Good afternoon and welcome to WEC Energy Group's Conference Call for Second 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 Mr. 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 second 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, our Senior Vice President of Corporate Communications and Investor Relations. Now, as you saw this morning, we reported second quarter 2017 earnings per share of $0.63. Effective cost controls and warmer than normal June weather contributed to a solid second quarter. Scott will provide more detail in a moment. We are affirming our current 2017 guidance of $3.06 per share to $3.12 per share, with an expectation of being in the upper end of the range. 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 our major investments and several developments on the regulatory front. On June 30, we closed the acquisition of Bluewater Natural Gas Holding after the Wisconsin Public Service Commission approved the investment. This $230 million investment in natural gas storage 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 these three companies. The earnings and risk profile from this investment are expected to be essentially the same as if the storage was owned by our local gas distribution companies. I believe this investment will bring very meaningful benefits to our customers. You may recall on April 4, we filed a proposed settlement agreement with the Public Service Commission of Wisconsin. Now under the terms of the settlement, the currently approved base rates for all of our Wisconsin utilities…

Thank you, Allen. Our 2017 second quarter earnings increased to $0.63 per share from $0.57 per share in the second quarter of 2016. Effective cost controls continued to have a positive impact on earnings. We exceeded our guidance for the second quarter which, as you recall, was $0.56 to $0.60 per share. Lower than expected cost at our Illinois utilities and longer than normal June weather contributed to these results. The earnings package placed on our website this morning includes a comparison of second quarter and year-to-date 2017 and 2016 results. My focus will be on the quarter beginning with operating income by segment, and then other income, interest expense and income taxes. Referring to page 7 of our earnings packet, our consolidated operating income for the second quarter of 2017 was $362.2 million as compared to $332.1 million in the second quarter of 2016, an increase of $30.1 million. Starting with the Wisconsin segment, operating income in the second quarter increased $8.9 million from the second quarter of 2016. On the favorable side, operation and maintenance expense was $29.1 million lower. This was largely offset by lower customer usage related to mild weather conditions in April and May. In the second quarter of 2017, our Illinois segment recognized operating income increase of $18.8 million compared to the second quarter of 2016. The increase was primarily driven by reduced operations and maintenance expense and continued investment in the Gas System Modernization Program. Operating income in our Other segment improved $2.4 million related to lower operations and maintenance expense resulting from cost control measures. Following last month's acquisition of Bluewater Natural Gas Holding, our We Power segment was renamed the Non-Utility Energy segment. For the second quarter, operating income at the Non-Utility Energy segment was up $4.6 million. This increase reflects…

Thank you, Scott. Operator, we're now ready for the question-and-answer session portion of our conference call.

All right, thank you. Now, we will take your questions. Your first question comes from Greg Gordon with Evercore ISI.

Hello, Greg.

How are you?

Good.

I just want to understand sort of procedurally what the potential scenarios are at the Commission with regard to the Staffs' suggestions, right? So, they basically said, A, approve the deal as filed, which is clearly your preference. Another one is, reject it and have them file the rate case, which is pretty obvious. But the third path is not so clear to me. If the Commission were to say, we accept the settlement, but imposed the conditions that the Staff had opined be implemented, at that point, could you say, we'd rather file a rate case? Or would you be then compelled to accept that decision?

Well, we'd not be compelled to accept the decision, so maybe just to state for everybody on the call to make sure they understand your question. So basically, you have a scenario, Greg, where the Commission says well, all right, we accept the settlement subject to the addition of some or all of the conditions that the Commission staff propose, so that's the hypothetical scenario. Well, in that scenario, given the way the settlement was structured, it's not severable. So if it's not accepted in whole, well, the settlement basically falls away unless we and the other parties who came up with the settlement, unless we all agree to a different set of conditions. So, we wouldn't be compelled, Greg, in the scenario you lay out to accept that modified settlement, if you will. And as I described in the opening remarks, the next step would be, we'd file a general rate case.

Okay. That's what I thought. I just wanted to hear you state that so that it was clear because looking at the conditions, they were clearly put – they seem to, at least some of them, put a lot more pressure on unit control costs by virtue of not allowing you under certain of those conditions to continue to defer costs and by reducing the amount you could earn on significant regulatory asset balances, right? So, it would seem to me that unless you had – were able to pull off some herculean effort vis-à-vis cost cutting, there would be the potential for some significant regulatory lag under that scenario. Is that fair?

