威斯康辛能源 (WEC) 2003 Q1 法說會逐字稿

Please stand by. Your conference will begin momentarily. Good afternoon an welcome to the Wisconsin Energy conference call / webcast. Before the conference call begins I will read the forward-looking language.

Statements in this presentation, other than historical facts are forward-looking statements that involve risks and uncertainties which 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, there's described in the company's latest form 10-K and filed with the SCC 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.

This conference call is being recorded for rebroadcast and all participants are in a listen-only mode at this time. After the presentation, the conference will be open to analysts for questions an answers. You're welcome to follow the presentation graphics at www.wisconsinenergy.com a replay of the presentation both audio and visual will be available approximately two hours after the conclusion of this call.

And now I would like to introduce Richard A. Abdoo, Chairman of the Board and Chief Executive Officer of Wisconsin Energy Corporation. Please go ahead, sir.

Good afternoon and thank you for joining Wisconsin Energy Corporation conference call review of our first quarter results.

Let me begin by introducing the Wisconsin Energy management team with me here today. We have Paul Donovan, Executive Vice-President and Chief Financial Officer of WEC; Dick Grigg, Executive Vice-President of WEC, Jim Donnelly (ph), president and chief executive officer of Wycore(ph)Industries, Larry Salustro, Senior Vice-President and general counsel, Jeffrey P. West, Treasurer and Steve Dickson, controller, all of whom will be available to respond to your questions at the conclusion of our prepared remarks.

I would also like to introduce you to a new member of our leadership Team, Gale Klappa, President of Wisconsin Energy. Gale joined our company on April 14th after a very successful tenure at The Southern Company. We're pleased to have Gale join our leadership team.

During the call we will review our accomplishments or our strategic plan and report on our first quarter financial results. We will also confirm our earnings expectations for 2003 and provide you with an opportunity to ask us questions at the end of the broadcast.

And as you may have heard, yesterday we entered into an agreement with the Environmental Protection Agency and the U.S. Department of Justice to resolve potential issues relating to New Source Review. I will discuss this matter in more detail later in the call. This week we celebrated the third anniversary of the Y-core acquisition, the largest acquisition in the history of the company. I am pleased to say that during the past three years we have achieved all of our major objectives related to this acquisition. We combined the largest gas and electric utilities in the state of Wisconsin into one customer focused energy provider doing business under the trade name WEE (ph) energies. We achieved significant synergy savings and continued to profitably grow the Y-core manufacturing business.

These accomplishments were impressive by themselves but they were accomplish as we developed and began making significant progress in executing our power of the future.

In summary, we have established a gross strategy that should provide high quality service to our customer and favorable returns to our shareholders for years to come.

Now let's turn to our financial results. As you saw in the press release this morning, we reported first quarter earnings of 79 cents per-share as compared to a loss of four cents per-share in the first quarter of 2002. Last year's reported comparative results of 68 cents per-share included a 79-cent per-share impairment charge and a seven-cent per-share of income related to Whisbes (ph) Connecticut which was sold in December of 2002. This year our regulated utility segment and our manufacturing segment both showed significant improvement in their earnings.

Finally as you all know by now, Paul Donovan has decided to retire. He will remain Executive Vice-President and Chief Financial Officer of the company until June 30th of this year and then will serve as a special advisor to me until his retirement in February of 2004. Paul has made many contributions to our company's success since joining Wisconsin Energy in late 1999. And we will miss him. His leadership was invaluable in helping with the company formulate its growth strategy and its "Power of the Future". He leaves us a strong financial and strategic focus that will continue to serve us well . We certainly wish Paul well.

And now, Paul, will you provide us with an in-depth analysis of the numbers?

Thank you, Dick.

Before I begin I would like to tell you how much I have enjoyed working at Wisconsin Energy for the past 3.5 years and how proud I am what we have accomplished during this time frame. I would like to assure you of four things. One, that the company is in the best financial shape that it's been in for several years; two, that we should not need to issue any new equity to support "Power of the Future". Those equity requirements were taken care of in 2000 when we reduced the dividend by $92,000,000 per year. The team we have in place will continue the strong financial and strategic focus that that the company exhibited in bringing "Power of the Future" to its present state; and finally four, that "Power of the Future" will serve the company and the state well for the next several decades. Dick Abdoo and Mr. Grigg certainly agree with these comments. Gale, since you are new to the team perhaps you would like to make a few comments yourself.

