WEC Energy Group, Inc. (WEC) Q2 2026 Earnings Report, Transcript and Summary

Good afternoon, and welcome to WEC Energy Group's Conference Call for Second Quarter 2026 results. This call is being recorded for rebroadcast In conjunction with this call, a package of detailed financial information is posted at wecenergygroup.com. A replay will be available approximately 2 hours after the conclusion of this call. . Before the conference call begins, please note that all statements in the presentation, other than historical facts, are forward-looking statements that involve risks and uncertainties that are subject to change at any time. Such statements are based on management's expectations at the time they are made. In addition to the assumptions and other factors referred to in connection with the statements, factors described in WEC Energy Group's latest Form 10-K and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated. During the discussions, referenced earnings per share will be based on diluted earnings per share unless otherwise noted. And now it's my pleasure to introduce Scott Lauber, President and Chief Executive Officer of WEC Energy Group.

Good afternoon, everyone. And thank you for joining us today as we review our results for the second quarter of 2026. Here with me are Shaw Liu, our Chief Financial Officer; and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations. As you saw from our news release this morning, we reported second quarter 2026 earnings of $0.91 a share. Our results reflect our continued focus on execution, financial discipline and operating efficiency. We're on track to deliver results in line with our 2026 earnings guidance of $5.51 to $5.61 a share. This, of course, assumes normal weather for the remainder of the year. In a few minutes, Xia will walk through our financial results and outlook in more detail. But first, let me highlight the strong economic growth in our region that serves as a foundation of our robust capital plan. Construction continues at the Microsoft site in Pleasant Prairie. And the first data center facility is fully operational. As a reminder, Microsoft has purchased more than 2,200 acres to date in that I-94 corridor south of Milwaukee. We are preparing to serve a forecasted demand increase of 2.6 gigawatts in this region through 2030 and an opportunity for further expansion. And to the north of Milwaukee, you'll recall that Vantage Data Centers is developing facilities for Oracle on approximately 1,900 acres. Construction continues on the initial phase of its data center project which is being built on 670 acres. Vantage has stated that it expects to invest $15 billion to complete this phase in 2028. Significant construction progress has been made with structural framework complete on multiple buildings. The first facility could come online as soon as late 2027. We currently have 1.3 gigawatts of demand for this Vantage site in our forecast over the next 5 years. Looking to the future, this site has the potential to reach 3.5 gigawatts of demand over time. And there's other notable growth in our state. As a recent example, Rehlko, formerly known as Kohler Energy has announced plans to expand its production operations in Kenosha. The new facility is expected to complete in 2027 to produce backup generators for data centers. In addition, Waukegan Steel, a steel fabricating company is looking to move its headquarters from Illinois to Pleasant Prairie. Harley Davidson has also announced plans to bring some motorcycle production operations back from overseas to Wisconsin facilities. Wisconsin continues to be an attractive location for a variety of businesses. We are committed to meeting the growing demand across our service area as we invest in our systems for increased reliability and capacity. Our 5-year capital plan includes $37.5 billion of projected investments. It's based on projects that are low risk and highly executable with a good portion serving our very large customers. In total, by the end of 2030, we expect approximately 15% of our asset base to be dedicated to these very large customers. As you recall, we project long-term earnings per share growth of 7% to 8% a year on a compound annual basis between 2026 and 2030. This is based on the midpoint of our 2025 adjusted guidance. We expect that growth rate to accelerate to the upper half of the range starting in 2028. And as a reminder, on our major capital projects, construction continues on the new natural gas generation facilities in Paris and Old Creek, Wisconsin. We expect these facilities to start coming online in late 2027. Overall, we have a high level of confidence in our ability to execute on our capital plan and continue our growth trajectory. We are in the process of updating our next capital plan, and we look forward to sharing the details with you on our third quarter call. Now turning to the regulatory front. In May, the Public Service Commission provided the written order for our very large customer tariff or VLC. Under the tariff, the VLCs paid their full share of the cost. This is important to us, to the commission and to our customers, including the data center companies we are working with. I'm sure many of you are aware of the credit support required for Oracle for the Port Washington project. Oracle has stated it remains committed to the project, paying its full share of energy and providing the financial support needed, so there's no risk to other Wisconsin customers. We are actively working with Oracle to update the financial security in line with the PSCW requirements. We believe our VLC tariff provides a strong framework for data center growth in the region. For our non-VLC customers, progress continues on the rate request we filed in April for forward-looking test years 2027 and 2028. Our proposed plan would help us continue to strengthen key infrastructure and deliver the energy our customers depend on while remaining focused on affordability. Staff and intervener testimony is due in mid-August. We expect final orders from the commission by the end of the year with new rates effective in January '27 and 2028. Turning to Illinois. In May, the Illinois Commerce Commission unanimously approved the Rider QIP and bad debt writer settlements. The settlements resolve all issues relating to 12 open dockets. We also continue to make progress on the rate request for our Illinois utilities. A key driver for the Peoples Gas is to support the pipe retirement program in Chicago. We expect the decision by the end of the year for test year 2027. In summary, we're excited about the strong economic development in our region. We're focused on execution of our capital plan, designed to support thousands of jobs and strengthen our local economy. Next, I'll turn it over to Xia.

