威斯康辛能源 (WEC) 2003 Q4 法說會逐字稿

Good afternoon and welcome to the Wisconsin Energy 2003 year-end earnings conference call. Before the conference call begins, I will read the forward-looking language. All statements in this presentation, other than historical facts or 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, factors described in the company's latest form 10-K and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated.

During the discussions, a reference to earnings per share will be based on diluted earnings per share unless otherwise noted. This call is being recorded for re-broadcast and all participate are in a listen-only mode at this time. After the presentation, the conference will be open to analysts for questions and answers. In conjunction with this call, Wisconsin Energy has posted on its website a package of detailed financial information on its 2003 fourth-quarter and year-end performance at www.wisconsinwnergy.com.

A replay of our remarks 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.

Thank you. Good afternoon and thank you for joining us on our conference call. I'd like to begin by introducing the members of the Wisconsin Energy management team that are with me here today. We have Gale Klappa, President of Wisconsin Energy, Allen Leveret, Chief Financial Officer, Rick [Peuster] President and CEO of WE Generation, Larry Salustro, Senior Vice Presidnet and General Counsel, Jeff West, Treasurer and Steve Dickson Controller.

All of us will be available to respond to your questions at the conclusion of our prepared remarks. Before we review our accomplishments for 2003 and present our expectations for 2004, I'd like to take just a moment for a personal note. You may have seen in our news release this morning that I have decided to retire from Wisconsin Energy on April 30th.

As part of the company's succession plan, our Board of Directors announced that Gale Klappa will assume my responsibilities effective May 1st, 2004. Gale will also continue in his current capacity as President of Wisconsin Energy and President and Chief Executive Officer of WE Energies. The past several years have seen a tremendous amount of time in the energy industry and at Wisconsin Energy.

Our company has thrived during this tumultuous time, by focussing on its core businesses. We're in strong shape financially, we have an excellent leadership team in place, we have a competent and committed work force and our Power of the Future plan is on track. I have every confidence that Gale and the rest of the leadership team will ensure the continued success of Wisconsin Energy Corporation.

I'd also like to personally thank all of you for your patience and continued support of our company, Wisconsin Energy has a very bright future. Well, enough of that and let's get on to the important stuff. This past year was a year of solid progress for the company.

And in the past few weeks we've announced several positive developments. Including, the sale of our manufacturing business and an increase in the dividend we pay on our common stock. To fill in all the details, I would like to turn the call over to Gale.

Dick, thank you very much and thanks for the leadership you've given this company over many, many years. We appreciate it.

Thank you.

We're very pleased with our progress in 2003, we move forward on our strategic plan and we -- and we continue to improve our financial and operational performance. Allan was going to review our financial results in just a minute but his voice has left him so I think I'm going to be his stunt double for the remainder of the call.

As all of you saw from our news release this morning though we earned $2.31 a share on an adjusted basis in 2003, and that compares to $2.23 a share on the same basis in 2002. Now, as you'll recall, we reached a major milestone last November when the Public Service Commission of Wisconsin approved the construction of two base load coal fired units on our Elm Road site in the city of Oak Creek just south of Milwaukee.

Each unit will have a capacity of 615 megawatts. The first unit is scheduled to go in service in 2009 and the second unit has an expected in-service date of 2010. I expect that Wisconsin Energy will own 84% of this capacity or about 1,030 megawatts and invest approximately $1.8 billion.

We're also building as you know two new gas fired units, each with a capacity of 545 megawatts north of Milwaukee in Port Washington. As we anticipated, there are also legal challenges to the commission's decisions on these projects.

Two weeks ago, a state court judge ruled that the commission should provide additional information on the environmental impact of the natural gas units at Port Washington and the judge returned the case to the commission. These plants had been approved in December 2002 by the commission and construction of unit one is approximately 15% complete.

Last Friday, the commission informed the Court that it will take six to eight weeks to gather the additional information that the Court required and resubmit it to the Court. The commission also stated that it did not interpret the decision as requiring us to stop construction. So construction at the site continues.

Now, the authorizations for the coal plants are also the subject of appeals by five parties, primarily raising environmental issues. We expect that all of the cases regarding the coal plants will be consolidated into a single judicial proceeding in state court.

We should receive an initial determination from the court on these appeals no later than the end of the year. Another key step in our process is obtaining all major environmental permits for the coal units. On a very positive note, we received the air pollution control construction permit from a Wisconsin State Department of Natural Resources last month.

