Good afternoon, and welcome to WEC Energy Group's Conference Call for Third Quarter 2023 Results. This call is being recorded for rebroadcast, and all participants are in a listen-only mode at this time.

Before the conference call begins, I remind you that all statements in the presentation, other than historical facts, are forward-looking statements that involve risks and uncertainties that are subject to change at any time. Such statements are based on management's expectations at the time they are made.

In addition to the assumptions and other factors referred to in connection with the statements, factors described in WEC Energy Group's latest Form 10-K and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated.

During the discussions, referenced earnings per share will be based on diluted earnings per share, unless otherwise noted. After the presentation, the conference will be open to analysts for questions and answers. In conjunction with this call, a package of detailed financial information is posted at wecenergygroup.com.

A replay will be available approximately two hours after the conclusion of this call. And now it's my pleasure to introduce Gale Klappa, Executive Chairman of WEC Energy Group..

From America's Heartland, good afternoon, everyone. Thank you for joining us today as we review our results for the third quarter of 2023. First, I'd like to introduce the members of our management team who are here with me today.

We have Scott Lauber, our President and Chief Executive; Xia Liu, our Chief Financial Officer; and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations. As you saw from our news release this morning, we reported third quarter 2023 earnings of $1 a share.

We delivered another solid quarter of growth, and we remain on track for a strong 2023. Our focus on executing the fundamentals of our business is creating real value for our customers and our stockholders. Today, we're also reaffirming our earnings guidance for the year.

The range is $4.56 to $4 -- I'm sorry -- $4.58 to $4.62 a share with an expectation of completing the year in the upper half of the range. As always, this assumes normal weather through the final quarter of 2023. Switching gears now, our big news for the day is the rollout of our ESG progress plan for the period 2024 through 2028.

As you may have seen from our announcement this morning, we expect to invest $23.4 billion with an ongoing focus on efficiency, sustainability and growth. This is the largest capital plan in our history, an increase of $3.3 billion above our previous five-year plan, that's more than a 16% increase.

Several factors of driving the investment outlined in our updated ESG progress plan.

The first of these factors is the economic growth we're seeing in the Milwaukee region, particularly in what we call the I-94 corridor in the southeastern part of the state between Milwaukee and the Illinois state line, from data centers to pharmaceuticals to micro inverters for solar panels from even more gummy bears to massive new distribution and fulfillment centers.

And this growth is also spanning new commercial and residential development in the region. In our new five-year plan, we expect our asset base to grow at an average rate of 8.1% a year.

And as we fund this growth with an appropriate financing package, we project our earnings per share will continue to rise at a compound annual rate of 6.5% to 7% a year.

As we've been discussing with you, our plan will include growth equity in the form of programmatic equity, including our dividend reinvestment plan, employee benefit plans, and at the market plans. There is no need for block equity in the five-year plan, and we'll start in 2024 by issuing a $100 million to $200 million of new equity.

Xia will provide you with more details on the financing plan in just a few minutes. I'd also like to point out a few other quick highlights for you. Over the next five years, we'll continue to make great progress in transforming our power generation fleet and reducing carbon dioxide emissions.

In the plan, for example, we're making a significant commitment to new solar, wind and battery storage, as well as modern efficient natural gas generation and LNG storage. In addition, we'll be adapting to the new seasonal capacity rules being put in place by MISO, Midcontinent Independent System Operator.

American Transmission Company will be adding needed transmission capability and to help assure energy security for our customers will continue to harden our distribution networks. On the environmental front, our plan still calls for reducing CO2 emissions from our power generation fleet by 80% by the end of 2030.

And I'm pleased to report that assuming timely regulatory approvals, we now project a complete exit from call three years earlier by the end of 2032. So the future is bright, the investment opportunity is long, strong, and highly executable. And Scott will provide you with some specifics in just a few minutes.

And now a brief look at the regional economy. The unemployment rate in Wisconsin stands at 3.1%, continuing a long running trend below the national average. And as we look inside the numbers, we see an encouraging upward trend in Wisconsin's labor force participation of this year.

