Allen L. Leverett - WEC Energy Group, Inc. Scott J. Lauber - WEC Energy Group, Inc..

Greg Gordon - Evercore ISI Shahriar Pourreza - Guggenheim Securities LLC Caroline V. Bone - Deutsche Bank Securities, Inc. Michael Lapides - Goldman Sachs & Co. Paul T. Ridzon - KeyBanc Capital Markets, Inc. Daniel F. Jenkins - State of Wisconsin Investment Board Steve Fleishman - Wolfe Research LLC Leslie Best Rich - JPMorgan Investment Management, Inc..

Good afternoon and welcome to WEC Energy Group's Conference Call for First Quarter 2017 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 remind you that all statements in the presentation, other than historical facts, are forward-looking statements that involve risks and uncertainties that 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 WEC Energy Group'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 discussions, 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, a package of detailed financial information is posted at wecenergygroup.com.

A replay will be available approximately two hours after the conclusion of this call. And now, it is my pleasure to introduce Allen Leverett, President and Chief Executive Officer of WEC Energy Group..

Good afternoon, everyone. Thank you for joining us today as we review our results for the first quarter.

I want to start by introducing the members of our team who are here with me today, Scott Lauber, our Chief Financial Officer; Jim Schubilske, our Treasurer; Susan Martin, General Counsel; Bill Guc, Controller; and finally Beth Straka, who is Senior Vice President of Corporate Communications and Investor Relations.

Now, as you saw this morning, we recorded first quarter earnings per share of $1.12, which is ahead of our guidance. Effective cost controls, better than forecasted electric fuel recoveries and the decoupling mechanisms at our Illinois and Minnesota gas utilities help to more than offset the very warm weather in the first quarter.

Scott will provide more detail in a moment. We are affirming our guidance for 2017 in the range of $3.06 per share to $3.12 per share, and this is in line with our expected long-term earnings per share growth of 5% to 7%. Now I would like to update you on several developments on the regulatory front.

On April 4, we filed the proposed settlement agreement with the Public Service Commission of Wisconsin. Due to the terms of the settlement, the currently approved base rates for all of our Wisconsin utilities would be frozen for 2018, as well as 2019. This will make for a total of four years that base rates will be flat.

This would essentially give our customers price certainty through 2019, and require us to continue to manage our cost aggressively. Under the proposed agreement, the current earning sharing mechanisms would be extended through 2019 at Wisconsin Electric and Wisconsin Gas.

In addition, a similar mechanism would be put in place in 2018 at Wisconsin Public Service for two years. Similar to Wisconsin Electric and Wisconsin Gas, this mechanism would provide for equal sharing between shareholders and customers of the first 50 basis points of earnings above Wisconsin Public Services allowed return on the equity of 10%.

All earnings above 10.5% will go back to benefit customers. We have the support of a broad cross-section of our industrial and commercial customers. Currently, 24 customers including three of our largest customers have signed the settlement agreement. We've also briefed legislative leaders and they have been supportive.

As part of the agreement, we are looking to expand and make permanent some electric pricing options for our large electric customers. These options have helped many of our customers reduce their energy costs, grow their businesses and create more than 2,000 jobs.

These changes will allow us to retain an effective economic development tool and avoid a price increase for customers whose current pricing options would expire under the current terms. The Commission formerly began consideration of the proposed settlement on April 28.

Now, settlements are uncommon in Wisconsin, but at this point, I expect the process to move expeditiously. I also want to note that our proposed $230 million investment in natural gas storage for our Wisconsin utilities is progressing through the regulatory process.

In March, the Wisconsin Commission agreed to consider the merits of our petition for declaratory ruling on the reasonableness and prudence of this investment. Under the schedule set by the administrative law judge, the matter will be ready for the Commission to consider and decide on June 1.

Our acquisition of Bluewater Natural Gas Holding will provide approximately one-third of the current storage needs of our Wisconsin natural gas distribution companies. Bluewater will have a long-term service agreement with each of our three natural gas distribution companies in Wisconsin.

The earnings from this investment as well as this risk profile are expected to be the same as if the storage was owned by our local gas distribution companies. I believe this investment will bring a very meaningful benefits to our customers.

