filings.toolsItem 1. BUSINESS
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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, Upstream, WEC Energy Group holding company, the Integrys holding company, the PELLC holding company, Wispark, Bostco, Wisvest, WECC, WBS, and PDL. References to "Notes" are to the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
For more information about our business operations, see Note 21, 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. We have an approximately 60% equity interest in ATC (an electric transmission company operating in Illinois, Michigan, Minnesota, and Wisconsin). At December 31, 2019, we had six reportable segments, which are discussed below. For additional information about our reportable segments, see Note 21, Segment Information.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports are made available on our website, www.wecenergygroup.com, free of charge, as soon as reasonably practicable after they are filed with or furnished to the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.
B. UTILITY ENERGY OPERATIONS
Wisconsin Segment
The Wisconsin segment includes the electric and natural gas utility operations of WE, WPS, WG, and UMERC.
Electric Utility Operations
For the periods presented in this Annual Report on Form 10-K, our electric utility operations included operations of WE, WPS and UMERC.
| • | WE generates and distributes electric energy to customers located in southeastern Wisconsin (including the metropolitan Milwaukee area), east central Wisconsin, and northern Wisconsin. WE also served an iron ore mine customer, Tilden, in the Upper Peninsula of Michigan, through March 31, 2019 when Tilden became a customer of UMERC. |
| • | WPS generates and distributes electric energy to customers located in northeastern and central Wisconsin. |
| • | UMERC generates and distributes electric energy to customers located in the Upper Peninsula of Michigan. UMERC began generating electricity when its new natural gas-fired generation achieved commercial operation on March 31, 2019. |
| 2019 Form 10-K | 3 | WEC Energy Group, Inc. |
Operating Revenues
The following table shows electric utility operating revenues, including steam operations, for our Wisconsin segment disaggregated by customer class for the year ended December 31, 2017. For information about our operating revenues disaggregated by customer class for the years ended December 31, 2019 and 2018, see Note 4, Operating Revenues.
| (in millions) | 2017 | |||
| Operating revenues | ||||
| Residential | $ | 1,581.5 | ||
| Small commercial and industrial (1) | 1,400.9 | |||
| Large commercial and industrial (1) | 913.7 | |||
| Other | 30.5 | |||
| Retail (1) | 3,926.6 | |||
| Wholesale | 233.4 | |||
| Resale | 270.6 | |||
| Steam | 23.3 | |||
| Other operating revenues (2) | 105.1 | |||
| Total operating revenues (1) | $ | 4,559.0 |
| (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 were addressed in WE's December 2019 Wisconsin rate order. |
Electric Sales
Our electric energy deliveries included supply and distribution sales to retail, wholesale, and resale customers, and distribution sales to those customers who switched to an alternative electric supplier in the Upper Peninsula of Michigan. In 2019, retail revenues accounted for 90.4% of total electric operating revenues, wholesale revenues accounted for 4.4% of total electric operating revenues, and resale revenues accounted for 3.8% 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.
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. We provide wholesale electric service to various customers, including electric cooperatives, municipal joint action agencies, other investor-owned utilities, municipal utilities, and energy marketers. For more information, see E. Regulation.
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. Retail fuel costs are reduced by the amount that revenue exceeds the costs of sales derived from these opportunity sales.
Steam Sales
WE has a steam utility that generates, distributes, and sells steam supplied by the 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.
| 2019 Form 10-K | 4 | WEC Energy Group, Inc. |
Electric Sales Forecast
Our service territory experienced a decline in weather-normalized retail electric sales in 2019 due primarily to reduced industrial sales. We currently forecast retail electric sales volumes, excluding the Tilden mine located in the Upper Peninsula of Michigan, to grow between 1% and 1.5% over the next five years, assuming normal weather. Electric peak demand is expected to grow between flat and 0.5% over the next five years.
Customers
| Year Ended December 31 | |||||||||
| (in thousands) | 2019 | 2018 | 2017 | ||||||
| Electric customers – end of year | |||||||||
| Residential | 1,449.7 | 1,441.3 | 1,431.4 | ||||||
| Small commercial and industrial | 174.6 | 173.2 | 172.2 | ||||||
| Large commercial and industrial | 0.9 | 0.9 | 0.9 | ||||||
| Wholesale and other | 2.7 | 2.7 | 2.6 | ||||||
| Total electric customers – end of year | 1,627.9 | 1,618.1 | 1,607.1 | ||||||
| Steam customers – end of year | 0.4 | 0.4 | 0.4 |
Electric Commercial and Industrial Retail Customers
We provide electric utility service to a diversified base of customers in industries such as metals and other manufacturing, paper, governmental, food products, health services, education, and retail.
