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Integrys Energy Group (NYSE:TEG)

Q4 2013 Earnings Call

February 27, 2014 9:00 am ET

Executives

Steven P. Eschbach - Vice President of Investor Relations

Charles A. Schrock - Chairman and Chief Executive Officer

James F. Schott - Chief Financial Officer and Vice President

Daniel J. Verbanac - President of Integrys Energy Services Inc

Lawrence T. Borgard - President and Chief Operating Officer

Larry Lee Weyers - Former Executive Chairman of the Board

Analysts

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

Charles J. Fishman - Morningstar Inc., Research Division

Maurice E. May - Wellington Shields & Co., LLC, Research Division

John Alli

Operator

Welcome to the Fourth Quarter 2013 Earnings Conference Call for Integrys Energy Group Incorporated. [Operator Instructions] At the request of Integrys Energy Group, today's call will be recorded for instant replay. I would now like to introduce today's host, Mr. Steve Eschbach, Vice President of Investor Relations at Integrys Energy Group. Sir, you may now begin.

Steven P. Eschbach

Thank you very much, and good morning, everyone. Welcome to Integrys Energy Group's fourth quarter 2013 earnings conference call. With me today are Charlie Schrock, our Chairman and Chief Executive Officer; Larry Borgard, our President and Chief Operating Officer; and Jim Schott, our Vice President and Chief Financial Officer. Other executives are also available for the question-and-answer session at the conclusion of our formal remarks.

The slides supporting today's presentation and an associated data package are located on our website at www.integrysgroup.com, select Investors, select Presentation, and then Today's Presentation.

Before we begin, I will advise everyone that this call is being recorded and will be available for audio replay through April 30, 2014.

Now I need to direct you to Slide 3 and to point out that this presentation contains forward-looking statements within the definition of the United States Securities and Exchange Commission's Safe Harbor rules, including projected results for Integrys Energy Group and its subsidiaries.

Forward-looking statements contain factors that are beyond our ability to control, and in many cases, we cannot predict what factors could cause actual results to differ materially from those indicated by forward-looking statements. Except as may be required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements contained in this presentation, whether the result of new information, future events or otherwise.

This slide is a condensed commentary on forward-looking statements, and you are encouraged to read and understand the more specific language that is contained in our filings with the SEC, the Forward-Looking Statements section of yesterday's news release and Slide 52 in the Appendix of this slide deck.

Slide 4 indicates that today's presentation contains of non-GAAP financial information related to diluted EPS adjusted and adjusted earnings and/or loss. We believe that these are useful financial measures for providing investors with additional insight into our operating performance because they eliminate the effects of certain items that are not comparable from one period to the next. Please review the text of this slide for more information regarding these non-GAAP financial measures.

I will now turn our call over to Charlie Schrock. Charlie?

Charles A. Schrock

Thanks, Steve. Good morning, everyone. And thanks for joining us on the call today on yet another barely cold morning in the Midwest. I'm sure we've all experienced some effects of the polar vortex, or maybe I should say polar vortices. I'd like to thank all of our employees who have been working in exhaustively in brutal weather conditions to make sure our systems keep running and that our customers have the natural gas and electricity that they need. I'm sure I speak for all of my colleagues in the industry and thanking our employees for their dedicated tireless efforts.

Next, let me officially introduce Larry Borgard as President and Chief Operating Officer for Integrys Energy Group. Larry's new role began on January 1 and broadens his responsibilities to include our nonregulated businesses and many of our shared services groups in addition to retaining his responsibility for our 6 regulated utilities. As many of you know, Larry from his previous role as President and Chief Operating Officer, utilities for Integrys and his recent role as best Chairman of the Board for the American Gas Association. Larry's expanded executive role draws on his 30 years of outstanding leadership experience with our regulated utilities. And this is a natural step in our succession planning process and positions us well for the future.

Turning to Slide 5. I'm pleased to report that our fourth quarter and full year 2013 consolidated financial results were at the higher end of the expectations we set in our third quarter earnings conference call last November, and we are significantly better than our financial results for the same periods in 2012.

