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Edited Transcript of WEC earnings conference call or presentation 30-Jan-20 7:00pm GMT

Q4 2019 WEC Energy Group Inc Earnings Call

MILWAUKEE Jan 31, 2020 (Thomson StreetEvents) -- Edited Transcript of WEC Energy Group Inc earnings conference call or presentation Thursday, January 30, 2020 at 7:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gale E. Klappa

WEC Energy Group, Inc. - Executive Chairman

* Joseph Kevin Fletcher

WEC Energy Group, Inc. - President, CEO & Director

* Scott J. Lauber

WEC Energy Group, Inc. - Senior EVP & CFO

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Conference Call Participants

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* Andrew Levi

ExodusPoint Capital Management, LP - Portfolio Manager

* Andrew Marc Weisel

Scotiabank Global Banking and Markets, Research Division - Analyst

* Gregory Harmon Gordon

Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research

* Julien Patrick Dumoulin-Smith

BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research

* Michael Jay Lapides

Goldman Sachs Group Inc., Research Division - VP

* Michael P. Sullivan

Wolfe Research, LLC - VP of Equity Research

* Michael Weinstein

Crédit Suisse AG, Research Division - United States Utilities Analyst

* Paul Patterson

Glenrock Associates LLC - Analyst

* Praful Mehta

Citigroup Inc, Research Division - Director

* Shahriar Pourreza

Guggenheim Securities, LLC, Research Division - MD and Head of North American Power

* Vedula Murti

Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager

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Presentation

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Operator [1]

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Good afternoon, and welcome to WEC Energy Group's conference call for fourth quarter and year-end 2019 results. This call is being recorded for rebroadcast. (Operator Instructions) 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 2 hours after the conclusion of this call.

And now it is my pleasure to introduce Gale Klappa, Executive Chairman of WEC Energy Group.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [2]

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Good afternoon, everyone. Thank you for joining us today as we review our results for calendar year 2019. First, I'd like to introduce the members of our management team who are here with me today. We have Kevin Fletcher, President and CEO; Scott Lauber, Chief Financial Officer; Bill Guc, our Controller; Peggy Kelsey, Executive Vice President and General Counsel; Tony Reese, Treasurer; and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations.

Scott will discuss our financial results in detail in just a moment. But as you saw from our news release this morning, we reported full year 2019 earnings of $3.58 a share. And I'm pleased to report that we delivered a record year on virtually every meaningful measure of performance, from customer satisfaction to a swift recovery from severe July storms that caused extensive damage to our system.

As we review our financial results, our balance sheet continues to strengthen. In fact, our ratio of holding company debt to total debt now stands at 28%. That beats our 30% goal. In 2019, we also eliminated a regulatory asset for transmission costs, and we continued to leverage the benefits of tax reform for both customers and shareholders. In addition, we worked effectively to settle our Wisconsin rate reviews, which represent approximately 70% of our regulated assets. We also took our environmental efforts a step further. We set a new goal in 2019 to reduce the rate of methane emissions from our natural gas distribution system by 30% per mile by the year 2030. Our ongoing work to modernize Chicago's natural gas delivery network is key to achieving this goal. And we continue to analyze our climate-related risks and opportunities. In fact, a recent Moody's report focused on the risk exposure of regulated utilities to heat stress, water stress and extreme rainfall.

I'm pleased to note that WEC Energy ranked among the lowest risk companies in our sector.

During 2019, we also reached a number of significant milestones in our infrastructure segment. The Coyote Ridge Wind Farm is now in service in South Dakota and will contribute a full year of earnings in 2020. As you may recall, Coyote Ridge consists of 39 turbines, with a capacity of roughly 97 megawatts. We invested approximately $145 million for our 80% share of the wind farm, and we're entitled to 99% of the tax benefits. As you know, a significant portion of our earnings from this facility come in the form of production tax credits.

Project has a 12-year offtake agreement with Google Energy, LLC for all of the energy produced. We also announced back in September that we will acquire an 80% ownership interest in the Thunderhead Wind Energy Center for $338 million. Invenergy is developing this project in Nebraska, and we expect it to be in service at the end of 2020. The site will consist of 108 GE wind turbines with a combined capacity of 300 megawatts. The project has a long-term offtake agreement with AT&T for 100% of the energy produced. We expect Thunderhead will qualify for production tax credits and 100% bonus depreciation.

Then earlier this week, folks, we announced plans for another new development. We've agreed to acquire an 80% ownership interest in the Blooming Grove Wind Farm for $345 million. Invenergy is developing this project in Illinois, with commercial operation expected to begin by the end of this year. The site will host 94 wind turbines with a total capacity of 250 megawatts. Blooming Grove has a 12-year offtake agreement with affiliates of 2 multinational companies that are investment grade. We expect that Blooming Grove will be eligible for 100% bonus depreciation as well as production tax credits.

Overall, we're very encouraged about these investments in renewable energy, which will serve strong businesses for years to come. We expect the return on these investments to be higher than our regulated returns. Of course, we're being very selective as we vet future projects. We're only interested in projects that achieve our financial return metrics and do not change our risk profile.

Now let's take a brief look at the regional economy that's supporting our company's longer-term growth. Wisconsin's unemployment remains near record lows for the state, and we continue to see strong economic development projects in the pipeline. Foxconn is moving forward with its plan to create a high-tech campus in Racine County, south of Milwaukee. Work on a Generation 6 fabrication plant for liquid crystal display screens is progressing. The fab, which spans about 1 million square feet is now enclosed, and work is beginning on the internal structures. Foundations are also in place for a high-capacity data center. In addition, Foxconn has announced plans for a smart manufacturing facility. Construction crews began lifting the exterior walls into place for the smart manufacturing plant earlier this week.

Based on public data, we estimate that Foxconn's investment in Wisconsin over the past 2 years has risen to approximately $500 million.

Turning a bit further south, in the Kenosha area, Uline has announced plans to invest $130 million in 2 new facilities and bring approximately 350 new jobs to the area. Uline, as you may know, is a leading distributor of shipping, industrial and packaging supplies with headquarters here in Wisconsin. In addition, Milwaukee Tool has announced another expansion. Milwaukee Tool will invest $100 million in a large multipurpose campus, northwest of the city in Menomonee Falls. The company also committed to adding 870 jobs in Wisconsin by the year 2025. These are exciting times. We look forward to more economic development and opportunity across the region.

Now I'll turn the call over to Kevin for more insight on our operations and our regulatory calendar. Kevin, all yours.

