Wec Energy Group, Inc. · NYSE:WEC
Wec Energy — Wisconsin Energy — Investor Presentation (June 2015)
57 slides from Wec Energy's investor presentation, Jun 3, 2015
Slide 1: Wisconsin Energy Corporation June 2015
Wa Wisconsin Energy (4@™ Corporation June 2015
Slide 2: Cautionary Statement Regarding Forward-Looking Information
2 Cautionary Statement Regarding Forward-Looking Information This presentation contains certain forward-looking statements with respect to the financial condition, results of operations and business of Wisconsin Energy and Integrys and the combined businesses of Integrys and Wisconsin Energy and cer
Slide 3: Additional Information And Where to Find It
3 Additional Information And Where to Find It In connection with the proposed merger, Wisconsin Energy filed with the Securities and Exchange Commission (“SEC”) a registration statement on Form S-4 that includes a joint proxy statement/prospectus for the shareholders of Wisconsin Energy and Integrys
Slide 4: Current Investment Thesis
4 Current Investment Thesis An “Earn and Return” Company with a Low Risk Profile Positive free cash flow Targeted EPS growth of 4%-6% Best in class dividend growth - targeting a dividend payout ratio of 65%-70% of earnings in 2017 In January, Board approved a quarterly dividend increase of 8
Slide 5: Future Investment Thesis
5 Future Investment Thesis An “Earn and Return” Company with a Low Risk Profile Remain positive free cash flow Targeted EPS growth of 5%-7% Accelerated dividend growth Implies dividend increase of 7-8% from current 2015 dividend at merger close* Targeting a dividend payout ratio of 65%-70%
Slide 6: Leading Reliability and Customer Satisfaction
6 A Track Record of Performance Leading Reliability and Customer Satisfaction Named the most reliable utility in the Midwest for the fourth year in a row and seven of the past 10 years Ranked #1 in the Midwest for customer service and in the top quartile nationally for overall satisfaction * * S
Slide 7: Dramatic Change in Environmental Performance
7 A Track Record of Performance Dramatic Change in Environmental Performance From 2000 to 2015... Power plant capacity up 50% Emissions of nitrogen oxide sulfur dioxide down 80% mercury particulate matter
Slide 8: Consistent Earnings and Dividend Growth
8 Wisconsin Energy is the only company in the S&P Electric Index S&P Utilities Index Philadelphia Utility Index Dow Jones Utilities Average that has grown earnings per share and dividends per share every year since 2003 A Track Record of Performance Consistent Earnings and Dividend Growth
Slide 9: Industry Leading Total Shareholder Returns
9 A Track Record of Performance Industry Leading Total Shareholder Returns One Year Three Year Five Year Ten Year Wisconsin Energy 32.1% 67.0% 149.9% 317.9% S&P Utilities Index 29.0% 47.9% 87.1% 150.9% S&P Electric Index 31.2% 40.7% 76.0% 140.9% Philadelphia Utility Index 28.9% 42.3% 79.3% 142.4% Do
Slide 10: Summary of Wisconsin Energy's Core Business
10 A Track Record of Performance Summary of Wisconsin Energy’s Core Business Retail Electric and Gas Utilities Wisconsin, Michigan, and FERC jurisdictions 48.5% to 53.5% equity for Wisconsin Electric 10.2% allowed ROE 47% to 52% equity for Wisconsin Gas 10.3% allowed ROE Power the Futu
Slide 11: Delivering the Future
11 Where We Go From Here Delivering the Future From 2015 through 2024, our plan is to invest $6.6 to $7.2 billion in needed infrastructure projects that will: Renew and modernize our grid Meet new environmental standards Reduce our operating costs for customers
Slide 12: Ten-Year Capital Investment in our Retail Utilities
12 Where We Go From Here Ten-Year Capital Investment in our Retail Utilities (Projected Investment, In millions) 57 86 61 96 97 99 50 50 60 60 60 191 127 125 108 84 108 90 90 90 90 90 234 236 229 235 242 247 240 250 260 260 260 208 316 213 219 225 227 210 260 260 250 250 $690 $765 $628 $657 $647 $68
Slide 13: Delivering the Future – Overview
13 Between 2015 and 2019, we plan to: Rebuild 2,500 miles of electric distribution lines that are more than 50 years old Upgrade our electric infrastructure by replacing: 27,000 power poles 22,000 transformers Hundreds of substation components Improve our gas distribution network by repl
Slide 14: Major Construction Projects
14 Western Wisconsin gas distribution expansion $175-$185 million investment Projected in-service date: Fourth quarter 2015 Where We Go From Here Major Construction Projects Projects at our new Oak Creek units Wisconsin Commission has approved: $21 million investment for plant modifications
Slide 15: Growth at American Transmission Company
15 Where We Go From Here Growth at American Transmission Company $386 $491 $486 $101 $129 $127 2015 2016 2017 ATC WEC portion (26.2%) Key Assumptions ATC rate base at year end 2015 is projected to be about $3.1 billion ATC projects a need for $3.3-$3.9 billion of transmission improvements in its
Slide 16: DATC