As I mentioned, growing companies are investing and expanding in our region. Microsoft is now moving dirt and moving full speed ahead to develop its new data center complex in that I-94 corridor, we mentioned south of Milwaukee. And Haribo officially opened the doors of its new confectionary plant in July.

Fast forward to today, and Haribo is already planning to double the size of its production capability, adding more capacity for gummy bears, new technology and additional employees. And so -- also south of Milwaukee, Uline plans to open a 1 million square foot facility this year.

Uline, in case you're not familiar with the name, is the leading distributor of shipping, industrial and packaging materials for businesses throughout North America and even more expansion is planned by Uline for 2025.

These developments highlight the strength and the potential of the Wisconsin economy and underscore the need for the investments we're outlining in our five-year plan. With that, I'll turn the call over to Scott for more specifics on our capital projects, our regulatory calendar, and our operational highlights. Scott, all yours..

Thank you, Gale. I'd like to start with some of the specifics on our capital plan. As Gale noted, we have identified $3.3 billion of additional investments compared to our last five-year plan. I'll walk you through the changes. Between 2024 and 2028, we plan to increase our investment in renewables by $1.4 billion.

With that, we expect to invest in 3,800 megawatts of new renewable capacity. In the plan is a billion dollar increase in transmission investment. This is our share of the ATC plan. Renewable projects and regional growth are among the driving factors.

To support reliable service for our customers, we expect to spend an additional $1.3 billion on natural gas generation over the five-year plan. This includes both combustion turbines and reciprocating internal combustion engines, or RICE units.

We also have planned to invest in additional $800 million in liquified natural gas capacity, which will be used for electric generation and for our natural gas operations on the coldest days of the year. With these important investments for our utilities, we have reduced our planned investment in our Energy Infrastructure segment.

We'll be happy to share more details with you at the upcoming EEI conference. Now, moving on to the regulatory front. As you recall, we expect a decision from the Wisconsin Commission before the end of the year on our limited reopener filings. We also have an update on our rate filings under review in Illinois for Peoples Gas and North Shore Gas.

Recently, the administrative law judge on the case issued a proposed order largely consistent with staff's recommendation. The order recommends a 9.83% return on equity at both utilities, and we expect a final decision by the end of November. And moving to the other states.

I'm pleased to report that both the Minnesota and Michigan Commissions have recently approved settlements on our rate reviews. Meanwhile, we're making progress on a number of regulated capital projects.

As you recall, we closed on our first option at the West Riverside Energy Center earlier this year, adding a 100 megawatts of efficient combined cycle natural gas generation to our portfolio. Since our last call, we filed our request to purchase another 100 megawatts of Riverside capacity under our remaining option.

Pending regulatory approval, we expect to invest $100 million to add this capacity in 2024. Elsewhere in the state, work continues on the Badger Hollow II solar facility and the Paris and Darien solar battery parks. You may recall we had solar panels waiting on final release from a bonded warehouse in Chicago.

I'm happy to report that those panels are being cleared. The first 100 megawatts have been released and the trucks are rolling to our Badger Hollow II site. We expect all of our panels to be released and in our possession by the end of this year.

We are on track for Badger Hollow II to go into service late this year or early next year, with the Paris Solar Park to follow. In addition, work is underway on the Darien facility, which is planned to go into service by the end of 2024. We'll keep you updated on any future developments. With that, I'll turn things back to Gale..

Scott. Thanks very much. And now just a quick reminder about our dividend. Our dividend growth continues to stand in the top decile of our industry. In fact, we were recently named one of the 10 best dividend stocks in America by Morningstar.

As usual, I expect our Board will assess our dividend plans for next year and our regularly scheduled meeting in December. We continue to target a payout ratio of 65% to 70% of earnings. We're positioned well within that range now, so I expect our dividend growth will continue to be in line with the growth in our earnings per share.

Next up, Xia will provide you with more information on our third quarter financials and a good bit of detail on our upcoming five-year financing plan. Xia, all yours..

Thanks Gale. Our 2023 third quarter earnings of a $1 per share increased $0.04 per share compared to the third quarter of 2022. Our earnings package includes a comparison of third quarter results on page 15. I will walkthrough the significant drivers. Our earnings from utility operations were $0.18 above the third quarter of 2022.