Our utilities performed well and are -- and continued to be the core of our earnings. Integrys Energy Services met the expectations we set in our last earnings conference call. The volumes were up year-over-year for this segment, but margins were impacted by competitive pressures as we've discussed before. Jim will discuss financial results in more detail.

As it is customary during our fourth quarter call, we are introducing guidance for the year. Our consolidated 2014 guidance for diluted EPS adjusted is within a range of $3.50 to $3.75. Jim will provide more details during his formal remarks. We're also taking this opportunity to update our earnings growth projection. As you know, we've had positive developments at our utilities, creating attractive, prudent investment opportunities. Based solely on our strong utility growth, we are projecting that we can grow Integrys Energy Group's consolidated earnings in the range of 4% to 6% per year for the foreseeable future starting from 2013. We believe Integrys Energy Services could potentially grow earnings if unit margins improve, but this is difficult to predict so we are not including any growth from Integrys Energy Services in this projection.

Now I'll provide a brief update on our operational activities. Starting on Slide 6, for Peoples Gas, the Natural Gas Consumer Safety & Reliability Act became effective this past January 1. Pursuant to that legislation, tiers for the qualified infrastructure plant rider or Rider QIP were approved in early January. We filed our first monthly customer surcharge request for Peoples Gas on February 20 for qualified assets placed in service in January of this year. The surcharge will appear on our customer bills beginning on March 1.

This process will continue in subsequent months. All surcharges are subject to Illinois Commerce Commission review in April of the following year. This new legislation for Peoples Gas is in effect for 10 years and is broader in scope than our previous rider, as it includes other qualified infrastructure investments in addition to our accelerated main replacement program.

Earlier this month, we filed with the Minnesota Public Utilities Commission for approval of previously announced acquisition of Alliant's Minnesota natural gas utility assets. The joint filing with Interstate Power and Light, Alliant's Minnesota subsidiary, is not subject to any formal timeline. But both parties have requested that the transactions close by the end of 2014, so we expect the necessary regulatory approvals before then.

Turning to Slide 7, the major item of note for the Regulated Electric Utility segment is that construction has begun on the ReACT multi-pollutant control installation for our Weston 3 power plant. In addition, we firmed up our bid specifications for this project and revised our cost estimate from $275 million to $345 million. The cost increases are based on increasing pollutant removal capability to improve our operating margin and to accommodate some additional engineering, design and fabrication costs.

We informed the Public Service Commission of Wisconsin last month. Construction will begin this spring on upgrades to our distribution system in the northern part of Wisconsin Public Services territory. We've named this initiative our System Modernization and Reliability Project or SMRP. The expected SMRP costs are included in the revenue requirement in Wisconsin Public Services recent rate order for 2014.

The Columbia environmental retrofit project is almost complete. Wisconsin public services share of the anticipated total project cost will be about $200 million. We expect that this project will be in service by the end of the second quarter of 2014.

Slide 8 summarizes the key developments regarding our rate case activity. Rate cases for Wisconsin public service, Upper Peninsula Power and Michigan Gas Utilities were completed in late 2013, with new rates effective January 1. For Minnesota Energy Resources, interim rates were also went into effect at January 1 and a final decision is expected in late 2014. Details can be found in the Appendix on Slides 25 through 29.

Yesterday, we filed rate cases for Peoples Gas and North Shore Gas with the Illinois Commerce Commission. Key drivers for these rate cases include a full recovery of the 2013 and 2014 capital costs primarily related to the Peoples Gas Accelerated Main Replacement Program or AMRP. While future AMRP costs will be recovered under the Rider QIP, this rate case is needed to recover the full year of 2013 capital costs which were pre-Rider QIP. The 2015 test year will ensure that all the AMRP costs, both pre-Rider and post-Rider, are in rates. In addition, we are requesting ROE of 10.25%, an increase from the current authorized ROE of 9.28%. Additional details of these rate cases can be found in the slides on Appendix 30.

We expect to file the Wisconsin Public Service general rate case in April 2014 for our Wisconsin jurisdiction, and in the third quarter for our Michigan jurisdiction. This will be Wisconsin Public Service's first rate case in Michigan in 7 years. Recovery of the deferred Fox Energy costs included in the 20 -- including the 2013 equity earnings will be included in the Wisconsin Public Service rate case filed in Wisconsin.

