Gale Klapp - Chairman and Chief Executive Officer Patrick Keyes - Chief Financial Officer and Executive Vice President Allen Leverett - President Susan Martin - Executive Vice President, General Counsel and Corporate Secretary Stephen Dickson - Vice President, Controller Scott Lauber - Vice President and Treasurer.

Julien Dumoulin-Smith - UBS Investment Bank Jonathan Arnold - Deutsche Bank Paul Ridzon - KeyBanc Brian Russo - Ladenburg Thalmann Michael Lapides - Goldman Sachs Paul Patterson - Glenrock Associates Dan Jenkins - State of Wisconsin Investment Board Dan Fidell - US Capital Advisors Michael Weinstein – UBS.

Good afternoon, ladies and gentlemen. Thank you for waiting, and welcome to Wisconsin Energy’s conference call to review 2014 year-end results. This call is being recorded for rebroadcast and all participants are in a listen-only mode at this time. 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, the 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 Klappa, Chairman of the Board and Chief Executive Officer of Wisconsin Energy Corporation..

Colleen, thank you. Good afternoon, everyone, and thanks for joining us as we review our 2014 year end 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 adjusted earnings of $2.65 a share for 2014. This compares with earnings of $2.51 a share for 2013. Our adjusted earnings exclude expenses of $0.06 a share related to our acquisition of the Integrys Energy Group.

I'm very pleased to report to you that 2014 was another exceptional year for Wisconsin Energy. We delivered record financial results, we were named the most reliable utility in the Midwest for the fourth year in a row, extending our strong track record of network reliability and customer satisfaction.

We invested nearly $740 million in our core business with all major projects on time and on budget. We achieved the safest year of operation in the history of the company, which dates back more than 100 years. And we announced the acquisition of Integrys Energy.

We believe that the combination of our two companies will create the premier regulated utilities system in the Midwest, with superior service and competitive pricing for years to come. The benefits to all of our stakeholders are clear, compelling, and achievable.

Turning now to the state of the economy, Wisconsin's unemployment rate declined to 5.2% at the end of 2014, well below the national average, and the state's lowest unemployment rate since 2008.

As the economy continued to improve over the course of the year, deliveries of electricity to our large commercial and industrial customers began to strengthen as well. On weather nominal basis for the year, our large customers excluding the iron ore mines, consumed approximately 1.3% more electricity than they did in 2013.

We also saw steady improvement in several important sectors of the state's economy, including paper manufacturing, food products, primary metals and rubber and plastics production. In addition, we continued to see an uptick in customer growth across our system, particularly in our natural gas distribution business.

For example, new electric service connections were up by 5.7% for the year, but new natural gas installations rose by more than 28% during 2014. Later in my remarks, I'll update you on several developments in our core business as well as the important construction projects we have underway.

But first, I'd like to discuss our progress in obtaining regulatory approvals for the acquisition of Integrys. To refresh your memory, on June 23, 2014, we announced our plan to acquire Integrys in a cash and stock transaction.

Combining 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 the financial resources to meet the region's future energy needs. We'll serve more than 4.3 million customers in Wisconsin, Illinois, Michigan, and Minnesota.

In fact, the combination will create the eighth largest natural gas distribution company in America, and the strong cash flow of the combined company will be invested prudently in new and upgraded energy infrastructure for the region.

Now, as you're well aware, we have consistently used three criteria to evaluate any potential acquisition opportunity. First, we would have to believe 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 that the long-term growth rate of any acquisition would be at least equal to Wisconsin Energy's standalone growth rate. Our analysis continues to show that the 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 clearly benefit from the operational efficiency that comes with increased scale and geographic proximity. And over time, we'll 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. That means, the combined entity will have a 60% stake in one of the largest transmission companies of the country.

ATC, of course, has a 10-year capital investment plan to bolster electric reliability in our region. In fact, ATC’s capital plan for the years 2014 to 2023 calls for investment of between $3.3 billion to $3.9 billion. We believe it's a solid plan and we welcome the opportunity to increase our commitment to the transmission business.

So where do we stand in gaining the necessary approvals? Again, to refresh your memory, the proposed acquisition was approved by Wisconsin Energy and Integrys shareholders back on November 21, 2014.

In addition, the US Department of Justice completed its review under the Hart-Scott-Rodino Act on October 24, 2014 with no further action required by the company.

As you know, the transaction also requires the approval of several regulatory agencies, including the Federal Energy Regulatory Commission, the Wisconsin and Michigan Public Service Commissions, the Illinois Commerce Commission and the Minnesota Public Utilities Commission.

We filed with all four state utility commissions in early August and we are currently working through each of the proceedings.

Perhaps the most notable regulatory development has occurred in Michigan, where we reached a settlement last month that helps to pave the way for the acquisition, while addressing electric reliability concerns in the Upper Peninsula. I'll talk about the settlement in more detail in just a moment.

