威斯康辛能源 (WEC) 2017 Q4 法說會逐字稿

Good afternoon, and welcome to the WEC Energy Group's conference call for fourth quarter and year-end 2017 results. This call is being recorded for rebroadcast. (Operator Instructions)

Before the conference call begins, I remind you that all statements in the presentation, other than historical facts, are forward-looking statements that involve risks and uncertainties that are subject to change at any time. Such statements are based on management's expectation at the time that they are made. In addition to the assumptions and other factors referred to in connection with the statements, factors described in WEC Energy Group's latest Form 10-K and subsequent reports filed with 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.

After the presentation, the conference will be opened to analysts for questions and answers. In conjunction with this call, a package of detailed financial information is posted at wecenergygroup.com. A replay will be available approximately 2 hours after the conclusion of this call.

And now it is my pleasure to introduce Mr. Gale Klappa, Chairman and Chief Executive Officer of WEC Energy Group. Mr. Klappa, the floor is yours.

Good afternoon everyone and thank you for joining us today as we review our results for calendar year 2017. But first, I know that all of you are interested in an update on Allen Leverett's recovery from the stroke he suffered last October.

I can report to you that Allen is in good physical condition, and he continues to make progress in his recovery and rehabilitation work. Among other activities, Allen is engaged in extensive speech therapy at a leading stroke rehabilitation center. No specific timetable has been established for his return to the company, so as we announced a few months ago, I've agreed to serve as Chief Executive for as long as necessary. And on behalf of Allen and his family, I want to thank you again for your well wishes and all your support.

Now I'd like to introduce the members of our management team who are here with me today. We have Scott Lauber, our Chief Financial Officer; Jim Schubilske, Treasurer; Bill Guc, our Controller; Beth Straka, Senior Vice President of Corporate Communications and Investor Relations; and the newest member of our senior team, Peggy Kelsey, Executive Vice President, General Counsel and Corporate Secretary.

As many of you know, Peggy is stepping into the shoes of Susan Martin. Susan served the company with real distinction for the past 18 years. She'll be retiring at the end of the first quarter, and we certainly wish her well.

Peggy joined us last year from Modine Manufacturing, where she was General Counsel and Corporate Secretary. Her deep business background, her experience as a General Counsel at a public company make her a perfect fit for our team. So Peggy, welcome aboard.

Thank you.

You're welcome. Now as you saw from our news release this morning, we reported full year 2017 adjusted earnings of $3.14 a share. The colder-than-normal temperatures, particularly between Christmas and New Year's, added $0.02 a share and drove us above the top end of our guidance range.

I'll also point out that our reported earnings of $3.14 a share exclude a onetime, noncash gain of $0.65 a share from the tax reform law that was signed in December. This onetime, noncash gain reflects the application of the new tax law to the company's nonutility assets and to the assets of the parent company. We'll touch on the full impact of the tax reform in more detail in just a few minutes.

As we review the year just passed, I'm pleased to report that our company performed at a high level on virtually every meaningful measure, from network reliability to customer satisfaction to community involvement. We delivered record financial results. Our largest utility, We Energies, was named the most reliable utility in America and the best in the Midwest for the seventh year running. We made significant progress upgrading the natural gas infrastructure in Chicago. And after reviewing our environmental, social and governance practices, Corporate Responsibility Magazine named us one of the 50 best corporate citizens in the United States.

In addition, our track record of reliability and competitive rates was a factor in the decision by Foxconn Technology Group to invest $10 billion in a high-tech manufacturing campus here in Wisconsin. This is one of the largest economic development projects in American history. We expect Foxconn to employ 13,000 people as they create a brand-new industry here in the United States and right here in Southeastern Wisconsin. So all in all, it was a year of solid performance for our company.

Next, I'd like to brief you on several developments on the regulatory front and on our capital investment plan going forward. You'll recall that on August 10, the Wisconsin Public Service Commission unanimously approved our proposed rate settlement. We received our final written order on September 8. Under the approved settlement, base rates for all of our Wisconsin utilities will remain flat for 2018 and 2019. In total, this will keep base rates flat for 4 consecutive years and essentially gives our customers price certainty through 2019.

