WEC Energy : Fourth Quarter 2023 MGU

MICHIGAN GAS UTILITIES CORPORATION

FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2023

MICHIGAN GAS UTILITIES CORPORATION

FINANCIAL STATEMENTS

For the Year Ended December 31, 2023

TABLE OF CONTENTS

FINANCIAL STATEMENTS AND NOTES	Page
A.	Independent Auditor's Report	1
B.	Income Statements	3
C.	Balance Sheets	4
D.	Statements of Cash Flows	5
E.	Statements of Equity	6
F.	Notes to Financial Statements	7

Note 1	Summary of Significant Accounting Policies	Page
7
Note 2	Related Parties	12
Note 3	Operating Revenues	13
Note 4	Credit Losses	13
Note 5	Regulatory Assets and Liabilities	14
Note 6	Property, Plant, and Equipment	15
Note 7	Asset Retirement Obligations	15
Note 8	Goodwill and Intangible Asset	15
Note 9	Short-Term Debt to Parent	16
Note 10	Long-Term Debt	16
Note 11	Income Taxes	17
Note 12	Fair Value Measurements	18
Note 13	Derivative Instruments	19
Note 14	Employee Benefits	19
Note 15	Commitments and Contingencies	23
Note 16	Supplemental Cash Flow Information	25
Note 17	Regulatory Environment	25
Note 18	Other Income, Net	26
Note 19	New Accounting Pronouncements	26

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Michigan Gas Utilities Corporation

GLOSSARY OF TERMS AND ABBREVIATIONS

The abbreviations and terms set forth below are used throughout this report and have the meanings assigned to them below:

Subsidiaries and Affiliates
Integrys			Integrys Holding, Inc.
WBS			WEC Business Services LLC
WE			Wisconsin Electric Power Company
WEC Energy Group			WEC Energy Group, Inc.
WPS			Wisconsin Public Service Corporation
Federal and State Regulatory Agencies
Army Corps			United States Army Corps of Engineers
EPA			United States Environmental Protection Agency
FERC			Federal Energy Regulatory Commission
IRS			United States Internal Revenue Service
MPSC			Michigan Public Service Commission
Accounting Terms
ARO			Asset Retirement Obligation
GAAP			Generally Accepted Accounting Principles
OPEB			Other Postretirement Employee Benefits
Environmental Terms
GHG			Greenhouse Gas
WOTUS			Waters of the United States
Measurements
Dth			Dekatherm
Other Terms and Abbreviations
AIA			Affiliated Interest Agreement
COVID-19			Coronavirus Disease - 2019
ITC			Investment Tax Credit
MCP			Marshall to Coldwater Pipeline
MRP			Main Replacement Program
Omnibus Stock Incentive Plan			WEC Energy Group Omnibus Stock Incentive Plan, Amended and Restated, Effective as of
			May 6, 2021
ROE			Return on Equity
Supreme Court			United States Supreme Court

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Michigan Gas Utilities Corporation

FINANCIAL STATEMENTS AND NOTES

A. INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Shareholder of Michigan Gas Utilities Corporation:

Opinion

We have audited the financial statements of Michigan Gas Utilities Corporation (the "Company"), which comprise the balance sheets as of December 31, 2023 and 2022, and the related statements of income, equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes to the financial statements (collectively referred to as the "financial statements").

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for one year after the date that the financial statements are available to be issued.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, we:

• Exercise professional judgment and maintain professional skepticism throughout the audit.
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

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Michigan Gas Utilities Corporation

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

/s/ DELOITTE & TOUCHE LLP

Milwaukee, Wisconsin

March 22, 2024

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Michigan Gas Utilities Corporation

MICHIGAN GAS UTILITIES CORPORATION

B. INCOME STATEMENTS

Year Ended December 31
(in millions)			2023			2022			2021
Operating revenues		$	172.3		$	216.2		$	151.9
Operating expenses
Cost of natural gas sold			83.5			124.8			77.8
Other operation and maintenance			35.2			35.3			32.2
Depreciation and amortization			18.9			18.4			17.2
Property and revenue taxes			7.9			11.6			7.3
Total operating expenses			145.5			190.1			134.5
Operating income			26.8			26.1			17.4
Other income, net			0.4			1.6			0.8
Interest expense			8.2			6.6			0.1
Other income (expense)			(7.8)			(5.0)			0.7
Income before income taxes			19.0			21.1			18.1
Income tax expense			4.0			4.5			3.7
Net income		$	15.0		$	16.6		$	14.4

The accompanying Notes to Financial Statements are an integral part of these financial statements.

