Q4 2012 Earnings Call Transcript
Transcript Call Date 03/01/2013

Operator: Welcome to the Fourth Quarter 2012 Earnings Conference Call for Integrys Energy Group. All lines will remain on listen-only until the question-and-answer session. At that time, instructions will be given should you wish to participate. At the request of Integrys Energy Group, today's call will be recorded for instant replay.

I would now like to introduce today's host, Mr. Steve Eschbach, Vice President of Investor Relations at Integrys Energy Group. Sir, you may now begin.

Steven P. Eschbach - VP, IR: Thank you very much and good morning, everyone. Welcome to Integrys Energy Group's fourth quarter 2012 earnings conference call. Delivering formal remarks with me today are Charlie Schrock, our Chairman, President and Chief Executive Officer; and Jim Schott, our Vice President and Chief Financial Officer. Other executives including Larry Borgard, our President and Chief Operating Officer of Utilities; Mark Radtke, Executive Vice President and Chief Strategy Officer; and Dan Verbanac, President of Integrys Energy Services are also available for the question-and-answer session at the conclusion of our formal remarks.

The slides supporting today's presentation and an associated data package are located on our website at www.integrysgroup.com. Select Investor, select Presentations, and then today's presentation. Before we begin, I will advise everyone on this call that this is being recorded and will be available for audio replay through April 30, 2013.

Now, I need to direct you to Slides 3 and to point out that this presentation contains forward-looking statements within the definition of the United States Securities and Exchange Commission's Safe Harbor rules including projected results for Integrys Energy Group and its subsidiaries. Forward-looking statements contain factors that are beyond our ability to control and in many cases we cannot predict what factors would cause actual results to differ materially from those indicated by forward-looking statements except, as maybe required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statement contained in this presentation, whether the result of new information, future events, or otherwise.

This slide is a condensed commentary on forward-looking statements and you are encouraged to read and understand the more specific language that is contained in our filings with the Securities and Exchange Commission, including the Annual report on Form 10-K we just filed, the forward-looking statement section of yesterday's news release and Slide 50 in the appendix of the slide deck.

Slide 4 indicates that today's presentation includes non-GAAP financial information related to diluted EPS adjusted, and adjusted earnings and/or loss. We believe these are useful financial measures for providing investors with additional insight into our operating performance because they eliminate the effect of certain items that are not comparable from one period to the next. Please review the text of this slide for more information regarding these non-GAAP financial measures.

I will now turn this call over to Charlie Schrock.

Charles A. Schrock - Chairman, President and CEO: Thanks, Steve. Good morning, everyone and thanks for joining us on the call today. Before commenting on our financial results, I'd like to highlight a key executive management change that became effective on January 1st of this year. Jim Schott, formerly our Vice President, External Affairs became Vice President and Chief Financial Officer. Jim retains oversight of regulatory affairs to continue our strategic initiatives in that area. Jim has hit the ground running in his new role. Joe O'Leary, Jim's predecessor as Chief Financial Officer is assisting Jim in the transition and is assisting on special assignments pending his retirement later this year.

Today I will provide a high-level overview of our fourth quarter 2012 financial results, our operational highlights over the last few months and our expectations for the balance of 2013. Jim Schott will discuss our financial results in more detail and provide more information regarding our financial outlook. As usual we will conclude with a question-and-answer session.

Please turn to Slide 5. The obvious challenge we faced in 2012 was weather. Chicago experienced one of the warmest years on record and the rest of our service territories experienced similar weather. This had a negative impact on our diluted earnings per share of $0.07 in the fourth quarter and $0.40 for the year. Importantly absent this unfavorable weather, our utility segments on average earned above their authorized returns. You will recall that closing the gap between earned return on equity and authorized return on equity has been one of our major initiatives. In 2012, we achieved that. Our challenge going forward is to continue earning at or near our authorized return while growing our rate base. Be assured that our management team is up to that task.

