Utility investment plans require regulatory consistency to be successful — and for WEC Energy Group (WEC), November election results were pretty close to optimal for its $20.1 billion, 5-year CAPEX plan, explains Roger Conrad, editor of Conrad's Utility Investor.
WEC devotes $7.3 billion to renewable energy projects that will both phase out coal and provide substantial fuel cost savings. Another $7.3 billion goes for grid and fleet reliability, with $2.8 billion for improved electric and gas infrastructure and $2.7 billion for technology and modernization of systems.
The last includes successful blending of hydrogen with natural gas to generate electricity, reducing CO2 emissions and potentially cut costs as well.
WEC’s plan supports target annual rate base growth of 7.4 percent. That in turn will fuel earnings and dividend growth of 6.5 to 7 percent through 2027. Management has “no plans to issue equity.”
And the strategy supports the company’s A- credit rating with a stable outlook from S&P. The recent $300 million issue of 3-year bonds at a coupon rate of 5.35 percent demonstrates continuing ability to access extremely volatile credit markets on reasonable terms.
The re-election of Governor Tony Evers along with a Republican legislature ensures support for WEC’s plan in Wisconsin, its most important state at 70 percent of revenue. Status quo outcomes in Illinois, Michigan and Minnesota governors’ races ensure the same in those states. And the split decision of voters at the federal level ensures tax credits from the Inflation Reduction Act will flow.
Another WEC hallmark is consistent cost management: Operating and maintenance are lower by -4.1 percent over the last 12 months despite inflation pressures.
And as CEO Gale Klappa pointed out in the Q3 earnings call, 50-50 financing policy for infrastructure development in all environments gives the utility a major advantage over debt reliant private capital in competition for unregulated projects.
It’s been difficult to find good entry points for this high quality company in recent years. But with an upper single digit percentage dividend increase on tap for next month and its growth plan locked in even for a potential recession, Conservative Holding WEC earnings a bump in my highest recommended entry point to $95.
