威斯康辛能源 (WEC) 2007 Q3 法說會逐字稿

Good afternoon, and welcome to the Wisconsin Energy, 2007 Third Quarter conference call. Before the conference call begins, I will read the forward-looking language. All 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, 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, referenced earnings per share will be based on diluted earnings per share unless otherwise noted.

This conference 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 and answers. In conjunction with this call, Wisconsin Energy has posted on its website a package of detailed financial information on its 2007 third quarter results at www.wisconsinenergy.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 Mr. Gale Klappa, Chairman of the Board and Chief Executive Officer of Wisconsin Energy Corporation.

Colleen, thank you very much. Good afternoon. We're glad you could join us on our conference call to review the company's third quarter results. As always let me begin by introducing the members of the Wisconsin Energy management team who are here with me today. We have Rick Kuester President and CEO of We generation, Allen Leverett, our Chief Financial Officer, Jim Fleming, General Counsel, Jeff West, our Treasurer, and Steve Dickson, our Controller.

Allen will cover the details of our quarterly results a little bit later in the call, but as you may have seen from our news release this morning, we earned $0.70 a share from continuing operations in the third quarter of 2007. That compares to $0.60 per share from continuing operations in the third quarter last year. I'm pleased with our results for the quarter, but I'm even more satisfied with the progress we made on our long-term strategic plan.

First, we completed the sale of our Point Beach nuclear plant on September 28th. As a result of the sale, and the liquidation of our nuclear decommissioning trust we expect our customers to receive some $882 million of refunds. Our customers will also have access to all of the energy generated at Point Beach for the remaining license life of the units.

We're also pleased that for the fifth time in the past six years, our company has been named the most reliable utility in the Midwest. This award, given by P.A. consulting group, was announced in October and is based on the superior reliability of our electric system for the year 2006.

Now I'd like just to spend a moment or two as always on our continuing effort to upgrade the energy infrastructure in Wisconsin. Our Power the Future plan is fundamental to the principal of energy self sufficiency. Key components of our focus on self sufficiency include investing in two combined cycle gas-fired units at Port Washington, north of Milwaukee, the construction of two super critical pulverized coal units at Oak Creek, which is south of the city, and our plan to build 145 megawatts of new wind generation.

As you recall, back in November of 2002, the Public Service Commission approved the building of two 545-megawatt natural gas-fired units at our Port Washington site. The first unit in Port Washington went into commercial service in July of 2005 on time and on budget. Engineering now for the second unit is complete and construction is in its final stages. Systems are being finished and turned over to plant commissioning teams. At the end of September, in fact, the second unit at Port Washington was nearly 78% complete, tracking on schedule and on budget. The unit is expected to begin commercial service in the summer of 2008.

Now let's turn to the status of the two new coal-fired units at Oak Creek. Each unit will have 615 megawatts of capacity. And, on June 29 we celebrated the second anniversary of the start of construction. At the end of the third quarter the overall project was 42% complete with Unit One in the common facilities now more than 50% complete. The project remains on time and on budget. Our construction work at Oak Creek can be broadly divided into three major systems: the Power Island, Bulk Material Handling, and the cooling water intake system. I'd like to brief you on the status of each of these major systems.

First the Power Island. It's comprised -- it comprises the two units, each with its own boiler, turbine, generator and air quality control equipment.

While progress is being made across the site our contractor, Bechtel Power Corporation, is focusing their efforts on the time critical activities including the erection and welding of pressure parts in the boiler. During the past quarter Bechtel lifted into place numerous sections of the Unit One boiler and started erecting the pressure parts for the Unit Two boiler. Engineering progress and equipment deliveries have been supportive of the construction schedule.

Bechtel is also working closely with the building trade unions to ensure adequate number of skilled craft are available, particularly from the crafts that are most in demand, the pipefitters and the boilermakers. This is currently one of the biggest challenges for Bechtel. Also in the Power Island we made progress on the air quality control equipment for both units, including the Unit One bag house filters that will remove particulate matter, the scrubbers for both units, and the wet electrostatic precipitators. As we mentioned before, the concrete chimney stack is now complete, and during the past quarter Bechtel began erecting the fiberglass flu liners.

We're working on the siding for Unit One and we're hoping to enclose much of the turbine and boiler building, as possible, before winter comes and the ground turns to frozen tundra.

Turning now to the Bulk Material Systems. Our focus during the quarter has been on the new coal handling facility. I'm pleased to report the new coal handling area is close to completion, and we started unloading railcars and delivering coal to the existing units and to the new on-site storage facilities. Final turnover of the new coal handling system is expected to take place in the next few weeks. Now with respect to the cooling water system, other than just a few minor activities, we have completed offshore construction of the tunnel and the water intake. Our contractor is finalizing the concrete tunnel liner and is completed the onshore civil works such as -- or is completing now, I should say, the onshore civil works such as the water pumping station that will draw water through the tunnel. We expect the tunnel will be flooded by early next year and the whole system complete by next summer.

