categorized by level within the fair value hierarchy:


	March 31, 2022
(in millions)	Level 1		Level 2		Level 3		Total
Derivative assets
Natural gas contracts	$	45.1	$	1.0	$	—	$	46.1
FTRs	—		—		0.4		0.4
Coal contracts	—		32.3		—		32.3
Total derivative assets	$	45.1	$	33.3	$	0.4	$	78.8

Derivative liabilities
Natural gas contracts	$	—	$	0.2	$	—	$	0.2


	December 31, 2021
(in millions)	Level 1		Level 2		Level 3		Total
Derivative assets
Natural gas contracts	$	11.5	$	4.2	$	—	$	15.7
FTRs	—		—		1.0		1.0
Coal contracts	—		37.6		—		37.6
Total derivative assets	$	11.5	$	41.8	$	1.0	$	54.3

Derivative liabilities
Natural gas contracts	$	2.4	$	0.3	$	—	$	2.7

The derivative assets and liabilities listed in the tables above include options, futures, physical commodity contracts, and other instruments used to manage market risks related to changes in commodity prices. They also include FTRs, which are used to manage electric transmission congestion costs in the MISO Energy and Operating Reserves Markets.

The following table summarizes the changes to derivatives classified as Level 3 in the fair value hierarchy:


	Three Months Ended March 31
(in millions)		2022		2021
Balance at the beginning of the period		$	1.0	$	1.1

Settlements		(0.6)		(0.7)
Balance at the end of the period		$	0.4	$	0.4

Fair Value of Financial Instruments

The following table shows the financial instruments included on our balance sheets that were not recorded at fair value:


	March 31, 2022				December 31, 2021
(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Preferred stock	$	30.4	$	26.6	$	30.4	$	30.3
Long-term debt, including current portion	2,872.7		3,083.4		2,872.1		3,403.4

The fair values of our long-term debt and preferred stock are categorized within Level 2 of the fair value hierarchy.

NOTE 12—DERIVATIVE INSTRUMENTS

We use derivatives as part of our risk management program to manage the risks associated with the price volatility of purchased power, generation, and natural gas costs for the benefit of our customers. Our approach is non-speculative and designed to mitigate risk. Our regulated hedging programs are approved by the PSCW.

We record derivative instruments on our balance sheets as an asset or liability measured at fair value unless they qualify for the normal purchases and sales exception and are so designated. We continually assess our contracts designated as normal and will


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discontinue the treatment of these contracts as normal if the required criteria are no longer met. Changes in the derivative's fair value are recognized currently in earnings unless specific hedge accounting criteria are met or we receive regulatory treatment for the derivative. For most energy-related physical and financial contracts in our regulated operations that qualify as derivatives, the PSCW allows the effects of fair value accounting to be offset to regulatory assets and liabilities.

None of our derivatives are designated as hedging instruments. On our balance sheets, we classify derivative assets and liabilities as current or long-term based on the maturities of the underlying contracts. Derivative assets and liabilities not shown separately on our balance sheets are included in the other current and other long-term line items. The following table shows our derivative assets and derivative liabilities.


	March 31, 2022				December 31, 2021
(in millions)	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Current
Natural gas contracts	$	45.2	$	0.2	$	15.3	$	2.6
FTRs	0.4		—		1.0		—
Coal contracts	29.7		—		32.4		—
Total current	75.3		0.2		48.7		2.6

Long-term
Natural gas contracts	0.9		—		0.4		0.1
Coal contracts	2.6		—		5.2		—
Total long-term	3.5		—		5.6		0.1
Total	$	78.8	$	0.2	$	54.3	$	2.7

Realized gains (losses) on derivatives are primarily recorded in cost of sales on the income statements. Our estimated notional sales volumes and realized gains (losses) were as follows:








	Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
(in millions)	Volumes	Gains		Volumes	Gains (Losses)
Natural gas contracts	18.7 Dth	$	8.2	19.1 Dth	$	(2.7)
FTRs	5.0 MWh	0.2		5.6 MWh	1.1
Total		$	8.4		$	(1.6)

On our balance sheets, the amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral are not offset against the fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. At both March 31, 2022 and December 31, 2021, we had posted cash collateral of $5.5 million. These amounts were recorded on our balance sheets in other current assets. At March 31, 2022 and December 31, 2021, we had also received cash collateral of $35.2 million and $0.3 million, respectively. These amounts were recorded on our balance sheets in other current liabilities.

The following table shows derivative assets and derivative liabilities if derivative instruments by counterparty were presented net on our balance sheets:


	March 31, 2022					December 31, 2021
(in millions)	Derivative Assets			Derivative Liabilities		Derivative Assets			Derivative Liabilities
Gross amount recognized on the balance sheet	$	78.8		$	0.2	$	54.3		$	2.7
Gross amount not offset on the balance sheet	(35.4)		(1)	(0.2)		(2.7)		(2)	(2.4)
Net amount	$	43.4		$	—	$	51.6		$	0.3

(1) Includes cash collateral received of $35.2 million.

(2) Includes cash collateral received of $0.3 million.


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NOTE 13—GUARANTEES

As of March 31, 2022, we had $26.0 million of standby letters of credit issued by financial institutions for the benefit of third parties that extended credit to us, which automatically renew each year unless proper termination notice is given. These amounts are not reflected on our balance sheets.

NOTE 14—EMPLOYEE BENEFITS

The following tables show the components of net periodic benefit cost (credit) for our benefit plans.


		Pension Benefits
	Three Months Ended March 31
(in millions)		2022		2021
Service cost		$	3.6	$	3.3
Interest cost		8.2		7.8
Expected return on plan assets		(17.9)		(17.7)


Amortization of net actuarial loss		7.3		10.0
Net periodic benefit cost		$	1.2	$	3.4


		OPEB Benefits
	Three Months Ended March 31
(in millions)		2022		2021
Service cost		$	1.0	$	1.2
Interest cost		1.4		1.3
Expected return on plan assets		(4.4)		(4.2)
Amortization of prior service credit		(0.3)		(0.3)
Amortization of net actuarial gain		(3.0)		(2.7)
Net periodic benefit credit		$	(5.3)	$	(4.7)

During the three months ended March 31, 2022, we made contributions and payments of $1.2 million related to our pension plans and an insignificant amount related to our OPEB plans. We expect to make contributions and payments of $2.1 million related to our pension plans and $0.1 million related to our OPEB plans during the remainder of 2022, dependent upon various factors affecting us, including our liquidity position and possible tax law changes.

NOTE 15—SEGMENT INFORMATION

We use net income attributed to common shareholder to measure segment profitability and to allocate resources to our businesses. At March 31, 2022, we reported two segments, which are described below.

Our utility segment includes our electric utility operations, including steam operations, and our natural gas utility operations.

•Our electric utility operations are engaged in the generation, distribution, and sale of electricity to customers in southeastern Wisconsin (including metropolitan Milwaukee), east central Wisconsin, and northern Wisconsin. In addition, our steam operations produce, distribute, and sell steam to customers in metropolitan Milwaukee.

•Our natural gas utility operations are engaged in the purchase, distribution, and sale of natural gas to retail customers as well as the transportation of customer-owned natural gas in southeastern, east central, and northern Wisconsin.

No significant items were reported in the other segment during the three months ended March 31, 2022 and 2021.

NOTE 16—VARIABLE INTEREST ENTITIES

The primary beneficiary of a VIE must consolidate the entity's assets and liabilities. In addition, certain disclosures are required for significant interest holders in VIEs.


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We assess our relationships with potential VIEs, such as our coal suppliers, natural gas suppliers, coal transporters, natural gas transporters, and other counterparties related to PPAs, investments, and joint ventures. In making this assessment, we consider, along with other factors, the potential that our contracts or other arrangements provide subordinated financial support, the obligation to absorb the entity's losses, the right to receive residual returns of the entity, and the power to direct the activities that most significantly impact the entity's economic performance.

WEPCo Environmental Trust Finance I, LLC

In November 2020, the PSCW issued a financing order approving the securitization of $100 million of undepreciated environmental control costs related to our retired Pleasant Prairie power plant, the carrying costs accrued on the $100 million during the securitization process, and the related financing fees. The financing order also authorized us to form WEPCo Environmental Trust, a bankruptcy-remote special purpose entity, for the sole purpose of issuing ETBs to recover the costs approved in the financing order. WEPCo Environmental Trust is our wholly-owned subsidiary.

In May 2021, WEPCo Environmental Trust issued ETBs and used the proceeds to acquire environmental control property from us. The environmental control property is recorded as a regulatory asset on our balance sheets and includes the right to impose, collect, and receive a non-bypassable environmental control charge from our retail electric distribution customers until the ETBs are paid in full and all financing costs have been recovered. The ETBs are secured by the environmental control property. Cash collections from the environmental control charge, and funds on deposit in trust accounts, are the sole source of funds to satisfy the debt obligation. The bondholders have no recourse to us or any of our affiliates other than WEPCo Environmental Trust.