Turning to Slide 9. We're anticipating closing the sale of Upper Peninsula Power in the third quarter of 2014. Although we were not looking to sell Upper Peninsula Power, we were approached by a prospective buyer and we were able to achieve a transaction that worked for both parties.

This is consistent with our asset management strategy where we regularly evaluate our assets and other opportunities and execute when it makes sense for our shareholders, our customers and our employees. The net after-tax proceeds will reduce equity and debt issuances needed to fund rate base projects at our other regulated utilities.

I will now turn the call over to Jim Schott. Jim?

James F. Schott

Thank you, Charlie, and good morning, everyone. I'll cover our financial results for the fourth quarter and full year 2013 in a little more detail and discuss our financial expectations for 2014.

Let's begin the financial review by turning to Slide 10. In the fourth quarter of 2013, we proposed a diluted EPS adjusted of $0.99 versus $0.89 during the same period a year ago. The increase was primarily driven by rate increases at Peoples Gas and favorable weather. As a decoupling partially offset by increased operations and maintenance expense. The year-over-year improvement was also primarily due to the rate increases for Peoples Gas and North Shore Gas, and weather and other decoupling. For the electric utilities segment, the quarter-over-quarter improvement was primarily driven by the rate case of Wisconsin Public Service. The year-over-year improvement was also primarily due to the rate case of Wisconsin public service, but it was partially offset by increased Weston 3 outage and electric transmission costs. For the Integrys Energy Services segment, unit margin compression was a primary driver over the quarter-over-quarter and year-over-year decline. The Holding Company and Other segments quarter-over-quarter and year-over-year decline was primarily driven by increased interest expense due to the new $400 million hybrid debt issuance in mid-August 2013. Segment comparisons can be found on Slides 38 through 51 in the Appendix.

Moving to Slide 11, we've updated our estimated capital expenditures for 2014 and 2015 and introduced estimated expenditures for 2016. These revisions include increased expenditures for the ReACT project at Weston 3, as well as refinements other anticipated investments at our natural gas and electric utilities. Included in the 2016 capital expenditures is the first year of construction costs for the proposed new generating unit at our Fox Energy Center.

Slide 12 is our estimate for depreciation by entity over the next 3 years.

Slide 13 is our revised projected rate base by segment for 2013 through 2016. I'd like to point out that we are expecting more than 35% growth through 2016.

Moving to Slide 14, we summarized our finances completing -- completed in 2013 and introduced our financing plans for 2014. As part of our 2013 long-term debt financings, $450 million was issued at Wisconsin Public Service in November at 4.7% with a maturity date of November 2044. Approximately $80 million of common stock was issued during 2013 through our stock investment and equity compensation plans.

As Charlie mentioned, the anticipated closing of the sale of Upper Peninsula Power, which will result in about $220 million and net after-tax proceeds, reduces the need for equity and debt financings in 2014 and 2015. Consequently, we've changed the sources of shares from our stock investment, dividend reinvestment and equity compensation plans from the issuance of new shares to open-market purchases of stock.

The only long-term debt financings we have planned during 2014 is for about $150 million at Peoples Gas. We will, however, continue to look for opportunities to call, reprice or remarket existing long-term debt as market conditions change.

Slide 15 reflects our long-term debt maturity schedule through 2020. The only debt maturing in 2014 is that Integrys Energy Group for $100 million on June 1, which has a current interest rate of 7.27%. Assuming the proceeds from the Upper Peninsula Power sale, we will not be refinancing this debt.

Slide 16 reflects the good news we've received in the credit ratings for the utilities. We just recently upgraded the credit ratings for Wisconsin Public service, Peoples Gas and North Shore Gas.

Slide 17 reflects our guidance for 2014 diluted EPS adjusted on a consolidated basis, which is in the range of $3.50 to $3.75, as Charlie mentioned earlier.

Note that the anticipated after-tax gain on the sale of Upper Peninsula Power of $0.60 per share is included in our Holding Company and Other segments, and we have removed that item in arriving at our diluted EPS adjusted guidance.