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 balance a stable, reliable, and affordable supply of electricity with environmental stewardship. 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 power supply into the MISO Energy Markets when it is economical, which reduces net fuel costs by offsetting costs of purchased power. All options, including owned generation resources and purchased power opportunities, are continually evaluated on a real-time basis to select and dispatch the lowest-cost resources available to meet system load requirements.
| 2019 Form 10-K | 5 | 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 2020:
| Estimate (1) | Actual | |||||||||||
| 2020 | 2019 | 2018 | 2017 | |||||||||
| Company-owned generation units: | ||||||||||||
| Coal | 32.5 | % | 36.3 | % | 44.7 | % | 48.5 | % | ||||
| Natural gas: | ||||||||||||
| Combined cycle | 24.3 | % | 26.8 | % | 19.7 | % | 16.5 | % | ||||
| Steam turbine | 0.9 | % | 0.8 | % | 0.6 | % | 0.8 | % | ||||
| Natural gas/oil peaking units | 4.4 | % | 0.9 | % | 1.7 | % | 1.1 | % | ||||
| Renewables (2) | 4.2 | % | 4.4 | % | 4.1 | % | 4.1 | % | ||||
| Total company-owned generation units | 66.3 | % | 69.2 | % | 70.8 | % | 71.0 | % | ||||
| Power purchase contracts: | ||||||||||||
| Nuclear | 19.0 | % | 19.8 | % | 18.6 | % | 17.7 | % | ||||
| Natural gas | 2.7 | % | 1.8 | % | 1.5 | % | 1.3 | % | ||||
| Renewables (2) | 2.5 | % | 2.0 | % | 2.4 | % | 2.9 | % | ||||
| Other | 1.8 | % | 1.8 | % | 1.7 | % | 1.6 | % | ||||
| Total power purchase contracts | 26.0 | % | 25.4 | % | 24.2 | % | 23.5 | % | ||||
| Purchased power from MISO | 7.7 | % | 5.4 | % | 5.0 | % | 5.5 | % | ||||
| Total purchased power | 33.7 | % | 30.8 | % | 29.2 | % | 29.0 | % | ||||
| Total electric utility supply | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| (1) | The values included in the estimate assume a natural gas price based on the February 2020 NYMEX. |
| (2) | Includes hydroelectric, biomass, and wind generation. |
Electric Generation Facilities
Our generation portfolio is a mix of energy resources having different operating characteristics and fuel sources designed to balance providing energy that is stable, reliable, and affordable with environmental stewardship. We own approximately 7,118 MW of generation capacity, including owned and jointly owned facilities. Our facilities include coal-fired plants, natural gas-fired plants, and renewable generation. Certain of our natural gas fired generation units have the ability to burn oil if natural gas is not available due to delivery constraints. For more information about our facilities, see Item 2. Properties.
On March 31, 2019, we added to our electric generation portfolio when UMERC's new natural gas-fired generation with a 187 MW rated capacity in the Upper Peninsula of Michigan achieved commercial operation. See Note 25, Regulatory Environment, for more information.
Reshaping our Generation Fleet
The planned reshaping of our generation fleet balances reliability and customer cost with environmental stewardship. Taken as a whole, this plan should reduce costs to customers, preserve fuel diversity, and lower carbon emissions. 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. In 2019, we met and exceeded our 2030 goal of reducing CO2 emissions by 40% below 2005 levels and are re-evaluating our longer-term CO2 reduction goals. We have already retired more than 1,800 MW of coal-fired generation since the beginning of 2018, and expect to continue adding natural gas-fired generating units and renewable generation, including utility-scale solar projects. The generation reshaping plan included the 2018 retirements of the Pleasant Prairie power plant, the Pulliam power plant, and the jointly-owned Edgewater Unit 4 generating units as well as the March 2019 retirement of the Presque Isle power plant. For more information related to these power plant retirements, see Note 6, Property, Plant, and Equipment.
| 2019 Form 10-K | 6 | WEC Energy Group, Inc. |
Renewable Generation
Our electric utilities meet a portion of their electric generation supply with various renewable energy resources, including wind, hydroelectric, biomass, and in the future, solar projects. This helps our electric utilities maintain compliance with renewable energy legislation. 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.