Yes. I agree with that description.

Okay. That was my only question. Thank you.

Thank you, Greg.

Your next question comes from Larry Liou with JPMorgan.

Good afternoon, Larry.

Hey, good afternoon, guys. Thanks for taking my question. Can you just touch quickly on how you plan to address the ratings pressure at Moody's?

I'll let Scott talk about – and I think Larry's question is about the recent action that Moody's took and whether we have any actions that we would plan in response to that. Is that fair, Larry?

Yes. Exactly.

So, just to remind everyone, Moody's at our Wisconsin utilities moved them down one notch from A1 to A2 and they described several reasons and one of them is the recovery of some of the regulatory items and not having riders compared to other jurisdictions. With that, now they've put our holding company on a negative watch or outlook also. We're continuing to monitor our holding company debt to total debt, and that's one of the items I think they'd like to see that come back a little faster than we've reduced it. However, as we continue to find good investments such as the Bluewater investment, that will add some stress to the holding company, but it's good for the customers and good for the shareholders as it continues to improve earnings. So we're monitoring that holding company debt and as you can tell, watching our financials as tight as possible.

Okay. And I guess just on Bluewater, can you just remind us how you financed the acquisition again?

Yes. So, the way it'll be financed, Larry, initially of course, we'd just take down commercial paper at the holding company to fund the $230 million acquisition price. $115 million or roughly half of the investment down at the sub will be equity and then another $115 million will be non-recourse debt, meaning non-recourse to the holding company debt down at the Bluewater Holding level. And then so we'll take $115 million from that financing and pay down some holding company debt. But the holding company is essentially funding its equity contribution, if you will, into the subsidiary with debt up at the holding company.

Okay. Thank you.

Your next question comes from Shar Pourreza with Guggenheim Partners.

Hello, Shar.

Hey, everyone. Hey, Allen and Scott. How are you?

Good.

Good.

Just one question, with the Bluewater acquisition, you're kind of sort of chipping away at some incremental growth opportunities that can help you maybe get you above the bottom end of your range. Is there sort of any updates on additional growth opportunities you're kind of working on, maybe the Arizona opportunities or additional storage assets, anything that could help get you above?

Yes. Thanks for the question. And I guess we – in the November, actually early November timeframe, probably around the EEI Finance Conference, we'd provide a complete update on our five-year capital plan. So, I don't have any incremental update today. But what I would say is I'm feeling very optimistic about additional opportunities. Some of those kind of in the areas that you were alluding to in your question, in the midstream natural gas assets where we would purchase assets that we could either financially or physically integrate with our natural gas distribution company. So, feel optimistic, but what I'd rather do is really provide a complete update and a five-year plan in early November.

That's super-helpful. Just for – I think we've talked about sensitivity purposes. Roughly what is it, the capital program, around $1.5 billion over a five-year period could equate to about 1% incremental growth?

Yes. Yes. Just to be clear. So, if you look over a five-year plan and you invest $1.6 billion of capital and let's assume that that's levered 50/50, so, 50% equity, 50% debt and then you earn approximately a 10% return on the equity piece. You're exactly right, that would add 1 percentage point to the five-year compound annual growth in EPS.

Terrific. Good results, guys. Thanks.

Thank you.

Your next question comes from Paul Ridzon with KeyBanc Capital Markets.

Hello, Paul.

Good afternoon. How are you?

Good.

Just did you book any FERC ROE complaint, reserves, or refunds in this quarter?

No, it was – the entry we talked about in the prepared comments was in 2016.

And did you quantify that?

So, this – I don't know the exact dollar amount. It had to be around $8 million, I'm assuming, $8 million to $9 million.

Pre-tax?

Pre-tax.

Okay. Thank you very much.

Thanks, Paul.

Your next question comes from Paul Patterson with Glenrock Associates.

Hello, Paul.

Hey, how are you doing?

I'm good. How are you?

I'm managing. I just wanted to sort of follow up on Paul Ridzon's question there. The ROE, just if you could break it down for me. It seems like the FERC transmission impact seems a lot more this quarter than last quarter. If you could just walk me through why it's so much more?