We act as the servicer of the environmental control property on behalf of WEPCo Environmental Trust and are responsible for metering, calculating, billing, and collecting the environmental control charge. As necessary, we are authorized to implement periodic adjustments of the environmental control charge. The adjustments are designed to ensure the timely payment of principal, interest, and other ongoing financing costs. We remit all collections of the environmental control charge to an indenture trustee of WEPCo Environmental Trust.

WEPCo Environmental Trust is a VIE primarily because its equity capitalization is insufficient to support its operations. As described above, we have the power to direct the activities that most significantly impact WEPCo Environmental Trust's economic performance. Therefore, we are considered the primary beneficiary of WEPCo Environmental Trust, and consolidation is required.

The following table summarizes the impact of WEPCo Environmental Trust on our balance sheet.


(in millions)	March 31, 2022		December 31, 2021
Assets
Other current assets (restricted cash)	$	5.6	$	2.4
Regulatory assets	98.2		100.7
Other long-term assets (restricted cash)	0.6		0.6

Liabilities
Current portion of long-term debt	8.8		8.8
Accounts payable	0.1		—
Other current liabilities (accrued interest)	0.5		0.1
Long-term debt	102.8		102.7

Power Purchase Commitment

We have a PPA with LSP-Whitewater Limited Partnership that represents a variable interest. This agreement is for 236.5 MWs of firm capacity from a natural gas-fired cogeneration facility, and we account for it as a finance lease. The agreement expires on May 31, 2022 and includes no minimum energy requirements over the remaining term. We have examined the risks of the entity, including operations, maintenance, dispatch, financing, fuel costs, and other factors, and have determined that we are not the primary beneficiary of the entity. We do not hold an equity or debt interest in the entity, and there is no residual guarantee associated with the PPA.

In November 2021, we entered into a tolling agreement with LSP-Whitewater Limited Partnership that commences on June 1, 2022 upon the expiration of the PPA. Concurrent with the execution of the tolling agreement, we, along with WPS, entered into an


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agreement to purchase the natural gas-fired cogeneration facility. Under the purchase agreement, we would acquire a 50% ownership interest, and our share of the cost is estimated to be $36.3 million. This purchase agreement is subject to regulatory approval by the PSCW, which is expected by the end of 2022. The tolling agreement extends until the earlier of the closing of the asset purchase or December 31, 2022. Since the terms of the tolling agreement are substantially similar to the terms of the PPA, we have determined that we are still not the primary beneficiary of the entity, and we will continue to account for the PPA and tolling agreement as a finance lease.

We have $3.9 million of required capacity payments over the remaining term of the PPA and tolling agreement. We believe that the required capacity payments under the agreements will continue to be recoverable in rates, and our maximum exposure to loss is limited to these capacity payments.

NOTE 17—COMMITMENTS AND CONTINGENCIES

We have significant commitments and contingencies arising from our operations, including those related to unconditional purchase obligations, environmental matters, and enforcement and litigation matters.

Unconditional Purchase Obligations

We have obligations to distribute and sell electricity and natural gas to our customers and expect to recover costs related to these obligations in future customer rates. In order to meet these obligations, we routinely enter into long-term purchase and sale commitments for various quantities and lengths of time. Our minimum future commitments related to these purchase obligations as of March 31, 2022, were approximately $8.4 billion.

Environmental Matters

Consistent with other companies in the energy industry, we face significant ongoing environmental compliance and remediation obligations related to current and past operations. Specific environmental issues affecting us include, but are not limited to, current and future regulation of air emissions such as sulfur dioxide, NOx, fine particulates, mercury, and GHGs; water intake and discharges; management of coal combustion products such as fly ash; and remediation of impacted properties, including former manufactured gas plant sites.

Air Quality

Cross State Air Pollution Rule – Good Neighbor Plan

The EPA is proposing to update and expand the Cross State Air Pollution Rule to regulate NOx emissions in 25 states as part of the “good neighbor provision." As part of the proposed rule, expected to take effect in May 2023, the EPA would establish a new trading budget that would impose lower NOx emissions budgets on states, at a level that the EPA determined to be achievable through existing emissions controls as well as planned plant retirements.

Based on a review of our existing units' 2020 and 2021 actual ozone season emissions and projected future emissions versus proposed NOx ozone season allocations, we anticipate that we should be able to comply with the expanded rule requirements without procuring additional allowances on the open market.

Our planned RICE units in Wisconsin are not subject to this rule as proposed as each unit is expected to be less than 25 MW. We will closely monitor whether the EPA expands coverage of the rule to sources between 15 MW and 25 MW in the final rule.

National Ambient Air Quality Standards

Ozone

After completing its review of the 2008 ozone standard, the EPA released a final rule in October 2015, creating a more stringent standard than the 2008 NAAQS. The 2015 ozone standard lowered the 8-hour limit for ground-level ozone. In December 2020, the EPA completed its 5-year review of the ozone standard and issued a final decision to retain, without any changes, the existing 2015 standard. Under Executive Order 13990, the Biden Administration ordered that all agencies review existing regulations, orders, guidance documents, policies, and similar actions promulgated, issued, or adopted between January 20, 2017 and January 20, 2021.


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In October 2021, the EPA announced that it will reconsider the December 2020 decision to retain the 2015 ozone standards with no changes and that it is targeting the end of 2023 to complete this reconsideration.

The EPA issued final nonattainment area designations for the 2015 ozone standard in April 2018. The following counties within our service territory were designated as partial nonattainment: Kenosha and Northern Milwaukee/Ozaukee. The area designations were challenged in the D.C. Circuit Court of Appeals in Clean Wisconsin et al. v. U.S. Environmental Protection Agency. A decision was issued in July 2020 remanding the rule to the EPA for further evaluation. As a result of the July 2020 remand, in June 2021, the EPA published its final action to revise the nonattainment area designations and/or boundaries for 13 counties associated with six nonattainment areas, including several in Wisconsin. Under the new designations, all of Milwaukee and Ozaukee counties are now listed as nonattainment and portions of Racine, Waukesha, and Washington counties have been added to the nonattainment area. Additionally, the Chicago, Illinois, Indiana, and Wisconsin nonattainment area now includes an expanded portion of Kenosha County. Preliminary 2019-2021 monitoring data indicates that the Milwaukee and Chicago nonattainment areas will likely be adjusted to "moderate" nonattainment for the 2015 standard.

In February 2022, revisions to the Wisconsin Administrative Code to adopt the 2015 standard were finalized. The amended regulations adopted the standards and incorporated by reference the federal air pollution monitoring requirements related to the standard. We believe that we are well positioned to meet the requirements associated with the 2015 ozone standard and do not expect to incur significant costs to comply with the associated state and federal rules.

Particulate Matter

In December 2020, the EPA completed its 5-year review of the 2012 annual and 24-hour standards for fine particulate matter. The EPA determined that no revisions were necessary to the current standard. This determination was also subject to review under Executive Order 13990 and in June 2021, the EPA announced it would reconsider the December 2020 decision. Under the Biden Administration's policy review, the EPA concluded that the scientific evidence and information from the December 2020 determination supports revising the level of the annual standard for the particulate matter NAAQS to below the current level of 12 micrograms per cubic meter, while retaining the 24-hour standard. In March 2022, the EPA’s CASAC sent a letter to the EPA finalizing its peer review of the particulate matter standards. Based on their review, the majority of the members of the CASAC found that lowering the annual standard to within a range of 8 to 10 micrograms per cubic meter was appropriate, while a minority of the members of the committee found that a range of 10 to 11 micrograms per cubic meter would be appropriate. Additionally, a majority of the CASAC members favored lowering the 24-hour standard, while a minority concurred with EPA’s preliminary conclusion to retain the 24-hour standard without revision.

A proposed rule is expected in summer 2022, and a final rule is expected in spring 2023. All counties within our service territory are in attainment with the current 2012 standards. If the EPA lowers the annual standard to 10 or 11 micrograms per cubic meter, our generating facilities within our service territory should remain in attainment. If the EPA lowers it to below 10 micrograms per cubic meter, there could be some non-attainment areas that may affect permitting of some smaller ancillary equipment located at our facilities.

Climate Change

The ACE rule, which replaced the Clean Power Plan, was vacated by the D.C. Circuit Court of Appeals in January 2021. In October 2021, the Supreme Court agreed to review the D.C. Circuit Court's ruling vacating the EPA's ACE rule. The Supreme Court is reviewing a number of issues regarding the scope of the EPA's regulatory authority to utilize Section 111(d) of the Clean Air Act to address CO2 emissions. In February 2022, the Supreme Court heard oral arguments, and a decision is expected this summer.

In January 2021, the EPA finalized a rule to revise the New Source Performance Standards for GHG emissions from new, modified, and reconstructed fossil-fueled power plants; however, it was vacated by the D.C. Circuit Court of Appeals in April 2021. The EPA has signaled that a rule replacement is expected by the end of 2022. WEC Energy Group continues to move forward on the ESG Progress Plan, which is heavily focused on reducing GHG emissions.

