Executive Chairman of the Board, WEC Energy Group Inc
Interview with Gale Klappa, Executive Chairman of WEC Energy Group
Interview with Gale Klappa, Executive Chairman of WEC Energy Group at the London Stock Exchange Studios.
About Gale Klappa
Gale Klappa, executive chairman of WEC Energy Group, has discussed the company's focus on what he calls "affordable, reliable, and clean" (ARC) energy. In a 2023 interview, he stated that the company's five-year capital plan calls for investing over $20 billion in transmission, solar, wind, battery storage, and natural gas generation. Klappa said the company aims to reduce CO2 emissions by 80% from a 2005 baseline by the end of 2030. He described a 2023 test blending hydrogen with natural gas at a power plant in Michigan's Upper Peninsula, saying emissions came down, efficiency stayed the same, and the equipment was not damaged. Klappa also noted that the company's dividend policy is to pay out between 65% and 70% of earnings, with projected earnings per share growth of 5% to 7% annually. Klappa has commented on the broader energy transition and the economy in the region. In a 2024 interview, he said the economy in Wisconsin remains strong, citing a 2.6% unemployment rate and Microsoft's announced $1 billion investment in a data center complex south of Milwaukee. Regarding the goal of a fully carbon-free grid by 2035, Klappa said in a 2021 earnings call that he considers it "one tall order" and analogized it to a "moonshot," noting the need for "enormous technological change." He has also discussed the variability of wind power, stating that in the Midwest, wind capability can drop from 25,000 megawatts to 5,000 megawatts overnight, requiring other reliable sources to make up the difference.
Transcript (26 segments)
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Louise0:05
Hello and welcome to the London Stock Exchange Studios for another broadcast interview with Business Worldwide magazine. Today we'll be speaking with the man who has helped guide Fortune 500 company WEC Energy Group to formidable success. The power company provides electricity and natural gas to a vast 4.5 million customers across four US states. Gale Klappa has helped drive much of that growth and his contribution has been recognized by winning two Business Worldwide awards at the start of this year for Best CEO Electricity and Natural Gas Industry and for Growth Strategy CEO of the Year USA. Well now he has taken on a new role, so to tell us all about that and the company's performance, I am delighted to be joined by Gale Klappa. Thank you very much for being with us today.
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Gale Klappa0:57
Please, delighted to be with you and great to be here in London.
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Louise0:59
Excellent.
Well, my first question is that could you please give us an overview of your company and the market in which it operates?
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Gale Klappa1:08
Be delighted to. First of all, as you mentioned, we're a Fortune 500 company. We serve the northern part of the great heartland of the USA, what we call the Midwest. We're based in Milwaukee, Wisconsin, just north of Chicago. 70% of our assets are in Wisconsin, and we provide electricity and natural gas, as you mentioned, to four and a half million customers. About 33 billion dollars of assets in our company, and we are the eighth largest natural gas distribution company in the United States, and by market value, one of the 11 most valuable utility systems in the United States.
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Louise1:44
You're being honored for your role as CEO, but I understand that your Board of Directors has recently established an office of the chair, and now you've transitioned to the role of executive chairman. So can you provide further insight on the rationale for creating that office of the chair and how your role and responsibilities now stand?
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Gale Klappa2:02
I'd be delighted to. First of all, I was CEO of the company for about 13 years, stepped back to non-executive chairman in 2016. My successor unfortunately suffered a stroke, so in the past year I stepped back in as CEO, and now we have created this office of the chair, essentially to leverage the strengths of four very talented people in our organization. So we have a new CEO who will report to me, we have a senior executive vice president who functions as the CFO, and we have another senior executive vice president who will guide all of our capital spending and all of our investment programs. So essentially we've created the office of the chair to move the company forward and for the four of us to groom the next generation of leadership of the company.
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Louise2:50
Now as your role now as executive chairman, will you have responsibility for ESG matters?
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Gale Klappa2:57
Yes, yes I will retain responsibility for ESG matters. In fact, we have a very, very strong ESG program. Many European investors, as you know, are very focused on ESG performance. And one of the things that we have done through our ESG program is we have set a very aggressive goal to reduce carbon dioxide emissions. In fact, as you can see on the screen, we have set two goals: one to reduce carbon dioxide emissions below 2005 levels by 40% by the year 2030. We're actually ahead of that goal. I think we may be able to reach the 40% reduction target actually by the year 2023, 7 years ahead of schedule. So with the progress we've already made, we set a brand new aggressive goal for the year 2050, and that's an 80% reduction in CO2 emissions by the year 2050, and we have a roadmap. We know how we're going to get there, but it's incredibly important, isn't it?
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Louise3:55
Now as the growth strategy CEO of the year, you delivered impressive results in 2018, but these aren't actually unusual. Now can you give us an overview of the stock's performance while you were CEO?
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Gale Klappa4:10
Well, we've been very fortunate, Louisa. And I think we have actually a slide that will show us the performance over the past 16 years. Our total shareholder return, of course that would be share price appreciation and reinvested dividends, our total shareholder return has been 789 percent. So very, very fortunate, and we have actually exceeded, as you can see on the slide, we've exceeded the total returns of all the major utility and major market indices. So we've been very fortunate.
