WEC Energy Group, Inc. (WEC) Q2 2016 Earnings Report, Transcript and Summary

Good afternoon, and welcome to WEC Energy Group's Conference Call for Second Quarter 2016 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 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 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, WEC has posted on its website a package of detailed financial information at wecenergygroup.com. A replay of management remarks will be available approximately two hours after the conclusion of this call. And now, it's my pleasure to introduce Allen Leverett, President and Chief Executive Officer of WEC Energy Group. Allen L. Leverett - President, Chief Executive Officer & Director: Thank you, Charlene. Thank you all for joining us today as we review our results for the second quarter of the year. Now before I do that, I want to introduce the members of our team who are here with me today. Scott Lauber, our Chief Financial Officer; Jim Schubilske, our Treasurer; Susan Martin, our General Counsel; Bill Guc, who is our Controller; and finally Beth Straka, who is Senior Vice President of Corporate Communications and Investor Relations. Now let's look at our second quarter 2016 results, the end of the second quarter marked the first anniversary of our Integrys acquisition, which closed on June 29 last year. Consistent with the first quarter, we are now reporting results of the combined company. We reported second quarter earnings of $0.57 per share that compares with adjusted earnings of $0.58 per share in the second quarter of 2015. Our adjusted earnings, in both 2015 and 2016, include interest on the debt issued to purchase Integrys as well as the shares we issued in the transaction. Scott will review the most significant drivers for the quarter with you in a moment. The results of our integration efforts have exceeded our expectations. As I mentioned last quarter, our focus on cost controls and other tangible benefits from the acquisition have allowed us to freeze base rates for customers of We Energies and Wisconsin Public Service through 2017. We submitted our standard annual electric fuel filings in Wisconsin on July 1, asking for a modest reduction at We Energies and a slight increase at Wisconsin Public Service. The only active rate case is that our Minnesota gas utility where interim rates are in place. Our long-term goal is to grow earnings per share at a compound annual growth rate of 5% to 7% off a base of $2.72 per share in 2015. Key to delivering this growth is the execution of our capital investment plan and addressing the impact of bonus tax depreciation. Now, let me give you a brief update on where we stand with our capital plan. We believe that approximately $1 billion in cash tax benefits will be generated from the bonus depreciation extension, about two thirds of this benefit will occur this year and in 2017. Although we do not expect bonus depreciation to have any significant impact on earnings this year, we are taking steps to modify our capital plan to minimize any impacts in 2017, as well as in following years. As you may recall from the first quarter call, we've advanced a number of beneficial projects into 2016 and 2017. The estimated investment associated with these projects is $500 million. In addition, we've made progress in the later years of our five-year forecast. We now expect to extend our electric System Modernization and Reliability Project at Wisconsin Public Service. This should represent another $100 million of capital investment in the 2019 and 2020 period. I would add that this is a popular program with customers at Wisconsin Public Service who are seeing significant benefits in the form of greatly reduced outages during storms. I expect that we will continue to identify projects that can be advanced into our current five-year forecast. We plan to provide a complete update to our five-year capital forecast no later than the November EEI Finance conference. Turning now to our operations in Illinois, we're moving forward on the Peoples' gas system modernization program formerly known as AMRP. This is one of the largest natural gas system infrastructure projects in the country. The program calls for replacement of approximately 2,000 miles of Chicago's aging natural gas pipelines. Over the past year, we've improved management and execution of the project, which is approximately 19% complete, and we continue to make good progress. We filed a plan with the Illinois Commerce Commission late last year that describes our top priorities in the three-year period from 2016 to 2018. The plan calls for removing and replacing more than 250 miles of aging cast-iron pipes in neighborhoods most at risk. This will require investing a projected $250 million to $280 million a year. After hearing stakeholder recommendations on issues such as the program's emphasis on safety and reliability, scope, schedule, cost forecast and controls and plans for measuring and monitoring progress, the ICC staff conducted a policy session in April summarizing the six workshops and then provided a comprehensive report to the commission on May 31. Last week, the ICC issued an order to begin a proceeding to evaluate the matters covered in the ICC staff report. The first step in the proceeding is expected to be completed within 30 days when we are required to provide the ICC with an updated plan for the gas system