Slide 18 shows a waterfall from 2013 actual results to the midpoint of our 2014 guidance. This is similar to our Slide 101 from our Analyst Day presentation last August. These items represent the major changes we expect in diluted EPS adjusted from 2013 to 2014. And a supporting table is on Slide 19, so some of you don't have to go looking for your rulers. The first 3 items are identical to what we presented last August. For equity and rate base, a full year's impact of the Illinois rate case that was decided in June of last year, and the reversal of the decoupling reserve for Illinois utilities. The next 4 items are updated from our August presentation. Item D reflects the return on average 2014 Peoples Gas capital expenditures for AMRP. Item E is our Weston 3 ReACT AFUDC. These 2 items increased slightly due to the higher capital expenditures. Item F reflects dilution of $0.03 per share. This represents the full year’s impact of our average diluted shares from the equity we issued in 2013. This item is less than what we had anticipated last August as we are no longer issuing new common equity for our stock investment and equity compensation plans due to the anticipated sale of Upper Peninsula Power. And item G is a full year impact of the hybrid debt interest. New to this lock through is Item H, the fuel window for Wisconsin public service.

In the past few years including 2013, we've been able to retain the savings of the 2% fuel band before returning any excess to our customers. For 2014, the high-end reflects continuing to retain the savings, the low end assumes we will have to absorb 2% fuel costs. Also new is item I, rate case capture and other costs. These are cost savings, primarily operating maintenance expense, realized at the regulated utilities in 2013 that are now included in new rates and may not be repeatable in 2014. The last new item is regulatory lag at Peoples Gas and North Shore Gas. This is due to a number of things including a full year's cost impact of 2013 capital expenditures and increased operating and maintenance expense in 2014 over 2013. Recovery of this lag is included as part of our rate request we filed yesterday.

For quarterly guidance, most of these items will occur throughout the year. However, the full year impact of the Peoples Gas and North Shore Gas rate cases and the hybrid debt interest will impact the first 2 quarters. The reversal of the decoupling reserve will be a first quarter year-over-year adjustment. For capital recovery items like ReACT, AFUDC and the return on 2014 Peoples Gas capital expenditures, these increases will occur towards the end of the year as the capital cost pickup.

There are 2 other items to note. Last year, there was a $0.04 per share favorable tax benefit for Integrys Energy Services in the first quarter of 2013 that reversed later in the year. Do not expect this to recur in 2014.

Finally, an increase in the fixed charges at Wisconsin -- in the Wisconsin rate case was offset by a decrease in volumetric revenue. As a result, the first quarter will be down $0.03, $0.02 in natural gas and $0.01 in electric, which will reverse over the course of the year.

Regarding January 2014 financial results for Peoples Gas, North Shore Gas and Minnesota Resource -- Minnesota Energy Resources, the recent cold weather did not have a significant impact because of decoupling. For the other utilities, weather did possibly contribute to earnings due to increased sales, but that was partially offset by higher operating and maintenance costs also due to the cold-weather. Overall, January 2014 results for our retail energy marketing business were in line with expectations.

While February will also be colder than normal, we have not anticipated February's financial results in our 2014 guidance and assumed normal weather through the remainder of the year. As Charlie mentioned, we are updating our long-term EPS growth expectations of between 4% and 6% for Integrys Energy Group consolidated using 2013 as the base year. This projection does not include growth from Integrys Energy Services. As we have said in the past, this is an on average annualized basis over time and some years may be above or below this long-term target.

I will turn the call back over to Charlie. Charlie?

Charles A. Schrock

Thanks, Jim. Before taking your questions, I'll summarize our key investment highlights that are shown on Slide 20. The execution of our business plan for the Regulated Utilities remains on track. We continue to make prudent infrastructure investments in our utilities to provide safe, reliable and affordable service for our customers.

Our asset management strategy supports the pending sale of Upper Peninsula Power, which will significantly reduce equity needs over the next few years. Our 34% ownership in American Transmission Company continues to contribute to earnings as expected. Our guidance for 2014 diluted EPS adjusted on a consolidated basis is in the range of $3.50 to $3.75. We expect long-term earnings per share growth of between 4% to 6% on an average annualized basis, using 2013 as a base year for Integrys Energy Group consolidated. And given our solid long-term business plan in our portfolio of businesses, our current dividend is sustainable, and we expect our dividend payout ratio will decline to utility industry norms as our earnings grow over time.