But it's important to note that the Michigan Governor, the Michigan Attorney General, and the iron ore mines all sent letters to the Federal Energy Regulatory Commission in January stating that they have no objections to our transaction.

These parties will not oppose, will not condition or delay the confirmation of the transaction in any proceeding at the Federal Energy Regulatory Commission.

In addition, the state Attorney General and the Michigan Commission staff and the mines will not seek or support any other conditions to the merger and proceedings at the Michigan Public Service Commission and the Michigan Commission has set a schedule now that calls for a decision by June 15 of this year.

In Wisconsin, the Commission expects to vote on the acquisition no later than April 16. In Illinois, the Commerce Commission staff has proposed a schedule that calls for a decision two days after July 4, on July 6, 2015. And the Minnesota Commission is expected to review our application in early May.

Finally, at the Federal Energy Regulatory Commission, public comment periods in our merger case have now closed and we continue to work diligently to gain FERC approval. In summary, we're making very good progress on all the regulatory fronts and we still anticipate closing the transaction during the second half of 2015.

Two final items related to our acquisition of Integrys. Back in June, Integrys announced the sale of its unregulated power and natural gas marketing business. That sale was completed on November 3, 2014 to a subsidiary of Exelon. The other item relates to the Michigan settlement that I discussed earlier.

The settlement calls for the sale of the electric distribution assets owned by both Wisconsin Energy and Integrys in the Upper Peninsula, as well as the sale of our Presque power plant to Upper Peninsula Power Company. Under the terms of the agreement, Wisconsin Energy's distribution assets would be sold for an amount slightly higher than book value.

Subject to state regulatory approval, we intend to return that premium overbooked value to our customers. The Presque Isle plant would be sold for $1 reflecting the current market value of the facility. As you may recall, we attempted to sell Presque Isle last year, but we did not receive any valid offers.

We expect to treat the plant sale as an asset retirement and we will seek recovery of the approximately $200 million of net unrecovered plant balance consistent with prior regulatory practice. Customers in both Wisconsin and Michigan will clearly benefit from this agreement.

Once the Presque Isle plant is sold, Wisconsin customers will no longer have to pay for the operating costs associated with the plant, our Michigan customers will also avoid short-term costs. And Michigan's Upper Peninsula will have more control over its energy future as it will no longer be part of a single Wisconsin/Michigan system.

In the end, this agreement addresses the needs of all the parties in the settlement and clears the way for Michigan State regulatory approval of our proposed acquisition.

And now turning to recent developments in our core business, as you may recall, last July we received the final written order from the Wisconsin Commission approving our request to build and operate a new major natural gas lateral in west central Wisconsin.

The 85 miles of pipeline and connected facilities will run from northern Eau Claire County, in the far western part of the state, to the city of Tomah in west central Wisconsin.

The project will address natural gas reliability concerns of that region and will also help meet the demand being driven by customers converting from propane to natural gas and by the growth of the sand mining industry in that part of the state.

The Commission's approval also includes franchise awards for 10 communities along the route, and authorizes us to begin delivering natural gas within the borders of those communities. In October, we began work on portions of the downstream facilities. Two of the three branch lines were installed as of mid-November.

Construction on the third branch began in January and of course we have one major large diameter lateral to install. Route clearing for that lateral also began early this year.

We expect to complete the entire project in the fourth quarter of this year at a projected cost of $175 million and $185 million, excluding allowance for funds used during construction. On the generation side of our business, you'll recall that we're converting the fuel source for our Valley power plant from coal to natural gas.

The two-unit Valley plant is a 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’m pleased to report that the project remains on schedule and on budget. Unit 1 achieved commercial operation burning natural gas back in November. The entire Valley plant is available to operate at full power at this time with Unit 1 burning natural gas and Unit 2 continuing to burn coal.

And we expect Unit 2 to be converted to natural gas in time for next winter seeding season. Overall, the project is currently about 66% complete, we expect the total conversion cost to be between $65 million and $70 million, again excluding allowance for funds used during construction.

Converting Valley to natural gas will reduce our operating costs 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 vibrant downtown Milwaukee for many years to come.

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

The construction now underway to build a new powerhouse and add spillway capacity to meet current federal standards. We continue to make good progress on the major construction work at Twin Falls. The upstream cofferdam has been completed and rock excavation is well underway. Overall the project, as we speak today, is approximately 37% complete.

We plan to begin construction of the new powerhouse this spring and we expect commercial operation in the new powerhouse to begin in the summer of 2016. The total investment is budgeted at $60 million to $65 million, excluding funds used during construction.

Also, we continue to make excellent progress on our initiative to improve fuel flexibility at the Oak Creek expansion units. As you recall, these units were initially permitted to burn bituminous coal.

