WEC
MINNESOTA ENERGY RESOURCES CORPORATION
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
MINNESOTA ENERGY RESOURCES 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
14
Note 5
Regulatory Assets and Liabilities
14
Note 6
Property, Plant, and Equipment
15
Note 7
Goodwill
16
Note 8
Short-Term Debt to Parent
16
Note 9
Long-Term Debt
16
Note 10
Income Taxes
17
Note 11
Fair Value Measurements
18
Note 12
Derivative Instruments
19
Note 13
Employee Benefits
19
Note 14
Commitments and Contingencies
23
Note 15
Supplemental Cash Flow Information
25
Note 16
Regulatory Environment
25
Note 17
New Accounting Pronouncements
27
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Minnesota Energy Resources 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
MPUC
Minnesota Public Utilities Commission
Accounting Terms
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
GCRM
Gas Cost Recovery Mechanism
GUIC
Gas Utility Infrastructure Costs
NGEP
Natural Gas Extension Project
Omnibus Stock Incentive Plan
WEC Energy Group Omnibus Stock Incentive Plan, Amended and Restated, Effective as of
May 6, 2021
Supreme Court
United States Supreme Court
2023 Financial Statements
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Minnesota Energy Resources Corporation
FINANCIAL STATEMENTS AND NOTES
A. INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholder of Minnesota Energy Resources Corporation:
Opinion
We have audited the financial statements of Minnesota Energy Resources 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:
2023 Financial Statements
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Minnesota Energy Resources Corporation
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
2023 Financial Statements
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Minnesota Energy Resources Corporation
MINNESOTA ENERGY RESOURCES CORPORATION
B. INCOME STATEMENTS
Year Ended December 31
(in millions)
2023
2022
2021
Operating revenues
$
348.3
$
400.7
$
367.1
Operating expenses
Cost of sales
195.2
265.3
241.5
Other operation and maintenance
60.3
62.1
58.2
Depreciation and amortization
24.5
22.5
20.9
Property and revenue taxes
16.5
11.7
11.4
Total operating expenses
296.5
361.6
332.0
Operating income
51.8
39.1
35.1
Other income, net
0.3
0.9
0.3
Interest expense
7.7
7.3
6.2
Other expense
(7.4)
(6.4)
(5.9)
Income before income taxes
44.4
32.7
29.2
Income tax expense
12.1
8.9
7.8
Net income
$
32.3
$
23.8
$
21.4
The accompanying Notes to Financial Statements are an integral part of these financial statements.
2023 Financial Statements
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Minnesota Energy Resources Corporation
MINNESOTA ENERGY RESOURCES 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 $3.6 and $3.5, respectively
56.9
101.5
Accounts receivable from related parties
2.4
1.9
Materials, supplies, and inventories:
Natural gas in storage
18.8
35.1
Materials and supplies
0.3
0.3
Prepayments
3.2
3.5
Other
3.9
7.0
Current assets
85.5
149.3
Long-term assets
Property, plant, and equipment, net of accumulated depreciation and amortization of $215.9 and
$201.3, respectively
668.2
626.6
Regulatory assets
25.9
60.3
Goodwill
127.7
127.7
Other
19.3
18.8
Long-term assets
841.1
833.4
Total assets
$
926.6
$
982.7
Liabilities and Equity
Current liabilities
Short-term debt to parent
$
20.2
$
49.5
Accounts payable
33.2
55.6
Accounts payable to related parties
6.0
5.9
Accrued taxes
13.2
16.2
Customer credit balances
22.7
17.0
Amounts refundable to customers
12.7
26.2
Other
18.1
19.0
Current liabilities
126.1
189.4
Long-term liabilities
Long-term debt
209.2
209.0
Deferred income taxes
134.1
136.5
Regulatory liabilities
113.8
97.9
Other
4.7
4.5
Long-term liabilities
461.8
447.9
Commitments and contingencies (Note 14)
Common shareholder's equity
Common stock - without par value, 1,000 shares authorized; 100 shares issued and outstanding
209.1
209.1
Retained earnings
129.6
136.3
Common shareholder's equity
338.7
345.4
Total liabilities and equity
$
926.6
$
982.7
The accompanying Notes to Financial Statements are an integral part of these financial statements.
