WISCONSIN ELECTRIC POWER CO - Quarter Report: 2023 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, 2023


☐			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, 2023

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

Table of Contents

WISCONSIN ELECTRIC POWER COMPANY

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended March 31, 2023

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

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
AFUDC						Allowance for Funds Used During Construction
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

BATW						Bottom Ash Transport Water
BTA						Best Technology Available

CASAC						Clean Air Scientific Advisory Committee
CCR						Coal Combustion Residuals
CO2						Carbon Dioxide
CWA						Clean Water Act
ELG						Steam Electric Effluent Limitation Guidelines
FGD						Flue Gas Desulfurization
GHG						Greenhouse Gas
LDC						Local Distribution Company
MATS						Mercury and Air Toxics Standards
NAAQS						National Ambient Air Quality Standards
NOx						Nitrogen Oxide
PM						Particulate Matter
WOTUS						Waters of the United States
WPDES						Wisconsin Pollutant Discharge Elimination System
ZLD						Zero Liquid Discharge

Measurements
Dth						Dekatherm
lb/MMBtu						Pound Per Million British Thermal Unit
MW						Megawatt
MWh						Megawatt-hours
µg/m3						Micrograms Per Cubic Meter

Other Terms and Abbreviations
AD/CVD						Antidumping and Countervailing Duties
AMI						Advanced Metering Infrastructure
Badger Hollow II						Badger Hollow Solar Park II
Chicago, IL-IN-WI						Chicago, Illinois, Indiana, and Wisconsin


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D.C. Circuit Court of Appeals						United States Court of Appeals for the District of Columbia Circuit

DER						Distributed Energy Resource


ERGS						Elm Road Generating Station
ESG Progress Plan						WEC Energy Group's Capital Investment Plan for Efficiency, Sustainability, and Growth for 2023-2027
ETB						Environmental Trust Bond
EV						Electric Vehicle
Exchange Act						Securities Exchange Act of 1934, as amended

FTR						Financial Transmission Right
IRA						Inflation Reduction Act
ITC						Investment Tax Credit
LIBOR						London Interbank Offered Rate
LNG						Liquefied Natural Gas
MISO						Midcontinent Independent System Operator, Inc.

OCPP						Oak Creek Power Plant


OMB						Office of Management and Budget

PPA						Power Purchase Agreement

PTC						Production Tax Credit
PWGS						Port Washington Generating Station
RICE						Reciprocating Internal Combustion Engine
RNG						Renewable Natural Gas

S&P						Standard & Poor's
SIP						State Implementation Plan
Supreme Court						United States Supreme Court
Tax Legislation						Tax Cuts and Jobs Act of 2017
UFLPA						Uyghur Forced Labor Prevention Act
West Riverside						West Riverside Energy Center
Whitewater						Whitewater Cogeneration Facility
WRO						Withhold Release Order


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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 2022 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, electrification initiatives and other efforts to reduce the use of natural gas, 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 impact of changing expectations and demands of our customers, regulators, investors, and other stakeholders, including heightened emphasis on environmental, social, and governance concerns;

•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 (including disruptions from rail congestion), inflation, and other factors;

•The impact of public health crises, including epidemics and pandemics, 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,


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technology advances, the feasibility of competing generation projects, and the ability to execute WEC Energy Group's capital plan;

•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 and related sanctions;

•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 or other physical 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, including intangible 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.


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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)	2023		2022
Operating revenues	$	1,091.9	$	1,072.0

Operating expenses
Cost of sales	444.5		444.2
Other operation and maintenance	232.3		192.6
Depreciation and amortization	127.8		119.1
Property and revenue taxes	29.9		27.0
Total operating expenses	834.5		782.9

Operating income	257.4		289.1

Other income, net	15.1		10.6
Interest expense	117.8		113.4
Other expense	(102.7)		(102.8)

Income before income taxes	154.7		186.3
Income tax expense	32.7		47.5
Net income	122.0		138.8

Preferred stock dividend requirements	0.3		0.3
Net income attributed to common shareholder	$	121.7	$	138.5

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 BALANCE SHEETS (Unaudited) (in millions, except share and per share amounts)	March 31, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	11.4	$	6.1
Accounts receivable and unbilled revenues, net of reserves of $53.7 and $49.7, respectively	595.5		582.6
Accounts receivable from related parties	93.7		113.2
Materials, supplies, and inventories	238.8		292.9
Prepaid taxes	75.4		113.1
Other prepayments	27.2		25.6
Collateral on deposit	80.8		46.7
Other	6.8		27.1
Current assets	1,129.6		1,207.3

Long-term assets
Property, plant, and equipment, net of accumulated depreciation and amortization of $5,491.7 and $5,450.3, respectively	10,794.4		10,718.6
Regulatory assets (March 31, 2023 and December 31, 2022 include $90.9 and $92.4, respectively, related to WEPCo Environmental Trust)	2,854.4		2,817.5
Pension and OPEB assets	145.2		143.3
Other	85.6		133.5
Long-term assets	13,879.6		13,812.9
Total assets	$	15,009.2	$	15,020.2

Liabilities and Equity
Current liabilities
Short-term debt	$	127.5	$	460.7
Current portion of long-term debt (related to WEPCo Environmental Trust)	8.9		8.9
Current portion of finance lease obligations	78.8		112.3
Accounts payable	228.4		400.5
Accounts payable to related parties	174.4		179.4
Derivative liabilities	66.7		28.8

Other	223.8		181.7
Current liabilities	908.5		1,372.3

Long-term liabilities
Long-term debt (March 31, 2023 and December 31, 2022 each include $94.1 related to WEPCo Environmental Trust)	3,352.2		3,351.5
Finance lease obligations	2,701.0		2,702.3
Deferred income taxes	1,472.8		1,467.3
Regulatory liabilities	1,611.5		1,637.4
Pension and OPEB obligations	28.1		30.8
Other	290.6		291.4
Long-term liabilities	9,456.2		9,480.7

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	2,162.3		1,746.8
Retained earnings	2,118.9		2,057.1
Common shareholder's equity	4,614.1		4,136.8

Preferred stock	30.4		30.4
Total liabilities and equity	$	15,009.2	$	15,020.2

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


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WISCONSIN ELECTRIC POWER COMPANY


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	Three Months Ended
	March 31
(in millions)	2023		2022
Operating activities
Net income	$	122.0	$	138.8
Reconciliation to cash provided by operating activities
Depreciation and amortization	127.8		119.1
Deferred income taxes and ITCs, net	(0.1)		16.0


Change in –
Accounts receivable and unbilled revenues, net	7.8		(19.0)
Materials, supplies, and inventories	59.0		39.9
Prepaid taxes	37.7		25.7


Collateral on deposit	(34.1)		0.3
Other current assets	(0.7)		4.9
Accounts payable	(141.8)		(105.9)
Accrued taxes	24.9		31.2
Amounts refundable to customers	31.1		17.5
Accrued interest	22.6		29.2
Collateral received	—		34.6
Other current liabilities	(36.1)		(22.0)
Other, net	(4.6)		(2.1)
Net cash provided by operating activities	215.5		308.2