modernization program. We believe that the ICC will reach its conclusions by the end of the first quarter of 2017. In the interim, our work on the gas infrastructure replacement program will continue. Now, I would like to briefly update you on two matters pending at the FERC. First at the end of June, an administrative law judge issued its recommended ROEs for the second pending complaint. The recommendation was for 9.7% base ROE and ATC could add a 50-basis-point adder for a total of 10.2% ROE. We have updated our reserve to reflect this. The second item pending at FERC is related to the system support resource payments for the Presque Isle Power Plant. In this case, another administrative law judge issued a recommendation requiring an approximate $20 million reduction to the payments we received for the period of February 2014 through January 2015. We are currently evaluating the ALJ's recommendation. However, if the FERC adopts the ALJ decision, I do not expect that this will result in a dollar-for-dollar reduction in income. A decision is not likely until next year. Next, I want to give you a brief reminder on our dividend. On January 21, our board declared a quarterly cash dividend of $0.395 a share, an increase of 8.2% over the previous quarterly dividend. Our annual dividend rate stands at $1.98 a share and our yield is approximately at the industry average. We continue to target a payout ratio of 65% to 70% of earnings. And we expect our dividend growth to be in line with our earnings per share growth. So, now for more details on our second quarter results, here's Scott. Scott J. Lauber - Chief Financial Officer & Executive Vice President: Thank you, Allen. Our 2016 second quarter GAAP earnings were $0.57 per share, compared with $0.35 per share in the second quarter of 2015. Second quarter results in 2016 include the impact of the Integrys companies. Excluding $0.23 of acquisition cost in 2015, our adjusted earnings per share decreased by $0.01 from $0.58 in the second quarter 2015 to $0.57 per share in the second quarter of 2016. You may recall that we reported adjusted earnings per share of $0.59 in the second quarter last year. For purposes of comparing 2016 and 2015 second quarter earnings on a consistent basis, the calculations of adjusted earnings per share for the second quarter of 2015 now include all interest related to the acquisition financing and all shares issued in conjunction with the acquisition. As a result, the comparable adjusted earnings per share value for 2015 is now $0.58 per share. The earnings packet placed on our website this morning includes the results of the Integrys companies and has full GAAP to adjusted reconciliations. First, I'll focus on operating income by segment and then discuss other income, interest expense, and income taxes. Referring to page 11 of the earnings packet, our consolidated operating income for the second quarter was $332.1, million as compared to an adjusted $230.8 million in 2015, an increase of $101.3 million. Starting with the Wisconsin segment, operating income in the second quarter totaled $214.7 million for 2016, an increase of $74.3 million from the adjusted second quarter of 2015. We realized a $51.5 million contribution from Wisconsin Public Service and reported a $22.8 million increase driven in part by higher quarter-over-quarter electricity demand at Wisconsin Electric as temperatures in the early summer of 2016 were warmer than normal. In the second quarter of 2016, our Illinois segment had $22.6 million of operating income and our other states segment added $2.3 million of operating income. We added these segments as part of our Integrys acquisition. Operating income in the We Power segment was up $900,000 when compared to 2015. This increase reflects additional investment at our Power the Future plants. Our corporate and other segment realized an operating loss of $1.6 million this quarter, as compared to an adjusted operating loss of $2.8 million in the second quarter of 2015 due primarily to lower labor costs. Taking the changes for these segments together, we arrive at a $101.3 million increase from adjusted operating income. Moving to other income, during the second quarter of 2016, earnings from our investment in American Transmission Company totaled $30.9 million, an increase of $16.6 million from the same period last year. This increase is directly related to the increase on our ownership interest from about 26% to just over 60% as a result of Integrys acquisition. As Allen mentioned earlier, this was in part offset by an incremental reserve taken to reflect the most recent administrative law judge recommendation related to the FERC ROE reviews. Our other income net increased by $6.3 million largely related to higher AFUDC to the inclusion of AFUDC from the Integrys companies. Our net interest expense increased $38.3 million driven by $33.7 million of interest expense from the Integrys companies in 2016. In addition, we incurred about $6 million quarter-over-quarter increase in interest expense on the $1.5 billion of debt issued in June 2015 to complete the Integrys acquisition. Earnings from the Integrys companies were a primary driver of the $38.3 million increase in our adjusted consolidated income tax expense. We anticipate that our annual effective tax rate for 2016 will be between 37.5% to 38.5%. Combining all these items brings us to an adjusted