The ESG Progress Plan includes the retirement of older, fossil-fueled generation, to be replaced with zero-carbon-emitting renewables and clean natural gas-fueled generation. We have already retired approximately 1,500 MW of coal-fired generation since the beginning of 2018. Through its ESG Progress Plan, WEC Energy Group expects to retire approximately 1,600 MW of additional fossil-fueled generation by the end of 2025, which includes the planned retirements in 2023-2024 of OCPP Units 5-8. In May 2021, WEC Energy Group announced goals to achieve reductions in carbon emissions from its electric generation fleet by 60% by the end of 2025 and by 80% by the end of 2030, both from a 2005 baseline. WEC Energy Group expects to achieve these goals by


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making operating refinements, retiring less efficient generating units, and executing its capital plan. Over the longer term, the target for WEC Energy Group's generation fleet is net-zero CO2 emissions by 2050.

WEC Energy Group also continues to reduce methane emissions by improving its natural gas distribution systems. WEC Energy Group set a target across its natural gas distribution operations to achieve net-zero methane emissions by the end of 2030. WEC Energy Group plans to achieve its net-zero goal through an effort that includes both continuous operational improvements and equipment upgrades, as well as the use of RNG throughout its utility systems.

We are required to report our CO2 equivalent emissions from the electric generating facilities we operate under the EPA Greenhouse Gases Reporting Program. We reported CO2 equivalent emissions of 15.6 million metric tonnes to the EPA for 2021. The level of CO2 and other GHG emissions varies from year to year and is dependent on the level of electric generation and mix of fuel sources, which is determined primarily by demand, the availability of the generating units, the unit cost of fuel consumed, and how our units are dispatched by MISO.

We are also required to report CO2 equivalent emissions related to the natural gas that our natural gas operations distribute and sell. We reported aggregated CO2 equivalent emissions of 3.8 million metric tonnes to the EPA for 2021.

Water Quality

Clean Water Act Cooling Water Intake Structure Rule

In August 2014, the EPA issued a final regulation under Section 316(b) of the Clean Water Act that requires the location, design, construction, and capacity of cooling water intake structures at existing power plants to reflect the BTA for minimizing adverse environmental impacts. The federal rule became effective in October 2014 and applies to all of our existing generating facilities with cooling water intake structures, except for the ERGS units, which were permitted and received a final BTA determination under the rules governing new facilities. In 2016, the WDNR initiated a state rulemaking process to incorporate the federal Section 316(b) requirements into the Wisconsin Administrative Code. This new state rule, NR 111, became effective in June 2020, and the WDNR will apply it when establishing BTA requirements for cooling water intake structures at existing facilities. These BTA requirements are incorporated into WPDES permits for our facilities.

We have received a final BTA determination for Valley power plant. We have received interim BTA determinations for PWGS and OCPP Units 5-8. We believe that existing technology at the PWGS satisfies the BTA requirements; however, a final determination will not be made until the WPDES permit is renewed for this facility, which is expected to be by the third quarter of 2022. We also believe that existing technology installed at the OCPP facility meets the BTA requirements; however, it is anticipated that these four generating units will be retired prior to the WDNR making a final BTA decision.

As a result of past capital investments completed to address Section 316(b) compliance, we believe our fleet overall is well positioned to continue to meet this regulation and do not expect to incur significant additional compliance costs.

Steam Electric Effluent Limitation Guidelines

The EPA's final 2015 ELG rule took effect in January 2016 and was modified in 2020 to revise the treatment technology requirements related to BATW and wet FGD wastewaters at existing facilities. This rule created new requirements for several types of power plant wastewaters. The two new requirements that affect us relate to discharge limits for BATW and wet FGD wastewater. Our power plant facilities already have advanced wastewater treatment technologies installed that meet many of the discharge limits established by this rule. Modifications to OC 7 and OC 8 were completed and placed in-service in mid-2021. Wastewater treatment system modifications also will be required for wet FGD discharges and site wastewater from the ERGS units. Based on engineering cost estimates, we expect that compliance with the ELG rule will require an additional $90 million in capital investment. In December 2021, the PSCW Division of Energy Regulation and Analysis issued a Certificate of Authority approving the ERGS FGD wastewater treatment system modification. The BATW modifications do not require PSCW approval prior to construction. All of these ELG required projects are either in-service or are on track for completion by the WPDES permit deadline in December 2023.

In July 2021, the EPA announced that it intends to initiate rulemaking to revise the ELG Rule as modified in 2020. The EPA has stated that the ELG Rule will continue to be implemented and enforced while the agency pursues this rulemaking process. The EPA plans to propose a revised rule in the fall of 2022.


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Waters of the United States

In December 2021, the EPA and the United States Army Corps of Engineers together released a proposed rule to repeal the April 2020 Navigable Waters Protection Rule that defined WOTUS. The purpose of this proposed rule will be to restore regulations defining WOTUS that were in place prior to 2015 and to update certain provisions to be consistent with relevant Supreme Court decisions. The pre-2015 approach involves applying factors established through case law and agency precedents to determine whether a wetland or surface drainage feature is subject to federal jurisdiction. In January 2022, the Supreme Court granted certiorari in a case to evaluate the proper test for determining whether wetlands are WOTUS. At this point, our projects requiring federal permits are moving ahead, but we are monitoring to better understand potential future impacts. This case, once decided, should provide clarity regarding the definition of WOTUS. We will continue to monitor this litigation and any subsequent agency action.

Land Quality

Manufactured Gas Plant Remediation

We have identified sites at which we or a predecessor company owned or operated a manufactured gas plant or stored manufactured gas. We have also identified other sites that may have been impacted by historical manufactured gas plant activities. We are responsible for the environmental remediation of these sites. We are also working with the state of Wisconsin in our investigation and remediation planning. These sites are at various stages of investigation, monitoring, remediation, and closure.

The future costs for detailed site investigation, future remediation, and monitoring are dependent upon several variables including, among other things, the extent of remediation, changes in technology, and changes in regulation. Historically, our regulators have allowed us to recover incurred costs, net of insurance recoveries and recoveries from potentially responsible parties, associated with the remediation of manufactured gas plant sites. Accordingly, we have established regulatory assets for costs associated with these sites.

We have established the following regulatory assets and reserves for manufactured gas plant sites:


(in millions)	March 31, 2022		December 31, 2021
Regulatory assets	$	16.4	$	16.8
Reserves for future environmental remediation (1)	10.7		10.7

(1)Recorded within other long-term liabilities on our balance sheets.

Enforcement and Litigation Matters

We are involved in legal and administrative proceedings before various courts and agencies with respect to matters arising in the ordinary course of business. Although we are unable to predict the outcome of these matters, management believes that appropriate reserves have been established and that final settlement of these actions will not have a material impact on our financial condition or results of operations.

NOTE 18—SUPPLEMENTAL CASH FLOW INFORMATION


	Three Months Ended March 31
(in millions)	2022		2021
Cash paid for interest, net of amount capitalized	$	83.6	$	91.5

Significant non-cash investing and financing transactions:
Accounts payable related to construction costs	51.4		24.4

Increase in receivable related to insurance proceeds	—		14.1

The statements of cash flows include our activity related to cash, cash equivalents, and restricted cash. Our restricted cash primarily consists of cash on deposit in financial institutions that is restricted to satisfy the requirements of certain debt agreements at WEPCo Environmental Trust. See Note 16, Variable Interest Entities, for more information.


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The following table reconciles the cash, cash equivalents, and restricted cash amounts reported within the balance sheets to the total of these amounts shown on the statements of cash flows:


(in millions)	March 31, 2022		December 31, 2021
Cash and cash equivalents	$	6.0	$	—
Restricted cash included in other current assets	5.6		2.4
Restricted cash included in other long term assets	0.6		0.6
Cash, cash equivalents, and restricted cash	$	12.2	$	3.0

NOTE 19—REGULATORY ENVIRONMENT

2023 and 2024 Rates

In April 2022, we filed a request with the PSCW to increase our retail electric, natural gas, and steam rates, effective January 1, 2023. The request reflected the following:


Proposed 2023 rate increase
Electric	$	260.5	million	/	8.4%
Gas	$	50.7	million	/	10.7%
Steam	$	3.3	million	/	15.5%
Proposed ROE (1)	10.0%
Proposed common equity component average on a financial basis (1)	53.0%

(1) The proposed ROE is consistent with our currently authorized ROE. Our common equity component average is currently 52.5%.

The primary drivers of the requested increase in electric rates are capital investments in new wind, solar, and battery storage; capital investments in natural gas generation; reliability investments, including grid hardening projects to bury power lines and strengthen our distribution system against severe weather; and changes in wholesale business with other utilities. Many of these investments have already been approved by the PSCW.