Investing activities
Capital expenditures	(208.7)		(139.5)
Acquisition of Whitewater	(38.0)		—




Insurance proceeds received for property damage	—		41.0
Other, net	(2.6)		(0.6)
Net cash used in investing activities	(249.3)		(99.1)

Financing activities
Change in short-term debt	(333.2)		(351.0)


Payments for finance lease obligations	(18.3)		(18.6)
Equity contribution from parent	415.0		280.0
Payment of dividends to parent	(60.0)		(110.0)
Other, net	(0.3)		(0.3)
Net cash provided by (used in) financing activities	3.2		(199.9)

Net change in cash, cash equivalents, and restricted cash	(30.6)		9.2
Cash, cash equivalents, and restricted cash at beginning of period	47.7		3.0
Cash, cash equivalents, and restricted cash at end of period	$	17.1	$	12.2

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


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WISCONSIN ELECTRIC POWER COMPANY


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, 2022	$	332.9	$	1,746.8	$	2,057.1	$	4,136.8	$	30.4	$	4,167.2
Net income attributed to common shareholder	—		—		121.7		121.7		—		121.7
Payment of dividends to parent	—		—		(60.0)		(60.0)		—		(60.0)
Equity contribution from parent	—		415.0		—		415.0		—		415.0
Stock-based compensation and other	—		0.5		0.1		0.6		—		0.6
Balance at March 31, 2023	$	332.9	$	2,162.3	$	2,118.9	$	4,614.1	$	30.4	$	4,644.5


	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

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, 2023

NOTE 1—GENERAL INFORMATION

Wisconsin Electric Power Company serves approximately 1.2 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, 2022. 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, 2023, are not necessarily indicative of expected results for 2023 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—ACQUISITIONS

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

Acquisitions of Electric Generation Facilities in Wisconsin

In February 2023, WPS, along with an unaffiliated entity, received approval from the PSCW to acquire 100 MWs of West Riverside's nameplate capacity, in the first of two potential option exercises. WPS also received approval to transfer its ownership interest to us. The transaction is expected to close during the second quarter of 2023, and our investment is expected to be approximately $102 million. West Riverside is a commercially operational dual fueled combined cycle generation facility in Beloit, Wisconsin.

In January 2023, we, along with WPS, completed the acquisition of Whitewater, a commercially operational 236.5 MW dual fueled (natural gas and low sulfur fuel oil) combined cycle electric generation facility in Whitewater, Wisconsin. Our share of the cost of this facility was $38.0 million for 50% of the capacity.


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NOTE 3—OPERATING REVENUES

For more information about our operating revenues, see Note 1(d), Operating Revenues, in our 2022 Annual Report on Form 10-K.

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 has 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)		2023		2022
Wisconsin Electric Power Company
Electric utility		$	843.9	$	831.1
Natural gas utility		243.6		235.9
Total revenues from contracts with customers		1,087.5		1,067.0
Other operating revenues		4.4		5.0
Total operating revenues		$	1,091.9	$	1,072.0

Revenues from Contracts with Customers

Electric Utility Operating Revenues

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


	Three Months Ended March 31
(in millions)		2023		2022
Residential		$	357.4	$	335.4
Small commercial and industrial		284.6		268.0
Large commercial and industrial		139.1		136.8
Other		5.7		5.4
Total retail revenues		786.8		745.6
Wholesale		11.7		20.6
Resale		33.4		51.0
Steam		11.0		12.1
Other utility revenues		1.0		1.8
Total electric utility operating revenues		$	843.9	$	831.1

Natural Gas Utility Operating Revenues

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


	Three Months Ended March 31
(in millions)		2023		2022
Residential		$	179.2	$	165.7
Commercial and industrial		87.9		83.3
Total retail revenues		267.1		249.0
Transportation		6.8		5.6
Other utility revenues (1)		(30.3)		(18.7)
Total natural gas utility operating revenues		$	243.6	$	235.9

(1)Includes the revenues subject to our purchased gas recovery mechanism. During both quarters, 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)		2023		2022
Late payment charges		$	3.7	$	3.5
Rental revenues		0.4		0.9
Alternative revenues (1)		0.3		0.6
Total other operating revenues		$	4.4	$	5.0

(1)See Note 1(d), Operating Revenues, in our 2022 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, 2023 and December 31, 2022.

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, 2023			December 31, 2022
Accounts receivable and unbilled revenues	$	649.2		$	632.3
Allowance for credit losses	53.7			49.7
Accounts receivable and unbilled revenues, net (1)	$	595.5		$	582.6

Total accounts receivable, net – past due greater than 90 days (1)	$	39.3		$	35.8
Past due greater than 90 days – collection risk mitigated by regulatory mechanisms (1)	98.5		%	97.5		%

(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, 2023, $349.7 million, or 58.7%, 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 is included below:


	Three Months Ended March 31
(in millions)	2023		2022
Balance at January 1	$	49.7	$	51.4
Provision for credit losses	6.6		6.1
Provision for credit losses deferred for future recovery or refund	13.8		7.1
Write-offs charged against the allowance	(20.3)		(18.8)
Recoveries of amounts previously written off	3.9		6.0
Balance at March 31	$	53.7	$	51.8

There was a $4.0 million increase in the allowance for credit losses at March 31, 2023, compared to January 1, 2023, driven by an increase in past due accounts receivable balances. An increase in past due balances is a trend we generally see over the winter moratorium months, when we are not allowed to disconnect customer service as a result of non-payment. The winter moratorium begins on November 1 and ends on April 15.

NOTE 5—REGULATORY ASSETS AND LIABILITIES

The following regulatory assets and liabilities were reflected on our balance sheets at March 31, 2023 and December 31, 2022. For more information on our regulatory assets and liabilities, see Note 6, Regulatory Assets and Liabilities, in our 2022 Annual Report on Form 10-K.


(in millions)	March 31, 2023		December 31, 2022
Regulatory assets
Finance leases	$	1,083.7	$	1,072.0
Plant retirement related items	623.4		632.7
Income tax related items	379.0		382.1
Pension and OPEB costs	334.2		337.2
System support resource	120.9		123.5
Securitization	90.9		92.4
Derivatives	80.3		40.3
Asset retirement obligations	41.2		41.1
Uncollectible expense	30.2		16.4
Energy efficiency programs	16.5		17.7
We Power generation	12.1		21.6
Other, net	42.0		40.5
Total regulatory assets	$	2,854.4	$	2,817.5


(in millions)	March 31, 2023		December 31, 2022
Regulatory liabilities
Removal costs	$	729.0	$	718.1
Income tax related items	708.1		716.1
Pension and OPEB benefits	143.4		144.4
Energy costs refundable through rate adjustments (1)	32.8		1.8
Electric transmission costs	8.3		0.2
Derivatives	1.8		39.1
Other, net	20.5		19.1
Total regulatory liabilities	$	1,643.9	$	1,638.8

Balance sheet presentation
Other current liabilities	$	32.4	$	1.4
Regulatory liabilities	1,611.5		1,637.4
Total regulatory liabilities	$	1,643.9	$	1,638.8

(1) The increase in these regulatory liabilities was primarily due to lower natural gas costs incurred during the first quarter of 2023, compared to what was anticipated in rates.


