Wisconsin Energy Earnings Call Nuggets: Capital Expansion Process and Segments Details

Wisconsin Energy Corporation (NYSE:WEC) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Capital Expansion Process

Michael Lapides – Goldman Sachs: Real quick questions and by the way congrats guys on a good quarter. Just curious in terms of how are you thinking – and this may be an Allen question. How you are thinking about the capital expansion process. I know it’s kind of in the budget for ATC, but in terms of the execution part of that, meaning, getting permits, getting siding, getting it done on time, on trajectory?

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Gale E. Klappa – Chairman, President and CEO: That’s definitely an Allen’s question.

Allen L. Leverett – EVP: Well, I guess you’d have to take that in sort of in two parts, Michael. Within the State of Wisconsin, within (indiscernible) and within the Upper Peninsula OF Michigan, we certainly had a very now longstanding over a decade process that’s pretty well understood and they have a good process at ATC to go through that. And really the only uncertainty there is when you bring a project forward, the primary uncertainty is the timeframe that are going to be required to get regulatory approvals. But typically for CA the way CA works now once your CA is deemed complete it’s not more than 360 days to get approval, there is 180 day initial period and then the Commission can extend that for another 180 day. So, I think within the footprint that would be the primary question just the length of time that it would take to get a regulatory approval. Outside the footprints, I mean we’re still in pretty early days Michael on doing projects outside the footprint. Gale mentioned the Path 15 investment but that was an existing transmission line. So outside of the footprint not a lot that I can say about that but candidly if you look at our forecast for this year 14/15 we’re not assuming any projects outside the footprint in any case. Hopefully that helps.

Gale E. Klappa – Chairman, President and CEO: Michael I think Allen made an important point if you look at the capital expenditures that we’ve broken down in our investor deck that we talked about the $3.2 billion to $3.5 billion over the five-year period. Allen is correct we do not include any outside the footprint investment in ATC in those numbers, so that would be investment upside.

Michael Lapides – Goldman Sachs: And how about on the gas side I mean lots of what I am asking about is bearing, nuts and bolt stuff. But you’ve got a lot of gas distribution infrastructure investment in your plan over the next couple of years, just curious whether, how about siting and permitting process if that works in the state of Wisconsin, do you have to go to local siting boards do you go straight to the PSC and it serves this kind of a centralized siting board et cetera?

Gale E. Klappa – Chairman, President and CEO: Good question Michael. The answer is really in two parts for much of the gas distribution work that we’ve described, there really is not — the individual projects did not rise to the level where we need to seek construction authority from the Wisconsin Commission. For example, we mentioned the 83,000 individual gas lines those would be the lines that come off the street and hook directly to your home. Those projects are much smaller in nature and do not require construction authority permitting from Wisconsin Commission. But certainly the largest project that we have in front of us on the gas distribution side that will require construction authority from the Wisconsin Commission is the one that we mentioned and that’s the Western Wisconsin Gas expansion. That is a very significant project $150 million to $170 million in the initial phase. So we’ve begun the process there of seeking approval we filed our initial request in late March and then we will have a supplemental construction authority request in late summer.

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J. Patrick Keyes – EVP, CFO and Treasurer: There is some additional environmental information that we have to file in August.

Segments Details

Greg Gordon – ISI Group: How did you feel about the Green Bay draft this year, Gale.

Gale E. Klappa – Chairman, President and CEO: They have added some bulk, I mean they are companying up good past rushing defensive in, rock and roll.

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Greg Gordon – ISI Group: My question goes to what happened in the quarter vis-a-vis sales and what you are hearing from your customers for the balance of the year because clearly you had a pullback in sales from industrial but it was driven by natural resources. Obviously we’ve had a big deflation in commodity prices because of what’s going on over in China. We did not had big impact on your one particular customer, but in the manufacturing segment and other segments of the industrial mosaic in your service territory, can you give us some more color on what you are seeing there?

Gale E. Klappa – Chairman, President and CEO: I’d be happy to Greg. Let me backup. As you know when we put our sales forecast together for a new coming year, we interview our 120 largest industrial customers and get their direct feedback on their expectation in terms of demand for the following calendar year. When we did those interviews late last fall, I don’t think there’s any question that we were hearing a good bit of conservatism and a good bit of caution from our large industrial customer base. If you recall, those interviews were being done at a time when the whole issue about sequester and the whole issue about federal debt ceiling and everything we went through at the end of the year was very much on people’s minds and our customers are proving – I mean they have given us really good input. I mean, they were expecting a soft first quarter in terms of what they were seeing for orders and demand and that has turned out to be the case. When you basically take out leap year and weather normalized, our industrial sales were about under where we thought they would be in Q1. Now, we’re projecting a little bit of uptick, not much in the remaining quarters. So in essence what we’re seeing is an economy treading water. The only two sectors that showed any material growth at all we served 17 different industrial sectors of the economy. The only two sectors that showed any growth at all were believe it or not printing and publishing and production of plastics, everything else pretty much just right where it was. Not a lot of big upside, not a lot of downside just trading water. We’re a bit cautiously optimistic over the course of the remainder of the year, but no – we’re not deviating from the sales forecast. There is no indication yet that things are really turning around.

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Greg Gordon – ISI Group: Then second and last question in terms of the buyback, obviously the average price at which you have already bought back stock is pretty good relative to where the stocks trading now. What can you tell us about how you think about the potential for completing the buyback, relative to other opportunities to deploy capital with your stock trading at such big PE or price to book multiple?

Gale E. Klappa – Chairman, President and CEO: Well it’s a good question Greg and we continue to look every day at whether or not we want to be in the market buying stock. Over the long-term I can tell you it would not be the intention of the management here to build up a big cash reserve. I don’t think that’s what we’re being paid for from our stockholders, but obviously we’re going to be opportunistic as we have been in the past on share buyback.

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