We'll now open the call for your questions related to today's earnings and the 2013 financial summary.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Ali Agha from SunTrust.

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

I wanted to clarify a couple of points that I heard through the call. First off, given the new re-basing of your earnings growth rate from the '13 base, it implies to me that if I had used the previous growth rate targets from '11 through '15, that the implied '15 number under the old targets would look too high given this new re-basing. Am I correct in that math exercise?

Charles A. Schrock

Yes, Ali. Directionally, absolutely. As we look at it, we had assumed some growth from our non-utility segments that would get us well into that range. In fact, we may be able to hit the lower end of that range but we've been re-basing this based on what look -- what we're looking at for the next couple of years, and also for the foreseeable future.

Jim, do you want to add any additional comments around that?

James F. Schott

No, I think that's accurate. I think given what we were looking, we're going to be at the lower end of the range. And we do, at some point we are going to have to update the long-term target. So we chose to do so at this time. As Charlie mentioned, we've pulled out the increase of Integrys Energy Services at this time does not say that we won't have that growth but we're not forecasting it at this point.

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

Yes. And I think, Charlie, you would mention that -- maybe Jim, you mentioned, through the first cold months of the year, energy services was as expected. Can you elaborate a little more on that? We've been hearing anecdotally stories of energy retail marketers that had a very tough time with this polar vortex and the huge spike in prices demand what-have-you, so can you just elaborate a little bit more? I mean, should we expect a tough first quarter for energy services given the unusual weather?

Charles A. Schrock

No, Ali. As I mentioned, energy services did perform as expected. We probably cannot provide a lot of quantitative data, but I'll ask Dan to give you some color around on what it looks like.

Daniel J. Verbanac

Ali, our conservative hedging strategy certainty did perform well in January, as Jim mentioned. But there were certainly a few days we had to buy small amounts of power in the open market for our full requirements electric contracts. But our biggest issue was really the unexpected high ancillary cost that occurred in the last 10 days of January in one of the ISO's, although offsetting this was our natural gas business. Because we have few full requirements contract on the natural gas side, this business performed well with the higher demand and volatility. So for the most part, these 2 offset in January.

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

And my last question, Charlie, back to you. As you'd now look at energy services, you've taken out the growth forecast. It's not really contributing to your growth going forward, it's an issue that comes up very repeatedly with investor conversations. Do you still view this as a core business for Integrys, or do you have a view to reevaluate that business?

James F. Schott

No Ali, let me just kind of back you up a little bit are our strategy is really built around our regulated operations. So our regulated businesses are our core, and as you've seen, they continue to form well and provide the vast majority of our earnings and our growth. But we do like, as part of our strategy, being having a diversified portfolio. And in this sense, some nonutility investments, which I think provides opportunities or value in the form of some incremental income, as well as some of the intangible things that you and I have talked about over time with respect to risk management, line of sight into different markets and those sorts of things. So that's our overall strategy. So -- and as you know, we're always looking at all of our assets but that's how we look at it today.

Operator

[Operator Instructions] Our next question or comment comes from Charles Fishman from Morningstar.

Charles J. Fishman - Morningstar Inc., Research Division

On the cost increase at Weston 3, how -- what is the regulatory process in Wisconsin for getting the extra cost improved -- how confident are you that it's going to be approved, et cetera?

Charles A. Schrock

Well first, thanks for the question. I'll have Larry Borgard to give you a little more color around the process, but this was something that we had been working on for a while and making sure we understood the full cost and we're keeping in communication with the regulators in Wisconsin. Larry, do you want to describe the process?

Lawrence T. Borgard

Sure. We have been in communication with the Commission regarding the expected cost increase going forward. An order point in the initial application required us to go back to the Commission if we found that the cost is going to be above 5%, Jim?

James F. Schott

Excuse me, Charles, were you talking about the outage cost at Weston?

Charles J. Fishman - Morningstar Inc., Research Division

No, the CapEx for Weston. The CapEx is up about 25%, I think, with revised forecast. Or at least the forecast for that environmental CapEx.