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NOTE 6—PROPERTY, PLANT, AND EQUIPMENT

Plant to be Retired

Oak Creek Power Plant Units 5 – 8

As a result of a PSCW approval for the construction of a solar and battery project received in December 2022, retirement of the OCPP generating units 5 – 8 became probable. In early 2023, WEC Energy Group received additional approvals for electric generation facilities, including West Riverside and the Koshkonong Solar-Battery Park. OCPP units 5 and 6 are expected to be retired by May 2024, while units 7 and 8 are expected to be retired by late 2025. The total net book value of our ownership share of units 5 – 8 was $812.9 million at March 31, 2023, which does not include deferred taxes. These amounts were classified as plant to be retired within property, plant, and equipment on our balance sheet. These units are included in rate base, and we continue to depreciate them on a straight-line basis using the composite depreciation rates approved by the PSCW.

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 10, Common Equity, in our 2022 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.

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, 2023			December 31, 2022
Commercial paper
Amount outstanding	$	127.5		$	460.7
Weighted-average interest rate on amounts outstanding	5.01		%	4.59		%

Our average amount of commercial paper borrowings based on daily outstanding balances during the three months ended March 31, 2023 was $127.6 million with a weighted-average interest rate during the period of 4.68%.

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, 2023
Revolving credit facility	September 2026	$	500.0

Less:
Letters of credit issued inside credit facility		1.0
Commercial paper outstanding		127.5
Available capacity under existing credit facility		$	371.5


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NOTE 9—MATERIALS, SUPPLIES, AND INVENTORIES

Our inventory consisted of:


(in millions)	March 31, 2023		December 31, 2022
Materials and supplies	$	158.4	$	150.6
Fossil fuel	61.1		62.7
Natural gas in storage	19.3		79.6
Total	$	238.8	$	292.9

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, 2023				Three Months Ended March 31, 2022
(in millions)	Amount		Effective Tax Rate		Amount		Effective Tax Rate
Statutory federal income tax	$	32.4	21.0	%	$	39.1	21.0	%
State income taxes net of federal tax benefit	9.3		6.0	%	11.6		6.2	%

Federal excess deferred tax amortization	(5.3)		(3.5)	%	(7.5)		(4.0)	%
PTCs	(5.1)		(3.3)	%	(0.5)		(0.3)	%
AFUDC - Equity	(2.2)		(1.4)	%	(1.3)		(0.7)	%
Domestic production activities deferral	1.6		1.0	%	2.0		1.1	%
Other, net	2.0		1.3	%	4.1		2.2	%
Total income tax expense	$	32.7	21.1	%	$	47.5	25.5	%

The effective tax rates of 21.1% and 25.5% for the three months ended March 31, 2023 and 2022, respectively, differ 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, and PTCs.

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 23, Regulatory Environment, in our 2022 Annual Report on Form 10-K for more information about the impact of the Tax Legislation.

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.


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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, such as FTRs, are categorized in Level 3 due to the significance of unobservable or internally-developed inputs. Our FTRs are valued using MISO auction prices.

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, 2023
(in millions)	Level 1		Level 2		Level 3		Total
Derivative assets
Natural gas contracts	$	0.1	$	0.7	$	—	$	0.8
FTRs	—		—		0.8		0.8
Coal contracts	—		0.3		—		0.3
Total derivative assets	$	0.1	$	1.0	$	0.8	$	1.9

Derivative liabilities
Natural gas contracts	$	58.0	$	0.4	$	—	$	58.4
Coal contracts	—		14.1		—		14.1
Total derivative liabilities	$	58.0	$	14.5	$	—	$	72.5


	December 31, 2022
(in millions)	Level 1		Level 2		Level 3		Total
Derivative assets
Natural gas contracts	$	1.6	$	2.5	$	—	$	4.1
FTRs	—		—		2.0		2.0
Coal contracts	—		32.7		—		32.7
Total derivative assets	$	1.6	$	35.2	$	2.0	$	38.8

Derivative liabilities
Natural gas contracts	$	29.3	$	0.7	$	—	$	30.0

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)	2023		2022
Balance at the beginning of the period	$	2.0	$	1.0

Settlements	(1.2)		(0.6)
Balance at the end of the period	$	0.8	$	0.4


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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, 2023				December 31, 2022
(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Preferred stock	$	30.4	$	23.1	$	30.4	$	22.7
Long-term debt, including current portion	3,361.1		3,237.0		3,360.4		3,143.2

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 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.

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. None of the derivatives shown below are designated as hedging instruments.


	March 31, 2023				December 31, 2022
(in millions)	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Current
Natural gas contracts	$	0.8	$	57.6	$	4.1	$	28.8
FTRs	0.8		—		2.0		—
Coal contracts	0.2		9.1		17.6		—
Total current	1.8		66.7		23.7		28.8

Long-term
Natural gas contracts	—		0.8		—		1.2
Coal contracts	0.1		5.0		15.1		—
Total long-term	0.1		5.8		15.1		1.2
Total	$	1.9	$	72.5	$	38.8	$	30.0

Realized gains and losses on derivatives are primarily recorded in cost of sales upon settlement; however, they may be subsequently deferred for future rate recovery or refund as the gains and losses are included in our fuel and natural gas cost recovery mechanisms. Our estimated notional sales volumes and realized gains and losses were as follows:


	Three Months Ended March 31, 2023			Three Months Ended March 31, 2022
(in millions)	Volumes	Gains (Losses)		Volumes	Gains
Natural gas contracts	18.9 Dth	$	(29.2)	18.7 Dth	$	8.2
FTRs	4.9 MWh	0.1		5.0 MWh	0.2
Total		$	(29.1)		$	8.4

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 March 31, 2023 and December 31, 2022, we had posted cash collateral of $80.8 million and $46.7 million, respectively. These amounts were recorded on our balance sheets in collateral on deposit.


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


	March 31, 2023					December 31, 2022
(in millions)	Derivative Assets		Derivative Liabilities			Derivative Assets		Derivative Liabilities
Gross amount recognized on the balance sheet	$	1.9	$	72.5		$	38.8	$	30.0
Gross amount not offset on the balance sheet	(0.2)		(58.1)		(1)	(1.8)		(29.5)		(2)
Net amount	$	1.7	$	14.4		$	37.0	$	0.5

(1) Includes cash collateral posted of $57.9 million.

(2) Includes cash collateral posted of $27.7 million.