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

In 2013, we received the necessary environmental approvals, began making changes to the boilers and started testing various blend of bituminous and PRB coal at the plant. With a few modifications, both units can sustain a 20% PRB blend. We’ve also conducted limited testing on Unit 2 at various levels up to 100% PRB.

Although testing has gone well, there are operational issues that need to be resolved and equipment that must be modified to sustain the higher blends of PRB coal on a long-term basis. So in July of last year, we filed a request with the Wisconsin Commission to approve additional capital spending for modifications of the plant.

Our share of that investment would be approximately $21 million. If approved, the modifications are expected to support sustained operation at up to 60% PRB and allow us to continue testing blends up to 100% PRB. Also it’s very clear that we need space and equipment to handle additional coal inventory at the site.

As a result, we filed a request with the Wisconsin Commission in October of last year for an expanded coal storage facility and additional handling equipment. Our estimated capital cost for this particular project is $58 million. We hope to receive Commission approvals for both of these projects in the second half of this year.

Looking forward, we see significant investment opportunities in our existing core business, as we also continue to upgrade our aging distribution networks and focus on delivering the future.

Our updated capital budget, and this is new information, our updated capital budget calls for spending $3.3 billion and $3.5 billion over the five-year period, 2015 through 2019. Our rolling 10-year capital budget now calls for investing between $6.6 billion and $7.2 billion over the period 2015 through 2024.

Turning now to our dividend policy, at its January meeting, our Board of Directors raised our quarterly dividend to $0.4225 a share, an increase of 8.3% over the dividend paid during 2014. The new quarterly dividend is equivalent to an annual rate of $1.69 a share.

The Board also reaffirmed our standalone dividend policy that targets at a payout ratio trending to 65% to 70% of earnings in 2017, a payout ratio that is more competitive with our peers across the regulated utility sector.

At the closing of the Integrys acquisition, we expect to increase the dividend again by 7% to 8% for Wisconsin Energy shareholders to reflect the dividend policy of the combined company. And then going forward, a project that payout target for the combined company is expected to be between 65% to 70% of earnings.

And finally turning to Wisconsin rate matters, in December the Wisconsin Commission issued its final order on our re-filings for the years 2015 and 2016. The order approved a net bill increase of 0.10% related to the non-fuel costs for our retail electric customers in Wisconsin. The new rates went into effect and January 1.

The order also approved an increase in the fixed portion of our customer’s monthly bills, while correspondingly reducing the kilowatt hour charge. As you know, a higher fixed charge and a lower energy charge more accurately reflect our cost structure.

Lastly, the Commission approved a return on equity of 10.2% for Wisconsin Electric and 10.3% for Wisconsin Gas. It also authorized an increase in the Wisconsin Gas common equity component to an average of 49.5%, up from 47.5%. The midpoint of Wisconsin Electric’s equity component remains unchanged at 51%.

In summary, ladies and gentlemen, 2014 was another year of achievement for Wisconsin Energy, the company continues to perform at a high level both financially and operationally. And our proposed acquisition of Integrys positions as well for strong future growth as we focus on delivering the future.

And now with more details on our full-year performance and our outlook for 2015, here’s our Chief Financial Officer, Pat Keyes.

Pat?.

Thank you, Gale. As Gale mentioned, for 2014, our adjusted earnings grew to $2.65 a share compared with $2.51 a share for 2013. Our GAAP earnings for 2014 were $2.59 a share, which includes $0.06 of costs associated with the acquisition of Integrys.

Consistent with past practice, I will discuss operating income for our two business segments and then discuss other income, interest expense, and income taxes. Our consolidated operating income for the full year 2014 was $1.112 billion as compared with $1.080 billion in 2013. That's an increase of $32 million.

Starting with the Utility Energy segment, operating income in 2014 totaled $770.2 million, an increase of $50.8 million over 2013. On the positive side, lower O&M spending, in part driven by lower benefits costs, increased our margins by $59.3 million. We also had a $28 million increase in revenues due to the second year of our Wisconsin rate order.

On the negative side, depreciation expense increased by $20.4 million in 2014, primarily because our biomass plant was placed into service late in 2013. We estimate that weather resulted in a net $14.8 million decline. While we experienced cold winter weather in 2014, this was more than offset by our cool summer.

Now, turning to our non-utility segment, operating income was up $1.1 million when compared to last year. This increase reflects new investments at our power the future plants. Our corporate and others segment showed an operating loss of $26.3 million, which is almost $20 million more than the prior year.

During 2014, we incurred $14.6 million of external costs, primarily legal, banking and professional fees related to the Integrys acquisition. Taking the changes for these segments together, you arrive at a $32 million increase in operating income, or a $46.6 million increase adjusted for the $14.6 million of acquisition costs.

During 2014, earnings from our investment in the American Transmission Company totaled nearly $66 million, which is $2.5 million decline from 2013. Our other income net declined by $5.4 million, primarily because of lower AFUDC. AFUDC decreased because we completed the biomass facility in the fourth quarter of 2013.