We continue to be satisfied with the progress at Oak Creek.

Now as you know, there are four major permits needed to build the facilities at Oak Creek. These include an air permit, a wetlands permit, a permit from the U.S. Army Corps of Engineers, and finally, a pollution discharge elimination permit. We have received all of these permits and each of them remains in effect unless it is overturned by a court or an administrative law judge. In September of 2005, we resolved all legal challenges to the air permit. Also in February 2006, we resolved the outstanding legal challenge to the wetlands permit. Our permit from the U.S. Army Corps of Engineers was received in May of 2005. To date no appeals have been lodged against this permit.

On the last permit, the Wisconsin pollution discharge elimination system permit, a contested case hearing was held during March of 2006 and in July of last year, a Wisconsin administrative law judge upheld the decision by the Department of Natural Resources to issue the permit. The parties opposing the permit then filed for judicial review in [Dane] County circuit court. As you recall, on March 5 of this year the Dane County Circuit Court issued its ruling. The court affirmed, in many important respects, the decision by the DNR to issue the permit but also remanded certain aspects of the permit in light of a federal case called River Keeper II that could affect power plants nationwide.

So as we move forward two threshold questions must be answered. First, whether the new units at Oak Creek qualify technically as an expansion of an existing plant, and then secondly, whether the water intake system we're building is still the best available technology. We believe that the additions at Oak Creek should clearly be treated as an existing facility. Supporting this conclusion is the fact that all of the units at the site will share a coal handling system, a water intake structure, and a common transmission switch yard. And we're convinced that the water intake structure we're building is the best environmental solution, because it minimizes the impact on the lake and results in lower air emissions, less use of coal and less use of Lake Michigan water than any other type of cooling system.

The procedure for carrying out this permit review is actually a bit complicated. First, after the decision in the River Keeper II case, the U.S. Environmental Protection Agency formally suspended the phase two rules of the Clean Water Act, and directed the state agencies and the various states to use their best professional judgment regarding the technology for cooling systems at existing plants. Second, in light of these developments, we asked the Wisconsin Department of Natural Resources to modify our current permit. We have now submitted all the information needed to review the questions at hand here, and the administrative law judge who is responsible for the case held a final hearing last week. He indicated he would issue his decision by the end of November. After this decision, we expect the DNR to complete the permit modification process by early 2008.

Our plan remains to have the first unit at Oak Creek in service during the summer of 2009, the second unit would follow one year later in 2010.

And now I'd like to update you on our Blue Sky Green Field wind project we've been working on for a number of months. On February 1st the Public Service Commission issued an order approving the project as a traditional utility rate-based investment. On March 28th we signed an agreement with Vestas Wind Systems for 88 turbines. Each of the 88 turbines has a capacity of 1.65 megawatts. The cost of this project is expected to be approximately $300 million excluding capitalized carrying costs. Construction at the site began in earnest on June 11th. To date, more than two-thirds of the foundations have been completed and the first turbine components will begin arriving at the site in a few weeks. We expect to achieve commercial operation of the entire wind farm by mid-year 2008. This project, by the way, will more than double the amount of wind capacity currently operating in the State of Wisconsin and will help us meet the renewable portfolio standard in the state for the year 2010.

As you may know, the Wisconsin renewable portfolio standard increases from 5% in 2010 to 10% in 2015 at a statewide level. The standard sets targets for each of the utilities in Wisconsin using an historical baseline. Using that baseline, approximately 8.5% of our retail electricity sales must come from renewable sources in 2015. Meeting these more aggressive 2015 targets will certainly require several additional projects. And we've now taken the first step in planning for these additional requirements. A few days ago we gave FPL Energy notice that we were exercising the option we received in connection with the Point Beach sale to purchase all rights to a new wind site in central Wisconsin. Once this is done, FPL will turn the site over to us, and we expect to install approximately 100 megawatts of new wind capacity there. The expected in-service date for this capacity would be in late 2011 or 2012 depending upon the availability of wind turbines.

And finally, a word about our rate case. In May we asked the commission to approve a plan that would result in net price increases of 7.5% in 2008 and 7.5% in 2009 for our electric customers in Wisconsin, a 1.8% price increase for Wisconsin Electric Gas customers, and a 4.1% increase for our Wisconsin Gas customers. These increases are needed to fund previously approved initiatives for air quality control systems, our new Power the Future generating units, transmission upgrades, and investments in renewables and efficiency programs as well as recovery of regulatory assets. Our proposal for electric customers in Wisconsin reflects very significant bill credits, using, of course, proceeds from the sale of Point Beach. Our original plan called for bill credits at $372 million in 2008, and $188 million in 2009, and would apply $107 million to recover existing regulatory assets in 2008. We expect now that the actual bill credits will be even higher because the proceeds from the Point Beach sale were approximately $57 million better than we originally projected. The commission is scheduled actually to begin technical hearings on our rate case tomorrow. We expect a final decision within the next two months and new rates to take effect in January of 2008.