In Michigan, our proceeding to obtain regulatory approval for the construction of new gas-fired generation in the Upper Peninsula is also progressing well. We are on track to conclude that process within the 270-day statutory deadline, which ends on October 27.

No substantive issues or concerns have been raised, and we anticipate receiving Michigan Commission approval for the project later this year. In addition, we have received all local approvals needed to accommodate the project, if approved by the Michigan Commission.

As you may recall, our last several major proceedings in Michigan have resulted in settlements which the commission approved. We would welcome a similar outcome in this case. Turning now to Illinois, we continue to make progress on the Peoples Gas System Modernization Program.

I expect we will invest approximately $300 million this year in this program, all of which I expect will make our gas distribution system in Chicago safer, more reliable and less expensive to maintain. Although the program continues as planned, the Illinois Commission is still completing its review of the preferred approach to the program.

The commission has requested that the record in the proceeding be developed further before making a final decision. And I expect an order in the fourth quarter.

Finally on the federal regulatory front, you will recall that on September 28, 2016, FERC affirmed a prior ALJ recommendation of a 10.32% base return on equity in response to the first MISO return on equity complaint. ATC qualifies for a 50 basis point adder to being a member of MISO, thus increasing its return on equity to 10.82%.

We are currently recognizing income at this 10.82% level. However, in the second MISO return on equity complaint case, the ALJ recommended a base return on equity of 9.7%. Again ATC qualifies for the 50 basis point adder, which would bring its return on equity to 10.2%.

When the final order is received, we anticipate transitioning to the 10.2% return on equity. We have factored this lower return into our long-term financial plan. We are monitoring the appeals of the New England cases for developments that could impact ATC's allowed returns.

Now, just a reminder on our dividend, on January 19, our board declared a quarterly cash dividend of $0.52 per share, which is an increase of $0.025 or 5.1% over the previous quarterly dividend level. This represents the compound annual growth rate of 6.6% from the 2015 quarter level. Our annualized dividend level stands at $2.08 per share.

We continue to target a payout ratio of 65% to 70% of earnings. Given that we are right in this range now, I expect our dividend growth will continue to be in line with our earnings per share growth. Now, with some additional details on our first quarter results and financial outlook, here's Scott Lauber, who is our Chief Financial Officer..

Thank you, Allen. Our 2017 first quarter earnings grew to $1.12 per share from $1.09 per share in the first quarter of 2016. Our earnings were driven by effective cost control that more than offset the warmer than normal weather. The weather impact in the quarter is estimated to be approximately $0.04 a share less compared to normal weather.

As you recall, our guidance in the first quarter was $1.02 to $1.06 per share. Our guidance already reflected about a $0.02 per share decrease related to the warm January weather.

The continued warm weather in February and normal weather in March was offset by better-than-expected electric fuel recoveries in the quarter due to lower natural gas prices. With the warmer weather, we saw less maintenance in our field operations that allowed us to allocate resources to capital work.

In addition, we aggressively managed costs with the continuation of warmer weather. The earnings packet placed on our website this morning includes a comparison of first quarter 2017 and first quarter 2016 results. I'll first focus on operating income by segment and then discuss other income, interest expense and income taxes.

Referring to page 6 of the earnings packet, our consolidated operating income for the first quarter of 2017 was $617.3 million as compared to $589.3 million in the first quarter of 2016, an increase of $28 million. Starting with the Wisconsin segment, operating income in the first quarter increased $4.8 million from the first quarter of 2016.

On the favorable side, operations and maintenance expense was $28.4 million lower. This was mostly offset by the mild winter temperatures. In the first quarter of 2017, our Illinois segment recognized an operating increase of $18.4 million compared to the first quarter of 2016.

The increase was primarily driven by reduced operations and maintenance expense, and to a lesser expense continued investment in the gas system modernization program. The mild weather did not have a significant of an impact on our Illinois margins due to the decoupling in the jurisdiction.

Operating income in our other states segment improved $1.6 million due in part to lower operations and maintenance expense resulting from cost control measures and decoupling at our Minnesota operations. Operating income at the We Power segment was up $4.1 million when compared to first quarter of 2016.