earnings of $133.8 million or $0.58per share for the second quarter of 2015, compared to $181.4 million or $0.57 per share for the second quarter of 2016. Now, looking to our cash flow. Net cash provided by operating activities increased $507.6 million during the first six months of 2016. This increase was driven by $466.6 million of net cash flows from the operating activities of Integrys during the first half of 2016. The remaining increase was driven in part by a decrease in contributions to employee benefit plans. You may recall that we contributed $100 million to our qualified pension trust in 2015 and we did not make a contribution in 2016. This increase was partially offset by changes in working capital. While I am on the subject of pensions, with the current interest rate environment, the potential exists for an approximate 100-basis-point reduction in our discount rate to about 3.5%. On a enterprise-wide basis, we estimate that this would add approximately $35 million to pension expense in 2017. This also could impact the level of pension contributions that would be made next year. We currently are factoring this into our 2017 plan. Our capital expenditures, totaled $618.7 million during the first six months of 2017 (sic) [2016] (14:53). A $250.7 million increase, compared to the same period in 2015. The largest increase was driven primarily by capital investments, at the Integrys companies. Our adjusted debt to capital ratio was 50.1% at the end of June. Our calculation treats half the hybrid securities as common equity, which is consistent with past presentations. 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 $312.4 million in common dividends during the six months ended June 30, 2016, an increase of a $121.9 million over the same period last year. This is driven by the increase in shares with the Integrys acquisition and a 17.2% increase in the dividend rate compared to the first half of 2015. We also see continued customer growth across our system. At the end of June, our Wisconsin utilities were serving nearly 9,000 more electric customers, and nearly 14,000 more natural gas customers compared to a year ago. Our natural gas utilities in Illinois, Michigan and Minnesota are now serving nearly 15,000 more customers in the past year. For comparative purposes, the electric sales information I'll discuss next reflects results for both Wisconsin Electric and Wisconsin Public Service. Weather-normalized sales are adjusted for the effects of weather and year-to-date results factor all the effects of leap year. On a weather-normalized basis, retail sales of electricity, excluding the iron ore mines, were up 1% compared to the second quarter of 2015. Actual second quarter deliveries increased 3%. Looking now at the individual customer segments, weather-normalized residential deliveries increased 2.8%, while actual residential deliveries rose 7.7%. Across our small commercial and industrial group, weather-normalized quarterly deliveries increased 0.7%, actual deliveries increased 2.2%. In the large commercial and industrial segment, deliveries for the second quarter of 2016 increased 0.8%. Excluding the iron ore mines, large commercial and industrial deliveries increased 0.3%. We continue to see improvement in several important sectors of the state's economy, including plastics, food processing and chemical processing. Year-to-date normalized retail deliveries, excluding the iron ore mines increased 0.4%. Now, an update on our natural gas deliveries. As you recall, our Illinois segment has a decoupling mechanism and our margins are less affected by weather. Looking at Wisconsin, our largest segment, year-to-date retail gas deliveries, excluding gas used for power generation, decreased 3.9% compared to the same period in 2015 due to warmer weather. On a weather-normalized basis, year-to-date retail gas deliveries, excluding gas used for power generation were up 2.8%. Overall, our normalized results for gas and electric sales in 2016 were slightly above our expectations. Turning now to our earnings forecast. We are reaffirming our 2016 earnings guidance of $2.88 per share to $2.94 per share. This projection assumes normal weather and excludes any potential acquisition-related cost that may arise. We are off to a strong start. We still have six months of weather ahead of us. Again, we are reaffirming our 2016 earnings guidance of $2.88 per share to $2.94 per share. Finally, let's look at the third quarter guidance. As I mentioned last quarter, natural gas distribution is now a larger portion of our business thus we expect to see relatively higher earnings per share in the first quarter and fourth quarter due to higher – to gas heating margins, and relatively lower earnings per share in the second quarter and third quarter when compared to past years. Taking into account this new quarterly earnings pattern and warmer than normal July weather, we expect our third quarter 2016 earnings per share to be in the range of $0.55 to $0.59. That assumes normal weather for the rest of the quarter and excludes any potential acquisition-related cost that may arise. Again, the third quarter earnings guidance is $0.55 per share to $0.59 per share. With that, I'll turn things back to Allen. Allen L. Leverett - President, Chief Executive Officer & Director: Thank you, Scott. Operator, we are now ready for the question-and-answer portion of our call.