Now, I'll turn the call over to Allen who will give you more details on our financial performance for the third quarter of 2007. Allen.

Thank you, Gale. I'm going to focus my remarks this afternoon on earnings from continuing operations but information regarding earnings from discontinued operations is also included in the earnings package. Earnings from continuing operations were $0.70 per share for the third quarter of 2007, versus $0.60 per share in the third quarter of 2006. On a consolidated basis, our operating income was $153 million, versus $131 million in 2006, for an increase of $22 million. Operating income for the Utility Energy segment was $137 million compared to $122 million in the third quarter of 2006, for an increase of $15 million.

Positive earnings drivers in the third quarter of 2007 for the utility segment included favorable fuel revenues as compared to the same period in 2006, and electric sales growth. These factors improved operating income by $15 million and $9 million respectively. The primary negative earnings drivers in the third quarter were unfavorable weather as compared to 2006, and higher depreciation expense. These reduced operating income by $6 million and $4 million respectively. Netting the impact of the positive and negative factors I just reviewed, along with the impact of a combination of other smaller items that netted to a $1 million improvement, brings you to the $15 million increase in the utility segment operating income for the third quarter of 2007.

Operating income in the non-utility energy and corporate and other income segments was up approximately $7 million in the third quarter of 2007 compared to the same period in 2006. While the largest earnings driver in this segment relates to power, the favorable results on a quarter to quarter basis relate to operations of WISPARK. In the third quarter of 2007, WISPARK has positive operating income as compared to operating losses in 2006. On an ongoing basis we do not expect WISPARK to have a material impact on company earnings. Taking the changes for these segments brings you back to the $22 million increase in operating income for the third quarter.

Other income was flat year-over-year.

Interest expense was up $1 million in the quarter. This change reflects an increase in the level of debt needed to fund our planned construction, offset in part by our ability to capitalize interest related to construction activity. Consolidated income tax expense increased by $9 million as compared to the same period in 2006. Now our effective rate was 39% for the third quarter of 2007 versus 38.2% in the third quarter of 2006. We expect our 2007 annual effective tax rate to be between 38 and 39%. Adding these items brings you to $83 million of net income from continuing operations for the third quarter versus $71 million of net income from continuing operations for the same quarter last year.

Now turning to cash flow. For the first nine months of 2007, we generated $633 million of cash from operations, which is $76 million lower than the comparable period in 2006. This decline is due primarily to lower recoveries of fuel and purchase power costs and higher tax payments. The higher tax payments result from higher taxable income and the fact that we had an income tax prepayment in 2005 that benefited cash flow in 2006. In addition, although we continued to see improvements in working capital this year, the absolute amount of the improvement was less than that that we experienced last year. We had capital expenditures of $842 million in the first nine months of 2007. $320 million of this was dedicated to our utility and other businesses. And $522 million was for the generating unit being constructed as part of our Power the Future plan. In addition, we paid $88 million in dividends.

On a GAAP basis, our debt-to-capital ratio was 60% at the end of the third quarter. Our adjusted debt to total capital ratio was 56.8%. The adjusted ratio treats 50% of the hybrid securities as common equity. This is the approach used by the majority of the rating agencies. At the end of the quarter we held approximately $500 million in unrestricted cash. Of this $486 million was from the proceeds we received from the sale of Point Beach. Given that the closing occurred late on the last business day of the quarter we were not able to begin paying down short-term debt with the proceeds until the beginning of the fourth quarter. If we had been able to use the $486 million to repay short-term debt during the third quarter, our pro forma debt-to-capital ratio would have been 53.9% as of September 30, 2007.

This pro forma ratio reflects the Rating Agency treatment of our hybrid securities and shows our debt levels as if we had used the excess cash to pay down debt in the third quarter. I expect that our adjusted debt-to-capital ratio at year end 2007 will be below 57%. We have a longstanding goal to maintain our adjusted debt to total capital ratio at no more than 61.5% during the period we're constructing our new gas and coal fired generation. If we perform as I expect this year we will be well below this level for the fourth year in a row. In each case, when I talk about an adjusted debt-to-capital ratio I am excluding from debt the portion of the hybrid securities that is currently treated as common equity equivalent by the majority of the credit rating agencies.

Finally, we are using cash to satisfy any shares required for our 401(k) plan, options, and other programs. Going forward we do not expect to issue any additional shares.