The requested increase in natural gas rates primarily relates to capital investments that have been previously approved by the PSCW, including LNG storage for our natural gas distribution system.

We also proposed continuing to use an earnings sharing mechanism. Under the proposed earnings sharing mechanism, if we earn above our authorized ROE: (i) we would retain 100.0% of earnings for the first 25 basis points above the authorized ROE; (ii) 50.0% of the next 50 basis points would be required to be refunded to ratepayers; and (iii) 100.0% of any remaining excess earnings would be required to be refunded to ratepayers.

We are seeking a limited rate re-opener for 2024 to address additional revenue requirements associated with generation projects that are expected to be placed into service in 2023 and 2024 and our LNG project that is expected to be placed into service in 2023.

We expect a decision from the PSCW in the fourth quarter of 2022, with any rate adjustments expected to be effective January 1, 2023.

NOTE 20—NEW ACCOUNTING PRONOUNCEMENTS

Reference Rate Reform

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact this guidance may have on our financial statements and related disclosures.


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Government Assistance

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832). The amendments in this update increase the transparency surrounding government assistance by requiring disclosure of: (i) the types of assistance received; (ii) an entity’s accounting for the assistance; and (iii) the effect of the assistance on the entity’s financial statements. The update is effective for annual periods beginning after December 15, 2021. We plan to adopt this pronouncement for our fiscal year ending on December 31, 2022, and we are currently evaluating the impact this guidance may have on our financial statements and related disclosures.


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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CORPORATE DEVELOPMENTS

The following discussion should be read in conjunction with the accompanying unaudited financial statements and related notes and our 2021 Annual Report on Form 10-K.

Introduction

We are a wholly owned subsidiary of WEC Energy Group, and derive revenues from the distribution and sale of electricity and natural gas to retail customers in Wisconsin. We also provide wholesale electric service to numerous utilities and cooperatives for resale. We conduct our business primarily through our utility reportable segment. See Note 15, Segment Information, for more information on our reportable business segments.

Corporate Strategy

Our goal is to continue to build and sustain long-term value for our customers and WEC Energy Group's shareholders by focusing on the fundamentals of our business: environmental stewardship; reliability; operating efficiency; financial discipline; exceptional customer care; and safety. WEC Energy Group's capital investment plan for efficiency, sustainability and growth, referred to as its ESG Progress Plan, provides a roadmap to achieve this goal. It is an aggressive plan to cut emissions, maintain superior reliability, deliver significant savings for customers, and grow WEC Energy Group's and our investment in the future of energy.

Throughout its strategic planning process, WEC Energy Group takes into account important developments, risks and opportunities, including new technologies, customer preferences and affordability, energy resiliency efforts, and sustainability. WEC Energy Group published the results of a priority sustainability issue assessment in 2020, identifying the issues that are most important to the company and its stakeholders over the short and long terms. This risk and priority assessment has formed WEC Energy Group's direction as a company.

Creating a Sustainable Future

WEC Energy Group's ESG Progress Plan includes the retirement of older, fossil-fueled generation, to be replaced with zero-carbon-emitting renewables and clean natural gas-fired generation at its electric utilities, including us. When taken together, the retirements and new investments should better balance supply with demand, while maintaining reliable, affordable energy for our customers. The retirements will contribute to meeting WEC Energy Group's and our goals to reduce CO2 emissions from electric generation.

In May 2021, WEC Energy Group announced goals to achieve reductions in carbon emissions from its electric generation fleet by 60% by the end of 2025 and by 80% by the end of 2030, both from a 2005 baseline. WEC Energy Group expects to achieve these goals by making operating refinements, retiring less efficient generating units, and executing its capital plan. Over the longer term, the target for its generation fleet is net-zero CO2 emissions by 2050.

As part of our path toward these goals, we are exploring co-firing with natural gas at the ERGS coal-fired units. By the end of 2030, WEC Energy Group expects its use of coal will account for less than 5% of the power it supplies to its customers, and WEC Energy Group believes it will be in a position to eliminate coal as an energy source by the end of 2035.

WEC Energy Group already has retired more than 1,800 MWs of coal-fired generation since the beginning of 2018, which included the 2019 retirement of the Presque Isle power plant as well as the 2018 retirement of the Pleasant Prairie power plant. Through the ESG Progress Plan, WEC Energy Group expects to retire approximately 1,600 MW of additional fossil-fueled generation by the end of 2025, which includes the planned retirement in 2023-2024 of OCPP Units 5-8.

In addition to retiring these older, fossil-fueled plants, WEC Energy Group expects to invest approximately $3.5 billion from 2022-2026 in regulated renewable energy in Wisconsin. WEC Energy Group's plan is to replace a portion of the retired capacity by building and owning zero-carbon-emitting renewable generation facilities that are anticipated to include the following new investments made by either us or WPS based on specific customer needs:

•1,400 MW of utility-scale solar;


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•800 MW of battery storage; and

•100 MW of wind.

WEC Energy Group also plans on investing in a combination of clean, natural gas-fired generation, made by either us or WPS based on specific customer needs, including:

•100 MW of RICE natural gas-fueled generation;

•the planned purchase of 200 MW of capacity in West Riverside — a new, combined-cycle natural gas plant completed by Alliant Energy in Wisconsin; and

•the planned purchase of Whitewater, a natural gas-fired combined cycle electric generating facility with a capacity of 236.5 MW.

The new investments discussed above are in addition to the renewable projects currently underway. For more details, see Liquidity and Capital Resources – Cash Requirements – Significant Capital Projects.

In addition, we have partnered with an unaffiliated utility to construct Badger Hollow II, a utility scale solar project that is expected to enter commercial operation in the first half of 2023. Once constructed, we will own 100 MW of the project.

In December 2018, we received approval from the PSCW for two renewable energy pilot programs. The Solar Now pilot is expected to add a total of 35 MW of solar generation to our portfolio, allowing non-profit and government entities, as well as commercial and industrial customers to site utility owned solar arrays on their property. Under this program, we have energized 23 Solar Now projects and currently have another one under construction, together totaling more than 27 MW. The second program, the Dedicated Renewable Energy Resource pilot, would allow large commercial and industrial customers to access renewable resources that we would operate, adding up to 150 MW of renewables to our portfolio, and allowing these larger customers to meet their sustainability and renewable energy goals.

In August 2021, the PSCW approved pilot programs for us to install and maintain EV charging equipment for customers at their homes or businesses. The programs provide direct benefits to customers by removing cost barriers associated with installing EV equipment. In October 2021, subject to the receipt of any necessary regulatory approvals, WEC Energy Group pledged to expand the EV charging network within its utilities' electric service territories. In doing so, WEC Energy Group joined a coalition of utility companies in a unified effort to make EV charging convenient and widely available throughout the Midwest. The coalition WEC Energy Group joined is planning to help build and grow EV charging corridors, enabling the general public to safely and efficiently charge their vehicles.

WEC Energy Group also continues to reduce methane emissions by improving its natural gas distribution system. WEC Energy Group set a target across its natural gas distribution operations to achieve net-zero methane emissions by the end of 2030. WEC Energy Group plans to achieve its net-zero goal through an effort that includes both continuous operational improvements and equipment upgrades, as well as the use of RNG throughout its utility systems.

As part of WEC Energy Group's effort to look for new opportunities in sustainable energy, it is testing the effects of blending hydrogen, a clean generating fuel, with natural gas at one of its RICE generating units in the Upper Peninsula of Michigan. WEC Energy Group is partnering with the Electric Power Research Institute in this research that could help create another viable option for decarbonizing the economy. The project will be carried out in 2022, and the results will be shared across the industry.

Reliability

We have made significant reliability-related investments in recent years, and in accordance with the ESG Progress Plan, expect to continue strengthening and modernizing our generation fleet, as well as our electric and natural gas distribution networks to further improve reliability.

We received approval to construct an LNG facility to meet anticipated peak demand. Commercial operation of the LNG facility is targeted for the end of 2023.

For more details, see Liquidity and Capital Resources – Cash Requirements – Significant Capital Projects.


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Operating Efficiency

We continually look for ways to optimize the operating efficiency of our company and will continue to do so under the ESG Progress Plan. For example, we are making progress on our AMI program, replacing aging meter-reading equipment on both our network and customer property. An integrated system of smart meters, communication networks, and data management programs enables two-way communication between us and our customers. This program reduces the manual effort for disconnects and reconnects and enhances outage management capabilities.

WEC Energy Group continues to focus on integrating the resources of its businesses and finding the best and most efficient processes while meeting all applicable legal and regulatory requirements.

Financial Discipline

A strong adherence to financial discipline is essential to meeting our earnings projections and maintaining a strong balance sheet, stable cash flows, and quality credit ratings.

We follow an asset management strategy that focuses on investing in and acquiring assets consistent with our strategic plans, as well as disposing of assets, including property, plants, and equipment, that are no longer strategic to operations, are not performing as intended, or have an unacceptable risk profile. See Note 2, Acquisition, for more information on our acquisition of Whitewater.

