Klappa says WEC Energy won’t need as many physical facilities going forward

Gale Klappa, M7 co-chair and executive chairman of WEC Energy Group.

With more people working from home during the coronavirus outbreak, it should come as no surprise that electricity demand is up.

WEC Energy Group, the Milwaukee-based parent company of We Energies, is now forecasting a 4% increase in residential electricity sales for the second quarter. That increase will trend down toward a 0.5% increase in the third and fourth quarters.

The company’s full 2020 forecast now calls for a 1.4% increase in residential sales in its Wisconsin segment, up from a projected 0.2% decline at the start of the year.

The gain in sales to residential customers is not enough to offset a drop in sales to commercial and industrial customers. The forecast now calls for a 4.6% decline in sales to small commercial and industrial customers, including an 8% drop in the second quarter. Large customer sales are projected to drop 10.5%, including an 18% decline in the second quarter.

Together, those projections add up to a roughly 5% decline in sales for the next nine months compared to the company’s original forecast.

In dollar terms, the sales decline amounts to $70 million to $80 million in pre-tax margin WEC Energy Group will lose, chief financial office Scott Lauber said. He added the company is confident it can offset that decline with cost savings and affirmed earnings guidance for the full year.

Gale Klappa, executive chairman of WEC Energy, noted the company was able to reduce operations and maintenance expenses by more than 7% last year and planned another 2 to 3% decline this year. He said the company has launched hundreds of savings projects already.

Klappa said WEC Energy Group has learned a lot from being forced to operate remotely and some of the cost savings will be more permanent in nature.

“We’re not going to need as many physical facilities as we once thought we would need,” Klappa said. “There were some expansion plans on the drawing board … I don’t believe we’re going to need all of them, maybe none of them.”

The company’s forecasts assumes the economy, and demand for electricity, would improve over the course of the year. Klappa said even if the second quarter trends continued into the second half of the year, the costs the company would need to offset would stay under $100 million.

“My sense is that if in the region we can get the economy restarted by June that things will evolve in fits and starts,” he said. “I think the real question for everybody is how confident will the consumer be in going back to their semi-normal buying patterns.”

Klappa, who is also co-chair of regional economic development organization Milwaukee 7, expressed confidence that major economic development projects would move forward but said the potential for electric demand to ultimately return depends on consumers.

“I really believe that we’re going to see a reshaping of the supply chains with much more productivity and much more production coming into the U.S.,” he said, adding that the country cannot be dependent on Chinese suppliers and Wisconsin is well positioned to attract new production.

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.

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