Thank you. And now we'd like to take your questions. The question-and-answer session will be conducted electronically. Your first question comes from the line of Greg Gordon with Evercore ISI. Please go ahead.

Thanks. Good afternoon. Allen L. Leverett - President, Chief Executive Officer & Director: Hi, Greg.

I apologize, I hopped on just a minute or two late. You guys, I was told, did increase your capital expenditure budget in the back half of the five-year plan. Can you go back and talk about how much of rate base growth was reduced by the impact of bonus depreciation? How much of that you had offset already prior to this update? And then how much incrementally you've found in customer-friendly projects that further mitigate that impact? Allen L. Leverett - President, Chief Executive Officer & Director: I'd be happy to, Greg. I think some review is good. And so the bonus depreciation extension, which was really a reach-back to 2015 as well as an extension out to, I guess, 2019, we think results in about $1 billion worth of cash tax benefits. So back on the February and the May calls we gave an update to everybody on where we stood versus offsetting that $1 billion. So as we got to the end of the May call, we had identified $500 million and those were primarily this year and next. So about $500 million between 2016 and 2017. And so now what we've identified is another $100 million in addition to that $500 million. So the $100 million is in the years 2019 and 2020. It's about $50 million a year, Greg. And what this relates to is really the continuation of a four-year program that they've had at Wisconsin Public Service. The first phase involved distribution automation as well as undergrounding of electric distribution. The second phase will be strictly devoted, we expect to the undergrounding of electric distribution. So about $50 million in 2019, $50 million in 2020, and we also believe out in 2021 and 2022, there is yet another $50 million a year to do in those two years. And this program, it's been very, very popular with customers and it was interesting, this summer, we've had quite a bit of storm activity in the Wisconsin Public Service territory, and for those that had their service, had these distribution lines undergrounded, they saw a much less in terms of outage times. So it's been a very popular program. I hope that helps, Greg.

No, that helps tremendously. And is this a continuous review process, and as we get into the next quarter and we get to EEI that you're continuing to try to observe where you could put more capital to work that has further benefits for customers or is this the end of that review? Allen L. Leverett - President, Chief Executive Officer & Director: Well, it's really more of the former, Greg. So we'll keep reviewing the numbers, reviewing the programs, but what we're trying to do is take a very deliberate approach, because I think the terminology that you used earlier is important. Each of these have to be customer-friendly projects. So there has to be a reliability benefit, a cost benefit, a safety benefit, or environmental performance. It's really got to be something that's beneficial to our business and beneficial to our customers. So often that takes a little time to identify those kinds of projects.

Great. To what extent could changes in the potential mix of your generation fleet, as you look to de-carbonize, have an impact on that plan towards the backend, or would that potentially roll into the next decade, so that as you look at your coal fleet, and you start to think about how you are going to balance your carbon emissions. Allen L. Leverett - President, Chief Executive Officer & Director: Yes. And I think certainly with Clean Power Plan, and this is, I'm speculating. I don't know exactly when the first year of compliance would be with Clean Power Plan, but it's likely not to be until 2024 or after. So I would not expect, Greg. Certainly if you look into the capital forecast going out to 2020, which is what we have on the table today, I don't really see any benefit at all, at least in this forecast period, meaning from this year to 2020, from the impacts of Clean Power Plan. But hypothetically if you had a 2024 compliance date, ultimately with Clean Power Plan, perhaps you could see some impacts out in that 2021, 2022, 2023 time period.