Exceptional Customer Care

Our approach is driven by an intense focus on delivering exceptional customer care every day. We strive to provide the best value for our customers by demonstrating personal responsibility for results, leveraging our capabilities and expertise, and using creative solutions to meet or exceed our customers’ expectations.

A multiyear effort is driving a standardized, seamless approach to digital customer service across all of the WEC Energy Group companies. It has moved all utilities, including us, to a common platform for all customer-facing self-service options. Using common systems and processes reduces costs, provides greater flexibility and enhances the consistent delivery of exceptional service to customers.

Safety

Safety is one of our core values and a critical component of our culture. We are committed to keeping our employees and the public safe through a comprehensive corporate safety program that focuses on employee engagement and elimination of at-risk behaviors.

Under our "Target Zero" mission, we have an ultimate goal of zero incidents, accidents, and injuries. Management and union leadership work together to reinforce the Target Zero culture. We set annual goals for safety results as well as measurable leading indicators, in order to raise awareness of at-risk behaviors and situations and guide injury-prevention activities. All employees are encouraged to report unsafe conditions or incidents that could have led to an injury. Injuries and tasks with high levels of risk are assessed, and findings and best practices are shared across the WEC Energy Group companies.

Our corporate safety program provides a forum for addressing employee concerns, training employees and contractors on current safety standards, and recognizing those who demonstrate a safety focus.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2022

Earnings

Our earnings for the first quarter of 2022 were $138.5 million, compared with $127.0 million for the same quarter in 2021. See below for additional information on the $11.5 million increase in earnings.


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Expected 2022 Annual Effective Tax Rate

We expect our 2022 annual effective tax rate to be between 25% and 26%. Our effective tax rate calculations are revised every quarter based on the best available year-end tax assumptions, adjusted in the following year after returns are filed. Tax accrual estimates are trued-up to the actual amounts claimed on the tax returns and further adjusted after examinations by taxing authorities, as needed.

Non-GAAP Financial Measures

The discussion below addresses the contribution of our utility segment to net income attributed to common shareholder. The discussion includes financial information prepared in accordance with GAAP, as well as electric margins and natural gas margins, which are not measures of financial performance under GAAP. Electric margins (electric revenues less fuel and purchased power costs) and natural gas margins (natural gas revenues less cost of natural gas sold) are non-GAAP financial measures because they exclude other operation and maintenance expense, depreciation and amortization, and property and revenue taxes.

We believe that electric and natural gas margins provide a useful basis for evaluating utility operations since the majority of prudently incurred fuel and purchased power costs, as well as prudently incurred natural gas costs, are passed through to customers in current rates. As a result, management uses electric and natural gas margins internally when assessing the operating performance of our utility segment as these measures exclude the majority of revenue fluctuations caused by changes in these expenses. Similarly, the presentation of electric and natural gas margins herein is intended to provide supplemental information for investors regarding our operating performance.

Our electric margins and natural gas margins may not be comparable to similar measures presented by other companies. Furthermore, these measures are not intended to replace operating income as determined in accordance with GAAP as an indicator of operating performance. Our utility segment operating income for the three months ended March 31, 2022 and 2021 was $289.1 million and $255.6 million, respectively. The discussion below includes a table that provides the calculation of electric margins and natural gas margins, along with a reconciliation to the most directly comparable GAAP measure, operating income.


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Utility Segment Contribution to Net Income Attributed to Common Shareholder

The following table compares our utility segment's contribution to net income for the first quarter of 2022, with the same quarter in 2021, including favorable or better, "B", and unfavorable or worse, "W", variances.


	Three Months Ended March 31
(in millions)	2022		2021		B (W)
Electric revenues	$	835.5	$	788.8	$	46.7
Fuel and purchased power	279.8		255.7		(24.1)
Total electric margins	555.7		533.1		22.6

Natural gas revenues	236.5		216.4		20.1
Cost of natural gas sold	164.4		148.5		(15.9)
Total natural gas margins	72.1		67.9		4.2

Total electric and natural gas margins	627.8		601.0		26.8

Other operation and maintenance	192.6		209.3		16.7
Depreciation and amortization	119.1		110.7		(8.4)
Property and revenue taxes	27.0		25.4		(1.6)
Operating income	289.1		255.6		33.5

Other income, net	10.6		7.4		3.2
Interest expense	113.4		116.2		2.8
Income before income taxes	186.3		146.8		39.5

Income tax expense	47.5		19.5		(28.0)
Preferred stock dividends of subsidiary	0.3		0.3		—
Net income attributed to common shareholder	$	138.5	$	127.0	$	11.5

The following table shows a breakdown of other operation and maintenance:


	Three Months Ended March 31
(in millions)	2022		2021		B (W)
Operation and maintenance not included in line items below	$	78.9	$	77.1	$	(1.8)
Transmission (1)	68.9		84.4		15.5
We Power (2)	27.6		29.4		1.8
Regulatory amortizations and other pass through expenses (3)	17.2		18.4		1.2

Total other operation and maintenance	$	192.6	$	209.3	$	16.7

(1)Represents transmission expense that we are authorized to collect in rates. The PSCW has approved escrow accounting for American Transmission Company LLC and MISO network transmission expenses. As a result, we defer as a regulatory asset or liability, the difference between actual transmission costs and those included in rates until recovery or refund is authorized in a future rate proceeding. During the first quarter of 2022 and 2021, $82.9 million and $86.9 million, respectively, of costs were billed to us by transmission providers.

During the first quarter of 2022 we amortized $15.5 million of the regulatory liabilities associated with our transmission escrow to offset certain 2022 revenue deficiencies, as approved by the PSCW in order to forego filing for a 2022 base rate increase. This amortization drove the decrease in transmission expense in the first quarter of 2022, compared with the same quarter in 2021. See Note 22, Regulatory Environment, in our 2021 Annual Report on Form 10-K for additional information on 2022 base rates.

(2)Represents costs associated with the We Power generation units, including operating and maintenance costs we recognized. During the first quarter of 2022 and 2021, $24.8 million and $25.9 million, respectively, of costs were billed to or incurred by us related to the We Power generation units, with the difference in costs billed or incurred and expenses recognized, either deferred or deducted from the regulatory asset.

(3)Regulatory amortizations and other pass through expenses are substantially offset in margins and therefore do not have a significant impact on net income.


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The following tables provide information on delivered sales volumes by customer class and weather statistics:


	Three Months Ended March 31
	MWh (in thousands)
Electric Sales Volumes	2022	2021	B (W)
Customer Class
Residential	1,986.6	1,983.9	2.7
Small commercial and industrial	2,169.0	2,077.5	91.5
Large commercial and industrial	1,598.9	1,575.1	23.8
Other	31.9	35.6	(3.7)
Total retail	5,786.4	5,672.1	114.3
Wholesale	324.0	317.1	6.9
Resale	1,146.9	1,847.4	(700.5)
Total sales in MWh	7,257.3	7,836.6	(579.3)


	Three Months Ended March 31
	Therms (in millions)
Natural Gas Sales Volumes	2022	2021	B (W)
Customer Class
Residential	189.8	177.3	12.5
Commercial and industrial	107.7	95.4	12.3
Total retail	297.5	272.7	24.8
Transportation	98.4	95.9	2.5
Total sales in therms	395.9	368.6	27.3


	Three Months Ended March 31
	Degree Days
Weather (1)	2022	2021	B (W)
Heating (3,267 Normal)	3,325	3,120	6.6	%

(1)Normal degree days are based on a 20-year moving average of monthly temperatures from Mitchell International Airport in Milwaukee, Wisconsin.

Electric Revenues

Electric revenues increased $46.7 million during the first quarter 2022, compared with the same quarter in 2021. To the extent that changes in fuel and purchased power costs are passed through to customers, the changes are offset by comparable changes in revenues. See the discussion of electric utility margins below for more information related to the recovery of fuel and purchased power costs and the remaining drivers of the changes in electric revenues.

Electric Utility Margins

Electric utility margins increased $22.6 million during the first quarter of 2022, compared with the same quarter in 2021. The significant factors impacting the higher electric utility margins were:

•A $23.3 million increase in margins related to the impact of unprotected excess deferred taxes in the first quarter of 2021, which we agreed to return to customers in our PSCW-approved Wisconsin rate orders. This increase in margins is offset in income taxes.

•Securitization revenues of $3.2 million received during the first quarter of 2022 related to an environmental control charge collected from our retail electric distribution customers. We began assessing this charge in June 2021, subsequent to the issuance of the ETBs by WEPCo Environmental Trust in May 2021, in accordance with a November 2020 PSCW financing order. See Note 16, Variable Interest Entities, for more information. These revenues are offset in depreciation and amortization as well as interest expense.


