Colleen Henderson Gale E.

Klappa – Chairman, Chief Executive Officer, Chairman of Wisconsin Electric Power Company, Chairman of Wisconsin Gas LLC, Chief Executive Officer of Wisconsin Electric Power Company, Chief Executive Officer of Wisconsin Gas LLC, President of Wisconsin Electric Power Company, President of Wisconsin Gas LLC and Chairman of Executive Committee James Patrick Keyes – Chief Financial Officer and Executive Vice President Allen L.

Leverett – President, Chief Executive Officer of We Generation Operations and President of We Generation Operations Erick Asmussen – VP and CFO.

Greg Gordon – ISI Group Kit Konolige – BGC Paul Ridzon – KeyBanc Andrew Bischof – Morningstar Inc., Research Division Michael Lapides – Goldman Sachs Brian Russo – Ladenburg Tim Winter – Gabelli & Co. Julien Dumoulin-Smith – UBS.

Good afternoon, ladies and gentlemen. Thank you for waiting, and welcome to Wisconsin Energy's quarterly conference call. This call is being recorded for rebroadcast. [Operator Instructions] Before the conference call begins, I will read the forward-looking language.

All statements in this presentation, other than historical facts, are forward-looking statements that involve risks and uncertainties which 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 the company'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 discussion, referenced earnings per share will be based on diluted earnings per share unless otherwise noted. After the presentation, the conference will be open to analysts for questions and answers. In conjunction with this call, Wisconsin Energy has posted on its website a package of detailed financial information at wisconsinenergy.com.

A replay of our remarks will be available later today. And now it's my pleasure to introduce Mr. Gale E. Klappa, Chairman of the Board and Chief Executive Officer of Wisconsin Energy Corporation..

Colleen, thank you very much. Good afternoon, everyone, and thanks for joining us as we review our 2014 second quarter results. Let me begin, as always, by introducing the members of the Wisconsin Energy management team who are here with me today.

We have Allen Leverett, President of Wisconsin Energy and CEO of our Generation Group; Pat Keyes, our Chief Financial Officer; Susan Martin, General Counsel; Steve Dickson, Controller; and Scott Lauber, our Treasurer. Pat will review our financial results in detail in just a moment.

But as you saw from our news release this morning, we reported earnings of $0.58 a share for the second quarter of 2014. This compares with earnings of $0.52 a share for last year's second quarter. Despite a cool and a rainy June that significantly reduced customer demand, we delivered solid results.

And I must add that cost related to our acquisition of Integrys Energy Group reduced earnings by a penny a share during the quarter. Turning now to the state of the economy, Wisconsin unemployment rate declined to 5.7% in June and remains well below the national average, the unemployment rate in Wisconsin is now the lowest it’s been since 2008.

(inaudible) broader economic backdrop deliveries of electricity to our large commercial and industrial customers excluding the iron ore mines rose by 2.1% in the second quarter. We saw strength in several sectors including paper manufacturing, food products, rubber and plastics and primary metals.

In addition, we continue to see stronger customer growth across our system. The electric service connections are up by 3.6% and the new natural gas installations are up 8.5% compared with the same period year. These gains reflect a bit stronger economy and the volume of customer switching from propane to natural gas.

Later in my prepared remarks, I will update you on several positive developments in our core business as well as the progress we are making on the important construction projects we have underway. But first I would like to touch on our recent announcement to acquire Integrys Energy Group.

Just to refresh your memory on June 23rd, we announced plans to acquire Integrys in a cash and stock transaction. Combing the two companies to form the WEC Energy Group will create a strong electric and natural gas delivery company with deep operational expertise scale and financial resources to meet the region’s future energy needs.

We will be serving 4.3 million customers in Wisconsin, Illinois, Michigan and Minnesota in fact the combination will create the eight largest natural gas distribution company in America and the strong cash flow of the combined company will be prudently invested in new and upgraded energy infrastructure.

Now as you well aware, we have consistently used three criteria to evaluate any potential acquisition. First, we would have believed that the acquisition would be accretive to earnings per share in the first full calendar year after closing.

Second, it would need to be largely credit neutral and finally we would have to believe there is a long term growth rate of any acquisition would be at least equal the Wisconsin Energy’s standalone growth rate. I am pleased to reiterate with you that we believe this combination meets or exceeds all three criteria.

We expect the combined company will be able to grow earnings per share at 5% to 7% per year faster than either one of us projecting on a standalone basis. And importantly more than 99% of these earnings would come from regulated businesses.

Our customers will benefit from the operational efficiency that comes with an increased scale and geographic proximity and over the time will enhance the operations of the seven utilities that will be part of our energy group by incorporating best practices system-wide.

In addition, as many of you know Integrys today is one of the major owners of American transmission company with a 34.1% interest, Wisconsin Energy is the second largest owner with a 26.2% interest. The combined entity will have a 60% stake and what is the largest independent transmission company in the country.

As you may remember, ATC’s ten year plan calls for investing between $3 billion to $3.6 billion, the bolster electric reliability in our region, it’s a solid plan and we welcome the opportunity to increase our commitment. Now in light of the acquisition, we have terminated our share repurchase program.

