Integrys Energy Group, Inc. - Analyst/Investor Day

Aug. 7.13 | About: Integrys Energy (TEG)

Integrys Energy Group, Inc. (NYSE:TEG)

August 07, 2013 8:00 am ET


Steven P. Eschbach - Vice President of Investor Relations

Charles A. Schrock - Chairman, Chief Executive Officer and President

Lawrence T. Borgard - President of Utilities and Chief Operating Officer of Utilities

Daniel J. Verbanac - President of Integrys Energy Services

Mark A. Radtke - Chief Strategy Officer and Executive Vice President of Shared Services

James F. Schott - Chief Financial Officer and Vice President

Larry Lee Weyers - Former Executive Chairman of the Board


Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Dan Klinger

Paul Bornstein

Krim Delko

Unknown Executive

Good morning, everyone, thank you for joining Integrys Energy Group today for the analyst day. If you would all take your seats, we're just a couple of minutes from start time. Again, thank you for joining us.

Steven P. Eschbach

I'm being given a hand signal in the back of the room indicating that we are ready to go. I would ask that everyone please fasten your seatbelts because we are going to have some riveting information being given to you over the next couple 3 hours. And first of all, I'd like to welcome to the analyst day in New York. Don't be scared, we're not going through all 139 of these slides. But as you know, we have a pretty robust presentation and we'd pretty much give you a healthy appendix.

So I'm Steve Eschbach, I'm the Vice President of Investor Relations here in Integrys Energy Group. And Chicago-based Integrys Energy Group welcomes you to our New York Analyst Day. Now this is a picture of Chicago, and I was surprised, and I think you'll be surprised to know that the person who took this picture is actually Charlie Schrock. And a little bit later on, he'll have some commentary on how he came up to become a aerial photographer. So I'll let him explain that in a few minutes.

But we are a Midwest-based utility. And even though we are based in the center of the United States, that doesn't mean we don't pay attention on what goes on in the rest of the industry and the rest of the country. And if there's ever a time and need, our employees are ready, willing and able to stand up and help out. So what I'm going to do is play a short video, give you an example of what we can do sometimes. This is actually last fall, I think you'll all be familiar with that.


Steven P. Eschbach

So for those of you that were on the webcast, I don't think that video was shown. But what it was is a -- pictures taken -- it's was actually a series of pictures taken by one of our Peoples Gas employees in our response to Hurricane Sandy last fall here in New York. And some Peoples Gas employees came here to help the people in the east area recover from that horrible storm. And a similar effort was also done by Wisconsin Public Service employees. I think Charlie and Larry will have a little bit more to say when they come up and deliver their formal remarks. We're now back to the picture of Chicago. I'll just point out, this tall white building, which is in the center left, that is the Aon building. That's where we will be moving to next May. The other -- the building that's immediately behind us that you can't see is the Prudential Center, that's where we are right now. And by the way, I mentioned that this event is being webcasted, so when we get to the question-and-answer session later on, we'll have 2 people up and down each aisle with microphones. So before you ask your question, please make sure that you do get a mic, so we can have it webcasted.

So very briefly, I'm going to go over who Integrys Energy Group is. It is actually the creation of the merger of WPS Resources and Peoples Energy in 2007. Now as of close last night, our market cap was $4.94 billion. And if you don't mind, I'm going to take the liberty and round up to $10 billion? No, maybe that's too high. Okay, so we're a $5 billion market cap company. So we're primarily a regulated utility in the Midwest and we own 6 utilities in 4 Midwestern states, and about 90% of our core earnings is going to come from those regulated utilities. And we also include the electric transmission in that regulated utility group. And the balance would be the nonregulated, the energy, marketing and our entry into solar and transportation fuels, that's going to contribute about 10% of earnings.

So let me introduce the people that are here with us today from Integrys Energy Group. Charlie Schrock our Chairman, President and Chief Executive Officer; Mark Radtke, Executive Vice President in Shared Services and Chief Strategy Officer; Larry Borgard, President and Chief Operating Officer, Utilities; Dan Verbanac, who's President of Integrys Energy Services.

The other execs I mentioned are with Integrys Energy Group: Jim Schott, our Vice President and Chief Financial Officer; Jodi Caro, our Vice President and General Counsel and Secretary. We have other officers with us today, Bill Guc, Vice President and Treasurer, he's in the back; Linda Kallas, Vice President and Controller, buried in the middle; Craig Vanderwerff, Controller of Integrys Energy Services. Investor Relations, I think you know who I am, Steven Eschbach. Donna Sheedy, Manager, Investor Relations, up front, knocking glasses over; Anna Armendariz, Associate Investor Relations Analyst. And that's the Integrys Energy Group team and Integrys Energy Services.

So when I have such an esteemed group of my executive colleagues with me, my role is reduced to logistics. So you are here in, I think, it's called the Paris Ballroom, but it could even be called the Le Grand Paris ballroom [ph], and that's what you see here in orange. So the restrooms are going to be out that exit over there, and you'll take 2 lefts, and the restrooms are over there. And my emergency, our safety message for you today, in the unlikely event that we need to depart this room, there are actually 2 exits. One is right over here. I don't know if that corresponds to right over there, but that's the first exit, right in that quarter. Obviously, the second one is in the back of the room just down that spiral staircase. I do hope we don't need to use that.

So the other logistics I get to cover with you is that there is wireless Internet access here. So if you go and look up Sofitel meeting, you can connect. The code is L-G-X-Y. So feel free to use that. Again, since this is being webcast, and I'm going to ask that all cellphones be either turned off or on vibrate. And during the course of the presentation, we're actually going to present up until about 10:00 and we'll take a short break. And then we'll -- that will be right after Mark Radtke's presentation and right before Jim Schott's presentation. So we'll take a break for about 10 minutes, and then Jim will come and give his formal remarks and then we'll do Q&A. And what else do I need to talk about? I think that's about it.

So again, we're glad you're here as there's competition from 4 other companies giving their earnings call today. So [indiscernible] your time with us. And without further ado -- oh, I forgot. I got to do forward-looking statements. You've seen this before, I ask that you read it and understand what the forward-looking statements are. And then non-GAAP financial information, as is customary with our earnings calls and these presentations, we're going to be referring from time-to-time to information that is non-GAAP, so please read this and make sure that you understand that. We believe non-GAAP [indiscernible] the financial results of our subsidiaries and consolidated company. And now, without further ado, I'll turn the call over to -- or the event over to Charlie Schrock.

Charles A. Schrock

Thank you, Steve. Good morning, everybody. Well, I heard somebody say good morning, thank you. We really appreciate all of you coming today to hear about Integrys Energy Group. I'm certain at the end of the day, you'll understand us a little bit better. Steve mentioned that picture.

The story behind that picture of Chicago is when I moved to Chicago with my wife in Green Bay, she mentioned that she would like to take up flying lessons at some point in her life. And 2 years later, my daughter bought her, as a Christmas present, a flying lesson. So we suited up and went up, I don't know where we were going to go, but I got into the backseat of the plane. She actually ended up flying right down the shoreline of Lake Michigan, right past Chicago, and I was able to snap this picture. So that was one and only foraying into aerial photography, Steve.

Well, Integrys Energy Group, I think is poised for great things. Our investment merits are shown on this slide. We have a very solid regulated utility growth platform. And what we mean by approved rate base investment plan is if you look at the major projects that we have in front of us, the accelerated main replacement in Chicago is covered by legislation right now with the Rider QIP, and the other major projects have all been approved already by our regulators: Wisconsin Public via Public Service Commission of Wisconsin. Our nonregulated businesses are poised for growth. And most importantly, we have a very experienced and accomplished management team that I'm privileged to work with. And I hope that by the end of the day, you'll get to know our team a little bit better as well.

For our agenda, we're going to spend most of our time on regulated utilities. Larry Borgard will be stepping through all the action going on at all of our different regulated utilities. We'll spend a little time on Integrys Energy Services; and Trillium CNG, our nonregulated CNG subsidiary. And then Jim Schott will wrap up with some financial perspective. I'll summarize, and of course, we'll have a Q&A session.

But first, let me talk a little bit about our strategy. And we always like -- I always like to start with the vision and values. Our vision, people creating a premier and growing company. And by people, of course, we mean our employees. We take that very seriously. We invest a lot into our employees, and I'll give you a couple of examples. Last year, we started, in cooperation with the city colleges of Chicago, the teachers, our own local 18007 utility workers and ourselves, we started a utility workers school, where we target veterans and we train them to be gas workers. When -- upon graduation, they're ready to come join us and really hit the ground running. We just really have to teach them the things about people that are different than the generic gas stops. But it's been a great cooperated effort among all of us. Widely acclaimed, very well received, they are both the veterans, the teamsters, every stakeholder involved. It's been a great thing. And we've had I think 3 classes now where we've run people through these classes, and we've hired dozens of these employees already. A great effort and example of how we invest in our employees.

Another one is since around 2001, we've had a custom-made leadership development program, and we've run over 1,000 of our leaders or prospective leaders through that development program. Again, it really helps us get everybody on the same page, understand what we expect of them, and helps us to make our company successful. So people creating is a key part of our vision.

And values, of course, are extremely important for any business. I think our values are what helps us work in all the jurisdictions that we work with. Build trust with all of our stakeholders, our customers, our regulators, our suppliers. We think integrity, innovation, safety -- and safety, in particular, I'll comment on that in a second, are very important for us. And are the foundation by which we do all of our business.

Our mission is to provide our customers with the best value in energy and energy-related products. And I'll focus on energy and energy-related, because we think sticking to our meeting is the most important thing we can do. We know energy and energy-related. As we look at all of our opportunities, be they utility our nonutility, we always start with, "Is it energy and energy-related? Does it fit our skill set, that we can then move forward and leverage?" And then our strategic platform, we're an operator of Midwest utilities, that's primarily who we are. the vast majority of our earnings, of our operations are in the utility side of the business. But we do enjoy our nonutility business as a complimentary part of the business.

So just to summarize, with the strategy statement, I and I've highlighted a few of the key things here, we are an operator of Midwest utilities. But as we'll show you today, we have substantial growth opportunity in those utilities. We strive for first quartile performance. I'm sure all of you would agree, if you're going to do something, why not do it well. And we think that helps us manage our cost, improve our operations and make us a better company. We have been working to create and speak of regulatory environment where we have predictable, stable earnings. And I think we've done a great job in the last 2 years accomplishing that. We'll talk a little bit more about that today as well.

And then finally, as I noted before, we have a nonregulated operation that leverages our skill set that we believe we've got size the right way, and it's in the right risk profile, that provides us a complementary earnings

As I mentioned earlier. I'm very privileged to have a very experienced management team. And I'll introduce the team in a second, but just take a look at the years of experience. We have decades of experience among our team, 20 to 30 years for just about everybody. Even though Jim Schott, our CFO, who's only been with us for 10 years, has another 20-plus years of experience in the industry.

So with that, let me introduce our team. And I think you all know me. Perhaps you may know, but may not know, I have a nuclear background. I operated our Kewaunee Nuclear Plant for years. I was in the nuclear side of the business for 20 years. The impact that it really made on me is on safety. You can't work in the nuclear industry without getting a very deep culture of safety and understanding how important safety is. And I tried to carry that through to the rest of the company.

In addition to that, as you might imagine, the nuclear industry has a lot of processes and procedures to control the operation. So what I found was the value of those processes procedures in systems and helping to run any sort on operation. So again, that's kind of 2 things that I took away from my experience in the nuclear business that we try to apply across the company.

Larry Borgard runs our utility operations. Larry has excellent background in both gas and electric operations. Larry has been running the gas side of the business since we merged with Peoples Gas and formed Integrys back in 2007. Prior to that, Larry came up on the electric of the business with Wisconsin Public Service with both -- and has both transmission and distribution experience there, as well as the gas operations for our electric business. Wisconsin Public Service.

And last year, Larry was Chairman of the AGA. And by all reports that I've heard, he did a fine job. So thanks for doing that Larry. Dan Verbanac, he'll be with us almost 29 years now, it's his 28th on the side here, but it'll be 29 soon. Dan spent the first 10 or 11 years on the utility side of the business and learned the utilities, and then he went over to the nonutility side and has been running parts of our nonutility business, and all of that recently for about 17 years now.

And Mark Radtke, 30 years of experience, also started out on the utility side of the business. Actually helped design some of our data or our energy dispatch systems, and then for a number of years, worked in our nonutility business. Currently, Mark is our Executive VP of our Shared Services. So he runs our shared services organization. He also is our Chief Strategic Officer, and he has a number of odd jobs on the side, which we'll talk about later.

And Jim Schott. I met -- and Jim's been with us for 10 years. Prior to that, Jim worked for Arthur Andersen and also for another utility in the State of Wisconsin, a couple of other utilities. Good diverse background, both financial and operating experience. And we're glad to have Jim with us today.

And you all know Steve. Steve's been with us for 6 years now. Steve has done a great job helping us kind of step up our investor relations efforts, to make sure all of you understand us better. And we all enjoy Steve's sense of humor. Some of you may have noticed that he has one.