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•A $2.4 million quarter-over-quarter positive impact from collections of fuel and purchased power costs compared with costs approved in rates. Under the Wisconsin fuel rules, the margins of our electric utilities are impacted by under- or over-collections of certain fuel and purchased power costs that are within a 2% price variance from the costs included in rates, and the remaining variance beyond the 2% price variance is generally deferred for future recovery or refund to customers.

These increases in margins were partially offset by:

•A $2.2 million decrease in margins driven by higher coal ash handling costs as well as higher costs related to the purchase of required capacity.

•Lower margins of $2.1 million driven by a decrease in wholesale customers related to the expiration of certain wholesale contracts.

Natural Gas Revenues

Natural gas revenues increased $20.1 million during the first quarter of 2022, compared with the same quarter in 2021. Because prudently incurred natural gas costs are passed through to our customers in current rates, the changes are offset by comparable changes in revenues. The average per-unit cost of natural gas increased 1.4% during the first quarter of 2022, compared with the same quarter in 2021. The remaining drivers of changes in natural gas revenues are described in the discussion of natural gas utility margins below.

Natural Gas Utility Margins

Natural gas utility margins increased $4.2 million during the first quarter of 2022, compared with the same quarter in 2021. The most significant factor impacting the higher natural gas utility margins was higher sales volumes, primarily driven by colder winter weather during the first quarter of 2022, as well as the continued economic recovery in Wisconsin from the COVID-19 pandemic.

Other Operating Expenses (includes other operation and maintenance, depreciation and amortization, and property and revenue taxes)

Other operating expenses at the utility segment decreased $6.7 million during the first quarter of 2022, compared with the same quarter in 2021. The significant factors impacting the decrease in operating expenses were:

•A $15.5 million decrease in transmission expense driven by the amortization of a certain portion of our regulatory liabilities associated with transmission escrow balances, as discussed in the notes under the other operation and maintenance table above.

•A $1.8 million decrease in other operation and maintenance expense related to the We Power leases, as discussed in the notes under the other operation and maintenance table above.

•A $1.2 million decrease in regulatory amortizations and other pass through expenses, as discussed in the notes under the other operation and maintenance table above.

These decreases in other operating expenses were partially offset by:

•An $8.4 million increase in depreciation and amortization, driven by assets being placed into service as we continue to execute on our capital plan, as well as an increase related to the We Power leases. In addition, a portion of the increase is related to securitization amortization, which is offset in revenues.

•A $4.8 million increase in electric and natural gas distribution expenses, primarily driven by increased maintenance expense related to significant winter storms in 2022.

Other Income, Net

Other income, net increased $3.2 million during the first quarter of 2022, compared with the same quarter in 2021, driven by higher net credits from the non-service components of our net periodic pension and OPEB costs. See Note 14, Employee Benefits, for more


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information on our benefit costs. An increase in allowance for funds used during construction-equity, driven by continued capital investment, also contributed to the higher other income, net.

Interest Expense

Interest expense decreased $2.8 million during the first quarter of 2022, compared with the same quarter in 2021, driven by lower interest expense on finance lease liabilities, primarily related to the We Power leases, as finance lease liabilities decrease each year as payments are made. Also contributing to the decrease, in June 2021, we were able to refinance $300 million of debt obligation that matured with lower rate debt.

Income Tax Expense

Income tax expense increased $28.0 million during the first quarter of 2022, compared with the same quarter in 2021. The increase in income tax expense was due to an approximate $23 million negative impact related to lower quarter-over-quarter amortization of the unprotected excess deferred tax benefits from the Tax Legislation in connection with the Wisconsin rate orders approved by the PSCW, effective January 1, 2020. The impact due to the benefit from the amortization of the unprotected excess deferred tax benefits from the Tax Legislation did not impact earnings as there was an offsetting impact in operating income. Also contributing to this increase in income tax expense was an increase in pretax income. See Note 10, Income Taxes, and Note 22, Regulatory Environment, in our 2021 Annual Report on Form 10-K for additional information on unprotected tax benefits.

LIQUIDITY AND CAPITAL RESOURCES

We expect to maintain adequate liquidity to meet our cash requirements for the operation of our business and implementation of our corporate strategy through the internal generation of cash from operations and access to the capital markets.

Cash Flows

The following table summarizes our cash flows during the three months ended March 31:


(in millions)	2022		2021		Change in 2022 Over 2021
Cash provided by (used in):
Operating activities	$	308.2	$	203.2	$	105.0
Investing activities	(99.1)		(167.2)		68.1
Financing activities	(199.9)		(35.9)		(164.0)

Operating Activities

Net cash provided by operating activities increased $105.0 million during the first quarter of 2022, compared with the same quarter in 2021, driven by:

•A $198.6 million increase in cash related to higher overall collections from customers as a result of an increase in sales volumes during the first quarter of 2022, compared with the same quarter in 2021, driven by colder winter weather and the continued economic recovery in Wisconsin from the COVID-19 pandemic. We also over-collected natural gas costs in the first quarter of 2022, as natural gas costs were lower than what was anticipated in rates. In addition, we began collecting securitization revenues in June 2021 related to the issuance of the ETBs by WEPCo Environmental Trust. See Note 16, Variable Interest Entities, for more information on the issuance of WEPCo Environmental Trust's ETBs.

•A $47.5 million increase in cash due to realized gains on derivative instruments as well as higher collateral received from counterparties during the first quarter of 2022, driven by an increase in the fair value of our natural gas derivative assets during the first quarter of 2022, compared with the same quarter in 2021.


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These increases in net cash provided by operating activities were partially offset by:

•A $105.8 million decrease in cash from higher payments for other operation and maintenance expenses. During the first quarter of 2022, our payments were higher for storm restoration as well as due to the timing of payments for accounts payable.

•A $41.2 million decrease in cash from higher payments for fuel and purchased power at our plants during the first quarter of 2022, compared with the same quarter in 2021. We incurred higher natural gas costs during the first quarter of 2022, compared with the same quarter in 2021, as a result of an increase in the price of natural gas.

Investing Activities

Net cash used in investing activities decreased $68.1 million during the first quarter of 2022, compared with the same quarter in 2021, driven by:

•A $41.1 million decrease in cash paid for capital expenditures, which is discussed in more detail below.

•Insurance proceeds of $41.0 million received during the first quarter of 2022 for property damage, primarily driven by proceeds received for the PSB claim. See Note 6, Property, Plant, and Equipment, for more information.

These decreases in net cash used in investing activities were partially offset by $11.3 million of proceeds received from affiliates during the first quarter of 2021, for assets transferred related to a customer billing system.

Capital Expenditures

Capital expenditures for the three months ended March 31 were as follows:


(in millions)	2022		2021		Change in 2022 Over 2021
Capital expenditures	$	139.5	$	180.6	$	(41.1)

The decrease in cash paid for capital expenditures during the first quarter of 2022, compared with the same quarter in 2021, was primarily driven by lower capital expenditures related to upgrades to our natural gas and electric distribution systems.

See Capital Resources and Requirements – Capital Requirements – Significant Capital Projects for more information.

Financing Activities

Net cash used in financing activities increased $164.0 million during the first quarter of 2022, compared with the same quarter in 2021, driven by:

•A $361.5 million decrease in cash due to $351.0 million of net repayments of commercial paper during the first quarter of 2022, compared with $10.5 million of net borrowings of commercial paper during the same quarter in 2021.

•A $50.0 million decrease in cash due to higher dividends paid to our parent during the first quarter of 2022, compared with the same quarter in 2021, to balance our capital structure.

These decreases in cash were partially offset by a $250.0 million increase in cash related to higher equity contributions received from our parent during the first quarter of 2022, compared with the same quarter in 2021, to balance our capital structure.

Significant Financing Activities

For more information on our financing activities, see Note 8, Short-Term Debt and Lines of Credit.

Cash Requirements

We require funds to support and grow our business. Our significant cash requirements primarily consist of capital and investment expenditures, payments to retire and pay interest on long-term debt, the payment of common stock dividends to our parent, and


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the funding of our ongoing operations. See the discussion below and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Cash Requirements in our 2021 Annual Report on Form 10-K for additional information regarding our significant cash requirements.

Significant Capital Projects

We have several capital projects that will require significant capital expenditures over the next three years and beyond. All projected capital requirements are subject to periodic review and may vary significantly from estimates, depending on a number of factors. These factors include environmental requirements, regulatory restraints and requirements, changes in tax laws and regulations, acquisition and development opportunities, market volatility, economic trends, supply chain disruptions, the COVID-19 pandemic, inflation, and interest rates. Our estimated capital expenditures and acquisitions for the next three years are reflected below. These amounts include anticipated expenditures for environmental compliance and certain remediation issues. For a discussion of certain environmental matters affecting us, see Note 17, Commitments and Contingencies.


(in millions)
2022	$	1,204.2	(1)
2023	1,360.2
2024	1,173.9
Total	$	3,738.3

(1)This includes actual capital expenditures already incurred in 2022, as well as estimated capital expenditures for the remainder of the year.