Thank you, Scott. Our second quarter 2026 earnings of $0.91 per share reflects a $0.15 increase compared to the second quarter of 2025. Our earnings package includes a comparison of second quarter results on Page 15. I'll walk through the significant drivers. Starting with our utility operations, earnings were $0.06 higher versus the second quarter of 2025. Weather negatively impacted quarter-over-quarter earnings by approximately $0.05. Compared to normal conditions, we estimate that weather had a $0.03 negative impact in the second quarter of 2026 compared to a $0.02 positive impact in the second quarter of 2025. Grid-based growth contributed $0.13 to earnings. This includes $0.09 of incremental AFUDC equity and $0.02 of incremental cash returns associated with projects under construction, mostly from projects supporting the VLC customers. In addition, sales growth, tax and other items contributed a total of $0.06 to earnings. These positive drivers were partially offset by $0.05 from higher depreciation and amortization expense and $0.03 from higher day-to-day O&M. Next, let me provide some additional color on our weather-normal retail electric deliveries. Compared to Q2 last year, total weather normal retail electric sales grew 4.2% this quarter, driven by growth from the VLCs. Excluding the iron ore mine and the VLC customers, we saw sales grow 1.2% driven by higher volumes across all customer classes. Although results came in slightly ahead of our forecast, we expect full year 2026 whether-normalized electric sales, excluding the iron ore mine and VLC customers to be relatively even with 2025. At American Transmission Company, significant capital investment growth contributed an incremental $0.03 to Q2 earnings compared to 2025. Turning to our Energy Infrastructure segment. Earnings were $0.11 higher in the second quarter of '26 compared to the same period in 2025. Remember, in Q2 last year, we recognized a loss related to an asset impairment due to storm damages. This Q2 we received an insurance payment from some storm damages that occurred before. These 2 items account for a net $0.04 in total. The rest of the positive variance was largely driven by O&M timing, PTCs and other items. Next, you'll see that earnings from the Corporate and Other segment decreased $0.03, driven by tax timing and higher interest expense. In terms of common equity, we locked in about $760 million in the first half of this year. This includes about $40 million issued under our employee benefit plan and $720 million via the ATM program under forward contracts that we will settle in the future. In total, we expect to issue about $1.1 billion of common equity this year. Going forward, as a reminder, any incremental capital beyond the current plan is expected to be funded with 50% equity content. Finally, let me comment on guidance. As Scott mentioned earlier, we are reaffirming our 2026 earnings guidance of $5.51 to $5.61 per share, assuming normal weather for the rest of the year. For the third quarter, we are expecting a range of $0.92 to $0.98 per share. This accounts for July weather and assumes normal weather for the rest of the quarter. We look forward to updating you in the fall as we refresh our capital and financing plans. With that, I'll turn it back to Scott.

Thank you, Xia. Now as you may recall, our Board at its January meeting increased the dividend by 6.7%. This marks the 23rd consecutive year that our shareholders will be reported with higher dividends. The increase is consistent with our plan to grow the dividend at a rate of 6.5% to 7%. We're optimistic about continued growth in our region and our company's future. Operator, we are now ready with the question-and-answer portion of the call. .

Your first question comes from the line of Shar Pourreza with Wells Fargo. .

