Gale Klappa - Chairman and CEO Scott Lauber - CFO Jim Schubilske - Treasurer Bill Guc - Controller Beth Straka - SVP of Corporate Communications and IR Peggy Kelsey - EVP, General Counsel and Corporate Secretary.

Greg Gordon - Evercore Michael Weinstein - Credit Suisse Nick Campanella - Bank of America Leslie Rich - JPMorgan Paul Ridzon - KeyBanc Michael Lapides - Goldman Sachs.

Good afternoon and welcome to the WEC Energy Group's Conference Call for Fourth Quarter and Year End 2017 Results. This call is being recorded for rebroadcast and all participants are in 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 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, 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 Mr. Gale Klappa, Chairman and Chief Executive Officer of WEC Energy Group. Mr. Klappa, the floor is yours..

Leverett Allen is in good physical condition and he continues to make progress in his recovery and rehabilitation work. Among other activities, Allen is engaged in extensive speech therapy at a leading stroke rehabilitation center.

No specific time table has been established for his return to the Company, so as we announced a few months ago, I've agreed to serve as Chief Executive for as long as necessary. And on behalf of Allen and his family, I want to thank you again for your well wishes and all your support.

Now, I'd like to introduce the members of our management team who are here with me today.

We have Scott Lauber, our Chief Financial Officer; Jim Schubilske, Treasurer; Bill Guc, our Controller; Beth Straka, Senior Vice President of Corporate Communications and Investor Relations; and the newest member of our senior team, Peggy Kelsey, Executive Vice President, General Counsel and Corporate Secretary.

As many of you know, Peggy is stepping into the shoes of Susan Martin. Susan served the Company with real distinction for the past 18 years and should be retiring at the end of the first quarter, and we certainly wish her well. Peggy joined us last year from Modine Manufacturing where she was General Counsel and Corporate Secretary.

Her deep business background, her experience as a General Counsel at a public company, make her a perfect fit for our team, so Peggy welcome aboard..

Thank you..

You are welcome. Now, I'll just start from our news release this morning. We reported full year 2017 adjusted earnings of $3.14 a share. The colder than normal temperatures particularly between Christmas and New Year added $0.02 a share and drove us above the top end of our guidance range.

I'll also point out that our reported earnings of $3.14 a share exclude a one-time non-cash gain of $0.65 a share from the tax reform law that was signed in December. This one-time, non-cash gain reflects the application of the new tax law for the Company's non-utility assets and to the assets of the parent company.

We'll touch on the full impact of the tax reform in more detail in just a few minutes. Now, as we review the year just passed, I am pleased to report that our company performed at a high level on virtually every meaningful measure from network reliability to customer satisfaction to community involvement. We delivered record financial results.

Our largest utility WE Energies was named the most reliable utility in America and the best in the Midwest for the seventh year running. We made significant progress upgrading the natural gas infrastructure in Chicago.

And after reviewing our environmental, social and governance practices, Corporate Responsibility Magazine named us one of the 50 Best Corporate Citizens in the United States.

In addition, our track record of reliability and competitive rates was a factor in the decision by Foxconn Technology Group to invest $10 billion in a high tech manufacturing campus here in Wisconsin. This is one of the largest economic development projects in American history.

We expect Foxconn to employ 13,000 people, as they create a brand new industry here in the United States and right here in Southeastern Wisconsin. So, all in all it was a year of solid performance for our company. Next, I'd like to brief you on several developments on the regulatory front and on our capital investment plan going forward.

You'll recall that on August 10th, the Wisconsin Public Service Commission unanimously approved our proposed rate settlement. We received our final written order on September 8th. Under the approved settlement base rates for all of our Wisconsin utilities will remain flat for 2018 and 2019.

In total, this will keep base rates flat for four consecutive years and essentially gives us our customers' price certainty through 2019. The earnings sharing mechanisms that have been in place were extended through 2019 at Wisconsin Electric and Wisconsin Gas and a similar mechanism is in place for 2018 and 2019 at Wisconsin Public Service.