The Integrys transaction will allow us to use our strong cash flow will allow us to use our strong cash flow for regulated investments. The proposed dividend policy of the combined company will be designed to keep Integrys shareholders neutral initially after taking into consideration both the stock and cash they will receive.

In the period before closing, Wisconsin Energy plans to continue with its current dividend policy and of course that policy calls for 7% to 8% annual increase in our dividend. At closing, we would expect a further dividend increase for Wisconsin Energy shareholders to reflect the dividend policy of the combined company.

Then going forward, projected payout target for the combined company will be 65% to 70% of earnings The transaction of course is subject to approvals from the shareholders of both companies and several regulatory agencies.

The agencies include the Federal Energy Regulatory Commission, the Federal Communications' Commission, the Public Service Commissions of Wisconsin and Michigan, the Illinois Commerce Commission and the Minnesota Public Utilities Commission.

The transaction is also subject to the requirements of the Hart-Scott-Rodino Act and other customary closing conditions. We planned to file for approval of the acquisition in each of the four states next week. Filings at the Federal level are expected to be made before the end of August.

We anticipate closing the transaction sometime during the second half of 2015. Also you may have seen the announcement this morning from Integrys and Exelon, Exelon’s constellation business unit has agreed to purchase Integrys unregulated power and natural gas marketing business.

Exelon will pay $60 million for the Integrys retail operations plus adjusted networking capital at the time of closing. That working capital was about $183 million as of May 31 2014. The Integrys management team plans to provide you with an update during their quarterly earnings call which is now scheduled for August 7.

Again, we believe our combination with Integrys will create the premiere regulated utility system in the Midwest with superior service and competitive pricing for years to come, the benefits to all stakeholders and the customers and communities we serve to the people we employ, to the shareholders who count on us to create value, our clear compelling and achievable.

And now turning back to recent developments in Wisconsin Energy core business. On July 18, we have received the final written order from the Wisconsin commission approving our request to build and operate a new natural gas lateral in the west central Wisconsin.

This 85 mile pipeline and connected facilities will run from northern Eau Claire County from the far western part of the state to the city of Tomah in west central Wisconsin. The project will address reliability concerns in region and meet growing demand.

Demand of course has been driven by customers converting from propane to natural gas and by the growth of the sand mining industry in western Wisconsin. The commission’s approval also includes franchise awards for ten communities along the route and authorizes us to begin delivering natural gas within the borders of those ten communities.

We expect to begin construction early next year on the project and complete the entire project in the fourth quarter of 2015. Our projected cost is between $175 million and $185 million excluding allowance for funds used during constructions.

On the generation side of our business, you will recall that we are converting the fuel source for our valley power plant from coal to natural gas, the two unit valley plant the cogeneration facility located along the Menomonee River near downtown Milwaukee.

Valley generates electricity for the grid, produces steam for more than 400 customers in the downtown Milwaukee business center and provides voltage support for our electric distribution network. I am pleased to report to you that the unit one conversion is now well under way.

We stopped using coal at the unit in mid July and our scheduled calls for start-up and boiler tuning to begin in October in advance of course of the winter heating season. We plan to have unit one fully converted into natural gas by the end of the year.

Valley would be available to operate at full power this winter with the unit one burning natural gas and unit two continuing to burn coal. Unit two is then scheduled to be converted to natural gas during 2015. We expect the total conversion cost to be $65 million to $70 million again excluding allowance for funds used during construction.

Now you may recall that in March of last year, we also began the major upgrade of the existing natural gas pipeline that runs near the Valley facility. This pipeline replacement project has an estimated cost of approximately $30 million and is on time and on budget.

Converting Valley to natural gas will reduce our operating cost and enhance the environmental performance of the units. We expect the electric capacity of the plant to remain at 280 megawatts and we believe our plan will help support a vibrate downtown Milwaukee for many years to come.

Next, I would like to touch on the upgrade of our Twin Falls hydroelectric plant. Twin Falls was built way back in 1912 and it's one of 13 hydroelectric plants on our system. The plant is located on the boarder of Wisconsin and Michigan’s Upper Peninsula.

Construction is underway now to build the new powerhouse and spillway capacity that meets current Federal standards. Since our last updates, we began major construction work which includes building cofferdams and test blasting to prepare for rock excavation.

These activities are scheduled for completion later this year; we expect that the new powerhouse will be operational in 2015. We plan to remove the old powerhouse during 2016. The total investment is budgeted at $60 million to $65 million again excluding allowance for funds used during constructions.

We are also making just excellent progress on our fuel flexibility initiative at the Oak Creek expansion units. As you recall, these units were originally permitted to burn bituminous coal.

However, given the current cost differential between bituminous coal and Powder River Basin coal, blending the two types of fuel could save our customers $25 million to $50 million a year depending on the mix.

Last year we received environmental permits began making changes to the boilers and testing of blend of bituminous and Powder River Basin coal at the plant. And just a few weeks ago on July 7, we took the next step and filed the request with the Wisconsin Commission to approve $25 million of additional capital spending for modifications at the plant.