I would now like to turn to our earnings guidance for 2007. Our earnings in the the third quarter were slightly better than plan. Based on this performance we are increasing our earnings guidance for 2007 from $2.70 to $2.72. This reflects the financial closing of Point Beach last month and includes the gains from the sale of land in Wisconsin and Michigan in the second quarter as well as the settlement of a billing dispute with our largest customer during the second quarter. It also assumes normal weather in the fourth quarter. Given that our earnings in the first nine months of the year were $2.04 this implies fourth quarter earnings guidance of $0.68 per share. So again, our earnings guidance for 2007 is now $2.72 per share, and our guidance for the fourth quarter is $0.68 per share. So with that, I will turn things back over to Gale.

Allen, thank you very much. Overall we're on track and focused on continuing to deliver value for our customers and stockholders.

At this time we will open it up for questions from analysts. (OPERATOR INSTRUCTIONS) And we'll take our first question from Andrew Levi from Brencourt Advisors

Hey, from Brencourt Advisors

You made a fast switch.

it's Andy Levi from Brencort. Two questions: could you go over-- so if the ALJ rules against you, then what happens, I'm sorry, on the awarded discharge?

On what we call the pollution discharge elimination system permit. If the ALJ rules against us, actually, again, it gets a bit complicated. I'm going to ask Jim Fleming who's our general counsel what would be our next step there. Clearly it would be an appeal. Jim.

If the ALJ were to rule against us, this is on the question of whether the construction of the additional units at Oak Creek are new or existing under the federal rules. If they were to rule against us, which we clearly hope does not happen, we would seriously consider an appeal to the Dane County Circuit Court in Madison to overturn that decision by the ALJ.

Now, I'm just trying to -- I don't know, I guess-- in all due respect, Gale, I guess what I'm trying to figure out is why in the first place you guys didn't agree to just do this, because I assume you could have put it through rate base first, in the sense taking a risk on the construction delays and things like that.. Even though you may be in the right, was it to save the rate payers additional money or would you not be able to put it through rate base? I'm just trying to figure out. It seems this process has been going on, and, it seems to be a slight overhang on the stock, and -- maybe it could have been for no reason, I don't know.

Andy, you ask a good question, but it really isn't a question -- it is not a question of rate base or not rate base. And this is a question of whether or not we can retain the permits to build and operate the plant. So, in other words, the environmental groups that are challenging the construction at Oak Creek, I'm very confident would have challenged the project regardless of whether it was a rate base project or --

Oh, I'm not saying that it that way. But if you would have agreed to use -- now is there a new technology?

Oh, no, the only alternative technology is some form of cooling tower, and that would be hundreds of millions of dollars, and --

but about $300, right, $300 million would be incremental?

We're guessing $300 million, but also it would be a delay in the capacity coming on line, but more important, we're absolutely convinced that that is the wrong environmental solution. As I mentioned in my script, if we were to revert to cooling towers, and if that's what the answer ends up being, we will certainly do so. But reverting to cooling towers results in more sulfur dioxide, more nitrogen oxide discharges, more CO2, greater use of lake water.

There is not a good environmental answer with cooling towers here compared to the technology we're building, the water intake system in the lake. We're really convinced this is the right technology, and by the way, from its testimony in this case to the administrative law judge, so is the State of Wisconsin, Department of Natural Resources. They are convinced that the technology we're building is clearly the best environmental technology for the site.

Okay, great. Thank you very much. Hope it works out your way.

Thanks, Andy. We appreciate it.

And we'll take our next question from Greg Gordon with Citigroup.

Hi, Greg. How are you?

I'm well, thank you. Just to be clear, the ALJ rules no, you appeal. If the ALJ rules yes, then you go through the process of getting a modification of the permit from the DNR?

That is correct. And, Greg, one of the reasons why we've asked for a modified permit is that the permit references in several important places the phase two rules of the Clean Water Act. Well, they no longer exist. The EPA has suspended the Phase Two rules of the Clean Water Act so our permit has to reflect today's situation.

Now, I'm curious, the plants aren't supposed to be on-line until 2010.

'09 and 10.

So if the -- if you were to have to turn around and source the materials and labor to build an alternative technology, why couldn't you be on-line with the majority of the capacity at or only slightly behind current schedule since we are essentially still 24 months, 26 months, 28 months away from the target start-up date?

Well, clearly, I mean, we would need to do the design and the procurement, then the construction. And I'm going to ask Rick to give you his view of how long that would take. I don't think there would be a day for day delay, but there would be, clearly, a delay in the on-line dates. Rick.

Yes, I don't have an exact schedule for how long it would take, but if you think about-- we would get a decision at the end of this year, we're less than 24 months away, and in construction space and given the lead time on equipment, we're talking about probably a change in pumps, a whole new system that would be required to cool using cooling towers. My estimate, it would be greater than 24 months. I hate to throw a number out, but it would be, I would think, at least three years, but that's just a guess.