We're also working on permits for whetlands and water intake requirements. At this point, we expect that the major permits will be contested, although there are no statutory deadlines, we anticipate final decisions on the environmental permits as we have disclosed to you in the past in the third quarter of this year.

Subject to the issuance of permits and satisfactory progress on the litigation, we expect to complete some site preparation activities for our coal units in 2004 and begin construction in earnest at our Elm Road site in early 2005. Now, turning to other major developments, as Dick alluded to last week we announced an agreement to sell our manufacturing business to Pentair for $850 million in cash.

Pentair will also assume approximately $25 million of debt. Subject to normal regulatory approvals, we expect to close the sale in the second or third quarters of this year. We see four key distinct benefits from the transaction. First, it allows us to substantially reduce our debt levels.

As a result, we will not have to issue the equity previously included in the financing plan we presented to you. Not only will the sale lower our financial risk, but we believe it also lowers our business risk. And probably of greatest benefit, we will be able to focus completely on what we know best, producing and delivering energy safely, reliably and at a competitive cost to our customers. Last week we also announced an increase of 5% in the dividend on our common stock.

Going forward, our goal will be to raise the dividend on a consistent predictable basis at approximately half the rate of growth in our earnings per share. The new quarterly dividend rate is 21 cents a share, which brings our annual rate to 84 cents per share. This new rate will be effective with the second-quarter dividend payable on June 1.

Now let me briefly update you on our Point Beach Nuclear Plant which is operated by the Nuclear Management Company. I'm pleased to report that Point Beach continues to deliver strong operational performance in a safe manner. In 2003, in fact, Point Beach had the highest total energy production in its 30-plus year history.

In 2004, the plant is off to a good start with no forced outages or unplanned power reductions. The Nuclear Regulatory Commission issued its final report on February 5 on the special inspection that it conducted at Point Beach in the fall of 2003.

The report lists four main areas for improvement at Point Beach: They include; improvement in problem identification and resolution, enhancement of the emergency planning process, increased quality in the engineering and design and control areas, and improvement in the interfaces between engineering and operations. The report includes a key theme for Point Beach improvement, the need for a change in individual behaviors that demonstrate accountability for improved performance.

We will be writing a commitment letter to the NRC that specifies our current and planned actions to address these findings. The letter also will provide objective measures to verify the effectiveness of the actions. Finally, the Nuclear Management Company has recentry made management changes and brought additional resources to bear in order to help resolve these issues with the NRC.

I might add that the Nuclear Management Company completed a refueling of Unit 2 at Point Beach in the fourth quarter. At the same time, an inspection of the reactor vessel head for this unit was also completed. The Results of the inspection were outstanding.

We found no recordable flaws and in 2002, we successfully completed this same inspection for 2001. We do, however, intend to replace both of the reactor vessel heads in 2005 at a cost of approximately $54 million. These replacements will be made during the regularly scheduled refueling outages.

Later this month applications for a license extense for Point Beach will be submitted with the NRC, the application process will cost approximately $22 million. We expect that renewal of the operating licenses at Point Beach will save our customers more than $450 million over the 20-year lifetime of the extensions. The current licenses are scheduled to expire in 2010 and 2013 respectively.

Now, if Allan's voice was here, we'd be turning the call over to him but I will continue on to give you additional details on our financial performance for 2003 as well as our earnings guidance for 2004. Again, just to remind you, we earned $2.31 a share on an adjusted basis in 2003 compared to 2.23 a share on the same basis in 2002.

We're going to exclude gains and losses from the sale of assets in our detailed review of the earnings. Then at the end we'll give you the net impact of asset sales for both 2002 and 2003. Once we've gone through this earnings analysis, we'll provide some additional details on cash flow, including the projected use of proceeds from the sale of our manufacturing business, and then we'll give you our guidance for earnings for 2004.

It may be helpful as we go through this section for you to refer to pages 9 through 11 of the earnings package that we posted on our website this morning. On a consolidated basis our operating income was down $3 million in 2003. This is our operating income at a consolidated level. Again, this excludes the impact of asset sales.

Here's the breakdown of the components. Operating income for the utility energy segment, which includes Wisconsin Electric as well as Wisconsin Gas was $544 million, this was down 18 million from 2002. The biggest negative factor was the weather.