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Michigan Gas Utilities Corporation

MICHIGAN GAS UTILITIES CORPORATION

C. BALANCE SHEETS

At December 31
(in millions, except share amounts)			2023			2022
Assets
Current assets
Accounts receivable and unbilled revenues, net of reserves of $2.8			31.7			56.5
Accounts receivable from related parties			2.2			2.3
Materials, supplies, and inventories:
Natural gas in storage			24.2			31.7
Materials and supplies			1.8			1.7
Deferred property taxes			8.9			8.3
Prepayments			1.8			0.7
Amounts recoverable from customers			3.2			10.8
Other			2.0			4.3
Current assets			75.8			116.3
Long-term assets
Property, plant, and equipment, net of accumulated depreciation and amortization of $210.4 and
$212.3, respectively			447.2			415.1
Regulatory assets			39.3			41.9
Goodwill			34.5			34.5
Pension and OPEB assets			20.7			21.3
Other			6.5			6.7
Long-term assets			548.2			519.5
Total assets		$	624.0		$	635.8
Liabilities and Equity
Current liabilities
Short-term debt to parent	$	33.3	$	56.0
Accounts payable			22.6			35.0
Accounts payable to related parties			4.5			4.6
Accrued taxes			9.2			9.4
Customer credit balances			13.1			7.8
Other			5.8			6.4
Current liabilities			88.5			119.2
Long-term liabilities
Long-term debt			149.5			149.3
Deferred income taxes			69.9			68.8
Regulatory liabilities			79.8			74.5
Environmental remediation liabilities			14.2			14.6
Other			2.9			3.2
Long-term liabilities			316.3			310.4
Commitments and contingencies (Note 15)
Common shareholder's equity
Common stock - without par value, 100 shares authorized; 100 shares issued and outstanding			181.7			166.7
Retained earnings			37.5			39.5
Common shareholder's equity			219.2			206.2
Total liabilities and equity		$	624.0		$	635.8

The accompanying Notes to Financial Statements are an integral part of these financial statements.

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Michigan Gas Utilities Corporation

MICHIGAN GAS UTILITIES CORPORATION

D. STATEMENTS OF CASH FLOWS

Year Ended December 31
(in millions)			2023			2022			2021
Operating activities
Net income	$	15.0	$	16.6	$	14.4
Reconciliation to cash provided by operating activities
Depreciation and amortization			18.9			18.4			17.2
Deferred income taxes and ITCs, net			(0.2)			4.1			6.4
Change in -
Accounts receivable and unbilled revenues, net			24.9			(26.2)			(2.8)
Materials, supplies, and inventories			7.4			(14.3)			(6.9)
Prepaid taxes			(1.1)			-			6.6
Amounts recoverable from customers			7.6			1.0			(10.8)
Other current assets			0.1			(2.8)			(0.7)
Accounts payable			(13.9)			7.4			10.6
Customer credit balances			5.3			1.8			(1.5)
Other current liabilities			(0.4)			0.1			2.4
Other, net			5.6			(0.9)			(4.0)
Net cash provided by operating activities			69.2			5.2			30.9
Investing activities
Capital expenditures			(44.4)			(46.8)			(37.0)
Other, net			(0.1)			(0.2)			(1.3)
Net cash used in investing activities			(44.5)			(47.0)			(38.3)
Financing activities
Short-term debt to parent, net			(22.7)			37.2			1.7
Payment of dividends to parent			(17.0)			-			-
Equity contribution from parent			15.0			4.0			6.0
Net cash provided by (used in) financing activities			(24.7)			41.2			7.7
Net change in cash and cash equivalents			-			(0.6)			0.3
Cash and cash equivalents at beginning of year			-			0.6			0.3
Cash and cash equivalents at end of year		$	-		$	-		$	0.6

The accompanying Notes to Financial Statements are an integral part of these financial statements.