Our net interest expense declined by $10.6 million. This was primarily driven by lower long-term interest costs as our net debt issuances are at rates lower than the rates on scheduled maturities. Our consolidated income tax expense rose by $23.8 million because of higher pre-tax earnings and a slightly higher effective tax rate.

Our effective tax rate for 2014 was 38.1%, as compared to 36.9% in 2013. We estimate that our standalone effective tax rate in 2015 will be between 37% and 38%. Combining all of these items brings you to $588.3 million of net income or GAAP earnings of $2.59 a share for the year.

Adding back $0.06 per share for the after-tax impact of acquisition costs, we saw adjusted earnings of $2.65 per share. During 2014, our operating cash flows totaled $1.198 billion, which is a $33 million decrease from 2013. We experienced higher net income and depreciation and amortization costs.

However, these factors were offset by higher working capital requirements related to natural gas inventories. Our capital expenditures totaled $736.1 million in 2014, a $48.7 million increase compared to 2013.

We saw higher construction expenditures related to the conversion of the Valley power plant to natural gas and investments in our distribution infrastructure. And we paid $352 million in common dividends in 2014, which was $23.1 million greater than in 2013.

We’re also pleased to report that our adjusted debt to capital ratio was 51.4% at the end of 2014, which is more than our 2013 ratio of 52.5%. We continue to use cash to satisfy any shares required for our 401k plan, options and other programs. Going forward, we do not expect to issue any additional shares except for the Integrys acquisition.

I’ll now report on 2014 Electric deliveries to our customers. Delivered electricity reflects the demand from both our retail and electric choice customers and thus is a good indicator of how the regional economy is faring. Weather normalized retail deliveries of electricity excluding the mines rose by 0.004% during 2014 as compared to 2013.

Actual deliveries were down by 0.007%. Looking at the individual customers segments, we saw normalized residential deliveries increase by 0.001% in 2014. Actual residential deliveries declined by 2.4%. Across our small commercial and industrial group, weather normalized deliveries declined by 0.001%.

On an actual basis, full-year deliveries to this group were down 0.004%. Normalized deliveries to the large commercial and industrial segment for the full year 2014 excluding the iron ore mines were up by 1.3% for the year. Actual deliveries rose by 0.009% for the year.

Overall for 2015, we are forecasting a modest increase of 0.001% in weather normalized deliveries, again excluding the iron ore mines. We plan to meet our earnings targets without relying on significant gains in energy usage by our customers.

Looking at 2015 by individual customers segments, we expect the residential deliveries to grow by 0.002%, impacted positively by continued modest growth in housing starts, but offset by conservation. In the small commercial and industrial segment, we are projecting an increase of 0.003%.

In the large commercial and industrial group, we are projecting a decrease of 0.003%. On the natural gas side of the business, total volumes in 2014 increased by 5.2%, driven partly by the colder weather. On a normalized basis, and excluding the volumes used in power generation, gas volumes increase by 3.6% compared to 2013.

We attribute this to an increase in customers, fuel switching to natural gas, and the positive impact of additional gas used in the sand mining industry. Looking over the period 2015 through 2019, as a stand-alone company, we’re projecting positive free cash flow totaling $300 million.

As a reminder, we define free cash flow as the cash available after capital spending and dividends. Next, I’d like to announce our standalone earnings guidance for 2015. We will revise our 2015 guidance after the Integrys acquisition has been completed. And as Gale already mentioned, we anticipate closing the transaction in the second half of 2015.

As we discussed, our adjusted earnings in 2014 was $2.65 a share. Subtracting $0.03 for the impact of weather, we estimate that normalized adjusted earnings for 2014 were $2.62 a share. Taking this into account, we expect our adjusted earnings for 2015 to be in the range of $2.67 a share to $2.77 a share.

This projection assumes normal weather and excludes transaction related costs. Again, our guidance for 2015 on a stand-alone basis is $2.67 a share to $2.77 a share. Finally, let’s look at the first quarter guidance. Last year’s first quarter earnings were $0.91 a share and that included $0.10 of weather benefit created by the polar vortex.

In addition, the polar vortex helped last year’s first quarter fuel recovery. Taking these two factors into account, we expect our first quarter adjusted earnings in 2015 to be in the range of $0.79 to $0.81 a share. That assumes normal weather and excludes transaction related costs.

Once again, our first quarter 2015 guidance is $0.79 to $0.81 a share. And with that, I’ll turn things back to Gale..

Pat, thank you very much. Overall, we're on track and focused on delivering value for our customers and our stockholders..

[Operator Instructions] Your first question comes from the line of Julien Dumoulin-Smith with UBS..

Well, perhaps just a couple of quick questions here clarifying first on the guidance, can you give us at all kind of any sensitivities around timing of the transaction and the close, basically about a one month delay in the close would be your – anything at all would just be helpful just from a timeline perspective..