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
In December 2018, WE received approval from the PSCW for the Solar Now pilot program, which is expected to add 35 MW of solar generation to WE's portfolio and will allow non-profit and government entities, as well as commercial and industrial customers to site solar arrays on their property. Under this program, in 2019, WE constructed 5 MW of solar generation and expects to construct more than double that amount in 2020.
As part of our commitment to invest in zero-carbon generation, we have either filed for or received approval to invest in 300 MW of utility-scale solar within our Wisconsin segment.
| • | In April 2019, WPS, along with an unaffiliated utility, received approval from the PSCW to acquire ownership interests in two utility-scale solar projects in Wisconsin. Badger Hollow I is located in Iowa County, Wisconsin, and Two Creeks is located in Manitowoc County, Wisconsin. Once constructed, WPS will own 100 MW of the output of each project for a total of 200 MW. Construction began at Two Creeks and Badger Hollow I in August 2019 and October 2019, respectively. Commercial operation of both projects is targeted for the end of 2020. |
| • | In August 2019, WE, along with an unaffiliated utility, filed an application with the PSCW for approval to acquire an ownership interest in a proposed solar project, Badger Hollow II, that will be located in Iowa County, Wisconsin. At its meeting on February 20, 2020, the PSCW approved the acquisition of this project. The approval is still subject to WE's receipt and review of a final written order from the PSCW. Once constructed, WE will own 100 MW of the output of this project. Commercial operation of Badger Hollow II is targeted for the end of 2021. |
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 16.8% installed capacity reserve margin requirement for the planning year from June 1, 2019, through May 31, 2020, and an 18.0% installed capacity reserve margin requirement for the planning year from June 1, 2020, through May 31, 2021. MISO's short-term reserve margin requirements experience year-to-year fluctuations, primarily due to changes in the generation resource mix and 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, 2020, through May 31, 2021. 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.
| 2019 Form 10-K | 7 | WEC Energy Group, Inc. |
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 E. Regulation.
Our average fuel and purchased power costs per MWh by fuel type were as follows for the years ended December 31:
| 2019 | 2018 | 2017 | ||||||||||
| Coal | $ | 22.77 | $ | 23.54 | $ | 23.05 | ||||||
| Natural gas combined cycle | 19.55 | 21.69 | 22.65 | |||||||||
| Natural gas/oil peaking units | 51.80 | 49.06 | 53.91 | |||||||||
| Biomass | 102.99 | 97.33 | 118.76 | |||||||||
| Purchased power | 42.53 | 42.85 | 42.12 |
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. WE and WPS have PSCW approval for a hedging program to moderate this volatility exposure. This program allows them to hedge, over a 36-month period, up to 75% of their potential risks related to rail transportation fuel surcharge exposure. The results of this hedging program, when used, are reflected in the average costs of purchased power.
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 approval for a hedging program to moderate volatility related to natural gas price risk. This program allows them to hedge, over a 36-month period, up to 75% of their estimated natural gas use for electric generation. The results of this hedging program are reflected in the average costs of natural gas.
Coal Supply
We diversify the coal supply for our electric generating facilities and jointly-owned plants by purchasing coal from several mines in Wyoming and Pennsylvania, as well as from various other states. For 2020, all of our total projected coal requirements of 10.1 million tons are contracted under fixed-price contracts. See Note 23, Commitments and Contingencies, for more information on amounts of coal purchases and coal deliveries under contract.
The annual tonnage amounts contracted for the next three years are as follows. We have not entered into any coal contracts for years after 2022.
| (in thousands) | Annual Tonnage | ||
| 2020 | 10,020 | ||
| 2021 | 4,640 | ||
| 2022 | 2,100 |
Coal Deliveries
All of our 2020 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 and Pennsylvania. Additional small volume agreements may also be used to supplement the normal coal supply for our facilities.
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 for 2020, 1,379 MW for 2021, and 1,133 MW per year for 2022 through 2024, 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. As part of our generation reshaping plan, we recently retired
| 2019 Form 10-K | 8 | WEC Energy Group, Inc. |
some of our older, less efficient coal-fired generation. To procure additional planning capacity, we purchased capacity from the MISO annual auction to ensure that we maintain our compliance with planning reserve requirements as established by the PSCW, MPSC, and MISO.