This increase reflects the additional investment at our Power the Future plans since the first quarter of 2016. The operating loss at our Corporate and Other segment increased $900,000. Taken the changes of these segments together, we arrived at $28 million increase in the operating income.

During the first quarter of 2017, earnings from our equity investment in American Transmission Company totaled $41.9 million, an increase of $3.4 million compared to the first quarter of last year. Other income net decreased by $17 million quarter-over-quarter.

Recall that in the first quarter of 2016, we repurchased approximately $155 million of Integrys 6.11% Junior Subordinated Notes at a discount, which contributed approximately $0.04 per share. Interest expense increased $3.8 million quarter-over-quarter, this was primarily due to lower capitalized interest and higher short-term rates.

Our consolidated income tax is relatively flat compared to last year. As a reminder, we expect our effective income tax rate to be between 37% and 38% for 2017. Net cash provided by operating activities increased $18.7 million for the quarter ended March 31st, 2017.

A reduction in working capital was partially offset by $100 million contribution to the pension plan in January 2017. Looking at the cash flow statement on page 5 of the earnings package.

Our capital expenditures totaled $329.7 million in the first quarter, a $17.7 million increased compared to the first quarter of 2016, as we continue to invest in our core infrastructure. Our adjusted debt-to-capital ratio was 50.8% at the end of March, a decrease from the 51.9% adjusted debt-to-capital ratio at the end of the last year.

Our calculation continues to treat half of the WEC Energy Group 2007 Series A Junior Subordinated Notes as common equity. We're using cash to satisfy any shares required for our 401(k) plans, options and other programs. Going forward, we do not expect to issue any additional shares.

We also paid $104.1 million in common dividends during the first quarter of 2017, an increase of $7.9 million over the first quarter of last year. Higher dividends were driven by the 5.1% increase to the dividend rate compared to the first quarter of 2016. Moving to sales. We see continued customer growth across our system.

At the end of March, our utilities were serving approximately 8,000 more electric and 23,000 more natural gas customers than it did the same time a year ago. Sales volume quarter-over-quarter are showing on the earnings package on page 8, weather normalized sales are adjusted to factor out the effects of leap year in 2016.

Overall, our normalized results for gas and electric sales in 2017 were slightly above our expectations. Turning now to our earnings forecast, we are affirming our 2017 earnings guidance of $3.06 a share to $3.12 a share. This projection assumes normal weather for remainder of the year.

We are off to a strong start, however, it is early in the year and we have a lot of weather ahead of us. Finally, we'd like to address the second quarter earnings per share guidance. We expect our second quarter 2017 earnings per share to be in the range of $0.56 to $0.60, that assumes normal weather for the rest of the quarter.

Again, the second quarter earnings guidance is $0.56 to $0.60 per share. With that, I'll turn things back to Allen..

Thank you, Scott. So we'll now begin the question-and-answer period.

Operator?.

Thank you. Your first question comes from the line of Greg Gordon with Evercore ISI. Please go ahead..

Hi, Greg..

Thank you. Good afternoon..

Good afternoon..

A couple of questions.

So, the quantum of O&M reduction you saw on the quarter, was that a function of rationing down O&M in the quarter relative to understanding where your margin was coming in? When we look at Q2 versus Q2 O&M or balance of year O&M versus balance of year O&M, how should we think about those numbers going forward? I mean, clearly it would be a huge assumption to use the current base of O&M as a run rate..

Yeah. So, Greg, I think as we look at our plan for 2017, our plan was to bring O&M down 3% in 2017 relative to the actual run rate in 2016, and that's still our plan.

But given how extraordinarily warm it was in January and February, we use, what I've talked about before, our flex down process to basically flex down spending to preserve our margins in the phase of the very, very warm weather.

So, I think 3% down year-over-year on O&M is still a good assumption sort of on a whether normalized basis, so to speak, Greg..

So if your Q2 through Q4 numbers were to come in and theoretically on the plan, the O&M numbers quarter-over-quarter over for the balance of the year would be in that direction and magnitude?.

Yeah, yes, the 3%. That's right..

Okay. Got you. Moving down to the WE Power line, you saw $4.1 million improvement in operating income from higher capital investment.

How should we think about how those numbers are going to trend over the balance of the year? Is that going to be at a sort of a $16 million improved operating income run rate because of higher capital, or was that for some reason lumpy in the quarter?.