Julien, again, we’re trying to give you for 2015 our standalone guidance, because no one is certain at this point the exact closing date and let me just iterate that a little more. Right now, July 6 would be the longest date that’s been established out there, that’s by the Illinois Commerce Commission for a vote.

So we’re saying we expect to close on the second half of 2015, much of the acquisition relates to acquiring natural gas distribution companies. Obviously, their sales are quite low in the third quarter.

So we really unfortunately can’t give you any more precise information about the impact of one month or not, really it does depend upon the month of the season, depends upon the weather, but I don’t think it’s going to have a huge impact one way or another. We are still expecting to close in the second half..

Perhaps secondly, can you talk about a little bit of the drivers in the shift in capex here, just a little bit more around the increase, what drove that or where is it kind of usual rolling forward?.

Couple of things. About two thirds of our overall capital spending over the course of the several years, we will be focused on upgrading our ageing electric and natural gas distribution networks, particularly the electric distribution networks. And that’s very much age-driven.

If you look at the reliability of the equipment in our industry, which as you know is incredibly reliable, you start to see the significant uptick in failure rates after the equipment reaches age 50. So we are focusing our upgrades, we are focusing our replacements on equipment that is reaching or passing that age.

And we’re seeing more equipment and we are seeing more investment requirement related to upgrading those electric distribution networks. I think overall, if you look at our rolling 10-year capital plan, it’s up pan about $100 million from the last 10-year plan..

Julien, this is Pat, let me just add a couple of things. I think if you look at 2014 versus 2013, I think I said about $50 million round number in additional capital spend and about half of that we had projected because, as Gale mentioned, that’s largely driven by delivery of the future.

If you look at the last number we had in our investor presentation that we ended up the year about $25 million ahead of that and that increment is largely driven by gas lateral expansions as people got off for propane, we grew our gas distribution spending to help facilitate those customers conversion..

Perhaps just lastly, can you comment on weather normalized trends, I know you can to a certain extent, but just expand on 2015, if you will, a little bit, and what may be some of the key drivers might be if you think about sensitizing it?.

Sure, be happy to Julien. Let me start with the large commercial and industrial customers, our large customer group. And that’s an interesting statistic that we did not put in the script, but I think is worth mentioning.

If you look at our delivered volumes of electricity to our large customers for 2014 and include the iron ore mines up in the Upper Peninsula, which we’re still responsible for delivery regardless of where their supply comes from, if you look at that customer segment, weather normal, it was actually up 3.8% during 2014.

That’s pretty strong industrial growth in 2014. We are projecting virtually flat for that customer segment in 2015, coming off that big uptick in 2014, and that’s based really on the input we received from our large customers when we interviewed them in the fall of the year as we finalize our forecast.

So in essence, what we are expecting on the large commercial and industrial side of our business is to sustain the growth that occurred in 2014 to probably stay pretty close to that level. That’s really the insight that I would give you on our large commercial and industrial.

And then in essence, for residential weather normal, for commercial weather normal, basically a little bit of growth offset by conservation and a net-net of flat..

Your next question comes from the line of Jonathan Arnold with Deutsche Bank..

Just firstly on transmission, it looked like the number ticked down in the fourth quarter, why would that be?.

There’s a very good reason for that and will let Pat answer as to why..

Jonathan, as you know, there is a possibility that the ROEs are going to be adjusted for the ATC and others across the country for that matter. So it’s part of our – we have taken – we reserved against that possibility..

Can you quantify that, how much of the impact it was on the quarter?.

I think we’ve talked about in the past, if you kind of use the guidelines of the Massachusetts ruling, 10.57 to 11.74 ROE, that’s somewhere between $0.01 and $4.5. We kind of took a look at that and use that as our guidance.

We were probably closer to the $0.01 side of it, but that was kind of a yardstick, if you will, we used to kind of beside where we are going to, how appropriate was to reserve..

So basically, we took a small charge in the fourth quarter and then we embedded an estimate of slightly lower ROEs in our 2015 guidance to you.

So the numbers that Pat showed you or mentioned to you, in our 2015 guidance band of $2.67 to $2.77, that assumes also a slightly lower at the top end and bottom end slightly lower ROE outcome once FERC decides the MISO case in, we think, the second half..

Just to be clear, did you use the New England number or did you take the New England methodology and mark it to today, I guess, plus the 50 basis points?.

Using the New England number as a guidepost, we based our analysis on a different way, I guess, is the simplest way to say it. The other way to look at it, I’ll add on Gale’s 2015 point, I mean we obviously got a range of guidance and part of the driver of that range of guidance is where will that return fall in..

I’m still not quite clear, you say did you use the 10.57 or did you use that to mark it?.