If approved, these modifications will enable testing of up to 100% PRB coal. However, I should point out that to operate the units above at 20% PRB blend on a sustain basis further investment will be needed in fuel storage and handling equipment.

Just the reminder, our end goal is to have the flexibility at the new Oak Creek units to increase the percentage of Powder River Basin coal up to 100%. Next, I would like to discuss the investment opportunities that we see as we focus on delivering the future.

As we have previously reported to you, our capital budget calls for spending between $3.2 billion and $3.5 billion over the five year period between now and 2018. In this five year budget, the nature of our capital spending is shifting away from large projects such as our power the future units, renewable generation of larger quality controls.

Instead our capital plan is comprised of many smaller projects that will continue to improve our generation and upgrade our aging distribution networks, over the next five years will have a much greater focus on pipes, polls, wires, transformers, and sub-stations, the building blocks of our delivery business.

The primary risk associated with these projects are naturally more manageable even with the smaller scale and scope of the distribution work but this work is no less valuable or important than the mega projects we have completed in recent years.

Our focus on renewing our distribution network is essential to maintaining our status is one of the most reliable utilities in America. So we will keep you posted as these needed infrastructure projects move forward. We are also monitoring another investment opportunity, the potential sale of the State of Wisconsin generation plants.

Last year, you will recall Governor Walker signed in the law a new state budget. That budget includes a provision expanding the state’s authority to sell or lease certain state on properties. This means that the administration has the authority to pursue the sale of the state's electric, steam and chilled water generation and distribution facilities.

Financial advisors have now been selected by the state and an asset broker has been named for the potential sale of the plants. No formal timetable has yet been announced but if the sale does take place, we expect that would occur in 2015.

Turning now to Wisconsin regulatory matters, in May we reached the rate settlement facilitated by the Wisconsin Commission staff with three major customer groups, the settlement covers return on equity, capital structure and base rate changes for the forward looking test years 2015 and 2016.

If approved by the Wisconsin Commission, Wisconsin Electric will have a return on equity of 10.2% with no change and its capital structure. Wisconsin Gas will have a return on equity of 10.3% with a higher equity component in its capital structure. The equity midpoint for Wisconsin thus would increase from 47.5% to 49.5%.

Based on the settlement nonfuel electric rates will increase by 1.4% beginning in 2015, we expect these changes to be effective on January 1st.

During the final months of this year, the remainder of the rate case will focus on rate design and on 2015 fuel cost recovery and with that – with that long update I would be happy to turn the things over to our Chief Financial Officer Pat Keyes, who will provide you more details on our second quarter results, Pat?.

Thank you, Gale. As Gale mentioned, our 2014 second quarter earnings were $0.58 a share as compared with $0.52 a share for the corresponding quarter in 2013. Cost related to the acquisition of Integrys Energy reduced earnings by $0.01 per share in the second quarter.

Now consistent with past practice, I will discuss operating income for our business segments and then discuss other income, interest expense and income taxes. Our consolidated operating income for the second quarter was $240.7 million as compared with $229.5 million in 2013. That's an increase of $11.2 million.

Starting with the utility energy segment, operating income in the second quarter totaled $155.2 million for 2014, an increase of $16.3 million over the second quarter of 2013.

On a quarter-over-quarter basis, utility operations and maintenance cost declined by $40 million primarily because of lower medical, pension and other post employment benefit costs. Our earnings were also helped by $13.8 million related to the accounting on the treasury grant for our new biomass plant.

Our second quarter 2014 earnings were hurt by a cool west spring, we estimate that our electric and gas margins declined by $5 million as a result of the weather. We also saw increased depreciation cost of $4.6 million primarily because of the biomass plant that was placed on a service in the fourth quarter of 2013.

Combining these and other factors results in a $16.3 million increase in utility operating income in the second quarter of 2014 as compared with the same quarter in the prior year. Operating income in our nonutility segment was $91.7 million which is right in line with the prior year.

Our corporate and other segment which includes corporate costs and smaller affiliates recorded $5.2 million with an increased cost in the second quarter of 2014 as compared to the second quarter 2013. The increased costs are directly related to the proposed acquisition of the Integrys Group.

Taking the changes for these segments together, you arrive at the $11.2 million increase in operating income. During the second quarter, earnings from our investment in the American transmission company totaled $17.5 million, an increase of $200,000 over the same period last year. These earnings are in line with our expectation.

Our other income net increased by $2.3 million. During the second quarter 2014 we’ve recognized gains in the sale of property in our west part subsidiary and land sales in the utility. Our net interest expense decreased by $4.3 million primarily because of lower debt levels and more average interest rates.

Over the past year, we were able to issue long-term debt at interest rates at the lower than the maturing debt. Consolidated income tax expense rose by $4 million because of higher pretax earnings partially offset by a slightly lower tax rate for the quarter. Our effective tax rate for 2014 is expected to be between 37.5% and 38.5%.

Combining all of these items brings you to $133 million of net income for the first second quarter 2014 or earnings of $0.58 per share. Again, these earnings include just over a penny of cost associated with the acquisition of Integrys.