And just a reminder, customers and stockholders share equally in the first 50 basis points of earnings above our allowed rate of return then anything above the first 50 basis points will flow completely the customers. As part of the agreement, we’ve also expanded and made permanent certain pricing options for our large electric customers.

These options will continue to help many of our customers grow their businesses, create jobs and reduce their energy costs. Now, the commission order that approve the settlement contemplated the potential impact of tax reform.

The order suggested that the benefits from a lower tax rate, we use to reduce a regulatory asset balances particularly those for uncollected transmission cost. We expect to file a formal plan with several options for the Wisconsin commission to consider in early February.

And now an update on Illinois, we continue to make real progress on the Peoples Gas system modernization plan. And on January 10th, the Illinois Commerce Commission issued a final order that supports continuing the program at the same scope, pace and investment level that we proposed.

As a reminder, this program is literally critical to providing our Chicago customers with a natural gas delivery network as modern, safe and reliable. For many years to come, we will need to replace outdated natural gas piping, some of which was installed more than a century ago and is rusting with state-of-the-art materials.

In addition, we’re working with the Illinois commission on a plan to flow savings from the new federal tax law back to customers in Chicago. Turning now to our operations in Minnesota. On October 13th, Minnesota Energy Resources filed a rate case with the Minnesota Public Utilities Commission.

We're seeking to raise natural gas base rates by $12.6 million or approximately 5%. On November 21st of last year, the commission approved that interim rate increase at $9.5 million or 3.8%. These self implemented rates became effective on the first day of this year.

And the final decision on new rates in Minnesota is expected by the end of calendar 2018. As part of the rate case, we will work with commission to factor in the impact of tax reform.

Next, I would like to discuss our Michigan utilities, and as a reminder, we obtained final regulatory approval on October 25, for the construction of new natural gas fire generation in Michigan's Upper Peninsula. Site preparation begins within days of the commission order.

Our plan is to bring the new facilities in the commercial service by mid 2019 and at that time or soon thereafter, we expect to retire our coal-fired power plant at Presque Isle. The project calls for a $266 million investment in reciprocating internal combustion engines, we call these RICE units.

They will be capable of generating up to 180 megawatts of electricity. These units, which will be owned by our Michigan utilities, Upper Michigan Energy Resources, will provide a cost effective long-term power supply for customers in the Upper Peninsula including the iron ore mine owned by Cleveland Cliffs.

On tax reform for our Michigan utilities, we submitted a filing on January 19th estimating the impacts of the reductions in tax rates. We're proposing to defer the effects of tax reform in Michigan and factor the balances into our next rate case.

So in summary looking ahead through 2018, it should be a relatively quite year from a regulatory standpoint. We have a base rate freeze in place in Wisconsin, and beyond the outstanding rate case in Minnesota, we don’t plan to file a traditional rate case in any of our jurisdictions.

Turning now to our five-year capital spending plan, our updated five year plan, you recall we rolled that out in November totals $11.8 billion, an increase of $2.1 billion over the previous five year plan. I would note that this does not include our share of the projected capital investments at American Transmission Company.

Our updated capital plan is focused on reshaping our generation fleet for a clean reliable future. Our approach calls for greater reliance on natural gas and solar energy to meet customer demand for electricity.

In addition to the 180 megawatts of RICE generation that we talked about in Michigan, we plan to add another 50 megawatts of RICE generation in Northern Wisconsin in the Wisconsin Public Service territory by 2021.

We also have the option as you recall to invest up to $200 million in the Riverside power plant that's a natural gas fired facility being built by Alliant. And importantly, we plan to expand our renewable generation portfolio.

Over the past five years, utility scale solar has increased in efficiency and prices, prices have dropped by approximately 70%, making solar a cost effective option for our customers and option that also fits very well with our summer demand curve.

Utility scale solar will not only better balance our energy supply with customer demand but will also help reduce our power supply costs and our CO2 emissions. We're currently in discussions with developers and we plan to file for approvals with the Wisconsin Commission this spring.