First, weather had an estimated one penny negative impact quarter-over-quarter. Higher depreciation and amortization expense and interest expense added another $0.09 of negative variance. These unfavorable variances were more than offset in the quarter. Rate base growth contributed $0.13 to earnings.

This includes the base rate increase for our Wisconsin utilities as well as the interim rate increase for Minnesota energy resources. Additionally, timing of fuel expense improved our earnings by $0.13 and lower day-to-day O&M resulted in a $0.02 improvement.

Before I turn to earnings at the other segments, let me briefly discuss our weather normalized sales for the quarter. You can find this sales information on page 11 of the earnings package. Retail electric deliveries in Wisconsin, excluding the iron ore mine, were down eight tenths of a percent quarter-over-quarter.

This was driven by lower sales volumes to large commercial and industrial customers. Residential usage was up 1.3% and is ahead of our forecast through the first nine months of the year. Also, sales to our small commercial and industrial customers were up four tenths of a percent and are tracking our forecast for the year.

Regarding our investment in American Transmission Company, earnings decreased $0.05 compared to the third quarter of 2022. Recall that last year we recorded a $0.05 pickup from a resolution of MISO ROE appeals. Earnings at our Energy Infrastructure segment decreased one penny in the third quarter of 2023 compared to the third quarter of 2022.

This was mostly driven by lower wind production, partially offset by tax credits on projects that we placed into service. Finally, you'll see that earnings at our Corporate and Other segments decreased $0.08 largely due to higher interest expense. As Gale noted, we are reaffirming our annual guidance of $4.58 to $4.62 per share.

This includes October weather and assumed normal weather for the remainder of the year. Now turning to our financing plan. Gale and Scott have already discussed the new five-year capital plan. I'll provide details related to our anticipated financing activity to support the plan. You can find this information on page 22 of the earnings package.

As you can see on the chart, over the next five years, we expect cash from operations to fund about 65% of our cash needs. About 28% of the funding is expected to come from debt and the remaining 7% from issuance of common equity.

As Gale mentioned earlier, we expect to utilize dividend reinvestment and employee benefit plans and at the market programs to tap into the equity market. Our common equity issuance is projected to be in a range of $100 million to $200 million for 2024 and $1.8 billion to $2.2 billion over the next five-year plan.

Recall, our equity ratios in our utilities are thicker, particularly at Wisconsin Electric. Supporting these thicker equity layers results in approximately $400 million of common equity raise. The remaining equity raise represents approximately 50% of incremental capital spend.

As you know, our equity issuances post 2024 will be tied to our capital plan rateably at approximately $450 million a year. This financing plan not only supports our long-term earnings growth rate, but also helps maintain our targeted credit metrics. In addition, I'll quickly address our upcoming holding company refinancing needs.

Over the next three years, we have total maturities of about $2.8 billion. The $600 million that matures in 2024 carries a very low coupon. However, the remaining $2.2 billion scheduled to mature in 2026 has a weighted average coupon of just under 5%, which represents lower refinancing risk.

In closing, as shown on the last page of the earnings package, through our capital allocations, we expect the percent of assets invested in our regulated electric businesses to grow faster. At the same time, the percent of assets in gas distribution and in contracted renewables is expected to decline.

We are very excited about the investment opportunities ahead of us. With that, I'll turn it back to Gale..

All right. Xia, thank you very much. Overall, we're on track and the company continues to perform at a very high level. Operator, we're ready now for the question-and-answer portion of the call..

Now, we will take your questions. [Operator Instructions] Your first question comes from the line of Shar Pourreza with Guggenheim. Your line is open..

Rock and roll, Shar.

How are you?.

Mr.

Klappa, how you doing?.

Doing great..

Excellent. So, Gale, obviously, in Xia's prepared remarks, she hit on why the equity guide was obviously somewhat large and what would be dictated by the growth CapEx increase. It's obviously, because of the higher equity layers.

I guess, how should we think about this in terms of the balance sheet capacity it gives you? How is the conversations with the current rating agency? And related, are you done now through the trajectory or could incremental CapEx lend to more equity? I mean, you do tend to raise CapEx every year in the Microsoft opportunities still out there.