What we really did was we said, okay, at one end of the spectrum, and we’re not going to be precise, Jonathan, about the spectrum, but at one end of the spectrum, the decline could be X cents, at the lower end of the spectrum, it could be Y cents, and we embedded the X and the Y in the guidance we have given you..

One other, we noticed there was an order to show cause out of the MPSC with relation to the Upper Peninsula I think yesterday, could you comment on that?.

Sure, would be happy to. First of all, I want to make sure everyone understands that this particular order that came out yesterday afternoon is a separate docket completely from our merger docket. So we really don’t see any real link between the two. And we’ve just had a quick review obviously of the order itself, but couple of points.

First of all, we believe the Michigan Commission wants some very broad input from a whole range of parties on units that receive or could receive the SSR, the subsidy, the system support resource payments from MISO and where the state authority starts and ends and where the federal authority starts and ends for units that have these SSR payments or could have these SSR payments in the future.

So that I think is the nut of where the intent of that particular docket that the Commission opened is and we’ll be happy to work with the Commission, we’ll be happy to provide our input.

But also I want to assure you that there is no issue with making sure that we have adequate supply for as long as we own the assets in the Upper Peninsula to meet customer needs. That really is our intention, obviously we will keep the Presque Isle units open under MISO direction for as long as they need to be..

So there’s no kind of sense that they’re going cold on the settlement or anything like that?.

I’m sorry, just the opposite. I mean, if you think about how the settlement was put together, the Governor’s office, the Michigan State Attorney General, the PSC staff and the iron ore mines are all parties to the settlement. And certainly, from everything we are sensing and everything we can tell are fully, fully on board with the settlement.

This is a separate docket entirely..

Your next question comes from the line of Paul Ridzon with KeyBanc..

The fourth quarter ATC kind of booked reserve for the full year or is it just related to the fourth quarter?.

No, for the entire year. In fact, back to November of 2013..

And have the mines come back to your service?.

Mines are home as of February 1..

And is that baked into your guidance or is that...?.

Well, no, because under the way rates have been set, associated with serving the mines will be deferred on our balance sheet..

Deferred until the next rate case or...?.

Yes, deferred, the margin and the cost – the cost and then resulting in the margin will be deferred until the next rate case..

And weather for the year was $0.03 positive versus normal?.

Correct..

And then lastly, what do you think as far as continued growth out of the sand mining industry, given that this is frac sand?.

Very interesting question and actually there’s been a lot of analysis over the last couple of months, particularly as oil prices began to crater, about the impact in the western part of the state on the huge expansion we’ve seen in frac sand mining.

And for right now, we’re actually not seeing any downturn at all in frac sand production in the western part of the state. And when we talk with the frac sand producers, they’re still quite optimistic.

Now, I would say the growth is going to level off and we’re not going to see for the near term any significant additional growth, but they’re not seeing any downturn either. And I think that’s in part because Wisconsin has now become the number one supplier of frac sand in the country.

It’s the quality of the sand, it’s the ease of getting that sand to market from where the sand mines are. So we’re not seeing any real deterioration at this point and the customers that we are talking to out there don’t expect to see any 2015 deterioration as well..

So we’ve got a cost advantage to actually support them?.

I think they’ve got a cost and quality advantage..

Your next question comes from the line of Brian Russo with Ladenburg Thalmann..

My questions were asked and been answered. Thank you..

Your next question comes from the line of Michael Lapides with Goldman Sachs..

Real quick one, how should we think about what the value of the distribution assets in the Upper Peninsula are? I’m trying to think through the cash you’ll receive from that potential sale and then the amount that could potentially be rebated back to customers..

I think we’ll just give you a ballpark number here, and again, this is a very, very small part of our business. But the book value of the distribution assets is going to be in the neighborhood of $100 million..

One other totally unrelated, total short-term debt at the end of the year is kind of that high point if I look relative to prior quarters, even prior year end, does kind of comparing year over year to past years, how should we think about what your plan for that is, what’s driving that et cetera?.

Well, I’m looking at Scott and Pat here. For one thing, we tend to tick up in Q4 anyway because of the buildup of natural gas inventories. Total short-term debt is going to be a little higher. If you’re looking at it compared to Q3, it’s always going to be higher.

Really, I don’t see any significant difference here, we were able to push off a bond offering, given our stronger cash flows during 2014, but we are kind of in a normal pattern here.

Scott?.

Yeah, the short-term debt is really at the two utilities. So we’ve have plenty of room and we have a lot of cash, we have some cash ex that holding company. So it’s really just a timing of when we do debt issuance at future..

Finally, can you talk about the impact of bonus depreciation on 2015 cash flow, how that impacts your EPS guidance?.

We certainly can talk about the cash flows, there won’t be any real immediate impact on EPS.

But Pat, how about talk about the cash benefit from bonus depreciation?.