Scott, let me just know it's on everyone's mind, just on the Port Washington project. Obviously, there's a lawsuit out there, and you guys seem like you're assisting them with sort of the collateral payment issue. But I guess any risk to the current site time line and even potential expansion opportunities? And couldn't just the site be redeployed to another hyperscaler the current customer not be able to fulfill its obligation maybe with stronger credit. Yes, just maybe

Sure, sure. A little color on that. Well, we are working with the customer Oracle. And as we said in our prepared remarks, they're working to provide the credit support that we have in the new tariff -- in the updated tariffs. So they're working to get that, and I have confidence in that. That site construction is continuing going. They are moving along. It's on time, it's on budget. They're moving forward and talking about continuing on their time line. So no questions on that in my mind. You are correct. I mean I think if you go to a worst-case scenario that for some reason, they decided not to expand. I think there's a lot of opportunities for that site for anyone else. But at this point, I've no indication that that's the case. And as long as they have the credit support with us and provide all those financial requirements, I feel good with the continued expansion.

Okay. That's good. I appreciate that. And then just lastly, Scott, we're obviously approaching Q3. Maybe this will be the final time we're going to be asking on Point Beach. Is it fair to assume you're going to be filing a generation plan in lieu of the PPAs later this year?

Shar, I mean, we're finalizing everything on our third quarter call. And just to remind everyone, the first 500 megawatts comes due in that PPA in December of 2030, the next 500 megawatts is in March 2033. And just as a rule of thumb about a gigawatt is about $2 billion to $2.5 billion. So half of that for the 500 megawatts. As we said in the prior call, never say never. Things could always change. But capital is an option for this as we get to the fall, but we'll finalize on our third quarter call because we have to get orders out, et cetera.

Your next question comes from the line of Julien Dumoulin-Smith with Jefferies.

Look forward for that 3Q update. Let me ask you this. I mean, how are the discussions going vis-a-vis potentially other counterparties here? Just Obviously, we've seen success build upon success, especially geographically in regions like your own. How are you thinking about potentially a third or other hyperscalers or other data center parties following the lead here and enhancing negotiations -- advancing negotiations with you. Can you give us any latest flavor as to where things stand?

Sure, sure. And we continue to have really good discussions with potential new very large customers. I would have to say these customers are probably not as large as what we're seeing in our first 2, more in that 400 to 500-megawatt size, but we're having really good discussions, more to come on that. But like you said, they kind of grow in the region, they grow. And I think our very large customer tariff has that transparency, has the complete openness that we're charging them their fair share. So I think it's a really good step forward to have that be approved by the commission now.

Yes, absolutely. And then what is the status of the VLC tariff? And what do the PCA contracts cover? Just to kind of talk a little bit about some of the nuance of this vis-a-vis Oracle and Vantage here. And then also maybe just related to subpiece on that is following the PRC decision not to rehear the IG collateral requirements under the VLC. Are there any other next steps there? Or is that basically put to bed and is that final?

Sure. That's a great question. So if you look at the Vantage Oracle site, currently, they're under the payment calculation agreements for them. So that kicks in. So we have the credit support very similar to the tariffs. Now that are in line with the tariffs. So the credit support as we spend that we don't spend without that credit support. And then it falls into the service agreements under the very large customer tariff. . In Oracle's case, it's right now, that site is being built by Vantage. We have the purchase cancellation or payment cancellation agreements with Oracle and getting that credit support. And then June 1 of next year, they'll enter into those service agreements for the site. So it's just a matter of timing because the site actually doesn't really get up until the end of '27. So that's why it's just the timing. Construction is going on right now. And the very large customer tariff, the rehearing, we asked for a reconsideration or rehearing, it didn't get picked up, our tariffs are as they stand today with that credit requirement of an A-, there is a case that's currently in 1 of the courts that Oracle brought. I think they're just trying to think about going forward where their credit need would be, and we'll see where that case goes regardless, a BBB- in what we filed in the rehearing request, what we actually asked for in the tariff, the original filing would require a credit support. So they're in the same position with the current rating of BBB-. So I don't think they're taken by surprise of that at all because we already had that as a provision in our filing. So this is more of getting back to that BBB or whatever as they work through their credit, how do they think about the future more long term, I think.

Your next question comes from the line of Nick Campanella with Barclays.

Thanks for all the updates. I just wanted to ask maybe coming back on the VLC but in a different manner. My understanding is the ATC line to serve the Vantage opportunity is going through the discovery phase at the commission. And I'm just wondering if you could provide an update on where that's trending? And is that in the formal capital plan today? Or as we look towards the third quarter refresh, how can we think about ATC's capital opportunity changing?