Natural Gas Utility Operations
WE, WG, and WPS 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. Our Wisconsin natural gas utilities operate throughout the state of Wisconsin, including the City of Milwaukee and surrounding areas, northeastern Wisconsin, and in large areas of both central and western Wisconsin. In addition, UMERC is authorized to provide retail natural gas distribution service in designated territories in the Upper Peninsula of Michigan.
Our Wisconsin segment natural gas utilities provide service to residential, commercial and industrial, and transportation customers. 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 disaggregated by customer class for the year ended December 31, 2017. For information about our operating revenues disaggregated by customer class for the years ended December 31, 2019 and 2018, see Note 4, Operating Revenues.
| (in millions) | 2017 | |||
| Operating revenues | ||||
| Residential | $ | 809.3 | ||
| Commercial and industrial | 395.5 | |||
| Total retail revenues | 1,204.8 | |||
| Transport | 72.6 | |||
| Other operating revenues * | (7.2 | ) | ||
| Total operating revenues | $ | 1,270.2 |
| * | 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 2019 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) | 2019 | 2018 | 2017 | ||||||
| Customers – end of year | |||||||||
| Residential | 1,339.6 | 1,329.6 | 1,318.3 | ||||||
| Commercial and industrial | 131.5 | 130.6 | 129.7 | ||||||
| Transport | 3.2 | 3.0 | 2.8 | ||||||
| Total customers | 1,474.3 | 1,463.2 | 1,450.8 |
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 23, Commitments and Contingencies.
| 2019 Form 10-K | 9 | WEC Energy Group, Inc. |
Pipeline Capacity and Storage
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.
Natural gas pipeline capacity and storage 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 LNG and propane facilities located within our distribution system. These facilities are typically utilized during extreme demand conditions to ensure reliable supply to our customers. In addition to their existing facilities, WE and WG each plan to construct an additional LNG facility. Subject to PSCW approval, each facility would provide approximately one billion cubic feet of natural gas supply to meet anticipated peak demand without requiring the construction of additional interstate pipeline capacity. Commercial operation of the LNG facilities is targeted for the end of 2023.
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 segment natural gas utilities' forecasted design peak-day throughput is 34.1 million therms for the 2019 through 2020 heating season. Our Wisconsin segment natural gas utilities' peak daily send-out during 2019 was 26.4 million therms on January 30, 2019.
Natural Gas Supply
We have contracts 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, brokerage fees, and losses) and proceeds (gains) to customers through their respective GCRMs.
To the extent that opportunities develop and physical supply operating plans are supportive, WE, WPS, and WG 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.
| 2019 Form 10-K | 10 | WEC Energy Group, Inc. |
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 disaggregated by customer class for the year ended December 31, 2017. For information about our operating revenues disaggregated by customer class for the years ended December 31, 2019 and 2018, see Note 4, Operating Revenues.
| (in millions) | 2017 | |||
| Operating revenues | ||||
| Residential | $ | 934.8 | ||
| Commercial and industrial | 156.7 | |||
| Total retail revenues | 1,091.5 | |||
| Transport | 246.9 | |||
| Other operating revenues | 17.1 | |||
| Total operating revenues | $ | 1,355.5 |
Customers
| Year Ended December 31 | |||||||||
| (in thousands) | 2019 | 2018 | 2017 | ||||||
| Customers – end of year | |||||||||
| Residential | 870.6 | 863.2 | 849.8 | ||||||
| Commercial and industrial | 71.8 | 72.1 | 72.9 | ||||||
| Transport | 88.7 | 97.5 | 107.5 | ||||||
| Total customers | 1,031.1 | 1,032.8 | 1,030.2 |
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 23, 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
| 2019 Form 10-K | 11 | WEC Energy Group, Inc. |
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.
Natural gas pipeline capacity and storage 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.
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 Illinois utilities' forecasted design peak-day throughput is 26.2 million therms for the 2019 through 2020 heating season. Our Illinois utilities' peak daily send-out during 2019 was 22.6 million therms on January 30, 2019.
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 reviewed by the ICC as part of the annual purchased gas adjustment reconciliation. 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 25, Regulatory Environment.
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.