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Joseph Kevin Fletcher, WEC Energy Group, Inc. - President, CEO & Director [3]

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Thank you, Gale. First, I'd like to share some good news. Our largest subsidiary, We Energies, was named the most reliable electric utility in the Midwest for the 9th year running. Wisconsin Public Service also was recognized for the first time for outstanding reliability performance.

Now I'll briefly review where we stand in our 4 state jurisdictions. As you'll recall, in March of last year, we filed a proposal with the Public Service Commission of Wisconsin to set customer rates for We Energies and Wisconsin Public Service. And in August, we entered into settlement agreements with the Citizens Utility Board of Wisconsin, the Wisconsin Industrial Energy Group and Clean Wisconsin. On December 19, the commission issued its written order affirming those settlement agreements and setting the rates for the next 2 years. New rates went into effect on January 1.

During 2019, we also continued to make progress in developing solar generation for our regulated businesses in Wisconsin. You may recall that in Wisconsin, we're planning a total of 300 megawatts of utility-scale solar capacity, the first facilities of this size in the state. We've broken ground on 2 solar projects for Wisconsin Public Service, Two Creeks and Badger Hollow I. Our share will total 200 megawatts with an expected investment of approximately $260 million. Both projects are scheduled to begin producing energy by the end of this year. And this past August, at We Energies, we filed with the Wisconsin Commission for approval to acquire 100 megawatts of capacity at the Badger Hollow II solar park. The projected investment would be $130 million. We expect to receive the commission's decision this spring.

We also see efficient natural gas storage as another important part of our regulated business strategy. In particular, Wisconsin needs more natural gas peaking capacity at the highest demand times on the coldest days. We're continuing to evaluate site plans for 2 liquefied natural gas facilities to help meet our customers' needs during the winter peak. We expect to invest approximately $370 million in these projects. If approved by the Wisconsin Commission, construction is expected to begin in the summer of 2021.

Turning to Illinois. We continue making progress on the Peoples Gas System Modernization Program. This program is critical to providing our Chicago customers with a natural gas delivery network that is modern, safe and reliable. We're approximately 28% complete with our replacement of outdated corroded natural gas piping, some of which was installed more than a century ago. We continue to project an investment of $280 million to $300 million per year on average in this program.

Now we'll turn to Michigan. In 2019, we completed our new natural gas-fired power plants in Michigan's Upper Peninsula, on time and on budget. These plants are now providing a cost-effective, long-term power supply for our customers in the Upper Peninsula. With these new units operating, we were able to retire our older, less-efficient coal-fired plant at Presque Isle. This resulted in significant operations and maintenance savings and reduced CO2 emissions.

Taking a broader look across our business, we continue to focus on operating efficiency and financial discipline. As a whole, we exceeded our 2019 goal to reduce our day-to-day operation and maintenance costs. Our goal was a reduction of 4%, and we actually achieved a 7% reduction. We have set a goal to further reduce our O&M by an incremental 2% to 3% in 2020 as well.

And with that, I'll turn it back to Gale.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [4]

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Kevin, thank you very much. As you'll recall, ladies and gentlemen, our 2020 guidance is in a range of $3.71 a share to $3.75 a share. This translates to an earnings growth of between 6% and 7.1% off our 2019 base of $3.50 a share. Recall that $3.50 a share was the midpoint of our original guidance for 2019.

And finally, a word about our dividend policy. At its January meeting, our Board of Directors raised the quarterly cash dividend to $0.6325 a share for the first quarter of 2020 — that's an increase of 7.2%. The new quarterly dividend is equivalent to an annual rate of $2.53 a share. This marks the 17th, count them, 17th consecutive year that our company will reward shareholders with higher dividends. We continue to target a payout ratio of 65% to 70% of earnings. We're right in 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 2019 results and our outlook for 2020 here's our CFO, Scott Lauber. Scott?

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Scott J. Lauber, WEC Energy Group, Inc. - Senior EVP & CFO [5]

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Thank you, Gale. Our 2019 earnings of $3.58 per share increased $0.24 per share compared to 2018, a 7.2% increase. In 2019, we benefited from additional capital investment, production tax credit and continued emphasis on cost control. While all of our utilities met their financial goals, our Wisconsin utilities earned their fully allowed ROE, and customers will see the benefit going forward through the sharing mechanism. We posted the earnings packet to our website this morning and it includes a comparison of fourth quarter and full year results. My focus will be on the full year, beginning with operating income by segment and then other income, interest expense and income taxes.

Referring to Page 10 of the earnings packet, our consolidated operating income for 2019 was $1.530 billion as compared to operating income of $1.470 billion in 2018, an increase of $63 million. Recall that as part of our previous rate settlement in Wisconsin, we agreed to apply the benefits of tax repairs to offset the growth of certain regulatory assets. The plan continued through year-end, and as we expected, the transmission escrow asset balance at We Energies was eliminated. My update will focus on changes in operating income by segment, excluding the impact of tax repairs and our adoption of the new lease accounting rules.

Starting with the Wisconsin segment. Operating income increased $42 million net of these adjustments. Lower operation and maintenance expense resulted in approximately $105 million increase in operating income, driven by efficiencies and effective cost control across the enterprise. This positive impact on operating income was largely offset by a few items. First, lower sales volume due to primarily cooler summer weather conditions accounted for approximately $26 million decrease in operating income. Second, depreciation and amortization increased $35 million as we continued to execute on our capital plan. And finally, operating income was reduced by a $22 million tax item that flowed through operating income. This was fully offset by a reduction in tax expense.

In Illinois, operating income increased by $36 million, primarily as a result of our continued investment in the safety and reliability of the Peoples Gas system. Operating income at our Other States segment decreased $3.5 million.

Turning now to our Energy Infrastructure segment. Operating income in this segment was up $800,000, driven by additional investment in our Power the Future plants. As expected, the Bishop Hill, Upstream and Coyote Ridge wind farms did not have a material impact on operating income. Recall, a significant portion of earnings from these wind farms come in the form of production tax credits, which are recognized as an offset to income tax expense. These production tax credits contributed approximately $0.08 per share to our earnings for the year compared to $0.01 in 2018. The operating loss at our Corporate and Other segment increased by $12 million. This variance reflects a $5.3 million gain that we recorded in 2018 related to the sale of a legacy business as well as an impairment recorded in the fourth quarter of 2019 on assets that we inherited from the Integrys acquisition. Combining these variances and excluding the impact of tax repairs and the new lease rules, consolidated operating income increased $62.8 million. Earnings from our investment in American Transmission Company totaled $128 million, a decrease of $9.1 million as compared to 2018. Our earnings from ATC decreased by $19 million as a result of the recent FERC order addressing MISO complaints. Going forward, we are recording ATC earnings assuming a 10.38% return on equity. This includes a 50 basis point adder for our participation in MISO.