In 2012, we also established the ground work for future earnings growth. We announced a proposed purchase of the Fox Energy Center. We filed for approval of our ReACT system at the Weston plant and for our Electric System Modernization and Reliability Project in Wisconsin. We continued to move forward with the accelerated main replacement program for Peoples Gas and related to ground work for recovery of future investments in Illinois.

Before discussing our recent operational highlights, let me introduce our guidance for 2013 diluted EPS adjusted, which is shown on the bottom of Slide 5. As indicated, our guidance is in the range of $3.05 to $3.55 with a midpoint of $3.30. The range is wider than we typically provide when introducing our current year guidance. More than half of this is from the Natural Gas Utility segment due to the uncertainty regarding the currently active rate cases for Peoples Gas and North Shore Gas in the Illinois. We've widened the range for this segment to account for the large difference between our position and the position of the Illinois Commerce Commission staff in these rate cases about $0.30 per share. Jim will have more details related to our guidance in a few minutes.

Now, I'll provide a brief update on our operational activities. Slide 6 provides highlights on our regulated utility operations. I'll begin with an update on our electric utilities. First, we received all state and feral regulatory approvals needed to move forward on the Fox Energy Center transaction. We are on target to close on/or about March 31 of this year, as originally anticipated when we announced the deal on October 1 of last year. Further details are included in the appendix on Slide 20.

As we noted last quarter we've requested approval from the Wisconsin Commission for Wisconsin Public Service to install the innovative Multipollutant Control System called, ReACT. This system will cost approximately $320 million and is scheduled to be in service in 2016. The ReACT project is part of our settlement with the United States EPA, regarding certain of our coal-fired electric generation plants in Wisconsin. This settlement is pending final court approval. However it removes much of the uncertainty we were facing and provides a definitive scope for us to follow as we carry out our generation strategy.

Our environmental infrastructure improvements are also included in upgrade to the Columbia plant, which we own jointly with Wisconsin Power and Light. This project began in mid-2011 and by the time the project is complete in 2014 Wisconsin Public Service will have spent about $220 million to cover our share of the upgrade. The last regulated electric utility development passed to do with our pending application for approval of system modernization including undergrounding of electric distribution lines in the Northern part of our Wisconsin service area to improve safety and reliability for our customers.

We call this System Modernization and Reliability Project or SMRP. We expect to begin this five year $200 million project in 2014, after approvals we see from the Public Service Commission of Wisconsin. We anticipated a commission decision on this by the end of the third quarter of 2013.

Moving to our natural gas utility segment, we have two key developments. First, we installed a little over 136 miles of new main in Chicago in 2012, as part of Accelerated Main Replacement Program, which is about 20 miles less than what we installment in 2011.

A change in permitting requirements ton an installation methods is the reason we fell short of our 200 mile goal that we discussed in the beginning of 2012. Given these changes a 140 to 150 mile annual run rate from this point forward seems to be reasonable, provided of course, that we receive timely and adequate rate treatment.

One vehicle for obtaining the necessary rate treatment would be through formula rates. Therefore, we have begun the legislative process for obtaining formula rates in Illinois. Legislation has been introduced in both Illinois House and Senate. This natural gas legislation essentially mirrors what has already been approved and proposals for the electric utilities in Illinois.

As a final comment on our regulated operations, we currently have only one rate case in progress, the consolidated Peoples Gas and North Shore Gas rate cases. On/or about April 1 of this year, we plan to file a four general rate case for Wisconsin Public Service for new rates to be effective in early 2014. We are considering filing rate cases for other utilities later in the year.

Turning to Slide 7, I will provide a few highlights of our Nonregulated operations. The biggest development here was that Integrys Energy Services was chosen as the exclusive supplier for the City of Chicago's electric aggregation program. The enrollment process was completed by the end of January and all of our new customers are being served by Integrys Energy Services as we speak today. This is over two weeks ahead of schedule that we agreed to with the City, creating additional savings for our aggregation customers in Chicago.