It was a little lumpy as we put those projects in, in the storage, the coal storage, and fuel blending. So, overall though, that should continue through the year..

Okay.

So not in the $4 million run rate, but there will be incremental earnings in each subsequent quarter that approach that increased amount?.

Yeah, it will be an increased in each of the future quarters compared to the prior year..

Okay..

That, we just put it in service in January this year at the end of last year..

Can you remind me what the total capital investment was, as you were in sort of a pretty consistent return on investment -.

Yeah, it was just under $60 million..

$60 million. Okay. I have some other questions, I'll go to back in the queue. Thank you..

Thanks, Greg..

Your next question comes from the line of Shar Pourreza with Guggenheim Partners. Please go ahead..

Hey, Allen and Scott, how are you?.

Hi, Shar..

How are you?.

Good. Good..

Is there an update on the Arizona co-op situation, and as well as Alaska? Is there any updates on wires opportunities there right now?.

Yeah. So, Shar, those are just maybe a context for the others on the call, those were areas that American Transmission Company was targeting for development kind of outside their traditional footprint. In Arizona, they are working. They are looking at the feasibility of the number of transmission projects. My expectation is later this year.

Can't really give you a specific date at this point, but they're actively looking at I think four different projects, and they would be prepared to propose some of those later this year in Arizona. And in Alaska, I don't have any update for you at this point in Alaska..

Okay, got it.

And then just on the Arizona, is that incremental to what you have as a placeholder, or would that be supportive of that?.

It would be the latter, Shar. So we had $300 million of capital for what we called outside the footprint in the five-year plan. So whatever they propose there would be supportive of that $300 million..

Okay. Helpful. And then just lastly, I know obviously with your carbon reduction goals, you've talked about additional coal retirements.

Can you sort of just, is there an update on how you're thinking about additional retirements and what the read-through could be for additional O&M savings as well as incremental gas needs?.

Well, there's nothing at least in terms of additional requirements, other than the retirement of Presque Isle we talked about, which is about a 360-megawatt coal unit. We've also talked about the retirement of Pulliam, which is a coal unit in Green Bay in the WPS Service Territory.

So, other than those two retirements, I don't have anything additional to announce.

I would tell you though, Shar, if you look at kind of our carbon reduction goal and maybe describe it in terms of annual tons of reduction, so what we ultimately would like to see is about a $14 million annual run rate reduction in CO2, and based on the things that we've already announced, so the Pulliam and Presque Isle, and the things that we've done at our gas plants, you could get roughly $7 million out of that $14 million.

So based on what we've already announced, you could get $7 million out of that $14 million, and those actions – not only would they reduce carbon, but they also would be a net savings to customers..

Okay, excellent. I'll jump back in the queue. Congrats on the results..

Thanks, Shar..

Your next question comes from the line of Caroline Bone with Deutsche Bank. Please go ahead..

Hey. Good afternoon..

Hi..

I was just wondering if you could talk about something you discussed last quarter.

On the call in response to a question you talked about your capital plan supporting growth in the lower half or towards the lower end of the 5% to 7% range, and I was just wondering if you could remind us if there's a timeframe associated with this growth target, or if it's more indefinite?.

Yeah. So what we've said, and this is something that I've mentioned at least on a couple calls before this one, didn't go into as much detail on it on this call, but we look at a base of earnings in 2015 of $2.72 per share.

And, Caroline, basically that $2.72, it effectively, it's like a pro forma number for the company as if we had never done the Integrys acquisition. Okay..

Right..

So we set that base of earnings at $2.72 in 2015, and what we've said as a long-term matter is sort of think of an envelope where the bottom end of the envelope is a 5% compound annual growth off $2.72, and then 7% is the upper end of the envelope.

What we said, as a long-term matter, we expect our actual earnings, the trajectory, to be in that envelope. So that's really how we've laid out our goal..

So it's more of an indefinite kind of through 2020 and beyond type of timeframe than just through 2019?.

Yeah, I would characterize it as long-term; I'm not sure anything is indefinite, but....

Okay. Fair enough..

...but it's certainly long term..

Okay.

And then just kind of on another note, I was just wondering if you could comment on to what extent earnings sharing mechanisms impacted the Q1 result?.

