Item 1. BUSINESS

A. INTRODUCTION

In this report, when we refer to "WEC Energy Group," "the Company," "us," "we," "our," or "ours," we are referring to WEC Energy Group, Inc. and all of its subsidiaries. The term "utility" refers to the regulated activities of the electric and natural gas utility companies, while the term "non-utility" refers to the activities of the electric and natural gas companies that are not regulated, as well as We Power and Bluewater. The term "nonregulated" refers to activities at Bishop Hill III, Coyote Ridge, WEC Energy Group holding company, the Integrys holding company, the PELLC holding company, Wispark, Bostco, Wisvest, WECC, WBS, PDL, and ITF. References to "Notes" are to the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

For more information about our business operations, see Note 20, Segment Information, and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations.

WEC Energy Group, Inc.

We were incorporated in the state of Wisconsin in 1981 and became a diversified holding company in 1986. We maintain our principal executive offices in Milwaukee, Wisconsin. On June 29, 2015, we acquired 100% of the outstanding common shares of Integrys and changed our name to WEC Energy Group, Inc. Our wholly owned subsidiaries provide regulated natural gas and electricity, as well as nonregulated renewable energy. Another subsidiary, ITF, provided CNG products and services prior to its sale in the first quarter of 2016. See Note 3, Dispositions, for more information on this sale. We have an approximately 60% equity interest in ATC (an electric transmission company operating in Illinois, Michigan, Minnesota, and Wisconsin). At December 31, 2018, we had six reportable segments, which are discussed below. For additional information about our reportable segments, see Note 20, Segment Information.

Available Information

Our annual and periodic filings with the SEC are available, free of charge, on our website, www.wecenergygroup.com, as soon as reasonably practicable after they are filed with or furnished to the SEC. You may also obtain materials we filed with or furnished to the SEC on their website at www.sec.gov.

B. UTILITY ENERGY OPERATIONS

Wisconsin Segment

The Wisconsin segment includes the electric and natural gas utility operations of WE, WG, WPS, and UMERC, which includes WE's former electric operations and WPS's former electric and natural gas operations in the state of Michigan that were transferred to UMERC effective January 1, 2017.

In December 2016, both the MPSC and the PSCW approved the operation of UMERC as a stand-alone utility in the Upper Peninsula of Michigan. See Note 24, Regulatory Environment, for more information. UMERC became operational effective January 1, 2017, and WE and WPS transferred customers and property, plant, and equipment as of that date. WE transferred approximately 27,500 retail electric customers and 50 electric distribution-only customers to UMERC, along with approximately 2,500 miles of electric distribution lines. WPS transferred approximately 9,000 retail electric customers and 5,300 natural gas customers to UMERC, along with approximately 600 miles of electric distribution lines and approximately 100 miles of natural gas distribution mains. WE and WPS also transferred related electric distribution substations in the Upper Peninsula of Michigan and all property rights for the distribution assets to UMERC. The book value of net assets, including the related deferred income tax liabilities, transferred to UMERC from WE and WPS as of January 1, 2017, was $61.1 million and $20.6 million, respectively. This transaction was a non-cash equity transfer recorded to additional paid in capital between entities under common control, and therefore, did not result in the recognition of a gain or loss.

2018 Form 10-K	3	WEC Energy Group, Inc.

Electric Utility Operations

For the periods presented in this Annual Report on Form 10-K, our electric utility operations included operations of WE and WPS for all periods, and operations for UMERC beginning January 1, 2017, due to the transfer of customers and assets located in the Upper Peninsula of Michigan from WE and WPS.

•

WE, which is the largest electric utility in the state of Wisconsin, generates and distributes electric energy to customers located in southeastern Wisconsin (including the metropolitan Milwaukee area), east central Wisconsin, and northern Wisconsin, and serves an iron ore mine customer, Tilden, in the Upper Peninsula of Michigan. This customer will become a customer of UMERC once the new generation solution in the Upper Peninsula of Michigan begins commercial operation, which is expected to occur during the second quarter of 2019.

•	WPS generates and distributes electric energy to customers located in northeastern and central Wisconsin.

•

UMERC distributes electric energy to customers located in the Upper Peninsula of Michigan. UMERC currently meets its market obligations through power purchase agreements with WE and WPS. UMERC will begin to generate electricity when its new generation solution in the Upper Peninsula of Michigan begins commercial operation. For more information on UMERC's new generation solution, see the discussion below under the heading "Natural Gas-Fired Generation."

Operating Revenues

The following table shows electric utility operating revenues, including steam operations. For information about our operating revenues disaggregated by customer class for the year ended December 31, 2018, see Note 4, Operating Revenues. For more information about our significant accounting policies related to the recognition of revenues, see Note 1(d), Operating Revenues.

		Year Ended December 31
(in millions)		2017				2016
Operating revenues
Residential		$	1,581.5			$	1,620.7
Small commercial and industrial (1)		1,400.9				1,418.1
Large commercial and industrial (1)		913.7				949.5
Other		30.5				29.8
Retail (1)		3,926.6				4,018.1
Wholesale		233.4				231.2
Resale		270.6				247.1
Steam		23.3				27.2
Other operating revenues (2)		105.1				104.5
Total operating revenues (1)		$	4,559.0			$	4,628.1

(1)	Includes distribution sales for customers who have purchased power from an alternative electric supplier in Michigan.

(2)	Includes SSR revenues, amounts collected from (refunded to) customers for certain fuel and purchased power costs that exceed a 2% price variance from costs included in rates, and other revenues, partially offset by revenues from Tilden that are being deferred until a future rate proceeding. For more information, see the discussion below under the heading "Large Electric Retail Customers."

Electric Sales

Our electric energy deliveries included supply and distribution sales to retail and wholesale customers and distribution sales to those customers who switched to an alternative electric supplier. In 2018, retail electric revenues accounted for 90.0% of total electric operating revenues, while wholesale and resale electric revenues accounted for 9.1% of total electric operating revenues. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Wisconsin Segment Contribution to Operating Income for information on MWh sales by customer class.

Our electric utilities are authorized to provide retail electric service in designated territories in the state of Wisconsin, as established by indeterminate permits and boundary agreements with other utilities, and in certain territories in the state of Michigan pursuant to franchises granted by municipalities.

2018 Form 10-K	4	WEC Energy Group, Inc.

Our electric utilities buy and sell wholesale electric power by participating in the MISO Energy Markets. The cost of our individual generation offered into the MISO Energy Markets compared to our competitors affects how often our generating units are dispatched and whether we buy or sell power, based on our customers' needs. For more information, see D. Regulation.

Steam Sales

WE has a steam utility that generates, distributes, and sells steam supplied by VAPP to customers in metropolitan Milwaukee, Wisconsin. Steam is used by customers for processing, space heating, domestic hot water, and humidification. Annual sales of steam fluctuate from year to year based on system growth and variations in weather conditions. In April 2016, we sold the MCPP steam generation and distribution assets, located in Wauwatosa, Wisconsin. MCPP primarily provided steam to the Milwaukee Regional Medical Center hospitals and other campus buildings. See Note 3, Dispositions, for more information.

Electric Sales Forecast

Our service territories experienced growth in weather-normalized retail electric sales in 2018 due to customer growth. We currently forecast retail electric sales volumes and the associated peak demand, excluding the Tilden mine located in the Upper Peninsula of Michigan, to grow between flat and 0.5% over the next five years, assuming normal weather.

Customers

		Year Ended December 31
(in thousands)		2018			2017			2016
Electric customers – end of year
Residential		1,441.3			1,431.4			1,421.7
Small commercial and industrial		173.2			172.2			171.1
Large commercial and industrial		0.9			0.9			0.9
Other		2.7			2.6			2.6
Total electric customers – end of year		1,618.1			1,607.1			1,596.3
Steam customers – end of year		0.4			0.4			0.4

Large Electric Retail Customers

We provide electric utility service to a diversified base of customers in industries such as paper, metals and other manufacturing, governmental, food products, municipalities, cooperatives, and marketers, health services, retail, mining, and education.