Recently, we commissioned a perception study to find out how we could help you understand us better. We got great feedback from this study. I imagine many of you were involved in that study. We do appreciate the candid responses. And I want you to know that we look at all of these very carefully. We take them to heart and we try to understand how we can use them, to help you better understand the Integrys Energy group story. I can't guarantee that we'll answer each and every little comment that we've heard. But I'm confident that after you will listen to us today, that you'll better understand our story and that many of the issues we reflected here, and that were involved in the story, will be addressed. And at the end of the discussion, of course, please ask questions for those areas that we have not addressed.

So in summary, our strategy to deliver values is that, first of all, we're a regulated operation. Our utilities are the primary source of our earnings. We're the largest part of our business. And as we look forward, there's a major part of our earnings growth. The American Transmission Company, which we consider part of our utility operation, continues to contribute to our earnings growth. We do enjoy complementary earnings from our nonregulated operations. As we look at our 4% to 6% growth target, it is achievable and we'll explain that today. And as our earnings grow, our dividend payout ratio will come in line with our peers. So keep those thoughts in mind as we step through our discussion today, because I think you'll find the background for why we say all these things.

With that, I'd like to turn this over to Larry Borgard. Larry is going to talk about our utility operations. But as he's coming up, let me just comment that, as I mentioned, Larry has a lot of good experience that he brings to the table. Larry was just recently elected as a Director of the American Transmission Company, which is kind of interesting, because the first major project that the American Transmission Company performed back in about 2001, 2002, was the transmission line that went from Wausau, Wisconsin up to Duluth. Coincidentally, Larry actually started that line in terms of the regulatory side of it and the early planning back in the early to mid-'90s. And Wisconsin Public Service was about placed to build that line when the ATC was formed, so that was given to the ATC as part of our contribution. ATC managed the construction, but WPS was actually the constructor subbing the operations from ATC and Larry headed that up. So it's a perfect combination now that Larry's getting on the floor. So Larry? Thank you.

Lawrence T. Borgard

Charlie, that might be the nicest thing a Michigan grad ever said about a Michigan State grad. Well, good morning, everyone. I want to spend a few minutes with you this morning talking about our regulated operations. But before I do that, let me just make a couple of comments about the video that Steve showed you. We had over 60 of our employees, both from Illinois and Wisconsin, volunteered to come out to the East Coast to work PSE&G and to work for Grid over the holiday season. And while they were awed by the destruction that they saw, they were really touched by the gratitude of the people that they ultimately served. People came out and gave them hugs and gave them food and put up signs and things like that. In some ways, they got a little too much gratitude though, because some of them reported that they never want to see another Dunkin' Donut again.

All right, so I'm going to talk about the regulated operations which, as Charlie mentioned, really represent 85% to 95% -- 85% to 90% of our earnings today, and we expect that to continue. So the regulated operations really are the base of Integrys Energy Group's earnings. And included in regulated operations, not only our natural gas segment, our electric segment, but also the ATC segment as well.

So here's our service territory, in case you're not familiar with it. We operate, as Steve mentioned, 6 utilities over 4 different Midwest states: Minnesota, Michigan, Illinois and Wisconsin. And given the fact that -- and its all training camps are now open, we like to think about this as the NFC Central, that works better than Chicago, actually.

All right, so here's the agenda for my part of the talk. I want to first talk about safety. Because, as Charlie mentioned, safety really is the highest priority for Integrys Energy Group. But then I want to step you through the period from about 2007 to 2012, when we we're acquiring the 4 natural gas companies that we did back in '06 and '07, and I hope you'll agree with me that we did what we said we were going to do after we acquired those. And now I want to walk you through the period 2012 to 2015, and I hope you come a way with that with some confidence that we are able to deliver on our promises that we made to you for earnings out to 2015.

And then lastly, I want to talk about some opportunities that we haven't talked much to the financial community about. And again, I hope that you'll agree with me, there are tremendous opportunities for Integrys Energy Group's regulated operations going forward.

So safety. Our business is not one where it's neatly fenced behind all of our facilities, are neatly fenced behind walls and fences and things like that. Literally, up and down every street in our service territory, we have -- our facilities are exposed. We've got over 43,000 miles of gas pipe in the ground. We've got 25,000 miles of electric distribution lines. And it's really incumbent upon us to make sure that we maintain the safety of those facilities, not only safety from damage, but we need to make sure that the public knows where those facilities are. Because every time one of those facilities gets hit, whether it's an overhead line or an underground line, the reliability of our total system degrades. So public safety is really, really important to us.

And Charlie mentioned his background in nuclear and his focus on safety. And when he became CEO in 2009, he was looking at our results, our safety results from 2008, and said, "You know what, this isn't good enough. We really need to improve." So he put us on a path, a 5-year path, to go from really third or fourth quartile safety performance down the first quartile, and you can see the results from this chart. So at the end of last year, we're pretty close to first quartile performance in our industry. But clearly, our work is not done yet. Because even today, even with a vast improvement in our results, we still injure 150 of our fellow employees every single year, and that's not sustainable.

Okay, so let's talk about the period from about 2007 up until 2012. And this is the period right after we acquired Minnesota Energy Resources and Michigan Gas Utilities, as well as Peoples Gas and North Shore Gas. So we recognize, we acquired these facilities, that they were underperforming assets. And one of the things we promised you and the rest of our investors was that we are going to improve the financial performance of these facilities. And we talked about in terms of narrowing the shortfall from what is authorized to what these entities actually earn.

But we didn't want to lose sight of the good operations and the good financial performance that we had been experiencing in the electric segment, primarily at Wisconsin Public Service Corporation. This is a period where there's strong growth in the American Transmission Company as well. So how do we do? Well, this chart shows both the electric segment on top in the gold, and the natural gas segment on the bottom in red, and it's a little bit lumpy. It's a little bit lumpy because it's dominated by the rate case activity that we had, primarily at People Gas. So we had a shortfall that went from anywhere from $45 million up to $56 million, up by 2012 on a weather-normalized basis. All of our utilities were contributing very, very well, and actually, again, on a weather-normalized basis, would have achieved greater-than-authorized results. So we think that's pretty good performance over that period of time.

It just shows you the 4 natural gas utilities. The big blue bars are really Peoples Gas. And as you folks all recognize, Peoples Gas really dominates our natural gas segment. So as Peoples Gas goes, so goes our natural gas segment. The CAGR on the earnings from 2007 to 2012 is actually 40%. So again, we think that's a pretty good performance in turning around the 4 natural gas utilities that we acquired back in early part of the 2000s.

And again, one of our key priorities was to make sure that we don't degrade the performance of our electric segment. And again, our electric segment is dominated by Wisconsin Public Service Corporation's results. And you can see over the period from 2008 to 2012, very, very solid performance by our electric segment, again, primarily dominated by Wisconsin Public Service Corporation.

So how do we do this? Well, we took our regulatory strategy in Wisconsin and we try to just kind of exploit it. And part of that regulatory strategy really goes back to what Charlie mentioned earlier about our core values. We think it's very, very important to be transparent, honest, to have a positive working relationship with regulators. And we achieved that in Wisconsin, and we think we've achieved this in the other jurisdictions as well.

When I talk to some of you folks after the acquisition in Illinois, one of the red flags that you all raised was, "Oh, Illinois regulations, not real good. Bottom-of-the-barrel kind of regulation." Well, if you look at our actual results, starting with the merger approval to the rate case activity that we've had, we've had 3 different rate cases now since the acquisition until today, I think we've been treated fairly well. We didn't get everything we asked for, but I think we've had some very reasonable results out of the Illinois regulatory jurisdiction. So I don't think that's bad as maybe some of you were concerned about when we first acquired these utilities.

You've probably see this slide in some of our rate -- conference calls material. This is our -- we call this our innovative rate-making slide. So really, we set about on trying to reduce the volatility of the earnings of our regulated utilities. And there's a series that's kind of first on this slide. So if you look at the very bottom here, the formula-based rates in our wholesale jurisdiction -- wholesale electric jurisdiction, that's really kind of a first defer. If you look at the decoupling legislation in Illinois, that was a first for utility in Illinois. Clearly, not a first throughout the country, but a first for utility in Illinois. And then I think the legislative Rider that we got in Illinois, again, is the first for that state.

So again, the innovative rate making we tried to put into the various jurisdictions is really around reducing the volatility of the regulated earnings. So we talked about the Rider, we talked about the wholesale, decoupling, obviously, bad debt writers and areas where, quite honestly, our bad debt was the worse than any of our utilities, Illinois and Michigan. And then fuel cost recovery is fairly standard across the industry from a natural gas standpoint. We got that for our electric utilities in Wisconsin and Michigan as well, and then manufacture gas plant writers are fairly typical as well throughout the industry.

So we think we delivered what we said we are going to deliver to you in that period from 2007 to 2012. So now I want to talk about what we've been doing kind of since then and how we hope to get you comfortable with, what we told you we're going to achieve by 2015, and that's our 4% to 6% average annualized growth with 2011 as a base. And really, it takes 2 -- there's 2 pieces to this. The first piece is what we've described as our evolving generation strategy. And the second is around derisking our delivery system. These are the kind of 2 main tenets that we have at our regulated utilities over the last couple of years, and probably will continue going into the future.

So when we talk about our evolving generation strategy, there are number of things that have happened, maybe the last couple of years, that has led us down the path that we've taken. But if we take a step back and think about our generation fleet at Wisconsin Public Service Corporation, primarily, it's very, very heavily dependent upon coal. And when we look at our coal assets, they fall into largely 1 of 2 different camps. We've talked before about our older, smaller coal units, and we've talked about our newer, bigger coal units. And if you think about the environmental regulations, where they are today, where they're going, our older, smaller coal unit probably can't afford to have a capital investment that would be needed in order to bring them up to environmental compliance. We think that our newer, bigger coal units will be able to handle that capital investment. So when a lot of -- when you talk to a lot of other utilities, they're anxious about what's going to happen with regulation and things like that. We've kind of had a parting of the seas. Our older, smaller coal units probably aren't going to be long-term survivors, but we think our larger, newer units will be.

So let me walk through the decision points around our evolving generation strategy. We had a series of purchase power agreements that were coming due. Firstly which, was our purchase power agreement with Dominion for 60% output of the Kewaunee Nuclear Plant, the plant that Charlie used to run.

Ultimately, we negotiated with Dominion for a number of years, a very well-run plant, a very highly-qualified employees, very, very good safety record. So at the end of the day, when we sold the plant back in 2005, we were concerned about a relatively small plant, 550-megawatt plant, single-unit site and all the cost that happened in the nuclear industry. When something happened halfway across the world, it has cost implications in Wisconsin and throughout the United States. I think that's ultimately what prevailed in terms of our negotiation with Dominion around the extension of the purchase power agreement. We just could not come to a financial arrangement that made sense for both parties. So Dominion announced late last year that they were going to shut the plant down. In May of this year, they actually did shut the plant down. So if we're not -- Dominion is not generating any electricity anymore. But our purchase power agreement, which ends at the end of December this year, calls for Dominion to replace the power with market power until the end of their obligation. And they have -- we've exercised that portion of the purchase power agreement, historically, and to work very well. And Dominion has been a very good partner in living up to their commitments.

So the next domino, so to speak, in our evolving generation strategy is the Fox Energy Center, and this is a picture of the Fox Energy Center. It's located about 10 miles south of Green Bay. So literally, right next to our largest load center. It's a 2-on-1 configuration, natural-gas-fired plants. And we had a PPA for both sides of this unit, actually 2 PPAs. One that would expire in 2015, the other that would expire in 2016. So we went about talking to the Fox Energy Center owners, which were GE and a company called Tyr, developed potential acquisition of this facility. And we thought that an acquisition of this facility had a number of benefits. First and foremost, long-term savings for our customers over simply extending the PPA. And then this low natural gas price environment, we thought, again, that was a good opportunity to secure this asset. And at the end of the day, it's a good investment for our shareholders.

It doesn't really change the overall mix of our generation, because we obviously had been taking the output of the unit under a PPA, but it just switches it from a purchase power agreement to an ownership interest on our part.

Like many companies around the country that generate electricity via coal, we had -- the EPA sued us under the New Source Review standard. We entered into settlement discussions with them over a period, a couple of years, actually. We did finally finalize this at the end of last year. I think we actually signed documents. So yes, through the first of the year of this year. And our settlement with the EPA really isn't much different than any other settlement that you've seen. It has 4 basic components that most settlements with the EPA have. There's a civil penalty, there's a series of environmental -- supplemental, environmental projects that have to be done and paid for by the company. There are limitations on the output of SOx and NOx, for example, from essentially all of the coal units that we have in our fleet. And then there's a series of decisions around refueling, repowering or retiring certain facilities. And we have all those same components in our settlement, Alliant Energy, a history -- it's not a history tool, but another utility in the State of Wisconsin where we had joint-owned facilities, had a similar settlement, and I'll talk a little bit about that a little bit later. So we'll have to make some decisions about what we do to some of the units that we've committed to either retire, repower or refuel.