Other Income, Net increased by $32 million, driven by investment gains associated with our benefit plans. Note that these investment gains partially offset the benefit expense included in our operating segments. The remaining increase relates to the nonservice cost components of our pension and benefit plans.

Our net interest expense increased by $53 million, mostly due to higher long-term debt balances to fund the capital investment. This excludes the impact of the new lease guidance. Our consolidated income tax expense, net of tax repairs, decreased by $42 million. The major drivers were production tax credits from our wind investments and the 2018 tax reform item that I mentioned earlier. Our 2019 effective tax rate was 9.9%. Excluding the benefits of tax repairs, our 2019 effective tax rate would have been 20.6%.

Looking forward, we expect the 2020 effective tax rate to be in the range of 16% to 17%. This includes the effects of the unprotected tax benefits that are being refunded to customers following our recent Wisconsin rate decision. Excluding these benefits, we expect our 2020 effective tax rate to be between 20% and 21%. At this time, we expect to be a modest taxpayer in 2020. Our projections show that we'll be able to efficiently utilize our tax position with our capital plan.

Turning to our cash flow statement. Our FFO to debt was 18.5% in 2019. Looking ahead, we expect FFO to debt to be in the range of 16% to 18%. We are 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. Total capital expenditures and asset acquisitions were $2.5 billion in 2019, a $112 million increase from 2018.

Turning now to sales. We continue to see customer growth across our system. At the end of 2019, our utilities were serving approximately 10,000 more electric and 14,000 more natural gas customers compared to a year ago. Retail electric and natural gas sales volumes are shown on Page 13 and 14 of the earnings packet. Overall, retail deliveries of electricity, excluding the iron ore mine, were down 2.8% compared to 2018. And on a weather-normal basis, deliveries were down 1.7%. Natural gas deliveries in Wisconsin increased 2.6% versus 2018 and by 1.8% on a weather-normal basis. This excludes gas used for power generation.

And now I'll briefly touch on our 2020 sales forecast for our Wisconsin segment. We are forecasting a slight decrease of 0.5% in weather-normalized retail electric deliveries, excluding the iron ore mine. We project the Wisconsin weather-normalized retail gas deliveries to increase by 0.7%. This excludes gas used for power generation, and of course, both of these projections are adjusted for leap year in 2020.

Finally, let's look at our guidance for the first quarter of 2020. Last year, we earned $1.33 per share in the first quarter. As you recall, this included approximately $0.04 related to the colder-than-normal weather in 2019. Factoring in this and the 16% warmer-than-normal January, we project first quarter 2020 earnings to be in the range of $1.32 per share to $1.34 per share. This assumes normal weather for the rest of the quarter. And with that, I'll turn things back to Gale.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [6]

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Scott, thank you very much. Overall, we're continuing to perform at a high level, on track and focused on delivering value for our customers and our stockholders. Operator, we're ready now to open it up for the question-and-answer portion of the call.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Shar Pourreza with Guggenheim Partners.

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Shahriar Pourreza, Guggenheim Securities, LLC, Research Division - MD and Head of North American Power [2]

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So let me -- just a couple of questions here. You guys are backfilling this infrastructure capital budget relatively fast, especially with last week's acquisition. What's the spending shape look like given sort of these recent opportunities, i.e. is there any opportunities to provide upside to your current guide? Or is this just kind of an acceleration of that spend? And then, Scott, I know you mentioned on the cash tax position being a partial payer. But does that include last week's acquisition. Just wanted to get a little bit of clarity there.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [3]

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Well, Shar, we'll be happy to answer those questions. First, I would view our announcement this week on Blooming Grove as basically an acceleration of the 5-year plan. If you kind of look at what we've accomplished so far with what we believe are very high-quality projects, we're almost -- we're about 38% already in terms of the projects that we've agreed to acquire. We're at about 38% of the spending we projected in our 5-year plan. But I would view it as an acceleration. And I will tell you why. Our 5-year plan, which projected about $1.8 billion in this particular segment of capital spending essentially was a happy marriage of the high-quality projects that we saw, that we really had a strong interest in, coupled with our ability to utilize all of the tax benefits. You put all that together and it kind of shook out at $1.8 billion. So Scott, I would view this as an acceleration.

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Scott J. Lauber, WEC Energy Group, Inc. - Senior EVP & CFO [4]

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Right. It's just the timing. And when you look at the tax position, and we say a very small taxpayer, it's going to be under $15 million, $20 million, but because of the tax rules, there's still some tax payments that are made. But as you know, we're slowly starting up with the PTCs work into 2021, then [2022]. So that will not be a full taxpayer in 2021. But still, when you look at our 5-year plan, a lot of capacity on our tax side.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [5]

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And Shar, remember, this particular wind farm doesn't come into service until the very end of 2020.

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Shahriar Pourreza, Guggenheim Securities, LLC, Research Division - MD and Head of North American Power [6]

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Right. Got it. Okay. And then just on the regulated renewables. There's obviously a lot that you're doing there. Can I just get a sense on how this could impact your decision to exercise the West Riverside option to purchase maybe up to 200 megawatts of that plant. Is there sort of a read-through on that option? And whether you would exercise it?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [7]

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No, I wouldn't do any read-through on that. That is still something that we're analyzing, still something we're taking a look at. As we continue to review our demand forecasts, our needs, the impact of renewables, but that is still something that's on the table, Shar.

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Shahriar Pourreza, Guggenheim Securities, LLC, Research Division - MD and Head of North American Power [8]

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Got it. And then just lastly, Gale. It's a little bit more of a policy question. I mean, obviously, we had a commission announcement last -- a couple of weeks ago around the resignation. So we're obviously likely going to see a bit of a democratic shift with an Evers appointment. Is there kind of any read-throughs that we should be thinking about from a policy standpoint, as it looks like the majority may change. Business as usual? Or could this kind of accelerate some of the solar decarbonization plans that are out there?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [9]

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My own sense is, I would look at any additional appointments to the commission largely as business as usual. But I will say and remind everyone that the Governor has appointed a climate task force. He's announced an aspirational goal late last year to basically have carbon-free electricity by 2050. And this task force on which our company is represented had its actual first meeting just a week or so ago. So during this year, I think you will see some policy recommendations related to decarbonization coming out of this task force. In many ways, the Public Service Commission would, in all probability, need to implement some of those policy changes if they were adopted. But the policy shift that I would see coming, if there is one, would really come through the Governor's task force on climate change, if that makes sense to you.