NOTE 13—GUARANTEES

As of March 31, 2023, we had $26.0 million of standby letters of credit issued by financial institutions for the benefit of third parties that have 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)	2023		2022
Service cost	$	2.8	$	3.6
Interest cost	11.9		8.2
Expected return on plan assets	(16.4)		(17.9)


Amortization of net actuarial loss	1.9		7.3
Net periodic benefit cost	$	0.2	$	1.2


	OPEB Benefits
	Three Months Ended March 31
(in millions)	2023		2022
Service cost	$	0.7	$	1.0
Interest cost	1.9		1.4
Expected return on plan assets	(3.4)		(4.4)
Amortization of prior service credit	(0.2)		(0.3)
Amortization of net actuarial gain	(2.2)		(3.0)
Net periodic benefit credit	$	(3.2)	$	(5.3)

During the three months ended March 31, 2023, we made contributions and payments of $3.2 million related to our pension plans and an insignificant amount related to our OPEB plans. We expect to make contributions and payments of $0.2 million related to our OPEB plans and an insignificant amount related to our pension plans during the remainder of 2023, dependent upon various factors affecting us, including our liquidity position and possible tax law changes.

Effective January 1, 2023, the PSCW approved escrow accounting for pension and OPEB costs. As a result, as of March 31, 2023, we recorded a $0.2 million regulatory asset for pension costs and a $1.3 million regulatory asset for OPEB costs. The above tables do not reflect any adjustments for the creation of these regulatory assets.

NOTE 15—SEGMENT INFORMATION

We use net income attributed to common shareholder to measure segment profitability and to allocate resources to our business. At March 31, 2023, we reported two segments, which are described below.


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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, 2023 and 2022.

All of our operations and assets are located within the United States.

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.

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 sources of funds to satisfy the debt obligation. The bondholders have no recourse to us or any of our affiliates.

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 WEPCo Environmental Trust's indenture trustee.

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.


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


(in millions)	March 31, 2023		December 31, 2022
Assets
Other current assets (restricted cash)	$	5.1	$	3.0
Regulatory assets	90.9		92.4
Other long-term assets (restricted cash)	0.6		0.6

Liabilities
Current portion of long-term debt	8.9		8.9
Accounts payable	0.1		—
Other current liabilities (accrued interest)	0.5		0.1
Long-term debt	94.1		94.1

Power Purchase Commitment

On May 31, 2022, our PPA with LSP-Whitewater Limited Partnership that represented a variable interest expired. This agreement was for 236.5 MWs of firm capacity from a natural gas-fired cogeneration facility, and we accounted for it as a finance lease.

In November 2021, we entered into a tolling agreement with LSP-Whitewater Limited Partnership that commenced 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 agreement to purchase the natural gas-fired cogeneration facility. This asset purchase agreement was approved by the PSCW in December 2022, and the acquisition closed effective January 1, 2023. In accordance with the purchase agreement, we acquired a 50% ownership interest. See Note 2, Acquisitions, for more information on the acquisition of this facility. The tolling agreement represented a variable interest until the facility was acquired since its terms were substantially similar to the terms of the PPA. Based on the risks of the entity, including operations, maintenance, dispatch, financing, fuel costs, and other factors, we were not the primary beneficiary of the entity. We did not hold an equity or debt interest in the entity, and there was no residual guarantee associated with the tolling agreement. Similar to the PPA, we accounted for the tolling agreement as a finance lease.

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, 2023, were approximately $7.9 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

In March 2023, the EPA issued its final Good Neighbor Plan, which requires significant reductions in ozone-forming emissions of NOx from power plants and industrial facilities. The rule took effect for the 2023 ozone season. After review of the final rule, we believe that we are well positioned to meet the requirements.


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Our planned RICE units in Wisconsin are not currently subject to the final rule as each unit is less than 25 MWs. To the extent we use RICE engines for natural gas distribution operations, those engines may be subject to the emission limits and operational requirements of the rule beginning in 2026. The EPA has exempted LDCs from the final rule but included new language defining an LDC that we are still evaluating.

Mercury and Air Toxics Standards

In 2012, the EPA issued the MATS to limit emissions of mercury, acid gases, and other hazardous air pollutants. In April 2023, the EPA issued the pre-publication version of a proposed rule to strengthen and update MATS to reflect recent developments in control technologies and performance of coal and oil-fired units. The EPA proposed three revisions including a proposal to lower the PM limit from 0.03 lb/MMBtu to 0.01 lb/MMBtu, which could have an adverse effect on our utilities. The EPA is also seeking comments on an even lower limit of 0.006 lb/MMBtu. We are still evaluating the proposed rule revisions to understand the impacts, if any, to our operations.

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 November 2022, the EPA's 2022 CASAC Ozone Review Panel issued a draft report supporting a previously issued EPA staff-written Integrated Science Assessment for ozone which supported the reconsideration of the 2015 standard. The EPA staff issued a draft Policy Assessment in March 2023 in support of revisiting the 2020 decision to retain the 2015 ozone standards with no changes and indicated that they intend to publish their reconsideration in early 2024, with an anticipated final rule by early 2025.

In February 2022, revisions to the Wisconsin Administrative Code to adopt the 2015 standard were finalized. The amended regulations incorporated by reference the federal air pollution monitoring requirements related to the standard. The WDNR submitted the rule updates as a SIP revision to the EPA, which the EPA approved in February 2023.

In April 2022, the EPA proposed to find that the Milwaukee and Chicago, IL-IN-WI nonattainment areas did not meet the marginal attainment deadline of August 2021 and should be adjusted to "moderate" nonattainment status for the 2015 standard. In October 2022, the EPA published its final reclassifications from "marginal" to "moderate" for these areas, effective November 7, 2022. Accordingly, the WDNR was required to submit a SIP revision to the EPA to address the moderate nonattainment status, which it did in December 2022.

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 PM and determined that no revisions were necessary to the current annual standard of 12 µg/m3 or the 24-hour standard of 35 µg/m3. 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 PM NAAQS to below the current level of 12 µg/m3, while retaining the 24-hour standard. In January 2023, the EPA announced its proposed decision to revise the primary (health-based) annual PM2.5 standard from its current level of 12 µg/m3 to within the range of 9 to 10 µg/m3. The EPA also proposed not to change the current secondary (welfare-based) annual PM2.5 standard, primary and secondary 24-hour PM2.5 standards, and primary and secondary PM10 standards. The EPA is also taking comments on the full range (between 8 and 11 µg/m3) included in the CASAC's latest report. The EPA has announced it plans to issue a final decision on the reconsideration in summer 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 µg/m3, our generating facilities within our service territory should remain in attainment. If the EPA lowers it to below 10 µg/m3, there could be some nonattainment areas that may affect permitting of some smaller ancillary equipment located at our facilities. After finalization of the rule, the WDNR will need to draft and submit a SIP for the EPA's approval.


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Climate Change

The Affordable Clean Energy 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 and in June 2022, the Supreme Court issued its decision. The Supreme Court found that the EPA may regulate GHGs under section 111 of the Clean Air Act but cannot rely on generation shifting to lower carbon emitting sources to do so. A new GHG replacement rule for existing sources is under review by the OMB.

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. A new GHG replacement rule for new, modified, and reconstructed sources is under review by the OMB. WEC Energy Group continues to move forward on the ESG Progress Plan, which is heavily focused on reducing GHG emissions.