Part of that settlement was to reduce the emissions from our Weston 3 coal-fired units. And Steve asked me to put in a relatively simple slide about ReACT. I'm not sure that we hit the mark on that one, but we're going to -- we've committed to deploy the ReACT technology. And it's really a first of its kind in the United States that's on a commercial scale at a -- and an operating coal-fired unit. And at the end of the day, it really is a relatively simple process. I mean, all you do with the ReACT technology is you blow the fluid gas across a carbon bed. You regenerate those carbon pellets or you take all the pollutants off. And at the end of the day, at the back end of this process, there's sulfuric acid that we will likely sell to other businesses that use the feedstock. So it is really a relatively simple process. I think this slide probably makes it a little bit more complicated. But we're really excited about this, because we will be the first utility in the United States to deploy this technology. If you listened to our call yesterday, I think Charlie mentioned that we're going to start here, on this quarter, on kind of moving some dirt around, and it should be operational by 2016.

A couple of other options and decision points that we have to make. I mentioned that Alliant Energy had an EPA settlement. Part of their EPA settlement was to retire, repower or refuel their Edgewater 4 Unit. The reason it's on our slide here is that we're a joint owner in Edgewater 4 with Alliant. So their retire, repower or refuel has to happen by 2018. We actually have an option to put our ownership interest to Alliant, and we'll make that decision in 2014. If we decide to hang on to our ownership interest past 2014, then we'll continue ownership until the decision is made in 2018, as to whether to retire, repower or refuel that unit. That's a little over 100 megawatts, our share of Edgewater 4. And then as part of our EPA settlement, I mentioned that a number of units, we're going to have to make a decision as to whether we retire, repower or refuel them. Pulliam 5 and 6, and Weston 1 and 2 units, that's a couple of hundred megawatts that we'll have to make some decisions about. So if you think about just the options on this page, there's several hundred megawatts of capacity here. And depending upon what decisions we make about that capacity, will drive our investment opportunity beyond 2015.

Do it. Mark, we'll be a moment here, excuse me. So a lot of folks ask us about -- so our natural gas, the fluctuation, the runup, the rundown in natural gas prices, and the ultimate kind of coming back of natural gas prices. How that's affecting your dispatch of your units? And the megawatts hours out of our gas-fired generation are the blue bars on the very bottom of this chart, the kind of gold bars in the middle are other generation -- I'm sorry, our coal-fire generation. So if you just look at those 2, so the decline in natural gas prices from 2009 to '10, '11, ultimately to 2012, where natural gas prices averaged under $3, we saw an expansion of the amount of energy that comes from our natural gas-fired units, primarily the Fox Energy Center. And then as natural gas prices have come back up a little bit, this year, a little bit lower than $84, you can see the amount of natural gas-fired generation has actually declined a little bit. So what other companies tell you about their fleet, we're actually seeing the same thing in our fleet. As natural gas prices come down, our dispatch moves up for natural gas. As natural gas prices come back up, it goes down, our dispatch goes down.

So let's talk a little bit. So transition from our generation strategy to really kind of our distribution strategy and our derisking of our delivery systems, and we're talking about this slide yesterday. And Jim Schott mentioned that before cast iron, we actually used wood, trees. Hollowed-out trees to move natural gas. And I thought Jim looks pretty good for having been around back then. But the industry really did move literally from wood to cast iron. And cast iron was state-of-the-art back in the late 1800s and into the early 1900s. And that's some of the same material that we have in this City of Chicago. We've got about 2,000 miles of cast and ductile iron main in the City of Chicago.

There's nothing kind of inherently wrong with the material itself other than it's very old, and if left undisturbed, it works just fine. But if you dig down next to it, they can crumble apart. So we really do need to replace the cast iron main that we had and if it -- that's similar to other utilities all across the country. The industry moved from cast and ductile iron to bare steel. Bare steel has a problem because it corrodes, so then the industry moved from bare steel to protected steel. And by protected steel, we mean pipe that's wrapped with a coating and then has cathodic protection on it to reduce the corrosion.

And then ultimately, the industry moved to plastics. And now there's some bad plastics that some companies are replacing. But clearly, the state-of-the-art today and the best material today for the lower-pressure systems is the polyethylene plastic.

So you've heard about our Accelerated Main Replacement Program. Again, this is for the City of Chicago. We will replace over 2,000 miles of natural gas main over a 20-year period. We're in the third year of that program right now. The legislative Rider actually goes for 10 years. And in that 10-year period, we will likely spend from $2.2 billion to $2.6 billion on a replacement program. And whenever I talk to groups, I like to kind of put that in the context that Steve mentioned earlier, about the little size of our company. So we're just a little bit below a $5 billion company. We're going to reinvest half of the whole value of our company over the next 10 years in replacing mains in the City of Chicago. And that's why the legislation up to the Rider is still very important to us.

We're on track for what we committed to replacing this year. We said we're going to do about 90 miles of replacement this year through June. We replaced 56 miles. And since the start of the program a couple of years ago, we replaced almost 350 miles to date. And also, a key part of the legislation in Illinois was the creation of jobs associated with their accelerated main replacement program. We created, literally, over 1,000 jobs. And had we not had that legislation in place, we are prepared to dial back, to spend on the AMRP project. And that obviously would have significant jobs, and it'll kick negative job implications as well.

We just recently received approval from the Public Service Commission of Wisconsin for our System Modernization and Reliability Project, we call it SMRP. And really, what this project is about is improving the reliability for our customers in the northern 1/3 of Wisconsin. We had traditionally benchmarked ourselves against other companies in the Edison Electric Institute, and we would always between high third or low fourth quartile performance. And we always kind of justified that to ourselves by saying, "Yes, but you know, it's a heavily wooded area. As the picture there shows, we get bad weather, snow and ice and things like that." So there really isn't much that we can do about it. And finally, we got tired of giving that excuse. So we went to the commission and said, "Let us, over a 5-year period, invest about $220 million to underground about 1,000 miles of our worst-performing electric distribution line and let us automate about 400 miles of additional lines, again, the worst performing line, and we will commit to driving that reliability from third or fourth quartile, probably into the second quartile." So we believe that this is improved performance at a reasonable cost and that's the case that we made before the Wisconsin Public Service Commission, and they just recently agreed that -- to allow us to do that. So we actually have been powering this program over the last year or so. Great customer reception, as you might imagine. The utility is going to come along and underground those lines in front of your house, especially if you have lake property. So I think it's really kind of a win-win-win.

So what we've shown you over the last couple of years are really kind of a series of investment opportunities. I didn't have a slide in here around the Columbia Energy Center. That's, again, an Alliant Energy facility that we co-own with them. But there are some environmental upgrades there for SOx and NOx reductions that will total about $225 million. During the plans that we've showed you, the Fox Energy Center acquisition about a $440 million acquisition that's closed, again, that's in the plans that we've showed you. The Western 3 ReACT program, $275 million. That, too, is in the plans that we've showed you. And then the System Modernization that I just got done talking about, $220 million over 5 years. And then the AMRP program will extend beyond the horizon of what we have typically showed you. But clearly, you're well aware of those things. In addition to that and all, I'll talk a little bit more about this later.

The American Transmission Company is really poised for significant growth over the next decade or so. So this is kind of what we've showed you. And really, what forms the basis of how the utilities are going to help achieve that 4% to 6% average annualized growth through 2015. And if you put this in context on one of the slides we had yesterday in our earnings packet, it showed that our regulated rate base is going to grow by the nearly 30% between 2013 and 2015. I mean, that's pretty astounding growth in just a very short amount of time.

I won't go through -- I mercifully will not go through the details of the various rate cases. Now let's just say that our regulatory staff, led by Jim Schott, will continue to be very, very busy. We just did finalize the Peoples Gas and North Shore Gas rate case. We received our order on June 18. Wisconsin Public Service, Michigan Gas Utilities and Upper Peninsula Power Company, have all filed rate cases earlier this year. And the typical schedule would have all of those companies seeing new rates effective as of about the first of 2014.

Let me just spend a couple of minutes talking about the Illinois legislation. This is really central to our continuation of the AMRP program. Because as I mentioned, and unless we got a reasonable regulatory mechanism and a return mechanism. We are fully prepared to dial back that program. So the act was signed into law back to like this by the governor after receiving overwhelming support from the legislature, both houses in the legislature. In fact, so much support that there was a veto-proof majority in both houses of the legislation. The governor did sign it, we got tremendous support from a number of different players. We worked cooperatively with the ICC, with the AG, with the Citizens Utility Board, with the labor unions. All came from the table and worked profitably, because they all saw the value of this legislation.

So the Rider does commence in 2014. It's for an initial 10-year period. And I think that's about all I wanted to say on this slide. But I think the process that we went through to put this Rider together, as I mentioned, with the Attorney General with the ICC, is an example of how we like to work cooperatively, transparently with all the intervenors and all of our regulators, whether it's in Illinois or other states.

And really, ComEd had a similar situation in terms of their formula base rate and ran into some issues in terms of implementation. But the parties, in our case, came together to ensure that with the legislature intended to occur would occur. So there's a specific timeline for this Rider, there's some filings that we have already made in order to get the tariff sheets kind of in place. The Rider will become effective on the first of 2014. The ICC is completely on board with that. We will make our first filing in terms of the cost in February, and customers in March will start seeing the impact on their bills.

A couple of differences between the legislative Rider that we have today, which we QIP, and the regulatory Rider that we had before this, that was overturned in the court, which we call it ICR. A couple of similarities, so they each had a baseline, they each had some rate caps so that we wouldn't invest $1 billion next year and our customers wouldn't have significant rate shock. But a couple differences as well. There is no own and savings offset for the legislative Riders that we have today. The ICR had an imputed kind of $6,000 per mile O&M offset that we would -- that the rates would be reduced by. But the prior Rider had an external 5-year audit. The existing Rider that we have today legislatively has no audit. The prior Rider had a reduction from our authorized ROE of 163 basis points, the Rider that we have today has no ROE reduction. Prior Rider has a regulatory lag from the rate case, the Rider that we have today has no regulatory lag for the AMRP spend. So we're very pleased with the outcome of the legislation and we're looking forward to the continuation of our AMRP program.

I talked a lot about a significant amount of capital investments that we're going to make across the utilities that we operate, primarily, Wisconsin Public Service and at Peoples Gas. And a lot of folks ask us, what kind of customer impact is this going to be? How big our customer bill is going to go up? Are your customers going to be able to afford this? So we wanted to show on this chart and the next chart is really the implication of the AMRP Rider if we spend up to the cap every single year and natural gas commodity prices stay level, we won't even get back to 2009 levels before 2017.

So we do think that now is the opportune time to reinvest in the infrastructure when the commodity prices are still low. Similarly, on the electric side, we're spending a lot of money in Wisconsin on a number of pollution-control equipment, on buying out PPAs and owning units and things like that. But still, our rates in Wisconsin are very, very competitive. They're not only competitive with others in Wisconsin, but are competitive with states that are joined, that are next to Wisconsin, as well competitive with national rates. So we do believe that there's good reason to expect that customers will have -- will not have an unaffordability issue with capital expenditures that we're going to have.

So we feel pretty good about the promises that we made to you in terms of our -- the earnings from our regulated utilities through 2015. If you look at the Columbia expenditures, they've been all approved. If you look at the Fox Energy Center, that transaction's been approved and it's actually closed already. The ReACT project for Weston 3, that's been approved. Our SMRP project, that's been approved. And at the end of the day, our Rider for -- our legislative Rider for the AMRP project in Chicago was approved. So again, we feel very, very confident about the regulated utilities' ability to deliver on the promises that we've made to you. And as I mentioned earlier, this stuff represents about a 30% increase in rate base from 2013 to 2015 that obviously closed into earnings as well.

So that's kind of where we are today and where we expect to be through 2015.

And I want to talk a little bit about the opportunities beyond 2015. Things that we haven't shared with you in the past, things that we're thinking about. And really, opportunities that we see beyond where we are today.

So we think there's a variety of opportunities kind of going forward, some of which is doing more of the same. So continuing our AMRP project, continuing our SMRP project, we think there's a significant opportunity to do some good stuff on the natural gas transmission side of the business. Our ATC investment, we think, will continue to expand. And there's a total kind of rebalancing of our generation portfolio going forward as we contemplate the retiring, repowering or refueling of a number of coal units. What does that translate to for next-generation addition? And then, there's some generation fuel diversity concepts I'd like to talk to you about as well.