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Operator [10]

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Your next question comes from Greg Gordon with Evercore ISI.

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Gregory Harmon Gordon, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research [11]

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Your stock hit par today. Congratulations.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [12]

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Thank you. Greg, does that mean we're looking for a bogey or what does that mean?

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Gregory Harmon Gordon, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research [13]

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We'll talk about an over/under on the end of the year offline, Gale. I'm happy to wager with you. Can we unpack the O&M performance a little bit because it really is quite impressive. If I look at Page 8 of your release, I think what you're telling me, I should be looking at the O&M as adjusted for impact of the flow-through of tax repairs, right? Like that's like the clean number?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [14]

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Yes, that's...

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Gregory Harmon Gordon, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research [15]

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And it's down dramatically. And all the more so, I think, because when I look at the rabbi trust activity that, that's basically offset in O&M by an offsetting adjustment in O&M. So if I adjusted for the rabbi trust activity, the O&M comparison would be even better than it looks. Is that -- I think that's correct. And if so, can you unpack for us what the sort of structural savings are -- that are now flowing through on a full year basis from the activities you pursued, they're sort of permanent benefits. And I think there's more to come with the investments you've made in your investment in technology and things like that. So I'm just wondering, a, what's the structural improvement in O&M? Where do they come from? And b, what's the follow-on from continued activities on that front?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [16]

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Be happy to. Let me frame all of this for you, and then we're going to let Scott and Kevin weigh in on some of the details. But we did have an exceptional quarter in terms of continued efficiencies across the business. And there are a couple of factors that I think are important here. The first is that during 2019, we saw essentially pretty much a full year benefit of the implementation of our ERP system across the entire enterprise. So that was helpful. And we're continuing -- as people get used to that new system, we're continuing to see efficiencies and benefits that we thought we would. And then compared to Q4 of a year ago, compared to Q4 of 2018, for example, there were significant O&M savings related to the closure of coal-fired power plants. Remember in -- we basically over the last several months and 1.5 years or so, we've retired 3 older, less efficient coal-fired power plants. The units at Presque Isle up in the Upper Peninsula, Michigan, were the latest to be retired in the spring of 2019. We have the Pulliam plant near Green Bay retired, and we had Pleasant Prairie retired. So we're seeing -- in the fourth quarter, we saw O&M benefits flow-through from no longer having to incur O&M for the operation of those plants. Then we had some of our technology investments continue to kick in. And as Kevin said, we are projecting additional O&M savings that we think we're going to gain here, and we're on track to gain in 2020. So Scott, Kevin, anything you'd like to add.

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Joseph Kevin Fletcher, WEC Energy Group, Inc. - President, CEO & Director [17]

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Yes, you mentioned the ERP. But if you look at the common platforms across our system in the fourth quarter of this year, we'll complete our customer information system to have that across all of our companies. We have already seen even this past year some savings from what we had in place already. But in addition to that, through last year and focusing on the future, just looking at process improvements. So as we look across our jurisdictions, do benchmarking, we're looking at common standards and where it makes sense to have a proactive and similar approaches across our system. That has produced some positive results for us on O&M reduction and will continue to.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [18]

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Scott, anything...

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Scott J. Lauber, WEC Energy Group, Inc. - Senior EVP & CFO [19]

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I don't think there's anything else. It is across the enterprise, though. Everyone has O&M takeout, opportunities and efficiencies to gain.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [20]

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And we're doing that, Greg, which I'm very pleased about, and I thought we would be able to. We're doing that while increasing customer satisfaction. So that's one of the reasons I mentioned earlier in my remarks, as we track our operational and financial performance, we had a record year across virtually every meaningful measure of performance.

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Gregory Harmon Gordon, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research [21]

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Right. So there is an incremental improvement on run rate O&M as you get to the sort of fully baked savings from the coal plant closures. And then there's incremental O&M benefits, but from the -- that you think you'll get from the ERP and also from the rollout of the CIS, amongst other things.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [22]

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You've nailed it. That's exactly right.

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Operator [23]

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Your next question comes from Julien Dumoulin-Smith with Bank of America.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [24]

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So just following up on Greg's question here. I think that's really germane. Can we dig in a little further as to the prospects to sustain these levels of cost reductions? I mean, they're really quite dramatic. I mean -- I think Greg emphasized it enough, but the point being, how sustainable are these just given how outsized they appear to be relative to the balance of the sector, not just on a trailing basis, but prospectively for '20 here, as you think through the balance of your planning period. And maybe even to push the point a little bit further, how identified is it just -- not just in '20, but through the balance of your financial period that you're forecasting in terms of these levels of reduction?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [25]

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Well, I'll take a stab at that. Certainly, Scott can add anything he would like to and Kevin as well. Let me say this. We believe, and I think our track record demonstrates that the kind of cost savings that you saw that we continue to believe we're going to continue on a downward path, those are very sustainable. We wouldn't be publicly committing to them if we didn't think we could absolutely sustain them. So again, we took 7% of the day-to-day O&M out of the business in 2019 and the 2% to 3% projected reduction in 2020. And again, we're doing this, I think, in a very, highly planned and deliberate way. And a good chunk of it is coming really from 2 areas. One, we mentioned before that we're getting the full benefit of now, and that's the O&M takeout from the closure of less-efficient coal-fired power plants, but the other is the investment in technology. So my view, guys, would be highly sustainable.