In February 2015, Tilden, along with another affiliated iron ore mine located in the Upper Peninsula of Michigan, returned as customers after choosing an alternative electric supplier in September 2013. For more information on alternative electric suppliers, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Factors Affecting Results, Liquidity, and Capital Resources – Competitive Markets. WE entered into a contract with each of the mines to provide full requirements electric service through December 31, 2019. Since 2015, we have been deferring, and expect to continue to defer, the revenues less costs of sales from the mine sales and will apply these amounts for the benefit of Wisconsin retail electric customers in a future rate proceeding, as ordered by the PSCW.

In 2016, one of the iron ore mines closed, and the related contract for full requirements electric service was terminated. In August 2016, we entered into a new agreement with Tilden under which it will purchase electric power from UMERC for 20 years for the remaining mine, contingent upon UMERC's construction of natural gas-fired generation in the Upper Peninsula of Michigan. Tilden will continue to receive full requirements electric service from WE under the existing contract until UMERC's generation solution in the Upper Peninsula of Michigan begins commercial operation, which is expected to occur during the second quarter of 2019. See Note 24, Regulatory Environment, for more information, as well as the discussion under the heading "Natural Gas-Fired Generation" below.

2018 Form 10-K	5	WEC Energy Group, Inc.

Wholesale Customers

We provide wholesale electric service to various customers, including electric cooperatives, municipal joint action agencies, other investor-owned utilities, municipal utilities, and energy marketers. Wholesale sales accounted for 7.7%, 7.6%, and 7.4% of total electric energy sales volumes during 2018, 2017, and 2016, respectively. Wholesale revenues accounted for 4.8%, 5.1%, and 5.0% of total electric operating revenues during 2018, 2017, and 2016, respectively.

Resale

The majority of our sales for resale are sold into an energy market operated by MISO at market rates based on availability of our generation and market demand. Resale sales accounted for 12.8%, 18.2%, and 17.5% of total electric energy sales volumes during 2018, 2017, and 2016, respectively. Resale revenues accounted for 4.3%, 5.9%, and 5.3% of total electric operating revenues during 2018, 2017, and 2016, respectively. Retail fuel costs are reduced by the amount that revenue exceeds the costs of sales derived from these opportunity sales.

Electric Generation and Supply Mix

Our electric supply strategy is to provide our customers with energy from plants using a diverse fuel mix that is expected to maintain a stable, reliable, and affordable supply of electricity. Through our participation in the MISO Energy Markets, we supply a significant amount of electricity to our customers from power plants that we own. We supplement our internally generated power supply with long-term power purchase agreements, including the Point Beach power purchase agreement discussed under the heading "Power Purchase Commitments," and through spot purchases in the MISO Energy Markets. We also sell excess capacity into the MISO Energy Markets when it is economical, which reduces net fuel costs by offsetting costs of purchased power.

Our rated capacity by fuel type as of December 31 is shown below. For more information on our electric generation facilities, see Item 2. Properties.

		Rated Capacity in MW (1)
		2018			2017			2016
Coal		3,518			4,935			4,933
Natural gas:
Combined cycle		1,799			1,753			1,697
Steam turbine (2)		347			314			320
Natural gas/oil peaking units (3)		1,444			1,458			1,413
Renewables (4)		220			273			273
Total rated capacity		7,328			8,733			8,636

(1)	Rated capacity is the net power output under average operating conditions with equipment in an average state of repair as of a given month in a given year. We have summer peaking electric utilities, and amounts are primarily based on expected capacity ratings for the following summer. The values were established by tests and may change slightly from year to year.

(2)	The natural gas steam turbine represents the rated capacity associated with VAPP as well as Weston Unit 2.

(3)	Certain dual-fueled facilities generally burn oil only if natural gas is not available due to constraints on the natural gas pipeline and/or at the local natural gas distribution company that delivers natural gas to the plants.

(4)	Includes hydroelectric, biomass, and wind generation.

2018 Form 10-K	6	WEC Energy Group, Inc.

The table below indicates our sources of electric energy supply as a percentage of sales for the three years ended December 31, as well as estimates for 2019:

		Estimate			Actual
		2019			2018			2017			2016
Company-owned generation units:
Coal *		35.9	%		44.7	%		48.5	%		45.7	%
Natural gas:
Combined cycle		23.9	%		19.7	%		16.5	%		18.2	%
Steam turbine		0.8	%		0.6	%		0.8	%		0.9	%
Natural gas/oil peaking units		1.1	%		1.7	%		1.1	%		1.1	%
Renewables		4.2	%		4.1	%		4.1	%		3.9	%
Total company-owned generation units		65.9	%		70.8	%		71.0	%		69.8	%
Power purchase contracts:
Nuclear		19.0	%		18.6	%		17.7	%		17.5	%
Natural gas		3.0	%		1.5	%		1.3	%		1.7	%
Renewables		3.1	%		2.4	%		2.9	%		2.8	%
Other		1.8	%		1.7	%		1.6	%		2.1	%
Total power purchase contracts		26.9	%		24.2	%		23.5	%		24.1	%
Purchased power from MISO		7.2	%		5.0	%		5.5	%		6.1	%
Total purchased power		34.1	%		29.2	%		29.0	%		30.2	%
Total electric utility supply		100.0	%		100.0	%		100.0	%		100.0	%

*	Although the generation of PIPP has been included as a source of our electric energy supply for the three years ended December 31, we have only included this generation facility as a source of our estimated 2019 electric energy supply through its expected retirement date on or before May 31, 2019. See Note 6, Property, Plant, and Equipment, for more information.

Reshaping our Generation Fleet

The following discussion summarizes information about our generation facilities, including the planned reshaping of our generation fleet to balance reliability and customer cost with environmental stewardship. Generation reshaping includes retiring older fossil fuel generation units, building state-of-the-art natural gas generation, and investing in cost-effective zero-carbon generation with a goal of reducing CO2 emissions by approximately 40% and 80% below 2005 levels by 2030 and 2050, respectively.

Coal-Fired Generation

As of December 31, 2018, our coal-fired generation consists of five operating plants with a rated capacity of 3,518 MW. For more information about our operating plants, see Item 2. Properties.

We plan to retire approximately 1,800 MW of coal-fired generation by 2020 as a result of WEC Energy Group's generation reshaping plan. As part of this effort during 2018, we retired approximately 1,500 MW of coal-fired generation, including the Pleasant Prairie power plant, Pulliam power plant, and the jointly-owned Edgewater Unit 4. We are required to retire PIPP by May 31, 2019. For more information about the retirement of these plants, see Note 6, Property, Plant, and Equipment.

Natural Gas-Fired Generation

Our natural gas-fired generation currently consists of nine operating plants, including peaking units, with a rated capacity of 3,400 MW as of December 31, 2018. For more information about our operating plants, see Item 2. Properties.

In October 2017, the MPSC approved UMERC's application for a certificate of necessity to begin construction of a long-term generation solution for electric reliability in the region. UMERC is constructing and will operate approximately 180 MW of natural gas-fired generation in the Upper Peninsula of Michigan. The new generation is expected to begin commercial operation during the second quarter of 2019. See Note 24, Regulatory Environment, for more information.

2018 Form 10-K	7	WEC Energy Group, Inc.

Oil-Fired Generation

Our oil-fired generation had a rated capacity of 190 MW as of December 31, 2018. We also have natural gas-fired peaking units with a rated capacity of 1,239 MW, which have the ability to burn oil if natural gas is not available due to delivery constraints. For more information about our operating plants, see Item 2. Properties.