Scott, do you want to address that?.

It did not affect the Q1 results at all..

You said did not?.

We weren't into a – it did not..

Okay. Okay. All right. Thanks very much..

Sure..

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

Hello, Michael..

Hey, Allen. Thank you, guys, for taking my question.

So, when we think about the rest of the year for O&M, because you were down far more than 3% in the first quarter, should we assume a lower decline rate for the rest of the year, or simply that the remaining quarters you kind of stay near that 3% range, so you may actually kind of beat your expectations on O&M management just due to a really good start to the year?.

Yeah, yeah, my expectation at this point, Michael, and of course, I can't sit here today and say whether it's going to be for the rest of the year, but if you had sort of a normal weather for the rest of the year, I still think for the year, we'd be down 3% on a O&M. We would stick pretty close to that plan, if we had normal weather.

If, for some reason, it's warmer or cooler than normal, well, I expect we'd adjust..

Okay.

Can I ask just a very basic question, when weather impacts O&M, what are the things that change, like when you're sitting around and it's February and we're not having winter, what is that that actually changes versus what you're thinking you are going to do on December 31st, heading into the year versus what you actually do?.

Yeah. So, when you think about the weather, there's a couple of things, when you have consecutive warm weather like January was one of the warmest and February was the warmest, we're actually able to just reduce some O&M expenses because the actual number of leaks and coal outs where the frost the line is really – naturally reduces some O&M.

And then, when we see that warm weather, everyone in the company like Allen talked about, we have our flex lists and we react to that and make sure that we can control our cost to offset the weather decline..

Okay. Thank you.

CapEx in the quarter, so if I think about your full year guidance for CapEx of just over $2.1 billion and yet CapEx in the quarter was south of $350 million and you normally wouldn't do a ton on the electric side in the middle of the summer, should we assume this is very back-end loaded this year, or is there something where CapEx could be lower this year and bigger in future years?.

Well, it's the first quarter, so we still have the winter season, so it's not the largest construction for us, unless we're finishing up our prior year project.

So, the first quarter isn't the biggest construction, and remember, some of the construction we have and if the – we talk about including the storage field that we're looking at purchasing, that's in the back half of the year, so it's a little bit back-end loaded..

Got it. Okay.

And then finally, I know you've got the settlement outstanding, and I just want to make sure I understand what is the Commission's process for reviewing and potentially approving the settlement, and what are the roles that the interveners who did not sign the settlement, what do they play in this process?.

Okay. Well. Let me just maybe as background for everybody, settlements, Michael, are quite uncommon in commission history – in Wisconsin Commission history. So as a result, there is no prescribed settlement process in Wisconsin. And in some other states, you have some statutorily prescribed process for a settlement, you don't really have that here.

So each settlement can be approached maybe in a somewhat different fashion. Sitting here today, I talked about the fact that the PSCW gave official notice of the proposed settlement on April 20.

They indicated that they would soon set a date for a prehearing conference, and then if things work the way they usually work, Michael, they'd solicit comments after they do that prehearing conference. And then, they'll have to decide what process they want to use after that.

But I would just reiterate, I mean there is very broad customer support for the settlement. So the 24 industrial customers that I talked about including the three largest customers that we have.

Now, in terms of the role that other interveners would have, at this point, it's hard for me to say, and I mean I would assume they'd be like any other party in a contested proceeding. So, they wouldn't be any different than how they typically would be in a contested proceeding. That will be my expectation at least..

Yeah. I was just thinking through it because two of the large groups that are normally part of the process weren't signatory to your stipulation. So, just trying to think through how they factor in all of those..

Right. Well, one of those, and I think you're referring to the two permanent intervener groups. One of those permanent intervener groups is what I think of was a trade association, many of whose members actually individually supported the settlement.

And then you've got another permanent intervener group called CUB, which is not really a trade association, but I think their remit is to represent residential customers largely..

Got it, got it. Thank you, Allen. Much appreciate the insight, guys..

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

Hi, Paul..

Good afternoon. Thank you. Congratulations on the quarter..

Thank you..

Any update on the legislation around Power the Future and where does that stand?.