Other States Utilities Operating Statistics
Operating Revenues
The following table shows natural gas operating revenues for our other states utilities disaggregated by customer class for the year ended December 31, 2017. For information about our operating revenues disaggregated by customer class for the years ended December 31, 2019 and 2018, see Note 4, Operating Revenues.
| (in millions) | 2017 | |||
| Operating revenues | ||||
| Residential | $ | 220.2 | ||
| Commercial and industrial | 123.9 | |||
| Total retail revenues | 344.1 | |||
| Transport | 31.4 | |||
| Other operating revenues | 35.7 | |||
| Total operating revenues | $ | 411.2 |
| 2019 Form 10-K | 12 | WEC Energy Group, Inc. |
Customers
| Year Ended December 31 | |||||||||
| (in thousands) | 2019 | 2018 | 2017 | ||||||
| Customers – end of year | |||||||||
| Residential | 360.8 | 356.5 | 353.0 | ||||||
| Commercial and industrial | 35.0 | 34.9 | 34.5 | ||||||
| Transport | 24.7 | 24.7 | 24.2 | ||||||
| Total customers | 420.5 | 416.1 | 411.7 |
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 23, 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.
Natural gas pipeline capacity and storage 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.
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 2019 through 2020 heating season. Our other states utilities' peak daily send-out during 2019 was 8.4 million therms on January 30, 2019.
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 demand using NYMEX financial instruments. MGU has MPSC approval to hedge up to 20% of its planned annual purchases using NYMEX financial instruments.
General
Seasonality
Electric Utility Operations – Wisconsin Segment
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
| 2019 Form 10-K | 13 | WEC Energy Group, Inc. |
warmest periods of the summer, and all power purchase commitments under firm contract were received. During this period, our electric utilities did not require public appeals for conservation. However, during the polar vortex in the first quarter of 2019 we curtailed electric service to certain non-firm customers at MISO's request, in response to wide-spread regional power supply issues in MISO. These non-firm customers receive a rate credit in return for agreeing to occasional service interruptions. WPS also had service curtailments for economic interruptions during this period. 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.
Natural Gas Utility Operations – Wisconsin, Illinois, and Other States Segments
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 effect on earnings from these changes in weather are reduced by decoupling mechanisms included in the rates of PGL, NSG, and MERC. These mechanisms differ by state and allow the utilities to recover or refund the differences between actual and authorized margins for certain customer classes.
Our natural gas 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
Electric Utility Operations – Wisconsin Segment
Our electric utilities face competition from various entities and other forms of energy sources available to customers, including self-generation by 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.
Natural Gas Utility Operations – Wisconsin, Illinois, and Other States Segments
Our natural gas utilities also 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. In addition, the majority of our natural gas customers have the opportunity to choose a natural gas supplier other than us. Our natural gas utilities offer transportation services for customers that elect to purchase natural gas directly from a third-party supplier. We continue to earn distribution revenues from these transportation customers for their use of our distribution systems to transport natural gas to their facilities. 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.
For more information on competition in each of 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.
C. 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, 2019, our ownership interest in ATC was approximately 60%. In addition, we owned approximately 75% of ATC Holdco, a separate entity formed in December 2016 to invest in transmission-related projects outside of ATC's traditional footprint. See Note 20, Investment in Transmission Affiliates, for more information.
| 2019 Form 10-K | 14 | WEC Energy Group, Inc. |
In November 2019, the FERC issued an order related to the methodology used to calculate the base ROE for all MISO transmission owners, including ATC. 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.
D. 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; and WECI, which holds our ownership interests in the Bishop Hill III, Upstream, and Coyote Ridge wind generating facilities. See Item 2. Properties, for more information on our non-utility energy infrastructure facilities.
W.E. Power, LLC
We Power, through wholly owned subsidiaries, designed and built approximately 2,500 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 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 Natural Gas Holding, LLC
Bluewater, located in Michigan, provides natural gas storage and hub services for our Wisconsin natural gas utilities. WE, WPS, and WG have entered into long-term service agreements for natural gas storage with a wholly owned subsidiary of Bluewater.