James F. Schott

So the Commission order point required us to go back if we anticipate that cost will be above 5%. We do anticipate that at this point, so we've gone back to the Commission with that information. I would describe where the project fits in terms of next best alternative, it's still very attractive in terms of long-term cost to our customers. And the evaluation that we went through includes alternative pollution control equipment, as well as shutting Weston 3 down. We still do believe that this is the best solution for our customers in the long-term.

Charles J. Fishman - Morningstar Inc., Research Division

So the process is such that obviously the Commission's been notified formally but and I would assume you were discussing this even before that formal notification. But, I mean, it sounds like you feel pretty comfortable that there won't be any hiccups in getting this extra amount in the rate base, correct?

Charles A. Schrock

That's correct.

Charles J. Fishman - Morningstar Inc., Research Division

Okay. And then the acceleration of capital expenditures in Peoples Gas, that's just because with the new legislation, you're feeling more comfortable, and boom you stepped it up your program, correct?

Charles A. Schrock

That's also correct.

Charles J. Fishman - Morningstar Inc., Research Division

Okay. Now you've got a rate case of Peoples Gas scheduled. Once the quip is in place, which, well, the quip is now on place. What do you think the kind of cycle will be? I mean this rate case has come pretty quick, you just had one completed last year. Do you think it'll be extended going forward with the quip now?

Charles A. Schrock

Charles, well first of all, just kind of repeat what I mentioned earlier. This rate case was needed for a couple of different reasons. But one of the big pieces was to capture the investment that we made pre-Rider QIP. So we wanted to make sure we get that stuff built into base rates. Then going forward, you're right, the Rider QIP provides us a lot of the recovery of what you would typically see in a rate case, but there are other things that would drive those rate cases. So let me ask Larry or Jim, I guess, you're going to talk a little bit about this one.

James F. Schott

Yes, I think you're right that going forward, logistic -- as Charlie said, to get the 2013 -- rest of the 2013 CapEx in base rates going forward, once this rate cases completed, QIP is in place, the remaining drivers for rate cases would be O&M increases in ROE. And that would be it going forward. So the need for rate cases to fund the CapEx program would go away. So I think we've looked -- hopefully we can manage our O&M and look that these rate cases would become less frequent.

Charles J. Fishman - Morningstar Inc., Research Division

Yes. And if I look at Slide 18 and specifically Item J, that regulatory lag in Illinois, then I would assume based on your comments that, that bar -- there's always going to be a little regulatory lag, but that bar gets smaller in the future?

Charles A. Schrock

How I would look at it is that bar will turn green in 2015 with the rate release.

Charles J. Fishman - Morningstar Inc., Research Division

Okay, got it. Yes. Okay. But I mean, regulatory lag will still exist in Illinois, it'll just be a lot less once with QIP?

Charles A. Schrock

Well, this is a 2015 test year we filed yesterday. So we have 2015 capital cost. So there might be some regulatory lag if we don't get the rates in effect on January 1, which probably be more towards the end of January. So just that piece, but other than that going forward, we don't -- except for the OEM, we don't see that.

Charles J. Fishman - Morningstar Inc., Research Division

Okay. So Illinois is forward, I forgot that, I guess?

Charles A. Schrock

That's correct.

Charles J. Fishman - Morningstar Inc., Research Division

And then last question. If I look at your CapEx in 2016, you said the additional amount for WPS was because of the new unit at Fox, how much is that new unit rate -- how much in there. Let's see, of the 432 is that new unit?

Charles A. Schrock

Larry, do you have that number?

Larry Lee Weyers

It's just over $100 million -- think of it maybe as $110 million.

Charles J. Fishman - Morningstar Inc., Research Division

Okay. So once you take that out, you get a steady state of $320 million or so of normal maintenance CapEx if you will?

Charles A. Schrock

The normal run rate is probably a little bit lower than that. We've got some other CapEx in there. We've got our SMRP project that Charlie mentioned earlier. We've got an upgrade at Fox that is not part of kind of the normal run rate.

Operator

[Operator Instructions] Our next question comes from Maurice May from Wellington Shields.