Finally, you'll recall that our Wisconsin Public Service Utility along with Wisconsin Power and Light and Medicine Gas and Electric have agreed to purchase the Forward Wind Energy Center from Invenergy. The total purchase price is approximately $174 million. We will own 44.6% of the facility with an investment of approximately $78 million.

On January 16th of this year, the Federal Energy Regulatory Commission approved the sale. We are now awaiting Wisconsin Commission final approval. Our customers will see real savings because the purchase of the wind farm will eliminate the existing power purchase agreement. We expect to close on the transaction sometime in the first half of this year.

And finally, a word about our dividend policy, at this January meeting, our Board of Directors raised the quarterly cash dividend to $55.25 per share. That's an increase of 6.25% over the previous rate.

The new quarterly dividend is equivalent to an annual rate of $2.21 per share, and folks this will mark the 15th consecutive year that our company will reward our shareholders with higher dividends. We continue to target a payout ratio of 65% to 70% of earnings.

We're at the middle of that range now, so I expect our dividend growth will continue to be in line with the growth in our earnings per share. And now with details on our 2017 results and our outlook for sparkling 2018, here's our Chief Financial Officer, Scott Lauber.

Scott?.

Thank you, Gale. Our 2017 GAAP earnings were $3.79 per share compared to $2.96 per share in 2016. The 2017 results include earnings from recurring operations of $3.14 per share and the net impact of one-time non-cash adjustments totaling $0.65 per share.

As Gale mentioned, these one-time adjustments reflect the application of the new tax law to the Company's non-utility assets and to the assets of the parent company. Excluding the deferred tax benefit, our 2017 adjusted earnings were $3.14 per share. This is an increase of $0.17 over our 2016 adjusted earnings of $2.97 per share.

As a reminder, our 2016 adjusted earnings excluded $0.01 of acquisition costs. For the rest of my presentation, I'll refer exclusively to adjusted earnings. Our favorable results were largely driven by effective cost control and additional capital investment.

This was partially offset by lower electric sales volume resulting from significant cooler summer weather compared to the summer of 2016. The earnings packet placed on our website this morning includes the comparison of fourth quarter and full year 2017 and 2016 results, both GAAP and adjusted.

For 2017 results, I'll first focus on operating income by segment and then discuss other income, interest expense and income taxes. Referring to page 12 of the earnings packet, our consolidated operating income for 2017 was $1.785 billion as compared to adjusted operating income of $1.686 billion in 2016, an increase of nearly a $100 million.

Starting with the Wisconsin segment, operating income totaled $1.066 billion for 2017, an increase of $39 million from 2016. On the favorable side, operations and maintenance expenses were significantly lower. This was partially offset by a lower sales margin closely attributed to the cool summer weather in 2017.

Our Illinois segment recorded operating income of $273 million an increase of $33.4 million compared to 2016. This increase was primarily driven by continued investment in the gas system monetization program and lower operations and maintenance expense.

Our Other States segments recognized operating income of $54.2 million, an increase of $4.3 million compared to 2016. This also was primarily driven by lower operating and maintenance expense.

Turning to Non-Utility Energy Infrastructure segment, operating income at this segment was up $24.9 million, remember that this segment contains the operations of Bluewater Natural Gas Holdings which was acquired on June 30th, as well as the result of We Power.

Operating income from our Power the Future plans increased $16.5 million, reflecting additional investments. Bluewater Natural Gas Holding contributed $8.4 million to operating income in 2017.

The adjusted operating loss at our corporate and other segment increased by $1.9 million year-over-year, taking the changes for these segments together, we arrive at nearly a $100 million increase in adjusted operating income.

Earnings from our investment in American Transition Company totaled a $154.3 million, an increase of $7.8 million over the last year. In 2016, we recognized lower earnings from ATC as a result of administrative law judge recommendation related to return on equity reviews being conducted by FERC.

Our other income net decreased by $16.2 million year-over-year. Recall that we recorded a gain in 2016 related to the repurchase of certain Integrys notes at a discount as well as a gain on the sale of Wisvest. These items were partially offset by higher gains and investments that we recognized in 2017.