Thank you. I'm delighted to be a part of the Wisconsin Energy team. I wanted to take a moment to express my personal confidence in the company's current strategy, financial condition and prospects for the future. I look forward to continuing my relationship with all of you who are on the call. We'll just be doing it from a slightly more Northern location. Paul, I'll turn the call back over to you.

Thanks. I would like to begin by addressing the new SEC reported guidance required by reg-G. As a result of this new regulations we made some minor changes to our 2003 conference call presentations. First we'll no longer refer to adjusted earnings. Under regulation G, adjusting items should not be referred to if they have occurred in the past two years or if it is reasonably likely that a similar event could occur in the next two years.

Second our manufacturing operating income will include costs that arose as a result of the April, 2002 Y-core acquisition. Previously those costs as well as merger related interests were presented in our corporate costs. All prior year amounts in this presentation are consistent with the current year presentation.

Now I'd like to review our first quarter operating income by business segment and then review the other items below the operating income line such as interest costs and income taxes. I'll then review our first quarter cash flow, the status of our share repurchase program and our 2003 earnings guidance. As Dick said Wisconsin Energy had a very good quarter earning $188 million of operating income. This was $154 million better than the $34 million earned in the first quarter of last year which was depressed by $142 million impairment charge taken -- charge taken to write down the values of certain non-regulated investments.

Excluding the 2002 impairment charge, operating income increased by almost 7% or $12 million. We are pleased with the performance of our core utility and manufacturing businesses which performed very well in the first quarter. Our utility business contributed $180 million of operating income which is 5% or $8 million better than the $172 million it earn in the same period last year.

Our manufacturing operations also turned in an outstanding performance in the first quarter earning $15 million of operating income more than double the $7 million earned in the first quarter of 2002.

Unfortunately, our non-utility energy segment continues to be adversely impacted by the softness in the wholesale energy markets and as a result reported operating losses of $6 million.

Now I'll review the operating results of our largest business segment, our regulated electric and gas business. This slide identifies the primary drivers of the $8 million improvement in operating income that I mentioned a few moments ago. First, our electric margin grew by $23 million reflecting favorable weather, improved sales to large customers and rate increases to recover higher transmission costs. Second, our gas margins grew by $20 million reflecting the favorable weather.

Partially offsetting these margin increases was a $34 million increase in non-fuel operating expenses due to higher electric transmission costs, bad debt expense and benefit costs.

We'll now take a more detailed look at our electric and gas margins in our non-fuel operating costs. Overall, we recorded over $1 billion of revenue in the first quarter, a 33% increase from the prior year. However, as we discussed in the past, our gas revenues are directly influenced by the cost of natural gas under our gas cost recovery rules. As you can see, our gas revenues increased by $215 million over the prior years' quarter while our electric revenues increased by $45 million or over 10%.

As we look at our electric revenues, we see that this increase was caused by higher sales and price increases. Overall, our electric volumes increased by 10.8%. We attribute about $15 million of our increase in electric revenues to favorable weather and $14 million to growth in sales to our large customers. Our megawatt hours sales to our largest customers increased by 14.6%.

We also saw price increases related to electric transmission costs and fuel. In September of last year, the Public Service Commission of Wisconsin granted us an annual rate increase of approximately $50 million to cover increased transmission costs. For the first quarter, we collected an additional $12 million of transmission revenues and we experienced an increase in transmission costs of a similar amount.

Also, the PFCW granted us an interim rate increase in late March, 2003, of $55 million under the Wisconsin fuel rules which had a favorable impact on revenues of about $2 million for this quarter. However, as you will see, increases in fuel and purchased power products significantly exceeded this amount. Our fuel and purchase power costs increased by $22 million or 19%. We estimate that about $17 million of this increase related to increased purchase power costs associated with natural gas generation. In addition, the increased sales led to $12 million of increased costs. Partially offsetting these increases was lower generation cost related to our own fleet as we had higher availability at our other costs, coal and nuclear plants.

