WEC Energy Group, Inc. (WEC) Earnings Call Transcript & Summary

Hello, and welcome to the WEC Energy Group Annual Meeting of Stockholders. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Gale Klappa. Mr. Klappa, the floor is yours.

Well, good afternoon, ladies and gentlemen. It's just passed 1:30 p.m. Central Daylight Time, the time set for convening WEC Energy Group's 2020 Annual Meeting of Stockholders. I'm Gale Klappa, Executive Chairman of WEC Energy Group, and I will serve as Chairman for today's meeting. Before we begin, I'd like to take a moment to thank everyone for their flexibility as we conduct our first ever virtual annual meeting, and we hope that all of you and your families are safe and well. I'd also like to call your attention to the rules of conduct for our meeting. They're available on the lower left of the meeting page on your screen. Links are also provided if you need to reference the annual report or our proxy statement. And now it's time to call our 2020 Annual Meeting to order. I've been given the inspector's report, which indicates that more than 87% of the company's outstanding shares are represented. This constitutes a quorum under the company's bylaws, and this meeting, therefore, is duly convened to conduct business. At the end of our formal program, we will be happy to answer your questions. As always, some of the information you will receive at this meeting is forward-looking in nature and is based on our current expectations. Our projections clearly involve risks and uncertainties. Factors discussed in the company's latest Form 10-K and in reports filed with the Securities and Exchange Commission could cause our actual results to differ materially from those discussed today. Now we'll begin our business session. All members of the WEC Energy Group Board of Directors who are standing for election are joining us virtually today. Also attending virtually is Susan Hogan from Computershare, the company that serves as our transfer agent and registrar. Susan has been appointed as inspector of election for our meeting today. Representatives of the Deloitte & Touche, Bob Gordon and [ Tom Keith ] also are with us online today. They're our auditors. And now I'll call on our Executive Vice President, General Counsel and Corporate Secretary, Peggy Kelsey, to report on the proposals we have before us. Peggy, all yours.

Thank you, Gale. On March 25, 2020, a notice of this meeting was sent to all stockholders of record as of February 26, 2020. A second notice was made available to stockholders on April 20, 2020, announcing the change in meeting location to this virtual format. We will now proceed with the vote for the 2020 Annual Meeting. If you have previously voted your proxy, your vote has already been recorded. If you have not voted or wish to change your vote, you may do so now by clicking on the link labeled, Cast Your Vote in the online meeting center. As set forth in your proxy statement, there are 3 items on which stockholders have been asked to vote: number one, election of 12 directors to serve for terms expiring at the Annual Meeting of Stockholders in 2021, including Patricia Chadwick, Curt Culver, Danny Cunningham, William Farrow III, Thomas Fischer, Kevin Fletcher, Maria Green, Gale Klappa, Henry Knueppel, Thomas Lane, Ulice Payne, Jr. and Ellen Stanek; item number two, an advisory vote to approve compensation of the named executive officers, otherwise known as Say On Pay; and item number three, ratification of Deloitte & Touche LLP as independent auditors for 2020. I have been appointed to vote all of the shares represented by the proxy votes sent in by our stockholders. I have submitted the proxy ballot that reflects your instructions to the inspector of election. The polls are about to close. So if you have not finished voting, please do so now. [Voting]

Thank you. The online voting is now closed. The preliminary inspector's report has been completed. Based on the preliminary review of votes cast, I declare that all nominees for the Board of Directors have been elected. The advisory vote to approve the compensation of the named executive officers has passed, and the appointment of Deloitte & Touche as independent auditors for 2020 has been ratified. A final report will be filed with the SEC in the next few days. With that, Gale, I'll now turn the meeting back to you.