Yes. I mean, it's a good question. Last year in the second quarter, the ALJ came out with their decision to, for their second case, to have the FERC ROE was at – for the second case at 10.2%. Now remember that's 9.7% plus a 50 basis point adder to 10.2%. And that time, then we looked at the complaint period and took an entry in that quarter to record that reserve to that 10.2%. Since then, in September of last year, the FERC came out with their decision in the first case that was at a 10.82% ROE, which is a 10.32%, plus a 50 basis point adder to the 10.82%. And since the end of September, we've been booking at that 10.82% until we'll hear on that second complaint. And the second complaint, we're waiting for a quorum now at FERC. We don't know what they'll be in the second half of the year, but currently, we're booking at the 10.82%. So, the main driver, the swing between quarters there was the entry last year to get down to the first reserve needed. And it may be a little bit higher too because we're booking at a 10.82%. But long-term in our financial plan, we talk about a 10.2% long-term outlook for the FERC ROE.

Okay. And then, in terms of the lower O&M. I was just wondering if you could break it out a little bit more in Illinois. I apologize if I just missed this, but between that and the continued SMP, and just where the other O&M savings are showing up?

All right. Well, I think – let me let Scott maybe give you some color on Illinois, Paul. But maybe just to kind of reground everybody on our O&M plan for the year. So, the goal at an enterprise level was to reduce O&M 3% in 2017 as compared to the actual run rate of O&M – controlled O&M in 2016. And as I look at the Wisconsin utilities for the year, we've got some timing of O&M expenditures that were moved around because we had to respond to the warmer than normal weather in the first quarter. There's also going to be some downstream O&M effects of the storms that we had that affected the electric business in Wisconsin in the second quarter. But overall, my expectation is that those Wisconsin utilities will be right on top of that 3%. But in Illinois, we're actually doing better than plan on O&M. So, Scott, do you want to give Paul some additional color on that?

Yes. So, Illinois, the drivers – it's a combination of, like you said, the O&M and the rider. I would say probably about $8 million to $10 million of that variance year-to-date is related to the QIP rider, the capital investment, plus some other riders that are just a pass-through of O&M. But O&M is the major driver in there. And that's the majority of the remaining of it, I'd say $10 million to $15 million, plus some other lower interest expenses.

Okay. Great. And then just back to the settlement, it seems that when you read the staff, it seems to be saying sort of two different things. On the one hand, it seems to be saying what you just mentioned, which was that they would calculate – they think it's likely that there'll be a revenue deficiency. But I guess they also start talking about the ROE and how that could maybe change a few things if that was changed. And then they also discussed the concern that they apparently have about rate increases in the future because of the deferrals. And based on what I'm hearing from what you're saying, it looks like – unless the Commission is okay with these deferrals growing that you probably have to go in for a rate case. Is that right?

Well, let's just make sure that we're clear on the financial effect that our proposal would have. Our proposal if it were the settlement – okay, just to be – so the settlement that we entered into with our customers, if that were implemented, if you look at the projected balances, if you look at where we expect to be at the end of 2017 and look at where we would expect those balances to be at the end of 2019 if they adopted the settlement. I mean if you look end to end, Paul, we would expect there to be no growth on a net basis in those deferred balances. So we'd sort of de-level 2019 year-end versus 2017 year-end, so we wouldn't have any additional accumulation of balances and the hope that we have is that with tax reform that then you will start having some uplift, if you will, or a cost reduction effectively that you could use to start managing those balances down. But if you look at during the pendency of the rate freeze period that we proposed in the settlement, there wouldn't be any net growth at all in those balances.

So, when the Commission Staff says that their analysis suggests that the approach that you guys are proposing could result in a new deferred balance, if you were to put that new deferred balance with respect to the legacy deferred balances, for lack of a better term, you'd still basically be net no change in the deferred balance at 2019, is that correct?

Right, out to 2019, that's correct.

Okay.

I mean, we do have some deferred balances that relates to deferred taxes. But once again, we won't collect that from the customers. We'll collect that when we pay it back to the government which will be approximately a 50-year period on these taxes.

And is that what the Commission's referring to with respect to the staff referring to when they talk about the results of a new deferred – any new deferred balance?

I think that's what they're referring to is the tax deferred balance.

Okay. Okay. Thank you so much.

Thanks, Paul.

Your next question comes from Dan Jenkins, State of Wisconsin Investment Board.

Good afternoon, Dan.