We continue to upgrade our electric and natural gas distribution systems to enhance reliability. These upgrades include the AMI program. AMI is an integrated system of smart meters, communication networks, and data management systems that enable two-way communication between utilities and customers.

WEC Energy Group is committed to investing in solar, wind, battery storage, and clean natural gas-fired generation. Below are examples of projects that are proposed or currently underway.

•We have partnered with an unaffiliated utility to construct a utility-scale solar project, Badger Hollow II, that will be located in Iowa County, Wisconsin. Once constructed, we will own 100 MW of the project. Our share of the cost of this project is estimated to be approximately $130 million. Commercial operation of Badger Hollow II is targeted for the first half of 2023.

•We, along with WPS and an unaffiliated utility, received PSCW approval to acquire and construct the Paris Solar-Battery Park, a utility-scale solar-powered electric generating facility with a battery energy storage system. The project will be located in Kenosha County, Wisconsin and once constructed, we will own 150 MW of solar generation and 82 MW of battery storage of this project. Our share of the cost of this project is estimated to be approximately $325 million, with construction expected to be completed by the end of 2023.

•We, along with WPS, received approval to accelerate capital investments in two wind parks. Our share of the investment is expected to be approximately $85 million to repower major components of Blue Sky Green Field Wind Park, which is expected to be completed by the end of 2022.

•In March 2021, we, along with WPS and an unaffiliated utility, filed an application with the PSCW for approval to acquire and construct the Darien Solar-Battery Park, a utility-scale solar-powered electric generating facility with a battery energy storage system. The project will be located in Rock and Walworth counties, Wisconsin and once constructed, we will own 188 MW of solar generation and 56 MW of battery storage of this project. If approved, our share of the cost of this project is estimated to be approximately $335 million, with construction expected to be completed by the end of 2023.

•In April 2021, we, along with WPS and an unaffiliated utility, filed an application with the PSCW for approval to acquire the Koshkonong Solar-Battery Park, a utility-scale solar-powered electric generating facility with a battery energy storage system. The project will be located in Dane County, Wisconsin and once constructed, we will own 225 MW of solar generation and 124 MW of battery storage of this project. If approved, our share of the cost of this project is estimated to be approximately $488 million, with construction expected to be completed by the second quarter of 2024.

•We, along with WPS, received PSCW approval to construct a natural gas-fired generation facility at WPS's existing Weston power plant site in northern Wisconsin. The new facility will consist of seven RICE units. Once constructed, we will own 64 MW of this


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project. Our share of the cost of this project is estimated to be approximately $85 million, with construction expected to be completed in 2023.

•In November 2021, we, along with WPS, signed an asset purchase agreement to acquire Whitewater, a commercially operational 236.5 MW dual fueled (natural gas and low sulfur fuel oil) combined cycle electrical generation facility in Whitewater, Wisconsin. In December 2021, we, along with WPS, filed an application with the PSCW for approval to acquire Whitewater. If approved, our share of the cost of this facility is estimated to be $36.3 million for 50% of the capacity, with the transaction expected to close in January 2023.

•In January 2022, WPS, along with an unaffiliated utility, filed an application with the PSCW for approval to acquire a portion of West Riverside's nameplate capacity. WPS is also requesting approval to assign the option to purchase part of West Riverside to us. If approved, we or WPS would acquire 100 MW of capacity, in the first of two potential option exercises. West Riverside is a new, combined-cycle natural gas plant recently completed by an unaffiliated utility in Rock County, Wisconsin. If approved, and WPS assigns the option to us, our share of the cost of this ownership interest would be approximately $91 million, with the transaction expected to close in the second quarter of 2023.

In March 2022, the DOC opened an investigation into whether new tariffs should be imposed on solar panels and cells imported from multiple southeast Asian countries, which could impact the timing and cost of our planned solar projects. See Factors Affecting Results, Liquidity, and Capital Resources – Regulatory, Legislative, and Legal Matters – United States Department of Commerce Complaint and Factors Affecting Results, Liquidity, and Capital Resources – Regulatory, Legislative, and Legal Matters – Withhold Release Order Related to Silica-Based Products for information on the DOC investigation and potential impacts to our solar projects as a result of CBP actions related to solar panels, respectively.

We have received approval to construct an LNG facility. The facility would provide us with approximately one billion cubic feet of natural gas supply to meet anticipated peak demand without requiring the construction of additional interstate pipeline capacity. The facility is expected to reduce the likelihood of constraints on our natural gas system during the highest demand days of winter. The project is estimated to cost approximately $185 million. Commercial operation of the LNG facility is targeted for the end of 2023.

Long-Term Debt

There were no material changes in our outstanding long-term debt during the three months ended March 31, 2022.

Common Stock Dividends

During the three months ended March 31, 2022, we paid common stock dividends of $110.0 million to the sole holder of our common stock, WEC Energy Group.

Other Significant Cash Requirements

See Note 17, Commitments and Contingencies, for information regarding our minimum future commitments related to purchase obligations for the procurement of fuel, power, and gas supply, as well as the related storage and transportation. There were no material changes to our other significant commitments outside the ordinary course of business during the three months ended March 31, 2022.

Off-Balance Sheet Arrangements

We are a party to various financial instruments with off-balance sheet risk as a part of our normal course of business, including letters of credit that primarily support our commodity contracts. We believe that these agreements do not have, and are not reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. For additional information, see Note 8, Short-Term Debt and Lines of Credit, Note 13, Guarantees, and Note 16, Variable Interest Entities.


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Sources of Cash

Liquidity

We anticipate meeting our short-term and long-term cash requirements to operate our business and implement our corporate strategy through internal generation of cash from operations, equity contributions from our parent, and access to the capital markets, which allows us to obtain external short-term borrowings, including commercial paper, and intermediate or long-term debt securities. Cash generated from operations is primarily driven by sales of electricity and natural gas to our utility customers, reduced by costs of operations. Our access to the capital markets is critical to our overall strategic plan and allows us to supplement cash flows from operations with external borrowings to manage seasonal variations, working capital needs, commodity price fluctuations, unplanned expenses, and unanticipated events.

We maintain a bank back-up credit facility, which provides liquidity support for our obligations with respect to commercial paper and for general corporate purposes. We review our bank back-up credit facility needs on an ongoing basis and expect to be able to maintain adequate credit facilities to support our operations.

The amount, type, and timing of any financings in 2022, as well as in subsequent years, will be contingent on investment opportunities and our cash requirements and will depend upon prevailing market conditions, regulatory approvals, and other factors. We plan to maintain a capital structure consistent with that approved by the PSCW. For more information on our approved capital structure, see Item 1. Business – C. Regulation in our 2021 Annual Report on Form 10-K.

The issuance of our securities is subject to the approval of the PSCW. Additionally, with respect to the public offering of securities, we file registration statements with the SEC under the Securities Act of 1933, as amended (1933 Act). The amounts of securities authorized by the PSCW, as well as the securities registered under the 1933 Act, are closely monitored and appropriate filings are made to ensure flexibility in the capital markets.

Although not the case as of March 31, 2022, our current liabilities sometimes exceed our current assets. We do not expect this to have any impact on our liquidity as we currently believe that our cash and cash equivalents, our available capacity of $475.0 million under our existing revolving credit facility, cash generated from ongoing operations, and access to the capital markets are adequate to meet our short-term and long-term cash requirements.

See Note 8, Short-Term Debt and Lines of Credit, for more information about our credit facility and commercial paper.

Investments in Outside Trusts

We maintain investments in outside trusts to fund the obligation to provide pension and certain OPEB benefits to current and future retirees. These trusts had investments consisting of fixed income and equity securities that are subject to the volatility of the stock market and interest rates. For more information, see Investments in Outside Trusts in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Sources of Cash in our 2021 Annual Report on Form 10-K.

Debt Covenants

At March 31, 2022, we were in compliance with all covenants related to outstanding short-term and long-term debt. We expect to be in compliance with all such debt covenants for the foreseeable future.

Credit Rating Risk

Cash collateral postings and prepayments made with external parties, including postings related to exchange-traded contracts, and cash collateral posted by external parties were immaterial as of March 31, 2022. From time to time, we may enter into commodity contracts that could require collateral or a termination payment in the event of a credit rating change to below BBB- at S&P Global Ratings, a division of S&P Global Inc., and/or Baa3 at Moody’s Investors Service, Inc. If we had a sub-investment grade credit rating at March 31, 2022, we could have been required to post $100 million of additional collateral or other assurances pursuant to the terms of a PPA. We also have other commodity contracts that, in the event of a credit rating downgrade, could result in a reduction of our unsecured credit granted by counterparties.


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In addition, access to capital markets at a reasonable cost is determined in large part by credit quality. Any credit ratings downgrade could impact our ability to access capital markets.