WEC Infrastructure LLC
At December 31, 2019, our non-utility energy infrastructure segment included WECI's ownership interests in the three wind generating facilities reflected in the table below.
| Name | Ownership Interest | ||
| Upstream (1) | 80.0 | % | |
| Bishop Hill III | 90.0 | % | |
| Coyote Ridge (2) | 80.0 | % |
| (1) | In February 2020, WECI signed an agreement to acquire an additional 10% ownership interest in Upstream. |
| (2) | Coyote Ridge achieved commercial operation on December 20, 2019. |
| 2019 Form 10-K | 15 | WEC Energy Group, Inc. |
Bishop Hill III and Coyote Ridge have long-term offtake agreements with unaffiliated third parties for the sale of all the energy they produce. In addition, Upstream's revenue is substantially fixed over a 10-year period through an agreement with an unaffiliated third party. Under the Tax Legislation, all of these investments qualify for production tax credits and 100% bonus depreciation. WECI is entitled to the tax benefits of each facility in proportion to its ownership interest, with the exception of Coyote Ridge. WECI is entitled to 99% of the tax benefits of Coyote Ridge for the first 11 years of commercial operation, after which WECI will be entitled to tax benefits equal to its ownership interest. WECI recognizes production tax credits as power is generated over 10 years.
In August 2019, WECI signed an agreement to acquire an 80% ownership interest in Thunderhead, a 300 MW wind generating facility under construction in Nebraska. In addition, in January 2020, WECI signed an agreement to acquire an 80% ownership interest in Blooming Grove, a 250 MW wind generating facility under construction in Illinois. In February 2020, WECI amended these agreements to acquire an additional 10% ownership interest in both Thunderhead and Blooming Grove. Under the Tax Legislation, WECI's investments in Thunderhead and Blooming Grove are expected to qualify for production tax credits and 100% bonus depreciation.
See Note 2, Acquisitions, for more information on these wind generating facilities.
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), WBS, and PDL. See Note 3, Dispositions, for more information on the sale of Bostco's assets and certain assets of PDL. This segment also includes Wisvest and WECC, which no longer have significant operations.
Wispark develops and invests in real estate, primarily in southeastern Wisconsin. Wispark had $32.9 million in real estate holdings at December 31, 2019.
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 2019, PDL sold its remaining four distributed commercial and industrial solar projects. See Note 3, Dispositions, for more information on these sales. These facilities were not considered core to our operations. PDL still owns a portfolio of residential solar systems.
E. REGULATION
We are a holding company and are subject to the requirements of the PUHCA 2005. We also have various subsidiaries that meet the definition of a holding company under the 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 on 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 subject to various other regulations, which primarily consist of regulations, where applicable, of the EPA; the WDNR; the IDNR; the IEPA; the Michigan Department of Environment, Great Lakes, and Energy (previously Michigan Department of Environmental Quality); the Michigan Department of Natural Resources; the United States Army Corps of Engineers; the Minnesota Department of Natural Resources; and the Minnesota Pollution Control Agency.
| 2019 Form 10-K | 16 | WEC Energy Group, Inc. |
Rates
Our utilities' rates were regulated by the various commissions shown in the table below during 2019. 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 |
| * | Tilden, an iron-ore mine in the Upper Peninsula of Michigan, was a customer of WE through March 31, 2019. Tilden became a customer of UMERC when UMERC's new natural gas-fired generation in the Upper Peninsula began commercial operation. As a result, WE no longer has any retail customers in Michigan and its retail electric rates were not regulated by the MPSC after March 31, 2019. See Note 25, Regulatory Environment, for more information on the formation of UMERC. |
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 2019 that allowed them to recover or refund changes in prudently incurred costs from rate case-approved amounts.
WE, WPS, and WG are each subject to an earnings sharing mechanism. WE and WG have been subject to an earnings sharing mechanism since January 2016, and WPS adopted one in January 2018 pursuant to its settlement agreement with the PSCW. See Note 25, Regulatory Environment, for more information.