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Joseph Kevin Fletcher, WEC Energy Group, Inc. - President, CEO & Director [26]

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Gale, I'd agree. We just mentioned a couple of things that we're doing, but let me add one more on the customer service side though. We have and are investing in our AMI infrastructure, and we've seen savings from having that in place to reduce the rolls of truck that will continue, and we'll see those opportunities ahead in the coming years. Also, leveraging technology like mobile apps, as an example. As we get that out into our customers, we'll be able to have more interaction with our customers and give them opportunities to pay their bills online, minimize paper billing, things of that nature. So I would agree the sustainability of that is built into a lot of what we're doing, customer service side, especially with the things that I just mentioned.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [27]

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Let me, if I can please, to jump in a little further. What about the compounding nature of that trajectory. 2% to 3% is impressive, but through your forecast rate, do you anticipate compounding of that trajectory? And then perhaps the really relevant second question is, you've done it before, how do we think about the cadence of rate cases? And I know we're getting that a little bit, but just given the scale of cost reductions here, certainly, the question doesn't seem too early in terms of -- across any one of your jurisdictions given the enterprise-wide cost reductions that are contemplated here. I mean, i.e., pushing them out.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [28]

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I'm chuckling because we just got through the rate reviews for 70% of our regulated assets.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [29]

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I know. I recognize that, but then the cost reductions are incredible.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [30]

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Well, we appreciate that. Let me say this. Historically, as you know, in Wisconsin, the commission has liked and has really requested an every 2-year cadence for rate reviews. But that's not to say that's set in concrete. We'll take a look at it as we go forward and see where we are and see where the commission's sentiment is, et cetera. But long story short, we feel very good about our ability to execute and, again, do so in a way that maintains high reliability and high levels of customer satisfaction.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [31]

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Okay. Too early to tell.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [32]

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Watch this space.

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Operator [33]

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Your next question comes from Michael Sullivan with Wolfe Research.

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Michael P. Sullivan, Wolfe Research, LLC - VP of Equity Research [34]

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Just one more on the O&M. What do you guys assume for earned ROEs now that you've got this kind of different sharing band where you could overearn a little bit before you give back to customers. Where does this -- these O&M savings targets put you on an earned ROE basis?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [35]

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We're assuming, as we have in the past, that we earn the allowed rates of return in each one of our retail jurisdictions.

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Michael P. Sullivan, Wolfe Research, LLC - VP of Equity Research [36]

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Okay. Sorry, just to clarify. Is that like at the electric utilities, the 10% or up to the 10.25% that you can do before sharing.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [37]

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Right now, we're assuming 10%.

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Michael P. Sullivan, Wolfe Research, LLC - VP of Equity Research [38]

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Okay. Okay. And then over to the sales growth. So I think for 2020, electric, you're forecasting down a little bit. And if we go back to some of your EEI slides, there's supposed to be a tick up in the next couple of years and more so as you get into '22, '23. Can you just give us some color around key milestones that we should be looking for on economic growth that's going to bridge that from down a little bit to up closer to 1%?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [39]

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Yes, happy to, Michael. First of all, the uptick that we continue to project, this is a pretty slight uptick. But the uptick that we're projecting in the 2022, 2023 time frame is really driven by the amazing economic development projects that I talked about a little earlier in our remarks. We have not seen any slowdown in terms of the number of economic development projects, the amount of new construction, just the continuing economic growth in the pipeline of projects that are being announced here in Southeastern Wisconsin, in particular. So we still feel pretty confident about the uptick in the longer term. The shorter term, meaning for 2020, is really driven by, like, for example, the large industrial segment. It's really driven by the interviews that our people have with our key account customers and feedback into our projections. It's also driven a bit by weather normalization. Remember, we had 2 warmer-than-normal summers back to back. So you look at weather normalization, you look at conservation, you look at real-time feedback from our major industrial customers, and you put it all together and it's like Ragu, it's in there. That's what comes out. So in total, a very modest decline, I believe, Scott, 0.5% is what we're projecting on retail, absent the mine.

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Scott J. Lauber, WEC Energy Group, Inc. - Senior EVP & CFO [40]

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Correct. So a very modest decline. And once again, the projections that we have in the investor book are really the only projects that we have -- that we know. It doesn't include the residential and secondary that we expect to come from it. It's just the known projects that have actually started turning dirt already. So it just takes a while to build a building and start using it. So we expect those that are still on track to be coming. And like Gale said, our forecast is really out there talking to our customers and really fine-tuning it. And the information we have here is the best information we have.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [41]

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And we're still projecting, even though with a modest 0.5% decline, we're still projecting 6% to 7% EPS growth.

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Operator [42]

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Your next question comes from Praful Mehta with Citigroup.

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Praful Mehta, Citigroup Inc, Research Division - Director [43]

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Congratulations on the quarter. So maybe just -- I guess, the O&M point has been already debated and answered, so appreciate that. I think on the energy infrastructure side, the $1.8 billion that was planned. You said you accelerated it with this latest acquisition. Do you expect with the tax appetite being what it is further down the road, do you expect that size to increase through the 2024 time frame? Or do you expect the $1.8 billion to still be the cap?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [44]

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At the moment -- again, we'll continue to look at this. But at the moment, I would view this as an acceleration and the $1.8 billion for the 5 years is still what we are looking at.

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Praful Mehta, Citigroup Inc, Research Division - Director [45]

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Got you. And then when we think about the tax appetite, and you've said that you'd be a small taxpayer, how should we think about that tax paying capacity in the '23, '24 time frame. Is that -- you still a small taxpayer at that point? Or is that capacity increasing over time?

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Scott J. Lauber, WEC Energy Group, Inc. - Senior EVP & CFO [46]

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Well, when you still look and you work everything in, we would still be a small taxpayer getting into that, being out in that frame of time if we execute on all these capital projects. Largely because of some of the tax rules that are out there. You still have to be a minimal taxpayer for some of the reasons. But we need to execute on all these capital projects to get to that level.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [47]

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Given the tax rules, as Scott said, it's highly unlikely that we'll ever, in a sustained period of time, get to absolute 0. So when we say modest taxpayer, for example, I think Scott mentioned, $15 million to $20 million this year. So I hope that puts things in context for you.

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Praful Mehta, Citigroup Inc, Research Division - Director [48]

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Yes. No, it does. And I appreciate that. And then -- and just finally, in terms of credit and the holdco debt side, I think you started by saying you've got improving credit and your holdco debt is now down to 28%. Is there any target we should be thinking about around the holdco debt level? And also the FFO to debt kind of credit that we should be thinking more longer term?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [49]

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We'll have Scott answer that. We do have an internal cap on where we want to go and where we don't want to go with holdco credit -- holdco debt, I'm sorry.

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Scott J. Lauber, WEC Energy Group, Inc. - Senior EVP & CFO [50]

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Yes, so we look at that holdco to total debt, it's down to 28%. Our target is to keep it below 30%. Now if there's an opportunity, one year, it may pop up or down. But -- and we feel comfortable with those ranges in our forecast here. And the FFO to debt in that 16% to 18% range. Now last year, we hit 18.5%. But remember, we were at a sharing opportunity at our Wisconsin utilities, and that money will go back eventually to customers. So next year, it may be on the lower end of that range, but still within that 16% to 18% range.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [51]

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And that range, as you know, well supports our current credit ratings.