In addition, to the nearly 800,000 customers in Chicago, we enrolled another 16 communities during 2012, increasing the total number of enrolled municipalities in Illinois that we are serving through electric aggregation programs to 46 and serving more than 1 million customers. Although our Nonregulated unit margins for natural gas and electricity are lower year-over-year, delivered volumes were up and our estimated forward contracted volumes are up significantly at December 31, 2012 compared with December 31, 2011. Even without the City of Chicago's electric business, forward contracted volumes increase for both the electric – retail electric and retail natural gas businesses by over 20%.

Another development for our Nonregulated operations is that we reached agreements to sell three of the four remaining legacy generating units. The Westwood plant sale closed in November and we expect Beaver Falls and Syracuse to close in the first quarter of this year. That leaves one unit, the Combined Locks Energy Center located in Wisconsin. As it is not core to our strategy we expect to sell that 45 megawatt gas fired unit within the year and are actively pursuing a buyer for the unit.

I'll now turn the call over to Jim Schott.

James F. Schott - VP and CFO: Thank you, Charlie. I'll cover our financial results for 2012 in a little more detail and discuss our financial expectations for 2013, but before I do Charlie, I want to thank you for that introduction of welcome to my new role. I too am grateful for Joe's assistance and advice during this transition.

Let's begin by reviewing the slide – let's begin the financial review by turning to Slide 8. In the fourth quarter of 2012, we posted diluted EPS adjusted on a consolidated basis of $0.89 per share, down $0.11 per share in the same period a year ago. For the full year 2012, we posted diluted EPS adjusted of $3.26, down $0.08 per share from the full year of 2011. As Charlie noted, absent weather, our regulated utilities did very well in the year-over-year comparison as did our investment in American Transmission Company. Competitive pressures were the main driver behind the quarterly and full year shortfall at Integrys Energy Services.

The chart on this slide takes you from our GAAP reported numbers to adjusted numbers for both the fourth quarter and full year 2012 versus the comparable period in 2011. Our consolidated results on a diluted EPS adjusted basis for the quarter and full year of 2012 fell short of what we earned in 2011. As Charlie indicated, weather was a primary driver for this year-over-year decrease in earnings. The fourth quarter and full year weather impact for 2012 and 2011 compared to normal and net of decoupling, is included in the table at the bottom half of Slide 8.

On Slide 9, we show the changes in adjusted earnings by segment. For the fourth quarter of 2012 compared with the fourth quarter of 2011 and full year 2012, compared with the full year 2011, additional detail on the key variance driver restatement can be found in the appendix on Slide 36 to 40 for the quarter-over-quarter comparison and Slides 43 to 47 for the full year comparison.

Moving to Slide 10, we'll see our capital expenditure plans for 2013 through 2015. I'll summarize the changes from what we have previously provided. Note that the three-year projection now extends to 2015. Approximately $2.1 billion of the total $2.8 billion projected capital spend over the three years centers around our rate-based investment at Wisconsin Public Service and People's Gas. So, I will focus my comments on the big projects at those two utilities.

First, Wisconsin Public Service's largest capital expenditure in 2013 is for the acquisition of the Fox Energy Center on/or about March. This represents $390 million of the $670 million of capital expenditures in 2013. Environmental retrofit programs, such as the projects at Columbian Western (Three) represent another $400 million over the three-year timeframe.

We expect to invest at least $40 million per year in the System Modernization Reliability project beginning in 2014, assuming approval from the Public Service Commission of Wisconsin of this five-year project. The remaining dollars to be invested in the three-year timeframe are for a number of smaller generation and distribution projects.

For People gas the primary CapEx projects, include the Accelerated Main Replacement Program or AMRP and other distribution projects. Regarding AMRP we anticipate spending $220 million in 2013, the amount included in our current rate case filing with the Illinois Commerce Commission and about a $140 million per year in 2014 and 2015. Our AMRP investment over the entire three-year timeframe is contingent upon receiving appropriate regulatory recovery in our current rate case, as well as appropriately rate treatment going forward, such as a proposal contained in the formula rate legislation Charlie mentioned.