The EPA released proposed regulations for the Mandatory Greenhouse Gas Reporting Rule, 40 Code of Federal Regulations Part 98, in June 2022. The proposed revisions could impact the reporting required of our local natural gas distribution operations and underground natural gas storage facilities. The EPA intends to issue a new supplemental notice of proposed rulemaking in the second quarter of 2023 with an anticipated final rule to be issued in the fourth quarter of 2023 for all subparts of this rule.

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 MWs of coal-fired generation since the beginning of 2018. Through its ESG Progress Plan, WEC Energy Group expects to retire approximately 1,500 MWs of additional fossil-fueled generation by the end of 2026, which includes the planned retirements in 2024-2025 of OCPP Units 5-8. See Note 6, Property, Plant, and Equipment, for more information on the timing of the retirements. 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 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, and has 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.

Water Quality

Clean Water Act Cooling Water Intake Structure Rule

The EPA issued a final regulation under Section 316(b) of the CWA that became effective in October 2014 and requires the location, design, construction, and capacity of cooling water intake structures at existing power plants reflect the BTA for minimizing adverse environmental impacts. The rule 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.

Pursuant to a WDNR rule, which became effective in June 2020, the requirements of federal Section 316(b) of the CWA were incorporated into the Wisconsin Administrative Code. The WDNR applies this rule 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 installed at the OCPP facility meets the BTA requirements; however, depending on the timing of the permit reissuance, all four generating units at the OCPP may be retired prior to the WDNR making a final BTA decision, anticipated in 2025.

We are engaged in discussions with the WDNR regarding the current status of the BTA determination at PWGS. There is uncertainty about whether existing technology meets all of the WDNR's BTA requirements. We will not be in a position to determine what, if any, modifications may be needed at PWGS until the WDNR issues the WPDES permit renewal for PWGS, expected during the second quarter of 2023.


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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.

Steam Electric Effluent Limitation Guidelines

The EPA's ELG rule, effective January 2016 and modified in 2020, revised the treatment technology requirements related to BATW and wet FGD wastewaters at existing facilities and 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. Although our power plant facilities already have advanced wastewater treatment technologies installed that meet many of the discharge limits established by this rule, certain facility modifications are necessary to meet the ELG rule requirements. Through 2023, we expect that compliance costs associated with the ELG rule will require $100 million in capital investment. A $10 million BATW modification to OC 7 and OC 8 was completed and placed in-service in mid-2021, and in December 2021, the PSCW issued a Certificate of Authority approving the $90 million 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 March 2023, the EPA issued the proposed "supplemental ELG rule." The rule would replace the existing 2020 ELG rule and, as proposed, would establish stricter limitations on: 1) BATW; 2) FGD wastewater; 3) CCR leachate; and 4) legacy wastewaters. The most significant proposed ELG rule change is a ZLD requirement for FGD wastewater. Under the proposed rule, this new ZLD requirement must be met by a date determined by the WDNR that is as soon as possible beginning 60 days following publication of the final rule, but no later than December 31, 2029.

The proposed rule would also create a subcategory for "early adopters" that have already installed a compliant biological treatment system by the date of the proposed rule (March 29, 2023). Early adopters would not be required to install further FGD wastewater treatment, provided the facility owner also agrees to permanently cease combustion of coal by December 31, 2032. Although we are currently completing a $90 million biological treatment system at ERGS, which we expect to be complete later this year, the expected timing of the project's completion would not comply with the deadline imposed by the EPA to qualify for early adopter status. In addition, we do not believe that, upon its completion, the biological treatment system would be compliant with FGD wastewater treatment requirements as proposed. We are assessing the potential impact, as well as working with the Edison Electric Institute to submit comments to the EPA, regarding this proposed rule revision.

If the supplemental ELG rule is finalized as proposed, we anticipate that our coal fueled facilities either meet, or will meet, the proposed rule provisions that apply to BATW. By the end of 2023, we anticipate ERGS and OCPP Units 5 and 6 will have compliant dry bottom ash transport systems. At this time, we do not anticipate significant costs related to complying with the proposed rule as it relates to CCR leachate and legacy wastewater.

Waters of the United States

In January 2023, the EPA and the United States Army Corps of Engineers together released a final rule revising the definition of WOTUS. This rule became effective on March 20, 2023. The final rule states that it is based on the pre-2015 definition of "waters of the United States." 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.

The recent rulemaking could be affected by a significant pending Supreme Court case involving WOTUS determination. In October 2022, the Supreme Court heard oral arguments in a case, Sackett v. Environmental Protection Agency, to evaluate the proper test for determining whether wetlands are WOTUS. A decision by the Supreme Court is expected during the second quarter of 2023.

At this point, our projects requiring federal permits are moving ahead, but we are monitoring these recent developments to better understand potential future impacts. The Sackett case, once decided, should provide some clarity regarding the definition of WOTUS. We will continue to monitor this litigation and any subsequent agency action.


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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, 2023		December 31, 2022
Regulatory assets	$	14.1	$	14.6
Reserves for future environmental remediation (1)	10.3		10.3

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

Coal Combustion Residuals Rule

In January 2023, the EPA released a notice regarding their intent to revise the CCR rule. The EPA is drafting regulations for CCR storage at inactive generating units or "legacy units." The EPA is also considering proposing corrective action requirements for all CCR contamination at any regulated facility, regardless of how or when the CCR was placed at such site. Our legacy units are currently regulated by the states in which they are located. The proposed rule is expected in summer 2023.

In February 2023, the EPA published notice in the Federal Register of a proposed consent decree to resolve a citizen suit related to conducting a review of Resource Conservation and Recovery Act regulations pertaining to the CCR rule. We are still evaluating the proposed language to understand the impact, if any, to our operations.

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

Non-Cash Transactions


	Three Months Ended March 31
(in millions)	2023		2022
Cash paid for interest, net of amount capitalized	$	94.2	$	83.6

Significant non-cash investing and financing transactions:
Accounts payable related to construction costs	46.2		51.4


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Restricted Cash

The statements of cash flows include our activity related to cash, cash equivalents, and restricted cash. 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, 2023		December 31, 2022
Cash and cash equivalents	$	11.4	$	6.1
Restricted cash included in other current assets	5.1		3.0
Restricted cash included in other long-term assets	0.6		38.6
Cash, cash equivalents, and restricted cash	$	17.1	$	47.7

Our restricted cash consisted of the following:

•Cash on deposit in a financial institution that is restricted to satisfy the requirements of a debt agreement at WEPCo Environmental Trust. See Note 16, Variable Interest Entities, for more information.

•Cash used during January 2023 to purchase a natural gas-fired cogeneration facility located in Whitewater, Wisconsin. This cash was included in other long-term assets at December 31, 2022. See Note 2, Acquisitions, for more information.

NOTE 19—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 to provide relief 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. Under ASU No. 2020-04, this relief was effective for all entities beginning March 12, 2020 through December 31, 2022. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the relief for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform to December 31, 2024. 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 2022 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.

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.