Okay. Two more quick questions. $0.55 to $0.59 assumes normal weather you said for the balance of the quarter, so I would presume it factors in what's happened to-date in terms of demand. Allen L. Leverett - President, Chief Executive Officer & Director: Yes. And Scott, you may want to talk a little bit about July and what we've seen in July in terms of weather. Scott J. Lauber - Chief Financial Officer & Executive Vice President: Yes. Yes. So it does include the month of July weather. Now, what we saw in July was it started out actually cooler than normal the first couple days and it didn't catch up to about normal degree day until about the July 17. So we really just had some warm weather the last week, week-and-a-half of July here. So we factored that in. Maybe it's $0.015 to $0.02, but that's factored into our guidance.

Okay. So we should watch the weather for the balance of the quarter and think about that accordingly if it's above or below normal, because you're assuming normal? Scott J. Lauber - Chief Financial Officer & Executive Vice President: Correct.

Okay. Final question. In the normal cadence of your discussions with the Wisconsin Commission, at what point do you go into them and discuss whether or not you'd like to defer having a rate review again as you did this year? Allen L. Leverett - President, Chief Executive Officer & Director: Yes. Well, my expectation would be, if we follow past practice on timing, typically if you're going to do a filing, so let's say, for example, if we're going to do a filing in 2017 for rates that we request to be in effect in 2018, typically in the March-April timeframe you really need to make that filing. So if we follow past practice with timing, my expectation would be that soon after the New Year, January, February, you'd need to have some conversations with the staff about where we would propose to head. So that's how I would see the timing.

Okay. So a ways off. Thank you, guys. Allen L. Leverett - President, Chief Executive Officer & Director: Yes. Scott J. Lauber - Chief Financial Officer & Executive Vice President: Thank you.

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

Hi, Good afternoon. Allen L. Leverett - President, Chief Executive Officer & Director: Hello, Jonathan.

Two quick things. I heard your comments on the pension discount rate and I think you said you're working on building that into the plan, if you do see the $35 million increase in 2017. So should we take the comment of building it into the plant to mean you'd expect to absorb that within the stated growth rate? Allen L. Leverett - President, Chief Executive Officer & Director: Yes. And I would say, maybe, to give you some additional color. The $35 million, part of that, to the extent that you capitalize labor expense and there is a certain amount of labor that gets capitalized when people do work on capital projects, now there'll be some amount of this $35 million that would effectively get capitalized as a part of that. My guess would be, right now, perhaps that $6 million or $7 million out of the $35 million, so not all of it would hit the income statement. But, yes, we'll have to and we expect to offset this as a part of our plan.

Okay. Thank you. And then just on transmission return and how you've reserved, you mentioned the ALJ being 9.7% plus 50 basis point adder. Is that the number you've actually reserved to? And is that what you're looking on a go-forward basis or are those numbers different from what the ALJ? Allen L. Leverett - President, Chief Executive Officer & Director: Yes, let me go through it in three pieces, because of course there are two investigations, if you will. So, there is the first period that goes from, I think, November 2013, help me Scott... Scott J. Lauber - Chief Financial Officer & Executive Vice President: Sure. February 2015. Allen L. Leverett - President, Chief Executive Officer & Director: Right. And then we've got... Scott J. Lauber - Chief Financial Officer & Executive Vice President: February to May 2016. Allen L. Leverett - President, Chief Executive Officer & Director: ...2016. So in that first period, Jonathan, we're reserving I believe effectively the recommendation from the ALJ including the 50 basis points was 10.82%. So we're reserving at that level for that first period. For the second period, we're reserving at 10.2%, and then it's sort of an educated guess, but my view right now would be the that 10.2% is a pretty good assumption going forward and 10.2% is what we will assume when we build up our plan, when we finish our plan for 2017. I'm sorry, that's kind of a long answer, but there are all these players for these investigations.

No, that was very helpful. Thank you for the clarity on that. It's sometimes hard to keep track of. Thank you. Allen L. Leverett - President, Chief Executive Officer & Director: Okay?

Yes, that's all. Good, thanks a lot. Allen L. Leverett - President, Chief Executive Officer & Director: Thank you.