Fuel costs, employee benefit costs, higher O&M associated with Power of the Future and our nuclear units were also factor as was increased depreciation expense. The net affect of weather, which was cooler than normal for the majority of the summer and slightly colder than normal in the winter was an $8 million drag.

Our fuel and purchase power under recovery was 5 million more than in 2002, higher employee benefit and health care costs pulled earnings down by 30 million. Higher costs associated with Power of the Future and our nuclear units represented another $16 million, and increased depreciation expense totaled 8 million.

Together, weather, fuel and purchase power costs, benefit and health care costs, O&M and depreciation reduced operating income by 67 million compared to last year. Now on the positive side. Our natural gas business had a $7 million improvement from revenues it received through its gas cost incentive plan.

In addition we had a positive swing of 28 million year-over-year due to the fact that we had legal settlement expenses in 2002 but received legal settlement proceeds in 2003. Base revenue growth in our electric business amounted to 14 million, and all of these taken together improved operating income by $49 million.

So netting the impact of the positive and negative drivers that we've just reviewed brings you to the $18 million decrease in the utility segments operating income for 2003. Our manufacturing segment recorded operating income for the year of $67 million, that's $11 million better than the prior year.

A substantial driver for this increase was a 9% or 61 million increase in sales to a record level for the manufacturing business of $746 million. Our manufacturing segment experienced growth in its base business as well as $10 million of higher sales related to prior-year acquisitions.

In addition to the sales growth, our manufacturing segments operating income benefitted from cost reductions driven by lean manufacturing initiatives and plant consolidation and restructuring efforts which occurred in 2002. The non-utility energy segment showed a reduction of $6 million as compared to 2002. The majority of this was related to Wisvest Conneticut which was sold in December of that year.

It had 7 million of operating income in 2002. Other items added a million dollars, which when netted with the loss of Wisvest Conneticut earnings brings you to the $6 million reduction for the non-utility energy segment.

Corporate and other operating income improved by $10 million as compared to 2002, this increase was driven almost exclusively by a $12 million improvement in earnings at Minergy netted against $2 million in earnings decreases from other items. Although we are pleased with the improvements at Minergy we do not expect any further improvement in earnings from that segment or for this business line in 2004.

So taking these four segments together, brings you back to the $3 million decrease in operating income for 2003. Other income for 2003 was 43 million, virtually even, about a million dollars less than 2002. This change can in part be attributed to our investment in the American Transmission Company.

Financing costs were down 14 million compared to 2002, a reduction in average debt levels as well as lower interest rates contributed to this improvement. Our effective tax rate, excluding the impact of asset sales, was 35.5% as compared to 37.5% in 2002. Tax credits associated with rehabilitation projects were the primary cause of the reduction in the effective tax rate.

The lower rate was a key factor in reducing our income tax expense in 2003. Looking forward to 2004, expect that our effective tax rate will be approximately 37.5%. Adding the changes in other income, financing costs, and income taxes to the year-over-year change in consolidated operating income; brings you to the $15 million increase in net income for 2003 that we reported this morning.

Total net income in 2003 before asset sales was $274 million, or $2.31 per share. During 2003 we had net losses on asset sales of 30 million, or 25 cents a share, which results in GAAP earnings of $244 million, or $2.06 per share. Now in our third-quarter call, we discussed the sale of our gas turbins, our investment in two energy marketing companies and a small Minergy investment.

In the fourth quarter we also wrote down our remaining investment in [Androskogen], an independent power project in the State of Maine which resulted in a 10 cents per share reduction. Total net income in 2002 before asset sales and impairment charges was 259 million or $2.23 cents per share. During 2002 we had net losses and impairment charges of $92 million or 79 cents a share, which resulted in 2002 GAAP earnings of 167 million or $1.44 per share.

Now, let's shift gears for just a second to review our cash flow picture. We generated 624 million dollar of funds from operations during 2003, in addition we expect to receive a total -- a total of nearly $100 million in cash from 2003 asset sales, including the related tax benefits.

Sales of equity from our dividend reinvestment and other plans during 2003 brought in $63 million of cash, netting out the 7 million in share repurchases, we completed in the first quarter of 2003, brings our net equity issuance for the year to $56 million. We used this cash to fund capital expenditures of 659 million, with 456 million dedicated to our utility business and 163 million for our generating units under construction.