During the first six months of 2014, our operating cash flows totaled $721.3 million which is a $39.8 million increase from the first six months of 2013. We have collected $76.2 million this year related to the treasury grant. This benefit was partially offset by higher working capital requirements.

Our capital expenditures totaled $305.5 million in the first six months of 2014; $1.8 million decrease compared it to 2013. Our adjusted debt-to-capital ratio was 50.8% at the end of June. Our calculation to reach half of our hybrid securities is common equity which is consistent with past presentations.

Earlier in the year, we projected that our year-end debt-to-total capital will be relatively flat with our 2013 year-end ratio of 52.5%. Now with the termination of share repurchase program, we expect to see our year end debt to total capital below to last year's ratio.

We continue to use cash to satisfy any shares required for 401-K plan, options and other programs. We also paid $176 million in common dividends in the first six months of 2014, an increase of $20.4 million over the same period last year. Dividends for 2014 equate to an annual rate of $1.56 per share.

Retail deliveries of electricity rose by 3% in the first half of 2014 as compared to first half of 2013. Our normalized first half deliveries were up by 2.3%. Looking at the individual customer segments, we saw actual residential deliveries up 1.2% on a normalized basis which were flat with 2013.

Across our small commercial industrial group, we saw year-to-date deliveries up 9% to 10%, another normalized basis, we were down two times of percent. In the large commercial industrial segment on a normalized basis, deliveries for the first half of 2014 were up by 6.6%. And if you exclude the iron ore mines we were up 2%.

Overall these results are in line with our expectations. First half retail natural gas sales were up 13.8% compared to the first half of 2013. On a normalized basis, sales improved by 2.5%. Results from our natural gas delivery business are ahead of our expectations for the year.

Moving to other items of interest, in May of 2014 our electric subsidiary issued a $250 million, 30 year bond at a coupon of 4.25%. This bond is essentially replaced by $300 million bond with a coupon of 6% that came due in April. Turing now to our earnings forecast. We are maintaining our 2014 guidance of $2.58 a share to $2.64 a share.

Our 2014 guidance excludes cost related to the Integrys acquisition. While our results for the first half of the year exceeded our expectations, we have had a very cool summer. As many of you know we typically see our largest cooling demand during the warm summer days of July.

However, we only have had four July since 1960 that have been cooler than the July of 2014. In fact Milwaukee has not seen a single 90 degree day this summer. So taking into account this cool July weather and looking at the continued cool forecast in August our third quarter guidance is $0.48 a share to $0.50 a share.

This too excludes cost associated with the Integrys acquisition. Our third quarter guidance also reflects lower fuel recoveries as compared to the same quarter in 2013. These are largely timing issues that were factored into our 2014 fuel plant.

So again, the range for our third quarter guidance is $0.48 a share to $0.50 a share and with that I will turn things back to Gale..

Pat, thank you very much let me zip up my parka before we go into the Q&A. Overall folks were on track and focused on delivering value for our customers and our stockholders..

Now we would like to take your questions. [Operator Instructions] your first question comes from the line of Greg Gordon with ISI Group. Please go ahead with your question..

Rock and roll Greg how are you?.

I am doing great, Gale.

How are you?.

We are good..

So one question you may not be able to answer but the Integrys announced the sale of their retail business -- the press release hit last night.

I know you are at arm’s length on that when you look at the price that was announced, was that consistent with your understanding of the economics? Does it has anything to do – affect in any way the economics of your transaction or was it in line with your expectations?.

Greg, very good question, certainly. In my conversations with my counterpart of Integrys we were supportive of the sale and the results as you saw published this morning in the new release were quite consistent with our expectations..

Great and I have a couple of questions that are probably CFO level questions.

When I look at the revenues you have generated year-to-date from the different customer classes, electric revenues look more or less consistent in residential small commercial is the same as large commercial industrial is obviously down on bunch unrealized revenue and then it's more than offset by significant improvements in resell and other, so an you talk about what is driving that shift and how we should think about that prospectively?.

Well, Pat and Scott are thinking, are you saying that those questions are above or below my pay-grade, which?.

Yes, the answer is yes..

Greg, Scott and me take team a little bit. But to get the – we talked in the first couple calls about opportunity of sales and if you look at the year-to-date we did quite well in the beginning of the year.

And that's certainly driving a part of it and Scott do you want to add color to that at all or?.

Yes the opportunity of sales are there but also on our other operating revenues we have the payment with the SSR payments for (inaudible) power plant..

Okay and the large commercial industrial falloff is the iron ore mines?.

On the sales side, yes. That’s why we kind of with the mine decision last year we started reporting both sales and deliveries. So with the mines decision the sales numbers will fall commensurately but we kept the delivery numbers there so you kind of have an apples to apples to prior year on how much we are delivering..

The sales would include the generation side of the business; deliveries because we are still delivering electricity of the mines would include just total deliveries to all of our customers..

Understood and then the treasury grants are significant portion of your earnings contribution this year. Is the way that's going to work is when the plant comes up and running, treasury grants are going to sort of stop coming in but the plant will actually start earning and so you won’t see any significant sort of fluctuation in earnings.