So it's no secret that it's been heightened concern about the natural gas transmission kind of side of the business. If you think about the horrific accidents that occurred in the last few years, with San Bruno in California and Allentown in Pennsylvania and things like that, clearly, the federal authorities, the DOT are focused on natural gas transmission pipeline. Then my comment on that natural gas transmission pipeline -- I mean, those pipelines that operate at higher pressures, typically, are longer kind of the nature. And I'm most concerned in what we call high-consequence area pipes, so pipes that are aiming around where there's a lot of people. So big places like Chicago, big cities, large buildings where there's lots of people. Clearly, that's kind of where the focus is. Every operator of natural gas transmission pipeline, really, this summer was required to file with the DOT, Federal DOT, how many miles they had, how often they tested their pipe, what's the evidence that they tested their pipe. It was really just a filing. It was a data done for the DOT. So there's no rulemaking today that's going to happen on this. But we fully expect that there will be additional rules and regulations that come out of these filings, and that will really translate into significant investments in our transmission pipeline. So we will have to either replace pipeline, reroute them, put in additional valves, things like that. So we feel this is a fairly significant capital expenditure opportunity going forward. One such project that we've undertaken recently is what we call our Calumet project. It's just to give you a sense for the magnitude, if that one line is probably about $50 million expenditure. Just to bring that up to what we think are the appropriate standards today. Not to meet any rule of law, but again, to derisk our system, which is one of our key priorities.

So significant transmission pipeline opportunities in the future. And then if you think about all of the things that I talked to you about, just a few minutes ago, in terms of Kewaunee and EPA settlement and things like that, we've talked to you before our conference calls about in the near-term, in the medium term, we don't have a capacity mean. So when you look out a little bit further, we will have a capacity mean. So if you look at this chart, the blue bars or the blue squares at the very top on the left-hand side are really the Kewaunee contract. The Kewaunee contract goes away at the end of this year. We're still a little bit long.

As we think about the potential implications of our EPA settlement, of our option with Alliant Energy on Edgewater 4, we start to go from a little bit long to a little bit short. And then if you look after that 2019 and beyond, we'll probably be 400-ish, maybe up to 500 megawatts short in the 2019, in forward time frame.

So this is a significant opportunity for us. We haven't made any decisions about plans; B.ut if you think about how long it takes to permit and build facilities, 2019 is not that far away. It's -- we're probably going to have to make some decisions over the next 12 to 24 months about what we're going to do in 2019?

And if you think about all the options that are available to us: nuclear, coal, natural gas, renewables, given the price of natural gas is at today, given the concerns with nuclear, given the permitting concerns with coal, a more viable option really is around. One of the more viable option is really around the combined cycle natural gas units. And when we think about combined cycle, natural gas units and citing them, there really are 3 key components circling to that: access to water, access to high-pressure natural gas and access to electric transmission. We think there's a number of sites right in our own backyard in Northeastern Wisconsin that are capable of accommodating that, if we make the decision going forward.

Another opportunity for electric utility is around renewables energy credit. Wisconsin has a renewable portfolio of standard requirement. And it's a little bit unique in that you can actually -- if you over comply, you can bank those credit. If you look at the gold bar here, we've been overcomplying since the start of this program, but we reached a tipping point in about 2014.

About 2014, we start extracting more credits from the banks than we actually put in. So if we continue that on that pace and just continue to extract credits from the bank, we will run out of credits in 2023. So by 2023, we're going to have to have something in place, if not sooner. And if you look at that 2024 and beyond time frame, just to give you a sense of the magnitude of the shortfall, it's about a 200-megawatt wind farm that will be short in 2024. Again, from the utility standpoint, 2024 is not that far away if we need to think about the building something ourselves. So that's another opportunity for us.

So last part of my discussion today is really around the American Transmission Company. And as Charlie mentioned, I just joined the ATC Board, replacing Charlie, who's on it for a number of years. This showed up a little bit better than it did yesterday. So the ATC is kind of indigenous footprint, if you want to think about it that way. It is really around the eastern 2/3 of the state of Wisconsin and the adjoining portion of the upper Peninsula of Michigan, and the area right in line and Charlie talked about is that -- so a line that runs from the central part Wisconsin up to the Minnesota. They really kind of juice our ownership interest in the American Transmission Company. At the time of its transformation, I think we're the third largest owner of transmission utility facilities in the state of Wisconsin. And today, we are the largest owner of the American Transmission Company at 40%, I wish 40% -- at 34%.

So again, just some quick highlights on ATC. It was formed in 2001. It does operate in the mid-continent independent system operating area where myself really significant growth since its inception. So back in 2001, about $0.5 billion kind of asset company, today, at the end of last year, it's about a $3.3 billion company. So significant growth there.

We'd like to think about the ATC as a utility, as we do about any of our other utilities that we have in the family, with 2 kind of key differences. And those key differences and those key differences are # 1, they have a formula rate structure, so their rate gets trued up at the end of every year. A key, key component to the ATC era. The other difference is they have a return in equity of about 12.2%, it is 12.2%, which is higher than our typical regulated utility here on the electric side at the distribution level.

And some of you have expressed some concerns about the sustainability of that 12.2% return on equity. And I can tell you that, that 12.2% is really a negotiated rate, but it's lower than what the rest of kind of might oversee and its transition of assets. The [indiscernible] is about a 12.38% return on equity. And we -- there's been some pressure in other parts of the country, where certain convenors have come forward to kind of push down transmission rates. To be quite honestly, we don't see any of that in the region that ATC operates today.

So I mentioned before the ATC has got a fairly aggressive kind of growth path, which shown on this slide is the growth from 2013, which is about, which has about $3.4 million of investment in plant -- $3.4 billion of investment in plant to about $5.3 billion by 2022. And this is just again within the same indigenous footprint of ATC. This does not include any project outside of the ATC original footprint. And at the bottom of the slide, you can see we got pretty attractive, very attractive kind of debt ratings.

So ATC puts out a 10-year plan, and the 10-year there's a website here for their 10-year plan. But 10-year plan that they put out in 2012 has about a $4 billion investment over that 10-year time horizon. And there's really nothing -- there's no super big line or anything like that, but it's really the nuts and bolts required to maintain the system that they have already. There are some line additions, but there's no 200 or 300 miles brand-new lines in the plant we see it today.

Back in 2011, I believe, back in June of 2011, the ATC and Duke Energy formed a partnership, what they call DATC. And DATC was really severely formed to pursue projects outside of ATC's traditional footprints. So this gives you a map of a number of the projects or set of projects here that DATC, so the combination of Duke and ATC, are investigating outside of the traditional footprint. I can't see here and tell you that these are kind of in the bank projects. I mean, there's over $4 billion of projects here, but we do think that DATC will be successful on a number of these projects. Probably a little bit further out in time, but there is some additional extra growth that we think that ATC will have via their DATC kind of partnership.

The other thing I'll a mention about DATC, kind of goes back to the return in equity. So it was just a year ago that FERC authorized DATC to have a 12.38% rate of return. So as low as the year ago, FERC continue to think that 12.38% was a reasonable return for transmission facilities.

Let me just take you back as I close to another football analogy. Our plans have never been more solid. And we think we did what we said we're going to do in that 2007 to 2012 time frame, so we hope that we generated some confidence with you. We feel confident that our ability, given what's already kind of in the bank, so to speak, to deliver on our 2015 promise to you, and we think there's some tremendous opportunity kind of going forward. So it's our belief that our plans have never been more solid, but there's substantial growth that's already been approved. We don't need Hail Mary. We don't need 100 yards kickoff return. We just really need to do the basic blocking and tackling, so that these things done. And then beyond that, beyond 2015, we'll see significant upside potential.

So thank you for your attention. I look forward to your questions at the end of the day.

Steven P. Eschbach

Thanks, Larry. As you can see, we have a lot of stuff going on in our utilities, both the gas operations, electric operations and the American Transmission Company. So we're looking forward to great rolled over the next few years.

Before Dan Verbanac comes up, I wanted to put a little context around our non-utility operations. Those of you who have followed us for years know that there was a point in time when our non-utility was substantially larger than it used to be. Back in 2009, we have announced that we would reduce the size and scale of risk of our non-utility operation, recognizing that if we get too large, it is wrong kinds of operations that would jeopardize the company. So we successfully did that. We told ourselves what we need to do is limit the non-utility to about 10% to 15% of our earnings, and have our utility divide to 85% to 90% of our earnings, and we look at that in the risk perspective. That allows us to keep strong financials, keep our set of quality up, and then with the way we manage the business, it helps us to keep that risk profile as low as we can.

In addition to that, we refocused the business. So we got -- we entirely exited all of our wholesale trading operations. We only are doing retail right now. Remember, we refocused it in terms of focusing on the northeast quadrant of the United States. That is an area that we've been involved in for 15-plus years. Dan, in particular, has been to that whole environmental growth and refocusing. Dan understands the markets very well. So the only retail, no more wholesale trading, we limit the risk profile, we limit size, and then we focus on the quality of our customers to make sure that we are not taking them as well. And Dan will elaborate a little bit of those certain things.

I am pleased to introduce Dan Verbanac. Dan is really active in the retail space. He currently chairs the National Energy Marketing Association executive committee. So please welcome, Dan, to the podium.

Daniel J. Verbanac

Thank you, Charlie, and good morning, everyone. As Charlie said or pointed on, I have about 29 years of experience and 29 years at Integrys. And my story is I came up to information technology, actually writing applications early in my career for the utility services. And then later on, as Integrys has made a services, that's why I joined them about 2 years after they opened their doors. And that's a great way to learn the business, actually developing applications. Then with that knowledge, I moved on to other roles. Over my 17 years at Integrys Energy Services, I've seen a lot of different market dynamics. I've seen very volatile markets, very high commodity prices, over $13 gas prices. I see very low prices, less than $1.50. I've seen competitors come in and buy market share. And then me, a year later, I've seen asset-light strategy and then I've seen generators come in, generator owners come in and sell directly to these customers. Few competitors, many competitors, large markets, small market. The environment we're in today is one of the low commodity prices, low volatility, low capital cost, which creates a low barrier to entry and, thus, fierce competition and shrinking margins. I don't know where the market dynamics are going to go from here, but one thing I do know, that over the next 12 months, they're going to change. My goal here today is to share some details about our strategy going forward in this highly competitive marketplace. We've shared some early results on the execution of our strategy.

So I'm going to talk about today is Integrys Energy Services, which fits in the corporate structure under non-utility, nonregulated operations, and Mark Radtke is going to share a little bit information on Trillium CNG.

So Integrys Energy Services is a diversified retail company that sells both electricity and natural gas, primarily in the Northeast quadrant of the U.S., and we're also investing energy assets that has renewable attributes.

So taking a little deeper dive into Integrys Energy Services. A key component in the philosophy of our strategy is to minimize market risk. We take no specutive position. We hedge commodity at the time of our customer commitment. Our target customers are commercial and industrial customers or C&I customers, and also residential and very small commercial customers, which internally we call direct mass-market or DMM.

So digging a little deeper on C&I segment, we really focused on small to medium C&I customer. Why small and medium? Because there we can have real value and get a little better margin with that customer segment. On the DMM side, we've been focusing on aggregation. Aggregation is not new to us as we participate in the market when it opened in Ohio in the early 2000s, so we've been very active both in Ohio and Illinois. We like aggregation because; there's a low cost of acquisition. And for that customer class, it's all above cost of acquisition. One of the 7-year sole communities that we serve in Illinois, in the electric side, which you may have heard about, is the City of Chicago, the largest aggregation program in the country. And one of the compelling reasons why we were able to secure that contract is our back-office capability. Key, there's -- the story there is they were looking for somebody to enroll their customers very quickly. Why? Because a month of delay in enrollment would cause the city residents about $20 million of savings. We were able to enroll 850,000 customers in 2 weeks' time, well ahead of the city expectation.

Our regional focus is where we've had a presence for a long time, where we understand the markets, where we have low philosophy and local people with deep customer relationships. Some of the [indiscernible] since we've opened our doors in 1994. We've invested over the years in systems and processes, which in some cases, has given us a competitive advantage around the City of Chicago. But more importantly, it allows us to grow this business with minimal or any increases. And in complimentary with our retail marketing businesses is our renewable assets development business, where we enter into long-term TPAs. And I'll talk about that business in a little more detail.

So this is a snapshot of our business today. Again, focusing on the northeast quadrant or quarter of the United States. And as Charlie mentioned, we went through significant restructuring a few years ago. And not only did we reduce our operations by above 50%, but we also derisked this business by approximately 75%. And our current makeup today is about 1/3 natural gas from a margin perspective and 2/3 electricity.

So what is our growth strategy? Or what is the strategy going forward in this highly competitive marketplace? Well, it's pretty simple. It's to grow market share, focusing on 3 main areas. The first one being, high retention rates, which is the core to this strategy. Through our customer delay initiative, which is the term we use internally, when we go out and get feedback from our customers continuously and what's important to them in how we rate in those areas, and then we have a continuous cost improvement in those areas. So what we've been able to do is increase our retention rate from just under 80% on the C&I side in 2012 on a volumetric basis to almost 85% in 2013. And we take that percentage of cost our volumes that's significant. Two, is to offer new products in the regions we're in and offer existing products behind utilities that we don't serve, customers today within our footprint. And then do some strategic acquisition like Compass Energy Services, which we acquired May 1 of this year.

On Slide 135 in the appendix, that shows the products that we offer historically in certain regions. And it also shows the new products that we've introduced over the last 18 months and the states that we've entered as part of the Compass acquisition.