Renewable Generation

Our electric utilities meet a portion of their electric generation supply with various renewable energy resources. This helps our electric utilities maintain compliance with renewable energy legislation in Wisconsin and Michigan. These renewable energy resources also help us maintain diversity in our generation portfolio, which effectively serves as a price hedge against future fuel costs, and will help mitigate the risk of potential unknown costs associated with any future carbon restrictions for electric generators. For more information about our renewable generation, see Item 2. Properties.

In December 2018, WE received approval from the PSCW for the Dedicated Renewable Energy Resource pilot program, a program for customers who wish to access a large-scale renewable project located in Wisconsin that WE would operate. The project will contribute toward meeting WE's peak demand, adding up to 150 MW of renewables to WE's portfolio.

Solar

As part of our commitment to invest in zero-carbon generation, we plan to invest in utility scale solar of up to 350 MW within our Wisconsin segment. In May 2018, WPS, along with an unaffiliated utility, filed an application with the PSCW for approval to acquire ownership interests in two proposed solar projects in Wisconsin. Badger Hollow Solar Farm will be located in Iowa County, Wisconsin, and Two Creeks Solar Project will be located in Manitowoc County, Wisconsin. If approved, WPS will own 100 MW of the output of each project for a total of 200 MW.

In December 2018, WE received approval from the PSCW for the Solar Now pilot program, which is expected to add 35 MW of renewables to WE's portfolio and will allow commercial and industrial customers to site solar arrays on their property.

Hydroelectric

Our hydroelectric generating system consists of 30 operating plants with a total installed capacity of 173 MW and a rated capacity of 102 MW as of December 31, 2018. All of our hydroelectric facilities follow FERC guidelines and/or regulations.

Wind

We have six wind sites, consisting of 352 turbines, with an installed capacity of 576 MW and a rated capacity of 72 MW as of December 31, 2018. In April 2018, WPS, along with two other non-affiliated utilities, completed the purchase of Forward Wind Energy Center, which consists of 86 wind turbines located in Wisconsin with a total capacity of 138 MW. WPS’s proportionate share of Forward Wind Energy Center is 44.6%. See Note 2, Acquisitions, for more information.

Biomass

We have a biomass-fueled power plant at a Rothschild, Wisconsin paper mill site. Wood waste and wood shavings are used to produce a rated capacity of approximately 46 MW of electric power as well as steam to support the paper mill's operations. Fuel for the power plant is supplied by both the paper mill and through contracts with biomass suppliers. The plant also has the ability to burn natural gas if wood waste and wood shavings are not available.

Electric System Reliability

The PSCW requires us to maintain a planning reserve margin above our projected annual peak demand forecast to help ensure reliability of electric service to our customers. These planning reserve requirements are consistent with the MISO calculated planning reserve margin. In 2008, the PSCW established a 14.5% reserve margin requirement for long-term planning (planning years two through ten). For short-term planning (planning year one), the PSCW requires Wisconsin utilities to follow the planning reserve margin established by MISO. MISO has a 17.1% installed capacity reserve margin requirement for the planning year from June 1, 2018, through May 31, 2019, and a 16.8% installed capacity reserve margin requirement for the planning year from June 1, 2019,

2018 Form 10-K	8	WEC Energy Group, Inc.

through May 31, 2020. MISO's short-term reserve margin requirements experience year-to-year fluctuations, primarily due to changes in the average forced outage rate of generation within the MISO footprint.

Michigan legislation requires all electric providers to demonstrate to the MPSC that they have enough resources to serve the anticipated needs of their customers for a minimum of four consecutive planning years beginning in the upcoming planning year June 1, 2019, through May 31, 2020. The MPSC has established future planning reserve margin requirements based on the same study conducted by MISO that determines the short-term reserve margin requirements.

In both of our Wisconsin and Michigan jurisdictions, we have adequate capacity through company-owned generation units and power purchase contracts to meet the MISO calculated planning reserve margin during the current planning year. We also fully anticipate that we will have adequate capacity to meet the planning reserve margin requirements for the upcoming planning year in both jurisdictions. However, extremely hot weather, unexpected equipment failure, or unavailability across the 15-state MISO footprint could require us to call upon load management procedures. Load management procedures allow for the reduction of energy use through agreements with customers to directly shut off their equipment or through interruptible service, where customers agree to reduce their load in the case of an emergency interruption.

Fuel and Purchased Power Costs

Our retail electric rates in Wisconsin are established by the PSCW and include base amounts for fuel and purchased power costs. The electric fuel rules set by the PSCW allow us to defer, for subsequent rate recovery or refund, under- or over-collections of actual fuel and purchased power costs that exceed a 2% price variance from the costs included in the rates charged to customers. Prudently incurred fuel and purchased power costs are recovered dollar-for-dollar from our Michigan retail electric customers. For more information about the fuel rules, see D. Regulation.

Our average fuel and purchased power costs per MWh by fuel type were as follows for the years ended December 31:

		2018				2017				2016
Coal		$	23.54			$	23.05			$	23.09
Natural gas combined cycle		21.69				22.65				18.79
Natural gas/oil peaking units		49.06				53.91				45.08
Biomass		97.33				118.76				103.24
Purchased power		42.85				42.12				40.11

WE and WPS purchase coal under long-term contracts, which helps with price stability. In the past, coal and associated transportation services were exposed to volatility in pricing due to changing domestic and world-wide demand for coal and diesel fuel. To moderate the volatility, WE and WPS were both given PSCW approval for a hedging program, which allowed them to hedge up to 75% of their potential risks related to rail transportation fuel surcharge exposure. However, due to decreased volatility over the last few years, we suspended the fuel surcharge hedging program in 2017.

We purchase natural gas for our plants on the spot market from natural gas marketers, utilities, and producers, and we arrange for transportation of the natural gas to our plants. We have firm and interruptible transportation, as well as balancing and storage agreements, intended to support our plants' variable usage. WE and WPS also have PSCW-approved programs that allow them to hedge up to 75% of their estimated natural gas use for electric generation in order to help manage their natural gas price risk.

Our hedging programs are generally implemented on a 36-month forward-looking basis. The results of these programs are reflected in the average costs of natural gas and purchased power.

Coal Supply

We diversify the coal supply for our electric generating facilities and jointly-owned plants by purchasing coal from several mines in Wyoming, as well as from various other states. For 2019, approximately 85% of our total projected coal requirements of 8.9 million tons are contracted under fixed-price contracts. See Note 22, Commitments and Contingencies, for more information on amounts of coal purchases and coal deliveries under contract.

2018 Form 10-K	9	WEC Energy Group, Inc.

The annual tonnage amounts contracted for the next two years are as follows. We have not entered into any coal contracts for years after 2020.

(in thousands)		Annual Tonnage
2019		7,545
2020		2,317

Coal Deliveries

All of our 2019 coal requirements are expected to be shipped by our owned or leased unit trains under existing transportation agreements. The unit trains transport the coal for electric generating facilities from mines in Wyoming, Pennsylvania, and Montana. The coal is transported by train to our rail-served electric-generating facilities and to dock storage in Superior, Wisconsin, until needed by our lake vessel-served facility, PIPP. See Note 6, Property, Plant, and Equipment, for more information about the planned retirement of PIPP. Additional small volume agreements may also be used to supplement the normal coal supply for our facilities.

Midcontinent Independent System Operator Costs

In connection with its status as a FERC approved RTO, MISO developed and operates the MISO Energy Markets, which include its bid-based energy and ancillary services markets. We are participants in the MISO Energy Markets. For more information on MISO, see D. Regulation.

Power Purchase Commitments

We enter into short and long-term power purchase commitments to meet a portion of our anticipated electric energy supply needs. Our power purchase commitments with unaffiliated parties are 1,387 MW per year for 2019 and 2020, 1,379 MW for 2021, and 1,133 MW per year for 2022 and 2023, which exclude planning capacity purchases. These amounts include 1,033 MW per year related to a long-term power purchase agreement for electricity generated by Point Beach. Due to the actual and planned retirement of generation resources, we have entered into purchase agreements to procure additional planning capacity in order to maintain our compliance with planning reserve requirements as established by the PSCW, MPSC, and MISO.