Michael, for us, that’s about $115 million this upcoming year. So as Gale mentioned, because that was not part of the rate case and we’re not going in for the rate case, there isn’t any impact on it for this year that helps where you’re heading on the rate base, I should be more clear..

Got it.

It would impact further down the road, but not in the immediate term?.

That’s correct, probably 2017. And remember, having said that, Gale also mentioned that our revised capital is up about $100 million, so net-net, it’s probably in the same place..

Yeah.

And finally, can you actually just give us the walk 2015, 2016 and 2017 annual capex?.

Let’s see if we broke it down in the materials we brought into the room of year by year, I can tell you that over the period, as I mentioned earlier, about two thirds of the capital spending will be tied to our distribution networks.

We will have a disproportionate amount of capital spending this year because this is our big spending year for the western Wisconsin natural gas expansion, that 85 mile lateral that I mentioned and that’s $170 million, $180 million, so you’ll see more spending on natural gas distribution in our, what we call our lifesaver chart, where we have the colors in the bars, you’ll see 2015 being an outsized year for natural gas distribution spending.

But over the period of time, you’re going to see about two thirds of the capital spend be on upgrading our distribution networks, particularly electric..

Michael, if you allow me to expand on the lifesaver theme and add some color to Gale’s comments, at the utilities now, it’s only there, that’s the number I got in front of me, was about $700 million in 2014, and then will be around $770 million in 2015 with the largest part of the delta being the west central, and then we kind of flatten out to some $600 million, $650 million two years after that in 2016, 2017, if that helps..

Got it.

Last one, you’re spending a little bit of capital at Oak Creek at the power the future plan, how should we think over a multi-year period what happens to the earnings trajectory of the power the future assets, I mean is that a flat earnings stream, is this going to drive a little bit of earnings growth, is there some natural earnings growth embedded in the contracts or in the lease structure, how should we think about it?.

The simplest way to think about it is a slightly rising slope on a slightly rising stream of income from the power the future units. There are two reasons. One, there is some maintenance capital that we normally need to spend, you anybody needs to spend on power plants.

So there will be small amounts of additional capital is the maintenance capital is spent.

Then we’re probably looking on a close to $90 million or so for the two projects that we are seeking Commission approval for, related to the additional cold storage capability and the plant modifications for fuel blending, which we covered in the script, so that would add to earnings.

And then just in general, as we amortize the debt and the revenue stream stays the same, you would expect slightly higher annual earnings as you amortize and pay down the debt. So I would look at it as a gently rising stream..

Your next question comes from the line of Paul Patterson with Glenrock Associates..

I just wanted to follow-up on Jonathan Arnold's question with respect to the show cause order because I'm a little confused. First of all, it doesn't seem like they've referenced the settlement at all.

But the settlement, as I understand it, was supposed to deal with the concerns about reliability regarding the Upper Peninsula, correct?.

Yes, correct..

And it was pretty thorough, like you said, all of the things you said. But then when you read this, they say that, at present, Wisconsin Electric is unable to provide the Commission with assurance of reliable supply of electric service given it has announced its intention to retire the PIPP, the Presque Isle.

And they emphasize this urgent problem with constrained capacity on the Upper Peninsula will continue for years. What I don't understand is you guys are supposed to be selling this asset and what have you, it will be sort of the up goes issue, I would think.

I'm just a little confused as to, A, I know it's their order and what have you, but if you could give us any insight that you have on this and that. They seem to be making an issue about something that the settlement was designed to deal with and they're not referring to the settlement. It just seems odd.

It just seems like it's coming out of nowhere, if you know what I'm saying..

You are asking a very good question, our view after reading the order and having some discussions, our view is that this docket is all about a much narrower policy issue related to these systems support resource payments. We don’t think it has anything to do with a broader docket.

There are a number of units as you know in Michigan now, not just ours, not just the Presque Isle plant, but there are a number of units getting these systems support resource payments either because the owner had planned to suspend or retire the units.

So our view is while I understand your confusion, our view is this really a much narrower docket associated with where are the state authorities, where are the federal authorities as it relates to these units that either could get or are receiving SSR payments. I hope that helps..

It does help. What I'm a little confused about is why are they only asking you to show cause? It just seems like, why not get those other – I could understand a broader investigation, like they want to keep on top of it, et cetera.

I just don't understand why it's like, we're asking Wisconsin Energy to show cause as to what the issue is, particularly if it looks like in the near future you guys aren't really going to be in the picture anywhere near to the degree you are..

Well, I think maybe they got us on speed dial, you never know..

Okay, I don't mean to make too much of it. I'm just a little confused by it, that's all..

There may be one other reason to that. In terms of the magnitude of the SSR payments, Presque Isle is clearly, the units that are getting the biggest payments by far, so that may have been part of their thinking. I’m speculating on that, because we really don’t know, want to know more, until we get further into it..