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 the 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 to use coal as a backup fuel only, 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 1,900 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 1,500 MWs of additional fossil-fueled generation by the end of 2026, which includes the planned retirement in 2024-2025 of OCPP Units 5-8.

In addition to retiring these older, fossil-fueled plants, WEC Energy Group expects to invest approximately $5.4 billion from 2023-2027 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:

•1,900 MWs of utility-scale solar;

•700 MWs of battery storage; and

•700 MWs of wind.


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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 MWs of RICE natural gas-fueled generation; and

•the planned purchase of up to 200 MWs of capacity in West Riverside — a combined cycle natural gas plant recently completed by Alliant Energy in Wisconsin.

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

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 MWs 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 25 Solar Now projects and currently have another four under construction, together totaling more than 30 MWs. The second program, the Dedicated Renewable Energy Resource (DRER) pilot, would allow large commercial and industrial customers to access renewable resources that we would operate, and was adjusted down from 150 MWs to up to 35 MWs of renewables that could be added to our portfolio. The DRER pilot would help these larger customers 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, and has 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 natural gas utility systems. In 2022, we received approval from the PSCW for an RNG pilot associated with our natural gas distribution system.

WEC Energy Group is planning a pilot program for the fourth-quarter of 2023 with the Electric Power Research Institute and CMBlu Energy, a Germany-based designer and manufacturer, to test a new form of long-duration energy storage on the U.S. electric grid. The program will test battery system performance, including the ability to store and discharge energy for up to twice as long as the typical lithium-ion batteries in use today.

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.

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.


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WEC Energy Group continues to focus on integrating the resources of its businesses and finding the best and most efficient processes.

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, Acquisitions, for more information on our acquisition of Whitewater and pending acquisition of West Riverside.

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, 2023

Earnings

Our earnings for the first quarter of 2023 were $121.7 million, compared with $138.5 million for the same quarter in 2022. See below for information on the $16.8 million decrease in earnings.

Expected 2023 Annual Effective Tax Rate

We expect our 2023 annual effective tax rate to be between 22.5% and 23.5%. 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.


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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, 2023 and 2022 was $257.4 million and $289.1 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.

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 2023, with the same quarter in 2022, including favorable or better, "B", and unfavorable or worse, "W", variances.


	Three Months Ended March 31
(in millions)	2023		2022		B (W)
Electric revenues	$	847.7	$	835.5	$	12.2
Fuel and purchased power	286.8		279.8		(7.0)
Total electric margins	560.9		555.7		5.2

Natural gas revenues	244.2		236.5		7.7
Cost of natural gas sold	157.7		164.4		6.7
Total natural gas margins	86.5		72.1		14.4

Total electric and natural gas margins	647.4		627.8		19.6

Other operation and maintenance	232.3		192.6		(39.7)
Depreciation and amortization	127.8		119.1		(8.7)
Property and revenue taxes	29.9		27.0		(2.9)
Operating income	257.4		289.1		(31.7)

Other income, net	15.1		10.6		4.5
Interest expense	117.8		113.4		(4.4)
Income before income taxes	154.7		186.3		(31.6)

Income tax expense	32.7		47.5		14.8
Preferred stock dividends of subsidiary	0.3		0.3		—
Net income attributed to common shareholder	$	121.7	$	138.5	$	(16.8)


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


	Three Months Ended March 31
(in millions)	2023		2022		B (W)
Operation and maintenance not included in line items below	$	81.3	$	78.9	$	(2.4)
Transmission (1)	90.6		68.9		(21.7)
We Power (2)	35.5		27.6		(7.9)
Regulatory amortizations and other pass through expenses (3)	25.1		17.2		(7.9)
Earnings sharing mechanism	(0.2)		—		0.2
Total other operation and maintenance	$	232.3	$	192.6	$	(39.7)

(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 2023 and 2022, $82.6 million and $82.9 million, respectively, of costs were billed to us by transmission providers.

(2)Represents costs associated with the We Power generation units, including operating and maintenance costs we recognized. During the first quarter of 2023 and 2022, $26.6 million and $24.8 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. Effective January 1, 2023, the PSCW approved escrow accounting for pension and OPEB costs. As a result, we defer as a regulatory asset or liability, the difference between these actual costs and those included in rates until recovery or refund is authorized in a future rate proceeding.

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	2023	2022	B (W)
Customer Class
Residential	1,881.2	1,986.6	(105.4)
Small commercial and industrial	2,087.3	2,169.0	(81.7)
Large commercial and industrial	1,554.8	1,598.9	(44.1)
Other	30.2	31.9	(1.7)
Total retail	5,553.5	5,786.4	(232.9)
Wholesale	151.2	324.0	(172.8)
Resale	1,183.5	1,146.9	36.6
Total sales in MWh	6,888.2	7,257.3	(369.1)


	Three Months Ended March 31
	Therms (in millions)
Natural Gas Sales Volumes	2023	2022	B (W)
Customer Class
Residential	169.1	189.8	(20.7)
Commercial and industrial	94.9	107.7	(12.8)
Total retail	264.0	297.5	(33.5)
Transportation	74.9	98.4	(23.5)
Total sales in therms	338.9	395.9	(57.0)


	Three Months Ended March 31
	Degree Days
Weather (1)	2023	2022	B (W)
Heating (3,283 Normal)	2,833	3,325	(14.8)	%


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(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 $12.2 million during the first quarter of 2023, compared with the same quarter in 2022. 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 $5.2 million during the first quarter of 2023, compared with the same quarter in 2022. The significant factor impacting the higher electric utility margins was a $60.3 million increase in margins related to the impact of our rate order approved by the PSCW, effective January 1, 2023. See Note 23, Regulatory Environment, in our 2022 Annual Report on Form 10-K for more information on the 2023 rate order.

This increase in margins was partially offset by:

•A $29.3 million quarter-over-quarter negative impact from collections of fuel and purchased power costs compared with costs collected in rates. Under the Wisconsin fuel rules, our margins 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.

•An $18.0 million decrease in margins related to lower sales volumes, driven by the impact of warmer winter weather during the first quarter of 2023, compared with the same quarter in 2022. As measured by heating degree days, the first quarter of 2023 was 14.8% warmer than the same quarter in 2022.

•Lower margins of $6.0 million driven by the expiration of a wholesale contract.

Natural Gas Revenues

Natural gas revenues increased $7.7 million during the first quarter of 2023, compared with the same quarter in 2022. 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 9% during the first quarter of 2023, compared with the same quarter in 2022. 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 $14.4 million during the first quarter of 2023, compared with the same quarter in 2022. The most significant factor impacting the higher natural gas utility margins was a $22.6 million increase in margins related to the impact of our rate order approved by the PSCW, effective January 1, 2023. This increase in margins was partially offset by a $7.1 million decrease in margins from lower sales volumes, driven by warmer winter weather during the first quarter of 2023, compared with the same quarter in 2022.

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

Other operating expenses at the utility segment increased $51.3 million during the first quarter of 2023, compared with the same quarter in 2022. The significant factors impacting the increase in operating expenses were:

•A $21.7 million increase in transmission expense as approved in our rate order, effective January 1, 2023. See the notes under the other operation and maintenance table above for more information.