Other Matters

Seasonality

Our electric utility sales are impacted by seasonal factors and varying weather conditions. We sell more electricity during the summer months because of the residential cooling load. We continue to upgrade our electric distribution system, including substations, transformers, and lines, to meet the demand of our customers. Our generating plants performed as expected during the warmest periods of the summer, and all power purchase commitments under firm contract were received. During this period, WE did not require public appeals for conservation, and it did not interrupt or curtail service to non-firm customers who participate in load management programs. In addition, WPS did not require any public appeals for conservation, and it did not interrupt or curtail service to non-firm customers who participate in load management programs for capacity reasons. However, WPS did have service curtailments for economic interruptions. Economic interruptions are declared during times in which the price of electricity in the regional market exceeds the cost of operating the Company's peaking generation. During this time, interruptible customers can choose to continue using electricity at a price based on wholesale market prices.

Competition

Our electric utilities face competition from various entities and other forms of energy sources available to customers, including self-generation by large industrial customers and alternative energy sources. Our electric utilities compete with other utilities for sales to municipalities and cooperatives as well as with other utilities and marketers for wholesale electric business.

For more information on competition in our service territories, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Factors Affecting Results, Liquidity, and Capital Resources – Competitive Markets.

2018 Form 10-K	10	WEC Energy Group, Inc.

Environmental Matters

For information regarding environmental matters, especially as they relate to coal-fired generating facilities, see Note 22, Commitments and Contingencies.

Natural Gas Utility Operations

We are authorized to provide retail natural gas distribution service in designated territories in the state of Wisconsin, as established by indeterminate permits and boundary agreements with other utilities. We also transport customer-owned natural gas. Together our natural gas distribution utilities are the largest in Wisconsin, and we operate throughout the state, including the City of Milwaukee and surrounding areas, northeastern Wisconsin, and in large areas of both central and western Wisconsin.

Effective January 1, 2017, WPS transferred its natural gas customers and natural gas distribution assets located in the Upper Peninsula of Michigan to UMERC, which is included in our Wisconsin segment. More information about UMERC is included at the beginning of the Wisconsin segment section.

We provide natural gas utility service to a diversified base of industrial customers who are largely within our electric service territory. Major industries served include governmental, food products, paper, education, and metals manufacturing. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Wisconsin Segment Contribution to Operating Income for information on natural gas sales volumes by customer class in Wisconsin and the Upper Peninsula of Michigan.

Operating Revenues

The following table shows natural gas utility operating revenues for our Wisconsin segment. For information about our operating revenues disaggregated by customer class for the year ended December 31, 2018, see Note 4, Operating Revenues. For more information about our significant accounting policies related to the recognition of revenues, see Note 1(d), Operating Revenues.

		Year Ended December 31
(in millions)		2017				2016
Operating revenues
Residential		$	809.3			$	763.2
Commercial and industrial		395.5				355.3
Total retail revenues		1,204.8				1,118.5
Transport		72.6				69.7
Other operating revenues *		(7.2		)		(10.6		)
Total operating revenues		$	1,270.2			$	1,177.6

*	Includes amounts refunded to customers for purchased gas adjustment costs.

Natural Gas Sales Forecast

Our combined Wisconsin service territories experienced growth in weather-normalized retail natural gas deliveries (excluding natural gas deliveries for electric generation) in 2018 due to customer growth. We currently forecast retail natural gas delivery volumes to grow at a rate between 0.5% and 1.0% over the next five years, assuming normal weather.

Customers

		Year Ended December 31
(in thousands)		2018			2017			2016
Customers – end of year
Residential		1,329.6			1,318.3			1,306.3
Commercial and industrial		130.6			129.7			129.0
Transport		3.0			2.8			2.6
Total customers		1,463.2			1,450.8			1,437.9

2018 Form 10-K	11	WEC Energy Group, Inc.

Natural Gas Supply, Pipeline Capacity and Storage

We have been able to meet our contractual obligations with both our suppliers and our customers. For more information on our natural gas utility supply and transportation contracts, see Note 22, Commitments and Contingencies.

Pipeline and Storage Capacity

The interstate pipelines serving Wisconsin originate in major natural gas producing areas of North America: the Oklahoma and Texas basins, western Canada, and the Rocky Mountains. We have contracted for long-term firm capacity from a number of these sources. This strategy reflects management's belief that overall supply security is enhanced by geographic diversification of the supply portfolio.

Due to variations in natural gas usage in Wisconsin, we have also contracted for substantial underground storage capacity, primarily in Michigan. We target storage inventory levels at approximately 40% of forecasted demand for November through March. Diversity of natural gas supply enables us to manage significant changes in demand and to optimize our overall natural gas supply and capacity costs. We generally inject natural gas into storage during the spring and summer months and withdraw it in the winter months.

In June 2017, we completed the acquisition of Bluewater. Bluewater owns natural gas storage facilities in Michigan that provide approximately one-third of the current storage needs for our Wisconsin natural gas utilities. See Note 2, Acquisitions, for more information on this transaction.

We hold daily transportation and storage capacity entitlements with interstate pipeline companies as well as other service providers under varied-length long-term contracts.

Pipeline and storage capacity and natural gas supplies under contract can be resold in secondary markets. Peak or near-peak demand generally occurs only a few times each year. The secondary markets facilitate utilization of capacity and supply during times when the contracted capacity and supply are in excess of utility demand. The proceeds from these transactions are passed through to customers, subject to our approved GCRMs. For information on the GCRMs, see Note 1(d), Operating Revenues.

To ensure a reliable supply of natural gas during peak winter conditions, we have liquefied natural gas and propane facilities located within our distribution system. These facilities are typically utilized during extreme demand conditions to ensure reliable supply to our customers.

Combined with our storage capability, management believes that the volume of natural gas under contract is sufficient to meet our forecasted firm peak-day and seasonal demand. Our Wisconsin natural gas utilities' forecasted design peak-day throughput is 32.5 million therms for the 2018 through 2019 heating season. Our peak daily send-out during 2018 was 24.2 million therms on January 4, 2018.

Natural Gas Supply

We have contracts for firm supplies with terms of 3–5 months with suppliers for natural gas acquired in the Chicago, Illinois market hub and in the producing areas discussed above. The pricing of the term contracts is based upon first of the month indices.

We expect to continue to make natural gas purchases in the spot market as price and other circumstances dictate. We have supply relationships with a number of sellers from whom we purchase natural gas in the spot market.

Hedging Natural Gas Supply Prices

WE, WPS, and WG have PSCW approval to hedge up to 60% of planned winter demand and up to 15% of planned summer demand using a mix of NYMEX-based natural gas options and futures contracts. These approvals allow these companies to pass 100% of the hedging costs (premiums and brokerage fees) and proceeds (gains and losses) to customers through their respective GCRMs.

To the extent that opportunities develop and physical supply operating plans are supportive, WE, WG, and WPS also have PSCW approval to utilize NYMEX-based natural gas derivatives to capture favorable forward-market price differentials. These approvals provide for 100% of the related proceeds to accrue to these companies' respective GCRMs.

2018 Form 10-K	12	WEC Energy Group, Inc.

Seasonality

Since the majority of our customers use natural gas for heating, customer use is sensitive to weather and is generally higher during the winter months. Accordingly, we are subject to some variations in earnings and working capital throughout the year as a result of changes in weather.

The seasonality of natural gas revenues causes the timing of cash collections to be concentrated from January through June. A portion of the winter natural gas supply needs is typically purchased and stored from April through November. Also, planned capital spending on our natural gas distribution facilities is concentrated in April through November. Because of these timing differences, the cash flow from customers is typically supplemented with temporary increases in short-term borrowings (from external sources) during the late summer and fall. Short-term debt is typically reduced over the January through June period.