Okay. But just, generally, though, as far as you guys see it, the settlement is perfectly in place. You've heard no pushback or any issue associated with that and things are proceeding well with respect to the merger processes you're seeing.

We shouldn't think anything else of it than just what you said, right? Everything else with respect to the merger and the constraint, the Upper Peninsula power reliability issues, all those you think are moving well, correct?.

I couldn’t have said it better myself..

Okay, good. Thanks so much for the clarity. The rest of the stuff was answered, thank you.

Just one thing – longer term, with respect to sales growth, do you guys have an updated outlook outside of 2015 which you guys already shared with us, what you think is going to be happening here?.

We’re still looking longer term and a lot of the estimates we provided you longer term for capex et cetera are assuming about 0.5% electric sales growth annually..

Your next question comes from the line of Dan Jenkins with the State of Wisconsin Investment Board..

First, I just had a bit of a follow-up on the sands customers, the frac sands, any impact.

I was just curious if you could let us know like how big is that revenue as part of the industrial, how big of a segment is that?.

Let me clarify, good question Dan, let me clarify one thing. We largely do not serve electricity in that region. So from a standpoint of the sand mining growth and the sand mining production, it’s largely related to our natural gas distribution network.

And of course, we’re now to help certain of the sand mines, we’re now building this 85 mile lateral that will increase our capacity to serve the sand mines.

Scott, do you have an estimate of our total industrial, for example, our total industrial deliveries of natural gas?.

Yes, if you look at the volumes, it’s a couple of percent..

About 2%..

...in the sand area and that grew about 30% last year..

Yeah, it was way up last year as Scott was saying 30% increase to the sand mining industry..

Okay.

So it's more the margin and the volume than the overall total has been more the impact so far?.

I would agree with that, yes..

Another question I had is, just looking at the cash flow statement, you had about an $80 million swing in working capital. I was wondering if you could give a little more color on what was driving that..

A lot of that is natural gas inventory, but Steve Dickson, do you have a breakdown for us?.

No, you’re absolutely right, Gale. Gas and storage was about $71 million cash items, but the gas and storage, last year because it was so cold in the fourth quarter, in December, we drilled down balances and that was a positive cash flow. This year, two things, we build out inventories and the price at the end of this year is higher than last year.

So that was the big driver..

Okay. And then you mentioned that the lower medical and benefit cost was a big driver.

I was wondering, is that due to a change in your policy or is it more of a valuation thing related to interest rate changes, or what's going on there?.

Last year, good question again Dan, Dan you’re on your game today. Last year was the first year, 2014 was the first year where all of our employees were receiving medical tariffs on high deductible plans. And we think that did have a positive impact. Also, just our medical experience, last year was better than normal.

So it will be interesting to see how 2015 plays out, because we did have a very positive year in terms of medical benefit costs. And again, we are not sure how much of that relates to the fact that every employee is on a high deductible plan and how much of it was just a very good healthcare experience year.

We have a lot of initiatives underway in the company on understanding exactly where you are individually with your health, we are really promoting wellness and it was good to see the results of 2014..

On page nine, just looked at the fourth quarter revenues, other operating revenues, you had a $21 million increase there.

Is that what's going on there? I know you all said that Treasury grant thing or is there something related to that?.

Dan, I’ll let Steve answer that question for you..

Dan, we announced that we have the SSR agreements and we started recognizing revenue associated with that. So in the fourth quarter, about $20 million of that increase relates to SSR revenues. That’s probably an escrow to 2015..

Your next question comes from the line of Dan Fidell with US Capital Advisors..

Thanks for taking my question here. Most of my questions have been asked and answered, but just a quick question on the Integrys approval process. Certainly thanks for the timing detail in the script. There have been more than a few moving parts going on, both politically and personnel-wise in Illinois of late.

A bit unusual I think for the state overall, but also to have that happen in the middle of a merger.

How, if at all, do those shifts impact the approval process as it applies to you guys? Is there any additional thoughts you might have on that?.

No, well, actually we don’t think there is any significant impact at all in that, when we first applied in the State of Illinois for approval, as you know there is a very large professional staff operating for the Illinois Commerce Commission, they have been down this road before in terms of two natural gas distribution companies being acquired in the last six years in Illinois.

The staff proposed to an ALJ, by hearing schedule and a schedule for a Commission decision, and really we’ve seen all the parties stick to the schedule. So far it’s been a process that’s unfolded very smoothly and very much to our expectations in terms of timing. And there is no indication at all that the July 6 date is anything different..

Your next question comes from the line of Michael Weinstein with UBS..

Hi guys. I figured I'd just jump in there, too, as well. But I think my questions have all been answered so way at the bottom of the pack..

Well, ladies and gentlemen, that does conclude our conference call for today. We really appreciate your participation. If you have any other questions, our famous Colleen Henderson will be available in the Investor Relations office at 414-221-2592. Thanks much everybody, take care..