The earning sharing mechanisms that have been in place were extended through 2019 at Wisconsin Electric and Wisconsin Gas. And a similar mechanism is in place for 2018 and 2019 at Wisconsin Public Service. And just a reminder, customers and stockholders share equally in the first 50 basis points of earnings above our allowed rate of return, then anything above the first 50 basis points will flow completely to customers.

As part of the agreement, we've also expanded and made permanent certain pricing options for our large electric customers. These options will continue to help many of our customers grow their businesses, create jobs and reduce their energy costs.

Now the commission order that approved the settlement contemplated the potential impact of tax reform. The order suggested that the benefits from a lower tax rate be used to reduce regulatory asset balances, particularly those for uncollected transmission costs. We expect to file a formal plan with several options for the Wisconsin Commission to consider in early February.

And now an update on Illinois. We continue to make real progress on the Peoples Gas system modernization plan. And on January 10, the Illinois Commerce Commission issued a final order that supports continuing the program at the same scope, pace and investment level that we proposed. As a reminder, this program is literally critical to providing our Chicago customers with a natural gas delivery network that is modern, safe and reliable. For many years to come, we will need to replace outdated natural gas piping, some of which was installed more than a century ago and is rusting, with state-of-the-art materials. In addition, we're working with the Illinois Commission on a plan to flow savings from the new federal tax law back to customers in Chicago.

Turning now to our operations in Minnesota. On October 13, Minnesota Energy Resources filed a rate case with the Minnesota Public Utilities Commission. We're seeking to raise natural gas base rates by $12.6 million or approximately 5%. On November 21 of last year, the commission approved an interim rate increase of $9.5 million or 3.8%. These self-implemented rates became effective on the first day of this year. And a final decision on new rates in Minnesota is expected by the end of calendar 2018. As part of the rate case, we'll work with the commission to factor in the impact of tax reform.

Next, I'd like to discuss our Michigan utilities. And as a reminder, we obtained final regulatory approval on October 25 for the construction of new natural gas-fired generation in Michigan's Upper Peninsula. Site preparation began within days of the commission order. Our plan is to bring the new facilities into commercial service by mid-2019. And at that time or soon thereafter, we expect to retire our coal-fired power plant at Presque Isle. The project calls for a $266 million investment in reciprocating internal combustion engines. We call these RICE units. They will be capable of generating up to 180 megawatts of electricity. These units, which will be owned by one of our Michigan utilities, Upper Michigan Energy Resources, will provide a cost-effective, long-term power supply for customers in the Upper Peninsula, including the iron ore mine owned by Cleveland-Cliffs.

On tax reform for our Michigan utilities, we submitted a filing on January 19 estimating the impacts of the reduction in tax rates. We're proposing to defer the effects of tax reform in Michigan and factor the balances into our next rate case.

So in summary, looking ahead through 2018, it should be a relatively quiet year from a regulatory standpoint. We have a base rate freeze in place in Wisconsin, and beyond the outstanding rate case in Minnesota, we don't plan to file a traditional rate case in any of our other jurisdictions.

Turning now to our 5-year capital spending plan. Our updated 5-year plan, you recall we roll that out in November, totals $11.8 billion, an increase of $2.1 billion over the previous 5-year plan. I would note that this does not include our share of the projected capital investments at American Transmission Company. Our updated capital plan is focused on reshaping our regeneration fleet for a clean, reliable future. Our approach calls for greater reliance on natural gas and solar energy to meet customer demand for electricity.

In addition to the 180 megawatts of RICE generation that we talked about in Michigan, we plan to add another 50 megawatts of RICE generation in Northern Wisconsin, in Wisconsin Public Service territory by 2021. We also have the option, as you recall, to invest up to $200 million on the Riverside power plant, that's a natural gas-fired facility being built by Alliant.

And importantly, we plan to expand our renewable generation portfolio. Over the past 5 years, utility-scale solar has increased in efficiency, and prices -- prices have dropped by approximately 70%, making solar a cost-effective option for our customers, an option that also fits very well with our summer demand curve. Utility-scale solar will not only better balance our energy supply with customer demand, but it will also help reduce our power supply costs and our CO2 emissions. We're currently in discussions with developers, and we plan to file for approvals with the Wisconsin Commission this spring.