Competition

We face varying degrees of competition from other entities and other forms of energy available to consumers. Many large commercial and industrial customers have the ability to switch between natural gas and alternative fuels. Commercial and industrial customers have the opportunity to choose a natural gas supplier other than us. We offer both natural gas transportation service and interruptible natural gas sales to enable customers to better manage their energy costs. Transportation customers purchase natural gas directly from third-party natural gas suppliers and use our distribution systems to transport the natural gas to their facilities. We earn a distribution charge for transporting the natural gas for these customers. As such, the loss of revenue associated with the cost of natural gas that our transportation customers purchase from third-party suppliers has little impact on our net income, as it is offset by an equal reduction to natural gas costs. Customers continue to switch between firm system supply, interruptible system supply, and transportation service each year as the economics and service options change.

Illinois Segment

Our Illinois segment includes the natural gas utility operations of PGL and NSG. PGL and NSG, both Illinois corporations, began operations in 1855 and 1900, respectively. Our customers are located in Chicago and the northern suburbs of Chicago. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Illinois Segment Contribution to Operating Income for information on natural gas sales volumes by customer class.

Illinois Utilities Operating Statistics

Operating Revenues

The following table shows natural gas operating revenues for our Illinois utilities. For information about our operating revenues disaggregated by customer class for the year ended December 31, 2018, see Note 4, Operating Revenues. For more information about our significant accounting policies related to the recognition of revenues, see Note 1(d), Operating Revenues.

		Year Ended December 31
(in millions)		2017				2016
Operating revenues
Residential		$	934.8			$	839.2
Commercial and industrial		156.7				136.5
Total retail revenues		1,091.5				975.7
Transport		246.9				239.4
Other operating revenues		17.1				27.1
Total operating revenues		$	1,355.5			$	1,242.2

2018 Form 10-K	13	WEC Energy Group, Inc.

Customers

		Year Ended December 31
(in thousands)		2018			2017			2016
Customers – end of year
Residential		863.2			849.8			822.6
Commercial and industrial		72.1			72.9			71.3
Transport		97.5			107.5			109.5
Total customers		1,032.8			1,030.2			1,003.4

Natural Gas Supply, Pipeline Capacity, and Storage

We manage portfolios of natural gas supply contracts, storage services, and pipeline transportation services designed to meet varying customer use patterns with safe, reliable natural gas supplies at the best value. For more information on our natural gas utility supply and transportation contracts, see Note 22, Commitments and Contingencies.

Pipeline Capacity and Storage

We contract with local distribution companies and interstate pipelines to purchase firm transportation services. We believe that having multiple pipelines that serve our natural gas service territory benefits our customers by improving reliability, providing access to a diverse supply of natural gas, and fostering competition among these service providers. These benefits can lead to favorable conditions for our Illinois utilities when negotiating new agreements for transportation and storage services.

We own a 38.8 Bcf storage field (Manlove Field in central Illinois) and contract with various other underground storage service providers for additional storage services. Storage allows us to manage significant changes in daily natural gas demand and to purchase steady levels of natural gas on a year-round basis, which provides a hedge against supply cost volatility. We also own a natural gas pipeline system that connects Manlove Field to Chicago and nine major interstate pipelines. These assets are directed primarily to serving rate-regulated retail customers and are included in our regulatory rate base. We also use a portion of these company-owned storage and pipeline assets as a natural gas hub, which consists of providing transportation and storage services in interstate commerce to our wholesale customers. Customers deliver natural gas to us for storage through an injection into the storage reservoir, and we return the natural gas to the customers under an agreed schedule through a withdrawal from the storage reservoir. Title to the natural gas does not transfer to us. We recognize service fees associated with the natural gas hub services provided to wholesale customers. These service fees reduce the cost of natural gas and services charged to retail customers in rates.

We had adequate capacity to meet all firm natural gas demand obligations during 2018 and expect to have adequate capacity to meet all firm demand obligations during 2019. Our Illinois utilities' forecasted design peak-day throughput is 24.8 million therms for the 2018 through 2019 heating season.

Natural Gas Supply

Our natural gas supply requirements are met through a combination of fixed-price purchases, index-priced purchases, contracted and owned storage, peak-shaving facilities, and natural gas supply call options. We contract for fixed-term firm natural gas supply each year to meet the demand of firm system sales customers. To supplement natural gas supply and manage risk, we purchase additional natural gas supply on the monthly and daily spot markets.

Hedging Natural Gas Supply Prices

Our Illinois utilities further reduce their supply cost volatility through the use of financial instruments, such as commodity futures, swaps, and options as part of their hedging programs. Their hedging programs are approved by the ICC. They hedge between 25% and 50% of natural gas purchases, with a target of 37.5%.

Natural Gas System Modernization Program

PGL is continuing work on the SMP, a project to replace approximately 2,000 miles of Chicago's aging natural gas pipeline infrastructure that began in 2011. PGL currently recovers these costs through a surcharge on customer bills pursuant to an ICC approved QIP rider, which is in effect through 2023. For information on regulatory proceedings related to the SMP, see Note 24, Regulatory Environment.

2018 Form 10-K	14	WEC Energy Group, Inc.

Seasonality

Since the majority of our customers use natural gas for heating, customer use is sensitive to weather and is generally higher during the winter months. Accordingly, we are subject to variations in earnings and working capital throughout the year as a result of changes in weather.

Our Illinois utilities' working capital needs are met by cash generated from operations and debt (both long-term and short-term). The seasonality of natural gas revenues causes the timing of cash collections to be concentrated from January through June. A portion of the winter natural gas supply needs is typically purchased and stored from April through November. Also, planned capital spending on our natural gas distribution facilities is concentrated in April through November. Because of these timing differences, the cash flow from customers is typically supplemented with temporary increases in short-term borrowings (from external sources) during the late summer and fall. Short-term debt is typically reduced over the January through June period.

Competition

Although our Illinois utilities' rates are regulated by the ICC, we still face varying degrees of competition from other entities and other forms of energy available to consumers. Absent extraordinary circumstances, potential competitors are not allowed to construct competing natural gas distribution systems in our service territory due to a judicial doctrine known as the "first in the field." In addition, we believe it would be impractical to construct competing duplicate distribution facilities due to the high cost of installation.

Since 2002, all our Illinois utilities' natural gas customers have had the opportunity to choose a natural gas supplier other than us. As a result, we offer natural gas transportation service to enable customers to directly manage their energy costs. Transportation customers purchase natural gas directly from third-party natural gas suppliers and use our distribution system to transport the natural gas to their facilities. We still earn a distribution charge for transporting the natural gas for these customers. As such, the loss of revenue associated with the cost of natural gas that our transportation customers purchase from third-party suppliers has little impact on our net income, as it is offset by an equal reduction to natural gas costs.

An interstate pipeline may seek to provide transportation service directly to end users, which would bypass our natural gas transportation service. However, we have a bypass rate approved by the ICC, which allows us to negotiate rates with customers that are potential bypass candidates to help ensure that such customers use our transportation service.

Other States Segment

Our other states segment includes the natural gas utility operations of MERC and MGU. MERC serves customers in various cities and communities throughout Minnesota, and MGU serves customers in southern and western Michigan. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Other States Segment Contribution to Operating Income for information on natural gas sales volumes by customer class for this segment.

2018 Form 10-K	15	WEC Energy Group, Inc.

Other States Utilities Operating Statistics

Operating Revenues

The following table shows natural gas operating revenues for our other states utilities. For information about our operating revenues disaggregated by customer class for the year ended December 31, 2018, see Note 4, Operating Revenues. For more information about our significant accounting policies related to the recognition of revenues, see Note 1(d), Operating Revenues.