Our net interest expense increased $13 million year-over-year primarily driven by higher debt levels resulting from continued capital investments. The increase in pre-tax earnings year-over-year drove the $22.3 million increase in our adjusted consolidated income tax expense.

The adjusted effective tax rate decreased slightly from 37.6% in 2016 to 37.2% in 2017. Looking forward, we expect our effective income tax rate to be between 22% and 23%. We're still evaluating the full implication of tax reform and as always, we will continue to update you on the changes during our next call.

With the latest tax law changes, we do expect to be a cash tax payer by the end of 2018. Combining all these items bring us to adjusted earnings of $997 million or $3.14 per share for 2017 compared to adjusted earnings of $941 million or $2.97 per share for 2016.

Looking at the cash flow statement at Page 8 of the earnings package, net cash provided by operating activities increased $23.9 million during 2017 compared to 2016. This decrease was driven by $100 million contribution to our pension plan in January 2017, partially offset by the year-over-year increase in operating income.

Our capital expenditures were approximately $2 billion for 2017, a $536 million increase for 2016 reflecting our continued investment in our core infrastructure. Our adjusted debt to capital ratio was 52.5% at the end of 2017 and increase from 51.9% adjusted debt to capital ratio at the end of last year.

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

Some of you have recently asked how tax reform will affect the cash flow and credit matrix. We now expect our FFO to debt metric to be in the range of 16% to 18%. We also paid $657 million in common dividends during the 2017, an increase of $31.6 million over 2016 reflecting the dividend increase last year.

Turning now to sales, we continue to see customer growth across our system. At the end of 2017, our utilities were serving approximately 11,000 more electric and 20,000 more natural gas customers than they did a year ago.

Sales volumes are shown on a comparative basis on page 15 and 16 of the earnings package, weather-normalized sales factor out the effects of leap year in 2016. Overall, retail deliveries of our electricity for our Michigan utilities excluding the Iron ore mine were down 1.6% and as weather-normalized basis decrease four tone of 1%.

Turning to natural gas deliveries, as you may recall our Illinois segment is largely decoupled and its margins are less affected by weather. Natural gas deliveries in Wisconsin excluding gas use for power generation were up 4.3%.

On weather-normalized basis and excluding gas use for generation natural gas deliveries in Wisconsin grew by 3.7% and we're above our expectations. And now I will briefly touch on our 2018 sales forecast for the state of Wisconsin our largest segment.

We're forecasting a slight decrease one tenths of one percent in weather-normalized retail electric deliveries excluding the iron ore mine. We project Wisconsin weather-normalized retail gas deliveries excluding gas used for generation to increase by three tenths of one percent. At this time, I'd like to discuss our earnings guidance for 2018.

As you know, we expect long term earnings per share growth for WEC Energy Group to be in the range of 5% to 7% of a base of $3.09 per share. This was the midpoint of our 2017 guidance. So, looking ahead, our guidance for 2018 is in the range of $3.26 per share to $3.30 per share. This is in line with our longer term growth expectations.

Our guidance assumes normal weather and the estimated impact of tax reform. Finally, let's look at the first quarter of 2018 guidance. In the first quarter of last year, we earned $1.12 per share. As you may recall, the first quarter of 2017 had warmer than normal weather which is offset by effective cost control.

Taking these factors into account, we project first quarter 2018 earnings to be in the range of $1.14 per share to a $1.16 per share. This assumes normal weather for the rest of the quarter. Once again, first quarter guidance for WEC Energy Group is $1.14 per share to $1.16 per share. With that, I'll turn it back to Gale..

Thank you, Scott, very much. Overall, we're on track and focused on delivering value for our customers and our stockholders. And Sarah, I think we're now ready for the question-and-answer portion of our conference call..

All right. Thank you. At this time, we'll take your questions. The question-and-answer session will be conducted electronically. [Operator Instructions] Your first question comes from Greg Gordon with Evercore..

Good outlook, do you think we're going to get Kirk Cousins over in Jet land?.