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Michigan Gas Utilities Corporation

MICHIGAN GAS UTILITIES CORPORATION

E. STATEMENTS OF EQUITY

									Total Common
									Shareholder's
(in millions)			Common Stock		Retained Earnings			Equity
Balance at December 31, 2020		$	156.6		$	8.5		$	165.1
Net income			-			14.4			14.4
Equity contribution from parent			6.0			-			6.0
Balance at December 31, 2021		$	162.6		$	22.9		$	185.5
Net income			-			16.6			16.6
Equity contribution from parent			4.0			-			4.0
Stock-based compensation and other			0.1			-			0.1
Balance at December 31, 2022		$	166.7		$	39.5		$	206.2
Net income			-			15.0			15.0
Equity contribution from parent			15.0			-			15.0
Payment of dividends to parent			-			(17.0)			(17.0)
Balance at December 31, 2023		$	181.7		$	37.5		$	219.2

The accompanying Notes to Financial Statements are an integral part of these financial statements.

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Michigan Gas Utilities Corporation

MICHIGAN GAS UTILITIES CORPORATION

F. NOTES TO FINANCIAL STATEMENTS

December 31, 2023

NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Nature of Operations-As used in these notes, the term "financial statements" includes the income statements, balance sheets, statements of cash flows, and statements of equity, unless otherwise noted. In this report, when we refer to "us," "we," "our," or "ours," we are referring to Michigan Gas Utilities Corporation.

We are a natural gas utility company that distributes, sells, and transports natural gas to customers in southern and western Michigan. We are subject to the jurisdiction of, and regulation by, the MPSC, which has general supervisory and regulatory powers over public utilities in Michigan. In addition, we are subject to the standards of conduct and affiliate rules of the FERC. We are a wholly owned subsidiary of Integrys, which is wholly owned by WEC Energy Group.

1. Basis of Presentation-We prepare our financial statements in conformity with GAAP. We make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.
2. Cash and Cash Equivalents-Cash and cash equivalents include marketable debt securities with an original maturity of three months or less.
3. Operating Revenues-The following discussion includes our significant accounting policies related to operating revenues. For additional required disclosures on disaggregation of operating revenues, see Note 3, Operating Revenues.

Revenues from Contracts with Customers

Natural Gas Utility Operating Revenues

We recognize natural gas utility operating revenues under requirements contracts with residential, commercial and industrial, and transportation customers served under our tariffs. Tariffs provide our customers with the standard terms and conditions, including rates, related to the services offered. Requirements contracts provide for the delivery of as much natural gas as the customer needs. These requirements contracts represent discrete deliveries of natural gas and constitute a single performance obligation satisfied over time. Our performance obligation is both created and satisfied with the transfer of control of natural gas upon delivery to the customer. For most of our customers, natural gas is delivered and consumed by the customer simultaneously. A performance obligation can be bundled to consist of both the sale and the delivery of the natural gas commodity. Our customers can purchase the commodity from a third party. In this case, the performance obligation only includes the delivery of the natural gas to the customer.

The transaction price of the performance obligations for our natural gas customers is valued using the rates, charges, terms, and conditions of service included in our tariffs, which have been approved by the MPSC. These rates often have a fixed component customer charge and a usage-based variable component charge. We recognize revenue for the fixed component customer charge monthly using a time-based output method. We recognize revenue for the usage-based variable component charge using an output method based on natural gas delivered each month.

Our tariffs include various rate mechanisms that allow us to recover or refund changes in prudently incurred costs from rate case- approved amounts. Our rates include a one-for-one recovery mechanism for natural gas commodity costs. Under normal circumstances, we defer any difference between actual natural gas costs incurred and costs recovered through rates as a current asset or liability. The deferred balance is returned to or recovered from customers at intervals throughout the year.

In addition, through the end of 2023, our rates included a rider to recover costs incurred to replace or modify certain natural gas facilities. See Note 17, Regulatory Environment, for more information on the MRP rider.

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Michigan Gas Utilities Corporation