		Year Ended December 31
(in millions)		2017				2016
Operating revenues
Residential		$	220.2			$	209.3
Commercial and industrial		123.9				110.7
Total retail revenues		344.1				320.0
Transport		31.4				31.7
Other operating revenues		35.7				24.8
Total operating revenues		$	411.2			$	376.5

Customers

		Year Ended December 31
(in thousands)		2018			2017			2016
Customers – end of year
Residential		356.5			353.0			348.1
Commercial and industrial		34.9			34.5			34.1
Transport		24.7			24.2			24.8
Total customers		416.1			411.7			407.0

Natural Gas Supply, Pipeline Capacity and Storage

We manage portfolios of natural gas supply contracts, storage services, and pipeline transportation services designed to meet varying customer use patterns with safe, reliable natural gas supplies at the best value. For more information on our natural gas utility supply and transportation contracts, see Note 22, Commitments and Contingencies.

Pipeline Capacity and Storage

We own a storage field (Partello in Michigan) and contract with various other underground storage service providers for additional storage services. We contract with local distribution companies and interstate pipelines to purchase firm transportation services. We believe that having diverse capacity and storage benefits our customers.

Combined with our storage capability, management believes that the volume of gas under contract is sufficient to meet our forecasted firm peak-day and seasonal demand. Forecasted design peak-day throughput for our other states utilities is 8.7 million therms for the 2018 through 2019 heating season.

Natural Gas Supply

Our natural gas supply requirements are met through a combination of fixed-price purchases, index-priced purchases, contracted and owned storage, and natural gas supply call options. We contract for fixed-term firm natural gas supply each year to meet the demand of firm system sales customers. To supplement natural gas supply and manage risk, we purchase additional natural gas supply on the monthly and daily spot markets.

Hedging Natural Gas Supply Prices

Our other states utilities further reduce their supply cost volatility through the use of financial instruments, such as commodity futures, swaps, and options as part of their hedging programs. MERC has MPUC approval to hedge up to 30% of planned winter

2018 Form 10-K	16	WEC Energy Group, Inc.

demand using NYMEX financial instruments. MGU has MPSC approval to hedge up to 20% of its planned annual purchases using NYMEX financial instruments.

Seasonality

Since the majority of our customers use natural gas for heating, customer use is sensitive to weather and is generally higher during the winter months. Accordingly, we are subject to variations in earnings and working capital throughout the year as a result of changes in weather.

Our other states utilities' working capital needs are met by cash generated from operations and debt (both long-term and short-term). The seasonality of natural gas revenues causes the timing of cash collections to be concentrated from January through June. A portion of the winter natural gas supply needs is typically purchased and stored from April through November. Also, planned capital spending on our natural gas distribution facilities is concentrated in April through November. Because of these timing differences, the cash flow from customers is typically supplemented with temporary increases in short-term borrowings (from external sources) during the late summer and fall. Short-term debt is typically reduced over the January through June period.

Competition

Although our other states utilities' rates are regulated by the MPUC and MPSC, we still face varying degrees of competition from other entities and other forms of energy available to consumers. Natural gas utilities in the state of Minnesota do not have exclusive franchise service territories and, as a matter of law and policy, natural gas utilities may compete for new customers. However, natural gas utilities have customarily avoided competing for existing customers of other utilities, as there would be duplicative utility facilities and/or increased costs to customers. If this approach were to change, it could lead to a greater level of utility to utility competition for customers.

Many large commercial and industrial customers have the ability to switch between natural gas and alternative fuels. In addition, MERC commercial and industrial customers and all MGU customers have the opportunity to choose a natural gas supplier other than us. We offer natural gas transportation service and also offer interruptible natural gas sales to enable customers to better manage their energy costs. Transportation customers purchase natural gas directly from third-party natural gas suppliers and use our distribution systems to transport the natural gas to their facilities. We still earn a distribution charge for transporting the natural gas for these customers. As such, the loss of revenue associated with the cost of natural gas that our transportation customers purchase from third-party suppliers has little impact on our net income, as it is offset by an equal reduction to natural gas costs. Customers continue to switch between firm system supply, interruptible system supply, and transportation service each year as the economics and service options change.

Electric Transmission Segment

ATC is a regional transmission company that owns, maintains, monitors, and operates electric transmission systems in Wisconsin, Michigan, Illinois, and Minnesota. ATC is expected to provide comparable service to all customers, including WE, WPS, and UMERC, and to support effective competition in energy markets without favoring any market participant. ATC is regulated by the FERC for all rate terms and conditions of service and is a transmission-owning member of MISO. MISO maintains operational control of ATC's transmission system, and WE, WPS, and UMERC are non-transmission owning members and customers of MISO. As of December 31, 2018, our ownership interest in ATC was approximately 60%. In addition, we own approximately 75% of ATC Holdco, a separate entity formed in December 2016 to invest in transmission-related projects outside of ATC's traditional footprint.

In April 2011, ATC and Duke Energy announced the creation of a joint venture, DATC, that seeks opportunities to acquire, build, own, and operate new electric transmission infrastructure in North America to address increasing demand for affordable, reliable transmission capacity. In April 2013, DATC acquired a 72% interest in California's Path 15 transmission rights. DATC continues to evaluate new projects and opportunities, along with participating in the competitive bidding process on projects it considers viable. These projects are located in the service territories of several different RTOs around the country. See Note 19, Investment in Transmission Affiliates, for more information.

ATC is currently named as one of several parties to a complaint filed with the FERC requesting a reduction in the base ROE used by MISO transmission owners. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Factors Affecting Results, Liquidity, and Capital Resources – Other Matters – American Transmission Company Allowed Return on Equity Complaints, for more information.

2018 Form 10-K	17	WEC Energy Group, Inc.

C. NON-UTILITY OPERATIONS

Non-Utility Energy Infrastructure Segment

The non-utility energy infrastructure segment includes We Power, which owns and leases generating facilities to WE; Bluewater, which owns underground natural gas storage facilities in Michigan; our 90% membership interest in Bishop Hill III, a wind generating facility; our 80% membership interest in Coyote Ridge, a wind generating facility under construction; and our 80% membership interest in Upstream, a wind generating facility acquired in January 2019. See Note 2, Acquisitions, for more information.

We Power, through wholly owned subsidiaries, designed and built approximately 2,450 MW of generation in Wisconsin. This generation is made up of capacity from the ERGS units, ER 1 and ER 2, which were placed in service in February 2010 and January 2011, respectively, and the PWGS units, PWGS 1 and PWGS 2, which were placed in service in July 2005 and May 2008, respectively. Two unaffiliated entities collectively own approximately 17%, or approximately 211 MW, of ER 1 and ER 2. We Power's share of the ERGS units and both PWGS units are being leased to WE under long-term leases (the ERGS units have 30-year leases and the PWGS units have 25-year leases), and are positioned to provide a significant portion of our future generation needs.

Because of the significant investment necessary to construct these generating units, we constructed the plants under Wisconsin's Leased Generation Law, which allows a non-utility affiliate to construct an electric generating facility and lease it to the public utility. The law allows a public utility that has entered into a lease approved by the PSCW to recover fully in its retail electric rates that portion of any payments under the lease that the PSCW has allocated to the public utility's Wisconsin retail electric service, and all other costs that are prudently incurred in the public utility's operation and maintenance of the electric generating facility allocated to the utility's Wisconsin retail electric service. In addition, the PSCW may not modify or terminate a lease it has approved under the Leased Generation Law except as specifically provided in the lease or the PSCW's order approving the lease. This law effectively created regulatory certainty in light of the significant investment being made to construct the units. All four units were constructed under leases approved by the PSCW.

We are recovering our costs of these units, including subsequent capital additions, through lease payments that are billed from We Power to WE and then recovered in WE's rates as authorized by the PSCW, the MPSC, and the FERC. Under the lease terms, our return is calculated using a 12.7% ROE and the equity ratio is assumed to be 55% for the ERGS units and 53% for the PWGS units.

Bluewater, located in Michigan, provides natural gas storage and hub services for our Wisconsin natural gas utilities. WE, WG, and WPS have entered into long-term service agreements for natural gas storage with a wholly owned subsidiary of Bluewater.