Sure. And this current line is in our forecast in the current ATC plan. That is proceeding at the commission. You've maybe seen some back and forth. As you can imagine, this site is, I think, is a very accelerated basis. If you go by the site and we've talked about how that construction is progressing. There's been some updates to the filing. So there's been a little noise on updating stuff to make sure the commission has all the latest and greatest information. That line and our last schedule looks like it should be decided by the end of the year to get approval to move forward with that construction. So that's right now on task, I think the staff just provided some testimony the other day and now some testimony. I think from American Transmission Company and others is due by the August 7. So that's proceeding. If you think about transmission, this line, not in particular, because I think the majority of it is in this forecast. But when you think about other transmission projects, I think that's an opportunity as we look at our third quarter as maybe a little more growth in the transmission area.

Great. And then with all the kind of focus on Vantage and Oracle and the potential expansion down the road, maybe can you provide an update on how you're thinking about Microsoft? And anything you'd be willing to share there? .

Sure. Sure. And Microsoft's been continuing to proceed. Their first units online, the first data center's online. Things are moving ahead at the site That's been progressing. Every year, we've had an updated plan. There's always progression on the megawatts a little bit. Remember, we'll add another year to the plan. So I anticipate something a little bit more as we get to the third quarter, and we're working with them right now on what that number will be. So continued progression. The site is developing really well. The data centers are up and running and electricity is flowing and all the substations are moving actually ahead of schedule. So it's all -- everything has been really positive direction down there.

Your next question comes from the line of Andrew Weisel with Scotiabank.

Okay. So you've talked in the past about having maybe 3 or 4 potential additional data center customers. Obviously, nothing to announce today. I'm not going to push you on that, but can you speak to whether those customers would either qualify or for the VLC or how your conversations are going around the implications and potential collateral obligations. Are these issues with Oracle causing any slowdown or any concerns among these customers?

Sure, sure. Just to get everyone expectations, we're talking with a variety of customers. I would really looking at just kind of do it one at a time. So I just don't want everyone to think there's 3 or 4 are going to come in any day. so we're working on that. I don't think the collateral will be an issue long term. I think what we had in our very large customer filing was good. In fact, all 3 rating agencies said it was really good. But I think the key is we have true transparency so people know what that collateral need is. And as they look at our tariffs, they look at the sites, they understand the requirements. So I don't think it's going to hurt at all as we look at those new customers.

Okay. Great to hear. Then as you think about serving these data centers, how should we think about future generation capacity additions. You obviously have a lot of new build in the plan, nearly all related to various technologies around gas. You just talked about options to replace the [ nuke ] potentially, but to whatever degree you do get incremental data center contracts, how would we think about how you'd serve those? Would it be mostly or entirely gas? Or how do you think about that?

Sure. And the data centers have signed up, both Oracle and Microsoft has signed up for the all of the above approach with renewables, batteries, and natural gas for that good backup. I think as we think going forward in this next 5-year plan, you may see versus a simple cycle, you may see a combined cycle in our plan just because we may need a little bit more energy than just capacity. So we're going through those analysis right now, our engineering and planning team just to make sure we have the right reliability and cost for all our customers. Does that make sense?

It does, yes. Very helpful. One more, if I may, on the regulatory side. You've actually got the 2 rate cases in Wisconsin and Illinois, both expected to be resolved around year-end if they were to fully litigated orders. How are you thinking about the potential for settlements? Wisconsin, obviously has a good history of deal making, whereas it's a lot less common in Illinois, but you did have the settlement on the rider there. So how are you thinking about opportunities for you, especially given the timing coinciding election season?

Sure. Sure. And when you think about settlement, like you said, in Wisconsin, there's been a history and specifically with the individuals on this commission that there's been settlement like last year in 2 of the cases in the state. So I think there's an opportunity but that opportunity really doesn't happen until we start seeing the staff direct testimony and the intervenor direct testimony around mid-August. I think it's August 10 and August 14. So I'll come after that. We always have discussions and hope there's an opportunity for that. In Illinois, you're exactly right. Having the settlement on those 12 cases, I mean it was great to see and great to see that movement forward. Illinois is a little bit historically haven't had many settlements. So I don't -- I put that as a lower probability, but it doesn't mean that we won't have a discussion, but I just would not handicap that as a high probability just based on history.

Your next question comes from the line of Sophie Karp with KeyBanc.