Finally, you'll recall that our Wisconsin Public Service utility, along with Wisconsin Power and Light and Madison Gas and Electric, have agreed to purchase the Forward Wind Energy Center from Invenergy. The total purchase price is approximately $174 million. We will own 44.6% of the facility with an investment of approximately $78 million. On January 16 of this year, the Federal Energy Regulatory Commission approved the sale. We're now awaiting Wisconsin Commission final approval. Our customers will see real savings because the purchase of the wind farm will eliminate the existing power purchase agreement. We expect to close on the transaction sometime in the first half of this year.

And finally, a word about our dividend policy. At its January meeting, our Board of Directors raised the quarterly cash dividend to $0.5525 per share. That's an increase of 6.25% over the previous rate. The new quarterly dividend is equivalent to an annual rate of $2.21 per share. And folks, this will mark the 15th consecutive year that our company will reward our shareholders with higher dividends. We continue to target a payout ratio of 65% to 70% of earnings. We're right in the middle of that range now, so I expect our dividend growth will continue to be in line with the growth in our earnings per share.

And now with details on our 2017 results and our outlook for sparkling 2018, here's our Chief Financial Officer, Scott Lauber. Scott?

Thank you, Gale. Our 2017 GAAP earnings were $3.79 per share compared to $2.96 per share in 2016. The 2017 results include earnings from recurring operations of $3.14 per share and the net impact of onetime, noncash adjustments totaling $0.65 per share. As Gale mentioned, these onetime adjustments reflect the application of the new tax law to the company's nonutility assets and to the assets of the parent company. Excluding the deferred tax benefit, our 2017 adjusted earnings were $3.14 per share. This is an increase of $0.17 over our 2016 adjusted earnings of $2.97 per share. As a reminder, our 2016 adjusted earnings excluded $0.01 of acquisition costs. For the rest of my presentation, I will refer exclusively to adjusted earnings.

Our favorable results were largely driven by effective cost control and additional capital investment. This was partially offset by lower electric sales volume resulting from significant cooler summer weather compared to the summer of 2016. The earnings packet placed on our website this morning includes a comparison of fourth quarter and full year 2017 and 2016 results, both GAAP and adjusted.

For 2017 results, I'll first focus on operating income by segment and then discuss other income, interest expense and income taxes. Referring to Page 12 of the earnings packet, our consolidated operating income for 2017 was $1,785,000,000 as compared to adjusted operating income of $1,686,000,000 in 2016, an increase of nearly $100 million.

Starting with the Wisconsin segment. Operating income totaled $1,066,000,000 for 2017, an increase of $39 million from 2016. On the favorable side, operations and maintenance expenses were significantly lower. This was partially offset by a lower sales margin, mostly attributed to the cool summer weather in 2017.

Our Illinois segment recorded operating income of $273 million, an increase of $33.4 million compared to 2016. This increase was primarily driven by continued investment in the gas system modernization program and lower operations and maintenance expense.

Our Other States segment recognized operating income of $54.2 million, an increase of $4.3 million compared to 2016. This also was a bit primarily driven by lower operating and maintenance expense.

Turning to our nonutility energy infrastructure segment. Operating income at this segment was up $24.9 million. Remember that this segment contains the operation of Bluewater Natural Gas Holding, which was acquired on June 30, as well as the results of We Power. Operating income from our Power the Future plants increased $16.5 million, reflecting additional investments. Bluewater Natural Gas Holding contributed 18 -- or $8.4 million to operating income in 2017.

The adjusted operating loss at our Corporate and Other segment increased by $1.9 million year-over-year. Taking the changes for these segments together, we arrive at nearly $100 million increase in adjusted operating income.

Earnings from our investment in American Transmission Company totaled $154.3 million, an increase of $7.8 million over last year. In 2016, we recognized lower earnings from ATC as a result of an administrative law judge recommendation related to return of equity reviews being conducted by FERC.