| 2019 Form 10-K | 17 | WEC Energy Group, Inc. |
For information on how rates are set for our regulated entities, see Note 25, 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/ |
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:
| 2019 | 2018 | 2017 | |||||||||||||||||||
| (in millions) | Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||
| Electric | |||||||||||||||||||||
| Wisconsin | $ | 3,807.4 | 88.2 | % | $ | 3,890.4 | 87.7 | % | $ | 3,909.1 | 85.7 | % | |||||||||
| Michigan | 142.6 | 3.3 | % | 152.4 | 3.4 | % | 145.9 | 3.2 | % | ||||||||||||
| FERC – Wholesale | 367.6 | 8.5 | % | 396.1 | 8.9 | % | 504.0 | 11.1 | % | ||||||||||||
| Total | 4,317.6 | 100.0 | % | 4,438.9 | 100.0 | % | 4,559.0 | 100.0 | % | ||||||||||||
| Natural Gas | |||||||||||||||||||||
| Wisconsin | 1,325.3 | 42.6 | % | 1,351.8 | 42.3 | % | 1,266.4 | 41.7 | % | ||||||||||||
| Illinois | 1,357.1 | 43.6 | % | 1,400.0 | 43.8 | % | 1,355.5 | 44.6 | % | ||||||||||||
| Minnesota | 281.5 | 9.0 | % | 289.8 | 9.1 | % | 272.6 | 9.0 | % | ||||||||||||
| Michigan | 148.7 | 4.8 | % | 152.4 | 4.8 | % | 142.4 | 4.7 | % | ||||||||||||
| Total | 3,112.6 | 100.0 | % | 3,194.0 | 100.0 | % | 3,036.9 | 100.0 | % | ||||||||||||
| Total utility operating revenues | $ | 7,430.2 | $ | 7,632.9 | $ | 7,595.9 |
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, 2019, through May 31, 2020. The resulting ARR allocation 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, 2019, through May 31, 2020 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
| 2019 Form 10-K | 18 | WEC Energy Group, Inc. |
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 UMERC is subject to Public Acts 295 and 342 in Michigan, which contain certain minimum requirements for renewable energy generation.
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 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, Coyote Ridge, and Upstream are all subject to the FERC’s regulation of wholesale energy under the Federal Power Act.
F. ENVIRONMENTAL COMPLIANCE
Our operations, especially as they relate to our coal-fired generating facilities, 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 related to GHG emissions, coal combustion products, air emissions, water use, or wastewater discharges and other climate change issues, could significantly increase these environmental compliance costs.
Anticipated expenditures for environmental compliance and certain 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 certain environmental matters affecting us,
| 2019 Form 10-K | 19 | WEC Energy Group, Inc. |
including rules and regulations relating to air quality, water quality, land quality, and climate change, see Note 23, Commitments and Contingencies.
G. EMPLOYEES
As of December 31, 2019, we had the following number of employees:
| Total Employees | |||
| WE | 2,562 | ||
| WPS | 1,190 | ||
| WG | 392 | ||
| PGL | 1,497 | ||
| NSG | 150 | ||
| MERC | 217 | ||
| MGU | 146 | ||
| WBS | 1,355 | ||
| Total employees | 7,509 |
As of December 31, 2019, 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 | 1,547 | August 15, 2020 | |||
| Local 420 of International Union of Operating Engineers | 351 | September 30, 2021 | |||
| Local 2006 Unit 1 of United Steel Workers of America | 103 | October 31, 2021 | |||
| Local 510 of International Brotherhood of Electrical Workers | 4 | October 31, 2020 | |||
| Total WE | 2,005 | ||||
| WPS | |||||
| Local 420 of International Union of Operating Engineers | 858 | April 16, 2021 | |||
| WG | |||||
| Local 2150 of International Brotherhood of Electrical Workers | 87 | August 15, 2020 | |||
| Local 2006 Unit 1 of United Steel Workers of America | 184 | October 31, 2021 | |||
| Total WG | 271 | ||||
| PGL | |||||
| Local 18007 of Utility Workers Union of America | 945 | April 30, 2023 | |||
| Local 18007(C) of Utility Workers Union of America | 59 | July 31, 2021 | |||
| Total PGL | 1,004 | ||||
| NSG | |||||
| Local 2285 of International Brotherhood of Electrical Workers | 103 | June 30, 2024 | |||
| MERC | |||||
| Local 31 of International Brotherhood of Electrical Workers | 44 | May 31, 2020 | |||
| Local 49 of International Union of Operating Engineers | 3 | January 1, 2022 | |||
| Total MERC | 47 | ||||
| MGU | |||||
| Local 12295 of United Steelworkers of America * | 68 | January 15, 2023 | |||
| Local 417 of Utility Workers Union of America | 24 | February 15, 2022 | |||
| Total MGU | 92 | ||||
| Total represented employees | 4,380 |
| * | A three year contract was ratified between MGU and the Union Steelworkers of America, Local 12295, on January 11, 2020. |
| 2019 Form 10-K | 20 | WEC Energy Group, Inc. |
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