Thanks..

Yeah. Yeah, great question, Shar. Well, first of all, kind of let me back up and reiterate a couple of things that Xia mentioned. I think you can look at, and Xia touched on this, about $400 million of the equity raise.

At least in my mind, I look at that as kind of a one-time catch up because over the last rate case outcomes, we've received thicker equity layers virtually in every situation. So about $400 million of that really just goes to support, really strong credit metrics at all of our utilities.

So I would look at that particular $400 million chunk that Xia referred to, Shar, as kind of a one-time catch up. And then to answer your question about further capital. And yes, the Microsoft plan is still being developed.

We'll know a lot more in the next few months beyond what we've put in this plan related to Microsoft as they continue to refine their plan for the large complex that they're going to develop here in southeastern Wisconsin.

But I think the way to look at it is that incremental capital beyond what's in the plan, probably equities about 50% of that incremental capital.

Xia, any other thoughts?.

No, you addressed it..

Okay.

Shar, does that respond to your question?.

Fantastic.

And then just the $3.3 billion, any sense on the profile of that CapEx, or is that like an EEI update?.

Yeah. Let's walk through all of that in detail at EEI for you. We'll have a very specific breakdown for you EEI. But I think clearly there's going to be some additional capital. I mean, we mentioned generation and LNG as kind of large contributors to the capital plan.

So I think the outer years or the later years in the five-year plan will be larger than the first couple of years. I think the first, the first couple of years probably the increase will be more dominated by transmission in the first couple of years.

And then as we build generation and as we build the LNG facilities, you'll see kind of a rise in that five-year capital plan. I will say this, there is no white space in that five-year capital plan. I mean, we have just tremendous opportunity in front of us..

Got it. And that's how we should think about the profile of the equity, right? It matches with the CapEx..

Absolutely. Yeah. We will match the equity issuance with the capital investment each year..

Got it. And then lastly, just moving to the Infrastructure segment, it's a pretty big reduction, Gale, in spending there.

Is that a function of a lack of opportunities despite our IRA or is it more about making sure you kind of stay within that business risk profile and credit metrics to somewhat appease the agencies? I guess, how should we think about that segment on a go forward basis? Thanks..

Yeah. Shar, great question. Let me just first say, there's no lack of opportunity as we see it in the Infrastructure segment.

But what we're doing here is simply reallocating capital and resources to the tremendous growth opportunity that's evolving here in our regulated business driven by Microsoft, driven by the other economic growth that we've described to you.

So this is not really any comment at all in terms of the potential, the returns or the opportunity in the Infrastructure segment. It's just -- we have a tremendous opportunity here now to reallocate capital to our regulated enterprise..

Got it. Perfect. All right. I'll pass it to someone else. We'll see you in about a week. Thanks guys..

All right. Take care, Shar. Thank you..

Your next question comes from the line of Ross Fowler with UBS. Your line is open..

Hey, Ross.

How are you?.

Good afternoon. So Gale, just before we get into it, I've got November 22nd already circled on my calendar for Buck Celtics [ph], so we'll get there quick, quicker than you think..

It really will. It'll be fascinating..

Yeah. So just a couple from me. I mean, I know, Gale, as you talked about sort of the DRIP in the past, you never really turned it off to my understanding. You've just been sort of buying back those shares.

What's kind of been the traditional uptake of that DRIP program as I try to scale that equity in the plan to sort of what is DRIP internal and what might be ATM?.

Well, it's a good question and I will look to Xia to make sure my numbers are right, but it's varied over the years, the DRIP program, but generally it's about $100 million to $150 million..

$100 million to $200 million over the -- on average over the past four years is not just DRIP, it's DRIP and the employee benefit plans and so what we call the programmatic plans. So on average it's $100 million to $200 million a year..

And Ross, you're right, we have been buying shares off the market to satisfy both the DRIP plan and the employee benefit plan. So this simply kind of puts us back in a position where I think everybody else in the industry already is..

Right. Got gotcha, Gale. And then just there's been some confusion around in the market. Maybe as you change sort of your coretirement deadlines here in this plan and push those into the end of -- bring those forward actually I should say to the end of 32.