I am betting on that and it's interesting without Aaron Rodgers, the Packers look like the Jets, Greg..

Fair enough, fair enough, I think rather have them the Packers even without Aaron and Jets spring. But let me ask you a question on in terms of the impact of tax reform, can you refresh our memories on the rate deal that you have in Wisconsin? My understanding if my memory serves me correctly.

Is that you have a regulatory asset associated with the transmission investment that hasn't been rolled into rates, but the tax reform is going to allow you to work down that balance is that correct?.

Greg, you've got a good memory. Actually and this was I think a very positive forward looking approach in the rate settlement, both by the interveners, the commission staff, the commissioners and our company. And it is not a mandated order, but when you look at the wording in the order that approved the rate settlement.

It strongly suggests that the benefits of tax reform that we file a plan to apply, some or all of the benefits of tax reform to working down this regulatory asset balance that sits on our balance sheet.

And that regulatory asset balance is largely for as you pointed out, transmission costs that we've incurred but we've not yet rolled in the rates, that's a pretty sizeable asset balance roughly about 400 million, if I am correct..

The transmission is just a little over 200 million..

Just over 200, okay, so it's pretty sizeable. So, we'll file a plan on February 9th and obviously the follow-through on that -- on that strong suggestion in the rate order that we -- what we used the benefits of tax reform to basically pay down that credit card IOU.

So, that's a very positive thing I think, a very forward looking thing that was part of the rate settlement. So to kind of answer your question more broadly, there're kind of three big moving pieces here when we try to estimate the overall impact or the bottom line impact of tax reform.

First is, assuming we begin to pay down that asset balance for transmission. The second is, as you know the value of interest deduction is lower with the lower tax rate, so there is a drag at the holding company on holding company interest.

And then the third is, the elimination of bonus depreciation effective January of 18th which will add to rate base. So, you kind of put all those three in the blender and our best estimate right now is about a $0.05 to $0.06 drag, on overall earnings per share as the net impact of tax reform..

But that's baked into your guidance for 2018 and your confidence in your growth rate. So you factor that in to….

That is correct. And you know, we're very good at looking ahead and planning, so the idea that there would be some potential drag from tax reform is something that our team's been looking at really since about midyear 2017. So, this wasn't a surprise to us.

We were planning to steps that we needed to take to overcome the $0.05 or $0.06 drag, and you're correct, we're still on the 5 to 7% growth track with the guidance that Scott just gave you..

Last question, if this -- does your capital expenditure budget fully contemplate the capital needs that go along with this Foxconn construction project in terms of all the demand pool and infrastructure that might be required? Or are we going to be looking for an update once you have a full sense of the scope there?.

I think we have tried to factor in as best we know on the electric side. So in terms of electric, Wisconsin Electric Capital, expenditures I think we've done a good job of rolling that in.

But as we work now and extensively every week actually with the technical people who are going to be responsible for constructing that huge campus, 23 million square foot campus, I think we and they are beginning to realize that there may be some additional and it could be substantial some additional demand for natural gas capacity that may require some fair amount of capital to make sure we're properly serving their natural gas needs.

So, the answer's kind of mixed, yes, I think we've cranked in the electric demand and the capital associated with that. But I think there's going to be some upside on the natural gas capital, and Greg I would expect, we'll start seeing the demand from Foxconn start to really ramp up in 2020, 2021 and certainly 2022..

Your next question comes from Michael Weinstein with Credit Suisse..

Since you know, you said that the $0.05 to $0.06 is fully inclusive it's like net all effects.

Is that included things like the reduction of deferred tax liabilities, We Power, the amortization overtime? And also, are you expecting to hit the 50 bps threshold at Wisconsin Electric because rate being under the rate freeze?.

Well, first question first. I guess the best way to answer your question about tax reform to the best of our knowledge it's like Ragu, it's all in there..

Do you include any sharing from….

Our current plan has each as we always have added the good success in doing. Our current plan assumes that each one of our operating units actually earned their allowed rate of return. So, this particular we would not -- we're budgeting for sharing..