In addition we paid $94 million of dividends. At the end of the year, our debt to capital ratio, including trust preferred securities, was 64.6%, that compares to 66.1% at the end of 2002. This result is slightly better than the 65% target we set for the end of 2003.

With the sale of the manufacturing business, we expect that our debt to capital ratio including trust preferred will be about 61.5%, so a significant improvement by the end of 2004. Now, before we discuss our updated financing plan, I'd like to review the use of proceeds from the planned sale of our manufacturing business.

Starting with gross proceeds of 850 million, we expect to pay just over $100 million of cash taxes. This brings our after-tax proceeds to just under $750 million. Of this amount, we intend to use about $660 million to reduce obligations at Wisconsin Energy, and at the Wisconsin Energy parent level, and another 50 million to repurchase shares of Wisconsin Energy stock.

The balance of the proceeds is expected to be used for fees and debt reduction costs. The sale of our manufacturing business will result in a significant change in the financing plan that we shared with you last year. The complete summary of the new plan is on page 12 of our earnings package, the new plan does not -- I repeat, does not call for any additional equity issuances.

From this point forward we do not expect to sell any shares through our share issuance plans either. As of Monday we put all of our plans into open-market purchase as opposed to the new-issue mode. In addition once we reach financial closing on the sale of our manufacturing business, we intend to repurchase $50 million of common stock.

One other point that I would like to make about the financing plan is that it calls for another $200 million in asset sales over the years 2004 to 2008. I expect all of this to come from sales of real estate assets and our remaining non-regulated power assets. Given our head start in 2003, though, along with the shale of our manufacturing business, these asset sales can be very much back-end loaded over the period.

Now the final area we'd like to take up is earnings guidance. Our guidance for 2004 is in a range of $2.33 to $2.43 a share. Again, $2.33 to $2.43 a share. This range assumes that the manufacturing business is in our results for the full year 2004. It also excludes the gain on the sale of the manufacturing business.

This gain net of taxes, debt redemption costs and fees is expected to be in the 15 to 20 cent a share range. And once the actual closing of the pump -- the pump business occurs, we will update our earnings guidance for you. But just, for example, if we close the sale of the manufacturing business on May 31, it will reduce our guidance range by about 7 cents a share. So to summarize, 2003, a very productive solid year of progress for Wisconsin Energy and with that we'll turn things back to Dick, Dick.

Thank you Gale. Wisconsin Energy's a great company which I believe is very well positioned for the future. We have divested non-core assets, strengthened our balance sheet and begun the implementation of our Power of the Future growth strategy. And now we would like to take your questions.

THE OPERATOR: Thank you. The question-and-answer session will begin now. If you are using a speaker phone, please pick up the hand set before pressing any numbers. Should you have a question, please press star 1 on your push button telephone. Should you wish to withdraw your question, please press star 2. Your question will be taken in the order it is received. Please stand by for your first question.

Hello.

Our first question comes from Paul [Paterson] with Glenrock Associates. Please state your question.

Good afternoon, how are you guys?

Fine, how are you Paul.

All right. On the sales of the manufacturing business, it looks like it's somewhat dilutive and I guess, if we're looking at '05, should we expect, I mean, somewhere, between 7 and 10 cents lower, you know, from that obviously there are going to be other things that are going to be adding to earnings. But in of itself, is that a pretty good annualised number, so to speak?

Paul, the manufacturing business is more seasonal than our normal businesses are and it's a little front-end loaded because of the spring-selling season with water equipment. So probably in thinking about 2005, just stand-alone before anything else, you probably should be looking at the 13 to 15 cent a share range for dilution.

Okay. And then in terms of the -- the 28 million, , that you guys got from litigation benefits, should we see anything like that happening in 2004.

No. That was pretty much a one-time event from insurance proceeds related to prior litigation so I would not count that into 2004.

Okay. And then in terms of deferred taxes, it looks like you guys sort of swung positively, you know, year-over-year look at $100 million and obviously you've got a big CAPEX program going on. Can you give us any idea about what we might be able to see in terms of, you know, obviously we've got some other things moving in there in terms of bonus, depreciation, [inudible] -- I don't know? What we might see in terms of a benefit from lower cash taxes on -- on your cash flow going forward?

Paul we're going to ask Steve Dickson our Controller to answer that question for you.