Just remind me how the power of the future works and then confirm for me that I'm right in thinking that if you do natural gas conversion at those units, that that fits into that mechanism as well..

Ross, you're absolutely right. It does fit into the mechanism. One way to look at it is all of the arrangements and all of the legal situations related to power of the future and all the regulatory situation related to power of the future is fuel agnostic.

So there's really no regulatory approval required for us to do the major activity that we're already underway with, which is beginning a transition of the new coal-fired units at our Oak Creek site from coal and natural gas. And again, we're already making modifications at the plant itself.

We're already testing burn of natural gas, up to certain levels. We're planning to bring in larger meter sets, et cetera. So the work is underway to continue the transition of coal and natural gas at our new Oak Creek units. The other power of the future units are already natural gas fired.

So -- but there is no -- there really is no legal or regulatory requirement related to the concept of transitioning from coal to natural gas..

And so that investment would earn that higher ROE and then go through that same sort of mortgage amortization process, if I'm thinking about that right?.

That is exactly correct, Ross. Yes..

Okay. All right. I'll leave it there and pass it on to the next..

Terrific. Thank you, Ross..

Your next question comes from the line of Michael Sullivan with Wolfe Research. Your line is open..

Afternoon, Michael..

Hey, Gale.

How are you?.

We're good. We're good.

By the way, Michael, there's no truth to the rumor that you're dressing up as Taylor Swift tonight for Halloween, is there?.

No, no. I've had enough with these at this point..

Or maybe you're dressing up as Travis Kelsey. I'm not sure..

Yeah. Anyways.

At this point where we're at on the Illinois case, is it fair to say we're going to a final order in those cases, or is there still a chance something could be worked out here?.

Time will tell. Obviously, my sense is we will probably end up with a final review and a final decision by the Illinois Commission. Scott, your view..

Yeah. I expect -- I think there's some moral arguments going on in the next couple weeks, and I expect something by the end of November here..

Okay. Great. And then I just wanted to ask, in terms of timing. I know a lot of people have been asking on this, Gale, just your kind of timeline for being in the current role that you're in. I think the last update there was through May of 2024. Just any sense of when you'll update us on that front.

Are you tying yourself to [indiscernible] with his extension or?.

Well, the problem is I asked our Board for an extension at [indiscernible] level, and I'm not sure they're going to buy that -- and I appreciate the question. You're correct. My current agreement goes to May of 2024, and we're having some really good discussions with the Board and with Scott.

And we'll have an announcement here in the next very short period of time..

Okay. Great. Thanks very much..

Thank you, Michael. Take care..

Your next question comes from the line of Julien Dumoulin-Smith with Bank of America. Your line is open. .

Hey, how are you doing?.

I'm good. I got -- I now have a name for your new dog..

Go for it. I'm all yours..

Equity..

Fair enough. True story. Love it. Darius's got his second, and I'm still here without it yet, so I got to catch up. That's all I got to say..

There you go..

Don't worry. He's dressing his dog up for Halloween and I still -- whatever. It's all good. Look, you always have fun. I always got to say, I mean, you're still having fun though in the role though, right? As a follow up to the last question in brief..

Still having fun..

Okay. Excellent. Well, that's good to hear. Look more seriously though. I -- maybe just to follow up on this, on the Microsoft response and just like what's embedded in the outlook versus what's incremental. I get that there's no white space.

I mean, really the question is how soon and how much further can you go to the extent to which that they give clarity on their plans. Obviously things are actively rolling on their front.

In addition to some of these other announcements that you articulated, I just wanted to understand, how fully baked or how much -- well, obviously it's fully baked, how much further you could go and how soon that could be, just given how meaningful the plan sizes are that are contemplated..

Yeah. Great question, Julien. So let's put a couple of numbers around it. In this five-year plan, in this new five-year plan, we've included about 1400 megawatts of additional capacity to support the Microsoft data center development and some of the broad based economic growth that we've described to you.

And that new capacity is really going to be needed for energy security, and for us to continue to decarbonize.