Hi, good afternoon. So, first I just wanted to follow up a little bit on the earlier discussion around the Moody's downgrade. Just wondering, so do you have, say, a ratings target or a leverage target for your balance sheet at both the pairing in at the utilities at a point where you manage towards or the – a lot level you would defend the rating?

Yes. When we look at our utilities, we want to keep all the utilities in that single-A rated category. So, they moved a little bit within the category with Moody's now and we did try to defend it to keep it up to that level because we know the cheaper interest is always good for our customers. So, we want to keep in that single-A rated category. At the holding company, right now it's on a negative watch. It potentially could move down a little bit and we're going to continue to monitor that. If it does move down a notch, I mean that's where we'll really continue to look at our holding company debt and manage that.

Yes, I think one of the focuses, Dan, that we've had for quite a while is managing the percentage that holding company debt represents as a proportion of consolidated debt. And so, we've certainly taken a number of actions this year to keep that within the balance that we like it to be. We did permanent non-recourse financings at Michigan Gas Utilities as well as MERC over in Minnesota at the gas utility there. And I mentioned the financing that we would plan later this year at Bluewater. So I think all of those has been and will be helpful, and also managing that holding company debt to consolidated debt percentage within a reasonable range.

Okay. Then I also was wondering on page 7 where you show the comparisons from this year to last year. You also had a $4.6 million difference in the corporate and other category. I was wondering if you could give a little more color on what was driving that change.

Yes. There's a lot of little variety of items in that segment there. Just one item and this is kind of inside baseball. But we had some investments that were at the service company that really belong more at the utilities. So, we put the investments in the utilities versus the service company. Their earnings stayed the same, their capital stayed the same, it's just once again, it took – just moved it into the utility where it belongs. Some of those were still there last year at the acquisition. It's just kind of the cleanup of what we think is the best way to run the service company. So, just a variety of little items.

Okay. And then the last question I had is, there's been some speculation and later today, there'll be an announcement of a large Foxconn facility in Southeastern Wisconsin. And I don't want you to spill the beans or steal the thunder there, but there's been talk about a site where there was an old Chrysler engine plant or whatever. I just wondered if you could confirm whether that site is in your service territory.

Yes. The site that I believe you're referencing is in our service territory, unless they are (36:50) service territory that the electric service territory for Wisconsin Electric. And I'm sure, Dan, we've both read some of the same reports in the press. Certainly Governor Walker has been in detailed discussions with the senior people at Foxconn. Foxconn has indicated that they'll be making a decision soon. But at this point, they haven't made a formal announcement. But what I would say, Dan, the investment that's being discussed would be quite significant for the economy here in Wisconsin.

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

Thank you, Dan.

Your next question comes from Joe Zuho (37:48) with Avon Capital Advisors.

Good afternoon, Joe (37:50). Andrew Levi - Avon Capital/Millennium: Hey, it's actually Andrew Levi. How are you doing? Or Andy Levi.

I'm good, Andy, how are you? An unexpected pleasure. Andrew Levi - Avon Capital/Millennium: Yes, I did. Okay, real quick, because I know everybody wants to get off the call. I'm probably the last question. So, just to understand, you were very clear on the settlement, it's all or nothing. But I had this one question on that. Have you spoken to the people or the other organizations that are in the settlement with you? Are they on the same page there or is there a little bit of wiggle room between you and the settlement parties and the Commission?

We have had, Andy. From time to time, we've had discussions, sort of updates, if you will, with the other parties to the settlement. And they really have the same view that I have. This is a settlement that – it was highly negotiated between the folks in the settlement and it's not severable. I mean, they view it as a package and we view it as a package, Andy. Andrew Levi - Avon Capital/Millennium: Okay. So, it really is all or nothing?

Well, we have a package that we and our customers think they're in the best interest of all the customers. So, I mean, I think it's – as constructed, it's a very, very good package. So, I would be hopeful that the Commissioners would agree with my assessment of it. Andrew Levi - Avon Capital/Millennium: Okay. That's it. Thanks.

Thank you, Andy. Andrew Levi - Avon Capital/Millennium: You're welcome.

And there are no further questions at this time.

Well, that concludes our conference call today. Thank you for participating. If you have more questions, please contact Beth Straka. Her number here in Milwaukee is area code 414-221-4639. Thank you.