Paul you're right that we benefited significantly from deferred taxes. And part of it as you said was a bonus depreciation. The other piece was, though, was the -- the losses -- difference in book tax basis on some of our investments and that was pretty significant. I don't expect it would be a hundred million, I think it'd probably be about half of that next year and it'd be primarily driven by the bonus depreciation.

Great. Thanks a lot, guys.

Thank you.

Your next question comes from Paul Ridzon with McDonald Investments, please state your question.

Could you give some flavor as to why the tax rate's moving around? I know you mentioned rehabilitation projects, benefitting '03 but why did it step back up in '04.

Steve Dickson will be delighted to answer that. Part of it is related to the projects on a major redevelopment effort we had underway in a building in downtown Milwaukee, Steve.

Yeah great. Thanks, Gale. Is-this year the rate was about 35.5 and last year it was about 38.5 and next year we're thinking about 37.5. Gale was absolutely correct, we have the Boston store which was a rehabilitation project, we are getting tax credits this year. We will get some next year.

The other thing that happened this year, we announced in the first quarter that we were able to utilize state net operating losses as it relates to the manufacturing company and so that was a one-time item. Plus, I think we said through the quarters that there was some favorable settlements of some tax contingency matters. So those were all nonrecurring and as Gale said, we expect '04 to be 37.5.

Did that respond to your question, Paul?

Yes, thank you.

You're welcome.

The next question comes from Doug Fischer with AJ Edwards. Please state your question.

Thank you. And good luck, Dick, in your retirement.

Thank you.

Your dilution calculation for manufacturing, what -- what level of income were you assuming for '05 for that calculation, and does that -- is that net of the share repurchase.

No. The -- we just need to look at the -- the 13 to 15 cents, first of all, assumed about a $40 million after-tax level of net income for the manufacturing business. And then if Allen can speak I'll get him to explain to you how we're factoring in the share repurchase into that calculation, Allen.

Well, Doug, you start with 40 million of earnings loss, net out the interest savings, and then include the share repurchases.

So it's all netted in there.

And the final result is 13 to 15 cents.

What -- what roughly interest rate should we be using on the -- for savings?

Rough -- roughly 6%.

So that's sort of the weighted average. And that would include the cost of some early redemptions, or they're picked up here I think someplace else.

The cost of the early redemption -- the cost -- the fees for early redemption of the debt we've netted out of our projected gain on the sale.

Okay. So that -- that's not included here.

That is correct. But it is included when we gave you the range of 15 to 20 cents a share on the gain.

Okay. So that the 15 to 20 cents on the gain is -- is after you've already paid the -- the debt of the fees for reduction there.

Yes. And investment banking fees and any other legal fees, that's our total net after all fees including debt redemption cost estimates.

Okay. Okay. Thank you.

You're welcome.

The next question comes from Scott Angstrom with Hamilton Investment Management. Please state your question.

Good afternoon.

Hi Scott.

Hi. A question on the another question on the manufacturing. What was the D&A there for the year, or kind of a run rate at the end of the year, whatever you're more comfortable with.

I think Steve has the number right in front of him.

Yeah, our annual depreciation for manufacturing is about 22, $23 million.

Okay. And was there anything below the -- the EBIT line there, was there any material amount in other income.

No. The -- the insignificant amount of other income.

Very good. And one other quick question. Do you happen to have with you the net income numbers either for the year or the quarter for the reporting subs, Webco and WisGas?

We don't have it in the room with us but we will be happy to follow up later.

Alright, I will do that. Thanks a lot guys.

The next question with [Morrie May] with Power Insights, please state your question.

Good afternoon everybody and congratulations on a -- a year that came in on target.

Thank you, Morrie.

I wanted to zero in a little bit more on the earnings profitability of WICOR Manufacturing, because in the 10K for '02, you reported segment income there of 24 million, and I wanted to get the apples-to-apples number for '03, if I could.

We're -- You -- yeah. This has to do -- this has to do with leverage or unlevered reporting.

Right. This is Steve Dickson.

Okay.

And the -- the net income number that you had for '02 was about 23 million.

Yeah, 24.

24 million, okay. This year it's close to $30 million and again we had significant improvement in the operating income of about $11 million so take the tax effect that gets you up to about $30 million. The number that Allen said of $40 million is if you take the operating income and you exclude the interest expense. And the reason is, is all of -- virtually all of the debt at WICOR Industries is up to the parent.