Does that mean you don’t anticipate happening or is just not budgeted?.

That means at the moment we do not anticipate it happening..

What happens to FFO to debt, after the rate free ends in 2019? How long does that regulatory asset amortization continue? And how long does it prop up before the debt?.

Well, right now that will have to be decided in the -- assuming there is a rate case in 2019 in Wisconsin Scott that would have to be decided in that case..

In that case for effective 2020, but right now we look at our five year plan, we’re in that 16 to 18 range. Prior to tax reform, we have 16 to 19 that's kind of took us off the top of the end of range, but we're comfortable in that 16 to 18 range..

So even after perhaps some of the effects of tax reform enrolled into customer rates at some points, you’re thinking 16 to 18 kind of number to the, at least in this five years..

Correct..

Your next question comes from Nick Campanella with Bank of America..

I just want to go to the 16% to 18% FFO-to-debt.

Is that something that the agencies are comfortable with? Just know given Moody's has been in pretty vocal about this for the broader utility group, have you guys said whether you will be willing to defend your ratings? Or how should we kind think about that as we get pass 2019?.

Let me say this and I'm going to ask Scott to give you his technical view on what Moody's are saying. But first of all, we work very hard to have one of the best balance sheets in the industry. So, we’re cognizant of the fact that we want our metrics to merit -- to merit, the kind of ratings we're getting right now.

But have been said that, you will notice that in Scott's comments, it's been consistent with what we said along we do not have any plans issue any additional equity. We think we’re going to be able to stay in the kind of 16% to 18% FFO-to-debt as Scott has mentioned, certainly we're not issuing any additional equity.

And one of the other things that I think is important historically the Wisconsin Commission which is still where we have the largest percentage of our assets has always been very vigilant and very cognizant of the fact that they want strong credit quality utilities.

So, I think you put all that together and we believe we have the capability again without issuing any additional equity to stay in the range.

Scott?.

That’s correct, that 16% to 18% FFO-to-debt range basically Moody's at the holding company has us on a negative outlook, which that negative outlook puts us at a rating in that 16% to 18%. I feel very comfortable that we'll maintain that rating then. And like Gale said, no equity issuance needed in the plan..

And then just moving something else on the wind PPA, where you're replacing this with an ownership option.

Are there other situations across your jurisdictions where we could be looking towards similar strategy, anything that we should pay attention to do there?.

Well, I would say not necessarily in 2018, but watch the space..

Your next question comes from Leslie Rich with JPMorgan..

I had a question on your utility scale solar investment.

Just wondering, how much you're thinking you might allocate towards that in terms of CapEx, and if that's part of your five year plan or that would be incremental?.

It is part of the five year plan and we're looking at the specifics right now. We're tentatively -- again we have -- we're still talking with developers. But if I were to venture a guess, I think it would be too pretty sizeable size, perhaps one in the Wisconsin Public Service area in Northern Wisconsin.

But again, we're looking right now and talking with a number of developers. And Scott, it is in our five year plan..

Yes, it's in our five year plan, and it's really in the couple of segments. Early on, I would say about 300 million to 400 million in the first few years, and then we have about 350 million in the later part of the five year plan..

And Leslie, we expect to make some final decisions and file for a construction authority approval with the Wisconsin Commission this spring..

Your next question comes from Paul Ridzon with KeyBanc..

Just a question on tax reform at the unregulated businesses, I assume, We Power just flows through to a predetermined ROE, but what happens at Bluewater and ATC?.

Scott?.

So, at Bluewater, that was contemplated in the affiliate interest agreements with the three Wisconsin utility. So that would get pass through the affiliate interest agreement and get passed through to our customers through their purchase gas adjustment clause. So that will get factored in and then customers will receive the benefit.

At ATC of course they're formula rates there and those formula rates will get passed through then to our utilities. As a reminder that also would help the escrow balance at our utilities, at Wisconsin Electric and Wisconsin Public Service..

So the thought would be that the change in tax rates that benefits ATC would flow through and we would use that to reduce the asset balance for uncollected transmission cost..