Thank you. Thank you very much. The formal business portion of our meeting is adjourned. And now we'd like to provide you with a brief update on our company's progress. I'm pleased to report that on virtually every meaningful measure, we delivered another year of solid results in 2019. Net income from operations totaled $1.1 billion, and earnings per share rose to $3.58 a share, exceeding our guidance for the year. Our total shareholder return was 37%, surpassing the performance of all the major utility indexes. Then in January of this year, our Board of Directors increased the dividend by 7.2%. This marks the 17th consecutive year that our company has rewarded shareholders with higher dividends. And as you may know, on Monday, we reported first quarter 2020 earnings of $1.43 a share. That result reflects lower natural gas sales during one of the warmest first quarters on record, but underscores our continued focus on executing our capital plan and operating efficiently. Our earnings projection for the full year remains in the range of $3.71 to $3.75 a share. Moving now to the operations side of our business. It was another successful year of strengthening the energy infrastructure our customers depend on. We invested nearly $2.3 billion in our core business to maintain reliability and improve customer service. And I'm pleased to tell you that We Energies is our largest utility, was named the most reliable in the Midwest for the ninth year in a row. Wisconsin Public Service also was recognized for the first time for its outstanding reliability performance as a midsized utility. We also moved forward with our generation reshaping plan. Our priority, as you may know, is to reduce greenhouse gas emissions, while maintaining a system that can respond reliably and consistently in the face of severe weather events and other emergencies. Since 2014, ladies and gentlemen, we have retired 40% of our coal-fired generating capacity. And last year, I'm pleased to say that we more than met our 2030 goal of reducing carbon emissions by 40% below 2005 levels. Given our progress, we're now reevaluating our longer-term carbon reduction goals. In summary, we're blessed with a strong and experienced management team as we navigate through these challenging times. And now I'll turn the meeting over to Kevin Fletcher, our President and Chief Executive. Kevin will address our response to the COVID-19 pandemic. Kevin?

Thank you, Gale. As we plan for the long-term success of our company, we remain focused on providing essential service and keeping our employees safe throughout this COVID-19 pandemic. Early on, we adopted measures to minimize health risk and lower expenses. We have instilled in our employees the importance of following the CDC guidelines. Stay-at-home orders were issued across our 4 states in late March. Keep in mind, the full effects of the virus-hit Wisconsin relatively late, and the hardest-hit parts of Michigan have been outside of our service area. Consequently, we saw no material impact on our first quarter results from the pandemic. Over the past 6 weeks, we have sharply curtailed work inside customers' homes and 80% of our operations employees are now working remote or in the field. Our employees have adapted very well to these changes by using technology, following health precautions and continuing to work efficiently. The remote work that's making our company safer would not have been possible without recent technology investments, and I remain confident in our capacity to keep the lights on and the gas flowing to our communities. I'm grateful that we also have been able to contribute through our foundations to organizations on the front lines, including local united ways, hospitals, domestic violence shelters, food pantries and youth programs. Through these donations and our matching gifts, we are providing more than $2 million to COVID-19 relief efforts. It's our way of thanking the people and organizations that sustain our communities. Now I'll turn the meeting back to Gale.

Kevin, thank you very much. And now it's time for the question-and-answer portion of our meeting. Stockholders may submit their questions online by clicking on the message icon. And Peggy Kelsey has agreed to read the questions. So Peggy, time to rock.

Thank you, Gale, and thank you to those who submitted questions. Gale, we have multiple questions relating to a subject you raised in your prepared comments and it relates to our environmental commitment. The following comes from a shareholder in the Netherlands. On behalf of the Climate Action 100 Investor Initiative, representing more than 450 investors with over $40 trillion in assets under management, we are encouraged that WEC has exceeded their 2030 goal of reducing carbon emissions by 40% below 2005 levels last year. Given your progress and the imperative set by the intergovernmental panel on climate change to achieve global net 0 emissions by 2050, what are the company's updated ambitions for 2030? And can you meet a net 0 commitment for 2050?

Well, first of all, delighted that we -- our first question has come from the Netherlands. It's getting late over there in the Netherlands. So I appreciate our stockholder hanging with us. In terms of our longer-term goals for continuing to move forward and improve our environmental footprint. As I mentioned, we made great progress over the course of the last few years and actually stronger progress than many of us thought we could. I mentioned in my prepared remarks, we reduced carbon emissions by more than 40%, below 2005 levels just by 2019 when we had established that goal for 2030. So we're in the process right now to directly answer your question. We're in the process right now, given that progress of reevaluating our longer-term goals. We're also working with a climate task force that's been appointed by the governor of the state of Wisconsin. That climate task force hopes to have its recommendations in place or at least on the governor's desk by the end of this year. So long story short, we're reevaluating the goals. We're encouraged with our progress. And you can expect us to roll out a new longer-term carbon reduction goal, I would hope by August 1. As many of you know, we have a corporate responsibility report that we produce every year with great deal of information on our environmental performance, and I would expect our new goals will be rolled out and officially found in that document. Thank you for your question.

Thank you, Gale. The second question. Given the premium valuation the company trades at today, do you see any opportunities for another acquisition or merger?

