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…

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…

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.