The largest item in our other distribution system edition is the Calumet project for Peoples Gas we have mentioned in our previous conference calls. That represents about $150 million beginning in 2013 and running through 2015. Slide 11, shows our expected depreciation expense after regulated utilities for 2013 through 2015.

Slide 12, shows projected rate base for 2013 through 2015, the regulated natural oil and gases, electric and natural gas segments. Our rate base has been adjusted from our August 2012 projections due to the pending acquisition of Fox Energy Center. About $300 million of the $4.2 billion of projected rate base in 2013 is related to partial year ownership of the Fox Energy Center.

I'm highlighting this because while we are authorized to defer the equity earnings of that investment for future recovery and will seek recovery in our upcoming Wisconsin Public Service rate case filing, GAAP does not allow us to recognize the equity earnings related to this investment until it is recovered in rate.

Second takeaway in this slide, is the significant increase in rate base from 2013 to 2015. The increase in rate base through 2013 to 2015 is nearly 30%. As we have discussed elsewhere, we have regulatory strategies in place to include this rate base growth in rates. As I will discuss in the next slide, a portion of this will be financed through hybrid debt and our stock investment plan. The balance will be funded internally. As a result this rate base increase should result in a significant contribution to EPS growth over this period.

Moving to Slide 13, we see our financing summary, which includes what we did in 2012 as well as what we expect to do in 2013. Let me focus on the latter. This anticipates our Fox Energy Center acquisition will close on or about March 31st of this year. Given this and what we know about bonus tax depreciation for this year, we have determined our new equity needs for 2013. We have begun issuing new shares of stock to cover the equity needs of our stock investment plan, which includes dividend reinvestment and our stock-based employee benefit plans. We expect to generate approximately $40 million in equity during 2013 through our stock investment plan.

We do not anticipate issuing any other equity this year. We also are planning to issue up to $400 million of hybrid debt securities, which is long-term debt that receives partial equity treatment in our capital structure by Moody's and Standard & Poor's. While we are watching the markets closely, our plan today is for this to occur in the second half of 2013. With respect to our long-term debt financing, we plan on approximately $450 million for Wisconsin Public Service in 2013. About $147 million of that is to refinance other long-term debt maturing in 2013. The balance will be used to support the Fox Energy Center acquisition and the other projects we talked about.

For Peoples Gas, we expect to issue about $200 million of new long-term debt. Approximately $120 million of that debt will be used to refinance existing debt maturing this year. The balance will be to fund our AMRP and other distribution capital projects. For North Shore Gas, the $55 million of new long-term debt is about $8 million higher than its 2013 maturing debt.

Our financing plans for Integrys Energy Group are expected to support our earnings credit ratings. Combined with our business plan and portfolio of businesses, our current dividend is sustainable. We expect our dividend payout ratio to decline to utility industry norms as our earnings grow over time.

Turning to Slide 14, as Charlie indicated, our guidance for 2013 diluted EPS adjusted is in the range of $3.05 to $3.55, with the midpoint of $3.30. At this time, the only special item in our guidance is a $0.02 per share expected loss from Integrys Energy Services Combined Locks Energy Center in Wisconsin. The operations of that power plant are classified as discontinued operations. As such, we add the expected EPS prospect to arrive at our diluted EPS adjusted. Note that the consolidated guidance is slightly narrower than some of the things, given the large segment ranges discussed above with slightly tempered to consolidated range.

Moving to Slide 15, we provided a table, a chart that's with our 2012 actual diluted EPS adjusted by reporting segment and shows the changes by key items to get you to the midpoint of our 2013 diluted EPS guidance. Easiest item to explain is the weather. For 2012, full year information in that column was taken from what we presented on Slide 8.