But Rick's talking' three years from when we got a decision.

When we got a decision.

which would be, theoretically, the end this year.

That would be a year delay based on the current schedule.

Roughly, yes.

Again, there's no science behind that right now but that would be my estimate.

Greg, I just want to underscore-- I don't want to overstate the case, but we believe our evidence here is very strong.

I hope so. Thank you very much.

Thank you, Greg.

And we'll take our next question from Paul Ridzon with Keybanc Capital Market. Please go ahead.

Good afternoon, Paul.

How are you?

We're fine. How you doing.

Okay. Just some explanation. What's happening at WISPARK? I guess you had negative earnings last year. What was the nature of what happened there?

Yes, to give you background on that, Paul, in the third quarter of 2006, we had a slight loss at WISPARK, about a $400,000 pre-tax loss, where as in the third quarter this year we had a -- a gain, we had operating income, in other words, of $5.3 million. So that accounts for the $6 million swing. So what happened in the third quarter this year, we sold two parcels or packages, probably is the better way to say, of land down in, I believe Racine and Kenosha County which is south of Milwaukee and booked a gain. So that was the-- really the source of the difference. For our report went from a slight loss to a bit of operating income. As you look going forward at WISPARK, at the end of the third quarter we had right at $45 million worth of land left at WISPARK, so we're kind of coming down to the very last parcel that we had at WISPARK

And then I guess fuel recovery was stronger than I was looking for. That's a timing issue, or what happened there?

Well, there certainly, as we've talked about before, there's certainly a timing difference in recovery within the year, as compared to '06. '06, the outage schedules were weighted to the front half -- sorry, to the back half of the year. So -- and this year it was flipped the other way. So we started the year kind of in an under-recovery position, and that was true through the first half of the year, and then as you go into the third and the fourth quarter, you plan on turning that around.

So as I look, though, to the end of the years and if you look at the whole year 2007, look out on an apples to apples basis, compared to 2006 and when I say apples to apples, Paul, just assume, you had Point Beach for all four quarters this year, just like we had it for all four quarters last year. I would expect us to be somewhere between neutral on the fuel clause, on the good side, and then downside I would expect say about a $16 million under-recovery. So somewhere between neutral and $16 million under-recovered on the fuel clause. Again, if you put it on a comparable basis with 2006.

And how would the Point Beach sale impact that?

Well, you know, that's a little complicated, because what happens with the Point Beach sale, in the real world, you make a power purchase payment--- set of payments on an energy basis, and the amount that's actually in fuel rates was just the fuel component essentially that Power Purchase Agreement. The other fixed cost related and carrying costs related pieces of the PPA were actually recovered-- , essentially recovered in base rates. So there's a bit of a mismatch, if you will, between what's incurred in fuel and recovered in fuel versus what's recovered in base. So when I say put it on a comparable basis, sort of restate everything as if you owned it, so that you're recovering everything on a consistent basis, you come back to that zero to $16 million. Hopefully that

What happens next year?

Well, what happens next year, and I think Gale wants to add something as well, but what happens next year is the power purchase payments for Point Beach are all loaded into-- the projection of those payments are all loaded into the fuel clause and loaded into the fuel piece of rates. Gale, you wanted to add something.

The only thing I was going to add, perhaps to help clarify, nothing has changed in terms of the way we collect the cost of Point Beach in our rates today. That all will change to reflect the new reality, if you will, once the commission makes its decisions in the broad rate case. So that's why Allen is trying to put things on an apples to apples basis. We actually entered into a PPA but that's not reflected in our rates. On the other hand, what was reflected in our base rates, if you will, also has not changed. So that will stay just as is, until the commission makes the proper adjustments, as part of the overall rate case, if we're making any sense to you.

so next year should we expect dollar for dollar recovery of the PPA with Point Beach?

That's what will be included in the fuel projection-- the fuel cost projection, yes.

Yes, and we have included that already in our numbers to the commission.

So we should see a little bit less variability around your fuel, over or under recovery, with less generation?

I think you would certainly see, because the pattern now is, you go kind of -- if you go over a three-year cycle you have one outage-- one outage, then you have a third year where you have two outages. So at least that pattern inter-year, will be somewhat smoothed out because in effect you'll just have, what, I guess one and a third outages each year effectively. So that inter-year variability will be a bit less. I don't think intra-year, or within a year, there will be much of a difference.

I would agree with that. But again, our fuel clause, as Allen said, has been reflecting, depending upon the year either two refueling outages, one in each of the units, or depending upon the year one outage because the second one didn't happen to fall in that calendar year. With the PPA that is all levellized and smoothed out.