But our primary focus is number 3, organic growth. We've implemented over dozen initiatives to ensure to grow market share. A trend in the industry that we're seeing for the last couple of years is the growth of third-party agents, brokers and consultants, which get in between energy marketers like yourselves and customer. And we're working with the core group of this party and have a strategy around that. But the majority of our C&I customers are direct sales, allowing us to leverage our city sales force with strong customer relationships.

The next slide show some of our early results. This is the retail electric side, it shows our volume in 2011, '12 and projected delivered volume in 2013, '14, '15. And what you're seeing here is a year-over-year, delivered volume growth on the retail electric side of about 65%. And the bigger up 25% from 2011 to 2015. And we're also seeing year-over-year forward volume growth, June 30, 2013 compared to June 30, 2012. And in 2014, we typically have about 65% to 70% contracted at the end of the prior year. So by the end of this year, we're on-track with our retention rate to get to that level.

The same story here on Retail Natural Gas. Year-over-year growth of about 60%, 2013 compared to 2012 and CAGR of 21% for 2011 to 2015. We're also seeing significant forward volume growth, June 30, 2013 compared to the same period last year, about 118%. Half of that is from the company's acquisition, but the other half is organic growth.

These next 2 slides illustrate an important point I'd like to make, which is the tipping point on the market share growth as we outpace the market impression, and you see top line margin growth. So let me explain this graph a little bit. The green line that goes from the upper left-hand corner down to lower right is unit margin. We'll first talk about with. You see that on the right side and it's per megawatt-hour. The blue line is from the lower left to upper right is volume. And the scales on the left side is in million of megawatt-hours. And then the red line across path, that's top line margin. It's not sales associated with that. So we included the actual values for that. And why I have a circle here, that's the tipping point. That's where we see top line margin growth and for weaker record, that's happening this year in 2013.

This is the same graph for natural gas. Again, unit margin is the green line and the sales on the right side and this is the dollars for the blue line is volume and the skills in billion cubic feet and then the red line across half, which is again is top line growth of margin. And for retail natural gas, that's occurring in 2014.

The complementary business to our retail marketing is our asset development business. This business is core investment, and that [indiscernible] our skill set in energy focus. And our target customers here are commercial building owners. So we can sell photovoltaic solar a bit faster or near the building to long-term PPA contract back to the building owner. Typically, these contracts are at rates lower than your incumbent utility rate, creating real value for this customer. We target database that have solar programs, so we can participate in solar renewable long term and in some cases, for the life of these projects.

The last thing I want to point out on this slide is this bullet point #4, which is the relatively quick return of capital because of grants, tax credits, state solar initiatives and low-risk operation.

So now I want to wrap up the discussion in Integrys Energy Services. We continue to see unit margin depression. No surprise here, but we refocus on this growth around high retention, new offerings and organic growth and to we're starting see top line margin growth. The execution of our strategy driven by our experienced team, our focus on customer segment where we can provide value services, a little higher margin and a culture of customer service. Our systems processes allow us growth of marginal O&M, expense, allows for more efficient overall organization. And we have a complementary renewable solar business that provides solid sustainable return for the life of those projects. So what are the results then? Well, we talked about year-over-year volume growth. Returns to continue to be strong in this business and net income will improve over time as business grows and efficiencies are gaining. With the growth in market share and unit margins improvement, there are certainly upside for net income. And I'm confident that this strategy leave us well-positioned to continue to grow in the coming years and allows us to achieve the 10% to 15% of consecutive earnings contribution. I also look forward to taking your questions and answers later on in the program. Thank you.

Charles A. Schrock

Thanks, Dan. By the way, I think you've all noticed the posters that are scattered around the room, I would invite you during the break before we hear after our next discussion to take a look at the posters and have questions of our teams here about in terms of what they are. But they are some visual in terms of the types of projects and businesses that we've been talking about.

Before Mark Radtke comes up, let me put a little more context around the CNG business. We have a small CNG business and growing. The brand name is Trillium CNG. But we didn't step into a whimsical way in any sense. We were studying the environment, and Larry Borgard mentioned the ample supply of natural gas at reasonable prices that this nation is enjoying right now. And as we look at that and look at the potential it provided us in terms of various value propositions and particularly around CNG as a fuel, the transportation fuel, we thought that was worth going out. And again, from a strategy standpoint, we like our diverse portfolio, if you will. Primarily utilities with the non-utility operation, and when we think about the diversity, even take it down to the nonutility level, with the diversity in terms of retail business, solar business and now CNG as a transportation field. So we took a pretty hard look at it. We've asked Mark Radtke to bring you up to speed.

I mentioned earlier when I introduced -- first introduced Mark. In addition to running our shared services operation, he's our Chief Strategy Officer and, incidentally, he is also the Chairman of the Board of our transportation fuel subsidiary. Mark was instrumental in helping us get into the business and understanding the value potential, and I'm pleased to have him come up here and tell you about it. Please welcome Mark before you.

Mark A. Radtke

Thank you, Charlie. Earlier, Charlie mentioned that I have a variety of other odd jobs and some of them are quite odd, actually. CNG, however, is not one of those. I have the pleasure to have the opportunity to speak briefly about that business. As Charlie said, we go-to-market as truly on CNG, but technically the name of the company is Integrys Transportation Fuels.

Now the -- Charlie alluded to the process that we went through in making the decision into this business. As part of our strategic planning activities, we're constantly scanning the horizon and we got a dozen or so trends that we're monitoring regularly to identify as the external environment changes, what are the potential risk or opportunities that may present our organization. And several of those call it attention as it relates to natural gas, I got it listed on the slide here. The first being the number of electric and natural gas vehicles in service, and we look at multiple fuel sources because that signals the site's willingness to break from the status quo, and try some alternative to fuel that have, frankly, work pretty well for a lot of years. With respect to natural gas in particular, there are about 14 million natural gas vehicles in service around the globe, yet only 115,000 or so here in the U.S., but that's changing pretty rapidly. Now we began consulting, just released a study, suggests of the CNG infrastructure that's going to be built globally between now and 2015, 40% of that they expect to be built here in the U.S.

Environmental emission regulation. Certainly as utilities we're accustomed to that, we typically think in terms of power plant emission regulations that are getting increasingly stringent. But to be sure, the EPA is equally concerned with fuel pipe emissions, particularly those from light and heavy-duty trucks. Natural gas being the cleanest fossil fuel that we have, brings with it a variety of environmental benefit, including a 25% reduction in greenhouse gas emissions when combusted compared to diesel fuel.

It's not a newsflash to anyone in this room that natural gas is an incredibly abundant fuel source that we have, available to us in this country. And when you think about the domestic nature of that fuel source and compare it to traditional petroleum products, which are globally traded, substituting natural gas and the transportation sector has implications both for our energy security, as well as our national security.

And finally, there's a significant industry activity, lot of infrastructure being built that have been some recent government agency studies that suggest over the long term, so over a 25-year projection, the expectation that half of this country's large trucks and buses will be fueled by natural gas. So this a multiple trends created an inflection point that without was strong enough to support first developing the business plan and then ultimately, entering this business.

So that business plan, a couple of years old now, but the business today, it continues to be focused on large fuel-consuming vehicles, vehicles that utilize in excess of 10,000 gallons of fuel on an annual basis. Why is that? Well, there's a significant cost associated with the tankage and fuel system on these vehicles. We have been able to take advantage of this attractive fuel. And the savings are obtained essentially one gallon at a time through the lower cost of natural gas versus diesel fuel. And so the story of the more you use, the more you save. And that certainly accelerates the payback and returns on investment to those fleet operators.

From a station perspective, our experience is that we need to see about a 250,000 gallons a year, close through a station in order to support kind of the minimum economic scale of a public access station. So you put those 2 together, and you like to see a station that is visited by 25 fleet vehicles on a daily basis in order to provide solid economics for both the fleet, operator and station owner.

So we've adopted what we call a 3-piece of strategy: Transit, tracking and trash are the segments that we're after. Transit being the most mature of those, today about 20% of the nation's buses. Municipal transit fleet are already fueled by natural gas. And we understand that about half of the new Rockies vehicles, coming off the production line, are being set up and ordered by customers that plan to run those vehicles on natural gas.

So let's take a look at the fundamental drivers of this business. Earlier, Charlie mentioned my tenure with the company. I recently celebrated my 30-years of service anniversary. And over those years, I've been fortunate to work on a lot of new initiatives and businesses. One thing about those initiatives is they almost always need some help to kind of get them over the hump. They have technology that's in development, but not yet ready for commercialization or an energy technology that has an attractive long-term declining price curve, but it's not quite there today. It needs tax incentives or some other form of support in order to make it competitive with status quo. The great thing about compressed natural gas is that it doesn't need that. The customers that we work with today, certainly they love of the collateral benefit of cleaner fuel, quieter trucks, much less volatile price at the pump, domestic energy source and the like. But their decision is being driven based on the economics. And so the business drivers posted on the slide are those 3 market type that you might expect. It's about building stations where customers need them, providing of which viewing experience, achieving economic scale for competitive advantage and investing only where it's needed to achieve those objectives.

So we pursue the Trillium strategy through 4 value streams. The first being our pinnacle line of hydraulic-intensifying compressors or the Hi-C as we call it. The Hi-C is particularly well-suited to the on-demand nature of public access fueling stations. Frankly, it's our secret sauce to providing an exceptional fueling experience. With our September 2011 acquisition of Pinnacle and Trillium, we're able to build on their nearly 20 years of experience in designing, building and operating high reliability CNG stations. The historic business has been around kind of its fleet, and those customers demand absolute reliability, right? I mean, we always say that the buses don't roll, heads will. That's why we never missed a fuel window from our many transit customers around the country, whether it's the NCAA here in New York City or Orange County transit in Southern California. And that's why our operations and maintenance capabilities are so central. When a pump goes down at a traditional diesel station, they put a bag on the nozzle, and the driver moves on to the next fueling island. If a compressor is down at the CNG station, it's the equivalent of putting a bag over the entire station. Simply not acceptable. So we built a field service team that provides world-class service, monitoring and ensuring peak performance of our equipment around-the-clock. And then fuel sales is what this business is all about, working with shippers and haulers to create demand for CNG.

And that's what this map illustrates. Our strategy in action. Working with shippers and fleet operators to identify where it is most advantageous for them to have access for the associative fuel. Then we partner with existing station operators. Typically, we design, build, own and operate the CNG infrastructure at that site, and enter into a lease and royalty arrangement that aligns us both, so that we both prosper as volume increases at that site.

This map illustrates where we have stations under construction or in full operation to date, and the shaded areas illustrate the freight corridors where we are actively working with customers today to build out our network.

So in summary, the compelling thing about compressed natural gas is its price advantage against diesel. CNG sales at many points around the country for about $2 for gasoline gallon equivalent compared to almost $4 for a gallon of diesel. With those compelling economics in hand, we partner with shippers and fleet operators to build the CNG infrastructure on key regional corridors. Our 2000 acquisition of Chilean and Pinnacle gives us a strong foundation to confidently grow this business. And we remain ever mindful of the need to balance that growth rate with the overall financial profile that Trillium CNG brings to Integrys Energy Group.

That's the extent of my prepared comments. Thanks very much for your attention. I look forward to continuing the discussion during our Q&A. We are now scheduled for a break at this point. You will certainly want to make sure you come back timely from that break to catch every word that Jim Schott will share with us our right after the break. And I believe that Steve Eschbach has some comments here on our way to the break. Steve?

Steven P. Eschbach

I do hope that the applause is for Mark and not me because again I have to reset your expectations. I have nothing to say that is impactful as myself the executive colleagues do. But we are at the breakpoint, and in a moment I'll let you unbuckle your seatbelts and you able to move up in about the cabin here. But I just want to give you a sense of the timing for the rest of the day. Given the size of the group, we have originally planned about a 10 minute break. I think we might want to extend that to 15 minutes. Charlie has invited you to interact with not only the presenting executives, but our other executive colleagues. They'll be happy to talk to you about any and everything except material nonpublic information relating to Integrys Energy Group. So they've been instructed, so I think to be able to help you out accordingly.

So with that, I see that we have a time of about 9:40, so why don't we plan to come back here at about 9:55. I think Jim's comments are about 20 minutes, and then we're going to have the Q&A that will follow that. So those that are on the webcast, I want to remind you that if you are on the website, there is a box in the lower right-hand corner of that submit a question. So as we have the Q&A session, we will take questions from the audience and we'll also take questions from those who are listening on the web. And while this event is scheduled to end at 11 a.m., we can figure out a little bit longer if you have more questions just to make sure we can be accommodating to your qs, and we respond accordingly.

So with that, you could take your break. Let's try to be back here by 9:55. And thank you for your attention so far. You may unbuckle your seatbelts.


Charles A. Schrock

Well, thanks to all of you for coming back promptly. We'll get started again here with Jim Schott in just a second. But first, a couple of comments. Mark, I had that engaging story about our CNG business. I recall about a year ago, Mark, took me on a tour on the Jackie Grayson bus museum over there as well. So aptly named, I thought, in Brooklyn, New York just across the river. End of the tour happened at about 2:30 in the morning, so we could watch the buses getting re-fueled. It's actually quite fast for me. So good tour, I'd recommend they have a Jackie Grayson bus museum over there as well so if anybody has a chance to run across the river in Brooklyn, I would invite you to go there.