Now, I will cover each segment's changes other than those for normal weather. For the Regulated Electric Utility segment, the $0.05 per share decline compared to weather normalized results in 2012, is primarily related to our fuel costs. In 2012 our actual cost of fuel and purchased power was less than the amount included in rate. Under the Wisconsin fuel rules, we are allowed to retain the first 2% of fuel savings, which produced an earnings benefit last year. We have not forecasted that reoccur in 2013.

For the regulated natural gas utility segment $0.32 per share reduction compared to weather-normalized results in 2012 is primarily related to the lag in the implementation of new rates in our current Illinois rate case, which is the spend now occurring. That delay or a regulatory lag will create a significant earnings shortfall in 2013 that did not occur in 2012.

For the Electric Transmission Investment segment, we expect a $0.03 per share increase in 2013 earnings from our investment in the American Transmission Company. For the holding company and other segment we expect increased market interest for our compressed natural gas transportation fueling business will drive a smaller loss, resulting in the anticipated improvements in that segment's 2013 earnings.

For Integrys Energy services core diluted EPS adjusted we're anticipating an $0.11 per share increase in total margins as volume growth is more than enough to offset a decline in unit margins. We're planning to increase our sales force and marketing efforts during 2013 to drive growth in 2014 and beyond. This investment is expected to reduce 2013 earnings by $0.14 per share. Finally, there is a $0.03 per share decline related to taxes this year versus last year, due to a one-time tax benefit we recognized in 2012 related to prior period audits.

Now I'll turn the call back over to Charlie Schrock. Charlie?

Charles A. Schrock - Chairman, President and CEO: Thanks, Jim. Before taking your questions, I'll summarize our key investment highlights shown on Slide 16, which are consistent with what we shared three months ago. Importantly, the execution of our business plan for the regulated utilities remained on track. We achieved a significant milestone by earning above our authorized returns on a weather-normalized basis in both the electric utility and natural gas utility segments.

This is due to the outstanding effort put forth by our leadership and our employees in those businesses. We continue to make prudent investments in our utilities to continue to provide safe, reliable and affordable service for our customers.

Our 34% ownership in American Transmission Company continues to contribute to earnings as expected. We expect our regulated businesses to contribute approximately 90% of our consolidated net income and our non-regulated businesses comprise almost entirely of Integrys Energy Services to contribute the remaining 10%.

Our business risk profile today is commensurate with this mix of regulated and non-regulated businesses. Our guidance for 2013 diluted EPS adjusted on a consolidated basis is in the range of $3.05 to $3.55. Our portfolio of regulated and non-regulated businesses our operational excellence initiatives and cost control efforts will enable us to meet our 2013 consolidated financial objectives.

We continue to work toward growth and diluted EPS adjusted of 4% to 6% on an average annualized basis with 2011 as the base year and going through 2015. Our work in 2012 established the foundation for that future earnings growth. Given our solid long term business plan and portfolio of businesses our current dividend is sustainable and our dividend payout ratio will decline to utility industry norms as our earnings grow over time.

We will now open up the call for your questions.

Transcript Call Date 03/01/2013

Operator: Maury May, Wellington Shields.

Maurice May - Wellington Shields: A couple of questions of Illinois, Peoples Gas. First of all on the legislative front, time wise when could you expect legislation to positively impact the recovery on the AMRP spending?

Charles A. Schrock - Chairman, President and CEO: I am going to have Larry address that.

Lawrence T. Borgard - President and COO, Utilities: As you know as Charlie and Jim mentioned the legislation has been advanced in the Senate, both in the Senate and the House in Illinois earlier this month. The session – the earliest that it could happen is prior to the session ending in the end of May of this year. So that's really kind of the earliest that it could possibly happen.

Maurice May - Wellington Shields: Now suppose you do get positive the legislation, how does this translate into regulatory recovery?