However, due to the spike in natural gas cost we underrecovered our fuel and purchase power cost by approximately $7 million in the first quarter, thus necessitating the interim fuel order of $55 million. We expect natural gas prices to continue to rise and to remain extremely volatile. This is why we believe that a balanced fuel supply which includes coal as well as natural gas makes the most sense for our customers and our shareholders. This slide analyzes our margins on a quarter-over-quarter basis. As you can see our first quarter electric margins were helped by the price increase associated with the transmission surcharge and by increased sales. Given the large increase in volumes, you might have thought that margins would have been higher. However, our margins were depressed by higher purchase power costs and increase sales to two iron ore mines which are at some of our lowest rates.

As we discussed earlier, our gas revenues increased by $215 million or 65% over the first quarter of 2002. Under the Wisconsin fuel rules for natural gas we are able to pass on changes in the cost of natural gas. We estimate that the higher cost of natural gas caused a $154 million increase in revenue. In addition, the first quarter of 2003 was colder than normal as our heating degree days increased by 17.5%. This colder than normal weather led to an 18% increase in gas deliveries to retail customers.

Now let's took at the cost of natural gas sold during the quarter. Our cost of gas sold increased by $195 million or 97% during the first quarter. Of this increase, we estimate that $154 million was due to the increase in the average cost of delivered gas. In addition, the cold weather led to increased sales. Our average commodity cost of gas increased from $2.75 per decotherm (ph)to in $2222.25 of decutherm (ph) in 2003. When we look at our gas margins we see that the increases revenues were substantially offset by increased gas cost. Our gas margins for the quarter totaled $150 million which was a $20 million or 15% increase over the prior year. This increase was directly related to the colder weather and a slight growth in the number of customers. We estimate that the colder than normal weather benefited our gas margins by between two and four cents per-share as compared to normal weather.

Our non-fuel own end cost increased by $34 million on a quarter-over-quarter basis. We experienced $12 million in increased electric transmission costs, which are offset by the transmission surcharge. We also experienced $6 million of increased debt expense which was driven by higher natural gas costs and the local economy.

In addition, we are experiencing increased benefit costs primarily associated with our pension and medical plans. We are keeping a close eye on all of our discretionary spending and we will try to mitigate those cost increases over the balance of the year.

In summary, we are very pleased with our utility operating income for the first quarter. The $8 million increase in operating income is a good start for the year.

Now I'd like to review our manufacturing segment. Our manufacturing segment recorded revenues of $178 million in the first quarter an increase of almost 18% over the prior year. This segment achieved increase in gross profit and operating margins reflecting leverage gained on the sales growth and the impact of continued cost improvement initiatives. This slide shows a $27 million increase in our manufacturing revenues driven by strong sales of sump and utility pumps due to wet conditions in the Northeastern United States in the first quarter as well as the impact of a 2002 acquisition.

International operations continued to post solid revenue growth reflecting market share gains, improving economic conditions and strong currencies relative to the U.S. dollar. Gross margin rates improved nearly 1.5% compare to the 2021st quarter. This improvement was primarily driven by efficiencies gained by manufacturing facility consolidations in 2002, a continued focus on cost reductions and a higher mix of more profitable water system sales. In the first quarter of 2002, this segment incurred $4 million in cost associated with plant closure and related cost and we're realizing the benefits of these actions in 2003.

Operating expenses, excluding the impact of last year's $4 million first quarter facility consolidation -- charges held constant at 17.4% of sales. This slide shows the operating income of our non-utility energy segment. On an on-going basis, this segment includes the operating results of a 350-megawatt plant just south of Chicago, Illinois, and an investment in a cogeneration plant in Maine as well as a power island which is in storage.

As we previously mentioned in the first quarter of 2002 we recorded a imparrent (ph) charge of $25 million related to the Wissfess (ph) Connecticut plants and certain other energy assets. This slide identifies our operating income at the corporate and other levels including corporate administrative plus as well as the other operating results of our smaller subsidiaries including Midergy (ph)at Wisspark (ph). You can see the financial activity is relatively small with the exception of the $16 million impairment charge related to the valuation of certain venture capital investments taken in 2002.

To reconcile our operating income to earnings per-share, we must now look at other income, financing charges and income taxes. Other income for 2003 was $8 million or $15 million less than 2002. However, the first quarter of 2002 contained two unusual items. First, we realized $20 million in FAS 133 gains associated with fuel, oil contracts related to the Wissfess Connecticut plants. These contracts were removed from our books with WIS-Connecticut at the end of last year. In addition the first quarter of 2002 we recorded $5 million of plus associated with the early redemption of high coupon debt. The 2003 results primarily reflect earnings from our investment in the American Transmission Company, a regional transmission operation.