And so it's an intercompany transaction. So when we look at the dilution, we take it unlevered net income and that's about $40 million. So that's the reconciliation. The numbers that were in the 10K included the interest of the cost, the number that we said of $40 million is an unlevered number.

Okay. So actually the -- the $30 million number you gave me now is -- is equal to the 40 million.

No, no.

No.

The $30 million is equal to last year's.

Okay.

As I said before, we go from 24 to 30.

Right.

And we had $11 million in improvement and operating income, so after tax.

Okay.

That goes from 24 to 30.

Okay. Just a couple other questions. Can you give me the utility equity at year-end and break it down between electric and gas, if possible?

We will follow up with you. We just don't have that number in front of us.

Okay. And --

We have it but it's not in the room with us.

And then on another, you know, small investment you have, and in the transmission company, can you give -- can you break out the equity earnings contribution from last year?

We can break out the earnings contribution, Steve has that in front of him.

Okay.

Yeah. And just a point of clarification. The other income for the year was about $43 million in the script and it went down by about a million. What we meant to say was substantially all of the earnings in there, the biggest part of the earnings in there related to the ATC. Actually, in 2002 the equity earnings in the ATC were $20 million, and in 2003, it was $22.8 million. So we actually had an improvement in our transmission earnings which makes sense as our equity grows.

Okay. And that is after tax.

Yes.

That's correct.

Equity -- equity line. And then my final question, is there anything in the first six months of this year weather-wise that might impact operations in the utility in the first quarter?

Well, I've got my crystal ball on. We obviously had a colder than normal January. February so far is about normal in terms of heating-degree days, so your guess at this stage of the game for the first half is as good as ours.

Okay. Great. Thanks very much, folks.

You're welcome, thank you.

The next question comes from Andy [Levy] with Bear Wagner, please state your question.

Hey, guys, how are you? congratulations Mr. Klappa.

Thank you, Andy, how are you doing?

I'm doing alright, big CEO now, so best job to have. Hey, Just back on kind of the questioning on -- on the earnings.

Andy, Andy, not til May 1. Mr. A is still here.

But, Chairman's the best. But, , as far as, you know, you are talking about '04, '05 and talking about the pump business and it seems pretty much clear, but I just want to just ask one more time. So it sounds like after the share buyback and after stripping out the earnings for the pump business, in '04 over '05, unless there's some stuff that I'm, you know, not putting in like sales growth or whatever, should be pretty flat, I guess.

Yeah. I suspect that's -- yes. Because as we mentioned in the script, and we don't know exactly which month you know, the speed of regulatory approvals we don't -- we can't predict exactly which month the sale of the manufacturing business will close. But in our example in the script, we set up and closed at the end of May, we would probably bring our range down about 7 cents. And for every month past that, you could -- we would gain about 2 cents a share.

But going back to your question,it gets-we sell the manufacturing earnings during '04, and '05 we'll have the 13 to 15 cent reduction and then in '06 we'll have a new base.

And of course we'll also have, we believe with continued construction in Port Washington, have earnings from the first (inaudible) unit there which would come on line on July 1.

Of '05.

Yes.

All right. Does that offset the pump business, do you think, or -- as far as the -- the incremental loss from those earnings?

Andy, we'll let you -- I think we've given you enough information to be able to calculate a full-year impact on Port Washington. At this stage of the game, we're simply not in a position to give you '05 guidance.

Okay.

Suffice it to say there will be some impact -positive impact from Port Washington, impact from utility growth, and we would have the 13 to 15% -- 13 to 15 cent reduction from us no longer owning the manufacturing business.

Okay. Thank you very much and good luck with your new -- or new-new job, I guess it is. And Allen, make sure you keep warm up there because I hear you're a little bit cold.

He said thanks, you just couldn't hear him, Andy. Take care.

The next question comes from David [Gromoust] with [Copeia] Capital. Please state your question.

Good afternoon, guys and congrats on last year.

Thank you.

With regards to the environmental question on the Port Washington facility, is this just sort of a nuisance refiling, do you see any risk here of delays, can you give us a little more color on what's going on there?

We'd be happy to and my favorite lawyer's in the room, our General Counsel, Larry Salustro, Larry.