Okay, thank you.

You're welcome. Thank you for the question.

And we'll take our next question from Reza Hetafi Please go ahead.

Hi Reza, how are you today? You see that long bomb that Favre threw in overtime last night?

Oh, man, I know I missed it. It's too late. The games end too late here. We can't even watch them any more.

It was fantastic. Best pass of his hall of fame career. You have to watch ESPN tonight and see the replay.

Gale just won't stop talking about it.

Absolutely. Just wanted to clarify real quick, on the Oak Creek, if the ALJ rules no and there is a delay, that delay would mainly be on Unit One, and Unit Two should still pretty much come -- Unit One and Two would then come on line -- or there would be a delay in Unit One but Unit Two would still pretty much be on time, and so we'd still expect both plants to be on-line somewhere mid 2010 time frame?

Reza, good question. Let me kind of talk about your supposition, though. If -- and again, we don't think it's going to happen, but if the ALJ were to rule no on this first question-- I'm still not ready to say there would be a delay, because remember, we are allowed to continue construction work at the plant while this last legal question is being worked out. So unless the ALJ would say, well, not only do I disagree but I'm going to stop work at the plant, we can continue work at the plant.

So really the question becomes ultimately what is the decision. This is an operating permit, not construction permit that we're talking about here that's at question. So I'm not ready to say there's going to be any significant delay, even if the ALJ says no. It depends upon what else he says, because if work can continue, then the schedule can remain in place until final resolution, if I'm making any sense.

It makes sense, but I guess just thinking of it in terms of a -- sort of a worst case scenario, it sounds like Unit One would be delayed from mid-2009 back, six months or something like that, but that would still sort of mean that maybe Unit One coming on line at the start of 2010, then Unit Two is still -- plenty of time to still get it on-line sometime in 2010 as well, maybe later part of 2010.

I'm going to ask Rick what he thinks. Both of us are kind of like, I'm not sure about that.

I think what Gale was pointing at depends on ultimately if we're successful on appeal. We will be able to continue to work. Hopefully if we're successful on appeal there shouldn't be any delays, as Gale said.

If we have to go the cooling tower, then we have to permit cooling tower, we have to design cooling towers, we have to purchase the equipment, we have to get in field and do construction. That will take a detailed construction. Our project schedule would have to be put together. And, I'm not ready to say today what the delays would be until we would actually go through that detail planning right now. We still believe we're going to win on the merits of our argument and that either -- certainly we feel pretty confident with our argument, and we think the ALJ will see it our way. If not, we'll take it to appeal.

Thank you very much.

Thank you.

And we'll take our next question from Ted Heyn. Please go ahead.

How are things at Catapult these days?

Very well. Thank you.

You're welcome.

Had a quick question. Could you refresh our memory on how the option with F P L on the wind farm works? Are you purchasing just property, or are you purchasing installed turbines?

No, we are purchasing two things, really. Property and permits. So the option says that F P L must provide us a fully approved site for a wind farm. We would then, once the site is turned over to us, the property -- actually, their lease of the property, because the farmers would still own the property but these would be property leases and permits. Once that's turned over to us, then we would make the investment.

Okay, and so the real rate base addition from adding the actual turbines would come after the transfer of that option at the end of 2011? So it would really be more of a 2013 when the wind would come on line?

No, we're talking end of 2011 or start of 2012. Very similar-- the whole approach would be very similar to what we did and what we're doing on Blue Sky Green Field.

So the in-service date of that 100 megawatts, you're planning to be at the end of 2011.

Or early 2012, depending on the exact availability of wind turbines, yes, and, of course, regulatory approval. from the commission.

Okay, and if I remember Blue Sky, the fully loaded number was, somewhere north of $2,000 a Kw. So should we think about another $2 billion of rate base being in the 2009 rate case that lacked out two years to 2011?

You should certainly think about at least $2 million a megawatt, because that's what we think the going rate is today for a wind farm in Wisconsin.

Okay. And that may or may not get encompassed in the 2009 rate case because it's going to be at the tail end.

Oh, it would probably be--- no, I would say we would file a rate case under the normal cycle that the commission has asked us to follow, we would file a rate case in April, May of '09, and we would certainly include this investment in that rate base.

Because the test period, of course, would be 2010 and 11.

Great, thank you. That's right. I got my years mixed up. Thank you very much.

Terrific. Take care Ted.

Appreciate it.

You're welcome.

And we'll take our next question from Nathan Judge with Atlantic Equities. Please go ahead.

Hello there Nathan, how are you?

I'm doing well, thank you. How are you doing?

We're doing well.

Just wanted to find out what the price increase for customers would be, including the additional $57 million from the Point Beach sale.

