WEC Energy Group (WEC) 2025 Earnings Quality Report

Grade: F — Four Red Flags, All Structural for a Regulated Utility in a CapEx Supercycle

Framework: Tang Chao screening + Schilit *Financial Shenanigans* + Beneish M-Score

Data: SEC EDGAR 10-K (filed February 20, 2026) + Yahoo Finance

Auditor: Deloitte & Touche LLP (Milwaukee, Wisconsin) — Unqualified opinion

One-line verdict: WEC Energy triggers four red flags (AR outpacing revenue two years, negative FCF three years, $28M cash against $22.3B debt, negative FCF after acquisitions) and two watch items. This is the highest flag count among utilities reviewed, but every flag traces to the same structural cause: WEC is in the most aggressive investment cycle among Midwest utilities, with CapEx surging 58% YoY. The 10-K discloses a regulatory settlement requiring WEC to refund $75 million to customers and record a $205 million charge. CFFO/NI of 2.17x confirms earnings are cash-backed. The F-Score probability of 0.18% shows negligible manipulation risk. The genuine risk is whether Wisconsin regulators will continue supporting WEC's capital program given the $205M charge and the "uncertainty regarding the projected demand from data centers."

Auditor Opinion and Critical Audit Matter

Deloitte & Touche LLP (Milwaukee, Wisconsin) issued an unqualified opinion on February 20, 2026.

Critical Audit Matter: Regulatory Assets and Liabilities — Impact of Rate Regulation on Financial Statements. Deloitte flagged the judgment required in determining whether deferred costs will be recovered through future rates. WEC's regulated utilities are subject to regulation by "various state and federal regulatory bodies (collectively the Commissions) which have jurisdiction with respect to the rates of electric and gas utility companies in each respective state."

This CAM takes on concrete significance given WEC recorded a $205 million charge resulting from a regulatory agreement.

Profitability

From the Consolidated Statements of Income (in millions):

Revenue grew 14.0% to $9.80B. The 10-K provides a segment breakdown: Wisconsin $7.30B, Illinois $1.72B, Other States $530M, Electric Transmission $770M, with eliminations. Net cash from higher overall collections from customers drove a $338.7 million increase in operating cash flow.

Net income grew modestly 2.0% to $1.56B despite 14% revenue growth. The growth compression reflects the $205 million regulatory charge. The 10-K discloses WEC agreed to "refund $75.0 million to customers as bill credits over a three year period between 2026 and 2028" and that "as a result of this agreement, we recorded a $205.0 million charge."

Gross margin declined 1.8pp to 42.2% from 44.0%, reflecting higher fuel and purchased power costs growing faster than rate-adjusted revenues.

Cash Flow

CFFO grew 5.2% to $3.38B. The 10-K attributes the increase to "a $338.7 million increase in cash from higher overall collections from customers."

FCF turned sharply negative at -$1.02B after being positive in 2023 and 2024. The swing was driven by CapEx surging 58% from $2.78B to $4.40B. The 10-K discloses the "acquisition of a 90% ownership interest in Hardin III in February 2025 for $406.1 million" as a specific capital allocation that contributed to the negative FCF.

Balance Sheet

WEC essentially operates with zero cash — $28M is a rounding error on a $22.3B debt base. The company's parent entity condensed financial statements show "Cash and cash equivalents at end of year $0.1" million. This confirms total dependence on credit facilities and commercial paper for liquidity.

Goodwill of $3.05B represents 22% of equity — manageable but not trivial. The 10-K states WEC "completed our annual goodwill impairment tests for all of our reporting units that carried a goodwill balance as of July 1, 2025. No impairments were recorded."

The 18-Point Screening

A. Revenue Quality

A2 — AR outpacing revenue for two years at a regulated utility is unusual. DSO at 77 days is also high for a utility (PNW is 40, SO is 28). This could reflect seasonal billing timing, unbilled revenue accruals, or the impact of higher rates on customer payment patterns. Wisconsin utilities may have longer collection cycles due to heating season billing. The watch item warrants monitoring but is unlikely to indicate manipulation given the regulatory rate structure.

B. Expense Quality

B2 — CapEx growing 4x the rate of revenue is the most aggressive ratio among all utilities reviewed. The Hardin III acquisition ($406M) accounts for part of this, but organic CapEx also increased substantially. WEC's capital plan covers investments in renewable generation, grid modernization, and infrastructure to serve potential data center load.

C. Cash Flow Quality

D. Balance Sheet

E. Acquisition Risk

F. Manipulation Detection

Key Risks from the 10-K

1. The $205 Million Regulatory Charge

The 10-K discloses a regulatory agreement requiring WEC to "refund $75.0 million to customers as bill credits over a three year period between 2026 and 2028" and resulting in a $205 million charge. When regulators require refunds, it signals that prior rates were set too high or that costs were not prudently incurred. This is a concrete example of regulatory risk materializing.

2. Data Center Demand Uncertainty

The 10-K explicitly lists "data centers and other large customers and uncertainty regarding the projected demand from these customers" as a risk factor. WEC is investing heavily in infrastructure but acknowledges that demand could disappoint: "continued adoption of distributed generation by customers or co-location of generation near data centers" could reduce the utility's role.

3. CapEx Surge to $4.4B

The 58% increase in capital expenditures is the largest among all utilities reviewed. Beyond the Hardin III acquisition, organic CapEx is growing rapidly. The 10-K warns that "our ability to fund our capital investment, is dependent upon our ability to access the capital markets, including the banking and commercial paper markets, on competitive terms and rates."

4. High DSO (77 Days)

WEC's 77-day DSO is roughly double the utility average. This suggests either structural collection timing issues or growing unbilled revenue. While not a manipulation signal in a regulated context, it does tie up working capital and could indicate customer payment stress from rising utility bills.

5. Tariff and Trade Policy Impact

The 10-K warns about "the impact of federal, state and local legislative and regulatory actions" including tariffs on equipment and materials needed for the construction program. Rising equipment costs could inflate CapEx further.

Summary

Grade: F. Structural with one genuine concern — the $205M regulatory charge.

WEC Energy's FY2025 10-K shows a Midwest utility in maximum investment mode: 58% CapEx growth, a $406M acquisition, and aggressive infrastructure buildout for potential data center load. The four red flags are all structural for a regulated utility executing a capital plan, and the financial quality metrics are clean (CFFO/NI 2.17x, accruals ratio -3.5%, F-Score probability 0.18%).

The $205M regulatory charge is the genuinely noteworthy finding — regulators are pushing back, requiring customer refunds and recording charges that compressed net income growth to 2% despite 14% revenue growth. Combined with the unusually high DSO of 77 days and data center demand uncertainty, WEC faces real execution risk on its capital program. The accounting is clean, but the regulatory and business environment is getting tighter.

**Disclaimer**: This report applies a forensic screening framework to public financial data. This is NOT investment advice.

Sources: WEC Energy Group, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed February 20, 2026 (SEC EDGAR). Financial data cross-referenced with Yahoo Finance.