How is that going to work?.

That one is not below my pay grade so let me give you the facts on that and then Steve Dickson can help me if there is anything obscure.

But essentially last year while the plant was under contraction, we were delivering the customer’s bill credits from the Federal tax grant that we expected to receive from the treasury department for building a biomass unit.

Where the accounting rules worked, we basically took a three center share hit because we were actually paying cash credit on bills to customers in each of the first three quarters of 2013.

So $0.03 in each of those three quarters, then when the plant went commercial, we completed the plant on time and on budget and brought it into service in November of last year, under the accounting rules we were able to book the grant. So there was a true up in Q4 of last year if you will, I think it was $0.09 pickup Steven in Q4 of last year.

So forwarding that Greg, to our second quarter results this year, we didn't have any negative impact from the bill credits and we did last year. So we had three cent a share pick up in Q2 of this year because of the accounting rules compared to Q2 of last year.

Am I making sense Greg?.

Hundred percent and how long do those treasury grant run through the P&L?.

I think two years..

Yes in the right case we are going to give back to Wisconsin customers over a two year period and that will end in December of 2014. .

Got you and so it will all come out in the wash so to speak when you do your rate design in new requirements for the next –.

Absolutely. This will all come up -- this will all be completed basically before the new effective test year of January 2015..

Completely understood. Thank you..

You are welcome, Greg. Good questions..

Your next question comes from the line of Kit Konolige with BGC. Please go ahead with your question..

Hi. Good afternoon guys..

How are you doing Kit?.

Good. So just pretty simple old fashioned utility kind of question. So you have indicated that your level of sales was in line with expectations.

So it looks like residential sales are kind of flat, flat to down for the first half or they were down in the first quarter and flat in the second?.

Yes?.

So what are you seeing there, I mean we have seen there is some other companies, is this any further deterioration in kind of customer usage by customer or just efficiency better refrigerators or tightness in spending on electricity because of the economy or what do we think is going on out there?.

We thought about this profoundly and I think it's not enough beer in the refrigerator yet..

That’s a big problem in your service territory..

Exactly. Well I will give you my view for what it’s worth. First of all, when you look at our first half, I think it's fair to say that when you compare it to our projection for the year we were expecting retail sales in total to be up about one-half of 1%.

But then when you break that down by customer group, large industrial, well actually I think did a little better than expectations both in Q1 and Q2 from industrial demand for electricity and I think we were up 2% Scott in Q1 compared to the first quarter year ago on industrial demand for electricity and 2.1% second quarter compared to Q2 of a year ago.

So, again breaking down our kind of expectations better than we thought on industrial demand. When you look at small commercial and industrial, maybe a little less than we thought, it's pretty flat and then on residential it's flat, however, that’s on a weather normal basis.

And again we had such abnormal weather in the first quarter that I think you have to just take for now our weather normalization with the grain of salt. Remember we have talked before Kit that when weather gets beyond the second standard deviation from normal, the industry's weather normalization techniques tend to break down.

So I wouldn't read too much into it one way or another. The only I think interesting and perhaps hopeful fact coming out of the first half numbers for us in terms of demand for electricity as the uptake from industrial customers.

Scott do you like?.

Yes, that’s correct..

Sounds good.

Okay just one other area for me and that is I might have missed some of this but what’s the schedule for the state sale of generation?.

There have been no formal announcement of the schedule yet, however the state has hired both financial advisors and the broker and they have made that announcement just in the last probably I believe in June. So if there is a sale going forward of state assets we would expect that to be a 2015 event..

That would be 2015, when would you expect to hear from the state or to see it published whether they are or aren’t going ahead with it?.

Again there’ve been no real indications from the state other than the fact that they believe they’ve made a major step forward in terms of interviewing and hiring specific financial advisors and a broker.

Now one complicating factor is that they really are looking at the potential sale of a number of different types of properties though they have hired financial advisors for each type of property as well broker for the potential sale of the plants themselves.

So they are really trying to organize a much broader potential sale of property than just the power plant themselves..

Very good. Okay. Thank you very much..

You are welcome Kit. I appreciate your call..

Your next question comes from the line of Paul Ridzon with KeyBanc. Please go ahead with your question..

How is Cleveland Paul?.

Cleveland rocks..

Alright, I wonder that happened, I am sorry go ahead Paul..

Last year you did $0.60 in the third you and now you are guiding it down $0.11 to midpoint despite the $0.03 pick up from the tax.

Can you just run through the big drivers is it all weather, sorry if I missed that?.

It’s really two things and Pat can elaborate if he would like to it’s really weather? We’ll its four things, the first three are weather. I mean literally this has been one of the coldest Julys on record in Wisconsin.

I think Pat mentioned in his portion of the prepared remarks, the weather forecast was saying we will not have a single 90 degree day this entire summer in Wisconsin. I’m figuring if this continues Paul we’re going to be at 30 below in October.

I mean really it has been incredibly cool and honest to goodness the weather forecast for August looks to be a repeat of July in terms of way colder than normal.