Lawrence T. Borgard - President and COO, Utilities: Well again as Charlie and Jim mentioned that the legislation is currently proposed is patterned after the electric legislation that was put into law here in Illinois. So, we would expect that it would follow a similar mechanism and there would be – it's a formula rate mechanism that has true ups within.

Maurice May - Wellington Shields: I don't follow any electric utilities in Illinois, so can you describe this mechanism for me?

James F. Schott - VP and CFO: Mechanically, how the formula would work is if the legislation proceeds as Larry described that it would be effective in 2014 potentially 2013, but most likely 2014 and beyond.

Maurice May - Wellington Shields: So, you would not need any approval from the Illinois Commerce Commission? You could just add or put it into effect that you saw on the legislation.

James F. Schott - VP and CFO: No. There is lots of approvals that you have to go through. Financially, that's how it would occur. Once a legislation passes, you have to present a tariff to the Commission. You also have to present a – if 2014 is the original effective year, you would have to present an estimated 2014 rate that then gets trued up in 2015. There is several filings that are required with the Public Service Commission. Under the electric legislation presumably that all those requirements would continue under the gas legislation.

Maurice May - Wellington Shields: But Jim I think you just used the key word financially and so if you had enabling legislation you could proceed on the regulatory front, but financially you could start reporting earnings as if the mechanism were in effect, right 2014?

James F. Schott - VP and CFO: That's correct.

Maurice May - Wellington Shields: Second question also has to do with recovery in Illinois, but on the negative side. What happens if there is no legislation, how far back do you pull the investment in the AMRP?

Lawrence T. Borgard - President and COO, Utilities: Maury, this is Larry again. Obviously there are a number of kind of balls in the air with respect to do that. We do as a result of what we call the Leucadia legislation have to file by I believe August of 2014 and this was the requirement that we filed essentially every other year. So, that would be our next rate case filing.

Maurice May - Wellington Shields: But I'm not talking about that. What I'm talking about is what kind of pull back would you make, you're talking about spending a couple hundred million this year, you're talking about spending what 140 every year on an ongoing basis, what happens to that 140?

Charles A. Schrock - Chairman, President and CEO: Maury, this is Charlie. There is a lot of different things that Lawry said that you have to consider, so a lot would depend on the circumstances at the time. But to just give you an idea of where we stared the annual run rate of CapEx at People's I think was in the range of $50 million to $100 million. So, one way to look at would be to go back on more normal or measured approach towards a replacement of pipe in Chicago. Depreciation turns out to be around $45 million to $50 million for People's. So, overall you're probably going to be in that range.

Operator: Michael Bates, D.A. Davidson.

Michael Bates - D.A. Davidson: On the financing, I just wanted to see if we could get a little bit more color on the hybrid securities you would expect to issue on the second half of the year, how much -- what would be the mix in the cap structure between the long-term debt and equity?

Charles A. Schrock - Chairman, President and CEO: Michael thanks for the question. I'm going to have Jim respond to that first.

James F. Schott - VP and CFO: It will show up on our financial statement is debt. S&P will treat approximately will treat 50% of that though as equity in determining there ratios. Moody's will treat 25% of it as equity in determining that ratios. Does that answer the question?

Michael Bates - D.A. Davidson: It does. Do you have any ideas to what type of coupons you would expect to issue would the coupon be comparable to traditional long-term debt?

James F. Schott - VP and CFO: There has been similar hybrid debt offerings in the last few -- last couple of months that have been in the five to five and a quarter range and that's assuming about 60 year term and that's pretty much the structure we're looking at.

Operator: Kamal Patel, Wells Fargo.

Kamal Patel - Wells Fargo: I wanted to go back to the Chicago muni contract. I had a couple of questions surrounding that and hopefully I didn’t miss much of the commentary around it. Now for my – what I line understand this contract is layered as an alternative to the usual standard offer service offering that you have for these Chicago customers. Can I just get some details around how the contract works?

Charles A. Schrock - Chairman, President and CEO: I am going to have Dan Verbanac, our President of Integrys Energy Services speak to that.