Our other income, net, decreased by $16.2 million year-over-year. Recall that we recorded a gain in 2016 related to the repurchase of certain Integrys notes at a discount as well as a gain on the sale of Wisvest. These items were partially offset by higher gains on investments that we recognized in 2017.

Our net interest expense increased $13 million year-over-year, primarily driven by higher debt levels resulting from continued capital investments.

The increase in pretax earnings year-over-year drove the $22.3 million increase in our adjusted consolidated income tax expense. The adjusted effective tax rate decreased slightly from 37.6% in 2016 to 37.2% in 2017. Looking forward, we expect our effective income tax rate to be between 22% and 23%. We are still evaluating the full implication of tax reform. And as always, we'll continue to update you on the changes during our next call.

With the latest tax law changes, we do expect to be a cash taxpayer by the end of 2018.

Combining all of these items brings us to adjusted earnings of $997 million or $3.14 per share for 2017 compared to adjusted earnings of $941 million or $2.97 per share for 2016.

Looking at the cash flow statement at Page 8 of the earnings package. Net cash provided by operating activities decreased $23.9 million during 2017 compared to 2016. This decrease was driven by $100 million contribution to our pension plan in January 2017, partially offset by the year-over-year increase in operating income.

Our capital expenditures were approximately $2 billion for 2017, a $536 million increase from 2016, reflecting our continued investment in our core infrastructure.

Our adjusted debt-to-capital ratio was 52.5% at the end of 2017, an increase from the 51.9% adjusted debt-to-capital ratio at the end of last year. Our calculation continues to treat half of the WEC Energy Group 2007 Series A Junior Subordinated Notes as common equity.

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

Some of you have recently asked how tax reform may affect our cash flow and credit metrics. We now expect our FFO-to-debt metric to be in the range of 16% to 18%.

We also paid $657 million in common dividends during 2017, an increase of $31.6 million over 2016, reflecting the dividend increase last year.

Turning now to sales. We continue to see customer growth across our system. At the end of 2017, our utilities were serving approximately 11,000 more electric and 20,000 more natural gas customers than they did a year ago. Sales volumes are shown on a comparative basis on Page 15 and 16 of the earnings package. Weather-normalized sales factor out the effects of leap year in 2016. Overall, retail deliveries of our electricity for our Wisconsin and Michigan utilities, excluding the iron ore mine, were down 1.6%, and on a weather-normalized basis, decreased 0.4%.

Turning to natural gas deliveries. As you may recall, our Illinois segment is largely decoupled and its margins are less affected by weather. Natural gas deliveries in Wisconsin, excluding gas used for power generation, were up 4.3%. On a weather-normalized basis and excluding gas used for generation, natural gas deliveries in Wisconsin grew by 3.7% and were above our expectations.

And now I'll briefly touch on our 2018 sales forecast for the state of Wisconsin, our largest segment. We are forecasting a slight decrease, 0.1%, in weather-normalized retail electric deliveries, excluding the iron ore mine. We project Wisconsin weather-normalized retail gas deliveries, excluding gas used for generation, to increase by 0.3%.

At this time, I would like to discuss our earnings guidance for 2018. As you know, we expect long-term earnings per share growth for WEC Energy Group to be in the range of 5% to 7% off a base of $3.09 per share. This was the midpoint of our 2017 guidance. So looking ahead, our guidance for 2018 is in the range of $3.26 per share to $3.30 per share. This is in line with our longer-term growth expectations. Our guidance assumes normal weather and the estimated impact of tax reform.

Finally, let's look at the first quarter 2018 guidance. In the first quarter last year, we earned $1.12 per share. As you may recall, the first quarter of 2017 had warmer-than-normal weather, which was offset by effective cost control. Taking these factors into account, we project first quarter 2018 earnings to be in the range of $1.14 per share to $1.16 per share. This assumes normal weather for the rest of the quarter.

Once again, first quarter guidance for WEC Energy Group is $1.14 per share to $1.16.

With that, I'll turn it back to Gale.

Thank you, Scott, very much. Overall, we're on track and focused on delivering value for our customers and our stockholders.