So we’ve tried to take into account what we know has occurred in July which is just incredible lack of demand for air conditioning for obvious reasons and extrapolate that to August and then of course there is some timing Pat on fuel recovery..

That's right, Gale. Does that answer your question Paul I can dive in more if you like but that's – I think that’s the bulk of it..

How big is the fuel piece?.

Round numbers $0.02, $0.03..

Okay and then just kind of assuming you close Integrys, you own 60% of ATC, how will that pull to your income statement at that point?.

I will ask Alan to answer that. He is the king of well know he had a resign his kingdom ATC..

Yes, my assumptions would be Paul that since we will not have effective control of ATC even though we will have 60% economic interest. Since we will not have effective control because of the voting arrangement that we proposed, that we would still follow the equity method of accounting.

So over in the asset set, you would have a statement already interest but I guess it's a majority interest in this case but you have a minority interest so you show you equity investment and you just take the earnings down..

What's the board composition?.

The board composition of ATC or the combined company?.

ATC..

Well I guess when you say the composition let me back up and maybe just quickly go through the voting arrangement that we proposed.

So what we proposed Paul is that the new combined company so this would be WEC Energy Group, WEC Energy Group would vote without limitation the 34% that Integrys Energy Group currently holds and then it would vote the remaining 26%, so that’s the 26% the Wisconsin Energy holds now they would vote that in proportion to held the other shareholders vote.

So in other words, Paul, we would be essentially in the same position that Integrys is today in terms of control, so that’s how control would work and then you would vote for directors just like you vote for directors now and we will lead the position the same way as Integrys..

I think you went over this on the call when you announced the deal (inaudible) okay, thank you very much..

You are welcome. .

Your next question comes from the line of Andrew Bischof with Morningstar Research. Please go ahead with your question..

How are you Andy?.

Good.

How are you? Any new share repurchase in the quarter before you announce the Integrys acquisition and cancellation buyback program?.

So there were nothing – there were no share repurchases in Q2..

Okay and Gale if I could ask your overall thoughts on the EPA’s green power plant announcement in June (inaudible) Wisconsin Energy and your overall discussions with the state regulators so far?.

Right, be happy to. Just to refresh everybody's memory, the environmental protection agency issued its proposed rule for CO2 reductions in essence from existing sources. And I believe the comment period now runs until October 16 of this year.

Wisconsin's target and as you recall, each of the contiguous 48 states have been given separate CO2 reduction targets. And those targets were designed individually for each state by the staff of the EPA. Wisconsin’s target 34% reduction. Nationwide, the reduction target is 30% so we are just slightly above the national average.

I think for many of us, while I will give the EPA very, very strong marks for creativity I mean they have never tried to tackle problem with this type of an approach before and they have really tried to give the individual states flexibility. But I don't personally feel like we were given credit for taking early action.

I mean we have invested $9 billion in energy infrastructure since 2003 much of that has been either in modern and efficient generating units, renewables energy efficiency, other approaches that can and have reduced greenhouse gas emissions.

So if you look on our system, our green house gas emissions for the Wisconsin Energy are actually below the levels they were in 2000 and we just don't feel like we have been given credit for the early action and I think that's the standard view among of my counterparts in the industry.

So we are going to be commenting on several things as we work our way through the comment period here one of which is we simply don't feel like the appropriate credit has been given for the early action and for the renewables that we have put in place, there is still lack of clarity which EPA admits around how they will treat biomass plants and of course in terms of emissions and of course we have almost $270 million investment we have just completed in our biomass plant that does meets the state's renewable portfolio standards.

And then one of the building blocks that the EPA has pointed out in terms of how states can try to flexibly meet the new target is to really run the combined cycle of natural gas fired power plants in the country up to 70% capacity factor.

That is difficult in many parts not just Wisconsin but in many parts of the country, the natural gas infrastructure to achieve that kind of capacity factor for natural gas units is just not there. It's just not in place. So we think there are a number of comments that we want to make.

Overall though I still feel like we are quite well positioned as a company and the reason I think we are well positioned as the company is because of how efficient our new units are.

Our units at Oak Creek which burn coal as you know, are among the top ten most efficient best log units in the country and one of the cleanest burning power plants literally in the world and our new natural gas unit at Port Washington, our new combined cycle units at Port Washington are the most efficient natural gas units in the Midwest.

So given the fact that they emit less ounce per CO2 or less ounce of CO2 per unit of output, I still think we are well positioned as anyone. I hope that helps..

Excellent detail. I very much appreciate it..

You are welcome..

Your next question comes from the line of Michael Lapides with Goldman Sachs. Please go ahead with your question..

Hey Gale. Question for you little bit about natural gas demand.

What do you think over the last year's weather normalize natural gas demand has been in Wisconsin and what do you think if anything the new normal maybe?.

Okay. Well, levelized natural gas demand I would think it has gone up, it has got about 1% over the –.

It’s about 0.5% to 1%..

About 0.5% to 1% what we have seen on weather normal basis. Where is it going? I am still in the camp but there is potential for it to go up however.