We're going to wrap up with the financial discussion. So you've heard a lot this morning from the utilities, the nonutility side of the business. I talked about our strategy. Now Jim Schott, our CFO, is going to give you -- connect all the dots to a financial, so he'll do that. And as Jim comes up, let me just comment that Jim's been with us for 10 years. Jim has been running our regulatory operations, so all of our rate cases, things like that, ever since he joined the company. So we owe Jim a lot of credit for all the progress we've made under the regulatory front in all the jurisdictions that we're in. So please, welcome Jim to the stage.

James F. Schott

Thank you, Charlie, and thank you for the kind words about the regulatory. But first of all, I have a great team, a regulatory team that does an excellent job putting together rate cases that are very understandable. We get -- constantly are getting good comments from the commission staff about the completeness of our filings and the level of detail. So it's just a terrific team. And plus, all my colleagues because when you submit a rate case, you have to back it up, I mean, you back it up with files and testimony and that attributes to the team, Larry's team and putting that together. So here U am, kind of familiar spot for me. I used to run track and I would be the anchorman in a relay team, and either you were behind on the relay team and you got to shine by catching up or your teammates that put you way far ahead, and you could just kind of post. That's the way I feel. That's where we are today. I think the first 3 presenters, really has said it all well. And then I'm just going to bring it across the finish line. So again, Integrys, you've heard about all the pieces. They regulated operations, the Integrys Energy Services, Trillium CNG. Let's bring them altogether and let's talk about the numbers.

Back in 2010 -- and this is why I can use that expression, it was like that when i got here -- we had a 4% to 6% growth target. We saw a 4% to 6% growth target back in 2010 based on a 2011 base through 2015. So what this chart represents, the shaded area, is the 4% to 6% growth range or growth cone, if you will, to achieve the 4% to 6% off of 2011. You can see our actual 2011 results to 2012 results and where our earnings guidance is for 2013. As you can see, the first 2012 and 2013 following below the 4% to 6% growth. So how do we intend to achieve the 4% to 6% growth that we set out in 2010. Given the midpoint of the guidance that we just announced yesterday at $3.47, we have to get some $3.47 to about $4.10, that's the midpoint of the 4% to 6% range by 2015. So growing from $3.47 to growing into that range.

We're going to do it, basically summarize what Larry and Mark and Dan have talked about. On the electric side rate base growth, back to Energy Center, in 2014, we'll be getting the full recovery of that. Columbia is just wrapping up in 2014. Weston 3 ReACT is getting started in 2014, that's going to be start ramping up the significant CapEx. And finally, the SMRP that Larry talked about will be ramping up in 2014 as well. And of course, the AMRP is ongoing, beginning in 2014 into 2015.

About setting that, of course, to pay for it all, we have to issue some common equity and there'll be a hybrid issuance that we talked about previously. Into 2015, we'll be recovering the Fox Energy Center, the deferred equity return from 2013, and I'll describe that in a minute. The ReACT, SMRP continues. In Integrys Energy Services, the increased volumes offset the unit margins. Dan talked about that. I was seeing the tipping point in 2013 and 2014, and that will be generating earnings over the period.

The rate base growth Larry talked about, the accounting is 29%, the engineers is about 30%, so but that is the growth rate from 2013 to 2015. And again, for those utility industry, rate base is made up of accumulated CapEx, so grow some additional capital expenditures. That's made up of working capital, do you expect that changes, another rate base? And it's offset primarily by depreciation. So if depreciation incurs over, it will reduce the rate base growth as well get [indiscernible]. So again, a 30% growth rate. The one other thing I would like to point out on this slide is that this on top of 2013, and that represents the Fox Energy Center, 9 months ownership in rate base in 2013. Under the accounting rules, while we're allowed to defer that for regulatory purposes and we'll recover the equity return when we will able to recover that equity return. We're not allowed to record that as a net income for GAAP purposes in 2013. We can only record that when you actually start recovering it in rate. So these equity return in 2013 will be deferred until we actually start beginning to recover that in rate.

So here's our estimated capital expenditures. Again, we introduced this yesterday. The major change from prior capital expenditures schedules is that we increased the CapEx for Peoples Gas in 2014 and 2015. As Larry said, we had a number in there that could go either way. If we didn't -- it weren't successful in the rate case legislative arena, we could pull back on that number, the number would have gone down. But if we were successful in both the rate case and the legislative arena, we've increased the CapEx for 2014 and 2015.

We have a capital expenditures over the next 3 years. We have the estimated utility depreciation that offset those capital expenditures, and that resulted in a rate base growth. So how are going to pay for all those rate base? We always rate base, we're spending how we're planning to pay for it. First of all, we want to provide capital levels at reasonable costs to maintain our current fed rate. If you look to Slide 120, in the back, it's actually the CR current credit rating and very strong at this point.

So what do we have contemplated for 2013? First on the common equity front. We have issued about $55 million through 2013 through our stock investment plan or dividend reinvestment plan and our stock-based equity compensation plan.

For our stock investment plan and our dividend reinvestment plan, we participate another $20 million to be raised through end of the year that [indiscernible]. In addition to the extent we have additional stock option exercise activity that will also generate equity issuance for the rest of the year. So $75 million for the year plus any additional stock option exercise activity. On the long-term debt side, we've each made -- had 3 issuances already this year. Peoples Gas had 2 issuances and North Shore Gas had 1. Again, 4% returns for 30 years, 3.96% for North Shore Gas and Peoples Gas, so excellent job of really catching the interest rate at the right time for those issuances. For Wisconsin Public Service, we plan to issue up to $450 million of long-term debt later this year. That is primarily to fund the debt piece of the Fox Energy acquisition as well as we have a $125 million issuance coming due in November, so refinancing and capital expenditures go up to $450 million later this year. And the last piece of 2013 is our hybrid debt securities issuance. Again, up to about $400 million, we have previously said that second half of the year, yesterday's conference call I said that we're going to do that earlier rather than later and therefore, we have additional interest expense at the holding company, which changed the earnings guidance. So we plan to do that sooner rather than later. So that's going to be happening early as the second half of the year. Going forward, financing objectives are to maintain our credit rating, maintain our current debt equity mix consistent with those credit ratings. We'll continue to utilize our stock investment plan, our dividend reinvestment plan and the stock-based compensation for new equity issuances for 2014 and most likely into 2015. In addition, as needed, we will employ other equity issuances mechanisms such as at the money equity issuances, also known as dribble. We may engage in that. On the outside possibility, given the possibilities, we have sufficient equity needs to do a secondary offering but looking more towards just the DRIP and then possibly a dribble ATM as needed. So how do we put all these numbers together? You've heard all that CapEx, all the rate base adjustments that Larry talked about. We talked -- Dan talked about his earnings from the -- how do we put this all together and how do we achieve a 4% to 6% growth goal. On this chart, we have our 2013 earnings guidance in the far left. In the middle, or around the middle is the 2014 and then at the far right is 2015. The 2014 numbers and the 2015 numbers, I want to point out, are simply mathematical calculations. As it says in the gold box, these are not earnings guidance for 2014 and 2015. And I repeat, they are not earnings guidance for 2014 and '15. But they're a mathematical calculation of what it takes to achieve the 4% to 6% growth goal off of 2011. So how do we get to those growth goal targets? What are the big pieces? And what represents the big pieces? Those items that are going to affect earnings per share by greater than $0.10 over the 2-year period. So there's a lot of stuff that's not in here and so again, that's why this is not earnings guidance. There's a lot of pieces that aren't in here but these are the major pieces that are driving earnings between now and 2015. And the first one is Fox Energy in rate base. Again, there's no equity return in 2013, that's all being served for future recovery. So the $440 million of Fox in rate base will be unchanged from 2013 to 2014. That's when our rate case is currently pending before the -- Public Service Commission of Wisconsin. So that's a mathematical calculation, $440 million times our debt ratio, debt equity ratio times ROE, so that's a mathematical calculation. The full year Illinois rate case, we just got a $63 million rate case in Illinois, went into effect on June 27, taking a full year credit for that, so we'll get 1/2 a year 2013, full year in 2014, that represents the full year Illinois rate case. So again, simple mathematics on how you get to that number. The fee in both 2013 and in 2014 represents the Integrys Energy Services margin, so Dan's slide, I believe, in 81 and 82. The natural gas and electric margin growth in 2014 to 2015. So those come off of Dan's schedule. AMRP rider recovery both in 2013 -- I'm sorry, 2014 and in 2015. The AMRP rider recovery begins in 2014 under the legislation, continues into 2015. So that's going to be a positive impact in both years. The last piece is ReACT, Larry talked about that, the $275 million ReACT project ramping up in 2014. Basically, most of the capital expenditures are spent by the end of 2015. So again, increasing returns in both of those years. But again, we have to pay for it and that represents at dilution of both 2013 and -- in 2014 and in 2015. Again, we're issuing $75 million plus in 2013. That's 1/2 year, so you take a full year impact in 2014 plus any equity issuances in '14, that represents of the '14 and then the '15 pieces continue. The hybrid piece G represents the hybrids that we're going to issue this year. So the G represents a full year impact of the hybrid. So the hybrid is affecting earnings guidance in 2013 and as a full year impact in 2014, that represents item G on this graph. Finally, the decoupling reversal for 2014. In 2013, we had about a $0.12 adjustment in the first quarter, that was recognizing reversal of a reserve we had set up in 2012. So it's a onetime item. So to adjust 2013, we have to take it out. So that's just basically making 2013 paying up the onetime item. So again, that puts us in the middle of the 2014 range. And then the one last thing in 2014 to 2015 that I haven't talked about is the deferred Fox earnings. Again, going back to that slide, to 2013, the earnings I could not record in 2013, I will begin recording and we're anticipating that we'll get that into rates in 2015. And so that will generate returns in 2015 as well. So again, walking through the deferred Fox earnings Integrys Energy Services margins, AMRP recovery and the ReACT, finishing up ReACT and then the hybrid gets us the 2015. Again, these are the big items. The $0.10 per share bigger items. Not on here is ATC, not on here is our SMRP. Again, those will contribute -- not on here is regulatory lag. To the extent we can have any regulatory lag, we're going to say regulatory lag that could be an impact. So those are the pieces I hopefully that all kind of make sense and you understand how we feel fairly confident in achieving our 4% to 6% growth goal by 2015. The second piece of any total shareholder return analysis of course, is dividend and we have paid dividends for 73 consecutive years, going back to 1941. We have maintained the dividend flat through 2009 as our earnings grow and our dividend payout ratio declines into our peers, so that chart. So if you look on this chart, the top column going up, that's the one you've already seen, that's the 4% to 6% growth in earnings and doing the math, again, there's no new news in this chart, if you're just doing the math of the 4% to 6%. Assuming $2.72 dividend per share, you will see the payout ratio declining to within the utility peer average dividend range of 65% to 70%. So again, hitting this earnings growth target of 4% to 6% results in a payout range of 65% to 70% by 2015. What's beyond 2015? We talked about 4% to 6% through 2015, what's beyond 2015? And just to summarize what you've heard, Larry talked about generation opportunities and continued growth in investment and rate bases given where we stand competitively on the electric side. We feel that, that is a recoverable rate. Continued distribution system upgrades both in the gas and the electric side. Natural gas transmission upgrade as needed to reach the requirement. And finally, ATC and DATC. If you go back to the ATC growth slide, you can see it was beginning to accelerate in the latter half of this decade. And so that would be generating returns for us. For the nonregulated side Integrys Energy Services growth in volumes and unit margin improvements, generating earnings growth beyond 2015. And finally, the nonregulated -- I'd like to call them seedling beaver nuts [ph], the solar growth and the Trillium CNG. Some of those are bigger seedlings than others but definitely, opportunities for growth beyond 2015. So to summarize the key financial takeaways. Substantial growth in our rate base supports the 4% to 6% growth target through 2015. Our strong financial position on credit rating support this growth via balanced debt equity financing plans. And finally, our dividend payout ratio at the current with, annual dividend rate is expected to decline to utility peer industry averages as our earnings grow. With that, I will turn it back over to Charlie and I too look forward to your questions.

Charles A. Schrock

Thank you, Jim. We appreciate how you make it all look so simple. So let me summarize very briefly before we open up our Q&A session here. As you heard today, we are very well-positioned at the moment. We have a robust plan in our utility side of the business. Frankly, all approved or covered by legislation by our various jurisdictions, which will drive our earnings growth. Our nonutility businesses, are poised for growth, as you heard. Our dividend payout -- I'm reading Jim's slide. Our nonutility businesses are poised for growth and I'm privileged to have a very experienced management team that can execute on the plans and make sure that all this happens. So with that, we are ready to open it up for questions. Steve, do you have any introductory remarks here?