Yes. So I was just curious if you could discuss the political environment in Wisconsin given the elections. How would you characterize the overall atmosphere in the state? And have you engaged with any of the candidates yet or prospective candidates yet before the primary. Just any color on that could be helpful.

Sure, sure. So just to remind everyone, Wisconsin is a pretty purple state. We know the Republican candidate for the primary is Tom Tiffany that's -- who's slotted there. There's only 1 real candidate out there. And then the democratic candidate, there's about 5 of them out there. They are -- the primary is August 11, and we'll see who comes out of that primary to work against in the general election against Tom Tiffany. When you think about our positions and what we've been fortunate enough to do is that we've been working with both sides of the aisle and been very successful over the last decade -- several decades working on both sides of the aisle to promote a strong economy with a strong, reliable distribution, electric gas distribution system. So I feel good. We continue to work progressively with our governor and the legislature. In the debates, I mean, there's been several items that have come up, talk about inflation, economy, public safety, education and then, of course, infrastructure comes up. It's important for every official, the Governor as they get elected to make sure they understand data centers, make sure that they understand the economy and how that works. I think when you look at our tariffs having very much transparency in our tariffs for the very large customers is going to be very helpful. And all the customers we work with, they are committed to paying their fair share. So I think when you think about the transparency they're paying their fair share, the benefits and property taxes and they see the complete story and through transparency, I think that's going to be helpful as they look about where they govern the state of Wisconsin. We've had some discussion with some of them. I think as we get to the -- as we see who the next people who are running for Governor, we'll probably have more. The key is we work with both sides. It's just a matter of how do we make Wisconsin successful from economic and for all the Presidents of Wisconsin. So more to come, as you can imagine, through the rate over the next couple of months.

your next question comes from the line of Michael Sullivan with Wolfe Research. .

Just following up on that, another on just like the political front. If you could just give us some perspective on potential for data center pushback, whether it be moratoriums at the state level or local site issues. Obviously, you have 2 very good and well-established sites with their existing customers, but just as you think of future new opportunities whether you're seeing that potential pushback?

Sure. Sure. And One of the candidates has identified that they potentially would do a moratorium on data centers. I think right now, everyone is on the campaign trail that we really got to get them understanding the facts. There have been several communities that have brought up moratorium on data centers, but that's -- once again, they all are looking at getting those fact finding. And when you look at like our rate case that we filed and you look at the cost from corporate allocations to more efficiently working with our generation fleet and how you allocate costs, there's about $100 million of savings for our customers over the next 2 years from the value of the data centers. And there's probably more when you factor in grocer receipts tax and state taxes. And then some of the other items that are out there is the narrative about water usage. And when you think about water usage, people are looking at data centers under closed loop systems. And then they talk about generation. But when we look at our generation and you look from 2015 at the time we did the Integrys acquisition to our projections in 2030, our water consumption through generation is down about 25% to 30%, we project it will be. So water, it's not really on the generation side. So we just got to make sure each of these candidates understand the facts and the economic benefits from jobs to property taxes to even cost allocations for customers. So I think there's a lot of positive. We just got to make sure everyone has the facts in front of them.

Okay. Very helpful. And then just on the funding and financing side, I appreciate kind of the guidance of 50% equity for anything incremental. Just as you think about the capital plan continuing to grow, does it still make sense to primarily lean on the ATM for that? And then we had one of your peers earlier this week do something a little strategic with nonutility renewables. I know you're setup is a little bit different, but is that something you would consider as like a way to recycle capital to help on the funding of higher CapEx?

Sure. And I'll let Xia because she's been looking at it and over the next couple of months before we get to the third quarter, we'll be looking at it even more. But xia, your thoughts?

Yes. we are very, very comfortable relying on the ATM program. I think it's very efficient. Last year, we raised $800 million this year. We're on track to accomplish the $1.1 billion. So we feel really good about the capability through the ATM program. Having said that, we are also looking at a variety of things, how do we make sure that the cash side is accumulating faster. You saw that in my prepared remarks, I called out some current returns on projects. So in -- under our tariffs, customers have the option to pay either AFUDC or we call current return basic cash returns. If you switch to more of the cash returns, that would give you more cash that would help us manage the funding needs. So we're thinking through all the angles to try to be efficient. But nothing is off the table right now.

Your next question comes from the line of Richard Sunderland with Truist Securities.