For the quarter, we incurred interest cost of $52 million which was $6 million or 10% lower than 2002. As we mentioned earlier, the sale of WIS-connector reduced our debt balances and we experienced lower interest rates in the quarter. In addition to the good first quarter we had on an operating basis, we were able to reduce our affective tax rate for 2003 to 36.3% from our 2002 annual affected tax rate of 38.8%. This reduction was due primarily to tax credits associated with a rehabilitation project and our ability to do to recognize almost $3 million estate, net operating losses carry forwards in our manufacturing segment. Our annual affective rate for 2003 is expected to be in the 36 to 37% range.

Now I'd like to review our cash they for the quarter. During the quarter we generated $184 million of cash consisting of $92 million in net income and $92 million of depreciation and amortization. This was $64 million lower than the $248 million we generated in last year's first quarter. The decline is more than explained by a $71 million after-tax refund related to the Giddings & Louis that was settled lasted year.

Uses of cash totaled $62 million consisting of $139 million of capital expenditures and a $77 million decrease in networking capital. Capital expenditures increased $26 million compared to last year as a result of the expenditures related to our "Power of the Future" program. The improvement in working capital is less than last year because of larger accounts receivable balances related to higher natural gas prices.

When we combine the $184 million of cash sources with the $62 million of cash uses the result is a positive operating cash flow of $122 million. Netting some minor sales and some minor investing activities against operating cash flow results in cash flow before financing of $102 million.

During the quarter, proceeds from the issuance of new shares primarily from our dividend reinvestment plan exceeded the cost of shares repurchased by $4 million. In addition we paid $23 million in dividends and repaid $96 million of debt. At the end of the quarter, our debt to total capital ratio was 61.6% compared to 62.9% at the end of 2002.

During the quarter we repurchased $7 million of common stock and our $400 million share -- under our $400 million share repurchase program, which was extended by the Board of Directors last year. Since the inception of our share repurchase program in September of 2002, we have repurchased over $294 million of Wisconsin Energy stock or 13.4 million shares.

Now I'd like to take a look at our earnings expectations for 2003. As we look at our 2003 earnings, we believe that the most significant risk to achieve earnings relate to our ability to recover electric fuel and purchase power costs which are driven by the volatility in natural gas prices. The performance of our generating fleet, weather and employee benefit costs. Also as we have disclosed in our form 10-K if we sold our remaining non utility assets in today's marketplace, we believe that we would experience a loss on the sale.

The 2003 earnings estimate also does not include costs, if any, associated with any scheduled debt redemption's. Through the first quarter we benefited from favorable weather but we were hurt by under-collections of fuel and purchase power costs which were driven by higher natural gas prices.

We are pleased with our financial progress in the first quarter and by any adverse affect relating to the risks I just discussed, we remain comfortable with our annual forecast range of $2.20 to $2.40 per-share.

Now I'd like to turn the call back over to Dick Abdoo.

Thank you, Paul.

Wisconsin Energy made substantial progress in executing our "Power of the Future" plan last year. I am pleased to report that we maintained that positive direction in the first quarter of 2003. We began the site preparation at our Ft. Washington power plant site where we planned to build the first of two 545-megawatt intermediate load range natural gas fueled generating units to replace coal fueled plants built in the 1930's. We have targeted the new plant to be on-line in time to meet the peak summer demand in 2005.

In March we reached an environmental and economic agreement with the City of Oak Creek on our proposal to expand the existing Oak Creek power plant site and add 1800 megawatts of new base load, coal generation. We consider this agreement a major step forward since the city's support is critical.

Also in March, the Public Service Commission of Wisconsin issued a schedule of hearings in connection with the Oak Creek expansion. Technical hearings have been scheduled in Madison, Wisconsin, for the middle of August and public hearings in the Oak Creek area have been set for the end of that month. We remain optimistic that the PFCW will render a decision by the end of 2003.

And finally, yesterday we announced an agreement with the U.S. Environmental Protection Agency and the U.S. Department of Justice to resolve potential issues with New Source Review. This is the latest in a series of steps our company has taken to improve air quality. We maintain that we have been and continue to be in compliance with the clean air act.