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Operator [52]

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Your next question comes from Andrew Weisel with Scotiabank.

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Andrew Marc Weisel, Scotiabank Global Banking and Markets, Research Division - Analyst [53]

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Just want to elaborate on the contracted infrastructure projects. So as of now, what percent of 2020 EPS will come from that segment? And let's assume the 5-year plan stays at $1.8 billion, seems like the bias might be to the upside, what percent of earnings would be coming from that segment in 5 years?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [54]

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Well, I can get -- well, I can give you the number for this year and, obviously, we can do a little bit of public math here. But long story short, we got in 2019, about $0.02 a quarter of earnings from our infrastructure investments. Given the addition this year of full year earnings for Coyote Ridge, which went into service at the end of 2019, I would expect about $0.03 a quarter. Scott?

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Scott J. Lauber, WEC Energy Group, Inc. - Senior EVP & CFO [55]

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Correct. It'll be about $0.03 a quarter. And remember, the other projects we announced are in December of next year, so some impact, but not a lot.

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Andrew Marc Weisel, Scotiabank Global Banking and Markets, Research Division - Analyst [56]

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Okay. And then bigger picture, how big are you willing to let that segment be? Obviously, they're high-quality contracted assets, but they're not the regulated rate base construct. So do you have sort of a mental feeling of how big that could be as far as earnings mix?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [57]

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Yes, we do. At the moment, I would say that our internal plan would hold that segment of our business down to about 10% of our earnings.

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Andrew Marc Weisel, Scotiabank Global Banking and Markets, Research Division - Analyst [58]

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Okay, very good. Then just one last one on that same topic. Is -- you said you've accelerated the spending, but you're not increasing it. What's the limiting factor of why you're not increasing it? Is it balance sheet, opportunity for specific projects? Is it that 10% ceiling you just mentioned? How do you balance those?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [59]

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It's the happy marriage between the quality projects that we see in the pipeline that we are very interested in and our tax appetite. So you put it all together, and the $1.8 billion shakes out to something that we can -- we think we can both add quality projects to achieve and maximize our tax position.

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Operator [60]

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Your next question comes from Michael Weinstein with Crédit Suisse.

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Michael Weinstein, Crédit Suisse AG, Research Division - United States Utilities Analyst [61]

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Just on those -- that last line of questioning. Is there a reason why you won't or you aren't considering tax equity for continued expansion, considering the tax upside?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [62]

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No. I mean, certainly, we would be open to something like that in the future if the economics worked out. Right now, the economics favor exactly what we're doing.

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Michael Weinstein, Crédit Suisse AG, Research Division - United States Utilities Analyst [63]

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Got you. And on ATC, has there been any impact on long-term planning from the FERC's action on ROE in MISO?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [64]

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Short answer, no. And I think...

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Michael Weinstein, Crédit Suisse AG, Research Division - United States Utilities Analyst [65]

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Hasn't that had any effect?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [66]

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Not yet, because, as you know, it's now all up in the air again. So these are -- as you know very well, transmission projects have a long gestation period. So I wouldn't expect there to be some kind of a knee-jerk reaction in the first 30 or 60 days, particularly with all the appeals going on and the uncertainty of what the final result will be.

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Scott J. Lauber, WEC Energy Group, Inc. - Senior EVP & CFO [67]

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Exactly, Gale. And we're recording at 10.38%. Remember our long-term plan, we were assuming 10.2%. So 10.38% is a little north of that.

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Michael Weinstein, Crédit Suisse AG, Research Division - United States Utilities Analyst [68]

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Got you. And I may have missed this before, but where do you guys stand in terms of dividend payout ratio targets? And what's the future growth rate for dividends? Is it just going to track along with EPS at this point?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [69]

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That's the plan -- our policy is to pay out in a range of 65% to 70% of earnings. So a dividend payout ratio that is 65% to 70% of earnings. As I mentioned earlier, we're right smack dab in the middle of that range right now. So we would project that dividend growth would be in line with the growth in earnings per share.

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Operator [70]

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Your next question comes from Michael Lapides with GS.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [71]

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Congrats on a great quarter. I actually have several. They're all gas related, and I'll just kind of rattle them off. First of all, your gas demand forecast of, I think it's 0.7%. Can you remind me when the last time you did sub-1% gas demand growth in Wisconsin? That's the first question. The second question is, where do you stand on the permitting and regulatory approval for the gas LNG facility in Wisconsin that you talked about a couple of months ago or a while ago? And then finally, any incremental thoughts on the need for new gas-fired generation, either as partly transformation or just to meet demand growth?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [72]

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All right. We'll be happy to try to take those off one by one. I think weather normal, we were at 1.8% on retail gas. So we had a 1.8% growth in retail gas consumption on a weather-normal basis in 2019. You could probably go back in terms of when were we last below 1%. Whatever year that gas -- natural gas prices got to double digits, I think we did not grow meaningfully at all in terms of natural gas demand from the retail side of the business. Scott?

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Scott J. Lauber, WEC Energy Group, Inc. - Senior EVP & CFO [73]

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Yes, exactly. And when you think about it, yes, we've had 3% to 4% growth; last year was 1.8%. But now what we're really forecasting is really the customer growth aspect, not assuming any more conservation but also assuming that people don't turn their houses from 69 to 74. People are going to stay comfortable. We've also seen a lot of conversions in the last couple of years from industrial for their own environmental goals to go -- convert from coal and oil to natural gas. So you only convert once. So basically, our forecast now is based on customer growth.

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Joseph Kevin Fletcher, WEC Energy Group, Inc. - President, CEO & Director [74]

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And Michael, on the LNG, as far as the approval process, it's underway. And as I said in my prepared comments, we expect approval, and we would begin construction in the summer of 2021 for operational in 2023.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [75]

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Got it. And then on the gas generation side and kind of thinking about the mix of gas versus coal-fired generation?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [76]

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Mix of gas versus coal-fired?

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [77]

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Yes, just in terms of thinking about new gas generation needs.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [78]

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Well, as you know, we have an option with Alliant to buy into, at some point between now and, say, 2024, a portion of their new gas-fired combined cycle that's being built right now. That option is still on the table. We haven't made a final decision. Beyond that, we don't have any plans to propose any construction of new gas-fired generation. And of course, regardless of whether we add gas-fired generation or not, the percentage of gas-fired generation in our total mix will be going up and coal will be coming down, as we've already retired about 40% of our existing coal-fired generating capacity.