Steven P. Eschbach

So I'm going to date myself when I the following comments and for those on the webcast, you can't see what's going on here but I feel like Jim laying and I feel like there should be certain theme music playing. My father executives are coming onto the stage and they're sitting on bar stools. So during the Q&A, I will not refer to them by name, but will be executive #1, executive #2, executive #3 and so on. And I also have up here, a tablet because I mentioned before we went to break that we will also take questions from the web. And I have been corrected, it's not the lower right hand side of the webcast I think it's in the center-right. If you wanted to ask a question, just click on that button and you will ask a question through the web presence and it will be e-mailed to me here. I'll try to coordinate the questions so that they are topical. So if get a question from someone in audience and there also happens to be a question from the web that relates to what we're talking about, I'll go to a web question but I'll go back to take any and all of your questions here. Now we're scheduled to end at 11 but we have all the time. I think we have to about 11:30 until we have to depart. So we'll take as many questions as you would like. And by the way, on one final comment, again, since this is webcasted, I'm going to ask you to identify your name and affiliation when a microphone comes to you. And I see we have our first question on the left.

Question-and-Answer Session

Unknown Analyst

My name is [indiscernible] Coco [ph] with Lark [ph] Research. Could you talk about the economic dynamics in your operating regions and specifically, the impact that they have on your operations? For example, customer growth and volume growth and what your expectations are going forward?

Charles A. Schrock

I think you're probably referring mostly to our regulated areas but let me have Larry Borgard talk a bit about what we're seeing there.

Lawrence T. Borgard

I thought you were going to answer that, the way you started out. Our service territories never were kind of high-flying, strong, superstrong kind of growth area like Las Vegas or Florida or things like that. Obviously, our growth rates have slowed down as they have kind throughout the rest of the country. Our projections going forward are not to have all that much growth. I mean, very, very low single-digits. Anecdotally, if you look at kind of housing starts, for example, in Wisconsin, we are seeing the beginnings of a rebound. I think we mentioned that in our residential electric use on yesterday's call. Actually, a little bit better than other companies in Wisconsin. So we're 1%, 2% growth kind of at the most, which is getting back to kind of historical norms after being very, very flat for maybe 3, 4 years.

Charles A. Schrock

And can I just add that on the short term, the economic impact is muted because of the coupling mechanism. The coupling mechanism pretty much has all the jurisdictions. That covers the residential, small commercial and industrial customers. So the short-term impact and the economic impact is muted [indiscernible]

Lawrence T. Borgard

And that works both ways, declines as well as increases.

Steven P. Eschbach

Our next question comes from Ali and then we'll go up.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Ali Agha, Suntrust. I just want to clarify on some of the points that have come up in the presentation. First, on the regulated utility front, are we to assume that as we look at that 4% to 6% growth from '13 through '15 to support that 4% to 6%, are you assuming that the regulators you've released are all earnings that all ties [ph] return? There's no regulatory lag in the system and ROEs are what they currently are authorized? Is that the assumption in there?

Charles A. Schrock

Ali, I'll start off with kind of a general statement. As Jim told you on his chart on Page 101, the waterfall chart, we're starting from where we are this year, projecting with our guidance. So it puts us pretty close to authorized rates of return. And, Jim or Larry would you have any additional comments on that?

James F. Schott

I would just reemphasize that those aren't earnings guidance numbers and so there really isn't an assumption in there for that for whether we're earning except in -- and I would think as you said, we're starting with 2013 and that has us pretty close to authorize in 2015.

Larry Lee Weyers

Yes, maybe just a little bit more on that, Ali. We don't anticipate any significant degradation in the performance of our utilities. In fact, if anything, we've taken much of the volatility out with things like the legislative rider in Illinois, the coupling mechanisms that we have in the other areas. So we think we've got the utility to a good level and we expect them to maintain that level.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And the second question and the increments that we see there for the energy services business, I'm assuming that corresponds to the gross margin pickup that you've shown us earlier. Are there any additional costs that are flowing through that business or should we assume that incremental margin that you believe you'll capture is all flowing to the bottom line?

Charles A. Schrock

Ali, on that one, as you know, we've actually ramped up our operating cost in the marketing area, which is helping us build the volumes, and that was done mostly this year, is that right, Dan?

Daniel J. Verbanac


Charles A. Schrock

So we do expect margin growth and Dan, any comments concerns of how you feel on those?

Daniel J. Verbanac

Yes, just in those numbers that's shown on 101, there is some incremental O&M cost built into those but it's minimal because as Charlie said, we've invested in this business and a lot of those costs have come in, in 2012 and 2013. So on a go forward basis, we're going to get much more efficient on a per unit basis both on the gas and the power side. So to answer your question, there are some incremental cost --

Charles A. Schrock

Can I clarify -- no, those are straight up things. [indiscernible] charges only the major, that $0.10 a share has greater impact. So the extent there might be O&M costs, no, they are not embedded in that number.

Daniel J. Verbanac

Okay. But there will be some incremental O&M cost but the majority of those costs are already captured in '13 O&M.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

And my last question, Jim. To fund this program, could you give us some rough estimate of how much incremental equity you think you will need beyond '13 to fund the CapEx that you've laid out for us?

James F. Schott

Can you repeat the question, Ali?

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

You told us that in '13, you're assuming roughly about $75 million of equity through DRIP and another programs, perhaps some stock options to go with that. As we look at your funding needs for '14, '15 cumulatively, given the CapEx that you've laid out, how much incremental equity on top of that do you think roughly you would need to keep your capital ratios were they need to be?

James F. Schott

I think when we started off the year, we said we're going to have $45 million of equity issuance. That's what normally occurs through the DRIP and the step [ph] program. We would expect that to continue into 2014 and into 2015. We would expect some equity issuance for the equity component of the plan and then, some dribble. But again, those aren't -- it's not large number. So at least $45 million and a little bit more than that. $45 each year.

Steven P. Eschbach

Before we take our next question, I just want to alert those on the webcast. As the questions are asked, we're trying to dial to the appropriate slides. So don't think you're having electrical misfires on your website, we are trying to get to some slides that we are answering your question with. We have another question, I think in the center middle. Right up there.

Unknown Analyst

My name Krimdol Klamador [ph] Capital Partners. I Have a question about the CNG business and maybe I'll split it in 2. One is more sort of the why you're in their business, what -- I mean, it's mentioning space because you have people Shell, you have other utilities, you have investors like People and [indiscernible]. So why Integrys? What gives you the impression that you can be successful in that business? Maybe you can put some color on that. And then more on the how side, I assume the plan is to be a pass-through on the gas side and then make a margin or maybe you can talk a bit more about how you approach the business, actually on things like pricing. And also should I think of this as like you're just trying to see what the growth could be or you have some specific growth targets that you could share with us? In a couple of years, you want x amount of stations with x amount of gallons or how should we think about this business?

Charles A. Schrock

That's a lot of questions. Let me start it off with maybe just a high level comment and I'll have Mark collects his thoughts kind of rattle through it. We really look at the business as a business that could use that would lever our skill set. That was part of what drove us in that direction. We're in the energy space, we're familiar with natural gas sourcing, we're familiar with the customer value proposition, those sorts of things that we thought we were actually suited to enter that space. So that's kind of as we look at it, it was a way to diversify our nonutility portfolio and into an exciting space that we think is going to grow. So let me stop there and let Mark finish the question.

Mark A. Radtke

Sure. So as Charlie said, a lot questions in there. In terms of where we're going. I mean certainly, we have a plan that has targets associated with it. Frankly, we'd prefer not to share that because it is something that when we looked at this, we thought, this makes a lot of sense for the country, it makes a lot of sense for utilities, it's a nice -- the thing about compressed natural gas is that it almost always connects to the distribution system. So it's some of the first essentially, new application for the products that we deliver to our customers that we've seen in a while. In terms of where we're going, we certainly think that having regional scale is important but it doesn't translate into a requirement of having national scale. I mean, there are going to be small players out there like we see in the marketplace today. They don't keep a competitive environment. I mean, you asked a question about how we price. We need to price competitively with what everyone else is doing in the marketplace. And frankly, I don't want to put targets out there because I don't want to suggest that, look, this is a plan that we have to hit. This is something of a covering play for us. Jim characterized this as seedlings. We think it's an interesting business that can add a lot of value but it's in its early stages and we need to respond to how that environment changes as we work through it. So I think that's the way it would be most appropriate to characterize our thinking.

Charles A. Schrock

A question in the back. Jay?

Unknown Analyst

Jay Rames [ph] of Beatriz [ph]. On the payout ratio, what payout ratio would you feel comfortable with to begin raising the dividend again? And secondly, is that a payout ratio on total corporate earnings or just on the utility earnings?

Charles A. Schrock

We've talked about payout ratio commensurate or in line with our utility peer group. And as Jim showed on the chart today, looking at that range being in the 65% to 70% range, there's a lot of considerations involved when you think about the dividend in terms of we look at not just this year or next year's earnings, but kind of a long-term view, make sure that our plans will fit whatever we do. We can't make any promises, of course, because the dividend is a really a Board level decision, with management's involvement, of course. And our view, as we've been saying is as we come into the range with respect to our peers. We'll take a hard look at it. And we'll do what we think is the appropriate thing to do based on the whole context of the situation. And Jim, any additional comments there?

James F. Schott

Well, just to add that it does -- this ratio assumes -- this is the payout ratio of the total company, not just utilities, so it doesn't include our nonregulated businesses. But again, at 10%, it's not going to affect [indiscernible]

Steven P. Eschbach

Any other questions from the audience? Sam near the back?

Unknown Analyst

Sam Rockwell [ph] of Energy Income Partners. The ReACT technology that you're installing at that coal station, you mentioned that, that's fairly new technology. Can you talk a little bit about the risk management around that? Does the vendor bear that risk? How do you work that out with your regulators?

Charles A. Schrock

I'm going to have Larry talk a little bit about the execution of that and how we manage that risk but the ReACT technology has actually been around for 15, 20 years. It's mostly been in Japan and Europe. So this is the first application at a commercial scale in the United States. We've done a lot of diligence around this and were pretty excited about it as well confident that it's going to work for us. Larry, you want to talk a little bit about how manage the site?

Lawrence T. Borgard

Yes. Maybe just on a technological level first. I want to Japan to visit the site because if we're going to spend $275 million of our customers' money, I want to know what we're looking at. And it is amazingly simple. I mean, I really do think the chart probably put up there, did it a disservice because when you go on the site of the plant in Japan, it's not a high revolution like a typical turbine generator set, there's not a lot of noise, there's not a lot of vibration. There's not a lot to go wrong, literally. So we're comfortable with the technology. We've spent several years doing our due diligence on this technology. The vendor that we're working with, we just signed [indiscernible] I guess I just did say signed the contract. And there's some sharing associated with cost overruns there. The commission in Wisconsin in approving the project gave us kind of a 5% leeway instead of we're going to be outside of that 5% band, they want us to come in and tell them why and what the issues are so...

Charles A. Schrock

Maybe just a follow-up comment. One of the benefits of the ReACT technology, since it's multi pollutant [ph] we don't need to install a scrubber and an SDR [ph] it's control sock knocks [ph] and mercury, it's all contained in one. And with that, comes significant economies of scale. And that's another piece of it. So we have strong support from the regulator based on that value proposition.

Lawrence T. Borgard

I failed to mention that in my prepared remarks. But we do view less than 3 as -- remember I talked about the smaller, older units that aren't going to be around a long time, the larger, newer units that will be -- we do view less than 3 as kind of the long-term winner and therefore, we're comfortable with the investment at the 275-ish million dollars.

Charles A. Schrock

Larry, you need not worry about an 8-K following this. Everything discussed at this meeting today meets regulation fair disclosure, so no problem.

Another question from the audience?

Dan Klinger

Dan Klinger from Bank of New York. I wanted to ask just some questions on the Kewaunee nuclear facility given your experience there and maybe additional color on the decision to shut it down and whether you think at some point in either the near or more distant future, there's some -- that plant comes back in some shape or fashion and would you be interested in reacquiring the plant to meet your needs post 2015?

Charles A. Schrock

I'll have Larry help me through some of the answers but first of all, we cannot be part of Dominion. Dominion owned the plant since 2005 and as Larry said, did a great job in running it. Our side of the equation was the CPA and we look through the eyes of our customers in terms of what was the best thing to do for our customers. And as Larry said, there are a number of issues involved and we just couldn't come to terms that -- I got to get a glass of water, go ahead.

Lawrence T. Borgard

Yes, so when we sold the plant, we sold the plant for a number of different reasons. Number one, in the big scheme of things, as I mentioned, the relatively small plant in the 500-megawatt kind of class plant, when you're talking about 1,100, 1,200, 1,500-megawatt, kind of unit. It's a single unit site and even when we own the portion of it and operated it, we only took 60% of the output. So for us to take what we call kind of shaft lift on the full output of the unit, I think the chart that I had about our generation capacity, I think of ourselves as about a 2,500-megawatt kind of need system. You're talking over 500 megawatts on 1 shaft. We've got some of that in the Weston 4 but we've offset that risk with the PPA or an ownership share with Dominion. When you put 500 megawatts on 1 shaft, that's a problem for a 2,500-megawatt system. As Charlie mentioned and since he was out there, he knows this plant kind of inside and out, we do believe this plant would run effectively, that it really was a well-run plant by Dominion. But I just would struggle to see us purchasing that plant in the future.