In the last two years, we have had as I mentioned earlier some of the most abnormal weather both warm and cold that really stresses the weather normalization techniques that the industry applies number one. So that's one thing that I think the jury is still out on.

We need some more time to be able to determine whether a pattern of growth is stronger than we project. The other piece though is we are continuing to see in our state at any rate, a much quicker conversion of customers from propane to natural gas.

You saw the statistics, or heard the statistics from our prepared script but I think we have got in terms of percentage of new customer connections for natural gas this year versus last year, we are up about 8.5%. So there are a number of competing factors here and moving pieces.

I think it's still too early to tell whether or not we are in a stronger uptake patterns in terms of weather normalize natural gas consumption at retail. Again in states there are heavy propane users and Wisconsin I believe is the fifth heaviest state in the country in terms of propane use. We see some real potential opportunity..

Got it.

Second, where does Illinois fall in that kind of realm when you think about potential for conversions and about local gas utility natural gas-related demand? Finally, and I'll knock them all out at once, of the $14 million in lower year-over-year O&M expense, how sustainable is that I mean when we look out to ’15, ’16 or ’17, kind of multi-year out, is that a, hey, we're resetting the bar here to live within some of the regulatory kind of pieces of the regulatory agreement versus this is kind of a one-off?.

Alright. Good question again Michael. Let me tackle your Illinois question first. I don't see much in terms of propane conversion opportunity in the Integrys Group companies in Illinois because it's really people's gas so that is downtown and city of Chicago and then north shore which again very-very close to city itself.

So I don't see the kinds of propane conversion opportunities in Illinois that we are seeing in Wisconsin and I hope that answers that question. And then I would also add in terms of the regulatory construction in Illinois for people's gas they are in a decoupled situation where we are not in Wisconsin.

So, two different animals there and then in terms of O&M, in essence what a large chunk of and yes there are some sustainable productivity in cost reduction gains that we saw in the first half and that I think it will be permanent.

But the line of share of $14 million of O&M cost reductions really came from lower medical and employee benefit expense and the reason for the medical we believe is that all of our employees switched as of January 1 of this year to high deductible plan.

So the comparison maybe a little skewed in terms of medical costs, in terms of timing of when the company gets the medical cost flowing through. So we will see we will have a lot better picture in terms of medical cost and other employment costs, benefit costs, over the course of this year.

The pattern maybe a little different this year and I suspect that it will be..

Meaning you think that O&M cost could be more backend loaded versus frontend loaded during the course of the year or I am not sure I totally follow you there..

Sorry. The answer to your question is yes, particularly as it relates to medical. And here is why, I think for an individual we have $2500 deductible and for a family I think it's $5,000. So that was not in place with our low-deductible plans last year.

So we suspect that our medical expenses will be back end loaded this year compared to last year and so yes the answer is there maybe some additional medical O&M expenses coming through in Q3 and Q4..

Got it. Okay. Thanks Gale. I appreciate it..

You are more than welcome. Take care..

Your next question comes from the line Brian Russo with Ladenburg. Please go ahead with your question..

Good afternoon Brian..

Good afternoon.

Just curious, most of my questions were asked and answered but what were the drivers enabling your guys to beat your second quarter guidance of $0.50 to $0.52?.

Well there are three drivers that I would point out and Pat and Scott can certainly add to that if they would like. The first we have talked about earlier which was O&M reduction. That's worth about excluding the merger cost, that's worth about $0.04 a share compared to last year.

Then we have talked about the biomass tax credits and because of the accounting rules, there was a $0.03 of share hit in Q2 a year ago versus no hit in this year's second quarter. And then we had a lower effective tax rate which helped us by about a penny. On the negative side, there was a penny of merger cost and a penny of weather.

So if you strip all that out, essentially those were the answers..

Right. There was O&M reduction ahead of your expectations I am asking because you have guided to $0.50 to $0.52 in the second quarter but you reported $0.58 so there is something exceeded your original expectations..

Yes absolutely. Pat, go right ahead..

So yes Brian, sorry. Some of the O&M we didn’t expect. So medical was a little better than we thought. I talked about timing differences hurting us in Q3 in the guidance we actually got little help in Q2 versus what we have planned.

I am going to write it off – start it with there is no one big answer, it's lots of cats and dogs I gave you two, here is a couple more.

Gas sales came in a little better than what we had forecast probably because it was colder in the first half in the quarter and then the other income I talked about the land sells in the west park was something we didn’t anticipate either. So lots of little things kind of added up to give us better than guidance..

Got it. Thank you very much..

You are welcome..

Your next question comes from the line of Tim Winter - Gabelli & Company. Please go ahead with your question..

How are you Tim?.

Good afternoon Gale. I just have a strategic question on ATC, so (inaudible) are the new hot thing and it looks like wind stream just got IRS approval to classify their transmission assets as real estate investment trust.

Could you or is there any benefit that you guys have putting ATC in a retype structure?.

Tim this is Allen I guess at this point and of course we are certainly open to things that would provide value for our shareholders. So if we found later that it was advantageous to put something in a different structure or some other which certainly be open.