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•An $8.7 million increase in depreciation and amortization, driven by assets being placed into service as we continue to execute on our capital plan.

•A $7.9 million increase in regulatory amortizations and other pass through expenses, as discussed in the notes under the other operation and maintenance table above.

•A $7.9 million increase 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.

Other Income, Net

Other income, net increased $4.5 million during the first quarter of 2023, compared with the same quarter in 2022, driven by higher AFUDC–Equity due to continued capital investment. This increase was partially offset by lower net credits from the non-service components of our net periodic pension and OPEB costs. See Note 14, Employee Benefits, for more information on our benefit costs.

Interest Expense

Interest expense increased $4.4 million during the first quarter of 2023, compared with the same quarter in 2022, driven by a $500.0 million long-term debt issuance in September 2022 and higher short-term debt interest rates. These increases were partially offset by higher AFUDC-Debt due to continued capital investment. 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 contributed to the offset in interest expense.

Income Tax Expense

Income tax expense decreased $14.8 million during the first quarter of 2023, compared with the same quarter in 2022, driven by lower pre-tax income and a $4.6 million increase in PTCs.

LIQUIDITY AND CAPITAL RESOURCES

Overview

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)	2023		2022		Change in 2023 Over 2022
Cash provided by (used in):
Operating activities	$	215.5	$	308.2	$	(92.7)
Investing activities	(249.3)		(99.1)		(150.2)
Financing activities	3.2		(199.9)		203.1

Operating Activities

Net cash provided by operating activities decreased $92.7 million during the first quarter of 2023, compared with the same quarter in 2022, driven by:

•A $111.7 million decrease in cash driven by higher collateral paid to counterparties during the first quarter of 2023, compared with collateral received from counterparties during the same quarter in 2022, as well as realized losses on derivative instruments recognized during the first quarter of 2023, compared with realized gains recognized during the first quarter of 2022.


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•A $43.4 million decrease in cash from higher payments for other operation and maintenance expenses. During the first quarter of 2023, our payments were higher for charitable projects accrued for at the end of 2022 and We Power costs, as well as due to the timing of payments to related parties for accounts payable.

•A $10.6 million decrease in cash from higher payments for interest, driven by the issuance of long-term debt during the third quarter of 2022, and higher short-term debt interest rates during the first quarter of 2023, compared with the same quarter in 2022.

These decreases in net cash provided by operating activities were partially offset by a $66.3 million increase in cash from higher overall collections from customers during the first quarter of 2023, compared with the same quarter in 2022. This increase was driven by our rate order approved by the PSCW, effective January 1, 2023. See Note 23, Regulatory Environment, in our 2022 Annual Report on Form 10-K for more information on our 2023 rate order.

Investing Activities

Net cash used in investing activities increased $150.2 million during the first quarter of 2023, compared with the same quarter in 2022, driven by:

•A $69.2 million increase in cash paid for capital expenditures during the first quarter of 2023, which is discussed in more detail below.

•Insurance proceeds of $41.0 million received during the first quarter of 2022 for property damage, primarily related to the Public Service Building water damage claim.

•The acquisition of Whitewater in January 2023 for $38.0 million. See Note 2, Acquisitions, for more information.

Capital Expenditures

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


(in millions)	2023		2022		Change in 2023 Over 2022
Capital expenditures	$	208.7	$	139.5	$	69.2

The increase in cash paid for capital expenditures during the first quarter of 2023, compared with the same quarter in 2022, was primarily driven by higher payments related to the new natural gas-fired generation being constructed at WPS's existing Weston power plant site and upgrades to our electric and natural gas distribution systems.

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

Financing Activities

Net cash related to financing activities increased $203.1 million during the first quarter of 2023, compared with the same quarter in 2022, driven by:

•A $135.0 million increase in cash related to higher equity contributions received from our parent during the first quarter of 2023, compared with the same quarter in 2022, to balance our capital structure.

•A $50.0 million increase in cash due to lower dividends paid to our parent during the first quarter of 2023, compared with the same quarter in 2022, to balance our capital structure.

•A $17.8 million increase in cash due to lower net repayments of commercial paper during the first quarter of 2023, compared with the same quarter in 2022.

Significant Financing Activities

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


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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 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 2022 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, 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)
2023	$	1,504.1	(1)
2024	1,478.2
2025	1,274.6
Total	$	4,256.9

(1)This includes actual capital expenditures incurred through March 31, 2023, 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 addressing our aging infrastructure and system hardening and 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 MWs of the project. Our share of the cost of this project is estimated to be approximately $151 million. Commercial operation of Badger Hollow II is targeted for 2023.

•We, along with WPS and an unaffiliated utility, received PSCW approval to acquire and construct 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 fully constructed, we will own 150 MWs of solar generation and 82 MWs of battery storage of this project. Our share of the cost of this project is estimated to be approximately $325 million, with construction of the solar portion expected to be completed in 2023.

•We, along with WPS and an unaffiliated utility, received PSCW approval to acquire and construct 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 fully constructed, we will own 188 MWs of solar generation and 56 MWs of battery storage of this project. Our share of the cost of this project is estimated to be approximately $335 million, with construction of the solar portion expected to be completed in 2024.

•We, along with WPS and an unaffiliated utility, received PSCW 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 fully constructed, we will own 225 MWs of solar generation and 124 MWs of battery storage of this project. Our share of the cost of this project is estimated to be approximately $488 million, with construction of the solar portion expected to be completed in 2025.


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•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 MWs of this 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 January 2023, we, along with WPS, completed the acquisition of Whitewater, a commercially operational 236.5 MW dual fueled (natural gas and low sulfur fuel oil) combined cycle electrical generation facility in Whitewater, Wisconsin. Our share of the cost of this facility was $38.0 million for 50% of the capacity.

•In February 2023, WPS, along with an unaffiliated utility, received PSCW approval to acquire a portion of West Riverside's nameplate capacity. WPS also received approval to assign the option to purchase part of West Riverside to us. We will acquire 100 MWs of capacity in the first of two potential option exercises. West Riverside is a combined cycle natural gas plant recently completed by an unaffiliated utility in Rock County, Wisconsin. Our share of the cost of this ownership interest is expected to be approximately $102 million, with the transaction expected to close in the second quarter of 2023. In addition, WPS could exercise and request approval to assign to us a second option to acquire an additional 100 MWs of capacity. If approved, and WPS assigns the option to us, our share of the cost of this ownership interest is approximately $100 million, with the transaction expected to close in 2024.

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. 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 – Uyghur Forced Labor Prevention Act for information on the potential impacts to our solar projects as a result of the DOC investigation and CBP actions related to solar panels, respectively. The expected in-service dates identified above already reflect some of these impacts.

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, 2023.

Common Stock Dividends

During the three months ended March 31, 2023, we paid common stock dividends of $60.0 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, 2023.

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 for the remainder of 2023, 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 2022 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, 2023, our current liabilities sometimes exceed our current assets. If this occurs, we do not expect that it would have any impact on our liquidity, as we currently believe that our cash and cash equivalents, our available capacity of $371.5 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 2022 Annual Report on Form 10-K.