But in the current plan to support the Microsoft development and some of the other that I-94 corridor development that we've talked with you about, we're seeing the need for roughly 1400 megawatts of additional capacity that's embedded in that $3.3 billion increase in our capital plan. And we'll see where it goes.

Obviously, we are beginning the process of looking at ordering equipment and starting work on identifying sites, et cetera, et cetera. So much of that capital for the capacity, the generating capacity will be in years three, four, and five..

Got it. Excellent. And just on the other side of the CapEx update, if I can. First off, LNG versus more gas storage, obviously you guys have done a number of those announcements over the years.

Thoughts about further acquisitions on that front, or just how you think about the fungibility one between LNG and the other? And then related here, also big update on the ATC front. Is that just all MISO Trans 1? Does that have white space in it? I mean, just a big step forward on that front too.

It's overshadowed here by the generation, but I just want to come and address that too..

No. There -- again, no white space at all. Scott's on the ATC board. We'll let -- ask Scott to respond to your question on the transmission..

Yeah. When you look at the transmission, and it's up significantly as you noted, it is a combination of the economic development that Gale talked about, getting transmission to the region. Also the renewables we're putting on the system and other utilities in the state of putting on the system. And then just regular system renewal in ATC's footprint.

So you've put it all together and it's about a $1 billion more. And I think you maybe saw their 10-year capital plan just came out and it was also a significant increase from the prior one. So good growth, just good executable capital also at American Transmission Company and we're 60% of that..

And Scott, from your -- here in my discussions, some of that capital is really upgrading aging transmission facility..

Exactly. It's renewing some of those older facilities that are put in years ago..

Awesome..

Does that answer your question?.

Okay. Thank you..

Yeah. The gas storage. Yeah. The LNG and gas storage, the LNG is really making sure we have the capacity and putting those units in the state of Wisconsin, just like over Christmas day weekend there was gas supply challenges. Having the LNG tank that we had at our South Oak Creek plant actually really helped the system that particular day.

So having that in the state of Wisconsin is going to be very helpful on those very cold days when we need that capacity..

Yeah. Scott's exactly right. And just to add onto that. We don't ever want to go through another Christmas Eve like we went through last Christmas Eve. I mean, as you know, there was a very significant cold snap. And many parts of the country had rolling blackouts.

We did not, but a major transmission gas pipeline into Wisconsin lost about 40% of its capacity to bring gas in. If we hadn't had LNG storage right here that we could direct eject into our gas distribution networks, we would've had some real issues.

So there's no doubt in our mind that for energy security, particularly at times when it gets to 20 and 30 degrees below zero, we need to have that capacity to keep gas flowing, to keep the heat on, and to keep the lights on in Wisconsin. So that's a big rationale, a big part of what we're accomplishing with this investment that we've outlined..

Excellent. Thank you again. Good luck guys. See you soon..

Thank you..

Your next question comes from the line of Neil Kalton with Wells Fargo. Your line is open..

Hi, guys..

Hey, Neil. We're good.

How's it going, Neil?.

It is going well. It's Halloween, fun day. So all is well down here. Just one quick question for you. So in the EPS CAGR, I think you affirmed the 6.5% to 7%.

And just curious, are you assuming any changes to the allowed earned ROEs in that forecast over five years?.

No, we're basically assuming status quo..

Okay. That was my question. That is all. Thank you..

Terrific. Thanks Neil. Hang in there..

Your next question comes from the line of Jeremy Tonet with JPMorgan. Your line is open..

Afternoon, Jeremy..

Hi. Good afternoon. Happy Halloween there..

Happy Halloween to you..

Thanks. I was just looking maybe to quantify transferability a little bit more.

And if you could walk us through the role of IRA track -- tax credit transferability in your financing plans, specifically, kind of with the $16.5 billion to $17.5 billion in cash from operations, how much is tax credit there? And any sense as to how much incremental debt this allows you to take on?.

Sure. We will ask Xia to give you the details. I will say that there's a significant amount of cash coming in from transferability of the tax credits. And it's a very positive thing overall for our cash sources.

Xia?.

Yeah. So in the five-year plan, we expect between $1.6 billion to $1.8 billion tax credits either we will use for our own tax appetite or sell to a third -- to some third-party. And that's part of the -- to your point, that's part of the FFO..