However, ambiguity in the regulations has made a challenging to plan routine maintenance at our power plants. This agreement will eliminate that ambiguity. The agreement includes approximately $600 million in capital improvements over a ten-year period and a $3.2 million penalty. The capital expenditures are already included in the 1.3 billion portion of the "Power of the Future" related to environmental improvements. I believe we have a great future ahead of us. And now we would like to take your questions.

+++ q-and-a.

Thank you, sir. The question and answer session will begin at this time. If you're using a speakerphone, please pick in the handset before pressing any numbers. Should you have a question, please press one followed by four on your push-button telephone. If you wish to withdraw your question, please press one followed by three. Your question will be taken in the order it is received. Please stand by for your first question.

Our first question comes from Andy Levy (ph). Please state your affiliation followed by your question.

A very simple question. Can you guys give us any guidance for the second and third quarters yet or not?

Typically we really don't give guidance on a quarterly basis, Andy. We would rather keep that contained to the full year forecast.

Okay. That is the only question I have. Thank you.

The next question comes from Paul Deboss (ph). Please state your affiliation followed by your question.

Hi. You said you had would experience a loss on your sale non-regular regulated generating assets. Are you going to have to take another impairment charge?

If we were to sell them we think in today's marketplace the answer to that would be yes.

Okay. But if you don't have any sale agreement then you wouldn't have to take a charge prior to that?

That's correct because the difference is if they're not held for sale then you can look at the cash flows on an undiscounted basis and if they're held for sale or actually held for loss you would recognize the impairment charge.

Okay. And at this point at this do you have any estimate adds as to how much the impairment charge would be if you did decide to sale them?

no, we don't.

Okay, thank you.

The next question comes from the Dula Mercy (ph). Please state your affiliation followed by your question.

FCC capital.

Following up on Paul's question. In the past you have talked about trying to sell the remaining non-utility energy assets. What exactly is that and then what may -- what do you think can be accomplished this year or not accomplished?

Well, you know, the turbines that are in storage obviously we very much would like to sell those as soon as we can. The facility that we have in Anderskogin (ph) in Maine is still in operation. It is having some financial difficulty. That is a joint venture we entered into with a partner. The partner is putting in additional capital, at least that is our understanding today, to keep that unit in operation. I don't see any prospects of that being sold in the near-term. And as far as our Calumet (ph) operation in Illinois, that will probably be held by us for quite some time.

Okay. Secondly I think you indicated that you're debt to cap now is 61.6%. I have heard people express some concern about your leverages, with respect to your credit ratings and given the construction program that "Power of the Future" entails. Can you discuss how you see the agencies at this point and your current view there?

Yeah, we think that we have the ability over time as I mentioned at the beginning of the call to finance "Power of the Future" without, A, issuing any additional equity and as a matter of fact if we were to keep our debt to total capital ratio targeted at 60%, we would, indeed, have to repurchase a fair amount of shares during the remainder of the decade. So we do have the capability of bringing down that -- that debt to total capital ratio into the 50 to 60% range. I think the rating agencies would be comfortable with that. I think the one concern that they have is that overrides everything else is the construction risk on the coal plants because that risk they perceive as being a little bit more concerning than the leverage issue.

How would you address that risk then for them?

Yeah, this is Dick Grigg. I think we would use combinations of bonus penalty arrangements with construction contractor's and the people that are providing major equipment to make sure we control our costs within the fine band.

I would also -- this is Dick. I would also say our company has a long history when we have built major coal plants, we have built them on time within budget and they perform as designed. We haven't done that since the late '70's and early '80's. So as Dick said, we're going to look to get wrap-arounds from contracts and on the major blocks of equipment to make sure that we can build these units on time within budget to perform the way they designed and we don't run up the costs and we're confident we can do that.

And I have two last thing. One, there has been some recent press about the point Beach nuclear plant and some concerns the NOC has concerning operating performance and I'm wondering if you could kind of discuss where you see that and what actions, if any, might be being taken at this point to address the NRC's concerns, any milestones we might have here and then I have one last question.

This is Dick Grigg and I'll respond to that. First off I want to emphasize the operation of point Beach is safe and the NRC has publicly stated that. Secondly, we have every expectation that point Beach will be running during our summertime peak loads. We do have some issues with performance of some of our systems in the plant. We have corrected the hardware issues, but the NRC will be coming in to give us an inspection sometime towards the latter part of summer, late August, perhaps. And we expect that they will be inspecting to make sure that our corrective actions have been robust and have taken care of the issues. We are working very carefully and closely with the nuclear Management Company who operates point Beach for us to make sure that some of the other performance issues of our staff are corrected appropriately.