Your next question comes from the line of Steve Fleishman with Wolfe Research. Please go ahead. Allen L. Leverett - President, Chief Executive Officer & Director: Hello, Steve.

Yeah, hi, good afternoon. Just on the Illinois process, for the gas spending, just could you give a little more color on what is going to be kind of addressed in that process, just basically, let's finalize your new long-term investment plan? Allen L. Leverett - President, Chief Executive Officer & Director: Yeah, and maybe let me sort of give this, maybe in parts. And let me first maybe just give a little more color about that staff report, Steve, that that was issued at the end of May. So really what that report did, effectively the staff did not make any recommendations about the program effectively. What they did is, that the staff summarized all of kind of the key input from the stakeholders in that workshop process that they had earlier this year. Then what the staff just essentially said is, well, we believe you should have a docket to address the program. And we think you should have reporting mechanisms about the program in the interim before you make a decision and in the long-term once the decision is made. So really it's just kind of summary of what all the stakeholders said, and then in terms of what the commission would decide, at a high level what they said they want to do was cover the cost, scope and schedule for the near-term and the long-term. So, they still seemed to be of a very strong view that the program needs to continue. They just want to look again at the scope and the schedule, and in the interim, they fully understand that we're going to continue with that three-year program that I alluded to before, hopefully that's helpful, Steve.

Yeah. Yeah. No, that's helpful. Just one other question on the pension, thank you for disclosing that information. I assume we're going to start hearing a lot more from other people. The normal course I assume that's a recoverable expense in rate cases? Allen L. Leverett - President, Chief Executive Officer & Director: Yeah, FAS 87 expense would generally be recoverable in your revenue requirements.

Okay. And so, but just in 2017, to a degree you don't have a rate case you'd have to manage the cost? Allen L. Leverett - President, Chief Executive Officer & Director: Exactly right, Steve.

Okay. Thank you.

Your next question comes from the line of Julien Dumoulin-Smith with UBS. Please go ahead. Allen L. Leverett - President, Chief Executive Officer & Director: Hi there, Julien.

Hey, good afternoon. Allen L. Leverett - President, Chief Executive Officer & Director: Hey. Scott J. Lauber - Chief Financial Officer & Executive Vice President: Hi.

So perhaps a easy question here, just the dollar-for-dollar comment on the Presque Isle. Can you elaborate a little bit on what the assets there are? Allen L. Leverett - President, Chief Executive Officer & Director: Yeah. And I guess what I was really alluding to in the primary one or one of the ones is really escrow accounting, because sort of like when we talk about ROE investigations, these SSR agreements they were actually multiple agreements and they covered multiple periods. I think they go back as far as February of 2014.

Correct. Allen L. Leverett - President, Chief Executive Officer & Director: And there were actually two agreements over that period and some of these periods, Julien, were covered by escrow accounting, so you were actually required by the regulators in Wisconsin to escrow both revenues as well as costs, so both revenues you received under the contract as well as the costs that might be allocated back to our utility through MISO. So what I was really referring to primarily is that those escrow mechanisms that might cover one or both of the periods.

Got it. And just to be clear, I know this is Feb 14 through Jan 15, but would this have an ongoing impact just to 2016, 2017? Allen L. Leverett - President, Chief Executive Officer & Director: No.

Okay. Allen L. Leverett - President, Chief Executive Officer & Director: Because, the second SSR agreement, I believe ended in either February or April of 2015. Scott J. Lauber - Chief Financial Officer & Executive Vice President: February of 2015. Allen L. Leverett - President, Chief Executive Officer & Director: February of 2015, so this is all going back, Julien.

Got it. Thanks for that. Little bit more strategic here. I know last time on the call we kind of discussed storage little bit. Can you elaborate where you stand on that and also in the interim we've seen some of your large-cap peers move more explicitly into the midstream sector, what are your thoughts owning storage in midstream more broadly? Allen L. Leverett - President, Chief Executive Officer & Director: Right. And I think, well, first off on the storage, we are having conversations with two parties who are owners of storage and we'll see what we can work out with one of those, but we are having active conversations with two parties so let me just sort of put a line under that. And then looking forward, I guess our view would be on midstream, at least our view is that we would only be interested in these other natural gas assets and I'll just call them, I don't know whether to call them midstream or what to call them, Julien, but it's certainly upstream of the local gas distribution companies. Our only interest at this point would be in gas storage and it would be gas storage that we could in effect directly integrate with our local distribution company and place in rate base. So at this point, that's as far upstream as we're thinking, it's something that would be very much of another regulated asset play.