Subject to other factors affecting the credit markets as a whole, we believe our current ratings should provide a significant degree of flexibility in obtaining funds on competitive terms. However, these security ratings reflect the views of the rating agency only. An explanation of the significance of these ratings may be obtained from the rating agency. Such ratings are not a recommendation to buy, sell, or hold securities. Any rating can be revised upward or downward or withdrawn at any time by a rating agency.

FACTORS AFFECTING RESULTS, LIQUIDITY, AND CAPITAL RESOURCES

The following is a discussion of certain factors that may affect our results of operations, liquidity, and capital resources. This discussion should be read together with the information in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Factors Affecting Results, Liquidity, and Capital Resources in our 2021 Annual Report on Form 10-K, which provides a more complete discussion of factors affecting us, including market risks and other significant risks, competitive markets, environmental matters, critical accounting policies and estimates, and other matters.

COVID-19 Pandemic

We have taken steps to mitigate the impact of the global COVID-19 pandemic. However, the extent to which the COVID-19 pandemic could continue to impact our results of operations and liquidity is largely dependent upon the ability of our customers to resume or to maintain normal operations. Adverse impacts to us and our subsidiaries from a prolonged COVID-19 pandemic environment could include a decrease in revenues, increased bad debt expense, increases in past due accounts receivable balances, and access to the capital markets at unfavorable terms or rates.

We will continue to monitor COVID-19 pandemic-related developments affecting our workforce, customers, and suppliers and will implement additional actions that we determine to be necessary in order to mitigate any additional impacts. We cannot predict the full extent of the impacts of COVID-19, which will depend on, among other things, its duration through new variants, the rate and the effectiveness of both vaccinations and treatments, future regulatory and governmental actions, and the ability to maintain normal business activity.

Regulatory, Legislative, and Legal Matters

Withhold Release Order Related to Silica-Based Products

The CBP issued a WRO in June 2021, applicable to certain silica-based products originating from the Xinjiang Uyghur Autonomous Region of China, such as polysilicon, included in the manufacturing of solar panels. The WRO was issued over allegations of widespread, state-backed forced labor in the region. A significant percentage of the world’s polysilicon supply comes from China, and as a result of the WRO, many solar panels imported into the United States are being held by the CBP on suspicion that they originated from, or contain components that originated from, this region in China. Solar panels will only be released after the importer provides satisfactory evidence to the contrary, which can be an arduous process. We have been notified that solar panel suppliers have experienced delays associated with this WRO. We are evaluating options to mitigate these delays and maintain original project schedules, although we could experience project delays as a result of this WRO. The project delays could impact Badger Hollow II, which is currently under construction. Also, we cannot currently predict what, if any, impact this supply disruption will have on our future solar projects included in WEC Energy Group's capital plan.

United States Department of Commerce Complaint

In August 2021, a group of anonymous domestic solar manufacturers filed a petition (AD/CVD) with the DOC seeking to impose new tariffs on solar panels and cells imported from several countries, including Malaysia, Vietnam, and Thailand. The petitioners claimed that Chinese solar manufacturers are shifting products to these countries to avoid the tariffs required on products imported from China. In September 2021, the DOC asked that the anonymous group amend its petition to provide more detail and asked the group to identify its members. In its response to the DOC, the anonymous group refused and argued that identifying its members could expose them to retribution from the Chinese solar industry, which dominates the global solar supply chain for critical solar panel components. In November 2021, the DOC rejected the petition filed by the anonymous group and cited the group's anonymity as a driving factor in the denial.


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In February 2022, a California based company filed a petition (AD/CVD) with the DOC seeking to impose new tariffs on solar panels and cells imported from multiple countries, including Malaysia, Vietnam, Thailand, and Cambodia. While the petition is similar to the one rejected by DOC in November 2021, there are notable differences. The group added Cambodia to the petition and is requesting that the DOC conduct a country-wide inquiry into each of the four countries. In March 2022, the DOC decided to act on the February petition and investigate the claim. This decision alone is having an adverse impact on the United States solar industry. A DOC decision is expected by January 2023. If the DOC determines that the petition has merit, it would be able to apply any final tariffs retroactively to November 4, 2021. If imposed, the new tariffs are expected to further disrupt the supply of solar modules to the United States, and could impact the cost and timing of our solar projects.

Infrastructure Investment and Jobs Act

In November 2021, President Biden signed into law the Infrastructure Investment and Jobs Act, which provides for approximately $1.2 trillion of federal spending over the next five years, including approximately $85 billion for investments in power, utilities, and renewables infrastructure across the United States. We expect funding from this Act will support the work we are doing to reduce GHG emissions, increase EV charging, and strengthen and protect the energy grid. Funding in the Act should also help to expand emerging technologies, like hydrogen and carbon management, as we continue the transition to a clean energy future. We believe the Infrastructure Investment and Jobs Act will accelerate investment in projects that will help us meet our net zero emission goals to the benefit of our customers, the communities we serve, and our company.

Environmental Matters

See Note 17, Commitments and Contingencies, for a discussion of certain environmental matters affecting us, including rules and regulations relating to air quality, water quality, land quality, and climate change.

Market Risks and Other Significant Risks

We are exposed to market and other significant risks as a result of the nature of our business and the environment in which we operate. These risks include, but are not limited to, the inflation and supply chain disruptions described below. In addition, there is continuing uncertainty over the impact that the ongoing conflict between Russia and Ukraine will have on the global economy, supply chains, and fuel prices. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Factors Affecting Results, Liquidity, and Capital Resources – Market Risks and Other Significant Risks in our 2021 Annual Report on Form 10-K for a discussion of market and other significant risks applicable to us.

Inflation and Supply Chain Disruptions

We continue to monitor the impact of inflation and supply chain disruptions. We monitor the costs of medical plans, fuel, transmission access, construction costs, regulatory and environmental compliance costs, and other costs in order to minimize inflationary effects in future years, to the extent possible, through pricing strategies, productivity improvements, and cost reductions. We monitor the global supply chain, and related disruptions, in order to ensure we are able to procure the necessary materials and other resources necessary to both maintain our energy services in a safe and reliable manner and to grow our infrastructure in accordance with WEC Energy Group's capital plan. For additional information concerning risks related to inflation and supply chain disruptions, see the two risk factors below that are disclosed in Part I of our 2021 Annual Report on Form 10-K.

•Item 1A. Risk Factors – Risks Related to the Operation of Our Business – Our operations and corporate strategy may be adversely affected by supply chain disruptions and inflation.

•Item 1A. Risk Factors – Risks Related to Economic and Market Volatility – Fluctuating commodity prices could negatively impact our electric and natural gas utility operations.

For additional information concerning risk factors, including market risks, see the Cautionary Statement Regarding Forward-Looking Information at the beginning of this report.


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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes related to market risk from the disclosures presented in our 2021 Annual Report on Form 10-K. In addition to the Form 10-K disclosures, see Management's Discussion and Analysis of Financial Condition and Results of Operations – Factors Affecting Results, Liquidity, and Capital Resources – COVID-19 Pandemic and Market Risks and Other Significant Risks in Item 2 of Part I of this report, as well as Note 11, Fair Value Measurements, Note 12, Derivative Instruments, and Note 13, Guarantees, in this report for information concerning our market risk exposures.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective: (i) in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act; and (ii) to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the first quarter of 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The following should be read in conjunction with Item 3. Legal Proceedings in Part I of our 2021 Annual Report on Form 10-K. See Note 17, Commitments and Contingencies, and Note 19, Regulatory Environment, in this report for additional information on material legal proceedings and matters related to us.

In addition to those legal proceedings discussed in Note 17, Commitments and Contingencies, and Note 19, Regulatory Environment, we are currently, and from time to time, subject to claims and suits arising in the ordinary course of business. Although the results of these additional legal proceedings cannot be predicted with certainty, management believes, after consultation with legal counsel, that the ultimate resolution of these proceedings will not have a material effect on our financial statements.

ITEM 1A. RISK FACTORS

There were no material changes from the risk factors disclosed in Item 1A. Risk Factors in Part I of our 2021 Annual Report on Form 10-K.


ITEM 6. EXHIBITS



Number	Exhibit




10	Material Contracts

	10.1	Retention Agreement by and between WEC Energy Group and Scott J. Lauber, dated February 21, 2022 (Exhibit 10.9 to Wisconsin Electric Power Company's 12/31/2021 Form 10-K).







31	Rule 13a-14(a) / 15d-14(a) Certifications

	31.1	Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32	Section 1350 Certifications

	32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101	Interactive Data Files

	101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

	101.SCH	Inline XBRL Taxonomy Extension Schema

	101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase

	101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase

	101.LAB	Inline XBRL Taxonomy Extension Label Linkbase

	101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		WISCONSIN ELECTRIC POWER COMPANY
		(Registrant)

		/s/ WILLIAM J. GUC
Date:	May 5, 2022	William J. Guc
		Vice President, Controller, and Assistant Corporate Secretary

		(Duly Authorized Officer and Chief Accounting Officer)


03/31/2022 Form 10-Q			40			Wisconsin Electric Power Company