So these are not, like real capital dollar kinds of questions. These are more processes and people and culture types of issues?

That is basically correct. We have spent some amount of money, not a whole lot but some correcting the hardware issues we discovered.

And my last question is in terms of manufacturing business it appears to be doing quite well. However, it would seem like it's really a non-core kind of business and I'm wondering in the longer term is it something that you see has the ability to be potentially monitored affectivity or is it simply a very attractive rate of return business you feel stable enough can be housed within the Wisconsin Energy group of companies without a problem or any views on that?

Jim Donnelly and his team over the years has done a really great job of growing that business. I don't know if many people are familiar with the background, but when why Wycore (ph) had that business back in the late 19 80's, I believe Wycore had 20% of the business, Wycore and by the time that company was taken over by Wisconsin Energy, it add grown 50% by revenues and earnings so we had this great track record. They do it as we mentioned before through productivity improvements by new product introductions and also through acquisitions. And as we go into the power "Power of the Future", we want to make sure they continue to add value and grow their earnings through an acquisition program. So we view this company as part of our core business longer term and we would intend keep it; however, to facilitate greater growth through acquisition, there is a possibility that we may partner with someone else to help them continue to fun the acquisitions while we're doing the "Power of the Future" program.

Thank you very much.

The next question comes from Paul Woodson (ph). Please state your affiliation followed by your question.

McDonald Investments. I was hoping you could review the under-recovery of fuel costs because it is my understanding that you couldn't file for relief until you had past a certain threshold roughly of 15 million and then even would be a delay associated with recovery. Just wanted some more detail on this issue.

Yeah, Paul, Steve Dickson, controversial. As background, the Wisconsin commission fuel rules on an annual basis have a band of about 3%. On an annual basis if you pierce that band, that is where you get about $50 million. However, on a monthly basis the band, the dollar amounts are much, much smaller. In January we pierced the band and we made a filing. We get a rate order -- an interim rate order of $55 million on annual basis and that came in mid-march. Through the end of March as Paul said, we had under recovered about $7 million of fuel costs. When we made the filing, gas prices were still going up so we anticipate that there may be a chance that we will lose additional dollars for the rest of the year, but, you know, that could be six to $7 million or so. The interim fuel order, we hope to have finalized in early June and we hope that it will reflect the gas -- where gas prices are today. In summary through the first three months it was about $7 million because gas prices are higher now than they were when we filed there is a chance we may lose some more.

Does making piercing a monthly band preclude you from doing a future filing in the year?

There is two steps: one is the pierce on a monthly and also you have to look on the annual basis. Yes, in the future going in the rest of the year we pierced four months and we thought we would pierce again when the rates are reset then we would have the opportunity, but if rates stay where they are, we don't anticipate that happening.

Okay, thank you very much.

Question comes from Greg Oral (ph). Please state your affiliation followed by your question

Thanks, Lehman Brothers. How are you doing?

The staff -- environmental assessment on the Oak Creek coal and "Power of the Future" was out this week and I was wondering if you might summarize the results and, you know, assessment where things are headed?

This is (inaudible) the draft environmental impact statement was just issued this morning and we have looked at it very, very quickly. We haven't really looked at it in detail at least where we are right now. It's 500 pages. It has a lot of studies and things that are typically included with a project of this scope. That statement will now go through a comment period over the next 45 days and an as we review it more, we will be providing additional information or responding to information. As you're aware, that document at this time does not recommend -- does not represent the judgment of the agencies that are reviewing this. Instead it's a lot of -- a lot of information. It is a lot of data and a lot of contingencies. What does it look like if the plant is here compared to there and one kind of quote compared to another and different time periods. So it's very preliminary, not country cloudy country exclusionary. From what I can understand in the couple of hours it has been out, there is nothing in there which either endorses the project or fore closes it. It's very much a work in progress.

Okay, great. Also wondering if you might comment on the -- you know, where you might be in the annual guidance. I know you have confirmed the 220 to 240 very solid quarter and I was wondering if, you know, you might be up in the -- you know, the mid to top end of that range?