Got it. All right, great. Well, thank you. Allen L. Leverett - President, Chief Executive Officer & Director: Okay.

Your next question comes from the line of Brian Russo with Ladenburg Thalmann. Please go ahead. Brian J. Russo - Ladenburg Thalmann & Co., Inc. (Broker): Hi, good afternoon. Allen L. Leverett - President, Chief Executive Officer & Director: Hi, Brian. Brian J. Russo - Ladenburg Thalmann & Co., Inc. (Broker): Just curious, what was the second quarter 2016 EPS impact versus normal? Allen L. Leverett - President, Chief Executive Officer & Director: In terms of weather impact. Brian J. Russo - Ladenburg Thalmann & Co., Inc. (Broker): Yeah. Allen L. Leverett - President, Chief Executive Officer & Director: Scott, do you want to cover that? Scott J. Lauber - Chief Financial Officer & Executive Vice President: Yeah. The weather impact compared to normal, was about I think – all right, let me just pull our numbers up here. I think it was really only about $0.01. Brian J. Russo - Ladenburg Thalmann & Co., Inc. (Broker): Okay. So, then I guess, the delta between what you actually reported and what you had guided to last quarter, is attributable to cost controls and the tech acquisition that's exceeding our expectations? Allen L. Leverett - President, Chief Executive Officer & Director: Yeah. Initially as you recall on the first in April, it actually was a negative when we had the conference call, so we had earnings we thought were actually going to be down a little bit because of our April weather, and then as we covered then in the last part of the quarter here, so that helped us, so we had projected in our guidance a decline because of weather and then it turned round a little bit in the last part of the quarter here. And plus, we do have pretty good cost control and we saw some of our NIM decline a little bit. Brian J. Russo - Ladenburg Thalmann & Co., Inc. (Broker): Got you. Okay. And then, in prior discussions you've mentioned that the people with gas pipeline replacement program has kind of physically maxed out on an annual basis, meaning just manpower or the amount of the street close at one time, et cetera. Can you comment on any of your other subsidiaries that have upside or headroom in some of their programs that can maybe fill in some of that CapEx that you're contemplating? Allen L. Leverett - President, Chief Executive Officer & Director: Yeah, and then maybe just to give a little bit, if you look at, we talked about gas storage and that's certainly if we made that kind of investment, we would see that being rate base for the two or really three Wisconsin local distribution companies. Outside of Wisconsin we would see quite a bit of opportunity in, let's say, at Minnesota, at Merck, Michigan, at MGU, those companies don't have automated meter. So, we could certainly – that would be a very cost effective investment that we can make at those two companies. Anything you'd add Scott? Scott J. Lauber - Chief Financial Officer & Executive Vice President: Yeah, and remember what we added was really in 2015 and 2016 so maybe some of those programs that we already have, some of that can continue into 2017 through 2018 and 2019 timeframe, but we're still evaluating those, what we have in that 2016, 2017 range. Brian J. Russo - Ladenburg Thalmann & Co., Inc. (Broker): Got it. And are you in a position to quantify maybe the gas reserve opportunity or the automated meters? Allen L. Leverett - President, Chief Executive Officer & Director: The automated meters, they're probably on the range of $30 million to $40 million I would say, at each of the companies. The gas storage, that's completely dependent, Brian on how many Bcf you could buy at what price. So, I'd hesitate to put a number yet on the gas storage, but as I mentioned we are having discussions. Brian J. Russo - Ladenburg Thalmann & Co., Inc. (Broker): Okay. Understood. Thank you very much.