Correct..

In Wisconsin that's dollar for dollar, so there's no really earnings impact there?.

Correct. That is correct..

And then in Michigan, just some clarification, we've over earned in Michigan because you're saving that -- those taxes for later.

Are you going to hang up the regulatory liabilities for those?.

No, we would hang it up on our balance sheet and track it. And then factor it into the next rate case. That is what we filed. I will see what the Michigan Commission responds with..

And who you're looking for Gale? Don't they pay you, any other answer will work..

A sentimental thing, Doug Pederson, the Head Coach of Eagles used to be the quarterbacks coach when Brett Favre was Green Bay. So there is a sentimental attachment there where Brady's have to be..

[Operator Instructions] And your last question comes from the line of Michael Lapides with Goldman Sachs..

Real quickly, first of all gas demand and I may have misheard, but it seems like you're putting a pretty conservative number in 2018 guidance for weather-normalized gas demand especially and if you can -- you or Scott can remind us, the levels of weather-normalized gas demand that you've realized over the last few years?.

Well, certainly last year, 2017 our weather-normalized demand growth with natural gas, this is at retail now excluding power generation was up more than 3%.

That's a surprisingly good number and the economy is strong but not knowing how sustainable that is and Scott I actually talked in this morning, our customer growth has been about 1% on the natural gas side. So you know, not knowing how sustainable that kind of 3 percentage kind of growth is we've achieved, three-tenths of 1%.

Michael you're correct it’s been about 3% the last couple of years and we think that's related to conversions and the stability of natural gas prices we've also seen some industrial customers convert to natural gas.

I just don't think those conversions once they convert, I don't know if they'll continue and every time and plant gets replaced, it’s more efficient. Just to put it in perspective though about a 1% increase in natural gas demand adds about a $0.05 or about $3 million to earnings. So, it's not, you know it's very nice.

So, if we get a little more growth that'll be all positive, but it's not extremely large number..

And Michael, as we get closer to 2020, 2021 you'll probably see us revive our gas demand because of what we expect to be pretty sizeable demand from Foxconn..

Right, understood, one other question, you've got a bit of build for short term debt balance at the end of the year.

We've seen rate move and how are you thinking about we are hedging whether we are terming out some of that short term debt or other actions you can take to potentially you know head off at the past what could be a very, a minor EPS headwind just from simply higher rates?.

Well couple of things and first of all, we do have a pretty robust financing plan for 2018 and there may be some opportunities there that we're certainly looking at.

However, in our budget in our guidance and in our forecast, we have assumed in terms of short term interest rates, we've assumed four out of four quarter point increases from the Fed, one every quarter in 2018. And I think that's a reasonable assumption.

So basically, we've got a very, I think a very appropriate interest rate forecast baked into our guidance, and then there maybe some opportunity with our financings over the course of the year to do better..

Got it, last thing in your estimates for ATC your transmission earnings.

Can you remind us, what ROE, are you booking for GAAP income statement purposes?.

Well, on our longer term estimate, because we expect that allowed ROE from FREC will come down. Our longer term projection is 10:2 and Scott we’re booking a little better than that right now..

Right now, we’re currently booking 10.82, which is based on the first decision for this first case decision. We're assuming that gives results sometime in the middle of this year, but long-term we do have that 10.2 factored into our forecast..

So in other words, the ATC earnings power for at least half of this year.

Has an elevated ROE that you, when you think about your multiyear growth rate, you don’t use when you kind think about 2019 and beyond?.

Correct, you got it, you nailed it. And I will say this, everybody speculating about the new members of FERC and the methodology they might use to set is on a reasonable this. I personally and I could be wrong, but I personally do not see the FERC lowering transmission ROEs below state ROEs.

Just be countered everything that FERC is trying to accomplish. So, we feel very comfortable with the 10.2..

All right. Well, folks, I believe that concludes our conference call for today. Thank you so much for taking part. If you have any more questions, please feel free to contact Beth Straka, her direct line, and operators are waiting 414-221-4639. Thanks everybody. Take care..