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Operator [79]

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Your next question comes from Greg Gordon with Evercore ISI.

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Gregory Harmon Gordon, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research [80]

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I'm already losing the bet so far this year, Gale, but it's one of those bets in truth I'd be happy to lose. But anyway, I just wanted to go back to the comment on what your expectations are as they sort of bake into your earnings growth aspiration, the 5% to 7%. You said that you're targeting the authorized ROE without -- and not assuming that you maximize your opportunity to get into the higher end of the range. Should we assume that the midpoint of your guidance represents earning the authorized return and sort of like the high end represents the ability to achieve other factors like earning that extra 25 basis points? Or if I'm not thinking about it correctly, could you give us some guidance as how you're thinking about that opportunity and what it might mean for your earnings outlook?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [81]

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Yes, great question, Greg. Everybody in the room is nodding their head. You've got it. If we were modeling it, as we know, you would be, we would assume fully authorized rate of return gets us to the midpoint of the guidance and then upside from there if we were to get into sharing.

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Operator [82]

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Your next question comes from Michael Weinstein with Crédit Suisse.

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Michael Weinstein, Crédit Suisse AG, Research Division - United States Utilities Analyst [83]

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One last question. I forgot to ask this. This is more of a strategic question, but around the country, you're seeing some cities ban improvements on the natural gas distribution systems and going for full electrification of heating and everything else. And obviously, the view from the Upper -- the Upper Midwest winter is a little bit different than places like California. But do you have any view on where this is all going in terms of natural gas infrastructure spending? And you guys are kind of the experts at the turnarounds of the turnaround business there.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [84]

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Well, it's a very good question. And I think you are correct. In the less -- in the warmer climates, in the more temperate climates, there's clearly a push by some of the more active environmentalists to not only move away from coal, but now we have a beyond gas campaign that we're seeing. For us, I think, Michael, it comes back to pure practicality and the recognition that if it's 40 below in the Upper Peninsula of Michigan, a heat pump is simply not going to keep your house warm, or even if it did, it would be so incredibly expensive that you simply couldn't deal with it. So for our Upper Midwest area and with the market share that we have for home and commercial heating with natural gas, I just don't see a major turn away from that for many, many years to come. I think the other piece of it is natural gas heating. Natural gas furnaces continue to get even more efficient. And there are better ways, I think, in terms of running the economy and continuing to reduce CO2 emissions. And if you look now at -- across the U.S. and in the Upper Midwest, the #1 contributor to CO2 emissions is no longer power generation, for example. It's transportation. I think the low-hanging fruit here in terms of continuing to decarbonize the economy, particularly in a region like the one we serve, is not moving away from natural gas home heating, it's actually electrification for vehicles. Kevin, I don't know if you have any view on that.

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Joseph Kevin Fletcher, WEC Energy Group, Inc. - President, CEO & Director [85]

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Gale, I think you summed it up very well. The other thing that I just will add is, as technology continues to evolve on the gas side, we'll continue to be in a part of that and looking at it. But I think you summarized our position and our philosophy very well.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [86]

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Hope that responds to your question, Michael.

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Michael Weinstein, Crédit Suisse AG, Research Division - United States Utilities Analyst [87]

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Yes, great.

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Operator [88]

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Your next question comes from Vedula Murti with Avon Capital.

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Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [89]

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One item I wanted to make sure I understood because I did see the line item, and I just wanted to make sure if you could explain it to me. Can you explain to me what -- kind of how the rabbi trust works, kind of how it's funded, its duration and kind of how it replicates itself over its life?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [90]

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Sure. We'll be happy to take a stab at it. I'm going to let Scott do that. I will say this. We have to make sure that all of you don't look at the rabbi trust in isolation because in many ways, the rabbi trust is -- the earnings in the rabbi trust offset the cost of some of our benefit plans. And I think conceptually, that's an important point to remember. Scott?

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Scott J. Lauber, WEC Energy Group, Inc. - Senior EVP & CFO [91]

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Yes, that's exactly it, Gale. So the rabbi trust is really set up by Integrys, and we inherited that investment vehicle. And that is related to some of the deferred compensation that individuals from Integrys had earned through the years. So what the rabbi trust does is -- what we do is we try to match the best we can the expense of the deferred comp that's in the utilities with the investments in this rabbi trust. So if the rabbi trust goes up $1, usually the deferred comp expense goes up $1 or vice versa. So it's really trying to match that. We have those funds. They're tied up specifically for the deferred comp. So there's nothing else we can use for them. So we have to do it, and we thought the best thing to do was try to mirror and match the hedging as much as possible. Like Gale said, though, you can't look at it in isolation. Just for accounting purposes, that has to be on this line how it's recorded.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [92]

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And Vedula, so far -- and again, we inherited that in 2015 with the Integrys acquisition. So far, our strategy -- our matching strategy, if you will, has worked exceptionally well.

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Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [93]

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So as I think about this, is the variance here tied to stock market performance of Wisconsin equity -- Wisconsin Energy's equity specifically? Or what creates the variances both up and down in this?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [94]

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All right. And again, we'll let Scott give you more detail. But long story short, we know what investment options our people who've got the deferred comp are in. In other words, we know what investment options they've selected. We can blend that with our investment options in the rabbi trust.

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Scott J. Lauber, WEC Energy Group, Inc. - Senior EVP & CFO [95]

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Yes. And a lot of the investment options are dealing with equities in the deferred comp. And that's why we're trying to match it, the best we can, it's not perfect, but the best we can with equities in the rabbi trust. And so far, the correlation has been pretty high.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [96]

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And like 99%, been really good.

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Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [97]

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And so this is a static thing going forward. There's no new participants or incremental...

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [98]

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No new participants.

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Scott J. Lauber, WEC Energy Group, Inc. - Senior EVP & CFO [99]

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It's static, and it slowly goes down as participants withdraw from the old Integrys deferred comp. So it's slowly going down.

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Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [100]

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Okay. And I guess, also, I guess, and the other thing, obviously, and this is clearly part of strategies in terms of the -- on the income tax expense line, in terms of the wind credits and everything like that. Clearly, if we take a look at Page 10, it's a major -- that's a very important positive factor. And year-over-year, it was a very large increase. How should we be thinking about that in terms of, within the earnings guidance range, about the variance going forward there?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [101]

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We can certainly give you the comparison of what we achieved in terms of the infrastructure segment earnings in 2019 versus our projection in 2020. And as I mentioned earlier, the infrastructure segment gave us about $0.02 a share uptick in earnings each quarter during 2019. And with the addition of Coyote Ridge Wind Farm in South Dakota, which went commercial at the end of last year and will give us a full year this year, we would expect $0.03 a quarter from the infrastructure investments in wind.