And, Sarah, I think we're now ready for the question-and-answer portion of our conference call.

(Operator Instructions) Your first question comes from Greg Gordon with Evercore.

Let me ask you a question on -- in terms of the impact of tax reform. Can you refresh our memories on the rate deal that you have in Wisconsin? My understanding, if my memory serves me correctly, is that you have a regulatory asset associated with the transmission investments that haven't been rolled into rates but that the tax reform is going to allow you to work down that balance. Is that correct?

Greg, you've got a good memory. The -- actually -- and this was, I think, a very positive forward-looking approach in the rate settlement, both by the interveners, the commission staff, the commissioners and our company. And it is not a mandated order, but when you look at the wording in the order that approved the rate settlement, it strongly suggests that the benefits of tax reform that we file a plan to apply some or all of the benefits of tax reform to working down this regulatory asset balance that sits on our balance sheet, and that regulatory asset balance is largely for, as you pointed out, transmission costs that we've incurred but we've not yet rolled into rates. That's a pretty sizable asset balance, roughly about $400 million, if I'm correct.

The transmission is just a little over $200 million.

Just over $200 million, okay. So pretty sizable. So we'll file a plan on February 9. And obviously, the follow-through on that strong suggestion in the rate order that we use the benefits of tax reform to basically pay down that credit card IOU. So that's a very positive thing, I think, a very forward-looking thing that was part of the rate settlement. So to kind of answer your question more broadly, there are kind of 3 big moving pieces here when we try to estimate the overall impact or the bottom line impact of tax reform. First is assuming we begin to pay down that asset balance for transmission. The second is, as you know, the value of interest deduction is lower with a lower tax rate. So there is a drag at the holding company on holding company interest. And then the third is the elimination of bonus depreciation effective January of '18, which will add to rate base. So you kind of put all those 3 in the blender, and our best estimate right now is about a $0.05 to $0.06 drag on overall earnings per share as the net impact of tax reform.

But that's baked into your guidance for 2018 and your confidence in your growth rate. So you factor that in...

That is correct. And we're very good at looking ahead and planning. And so the idea that there would be some potential drag from tax reform is something that our team has been looking at really since about mid-year 2017. So this wasn't a surprise to us. We were planning to -- the steps that we needed to take to overcome the $0.05 to $0.06 drag. And you are correct, we're still on the 5% to 7% growth track with the guidance that Scott just gave you.

Okay. Last question, if this -- does your capital expenditure budget fully contemplate the capital needs that go along with this Foxconn construction project in terms of all the demand pull and infrastructure that might be required? Or are we going to be looking for an update once you have a full sense of the scope there?

I think we have tried to factor in as best we know on the electric side. So in terms of electric -- Wisconsin Electric capital expenditures, I think we've done a good job of rolling that in. But as we work now extensively, every week actually, with the technical people who are going to be responsible for constructing that huge campus, 23 million square foot campus, I think we and they are beginning to realize that there may be some additional -- and it could be substantial, some additional demand for natural gas capacity that may require some fair amount of capital to make sure we're properly serving their natural gas needs. So the answer is kind of mixed. Yes, I think we've cranked in the electric demand and the capital associated with that, but I think there's going to be some upside on the natural gas capital. And Greg, I would expect we'll start seeing the demand from Foxconn start to really ramp up in 2020, 2021 and certainly 2022.

Your next question comes from Michael Weinstein with Crédit Suisse.

Glad to hear that Allen is doing well, and best wishes, as always. Since -- you said that the $0.05 to $0.06 is fully inclusive, it's like net of all effects. Is that -- include things like the reduction of deferred tax liabilities, We Power, the amortization of it over time? And also, are you expecting to hit the 50 bps threshold at Wisconsin Electric because of the -- under the rate freeze?

First question first. I guess the best way to answer your question about tax reform, to the best of our knowledge, it's like Ragu, it's all in there.

It's all in there.

It's all in there.

And does that include any sharing from...

No. Our current plan has each -- as we always have had the good success in doing -- our current plan assumes that each one of our operating units actually earns their allowed rate of return. So this particular year, we would not -- we're not budgeting for sharing.