Daniel J. Verbanac - President, Integrys Energy Services, Inc.: The contract itself with the city goes through May of 2015. Although the city lock-in price is only through May of 2014, we are expecting to lock prices in for the last 12 months sometime here yet this year in 2013. How that contract works is, it's an opt out aggregation program, meaning that, customers who are eligible for the program and customers that are eligible or customers who are still on a standard service offer of the utility, they are not being served by another ARES or alternative supplier. They then – there is an opt out period of approximately two weeks that they have the option to opt out of the program. If they do not do that they fall underneath this program and will be served at these new aggregation rates.

Kamal Patel - Wells Fargo: So that implies that we should an idea by (end of the) month as to how many customers you have retained through this, is that correct?

Daniel J. Verbanac - President, Integrys Energy Services, Inc.: Actually the operation of this program has been going very well. In fact we have enrolled customers, as Charlie mentioned in his comments about two weeks earlier than the schedule that we gave the City. So, all customers are enrolled and as of today, we are serving all the customers that are in the program and that number is approximately 800,000 customers.

Kamal Patel - Wells Fargo: One last question on the same topic. How do you manage your supply contracts for serving these customers given you're able to provide under a fixed term right now, but going forward, given that your supply prices or your sales prices might be more fixed?

Daniel J. Verbanac - President, Integrys Energy Services, Inc.: With the term of the agreement through 2015 and today because it locked in there, they are priced through May of 2014. We have also entered into supply agreements that hedge that price for us. As part of those supply agreements we have some optionality built into vary the volume based on customer load. So, it is a back-to-back type transaction. We are hedged through the term of the fixed price. So, when you lock-in there, the last 12 months, we will fix the price at that time and buy the associated commodity.

Operator: (Steve Gambuzza), Millennium.

Steven Gambuzza - Millennium Partners: I just had a question on the financing plans, how much capacity in our capital structure do you have to issue hybrid debt in your view?

James F. Schott - VP and CFO: We confirm with S&P that 400 is in the range, but we really don't want to go much higher than that.

Steven Gambuzza - Millennium Partners: So, basically you'll issue that debt as Integrys Energy level and then infuse that into Wisconsin Public Service Company as equity effectively?

James F. Schott - VP and CFO: Yeah.

Steven Gambuzza - Millennium Partners: Then just with respect to the long-term earnings target when you reflect on the results that you posted in 2012 and you adjusted for weather I think you identified roughly $0.40 of earnings impact negative from weather versus normal in 2012, that would put you to 366 weather-normalized, is that correct for 2012?

James F. Schott - VP and CFO: Yeah.

Steven Gambuzza - Millennium Partners: I guess you've given a wide range of earnings guidance for 2013, but even the high-end is below where you finished 2012 and I'm just trying to get a sense for if really there is some growth in the acquisition that you've highlighted on your rate base slides, but do you view that 4% to 6% growth rate as really a commitment that you're going to be evaluated against or an aspiration?

Charles A. Schrock - Chairman, President and CEO: Steve, this is Charlie. I'm going to have Jim fill in a little more detail with you in terms of the year-over-year comparison of our guiding and why we are -- where we are this year. But in terms of your last question as I mentioned in my comments the work we did last year in terms of Fox Energy Center and our other utility investments the work we did on our non-utilities that's really poised us for good growth. So we got execution risk and of course, we need to get reasonable treatment from our regulators in all of our jurisdictions to proceed, but based on where we're at. I feel pretty confident that given those risks that we have, we're going to be in a pretty good shape to grow those earnings. But let me have Jim explain the differences kind of year-over-year and why we are, where we are with the earnings guidance.