Just turning back to Illinois. I'm curious how work is trending on the pipe program as you've been reramping that. Any recent learnings or takeaways and anything there that's informing the rate proceedings in the backdrop?

Sure, sure. Great question. And you may have seen we updated our filings a little bit reducing our spending in 2026. To be quite honest, things are going really well. We're moving along well. However, the hardest part is trying to get labor force and some of the work that we need. It's just been more challenging, as you could imagine. And from our conference call and other, there's a lot of economic development from data centers to generation to a variety of items that are challenging to get ramping up that workforce. We are working through a variety of methods to bring in talent and do the proper training to get the workforce ramped up, but it's going a little bit slower than we would like in 2026 here, but we anticipate to be able to ramping that up as we move forward in '27. So it's going fine from an execution plan, et cetera, just a little bit hard to get those resources that we need.

Got it. Appreciate the color there. And I'll stick with Illinois, I guess, zooming out to the topic of future of gas that we've talked about a number of ways over the past few years. How do you see that conversation currently standing? And I guess how is that standing amid national and state affordability backdrops as well?

Yes. The future of gas has been kind of moved out over the last couple of years. They're still having sessions, they're still talking about it. I think what we're learning is gas is very valuable. And in the backdrop of the tremendous electricity demand that it probably isn't as much as the pushing of the electrification at one time just because of pure economics and costs along with where do you need the electricity. So they're still having the future of gas. They're still having discussions, but that's getting, I think, by the end of the year, something is supposed to come out on that.

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

Just want to come back, I guess, to some of the earlier points you were discussing and see what's in the capital plan, what will be upside to the capital plan. I just want to confirm when you talk about Point Beach replacement capital. If you're talking about another data center, a third customer there, these are all upside to the capital budget. And if this comes in, would you think of this as kind of like with the EPS CAGR as you see it or presenting upside to the current 5-year range?

So we're pulling those plans together, but you nailed the drivers. The growth in the current data centers, specifically, where do we think that I-94 corridor will go, the growth of a potential of another large customer, the transmission growth -- all of that is all -- and then we talked about the generation potentially for Point Beach. So all that is upside. A lot of that, as you think about it, is in that 2030, 2031 time frame because it will be adding a year on, and it really takes that long from a supply chain. But we're going to -- we'll evaluate everything on the third quarter call, but feel really good about the tools that are coming in as we move forward and we pull that plan together. So I think it's going to be long for sure, and we'll see where the numbers go in the next years. As you know, we're at the high end of our range right now in that '28 time frame. So we'll see if there's anything more in it as we pull it together.

Got it. That's helpful. And just want to shift gears here towards new nuclear, if we could. And obviously, WEC is looking to make sure that shareholders are protected but the federal government is kind of pushing forward the OE loans program, other initiatives as well to support this as far as at least long lead items. Just wondering, is there a scenario where you think that what could participate here? Or just any thoughts on that in general?

Sure, sure. And we have been actively working with DOE as it relates to fossil, some of the loans trying to -- potential loans as it relates to some of our gas generation. So that's -- if you hear our name associated with it, it may be related to some of that fossil stuff. As we've said before and more thinking long term, we have a site called [ Kiwani ] that we kept through the Integrys acquisition that we have options for that land there. Longer, longer term, nuclear may be a potential. But I just want to look forward in the short term here. But we do think longer term, nuclear across the country is a potential option.

Your next question comes from the line of Paul Fremont with Ladenburg.

I guess my first question relates to just understanding the collateral a little bit better with respect to the Oracle contract. Does the collateral essentially track which phase they're going forward with? Did it track to your construction? How should we think about sort of the initial collateral requirement that's required?

Sure, sure. The collateral -- as you think about the collateral through the payment cancellation agreements or as you get to the VLC tariff, the collateral is really based on the assets and the expenditures that we're putting in, it kind of ramps up over time as more and more construction happens just so we don't have a stranded asset or an issue for our other customers or shareholders. So that kind of ramps up. But remember, when that very large customer tariff goes into service, just like the collateral on the spending, it gets to the depreciable value that they have to support. And we look at that as very protective. And I think we have one of the most protective in the country because, remember, they got to sign up for 20 years for wind and solar and the depreciable life for batteries in gas assets, and they need to come up with that net book value to make sure we have collateral in place. So it's very stringent, but very -- also very credit-supportive. Like I said, all the rating agencies thought it was really good what we filed and now even a higher rating is even stronger. So that's how it kind of ramp up over time.