Debt Covenants

Certain of our short-term debt agreements contain financial covenants that we must satisfy, including a debt to capitalization ratio. At March 31, 2023, we were in compliance with all such covenants. We expect to be in compliance with all such debt covenants for the foreseeable future. See Note 12, Short-Term Debt and Lines of Credit, Note 13, Long-Term Debt, and Note 10, Common Equity, in our 2022 Annual Report on Form 10-K, for more information regarding our debt covenants.

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, 2023. 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, 2023, we could have been required to post $100 million of additional collateral or other assurances pursuant to the


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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.

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 2022 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.

Regulatory, Legislative, and Legal Matters

Petitions Before PSCW Regarding Third-Party Financed Distributed Energy Resources

In May 2022, two petitions were filed with the PSCW requesting a declaratory ruling that the owner of a third-party financed DER is not a "public utility" as defined under Wisconsin law and, therefore, is not subject to the PSCW’s jurisdiction under any statute or rule regulating public utilities. The parties that filed the petitions provide financing to their customers for installation of DERs (including solar panels and energy storage) on the customer’s property. A DER is connected to the host customer’s utility meter and is used for the customer’s energy needs. It may also be connected to the grid for distribution.

In July 2022, the PSCW found that the specific facts and circumstances merited the opening of a docket for each petition to consider whether to grant all or part of the requested declaratory ruling.

On December 1, 2022, the PSCW granted one petitioner’s request for a declaratory ruling, finding that the owner of the third-party financed DER at issue in the petitioner’s brief is not a public utility under Wisconsin law. The ruling was limited to the specific facts and circumstances of the lease presented in that petition. A recent petition by several utilities to reopen or rehear the case expired without action by the PSCW. The second petition is also currently being considered. Although the finding in the first petition was limited to the specific facts and circumstances of the lease presented in that petition, similar findings or a broader policy position could adversely impact our business operations.

Uyghur Forced Labor Prevention Act

The CBP issued a WRO in June 2021, applicable to certain silica-based products originating from the Xinjiang Uyghur Autonomous Region of China (Xinjiang), such as polysilicon, included in the manufacturing of solar panels. In June 2022, the WRO was superseded by the implementation of the UFLPA, which was signed into law by President Biden in December 2021. The UFLPA establishes a rebuttable presumption that any imports wholly or partially manufactured in Xinjiang are prohibited from entering the United States. While our suppliers were able to provide the CBP sufficient documentation to meet WRO compliance requirements, and we expect the same will be true for UFLPA purposes, we cannot currently predict what, if any, long-term impact the UFLPA will have on the overall supply of solar panels into the United States and the related long-term impact to timing and cost of our solar projects included in WEC Energy Group's capital plan. However, we are seeing some delays in the release of solar panels by the CBP, which are having an impact on the timing of certain of our solar projects.

United States Department of Commerce Complaint

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. The petitioners claimed that Chinese solar manufacturers are shifting products to these countries to avoid the tariffs required on products imported from China


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and requested that the DOC conduct a country-wide inquiry into each of the four countries. In March 2022, the DOC decided to act on the petition and investigate the claim. On December 2, 2022, the DOC announced its preliminary determination that certain companies are circumventing anti-dumping and countervailing duty orders on solar cells and modules from China. If the DOC makes a final determination, which is currently expected in the second quarter of 2023, that such circumvention is occurring it would be able to apply any final tariffs retroactively to November 4, 2021. If imposed, the new tariffs could further disrupt the supply of solar modules to the United States, and could impact the cost and timing of our solar projects.

In June 2022, the Biden Administration used its executive powers to issue a 24-month tariff moratorium on solar panels manufactured in Cambodia, Malaysia, Thailand, and Vietnam. The moratorium comes as a direct response to concerns raised about the adverse impact from the ongoing DOC complaint on the U.S. solar industry. As the DOC will continue its investigation discussed above, companies may still be subject to tariffs after the moratorium ends; however, U.S. companies will reportedly be exempt from any retroactive tariffs that previously could have applied. The Biden Administration also announced that it plans to invoke the Defense Production Act to accelerate the production of solar panels in the U.S. The Biden Administration's actions did not address whether WROs applied to panels under previous complaints would be affected.

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.

Inflation Reduction Act

In August 2022, President Biden signed into law the IRA, which provides for $258 billion in energy-related provisions over a 10-year period. The provisions of the IRA are intended to, among other things, lower gasoline and electricity prices, incentivize domestic clean energy investment, manufacturing, and production, and promote reductions in carbon emissions. We believe that we and our customers can benefit from the IRA’s provisions that extend tax benefits for renewable technologies, increase or restore higher rates for PTCs, add an option to claim PTCs for solar projects, expand qualified ITC facilities to include standalone energy storage, and its provision to allow companies to transfer tax credits generated from renewable projects. The IRA also implements a 15% corporate alternative minimum tax and a 1% excise tax on stock repurchases. Although significant regulatory guidance is expected on the tax provisions in the IRA, we currently believe the provisions on alternative minimum tax and stock repurchases will not have a material impact on us. Overall, we believe the IRA will help reduce our cost of investing in projects that will support our commitment to reduce emissions and provide customers affordable, reliable, and clean energy over the longer term.

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 2022 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


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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 three risk factors below that are disclosed in Part I of our 2022 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 the Operation of Our Business – We are actively involved with multiple significant capital projects, which are subject to a number of risks and uncertainties that could adversely affect project costs and completion of construction projects.

•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.

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 2022 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 – 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 2023 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 2022 Annual Report on Form 10-K. See Note 17, Commitments and Contingencies, 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 below, 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 impact on our financial statements.

Employee Retirement Savings Plan Matter

In May 2022, a putative class action, Munt, et al. v. WEC Energy Group, Inc., et al., was filed in the United States District Court for the Eastern District of Wisconsin - Milwaukee Division. The plaintiffs allege that WEC Energy Group and others breached their fiduciary duties with respect to the operation and oversight of WEC Energy Group's Employee Retirement Saving Plan (the “Plan”) in violation of the Employee Retirement Income Security Act of 1974, as amended. The class is alleged to be participants in the Plan from May 10, 2016 through the date of judgment. The complaint seeks injunctive relief, damages, interest, costs, and attorneys' fees. WEC Energy Group is vigorously defending against the allegations made in this lawsuit and intends to continue to do so.

ITEM 1A. RISK FACTORS

There were no material changes from the risk factors disclosed in Item 1A. Risk Factors in Part I of our 2022 Annual Report on Form 10-K.


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ITEM 6. EXHIBITS



Number	Exhibit














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)


03/31/2023 Form 10-Q			38			Wisconsin Electric Power Company

Table of Contents

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 4, 2023	William J. Guc
		Vice President, Controller, and Assistant Corporate Secretary

		(Duly Authorized Officer and Chief Accounting Officer)


03/31/2023 Form 10-Q			39			Wisconsin Electric Power Company