However, I think one big issue that we would have to face if I understand the restructure correctly; there is a requirement to payout I think more than 90% of your earnings in dividends well we have a company like ATC which has got a very-very healthy amount of growth in investments.

If that company would have to payout say 90%+ in dividends they are going have to be very regularly in a position where they have to raise equity and I am not sure that that would be a good thing necessarily, a good position to be in. So that would a concern that I would have.

A second concern is how exactly would the provision for income taxes for that company be treated in FERC rate making.

And so one of the benefits which you get with the REIT as you only have a single level of taxation, right? Well, I am not sure how you keep that benefit relative to our current structure if you have to give all that provision for income tax benefit back the customers.

So at a high levels those would be the two concerns that I would have about the REIT structure but again Tim, you know if it ended up but at some point that was adventurous and certainly be very open to another structure, hopefully that make sense..

Yes it does, thank you..

You are welcome, Tim..

Your final question comes from the line of Julien Dumoulin-Smith with UBS. Please go ahead with your question..

Gale?.

Hi Julian, how are you doing?.

Dandy..

Glad to hear that..

Excellent. So let me cut back to that last question little bit and ask a little bit of a different ways.

So there is the cost to capital is getting a bit competitively, how are you all feeling in your ability to compete for those planned acquisitions in the state and specifically I’d be curious do you feel like you have any incumbent advantage as being in the state synergies or otherwise that would allow you to kind of outcompete anyone else who might be looking at those assets?.

So your question is about the state power plant, it’s not about ATC?.

Indeed..

My guess is that minor movements in the cost of capital are not going to be a major impediment or a major benefit one way or the another.

If the state does move forward with the selling the state owned steam and generating plants, I think they are going to be looking obviously for us competitive prices they can get but they are also going to be looking for the type of experience that I think we bring to the table.

Again, these plants are providing pretty essential services to places like state owned hospitals to places like all the state capital, all the major universities and the system in Wisconsin and so I think there are going to be other factors, other than just pure price that will play into the winning bidder if the process does go forward.

So experience and a track record are being able to operate these types of plants to improve the operations of the plants and to add environmental upgrade on time and on budget, I am confident it would a factor here..

Excellent and then another high level conversation, coal rail deliveries continuing to hear commentary from other folks, where do you guys stand on that, anything to add to the mix?.

Yes, we will let Allan talk about how tight things are right now..

Yes, most of our deliveries are from the Union Pacific although we do have a percentage wise a small amount from the Burlington Northern and a small amount from the Norfolk southern and we have had a lot of challenges really with all the railroads this year but particularly with the Burlington Northern.

Some of that stuff is in their control, a lot of it is out of their control for example they had a lot of flooding of some the lines earlier this year but from inventory standpoint our coal inventories are pretty tight right now.

We are not up to the levels that we would like them to be and we are not yet on the path to getting the levels that we want to be at in late September. So we certainly have and had to curtail operations of our plants.

You may have seen some, in fact there was a news article this morning that a utility in Wisconsin is saying that they might actually have to shut down one of their coal plants because of the bad inventory situation.

So it certainly not a level that would calls curtailment but it’s something that I am focusing very much on with our group in terms of coal deliveries and it’s something we would be happy to give you another update on when we have our call in October..

Excellent. Just cutting back to ATC, specifically, I'd be curious, any comments of late on both the competitive FERC process, there've been some tweaks in MISO.

Do you feel better about the FERC 1000 process and then separately any commentary of late on the New England case as it relates to ATC?.

I guess no change really on our view of the competitive. This is the order of 1,000 process I mean of course within our traditional footprint within Wisconsin and the UP of Michigan we still have right of first refusal on non-multi value project.

So that’s still there, we feel good about that and we feel good about our ability to compete for multi-value projects.

But not a lot to add really on the process out east with the FERC ROE review, you know Julian the range of numbers that we had heard thrown out at the FERC low end was 10.57 return high end I believe it was 11 and three quarters and that compares to a current 12.2 at ATC so on a worse case basis, if ATC were taken all the way down to 10.57 that would be about a $0.04 per share impact on the combined company.

So if you looked at the WEC Energy Group with the 60% ownership and ATC that would be about $0.04 impact at the low end, at the higher end 11 and three quarters it would be $0.01 a share. So still relatively nominal impacts but it’s something will – it’s not decided at this point and certainly..

Presumably you go back and get riders on top of that?.

Well that’s uncertain.

You are talking about incentives?.

Yes, sorry incentives..

I don’t believe so..

Well ATC has not gotten the incentive adder but they have gotten things like a full quip in rate base approach. So we traditionally have not gotten the – I will call it the incentive ROC which is one of the reasons why I think, we at least have shot that maintaining the 12 because we were never getting the incentive level..

And never asking for them really..

Right, absolutely. Great, well thank you very much..

Thank you very much. Well, ladies and gentlemen that concludes our conference call for today. Thank you so much for participating. Colleen Henderson will be available at our Investor Relations office, and her direct line is (414) 221-2592. Thanks, again, everybody. Take care..