So just to clarify that -- if they were to move forward into a Phase 2 that we should assume that, that would require a step-up in the level of collateral. Is that sort of a logical way to look at it?

Correct. As long as their credit rating would be where it's at.

Right. And then what if they're downgraded further by Moody's or S&P, how much additional collateral would that involve since they're sort of on the border here between investment grant, subinvestment grant?

Yes, it's an interesting question. However, we're getting all the collateral we need at this level. So if it goes down, we already have all the collateral we need for the full amount.

Paul, we require in the original filing as well as the PCA that as long as their BBB- or worse, they would need to post collateral. So we kind of already kicked that in before they go any further down. So I think from that protection perspective, all the -- like Scott said, all the rating agencies recognize this, you're not requiring them to kick in collateral when they become junk. So we are actually one layer better protected. So there's no more we would need to protect the entire book value on the books.

Great. Where does their legal challenge currently stand? I mean, they've just filed it. Should we assume that this will take like years to play out in the courts? Or what would be the sort of a normal expectation?

So it would take some time, and I don't know how long it would take. It would take a while. However, even what we refiled for in our reconsideration had the requirements that they're needed to post at a BBB-. So I think they're really looking at longer term. So if it takes several months or 6 months or so to get out and maybe ask for reconsideration, it still doesn't change anything at this moment. But I think you're looking at the future.

And then I think on the first quarter call, you talked about potentially having another announcement by the end of the year. Are you feeling sort of comfortable with that still?

Yes, we're still having really good discussions with potential other large customers that would fall under the tariff that are probably not as big as the current 2 customers we have, but more in that 400 to 500-megawatt size. So we're having some discussions and I feel good about it, but more to come, hopefully.

And maybe last question for me. Sort of a lot of turmoil on the Democrat side in terms of running for Governor, with Rodriguez sort of exiting. I guess the most recent polls had the Democrat social sort of ahead, is that who would be sort of the other ones that would be close to [ Hong ] in terms of the primary?

So there's 5 right now in the primary. You have Hong, you have Mandela Barnes, You have an individual who's a previous Lieutenant Governor. You have Joe Brennan, who was a former State Administrative Secretary, Department of Administration. David Crowley is also the Milwaukee County Exec here in Milwaukee and Kelda Roys. So there's 5 of them out there right now. They just had a debate. So it's kind of interesting because a lot of activity has happened in the last couple of weeks and the primary is August 11. So not much happened until all of sudden we're getting into the last month here of the primary. But there are several out there.

Your next question comes from the line of Paul Patterson with Glenrock Associates. And this is our final question.

Just to follow up on all this Oracle stuff. I mean if I understand you correctly, you don't expect -- and tell me if I'm wrong, you don't expect this lawsuit and its outcome, assuming, let's say, that Oracle loses as having a significant impact on the project going forward. Is that -- am I boiling it down to its essence there? Or am I misunderstanding it?

You nailed it. You nailed it. This current project, where we've talked to them several times, the construction is moving extremely well. Things are getting done. So I don't think anything in this particular project is tied to that at all.

Okay. So that's very helpful. And then just to clean up here, and I apologize if I missed it. But on the waterfall chart on Slide 15, the WECI, the infrastructure, could you just give a little bit more color on the moving parts here? I think I understand the absence of the 2025 impairments. But could you give us a little more flavor about the insurance recovery on '26 and the O&M timing issue and how that might work out going forward?

Sure. Happy to. So as I called out, the impairment, the lack of impairment in the quarter this year and the fact that we received the insurance payment this year. So that accounts for a net of $0.04 out of the 11. We have $0.01 that's PTC, additional PTC. The rest of them are a combination of O&M timing, and there's a little bit of capacity payment from the market. We sold 2, generation was a little bit better. So it's a variety of things added to the remaining $0.06. But I want to understand the big piece of that.

So when will that come -- will that timing come -- will that be coming back.

Yes. Hopefully, some of the favorability will stay, but we expect in the fourth quarter, some of them will go back.

Okay. And then just the insurance recovery from the -- as a part of the $0.04 is, how much of that was this quarter's insurance recovery? I apologize for being slow on that.

$0.02, $0.02 was insurance payments.

All right. Thank you. well, that concludes our conference call for today. Thank you for participating. If you have more questions, feel free to contact Beth Straka at (414) 221-4639. Thank you, everyone.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.