Okay. Does that mean you don't anticipate it happening? Or is it just not budgeted?

That means at the moment, we do not anticipate it happening.

Okay. And what happens to FFO-to-debt after the rate freeze ends in 2019? How long do those -- does that regulatory asset amortization continue? And how long does it pop up FFO-to-debt?

Well, right now, that will have to be decided in -- assuming there's a rate case in 2019 in Wisconsin, Scott, that would have to be decided in that case, I assume.

In that case, effective 2020. But right now, we look at our 5-year plan, we're in that 16% to 18% range. Prior to tax reform, we had 16% to 19%. It's kind of took us off the top of the end of the range, but we're comfortable in that 16% to 18% range.

Okay. So even after perhaps some of the effects of tax reform are rolled into customer rates at some point, you're thinking 16% to 18% is a good number for at least the next 5 years.

Right. Correct.

Your next question comes from Nick Campanella with Bank of America.

I just wanted to go to the 16% to 18% FFO-to-debt. Is that something that the agencies are comfortable with? Just -- I know that given Moody's has been pretty vocal about this for the broader utility group, have you guys said whether you'd be willing to defend your ratings? Or how should we kind of think about that as we get past 2019?

Let me say this, and I'm going to ask Scott to give you his technical view on what Moody's is saying. But first of all, I mean, we work very hard to have one of the best balance sheets in the industry. So we are cognizant of the fact that we want our metrics to merit the kind of ratings we're getting right now. But having said that, you'll notice that in Scott's comments, it's been consistent with what we said all along. We do not have any plans to issue any additional equity. We think we have -- we think we're going to be able to stay in the kind of 16% to 18% range FFO-to-debt that Scott has mentioned, certainly without issuing any additional equity. And one of the other things that I think is important here, historically, the Wisconsin Commission, which we're -- which is still where we have the largest percentage of our assets, has always been very vigilant and very cognizant of the fact that they want strong credit quality utilities. So I think you put all that together and we believe we have the capability, again, without issuing any additional equity, to stay in the range. Scott?

No, that's correct. That 16% to 18% FFO-to-debt range basically -- Moody's at the holding company has us on a negative outlook, which that negative outlook puts us at a rating in that 16% to 18% range. I feel very comfortable that we'll maintain that rating then. And like Gale said, no equity issuance needed in the plan.

And then just moving something else on the wind PPA, where you're replacing this with an ownership option. Are there other situations across your jurisdictions where we could be looking towards a similar strategy? Anything that we should pay attention to there?

Well, I would say not necessarily in 2018, but watch this space.

Your next question comes from Leslie Rich with JPMorgan.

I had a question on your utility-scale solar investment. Just wondering how much you're thinking you might allocate towards that in terms of CapEx and if that's part of your 5-year plan or if that would be incremental.

It is part of the 5-year plan, and we're looking at the specifics right now. We're tentatively -- again, we have -- we're still talking with developers. But if I were to venture a guess, I think it would be 2 pretty sizable sites. Perhaps one in the Wisconsin Public Service area in Northern Wisconsin. But again, we're looking right now and talking with a number of developers. And Scott, it is in our 5-year plan.

Yes, it's in our 5-year plan and it's really in a couple of segments. Early on, I would say about $300 million to $400 million in the first few years, and then we have about $350 million in the later part of the 5-year plan.

And Leslie, we expect to make some final decisions and file for construction authority approval with the Wisconsin Commission this spring.

Your next question comes from Paul Ridzon with KeyBanc.

Just a question on tax reform at the unregulated businesses. I assume We Power just flows through to a predetermined ROE. But what happens at Bluewater and ATC?

Scott?

So at Bluewater, that was contemplated in the affiliate interest agreements with the 3 Wisconsin utilities. So that will get passed through the affiliated interest agreement and get passed through to our customers through their purchase gas adjustment costs. So that will get factored in, and the customers will receive the benefit. At ATC, of course, there are formula rates there. And those formula rates will get passed through then to our utilities. As a reminder, that also will help the escrow balance at our utilities at Wisconsin Electric and Wisconsin Public Service.