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Scott J. Lauber, WEC Energy Group, Inc. - Senior EVP & CFO [102]

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Yes. And I think overall, when you look at it, including the unprotected we're giving back in the credits to our customers, that effective tax rate is in that 16% to 17% range.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [103]

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And to clarify, it would be an incremental $0.01 a quarter in 2020 in terms of the earnings.

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Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [104]

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Yes. So given the fully diluted share count, it would appear then that, that variance should be something similar, not as dramatic year-over-year?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [105]

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Yes, that's exactly right.

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Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [106]

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Okay. And it's only about 3 weeks to pitchers and catchers. So how are the Brewers?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [107]

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Brewers are interesting. They're kind of reshuffling the deck a little bit, just signed a pitcher yesterday. But I'm more focused right now on 41 and 6 for the Bucks.

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Operator [108]

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And your last question -- I'm sorry, your next question comes from Andrew Levi with ExodusPoint.

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [109]

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So just kind of following Michael Weinstein's questions and just on kind of natural gas. I guess, and you've kind of answered it already, but just -- also just in the context of like ESG and obviously, ESG seems not to be favoring natural gas. So maybe just explain how you deal with that? And then separately, I agree with everything that you had said earlier about nat gas. Just kind of looking at kind of the landscape. And if you look at LDCs or companies that are very heavy natural gas, their stocks have not done as well of late and the multiples have come down. And so I'm just wondering kind of where your head is at? And at the right price, would you add gas distribution customers to your mix beyond what you have already? Obviously, you have a large LDC in Illinois and a smaller one in Wisconsin.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [110]

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Well, good question, Andy. You never say never, but let me put it this way. At the right price, obviously, fitting the 3 criteria that we've talked about for acquisitions, I mean, we would always take a hard look. I would, though, because you recognize if you're making an acquisition of any kind of company, LDC or not, you're basically making a very long-term bet. Our assets, as you know, are very long-lived assets. So would -- and I'm saying this just theoretically, if an LDC in Northern North Dakota came up for sale at the right price, we probably would be a lot more interested in that than if it was in San Diego.

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Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [111]

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I understand. And just as far as ESG and how you kind of, you think maybe -- obviously, that's -- it's an evolving idea or investment basis. Do you think as far as natural gas, they've gone for an update, but it may not be the right way to look at it and there are other things to focus on, on the ESG side?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [112]

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Well, again, a good question, Andy. My sense, and we've done dozens of ESG visits. Right now, and I think for the foreseeable future, the ESG focus for infrastructure companies like ours seems to be heavily, heavily focused on CO2 emissions and what your plan is to basically decarbonize the generation fleet. That swamps any other kind of discussion that we've had with any ESG-oriented investor. And again, we've had hundreds of these discussions over the course of the last couple of years. In fact, everyone now, whether you are ESG-focused or not, everyone is beginning to ask ESG questions. But I would say that in 99 out of 100 meetings, the real focus is on -- is really on CO2 emissions. And there, we've got a great story to tell. The other thing that I would point out, and we're one of the first utilities in the country to set a methane reduction goal. And I think you're going to be seeing -- because the climate scientists, as you know, really believe that methane emissions are far, far more potent, perhaps 25x more potent than CO2 as a greenhouse gas, I think you're going to be seeing some increasing focus on methane emissions. And there, the kind of upgrade work we're doing to modernize the natural gas distribution network, particularly in Chicago, is really important. So those are the kind -- that's the flavor of what we're hearing in our ESG visits today, Andy.

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Operator [113]

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And your last question comes from the line of Paul Patterson with Glenrock Associates.

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Paul Patterson, Glenrock Associates LLC - Analyst [114]

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So let me ask you something here. Just to follow-up on Vedula's question. The rabbi trust, if I understand your answer, basically is offset by deferred comp expense. So there really isn't any net income benefit of any significance you see driving earnings going forward or in terms of results for 2019? Am I understanding you correctly?

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Scott J. Lauber, WEC Energy Group, Inc. - Senior EVP & CFO [115]

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Correct. 2019 may have been an anomaly because we had so much O&M coming out of the utility that we were into the sharing. But for the most part, there's no benefit from that at all. But it would have been a small amount.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [116]

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And nothing, Paul, that we're planning on in terms of benefit for 2020.

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Paul Patterson, Glenrock Associates LLC - Analyst [117]

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Okay. And then in terms of Foxconn. There's some local articles about the Evers administration looking at renegotiating the tax benefits because of, I guess, the way the Foxconn thing has been sort of rolling out. And I was just wondering if you had anything to share on that? Or what does that mean in terms of the outlook for the -- for Foxconn to economic development contributions that you guys have been expecting this past year.

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [118]

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Right. Good point. And let me just reiterate first what I mentioned in our prepared remarks, in that over the past 2 years, Foxconn has invested already over $500 million in Wisconsin. I can tell you -- again, I've said before, focus on what's going on in the campus rather than the media reports, but I can tell you, I was actually with the Governor yesterday. He and I appeared together at an economic development conference here in Milwaukee. And he went out of his way to say that he believes his responsibility is to help make Foxconn successful in Wisconsin. So again, that's as of 9:30 yesterday morning and a very definitive comment from the Governor himself.

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Paul Patterson, Glenrock Associates LLC - Analyst [119]

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Okay, great. And then just finally on the wind transaction with Google as the offtake. That's for the life of the project. Is that correct?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [120]

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That would be a 12-year offtake agreement.

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Paul Patterson, Glenrock Associates LLC - Analyst [121]

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That's 12 years? Okay. And then just generally speaking, given the credit quality of Google and stuff, just to make sure I understand this. The -- that's a better rate of return that you're getting. You guys perceived -- you guys expect to get a better return associated with that project than what you're getting in your regulated business? Do I understand you guys right on that?

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Gale E. Klappa, WEC Energy Group, Inc. - Executive Chairman [122]

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You understand this absolutely correctly. And the experience that we've had so far with the other infrastructure investments that are operational, the experience in 2019 is proving that out.

All right. Well, folks, that concludes our long conference call for today. Thank you so much for participating. If you have any other questions, we're always available. Please contact Beth Straka at (414) 221-4639. Take care, everybody.

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Operator [123]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.