Charles A. Schrock

So Dominion did announce that they do intend to decommission it and I have not seen a specific timeline. But to your question around do we see ourselves perhaps getting back to this particular plant, if Dominion decommissions it, it's unlikely that we'll come back at it.

Steven P. Eschbach

Any other questions from our audience? Right through the center.

Paul Bornstein

Paul Bornstein, Black Diamond. I just had a question of the Solar business. Just curious whether the grants and tax credits and other things that you're getting, which is noticeable, whether that's -- you're seeing any change there in the marketplace from the states slowing down or the government? And then is there any changes going on in the contracts to take the power away? Because obviously, that makes it worthwhile and because there's a number of companies looking to get a hold of contacts and the incentives I'm just wondering if that's starting to change at this point or you see it continuing into the future?

Charles A. Schrock

I'll start out and then I'll let Dan kind of put in some color here. Obviously, we're very careful when we enter into one of these PPAs or projects with the solar facilities. And as you suggested, we tend to go where those incentives exist. So New Jersey, Arizona and California, those types of places. But we do a lot of work to make sure that the regulatory infrastructure there or the support, the foundation for these projects is stable enough and strong enough to warrant our investment in the project. There's no guarantee for the future because you don't know what these commissions might do but I would say, from my perspective, we're not seeing rapid changes going on. And let me stop there and let Dan kind of fill-in.

Daniel J. Verbanac

From a tax credit standpoint, obviously, the ICC goes through 2015 and what we're seeing is different dynamics in different states. For example, like in Massachusetts today, they're in the process. In fact, over the last week, they've implemented their process where they're requiring low serving entities like ourselves and the low utilities to actually add more Solar to their renewable portfolio on an ongoing basis. So that market is requiring more solar. And then you have different dynamics for example, New Jersey, Connecticut, so the states that have been strong in the past continue to be strong. Other states, we really haven't seen a lot of change over the last, I'll say, 6 months or so. To answer your other question as far as contract, we haven't seen a lot of changes there. We've been able to contract up as I mentioned, with long-term PPAs and those have stayed with us. We've had parties inquire about purchasing some of our assets, but those are long-term investments for us. The other thing that's happening and maybe Larry or Jim can comment on that, in certain regions for example, in Arizona, there's been a push on the regulated side to add some additional regulation around the cost of this distributed generation for those customers that have it. And most of that has been looked at on a go forward basis. So if some of those changes do happen, we feel pretty comfortable with our investment today, then that's going to take some time for that industry to sort through all of that.

Steven P. Eschbach

I've been monitoring my email, I don't see any questions from the webcast. Are there any other questions from the audience? Center middle, I think there's another one.

Unknown Analyst

Jason Fennel [ph] with Resindental [ph] Investments. I see that the trillion capital expenditures are expected to double from 2013 to 2014. Maybe you could talk about what the visibility is into that and what the returns you hope to achieve are?

Lawrence T. Borgard

Actually, I got that similar question at the break and the reality is that we don't have a lot of visibility into that capital spend, right? I think actually, if you looked at our previous quarter, capital projection, it was up substantially, maybe like $40 million I think, in the first quarter release. And that's just a function of responding to the timing in which customers want and need to have stations built. Second half of last year, first half of this year, the rates, kind of the enthusiasm, I would say, among the transportation industry really slowed down quite a bit, anticipating commercial release of Cummins Westport 12-liter engine. And when that got delayed, it kind of sent shockwaves through the industry. But with commercial deliveries now occurring, people can't have us build stations fast enough for them. That said, going forward, are we looking at what's essentially pent-up demand from those that had already made that decision? They were just waiting for all the pieces to fall into place or have we really reached the tipping point where that 12-liter engine satisfies the needs of a broad-base of the freight transportation industry. I don't think we're going to know that for a couple of quarters and then we'll get some sea legs and understand a little bit better, what expect the rate of capital commitment to be. In terms of return, it's a business that carries with it more uncertainty than our utilities. So we certainly expect to see returns north of the regulated utility types of returns.

Steven P. Eschbach

Any other questions from the audience? We have one here on the left. By the way, Jonathan, you sent one in through the web. We'll get to your question next.

Unknown Analyst

Susan Mitchell, Scarsdale Equities. I was curious, it's sort of a strategic macro question. A couple of times in different sections of your business, you said that in this era of low commodity prices and therefore, also low capital cost, very competitive but it's a good time for the industry et cetera, et cetera. I'm actually more familiar with high capital cost industries like oil and gas and mining. They have been experiencing huge cost overruns on the capital cost side. So I just wondered how you're avoiding those.

Charles A. Schrock

Just a clarification, I think it was Dan Verbanac who commented on the low capital cost environment in the retail part of the business. Our utilities, obviously, are very capital intensive. In terms of the cost overrun or managing the cost that we face, one of the things that I think we've done a pretty good job as a company is project management. And I'll point back to here at Weston line that Larry was involved at the beginning and then that we helped throughout in our Weston 4 project with the bottom line in 2008. Both came in on-budget and on schedule and I think it's because we have a very strong project management method. As we go forward, the types of capital cost that we laid our are almost kind of like running costs. So the SMRP project, the system modification project is kind of a cost per mile, same with the AMRP. Now, we obviously need to control those costs as best as we can but it's not like a project with a fence around it where you say we're going to build this for a certain amount, it's kind of a T&M type of a thing. Larry any additional cost?

Larry Lee Weyers

One of the things we try to do when we can is to spend a lot of time upfront, doing a lot of planning before we make the commitment. We found that just going in with the construction estimates without getting bids, for example, leads to cost overruns down the road. So to the extent that we can and we can always do that. To the extent that we can, we put in a lot of time upfront, designing processes, getting kind of firm commitments or a consolidation or a customer system, for example, is a project where we spent literally a couple of years planning out all the processes before we made the commitment to consolidate our CIS or customer information systems. That is a traditionally very nasty kind of process to go through if you're a utility. But the more time we can spend upfront, we think that pays dividends on the back end.

Daniel J. Verbanac

And Charlie, just one thing to clarify, when it mentioned low capital cost, what I really meant there is on the nonregulated retail side of the business, it requires significant credit to operate in that business because you're buying commodity in the marketplace so you have to put credit. And therefore, there's got to be capital behind that. So that capital cost today is much lower than it was for example in 2009, 2010.

Steven P. Eschbach

This question comes from Jonathan Prego [ph] at Wolff Research, and I know we're competing today with 4 other utilities who are releasing earnings and having conference calls. He has 2 questions. The first one is can you give an overview of the competitive retail market today? I know this last question sort of addressed that. Is there anything else you want to recap for Jonathan who may have been accurate during your presentation?

Daniel J. Verbanac

You know really, nothing more enlightening than I'd talked about earlier, which is we continue to see market depression[ph] and over time, our strategy is to continue to grow, mostly driven by organic growth.

Steven P. Eschbach

And Jonathan has another question. What do you think of the recent FERC ALJ recommendation on transmission ROE?

Charles A. Schrock

Not much.

Steven P. Eschbach

So simply put.

Charles A. Schrock

I think he's referring to a recent decision where the ALJ had recommended a downward movement in ROE. We've talked -- Larry talked a little bit about the continent independent system operator ROE at 12.38%. We are not aware of any claims or filings that's challenging that particular one. And as Larry mentioned, he works in a transmission company which we own 34% of, has a negotiated rate which is 8 -- 0.18% below the Miso [ph] ROE so that's why it's at 12.2%. And again, we have not had, to my knowledge, any pressure of filing regarding those 2 ROEs. And then thirdly, as Larry mentioned, just a year ago, FERC authorized the Duke APC joint venture, a 12.38% ROE.

Steven P. Eschbach

I don't have another question from the web. I will be happy to take another question from the audience. Upfront center.

Unknown Analyst

Matthew Zuckerbrown [ph] from American Portfolios. A general question. No one seems to comment on the change in lighting technology and the impact on utility usage. Here's my chance. I'd like to comment. And secondly, similarly, you're using polyethylene for distribution. Polyethylene plastic for distribution, what's the cost of that? Are they really comparable to a more durable material over time?

Charles A. Schrock

On the first part of your question, when Larry talked earlier about our growth projections on the electric side of the business, which are pretty flat, low single digits, that factors in energy efficiency and conservation. So we actually think about and estimate what the impact is of LED lighting and modern lighting technology as well as other sources of energy efficiency and conservation and that's kind of built into our projections. On the polyethylene, I'm not an expert but I'll let Larry comment on that.

Lawrence T. Borgard

Well, I'm not a materials expert either but the plastic pipe that we put in the ground today is really kind of state of the art. Now when we first started using plastics way back in the '70s and 1960s and stuff like that, there were some bad plastic out there. And those plastics are well known. We've done some analysis on that and we get them out of our system just like most every other utility that I know of does. But the plastic we put in the ground today, we expect to have a life as long or longer than the metal product that we put in the ground because the metal products are prone to corrosion and the plastic products aren't.

Steven P. Eschbach

Again, I don't see any other questions coming from the webcast participants. Are there any other questions from the audience? Center again. Center middle.

Krim Delko

Yes and maybe just a follow up on the lighting question. There's a lot of talk about new technology in the energy space such as -- and I don't want to use the word Smart Grids because it means a lot to many people. But let's say, there are new technologies being used to optimize distribution and demand and things like that, where do you stand in that? What does that mean for you as a utility? This is an opportunity to the threat, how should we think about this?

Steven P. Eschbach

Before you answer, just identify yourself again for the webcast.

Krim Delko

Krim Delko, Orange Capital Partners.

Lawrence T. Borgard

I'm not a big fan of using the term Smart Grid either because you could ask 5 of us up here and we'd have 5 different answers to what we think Smart Grid is but in terms of deploying technology on our -- largely on our distribution system, we can talk separately about our generation systems. But we were a relatively early adopter in automated meter reading, AMI, I think we call it today. So back in the '90s in Wisconsin, we changed out all of our both electric and natural gas meters to be read. Electric meters are now read over the power lines so we don't have somebody walking into your backyards reading your meter anymore. Natural gas meters in Wisconsin are read via a radio frequency technology. Similarly in Chicago, we have a radio kind of technology. So that's 1 component of what some people talk about in terms of Smart Grid. So we can see customer consumption data and time of use and we can design rates around the time that our customers use certain levels of electricity and potentially put off major generation expansions. I have another brilliant comment and I've lost it.

Charles A. Schrock

Let me continue this discussion and I'm sure you'll come to [ph]. In terms of automation our distribution system, part of our system modernization project is for about 400 miles of our distribution system in northern Wisconsin, we're looking at putting in some enhanced detection and monitoring capability, which is in line with what some people refer to as Smart Grid. The other comment I was going to make, not to address it too much, but we ran in 3 or 4 pilots in Wisconsin around energy efficiency conservation and Smart Grid technology. And interesting results, we didn't get a lot of traction from our customers in terms of really embracing it. We learned a lot. We learned a about some of the things that our customers like and some things they just didn't care for at all. So they were good pilots in that respect, but in terms of a resounding support for the Smart Grid type of technology, we really didn't see that.

Lawrence T. Borgard

Yes. So that was the other thing I was going to mention. In terms of our SMRP project -- and again, we don't like to throw around buzz words like self-healing systems but largely, the automation that we're putting in is intended to clear faults on the distribution line without having to roll a truck. So we'll tie 2 sources of energy together and the system will automatically determine where the fault is, isolate the fault, so we don't have to necessary roll the truck right away. Those are the kinds of things that we're doing. Again, we don't like to throw around the buzz words, but we don't view ourselves as leading edge technology experts. We like to think of ourselves as fast followers. So if somebody else proves it, let them invest the money and then we'll come in right on their heels and deploy.

Daniel J. Verbanac

Just one comment, Charlie. On a more macro level from a nonregulated standpoint, if you consider smart readers part of the Smart Grid, what that allows us to do is provide more innovative solutions and products. For example, in Texas today, where there are some smart meters down at the residential level, there's products like pay as you go, kind of use your credit card type things. So those are the types of things that we look at as we look at Smart Grid moving forward.

Steven P. Eschbach

Terrific. I have no other webcast participant questions. Are there any other questions from the audience? Okay. Again, to put my comments in perspective that's logistical and very non-impactful. For those of you that were willing to spend this time with us, we have a parting gift for you. I understand that we are supposed to get showers today, so there is an umbrella for you to take on your way out. So please be sure to make sure you pick up one of those on your way out. Our presenting executives as well as other executive colleagues will be around for a little while if you want to interact with them before departing back to your offices. Before you take off, I'm not giving any final remarks, because that's Charlie's role today, so thank you again for your participation here. Charlie, I'll leave it up to you to give the closing remarks.

Charles A. Schrock

Thank you, all, again for your participation and your interest in the company. As you've heard today, I think Integrys is well-positioned for growth and we have an exciting future in front of us. Thank you very much.

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