Bishop Hill III is a 132 MW wind generating facility consisting of 53 wind turbines located in Henry County, Illinois. Bishop Hill III has a 22-year offtake agreement with an unaffiliated company for the sale of all energy produced by the facility. We have a 90% membership interest in Bishop Hill III. Under the Tax Legislation, our investment in Bishop Hill III qualifies for production tax credits and 100% bonus depreciation.

Coyote Ridge is a wind generating facility under construction in Brookings County, South Dakota. The wind generating facility is expected to be in service by the end of 2019. The Coyote Ridge site will consist of 39 wind turbines with a combined capacity of 97.5 MW. The project has a 12-year offtake agreement with an unaffiliated third party for all energy produced by the facility. We have an 80% membership interest in Coyote Ridge. Under the Tax Legislation, our investment in Coyote Ridge is expected to qualify for production tax credits and 100% bonus depreciation. We are entitled to 99% of the tax benefits related to this facility.

In January 2019, we purchased an 80% membership interest in Upstream, a commercially operational 202.5 MW wind generating facility consisting of 81 wind turbines located in Antelope County, Nebraska, which supplies energy to the Southwest Power Pool. Upstream's revenue will be substantially fixed over a 10-year period through an agreement with an unaffiliated third party. Under the Tax Legislation, our investment in Upstream qualifies for production tax credits and 100% bonus depreciation.

Corporate and Other Segment

The corporate and other segment includes the operations of the WEC Energy Group holding company, the Integrys holding company, and the PELLC holding company, as well as the operations of Wispark, Bostco (prior to the sale of substantially all of its remaining assets in the first quarter of 2017 and its dissolution in October 2018), Wisvest (prior to the sale of its assets in the second quarter of

2018 Form 10-K	18	WEC Energy Group, Inc.

2016), WECC, WBS, PDL, and ITF (prior to the sale of this business in the first quarter of 2016). See Note 3, Dispositions, for more information on the sale of Wisvest's and Bostco's assets and ITF.

Wispark develops and invests in real estate, primarily in southeastern Wisconsin. Wispark had $40.7 million in real estate holdings at December 31, 2018.

Bostco was originally formed to develop and invest in real estate. In March 2017, we sold the remaining real estate holdings of Bostco located in downtown Milwaukee, Wisconsin. See Note 3, Dispositions, for more information. In October 2018, Bostco was dissolved.

Wisvest was originally formed to develop, own, and operate electric generating facilities and to invest in other energy-related entities. However, Wisvest discontinued its development activity several years ago. In April 2016, we sold the chilled water generation and distribution assets of Wisvest, which provided chilled water services to the Milwaukee Regional Medical Center. Wisvest no longer has significant operations. See Note 3, Dispositions, for more information.

WECC was originally formed to invest in non-utility projects, such as low income housing developments. However, due to a focus on our regulated utility business, WECC sold many of its non-utility investments and no longer has significant operations.

WBS is a wholly owned centralized service company that provides administrative and general support services to our regulated entities. WBS also provides certain administrative and support services to our nonregulated entities.

PDL owns distributed renewable solar projects. As part of our asset management strategy, in 2016, PDL sold its natural gas-fired cogeneration facility and its landfill gas facility, and in 2018, PDL sold three of its distributed commercial and industrial solar projects. These facilities were not considered core to our operations. PDL's solar facilities rely on solar irradiance, a renewable energy resource. There is no market price risk associated with the fuel supply of these solar projects. However, production at these facilities can be intermittent due to the variability of solar irradiance.

D. REGULATION

We are a holding company and are subject to the requirements of the Public Utility Holding Company Act of 2005 (PUHCA 2005). We also have various subsidiaries that meet the definition of a holding company under PUHCA 2005 and are also subject to its requirements.

Pursuant to the non-utility asset cap provisions of Wisconsin's public utility holding company law, the sum of certain assets of all non-utility affiliates in a holding company system generally may not exceed 25% of the assets of all public utility affiliates. However, among other items, the law exempts energy-related assets, including the generating plants constructed by We Power and the other assets in our non-utility energy infrastructure segment, from being counted against the asset cap provided that they are employed in qualifying businesses. We report to the PSCW annually our compliance with this law and provide supporting documentation to show that our non-utility assets are below the non-utility asset cap.

Regulated Utility Operations

In addition to the specific regulations noted above and below, our utilities are also subject to regulations, where applicable, of the EPA, the WDNR, the MDEQ, the Michigan Department of Natural Resources, the Illinois Environmental Protection Agency, the United States Army Corps of Engineers, the Minnesota Department of Natural Resources, and the Minnesota Pollution Control Agency.

2018 Form 10-K	19	WEC Energy Group, Inc.

Rates

Our utilities' rates were regulated by the various commissions shown in the table below during 2018. These commissions have general supervisory and regulatory powers over public utilities in their respective jurisdictions.

Regulated Rates		Regulatory Commission
WE
Retail electric, natural gas, and steam		PSCW
Retail electric		MPSC
Wholesale power		FERC
WPS
Retail electric and natural gas		PSCW
Wholesale power		FERC
WG
Retail natural gas		PSCW
UMERC
Retail electric and natural gas		MPSC
Wholesale power		FERC
PGL
Retail natural gas		ICC
NSG
Retail natural gas		ICC
MERC
Retail natural gas		MPUC
MGU
Retail natural gas		MPSC

Embedded within our electric utilities' rates is an amount to recover fuel and purchased power costs. The Wisconsin retail fuel rules require a utility to defer, for subsequent rate recovery or refund, any under-collection or over-collection of fuel and purchased power costs that are outside of the utility's symmetrical fuel cost tolerance, which the PSCW typically sets at plus or minus 2% of the utility's approved fuel and purchased power cost plan. The deferred fuel and purchased power costs are subject to an excess revenues test. If the utility's ROE in a given year exceeds the ROE authorized by the PSCW, the recovery of under-collected fuel and purchased power costs would be reduced by the amount by which the utility's return exceeds the authorized amount. Prudently incurred fuel and purchased power costs are recovered dollar-for-dollar from our Michigan retail electric customers and our wholesale electric customers.

Our natural gas utilities operate under GCRMs as approved by their respective state regulator. Generally, the GCRMs allow for a dollar-for-dollar recovery of prudently incurred natural gas costs.

See Note 1(d), Operating Revenues, for additional information on the significant mechanisms our utilities had in place in 2018 that allowed them to recover or refund changes in prudently incurred costs from rate case-approved amounts.

WE, WG, and WPS are each subject to an earnings sharing mechanism through 2019. WE and WG have been subject to the earnings sharing mechanism since January 2016, and WPS adopted it in January 2018 pursuant to its settlement agreement with the PSCW. See Note 24, Regulatory Environment, for more information.

For information on how rates are set for our regulated entities, see Note 24, Regulatory Environment. Orders from our respective regulators can be viewed at the following websites:

Regulatory Commission		Website
PSCW		https://psc.wi.gov/
ICC		https://www.icc.illinois.gov/
MPSC		http://www.michigan.gov/mpsc/
MPUC		http://mn.gov/puc/
FERC		http://www.ferc.gov/

2018 Form 10-K	20	WEC Energy Group, Inc.

The material and information contained on these websites are not intended to be a part of, nor are they incorporated by reference into, this Annual Report on Form 10-K.