I think it is too early in the year with a lot of things to unfold later in the year. We would like to maintain that spread that we have currently.

Okay, thanks.

The next question comes from Neal Stein (ph). Please state your affiliation followed by your question.

John lemon & Company. Just a couple of questions. First I think you said you expect the full related rate increase to be finalized in early June. Going from the interim award of the rate increase to June what is the process you have to go through for making a permanent and then I think, you know, if they find you overcollected, I think, you know, it's subject to refund at 12% interest or something like that. Could you just talk about the risks involved and so forth?

Steve Dickson again. On the process we made the filing in January. The commission gave up an interim order in March. The staff auditors are reviewing the figures we made and updating it for gas information. So by early June that order will be final. That order will reflect then gas prices as the audit is on-going and the gas prices today are higher than the gas prices when we filed. Then the second piece was the risk of overchecking and refunding and that is correct. As a provision of getting the quicker rate increases for fuel, we took on a risk that if we did overcollect we would refund at our cost of equity that is 4.2%. We view that though as a good tradeoff that we got the revenues quicker. If we overcollected by the full 55 million, that would only be $6 million pretax and after-tax so we don't think that is going to happen. That was a risk we thought was appropriate to take.

I guess given that gas prices went up there is not much of a risk of you guys having to refund anything.

Actually, we like to be in the situation where that would happen, goes to underrecovering.

And my last question I guess Moodies has this on-going review of your credit rating. What is the status of that?

It has been indicated to us that they would like to get together with management before they finalized their review and we would anticipate that we would get together with them sometime later this month or early June and talk to them, go through where we are in terms of executing our plan and then at some point after that they would conclude their review.

Okay. Thank you very much and congratulations on a very nice quarter.

The next question comes from Paul Palaston (ph). Please state your affiliation followed by your question.

I was -- I got on late and I apologize but look like weather was $33,000,000 pretax benefit is that correct?

It looks like weather was an impact of about 33 million looks like $15 million in increased revenue from the electric side and 18 million in margin from the Glasses (ph) is that an accurate way to look at it?

No. On the gas side that number is right if you're comparing this year to last year. On the revenues -- on the electric side the $18 million, I think is fuel associated with that. If I compare our electric margins and our gas margins, if we would have had normal weather, we think that -- on the conference call on the gas side that the weather had a favorable impact of about 2 to four cents. If we would have had normal weather and on the electric side is about the same, 2 to four cents.

Or four to eight.

Four to eight so that would be eight to 16 pretax.

Secondly, the tax rate, what kind of a tax rate are you looking at? You guys broke it up nicely for the quarter. What are you looking at for the year? The NOL's how long do they last?

We said between 36 and 37% for the year.

For 2004?

We have not made a fore forecast for that yet?

Do the NOL's fall off?

The NOL's as I mentioned were a one time in the first quarter so that is not going to be recurring. If you go back to our 10-K, our normal affective rate or statutory rate is 39.21, 35 federal and 4.21 state after-tax, that is just in Wisconsin. We have the ITC amortization which is coming through every year. This year we're getting rehabilitation credits and that brings us down, you know, to this 36, 37%, but we operate in different states on the manufacturing side and we have some international tax issues so it is very, very hard to lay out in stone what it will be.

We also have some substantial state NOL's at the corporate end level at the Wisconsin Energy level which might be able to be utilized or should be able to be utilized if and when "Power of the Future" is approved.

But then for 2004, the ITC's do they fall off?

The ITC amortization will continue. That is in the regulated business.

So there is no real clear change I guess in terms --

Right.

And then also in terms of the currency, I assume that is the euro pretty much, the foreign -- the benefit from the pump business that you guys have got? Is that correct?

This is Paul, that's correct.

So if the currency situation was to stay about the same, could we anticipate that we had see a similar benefit vis-a-vis how things were last year?

I would say we would expect on the order of $4 million a quarter

Okay.

Taper off a little bit towards the end of the year the euros in late 2002.

Thanks a lot and congratulations to all.

The next question comes from Doug Fisher (ph). Please state your affiliation followed by your question.

Thank you. First Paul, thank you for the good job you have done at the company and good luck with your new endeavors. I just want to clarify a couple of thing. On the weather you said two to four cents after-tax or pretax for electric and then another two to four for gas?

Doug, the two to four-cent per-share so it is in the gas it is -

That is after-tax.