Your final question comes from the line of Michael Lapides with Goldman Sachs. Please go ahead. Allen L. Leverett - President, Chief Executive Officer & Director: Hi, Michael. Michael Lapides - Goldman Sachs & Co.: Hey, Allen. Couple of easy questions for you. First, how do you – you've got $35 million roughly, maybe a little less because of the capitalization of pension O&M headwind. You have the headwind tied to 50 basis point, 60 basis point lower ROE at ATC. Is your O&M, and you don't have rate increases coming at the Wisconsin utilities. Are your O&M cost savings enough to offset all of those things? Allen L. Leverett - President, Chief Executive Officer & Director: Well, I believe so, but I would say at the Wisconsin utilities you're probably looking at having to have absolute declines in the O&M run rate. So, Scott, anything you'd like to add? Scott J. Lauber - Chief Financial Officer & Executive Vice President: Yeah. No, that's exactly the case. We'll have to continue at our cost control and manage every dollar like we have in the past. We'll also look at what we do on our financing cost, and we've put in there, maybe there is some investments we need to do in the pension plan also. So, we're evaluating a lot of different items items. Allen L. Leverett - President, Chief Executive Officer & Director: But at this point, Michael, I would say that we still would have enough degrees of freedom that – so we could move to help offset this. Michael Lapides - Goldman Sachs & Co.: Got it. And O&M sequentially, meaning quarter-over-quarter, because the year-over-year is just complex given the merger close. Quarter-over-quarter was down $5 million, $6 million. Is that kind of a decent run rate to think about the amount of O&M reduction you can take out in a certain period? Allen L. Leverett - President, Chief Executive Officer & Director: No, there's a lot of variables between the first quarter and second quarter. For example, the riders we have in Illinois, the riders from Illinois, it's about $10 million more expense in the first quarter than in the second quarter. So, there's some timing of those type of non-controllable O&M that I would not say that's a constant run rate that's going to come out quarter-over-quarter. Michael Lapides - Goldman Sachs & Co.: Got it. Okay. That's very helpful. I have a question about 2016 guidance. If I take the midpoint of your guidance, so let's say $2.91. And then I take the midpoint of your third quarter guidance, so $0.57. And then I take what you've actually done year-to-date, so $0.57 in this period and $1.09 in the first period. That implies $0.68 for the fourth quarter, I mean, it's just subtraction. You did $0.66 last year in the fourth quarter, but last year, correct me if I'm wrong, you didn't have that much time or the benefit of the O&M savings, and you also had a little bit of an abnormally warm winter in the fourth quarter of last year, and you've become much more of a gas utility. Can you talk to me about what headwinds you may be facing in the fourth quarter of this year? Just because you're really implying really low growth year-over-year fourth quarter 2015 to fourth quarter 2016. Allen L. Leverett - President, Chief Executive Officer & Director: Yeah. Michael, I'm going to let Scott sort of fill in more of the number detail. But I think basically right now, we're being conservative about weather in the fourth quarter, and Scott talked about we've got much more of our earnings better in the first quarter and the fourth quarter because of the natural gas companies. Obviously, those are weather sensitive. So we're being conservative about weather. And as you pointed out, even on the base that we had before without the Integrys companies, you could have some big swings based on weather. You want to fill in a little bit of detail on that, Scott? Scott J. Lauber - Chief Financial Officer & Executive Vice President: Yeah, sure. When you look at the weather, specifically in the fourth quarter, and look at scenario now with the larger gas footprint, there is with a warmer fourth quarter potential of $0.08 to $0.09 hit in the fourth quarter related to weather. So we're just being very – making sure we can measure and manage into that fourth quarter. Michael Lapides - Goldman Sachs & Co.: But I want to make sure I understand that. Are you implying that your base plan and your base cost guidance assumes abnormal weather? Allen L. Leverett - President, Chief Executive Officer & Director: No, the guidance assumes normal weather, but I'm committed to meeting that range regardless of what happens with weather in the fourth quarter, Michael. Michael Lapides - Goldman Sachs & Co.: Okay. I'll follow-up offline. Thank you guys. Much appreciate it. Allen L. Leverett - President, Chief Executive Officer & Director: Well, that concludes our conference call. Thank you for participating. If you have any more questions, contact Beth Straka or Colleen Henderson. Thank you very much.

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