We get that question a lot actually from analysts and other stockholders. So I appreciate someone sending that question in today. One of the things we're very pleased about is the fact that our acquisition of a company called Integrys back in 2015, has worked out extremely well. For both sets of shareholders, both the traditional Wisconsin Energy shareholders and the Integrys shareholders. We continue to see many benefits in terms of additional efficiencies of putting the companies together, of driving best practices across our footprint now, which spans 4.5 million customers in 4 states, including a major natural gas delivery franchise that spans from the Upper Peninsula of Michigan and Northern Wisconsin, literally almost all the way into Chicago. So -- and yes, we are in a consolidating industry. I don't think there's any question about that. However, we have 3 very important principles that are bedrock principles for us as we look at any potential merger or acquisition. And I will repeat those 3 principles, they're simple, but I believe if you follow those 3 criteria, those 3 principles, you will create shareholder value. If you don't, in our industry, and sometimes the story has not turned out very well. So the 3 criteria that we will religiously follow are, after a lot of due diligence, we would have to be convinced that we could make the acquisition accretive or additive to earnings per share in the first full year after closing, number one. Number two, we are not going to put it in the vernacular, we're not going to trash the balance sheet to do that. We've worked very hard to have one of the strongest balance sheets in the industry, and we will not trash the balance sheet simply to try to make an acquisition accretive. And then thirdly, and I think this is probably the most difficult criteria right now. And that is we would want any acquisition or merger. We want the growth rate of that organization or company to be at least as strong as our own organic growth rate. So read that 5% to 7% earnings growth per year. If we found an opportunity that met those 3 criteria and Integrys clearly did, than we would certainly have tremendous interest, but those are the criteria that we will judge any potential opportunity against.

Thank you, Gale. Here's your next question. Do you see the dividend payout continuing?

That's a great question. We were all chatting socially distance a little while ago, and both our CFO and our CEO remind me how much they like dividends. And I know our shareholders do too. So the short answer is, yes. We have a stated dividend payout policy. That policy is to pay out between 65% and 70% of our earnings in dividends each year. We're absolutely right in the middle of that range, right where we want to be at this point in time. So shareholders could expect dividend growth in the coming years to mirror the growth in earnings per share.

Thank you, Gale. Your next question is appropriate to today's meeting format. Do you plan to continue hosting virtual shareholder meetings in the future?

Well, it's a great question, and we will certainly evaluate the experience of our shareholders with this Virtual Annual Meeting. I must say that I have a bias, I'm probably old school. We very much enjoy meeting with our shareholders in person each year. And of course, in past years, we've adopted a bit of a virtual format as well, in that any shareholder could view the annual meeting online as we stream the meeting live. But we'll certainly step back and get some feedback from our shareholders and plan appropriately for the years to come. But again, I think some element, if possible, of an in-person meeting would certainly be my personal preference.

All right, Gale, looks like we have one more question for you. What technology do you see emerging in the energy industry over the next few years and beyond?

Well, Kevin and I both pay very much tremendous attention to the evolvement in technology. And as all of our shareholders know, really the technology available in our industry has changed tremendously in terms of its cost effectiveness and availability over the last few years. Wind and solar, for example, being 2 great examples of technologies that have become much more cost effective. Kevin, what do you see as you look into your crystal ball?

Gale, I think we're going to continue to see cost and efficiency improvements with the increased solar research. But I also think that battery technology is going to play a more major role in the reliability and economics of renewables as well as grid operations. I think the speed of adoption for the technology, that particular technology, battery technology is dependent on developments that create better, longer-lasting and more cost-efficient battery storage mechanisms.

Very good. And as many of you know, for -- to Kevin's point, for many years, battery technology has been viewed to be the holy grail for the industry, and it has improved. But Kevin, I would say, at this point, given where our competitive pricing is, we're probably not quite there for mass installments of batteries.

That's correct, yes. What has to increase Gale is the capacity and again, the duration of those batteries to make it beneficial for us moving forward.

But we're both hopeful that day is coming.

That's for sure, Gale.

Terrific. All right. Peggy, I think we have covered the waterfront.

Absolutely. You've covered a broad spectrum of questions and comments that have been submitted during the course of the meeting. And with that, I will turn it over to you to wrap things up.

Terrific. Well, thank you, everyone. This concludes our 2020 Annual Meeting. If you have any additional questions or need more information on any subject, please feel free to contact our Investor Relations line at (414) 221-2592, and please be assured that our management team will work hard in the year ahead to uphold your confidence and your support. Thank you, everyone, and please stay safe.

You may now disconnect.