Got it. That's helpful there. Thank you for that. And then just kind of continuing on, I guess with equity funding in general, thank you for all the color that you provided here earlier.

But just wondering, as you look forward through the plan, are your balance sheet metrics getting stronger or the metrics the same? Is this -- kind of looking to offset higher rates? Just wondering how this all comes together..

Getting stronger by the day..

Yeah. We feel good about the -- hitting the target credit metrics. We're looking forward to sitting down. Scott and I are visiting the rating agencies next week. We look forward to the conversation with them..

Got it. Thank you for that.

And then maybe just a real quick last one and kind of better than expected results, as we look forward into to 4Q here, how we think about, I guess, O&M? Should we expect you to realize the full $40 million in nonrecurring O&M expenses from 4Q 2022 as we lap that, I guess that positive variance there, and how does this impact your O&M outlook into 2024?.

Well, Jeremy -- and we'll let Scott and Xia give you their view. Q4 last year had a lot of moving pieces that won't be repeated in Q4 this year. So I think you've got to look at it as a whole. There were close to $70 million of one time or different initiatives or different levers that came to pass in Q4 of 2022, that were already in 2023 here, folks.

So again, I would look at -- I mean, I think the O&M numbers were a bit distorted because of things that happened that deliberately, the actions that we took in the fourth quarter last year. So again, I would look at it a little bit more holistically.

We've been projecting all year a very strong fourth quarter, and in our minds, that's still very much intact.

Xia?.

Yeah. Not much to add. I think we have a little bit of -- last fourth quarter, a little bit unfavorable weather, so hopefully that's a tailwind. We have rate base increase. We have fuel upside. We have a very large O&M upside in the fourth quarter, so we feel very good about the fourth quarter projections..

That's helpful. I'll leave it there. Thank you..

Terrific. Take care, Jeremy..

Thanks..

Your next question comes from the line of Anthony Crowdell with Mizuho. Your line is open..

Anthony, rock and roll..

Good afternoon. Rock and roll. Happy Halloween..

Happy Halloween.

Have you got your dog dressed up in name for the Halloween night here?.

Deferred asset. No, no, no, no, no pets. The four daughters are overwhelmingly enough. So just -- I guess maybe just some quick housekeeping. Slide 21, great detail.

And just curious, the footnote excludes ATC capital, when we think of the growth going on at ATC capital to Scott's comments earlier, is that self-funded, or does that also require funding by Westcon -- by WEC?.

It's self -- it's more than self-funded. So we excluded the cap, the $3 billion in the uses. But in the sources, we also netted out the cash they send us versus what we send down to them. The net-net is a net positive. So they're self-fund -- self-funding, but more than self-funding themselves..

Yeah. We get cash distributions back from ATC. So Xia is exactly right, it's self-funding plus cash back to the owners..

Great. And I'm sure you're not looking to front run your meeting with the rating agencies, but if I could focus on, I think S&P right now has you on negative outlook. Is your assumption that the current plan will resolve their concerns? I'm assuming so. I just wanted to double check with you there..

Well, a couple things. First of all, just to clarify, the parent is on negative outlook. The utilities are stable, so I just wanted to make sure everybody remembers that.

And then secondly, we think, and we'll let Xia and Scott give you their view, but we think the fact that we're going to be issuing equity to support this growth plan, will be viewed quite favorably. Again, we've not issued any new shares since 2015 when we did the acquisition of Integrys.

Scott, your thoughts?.

You're exactly right, Gale, and we'll sit down with them next week. They haven't seen the plan yet, so we just thought it made sense when we roll out the plan and then walk them through it year by year, and until they actually see it, it's hard to judge the decision.

But I think we really compliment it well with our capital growth and the credit metrics overall..

Xia?.

Nothing more to add. We appreciate the opportunity to sit down with them and talk through the details..

Well, great. Looking forward to seeing you guys in Phoenix. Thanks for the time..

All right. Thank you. Take care..

Your next question comes from the line of Ofri Mott [ph] with Ladenburg. Your line is open..

Greetings, Ofri..

Yes.