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Louise4:38
So how is technology changing your business?
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Gale Klappa4:42
Well, considerably. In fact, just in the last five years alone, we've seen a real evolution in the different energy technologies that give us more options on how to serve our customers reliably and in a cleaner way. So for example, utility scale solar, very large solar farms, the cost per installed unit of capacity has dropped more than 70 percent in just the last five years alone. So today, in addition to the traditional ways that we generate electricity, we now have the option of solar farms, we have more options with wind farms, and renewables are becoming an increasingly important segment of how we deliver clean reliable energy to our customers.
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Louise5:25
So what is your dividend policy going forward then, Louise?
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Gale Klappa5:28
As you know, dividends are a very important part of total return and the record that we've been able to achieve. So our dividend policy is very clear going forward. Our policy is essentially to pay out between 65 and 70% of our earnings in dividends each year. We are exactly where we want to be right now, we're right in the middle of that range. So those who hold our stock, the investors who have great trust in us, can expect to receive dividend increases that mirror the growth in earnings per share going forward. And we're projecting 5 to 7 percent earnings per share growth each year, so we could expect dividends to rise at the same level.
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Louise6:05
What do you attribute this long-term success to, then, and not just in the performance of the stock but in the performance of the company overall?
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Gale Klappa6:14
Well, I think, and this may sound overly simple, but I think it does come down to certain fundamentals. We have always believed that financial success year after year and decade after decade really is made possible by excelling at the fundamentals of our business. And so we start every day, every day, with customer satisfaction. Its customer satisfaction, reliability, financial discipline. I think those three things have driven our performance and will continue to drive our performance in the years to come.
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Louise6:44
Let's go to corporate responsibility now. Now going back to the subject of ESG, can you discuss more broadly how you view environmental, social, and governance matters, and specifically what WEC Energy Group is doing to reduce your carbon footprint?
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Gale Klappa7:01
Well, the first thing we're doing to reduce our carbon footprint is retiring older, less efficient coal-fired power plants. In the United States, many of the utilities, many of the energy companies, have historically been reliant on coal to produce electricity, and we have some of the cleanest burning coal-fired power plants literally in the world. But the older ones, the ones that are less efficient, those are in our minds ready for retirement. So essentially, in the last 18 months, we've retired five separate coal-fired generating units, and obviously we're replacing those units either with cleaner burning natural gas or we're replacing those units with wind energy and solar energy. And all of those together are helping us reduce operating costs and being much more environmentally friendly and being very good environmental stewards of our responsibility.
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Louise7:57
Let's go back to success. Now you have a long history of continued growth, and you must have some secrets to success that you can share with us, some key drivers to such a sustained growth.
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Gale Klappa8:12
Well, I think the first part of it is, we have in the heartland of the US, we have a very strong economy. In fact, in Wisconsin where 70% of our assets are based, our unemployment rate has been at 3% for the last year, and that's really in most circles considered full employment. We have a history of supporting manufacturing companies. We have many, many nationally known manufacturing companies that have significant operations in Wisconsin and in the Midwest. And so part of our success has really been building a strong, resilient infrastructure that is reliable and can support the kind of jobs and economic growth that we want to have in the Midwest. So I think a big part of our success has been building that infrastructure, building an excellent infrastructure on time and on budget, and when we do that, we actually can grow our earnings while supporting our customer base.
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Louise9:10
And what about the future then? What does that hold? Are there any plans and projects that you can tell us about?
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Gale Klappa9:16
Oh yes, in fact we have a very robust five-year capital plan. In fact, I think we have a slide that would show you the breakdown of the capital plan. So between the years 2019, Louise, and 2023, we expect to invest over 14 billion dollars in different types of energy infrastructure. The largest portion, as you can see in the yellow on the map, the largest portion of our capital spending will be in our gas distribution business. So to give you an example, in the city of Chicago, which is America's third largest city, we have a very old and leaking natural gas delivery network, and so we're going to be, over the many years to come, we're going to be actually digging up one of every two streets of the city of Chicago, replacing literally the older, less efficient, and really in much need of replacement natural gas piping systems. So a big chunk of our capital plan over the next five years will be not just in Chicago but in upgrading and expanding our natural gas distribution network. And of course, natural gas continues to be in heavy demand. We're seeing very good growth in terms of consumption of natural gas in the United States, and consumption of natural gas by not only our industrial customers but also by our residential and commercial customers as well.
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Louise10:38
Wow, say big plans, a lot of work today. Do you have any final thoughts for us, anything to add?
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Gale Klappa10:43
Well, I'm first of all very honored by the awards. But the award, it may say Gale Klappa on the name of the award, we have 8,000 terrific employees who come to work every day and focus on customer satisfaction, and that I think bodes very well for the future of the company for the long-term, Louisa.
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Louise11:01
Definitely. I'm sure it's a bright future. Thank you so much for being with us today, Gale Klappa. Thank you very much indeed.