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Minnesota Energy Resources Corporation
MINNESOTA ENERGY RESOURCES CORPORATION
D. STATEMENTS OF CASH FLOWS
Year Ended December 31
(in millions)
2023
2022
2021
Operating activities
Net income
$
32.3
$
23.8
$
21.4
Reconciliation to cash provided by (used in) operating activities
Depreciation and amortization
24.5
22.5
20.9
Deferred income taxes, net
(3.6)
0.8
24.3
Change in -
Accounts receivable and unbilled revenues, net
44.1
(36.2)
(15.1)
Materials, supplies, and inventories
16.3
(12.8)
(13.3)
Prepaid taxes
0.3
(1.8)
9.5
Other current assets
2.2
(2.4)
(0.1)
Accounts payable
(25.8)
14.5
8.9
Amounts refundable to customers
(13.5)
23.2
(22.1)
Other current liabilities
1.7
5.8
6.5
Deferral of extraordinary natural gas costs
-
-
(65.0)
Recovery of extraordinary natural gas costs
34.3
24.6
5.3
Other, net
14.3
(3.1)
3.3
Net cash provided by (used in) operating activities
127.1
58.9
(15.5)
Investing activities
Capital expenditures
(58.8)
(53.4)
(59.2)
Other, net
-
5.7
(1.7)
Net cash used in investing activities
(58.8)
(47.7)
(60.9)
Financing activities
Short-term debt to parent, net
(29.3)
(2.0)
13.3
Issuance of long-term debt
-
-
40.0
Equity contribution from parent
-
-
24.0
Payment of dividends to parent
(39.0)
(10.0)
-
Other, net
-
-
(0.3)
Net cash provided by (used in) financing activities
(68.3)
(12.0)
77.0
Net change in cash and cash equivalents
-
(0.8)
0.6
Cash and cash equivalents at beginning of year
-
0.8
0.2
Cash and cash equivalents at end of year
$
-
$
-
$
0.8
The accompanying Notes to Financial Statements are an integral part of these financial statements.
2023 Financial Statements
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Minnesota Energy Resources Corporation
MINNESOTA ENERGY RESOURCES CORPORATION
E. STATEMENTS OF EQUITY
Total Common
Shareholder's
(in millions)
Common Stock
Retained Earnings
Equity
Balance at December 31, 2020
$
184.9
$
101.1
$
286.0
Net income
-
21.4
21.4
Equity contribution from parent
24.0
-
24.0
Stock-based compensation and other
0.1
-
0.1
Balance at December 31, 2021
$
209.0
$
122.5
$
331.5
Net income
-
23.8
23.8
Payment of dividends to parent
-
(10.0)
(10.0)
Stock-based compensation and other
0.1
-
0.1
Balance at December 31, 2022
$
209.1
$
136.3
$
345.4
Net income
-
32.3
32.3
Payment of dividends to parent
-
(39.0)
(39.0)
Balance at December 31, 2023
$
209.1
$
129.6
$
338.7
The accompanying Notes to Financial Statements are an integral part of these financial statements.
2023 Financial Statements
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Minnesota Energy Resources Corporation
MINNESOTA ENERGY RESOURCES CORPORATION
F. NOTES TO FINANCIAL STATEMENTS
December 31, 2023
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We are primarily a natural gas utility company that distributes, sells, and transports natural gas to customers in Minnesota. We also have non-utility operations related to servicing appliances for customers. We are subject to the jurisdiction of, and regulation by, the MPUC, which has general supervisory and regulatory powers over public utilities in Minnesota. 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.
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 MPUC. 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. However, as a result of the extreme weather in the Midwest in February 2021, the cost of gas purchased for our natural gas customers was temporarily driven significantly higher than our normal winter weather expectations, and we were not allowed to recover all of the additional costs. See Note 16, Regulatory Environment, for more information on the recovery of these high natural gas costs.
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Minnesota Energy Resources Corporation
Disclaimer
WEC Energy Group Inc. published this content on 22 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 22 March 2024 20:40:05 UTC.