Maurice E. May - Wellington Shields & Co., LLC, Research Division

Question on the rate base that you're selling and the rate base that you're buying. What is the rate base of the Apco property that you're selling? And then how much rate base comes with the Alliant purchase?

Charles A. Schrock

Well, Maurice, thanks for the question. I think we do have some of that data at hand here, I'll have Jim take a look at it.

James F. Schott

Thanks, Maurice. The rate base we're selling in Michigan is approximately $140 million and the rate base we're acquiring in Minnesota is about $10 million.

Maurice E. May - Wellington Shields & Co., LLC, Research Division

Okay. Okay, and assuming just 50-50 cap structure and a 10% ROE, are these both earning about their authorized ROEs, both of these properties?

James F. Schott

Michigan was. Minnesota will depend on the rate structure there. I think right now, I think Alliant indicated that they have not been earning their ROE. But it hasn't been justified filing a rate case. In the merger application, we've asked to have them adopt our current existing Merck rates and I think at that point it'd be close to earning its authorized.

Maurice E. May - Wellington Shields & Co., LLC, Research Division

Okay, okay. And then you got -- you have 3 rate cases completed in 2013 and what are the revenues of all 3 of them, the incremental revenues of all 3 of them?

Charles A. Schrock

Wisconsin Public Service, it was a $12 million electric decrease, but that was primarily due to the fuel window refund. We had a $4 million, if I remember correctly, gas increase at Wisconsin Public Service. We had a $62 million increase at Peoples Gas during the middle of the year. The Merck -- we have 3 other rate cases, MGU, Merck and Apco, and I want to say they were all in the $6 million range. I mean we have a slide on each of those, I think. There is detail on the slides, Maurice, back in the like 27, 28, 29, 30 in that range.

Operator

[Operator Instructions] Our next question or comment comes from John Alli from Decade Capital.

John Alli

A couple of quick questions. What is contemplated in your guidance for the deferred earnings from Fox?

James F. Schott

John, this is Jim Schott. That would be in 2015. That would be -- in the rate case we plan to file in April effective January 1, 2015. So nothing in the 2014.

John Alli

I meant for the CAGR, what are you guys asking for recovery over?

James F. Schott

We're asking for recovery over 4 years, which would be about $0.04 a year beginning in 2015.

John Alli

Got you, okay. And then I apologize, I missed the front end of the call but what is, I guess, unique about the gas business that helped in offset the, I guess, the tough time that the electric retail business was having?

Charles A. Schrock

John, you missed the best part of our call. I'll have Dan Verbanac, comment on that a little bit more.

Daniel J. Verbanac

The biggest difference is on the gas side of the business, we have very few full requirements contract on the gas side. And we're actually hold some assets on the gas side, both storage and transportation with the high volatility, we're able to optimize those assets as well.

John Alli

That's great. And obviously as you probably going to do much better because of the weather as well, in 1Q, on the regulated side.

Charles A. Schrock

Well John, remember that we do have decoupling in some jurisdictions but not others. So there's a muted effect to the weather. And as Jim mentioned in his remarks, in addition to the plus sides of additional revenue, we also are seeing additional O&M attributed to weather. So I just want to kind of give that context around the question there.

John Alli

Got you. And then lastly, the Upper Peninsula sale, are those earnings going to be included in '14 are not?

James F. Schott

We had the earnings for most of the year in 2014.

John Alli

Okay.

Operator

And I'm showing no further questions. I will now turn the call back over to Steve Eschbach for closing remarks.

Steven P. Eschbach

Thank you. Thank you for being part of our fourth quarter earnings conference call. A replay of this conference call will be available until April 30, 2014, by dialing toll-free (888) 402-8740. The full transcript of today's conference call will be available on our website at www.integrysgroup.com before the end of the day on Thursday, March 6. Just select Investors, and then Presentations. If you have additional questions, please contact me directly at (312) 228-5408 or Donna Sheedy at (920) 433-1857. Thank you.

Operator

Thank you for participating in today's call. The conference has now ended. You may disconnect at this time.

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Source: Integrys Energy Group Management Discusses Q4 2013 Results - Earnings Call Transcript
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