So the thought would be that the change in tax rates that benefits ATC would flow through and we would use that to reduce the asset balance for uncollected transmission costs.

Correct.

In Wisconsin, that's dollar-for-dollar, so there's no really earnings impact there?

Correct.

That is correct.

And then in Michigan, just some clarification, will you over-earn in Michigan because you're saving that -- those taxes for later? Are you going to hang up on regulatory liabilities for those?

No. We would hang it up on our balance sheet and track it and then factor it into the next rate case. That is what we filed, and we'll see what the Michigan Commission responds with.

(Operator Instructions) And your last question comes from the line of Michael Lapides with Goldman Sachs.

Real quickly, first of all, gas demand, and I may have misheard, but it seems like you're putting up pretty conservative number in 2018 guidance for weather-normalized gas demand, especially -- and if you can -- you or Scott can remind us, the levels of weather-normalized gas demand that you've realized over the last few years.

Well, certainly, last year, 2017, our weather-normalized demand growth with natural gas, this is at retail now excluding power generation, was up more than 3%. That's a surprisingly good number, and the economy is strong. But not knowing how sustainable that is and -- Scott and I were actually talking this morning, our customer growth has been about 1% on the natural gas side. So not knowing how sustainable that kind of 3 percentage kind of growth is, we've assumed...

0.3%.

0.3%, yes.

No, Michael, you're correct. It's been about 3% the last couple of years, and we think that's related to conversions and the stability of natural gas prices. We've also seen some industrial customers convert to natural gas. I just don't think those conversions, once they convert, I don't know if they'll continue. And every time that a plant gets replaced, it's more efficient. Just to put in perspective, though, about a 1% increase in natural gas demand adds about a $0.005 or about $3 million to earnings. So it's not -- it's very nice, so if we get a little more growth, that would be all positive, but it's not an extremely large number.

And Michael, as we get closer to 2020, 2021, you'll probably see us revise our gas demand because of what we expect to be pretty sizable demand from Foxconn.

Right. Understood. One other question, you've got a better build for short-term debt balance at the end of the year. We've seen rates move. And how are you thinking about, whether via hedging, whether via terming out some of that short-term debt or other actions you can take, to potentially head off at the pass what could be a very -- a minor EPS headwind just from simply higher rates?

Well, a couple of things. And first of all, I mean, we do have a pretty robust financing plan for 2018, and there may be some opportunities there that we're certainly looking at. However, in our budget, in our guidance and in our forecast, we have assumed in terms of short-term interest rates, we've assumed 4, count them 4 0.25 point increases from the Fed, 1 every quarter in 2018. And I think that's a reasonable assumption. So basically, we've got a very conservative -- well, I think a very appropriate interest rate forecast baked into our guidance, and then there may be some opportunity with our financings over the course of the year to do better.

Got it. Last thing. In your estimates for ATC, your transmission earnings, can you remind us what ROE are you booking for GAAP income statement purposes?

Well, our longer-term estimate -- because we expect that allowed ROEs from FERC will come down, our longer-term projection is 10.2%. And Scott, we're booking a little bit better than that right now.

Right now, we're currently booking 10.82%, which is based on the first decision for this first case decision. We're assuming that it gets resolved sometime in the middle of this year. But long term, we do have that 10.2% factored into our forecast.

So in other words, the ATC earnings power for at least half of this year has an elevated ROE that you -- when you think about your multiyear growth rate, you don't use when you kind of think about 2019 and beyond.

Correct.

You got it. You nailed it. And I will say this, everybody is speculating about the new members of FERC and the methodology they may use to set zone of reasonableness. I personally -- and I could be wrong, but I personally do not see the FERC lowering transmission ROEs below state ROEs. It would just be counter to everything that FERC is trying to accomplish, though we feel pretty comfortable with the 10.2%.

All right. Well, folks, I believe that concludes our conference call for today. Thank you so much for taking part. If you have any more questions, please feel free to contact Beth Straka through our direct line and operators are waiting, (414) 221-4639. Thanks, everybody. Take care.