Not to beat a dead horse, but roughly where -- with the new investment program and the additional equity, do you land in terms of FFO to debt? Are you sort of in that 14% to 15% range that you've targeted?.

No. We -- it's part of the package I think we included. So we are targeting 15% to 16% by S&P and Moody's..

Right.

So do you fall within that range then in terms of -- with the additional equity and the additional investment?.

Yes, absolutely..

Yep..

Okay..

That's the whole idea..

Great. I just wanted to sort of confirm that. And then, in terms of the coal exit, even though, it's not sort of in your power of the future contract, it likely will have a bill impact on customers.

So what sort of communication do you need to have with the existing commissioners?.

Well, go ahead Scott..

So when we look at it, we really don't see much of a bill impact because when you look at it, we're going to get the same output from the plant. You just won't have the O&M associated with running with the coal.

So the real change is going to be -- you eliminate coal, but what is the price of natural gas? If natural gas would go up to $10, that's a whole different game, but that's more of a fuel issue. And the same thing with coal.

So when you look at the operations, I don't think -- there's not a lot of capital investments that we're doing to do the conversion. There's smaller capital projects to just put in new burners. In fact, we're doing some this fall and next spring we're putting in some new burners also..

And just to add on to what Scott's mentioned to you, this plan to convert from coal to natural gas at our newer Oak Creek units is one that's been in the making for at least a couple of years now. So we've had extensive ongoing discussions with the commissioners. They understand what we're trying to achieve.

They understand the importance of continuing to cost effectively reduce CO2 emissions. And remember, our goal, which we're on track to achieve, is an 80% reduction in CO2 emissions by the end of 2030. So this is not a new concept to anyone in the state..

Yeah. And when you think about the EPA rules going forward, if it was on coal, you'd have to put in carbon capture or do something with hydrogen, and carbon capture would be extremely expensive. And where do you put the carbon, what you capture? So we looked at what's efficient in the long-term..

And one more fact, I think it's very important to remember how critical an asset those new Oak Creek units are on most days in the Midwest operator footprint, because of the efficiency of those units and because of their incredible connection to the transmission network, those units help keep the lights on, not only in Wisconsin, but across the Midwest.

So very important asset. We're on track to do what we need to do to continue with the life of that asset for a long period of time with much lower emissions..

Great. Thank you very much..

You're welcome. Thank you..

Your last question today comes from the line of Paul Patterson with Glenrock Associates. Your line is open..

Greeting, Paul..

Greetings. So just back to the whole -- back to the rate question. I guess with the new outlook that you guys have regarding rate base growth, obviously interest rates, inflation, et cetera.

What is your expectation in Wisconsin and Illinois in terms of what base rate changes customers might see? Has it changed or?.

Not really, but let's kind of take it state by state. In Illinois, what we're proposing in our current rate review is really no change in the level of investment in upgrading the pipe system, the natural gas pipe delivery system under Chicago.

So we've been averaging about $280 million a year of investment in upgrading that aging corroding pipe network. We're about 35%, 36% complete with the upgrades, and we're proposing to continue at about $280 million a year. That's about the pace that we can do to get work done inside the city of Chicago.

So -- and remember in our current rate review proposal in Chicago, even with the rate increase if fully approved, coupled with the decline in commodity costs of natural gas, we're expecting flat customer bills for this coming winter in Illinois. So essentially this plan really doesn't change the underlying fact pattern in Illinois.

And with the load growth, the demand growth that we expect to see in Wisconsin, again, we've been saying we think inflation related rate increases in Wisconsin and -- that's, at least to me, seems to still be the case..

Yeah. And we'll see as we continue to roll out the plans here and look at the timing of it. So I think it'll be inflation, approximately inflation as you go forward..

Hope that responds, Paul..

No, no, that -- that's helpful. Okay. Appreciate it. Thanks so much..

End of Q&A:.

All right. Thank you. All right, sports fans. Well, this concludes our conference call for today. Thanks so much for your questions. Thanks for participating. If you have any additional questions, feel free to contact Ms. Straka. She can be reached at (414) 221-4639 and we look forward to seeing you all in Phoenix in just a couple of weeks.

Take care everyone..

This concludes today's conference call. You may now disconnect..