Well, we originally filed net price increases on the electric side of 7.5% and 7.5%. With the additional roughly $57 million of bill credits that we believe is now available, because our -- we actually turned out, as I mentioned, better than our original projection it would take the net price increase down about half a percentage point in each year to 7% and 7%.

Gale's percentages are exactly right, Nathan, but just to clarify, the $57 million is all jurisdictions combined, so if you look at the amount of that $57 that would be in effect directed to Wisconsin retail customers, I think that's about $43 million.

Or about 87%.

Yeah, so $43 million of additional credits would result in the percentage decreases that Gale talked about.

Okay, great. Thank you. Also, could you just give us an update on the economy as you see it right now and in particular any influence on the large steel mills that you have in your service territory?

Sure, I'll be delighted. First of all, the economy continues to be pretty solid here. And the trends we've talked about on past calls seem to have very much remained intact in the third quarter. We're seeing really solid growth in the healthcare sector here, we're seeing, in some cases, phenomenal growth in heavy equipment manufacturing, spurred by worldwide demand for mining equipment, that type of thing.

And we're seeing a continued kind of bottoming out, not getting much worse, but a bottoming -- bumping along the bottom, on automotive and automotive parts suppliers. So overall, essentially non manufacturing growth, offices, stores, nonmanufacturing firms, growing 2, 2.5% in industrial demand for electricity given all the factors I just mentioned, pretty flat. Customer growth continuing, we've got about .7 of 1% growth in customers during the past 12 months and a pretty solid economy. We're not seeing any significant deterioration beyond what we talked about in the automotive and automotive parts suppliers.

Thank you very much.

You're welcome. See you in Florida, Nathan.

Will do.

We'll take our next question from Paul Patterson. Please go ahead.

Good afternoon, Paul..

Good afternoon. Just a quick follow-up I think on the WISPARK thing. You guys mentioned -- I thought that the idea was that there wasn't any -- going forward that we weren't going to see any benefit from WISPARK or detriment from WISPARK going forward. Then I heard an answer to a question which you guys said there was another $45 million of property left there that sounded like you guys might be monetizing. Could you just give me a little more of a flavor for what that is and how that might be going forward?

Sure, I'll be happy to and Allen can chime in whenever he'd like. We do have, at book value, approximately $45 million worth of property assets remaining in WISPARK. At one time it was nearly $400 million of book value to the property. So we've obviously, I think, done an excellent job of timing our property sales and monetizing the value of those assets.

But we're now down to just a few assets, if you will, and so I would not expect WISPARK -- I mean, any given quarter, maybe a million or two one way or another, but I would not expect WISPARK to have any major impact on our overall results going forward, because again, at book value, we're down to such a reasonably small amount of property remaining to be sold, and if you think about our overall strategy of selling noncore assets, in essence to help finance our ongoing construction program, we're really at a point now in terms of the spending on the construction, this is the peak year, next year will go down, still be over a $ billion, but next year will go down, and we have sold a sufficient amount of noncore assets where we're not under any time pressure at all to monetize the remaining WISPARK assets. So we can take our time and do what makes the most prudent sense for WISPARK.

Is there any rule of thumb as to the difference between book value and market value? There can be quite a bit of difference between those two. Is there ---. Do you guys have a general sense as to what we're looking at in terms of market value for that 45 million?

No, I will say this, though, the property that we have sold in WISPARK has generally been sold for a nice gain over book. We've had a couple of modest losses, but overall, we've sold for better than book. But again, just -- it is so specific on the individual property, the individual market and the timing, that it's almost impossible to give you a rule of thumb.

Okay, so the $8 million gain that we got this year we shouldn't expect to see pretty much anything plus or minus next year? Is that a way to look at it?

I think that's a reasonable way to look at it. Because, again, we are going to take our time. We're under no pressure to sell additional assets out of WISPARK. We will do it opportunistically. Allen.

Yeah, I think it's important, that $8 million swing, you talked about, that would be for the nine months ended, so-- so you had like a $3 million pre-tax loss nine months ended September 30, 2006. This year we had about a $5 million worth of operating income. Again, nine months ended September 30, 2007. So these numbers are pretty modest. Those are all in pre-tax terms. So those numbers are pretty modest on the total of our company, but what you're seeing this year, '07 versus '06, you had modest losses, now you've got modest gains, and so year-over-year they get a bit more amplified.

Great. All my other questions were answered, so thanks a lot.

You're more than welcome, Thank you, Paul.

And we'll take our next question from Steven Rountos--

Good afternoon, gentlemen. Quick question on the gain on the sale of Point Beach. What happens when those bill credits roll off in 2010? Is there going to be any earnings impact from that?

No, I wouldn't expect any earnings impact from that. And let me back up. We have proposed to the commission that the proceeds above book value, or the gain, if you will, from the sale of Point Beach, be credited back to customers in the form of bill credits over a two-year period. At the same time, we have said to the commission, it's really your decision on how you would like to phase in the bill credits.