The following table compares our utility operating revenues by regulatory jurisdiction for each of the three years ended December 31:

		2018							2017							2016
(in millions)		Amount				Percent			Amount				Percent			Amount				Percent
Electric
Wisconsin		$	3,890.4			87.7	%		$	3,909.1			85.7	%		$	3,974.8			85.9	%
Michigan		152.4				3.4	%		145.9				3.2	%		175.0				3.8	%
FERC – Wholesale		396.1				8.9	%		504.0				11.1	%		478.3				10.3	%
Total		4,438.9				100.0	%		4,559.0				100.0	%		4,628.1				100.0	%
Natural Gas
Wisconsin		1,351.8				42.3	%		1,266.4				41.7	%		1,174.2				42.0	%
Illinois		1,400.0				43.8	%		1,355.5				44.6	%		1,242.2				44.4	%
Minnesota		289.8				9.1	%		272.6				9.0	%		249.4				8.9	%
Michigan		152.4				4.8	%		142.4				4.7	%		130.5				4.7	%
Total		3,194.0				100.0	%		3,036.9				100.0	%		2,796.3				100.0	%
Total utility operating revenues		$	7,632.9						$	7,595.9						$	7,424.4

Electric Transmission, Capacity, and Energy Markets

In connection with its status as a FERC approved RTO, MISO operates bid-based energy markets. MISO has been able to assume significant balancing area responsibilities such as frequency control and disturbance control.

In MISO, base transmission costs are currently being paid by load-serving entities located in the service territories of each MISO transmission owner. The FERC has previously confirmed the use of the current transmission cost allocation methodology. Certain additional costs for new transmission projects are allocated throughout the MISO footprint.

As part of MISO, a market-based platform is used for valuing transmission congestion premised upon the LMP system that is used in certain northeastern and mid-Atlantic states. The LMP system includes the ability to hedge transmission congestion costs through ARRs and FTRs. ARRs are allocated to market participants by MISO, and FTRs are purchased through auctions. A new allocation and auction were completed for the period of June 1, 2018, through May 31, 2019. The resulting ARR valuation and the secured FTRs are expected to mitigate our transmission congestion risk for that period.

MISO has an annual zonal resource adequacy requirement to ensure there is sufficient generation capacity to serve the MISO market. To meet this requirement, capacity resources can be acquired through MISO's annual capacity auction, bilateral contracts for capacity, or provided from generating or demand response resources. All of our capacity requirements during the planning year from June 1, 2018, through May 31, 2019 were met.

Other Electric Regulations

Our electric utilities are subject to the Federal Power Act and the corresponding regulations developed by certain federal agencies. The Energy Policy Act amended the Federal Power Act in 2005 to, among other things, make electric utility industry consolidation more feasible, authorize the FERC to review proposed mergers and the acquisition of generation facilities, change the FERC regulatory scheme applicable to qualifying cogeneration facilities, and modify certain other aspects of energy regulations and Federal tax policies applicable to us. Additionally, the Energy Policy Act created an Electric Reliability Organization to be overseen by the FERC, which established mandatory electric reliability standards and has the authority to levy monetary sanctions for failure to comply with these standards.

WE and WPS are subject to Act 141 in Wisconsin, and WE and UMERC are subject to Public Acts 295 and 342 in Michigan, which contain certain minimum requirements for renewable energy generation.

2018 Form 10-K	21	WEC Energy Group, Inc.

All of our hydroelectric facilities follow FERC guidelines and/or regulations.

Other Natural Gas Regulations

Almost all of the natural gas we distribute is transported to our distribution systems by interstate pipelines. The pipelines' transportation and storage services, including PGL's natural gas hub, are regulated by the FERC under the Natural Gas Act and the Natural Gas Policy Act of 1978. In addition, the Pipeline and Hazardous Materials Safety Administration and the state commissions are responsible for monitoring and enforcing requirements governing our natural gas utilities' safety compliance programs for our pipelines under the United States Department of Transportation regulations. These regulations include 49 Code of Federal Regulations (CFR) Part 191 (Transportation of Natural and Other Gas by Pipeline; Annual Reports, Incident Reports, and Safety-Related Condition Reports), 49 CFR Part 192 (Transportation of Natural and Other Gas by Pipeline: Minimum Federal Safety Standards), and 49 CFR Part 195 (Transportation of Hazardous Liquids by Pipeline).

We are required to provide natural gas service and grant credit (with applicable deposit requirements) to customers within our service territories. We are generally not allowed to discontinue natural gas service during winter moratorium months to residential heating customers who do not pay their bills. Federal and certain state governments have programs that provide for a limited amount of funding for assistance to low-income customers of our utilities.

Non-Utility Energy Infrastructure Operations

The generation facilities constructed by wholly owned subsidiaries of We Power are being leased on a long-term basis to WE. Environmental permits necessary for operating the facilities are the responsibility of the operating entity, WE. We Power received determinations from the FERC that upon the transfer of the facilities by lease to WE, We Power's subsidiaries would not be deemed public utilities under the Federal Power Act and thus would not be subject to the FERC's jurisdiction.

Bluewater is regulated by the FERC under the Natural Gas Act and the Natural Gas Policy Act of 1978. In addition, the Pipeline and Hazardous Materials Safety Administration is responsible for monitoring and enforcing requirements governing Bluewater's safety compliance programs for its pipelines under the United States Department of Transportation regulations. These regulations include 49 CFR Parts 191, 192, and 195. Given that Bluewater is required to route some of its natural gas through Canada, applicable reporting and licensing with the United States Department of Energy and the Canadian National Energy Board are also required, along with routine reporting related to imports and exports.

Bishop Hill III and Upstream, which was acquired in January 2019, are both subject to the FERC’s regulation of wholesale energy under the Federal Power Act.

E. ENVIRONMENTAL COMPLIANCE

Our operations are subject to extensive environmental regulation by state and federal environmental agencies governing air and water quality, hazardous and solid waste management, environmental remediation, and management of natural resources. Costs associated with complying with these requirements are significant. Additional future environmental regulations or revisions to existing laws, including for example, additional regulation of GHG emissions, coal combustion products, air emissions, or wastewater discharges, could significantly increase these environmental compliance costs.

Anticipated expenditures for environmental compliance and remediation issues for the next three years are included in the estimated capital expenditures described in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Capital Requirements. For a discussion of matters related to manufactured gas plant sites and air and water quality, see Note 22, Commitments and Contingencies.

2018 Form 10-K	22	WEC Energy Group, Inc.

F. EMPLOYEES

As of December 31, 2018, we had the following number of employees:

		Total Employees
WE		2,739
WPS		1,189
WG		411
PGL		1,566
NSG		166
MERC		221
MGU		149
WBS		1,437
Total employees		7,878

As of December 31, 2018, we had employees represented under labor agreements with the following bargaining units:

		Number of Employees			Expiration Date of Current Labor Agreement
WE
Local 2150 of International Brotherhood of Electrical Workers		1,611			August 15, 2020
Local 420 of International Union of Operating Engineers		360			September 30, 2021
Local 2006 Unit 1 of United Steel Workers of America		114			October 31, 2021
Local 510 of International Brotherhood of Electrical Workers		75			October 31, 2020
Total WE		2,160
WPS
Local 420 of International Union of Operating Engineers		850			April 16, 2021
WG
Local 2150 of International Brotherhood of Electrical Workers		81			August 15, 2020
Local 2006 Unit 1 of United Steel Workers of America		209			October 31, 2021
Total WG		290
PGL
Local 18007 of Utility Workers Union of America		990			April 30, 2023
Local 18007(C) of Utility Workers Union of America		92			July 31, 2021
Total PGL		1,082
NSG
Local 2285 of International Brotherhood of Electrical Workers (1)		121			June 30, 2019
MERC
Local 31 of International Brotherhood of Electrical Workers		43			May 31, 2020
Local 49 of International Union of Operating Engineers(2)		3			January 1, 2022
Total MERC		46
MGU
Local 12295 of United Steelworkers of America		70			January 15, 2020
Local 417 of Utility Workers Union of America		25			February 15, 2022
Total MGU		95
Total represented employees		4,644

(1)	We anticipate that Local 2285 negotiations will begin in spring 2019 and will conclude before the expiration of the current agreement.

(2)	A three year contract was ratified between MERC and the International Union of Operating Engineers, Local 49, on January 10, 2019.

2018 Form 10-K	23	WEC Energy Group, Inc.