Yeah. I think everyone knows that on January 27th we had an order from the first level court and the court found some fault with how the environmental assessment was done by the public service commission in the process of issuing us our permit. After studying the order for about a week, the commission issued a statement that indicated a couple things.

One, they're still considering whether to appeal. Two, they have determined that it will take them six to eight weeks to get the information together that the Court requested and get it back up to the Court.

And the third thing is that they don't consider that anything automatically happens as far as stopping construction and since no one's asked for that anyway, there's no change in us going forward. We're co-operating with the agency to make sure they have all the information that they need to the extent that we can supply it to them, and we expect that in that six to eight-week period the commission will be resubmitting back to the Court and seeing whether they can answer the objections that the judge had.

If they can't answer the objective, is there a risk that the court comes back and says, all right, you have to do the full environmental statement?

There theoretically is that risk, that's what the judge said in the -- in the opinion. But I -- excuse me, I think that since the Commission indicated some confidence that it can have that information and have it back in a relatively short period of time, that from their point of view anyway, they think they can satisfy the judge.

Okay. Does this have any repercussions on your coal -- coal filings or what you need to do from that perspective, or is it basically just only applicable to the gas line.

No, I think it's applicable to the gas plants for the coal plants, a full environmental impact statement was done.

Okay. Great. Thanks for the time.

Thank you.

The next question comes again from Paul Paterson with Glenrock Associates, please state your question.

Hi, how are you?

Hi, Paul, fine, how are you doing?

All right. I just wanted to touch base with you on the $200 million of asset sales. Could you give us an idea what the book value of the non-generation is? And I guess also for the real estate, I mean just how much -- how much do you plan coming from the real estate versus the non-regulated GEN and I didn't see any mention of WISPARK broken out there as a contributor. I'm just wondering in terms of real estate sales I think you guys have shown that as being sort of a continuing source of net income and cash, do you have any projection? I mean I know you mentioned that was mostly back-end loaded, but is there anything in '04 or '05 or whatever that we should be expecting coming from that.

Good question, Paul. Let me try to handle it one -- one kind of question at a time or some questions at a time. First of all, in terms of -- in terms of real estate asset sales in '03 versus '02, it was pretty level, which is why pretty much a wash in terms of contribution, which is why we didn't single it out in the script. And when you look back at the assets that we could consider selling to meet the targets we've talked about between now and '08, and the end of '08. We really have three different types of assets.

We have on our books today north of 150 million of real estate. That is good real estate, and those projects -- there is not a single project that has been sold at anything other than a sizeable gain. Those are very, very good projects.

So we have very marketable assets there and we will obviously pick and choose and look at our timing to maximize the value from any asset sales out of the real estate portfolio. But about 150 million, a little north of that, book value at the end of 2003. Then we have a 300 megawatt peaking plant in Illinois, the Calumet, facility, that's on our books for about $150 million.

And then we also have a minority interest in the Guardian Pipeline. The Pipeline that's already built that brings up gas from Illinois into Wisconsin. We are a minority owner of that pipeline and it is on our books for about 30 million. So if you add all that together, the total book value of those three assets is about $330 million.

Okay. And then in terms of what you guys got for real estate sales, what was the '03 number, sort of the run rate that you guys have been having for '02 and '03?

Steve do you have the run rate?

Yeah. From the operating income in both the years it was just under $3 million. Proceeds were close to $20 million in both years.

Okay. And so we should just basically have something roughly in that sort of ballpark for '0?

That would be -- I think that would be a very good assumption.

Okay. Great. Thanks a lot, guys.

You're more than welcome.

The next question comes again from Paul Ridzon with MacDonald Investments. Please state your question.

Looking for clarification on the impact of the WICOR sale in '05. Is the total dilution 13 to 15 cents or is that incremental to the 7 cents you talked about in 2004?

No, No. That is the total dilution. And, I appreciate you asking if we weren't clear. That is the total dilution.

And you got there by taking 40 million of net income offset by retiring 660 at 6% and then whatever assumptions on 50 million share buyback?

Equity. And the -- there's another element. Remember, we are -- we no longer need to issue new equity through our dividend reinvestment plan, so turning that plan off and putting it in new-issue mode obviously saves us some additional shares outstanding.

Putting it into the new-issue mode or buyback mode.

No. We're turning off the new-issue mode and we would purchase the shares on the open market.

Okay. Thank you.

You're welcome.

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