James F. Schott - VP and CFO: I think you pretty much know that on the weather-normalized basis with 366 and the decline from the 366 towards the midpoint say of our guidance of 330 is -- the biggest driver is probably the regulatory lag in Illinois. Larry mentioned, and so that's holding us back in 2013. Larry mentioned that we've got to file our file rate case next year and our plans would be to file that early in the year like we have traditionally done and file that in say February of 2014, rather than August of 2014, if file in February 2014, we won't experience a regulatory lag in 2015. So, that will go away, so we will pick that up and that on top of all the projected average rate base growth from the utility group will drive significant amount of growth. Then finally, our Integrys Energy Services, we're expecting they've always shown very strong volume growth last couple of years, we expect that to continue and if margin stabilizes our growth in that area. So, I think those three areas combined really get us to the 4 to 6 by 2015.

Charles A. Schrock - Chairman, President and CEO: Thank you, Steve. If you take a look at Slide 15 in our presentation deck I think that one will help you understand a little bit of the year-over-year comparison.

Operator: Maury May, Wellington Shields.

Maurice May - Wellington Shields: Yes. Just kind of a follow-up to what Steve was talking about year-over-year weather impact. We have had now two months of winter weather and so can you give us a weather report on how things have been going in your service territories, especially Chicago in January and February of this year?

Charles A. Schrock - Chairman, President and CEO: Maury, I'm going to have Larry comment on that.

Lawrence T. Borgard - President and COO, Utilities: Yes, Maury, the weather in Chicago and really across the four states that we operate in for January was about 5% warmer than normal. February obviously just ended but we expect that February weather was at least at normal if not a touch cooler than normal.

Maurice May - Wellington Shields: So the first two months are 5% warmer than normal. What percentage warmer than normal, were they were last year?

Lawrence T. Borgard - President and COO, Utilities: January of 2013 was 5% warmer. February is about right now if not a little bit cooler.

Maurice May - Wellington Shields: So we are probably on balance a little bit warmer than normal. What is that versus last year?

Lawrence T. Borgard - President and COO, Utilities: Last year was much warmer than normal.

Maurice May - Wellington Shields: Can you do better than much? Can you do a little bit better than describing as much…

Charles A. Schrock - Chairman, President and CEO: Yes. Maury I am looking at our supplemental data package which has a heating degree data that's for the first quarter of 2012. We were about 24.3% warmer than normal last year.

Maurice May - Wellington Shields: So things are looking better for the first quarter of 2013.

Lawrence T. Borgard - President and COO, Utilities: Much.

Operator: (John Alli), Decade Capital.

John Alli - Decade Capital: Just a quick question I apologize if you touched on this already. I was just hoping between calls this morning. The average rate base slide you guys put in there is great, is – or how is bonus depreciation reflected in that or is it at all?

James F. Schott - VP and CFO: Yeah. This would reflect the most recent with – that would reflect the current legislation.

John Alli - Decade Capital: How much in '13 and '14, are you guys kind of putting in there?

James F. Schott - VP and CFO: The number for – the tax impact for 2013 is about $45 million of bonus depreciation – on bonus distribution.

John Alli - Decade Capital: That's after tax.

James F. Schott - VP and CFO: Yes.

John Alli - Decade Capital: Is that hit rate based now or do you wait for a rate case and then compute it?

James F. Schott - VP and CFO: It would be fact – I mean it's in the Illinois rate case now. It was an update to our filing. So, it's in the Illinois case now. It's not in the Wisconsin case and it will – but it will be when we file for 2014.

Operator: I show no further questions. I'll now turn the call back over to Mr. Steve Eschbach for closing remarks.

Steven P. Eschbach - VP, IR: Thank you and thank you for being a part of our fourth quarter earnings conference call. A replay of this conference call will be available until April 30, 2013 by dialing toll-free 866-463-2176. The full transcript of today's conference call will be available on our website at www.integrysgroup.com before the end of the day on Wednesday, March 6th. So just select Investors and then Presentations. If you have any additional questions, please contact me directly at 312-228-5408 or Donna Sheedy at 920-433-1857. Thank you.

Operator: Thank you for participating in today's call. Conference has now ended. You may disconnect at this time.