Right. Well, I think where it stands, it was referred to an assembly committee, which of course is the lower house of the legislature, then it was also referred to a senate committee. At this point, there've been no hearings that have been scheduled at a committee level. So, that's where it stands, Paul..

Thank you.

When does the legislative session end?.

Paul, I believe they're in session until at least the end of May, and of course this is a budget year, so I'm not sure they can go home until they have a budget. But I think it's that the end of May, Paul, but we can get you a more precise answer offline..

Is the budget discussion contentious?.

I'm not sure, I would just call it any more or less contentious than Wisconsin budgets have been. Unlike other states, they consistently have a budget..

All right. Okay. Thank you very much..

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

Hi, good afternoon..

Hi, Dan..

Yes. My first question kind of relates to the energy sales shown on pages 8 and the bottom of page 7. It looks like the 2017 normalized versus 2016 normalized, you have a nice pickup in the small commercial industrial area....

Yes. That's correct..

...particularly in Wisconsin on and then on the gas side.

So, I was wondering is that something that we should anticipate it's going to continue, or you could give us a little more color on what's going on there?.

Sure. Yeah, the small class in our electric sales on a weather normalized basis, we calculate it to be up 1.4%. Now, like we talked about the quarter, it was extremely warm this quarter.

So, normalization in this sector and all sectors is pretty tricky, especially when you're talking, with commercial, there is a variety of different commercial operations there. So, the class has always been a little stronger for us. And in our long-term forecast, we have about a 0.5% year here at for next year – for this coming year.

So, it was a good quarter, but once again, it was only one quarter, I'd still look at overall being about 0.5%. And that's what I see in high class..

Okay. Then you also mentioned you had a $100 million pension contribution in the first quarter.

I was wondering if you could just update us on sort of where you're kind of on pension funding, and should that like satisfy your needs for the next few years or how should we think about that payment?.

Yes. So yeah, we evaluate the pension, as you know, every year in March, intensely during the year, it gets us to be about fully funded about a 100% on a GAAP basis. So, we don't see any contributions in the near-term, but of course we'll continue to evaluate..

Okay.

And then, I just wonder if you could update us on the debt financing plans in terms of timing?.

Sure. So we have a couple debt financing plans this year. One, first, we're looking at putting debt versus intercompany debt down at our Minnesota and Michigan subs. So we're looking at that financing. So that is one item that we'll be doing. Another financing, and that'll probably each be around $100 million each.

So those financings we'll be working on this year. We'll also be looking at – continue some debt at our gas utility, Peoples Gas, with the continued construction program. So that'll be happening this year also. Of course when we look, at with the purchase of Bluewater, there's potential financing with that also.

And then we continue to monitor all the large electric utilities, Wisconsin Electric, Wisconsin Public Service, potentially, one, we'll have to monitor that as we go through the year..

Okay. That's all I have. Thank you..

Thanks, Dan..

Your next question comes from the line of Steve Fleishman with Wolfe Research. Please go ahead..

Yeah. Hi. Good afternoon..

Hi, Steve..

Hi, Allen.

So, just on the rate settlement filing, so you mentioned the commission is going to be setting a prehearing; they still have not set the date of that yet?.

Steve, to my knowledge at this point, they have not set a date for the prehearing conference..

Okay.

And how long can this process go before you need to kind of make your normal rate filing?.

Well, my view right now, Steve, would be that I'm going to wait for the commission to take some definitive action, either a definitive action that they approve the settlement or a definitive action that they reject the settlement. I think financially, we're just fine waiting for that definitive answer..

Yeah..

So we'll wait. As I was saying in the prepared comments, I do think they'll act expeditiously, but there's just no prescribed process, so -.

Okay. And then just in terms of like – someone asked about other parties – just I assume you probably talk to other parties.

Just do you expect some of them to oppose the settlement or you just got to wait and see what happens?.

I think we really have to wait and see what happens. At this point, the interventions, they've raised their hand and intervened, but without even having had the prehearing conference, it's hard to know what their positions are at this point..

Okay. That makes sense.

And then I guess just any update you may have given us and I missed it just on the Illinois Gas Infrastructure Investment Program?.

Yeah. And I did touch on it just briefly, but maybe just as kind of a review and summary. My expectation sitting here today is that we'll deploy about $300 million worth of capital over the course of the entire year on the S&P program.