And in the electric it was also about two to four cents a share.

After-tax.

That is per-share after-tax.

Okay. And then on the fuel costs recovery at the electric utility, you expect the staff to make a calculation based on gas prices at about the time the final order comes out. Is that correct? And, therefore, you know, one would think that there's a potential for the number to be higher than the 55 million?

(inaudible) what the -- what we would expect is that the staff would estimate what the rest of the year is going to be and they would do that relatively late in the process. They won't -- they're not going to do it the date the order comes out. But at the same at the same at the time they have to make their estimates which is obviously after we filed and they would be using the best information they have for what is likely to happen for the rest of the year.

Okay. They use the future's price or do they use something based on what you may have done in the future -- what you may have done to lock in costs? Is that an issue or do they just look at the few purr's price?

They will look at what is likely to be the company's experience and to the extent that we are using hedging devices or something else ourselves then that would -- that would appropriately be reflected rather than just looking at an index.

Okay. And then so this 6 to $7 million of potential additional exposure arises from the lag between now and when those are set?

I think we're speculating as to what might happen, depending on what might happen to gas prices for the rest of the year. And it's pretty difficult to pin down. We certainly don't know what the commission is going to decide for the permanent prices when they make their decision in June and then all we -- you know, it's every one's best judgment what is likely to happen for the rest of the year.

Okay is the six to seven sort of a worst case and we're likely -- we could see something better than that or is that sort of a middle case?

As we tried to say in the conference call because the of the volatile natural gas prices, the way the fuel rules operate in Wisconsin there is a risk. We take a -- we think a six to seven is there. It could be more and it could be less. What happened last year we were in underrecovered position an prices dropped and we were able to make some back. I really hesitate to say this is the number. We're just trying to give a range.

The next call comes from Zach Shriver (ph) .

Hi, from Ducane Capital Management.

I wanted to go back to Doug Fishers comments, Paul. Thank you very much to your contribution to us as investors and Wisconsin Energy.

Thanks it has been a lot of fun.

Do you want to follow up on this FAC issue again so we have had an increase on an interim basis that will be then finalized in June and then that six, $7 million is basically our exposure within this band of plus or minus 5% around the then projected fuel expenses. Is that the issue?

Yeah, the rate order fuel order should be finalized in June. The 6 to $7 million represents the regulatory Lag between March 31 and when the final order is going to be issued and the potential that prices could go up in the future. We attribute a lot of it to natural gas and that is true. Also included in here is how our units run, our generation units so again we try to simplify it by point of natural gas but there are many, many factors involved here.

And that is because there is a preclusion Wisconsin against retroactive rate making so it is kind of a gap per is that what the issue is?

Yeah, yeah. They do not allow a dollar per dollar recovery for fuel costs. Some states have that. Wisconsin doesn't. Wisconsin says, you have the right to reset your rates perspectively move on. But there is not a retroactive dollar per dollar.

I thought that the interim recovery kind of started the clock ticking and that kind of regulatory lag issue stopped once the interim recovery went into place?

The regulatory Lag would be the difference between the 55 million and what we think the ultimate rate will be based on gas prices.

Got it. Thank you. The second question is just on the currency, could you sort of reiterate exactly what the impact will be if we stay at this level dollar versus the euro on the Wycore international pump business per quarter?

Jim Donnelly again. Actually we have not calculated that out. It was on a revenue basis $4 million in the quarter.

Positive pretax?

Yes. Pretax. But that is -- yeah, on revenues.

Got it.

And if -- it would -- for the balance of the year it would be probably up -- this is just a rough number -- somewhere in the $10 million incremental range.

Got it. And on the rating agency review, I thought you said it would be June when we get closure on that?

Yeah, this is Jeff West again. It has been indicated before they take action they want to sit down with management and review all our numbers and understand where we are and how we're executing on the plan. We have not set a meeting with them at this point but would anticipate meeting with them sometime later this month or in June after which time then they will resolve their problem.

Once again ladies and gentlemen, if you do have a question please press one followed by four on your touch-tone phone at this time.

Well, thank you. That concludes our conference call for today. I want to thank you for participating. If you have additional questions, Colleen Henderson will be available in the Investor Relations office at (414)221-2592. This concludes Wisconsin Energy's first quarter, 2003 conference call. Thank you view much for participating. Have a great afternoon and a good spring. Thank you very much.