And there are several proposals now from the staff, from consumer groups, really at various ends of the spectrum. One of the consumer groups would like the dollars phased back almost immediately. One member of the commission staff is suggesting perhaps a three-year phase-in of the bill credits. So again, our view is whatever the commission feels is the most appropriate, we will be happy to accommodate. In terms of bill credits to customers. But I would not expect any issue related to earnings in year three or any other year for that matter.

Okay. So regardless of how the gain on the sale is credited back to customers there will be zero earnings impact over any time period?

That would be our expectation, and certainly our hope, yes, because again what we're proposing is to give back the gain.

Got it. Great. Thank you.

We have not booked a gain. Am I making sense now.

Makes sense. Thank you.

Thank you.

And we'll take our next question from Ashar Kahn with SAC Capital

What is the ROE you have earned for the businesses for the latest 12 months?

Well, on a 12-month trailing is a little misleading because of the way fuel recoveries have worked, because they were very different as I was talking with Paul Ridzon's question. So probably what's more relevant is what I would expect this year for the entire calendar year, and I would expect Wisconsin Electric Power Company to earn just under its allowed return which it's current allowed return is 11.2%, and I would expect the gas company, so the stand-alone gas company, Wisconsin Gas, to still be somewhat under its allowed return, which is also 11.2. But both of them are pretty close to the allowed returns. Gale, anything you want to add?

No, absolutely. From everything I've seen, I think that's right on.

Thank you, sir.

Thank you, Ashar.

And we'll take our next question from, Maurice May. with Power Insights. Please go

Hey, good afternoon folks. Question on dividends. Could you give us, again, your dividend policy for the next 24 months, and then what kind of revision might take place in the second half of '09 for the years hence?

Maury, we'll be happy to. First, as we've said on many occasions, over the course of this period where we are spending such a significant amount of money on our construction program, our dividend policy really is to, in the form of a goal, would be to raise the dividend each year at about half the rate of growth in earnings per share. Obviously we have a very, very strong need for cash to help fund the construction program. We think it's an excellent investment for us. And that gives us, within the framework of that goal and that strategy, it really results in us having one of the lowest payout ratios in the industry. Our payout ratio really remains under 40% of earnings.

But again, we have such a solid strong use and opportunity for the cash that we think that's the right payout ratio and the right goal for us related to the dividend for the near term. Then as we begin to ramp down this heavy period of construction spending, over the course of the next 24 months, what Allen and I have both said is that we will step back, at the -- as we begin to really ramp down, we will step back toward the end of '09, and take a look at everything. We will take a look at the capital structure of the company. We'll take a look at our cash needs going forward. We will take a look at our dividend policy. And make appropriate changes to that policy at that time.

One of the things we've continued to talk about is today, for example, a dividend increase and a share buyback from the standpoint of most stockholders is tax neutral. But we have no idea what the world will look like at the end of 2009 in terms of taxation of dividends. So, I mean, clearly we think we will have an opportunity to relook all of these policies toward the end of '09, and we want to retain the flexibility to do so with what makes most sense in terms of creating value for our stockholders at that time. Allen.

nothing to add to that.

Might you be thinking in terms of an average industry payout at that time?

Maury, again, I think the most appropriate thing for us to do is really assess the situation at that time. But we're hopeful we'll have a fair amount of flexibility, again. And we'll do what makes the most sense in terms of providing value to our stockholders.

Okay, great. Thanks. See you next week.

Look forward to it.

Yep.

And we'll take our next question from Michael Gresdens. Please go ahead.

Good afternoon gentlemen, how are you doing? Would it it be fair to assume on the question regarding the rate credits associated with Point Beach that after 2009 when those -- or at least a proposal is set to expire you're going see-- or rate payers should see some benefit from the coal plants coming on-line instead of purchase power cost?

Well, there's no question that because we're importing such a significant amount of mostly natural gas-fired power today that once the base load units at Oak Creek get put into service we should see downward pressure on the fuel clause. No question about that. So we would hope, assuming we can stay as we plan, on time and on budget with the first unit at Oak Creek, that our fuel clause could see some relief in the second half or fourth quarter of '09 and then 2010.

Thanks.

Good question. Thank you, Michael.

That concludes our question-and-answer session at this time. I will turn the call back over to Mr. Gale Klappa. Please go ahead, sir.

Thank you very much. As the operator said, that concludes our conference call for today. We really appreciate you taking part. If you have any other questions, Colleen Henderson will be available in our investor relations office, and her direct line is 414-221-2592. Again, that is 414-221-2592. Thank you, everyone. Bye-bye.

Thank you. That concludes today's conference. We appreciate your participation. You may now disconnect.