The Illinois Commission has asked for – going back to the workshop proceedings, remember that they had last year – they've asked for some additional information, I believe our deadline for filing is the middle part of May for that additional information, and additional briefs.

And they've indicated that they would decide this year, so that's where we are with that process. But in the interim, we're continuing with the program, as we laid out in our three-year plan to them..

Okay. Thank you..

Thanks, Steve..

Your next question comes from the line of Leslie Rich with JPMorgan. Please go ahead..

Good afternoon, Leslie..

Hi, Allen. You said for the quarter that one of the things that had you come in above your guidance with better-than-expected fuel recoveries. Could you just walk through how that -.

Yeah. Right, on the electric side.

Scott, do you want to talk about and go through that?.

Sure. So, going into the quarter, we were anticipating that gas prices were a little bit higher. They actually were a little bit higher.

And then with the continued – so we thought the recoveries would be a little bit less about $0.02 worth, and then as the warm weather continued, our natural gas prices went down and, in fact, our fuel recovery at both of the utilities came in slightly better than we anticipated, just because of the price of the electricity on the market and running our plants with the natural gas..

So does that get trued up over the course of the year?.

Well, you have a fuel band at both of the utilities, so that's the plus or minus 2%, so our outlook at this point, Leslie, would be that given normal weather, we would expect to be about fully recovered at each of the utilities, again for electric fuel..

But not ahead of plan?.

No. At this point, I wouldn't project to be ahead of plan..

Okay..

Or ahead of fully recovered..

Correct. Right..

Right. Right. Right. And then just on the C&I side, frac sand, fracking is starting to pick up again if you've seen, you've done some gas infrastructure in Western Wisconsin in 2014, 2015.

I'm just wondering if you're sort of seeing any uptick in activity in that regard?.

Yeah. We're starting in the first quarter, when you look at first quarter 2017 versus 2016, we are seeing a slight uptick in that frac sanding sector. So, it's nice growth.

Remember, frac sanding is, I think when you look at our sales of the gas side in Wisconsin excluding residential, it's between 1.5% and 2% of sales, so it's a nice grouping and we did see a nice little uptick there..

So just more broadly then on C&I, on the electric side, your mines – the mining activity was down pretty heavily, was that the iron ore mines?.

Yes. That is correct. So, those are the iron ore mines that – that's what we look at with and without those..

Right, okay.

And then just broadly speaking the rest of the C&I business on the electric side across your jurisdictions is roughly flat on a weather normal basis?.

Yes. The large C&I, that has been relatively flat just – once again the economy is – it's moving a little bit, but those sales have been very flat in the last several months, quarters..

Okay. Thank you..

Thank you, Leslie..

Your next question is a follow-up from the line of Paul Ridzon with KeyBanc. Please go ahead..

The iron ore mines, are these the mines that are going to eventually close and they're just kind of ramping down here, which mines are these?.

Yeah. So, there are the two large mines in the UP of Michigan. So, these are the Cliffs Resources mines. So, Paul, and I always mix up the names, but one of the mines is roughly a third of the usage up there, and that's the one if you remembering is going down into shutdown.

The other mine which is about two-thirds, which is the Tilden mine, that's the larger of the two and that's the one at least the Cliffs has indicated that they're going to run for the long term..

Is it the impact we are seeing now is the one that's permanently closing?.

Correct. Correct. I think that actually was closing last fall, previously, it was shut down – I think it's actually closed now..

And the Tilden never scaled back operations and they're going to ramp and back up another sales recovery and what's the dynamic there?.

Well, I think and I didn't listen to their call, their earnings call, but my understanding at least is, if they see an uptick in demand, could they sell to steel mills obviously, if they see an uptick there, they would be poised to increase production, but otherwise, I think they're going to be pretty flat, would be my expectation..

All right. Okay. Thank you very much..

Thank you. We have no additional questions at this time. I would like to turn the call back over to Allen Leverett for closing remarks..

Thank you, operator. Well, thank you all for joining us today. If you have any more questions, please contact Beth Straka. Her direct number is, area code, 414-221-4639. Thank you..

Thank you. This concludes today's conference call. You may now disconnect..