16 Where We Go From Here DATC Joint venture between Duke Energy and ATC (DATC) Ownership is split 50/50 between Duke and ATC Investment opportunities: California’s Path 15 transmission line (purchased interest) Zephyr Power Transmission Project San Luis Transmission Project Other trans
Slide 17: Major Segment Earnings for 2013–2015
17 Where We Go From Here Major Segment Earnings for 2013 – 2015 2013A 2014A(2) 2015E(3) Electric and Gas Utilities $1.67 $1.79 $1.75 to $1.85 Power the Future (1) $0.72 $0.74 $0.76 Wholesale Electric Transmission $0.18 $0.18 $0.19 Other ($0.06) ($0.06) ($0.03) $2.51 $2.65 $2.59 (GAAP) $2.67 to $2.77
Slide 18: Transaction Overview
Wisconsin Energy is planning to acquire Integrys for a total consideration of $71.47 per share based on June 20 closing price Transaction Overview 18
Slide 19: Strategic Rationale
19 Strategic Rationale Transaction Overview Acquisition will create the leading electric and natural gas utility in the Midwest Combination will offer significant benefits to customers and shareholders of both companies Meets or exceeds WEC’s acquisition criteria Accretive to earnings per sh
Slide 20: Operational and Financial Fit
20 Strategic Rationale Operational and Financial Fit Operational Strong geographic fit and complementary operations Majority ownership of ATC Regulatory diversification Financial Double the annual capital spending and increase regulated rate base by 70% EPS growth rate of 5-7%, more th
Slide 21: Pro Forma Company Overview
21 Strategic Rationale Pro Forma Company Overview Combined Service Territory Minnesota Wisconsin Illinois Michigan Wisconsin Energy Integrys Gas Integrys Combo Service Company Statistics $16.9 billion market cap 1.6 million electric customers 2.8 million gas customers 60% ownership of ATC
Slide 22: Current and Pro Forma Business Mix
22 Strategic Rationale Current and Pro Forma Business Mix Current WEC(1) Pro Forma WEC(1) Electric Utility 77% Gas Utility 17% ATC 6% Electric Utility 66% Gas Utility 23% ATC 11% Regulated Business Mix (1) Based on 2014 regulated earnings
Slide 23: Key Transaction Components
23 Strategic Rationale Key Transaction Components Headquarters • Corporate headquarters in metropolitan Milwaukee • Continued operating headquarters in Green Bay, Chicago, and Milwaukee Leadership • Chairman and CEO: Gale Klappa • Other senior leadership roles in combined company to be filled by cur
Slide 24: Summary of Financial Terms
24 Financial Summary and Approval Timeline Summary of Financial Terms Overall Integrys transaction value: $9.1 billion (based on June 20, 2014 closing price) $5.8 billion for Integrys shares $3.3 billion of assumed Integrys debt 74% equity, 26% cash Fixed exchange ratio of 1.128 WEC shares
Slide 25: Dividend Policy
25 Financial Summary and Approval Timeline Dividend Policy Integrys shareholders neutral initially Current dividend policy for WEC shareholders until closing WEC shareholders to receive dividend increase at time of close Expected to be accretive to both sets of shareholders in future years
Slide 26: Approval Timeline
26 Financial Summary and Approval Timeline Approval Timeline Regulatory approval decision dates: WEC and TEG shareholders approved merger on November 21 Anticipate closing the transaction by the end of this summer Illinois July 6, 2015 Michigan Approved April 23, 2015 Minnesota Expect Minnesot
Slide 27: Integrys Earnings Breakdown
27 Integrys Overview Integrys Earnings Breakdown 40% 32% 22% 3% 3% 2014 Net Income By Jurisdiction Wisconsin Illinois FERC Minnesota Michigan More than 99% of earnings from regulated businesses* More than 60% of earnings from Wisconsin and FERC Wisconsin Jurisdiction: $2.2 billion rate base
Slide 28: Regulated Investment Opportunities
28 Integrys Overview Regulated Investment Opportunities Notes: (1) Expected annual investment in electric of $300 million and gas of $400 million (2) Does not include ATC investment Projected investment over $700 million annually Selected Projects by Company 2015 2016 2017 2018 2019 Regulated Electr
Slide 29: Chicago Gas Infrastructure Investment
29 Integrys Overview Chicago Gas Infrastructure Investment Twenty-year program to replace gas infrastructure in the City of Chicago Average annual investment over next five years expected to be $350 million Investment recovery covered under Qualified Infrastructure Plant Rider (QIP) Immediat
Slide 30: Wisconsin Public Service Investment
30 Integrys Overview Wisconsin Public Service Investment Weston 3 plant environmental upgrade Approved by Wisconsin Commission $345 million of total investment expected from 2013-2016 System Modernization and Reliability Project Approved by Wisconsin Commission $220 million of total inve
Slide 31: Key Takeaways of Transaction
31 Key Takeaways of Transaction Combination creates the leading electric and natural gas utility in the Midwest and a top ten gas distribution company EPS growth of 5-7% coupled with strong dividend growth Larger ownership in ATC brings opportunity for additional transmission investment Posi
Slide 32: Appendix
Wa Wisconsin Energy (4@™ Corporation Appendix June 2015
Slide 33: Industry Leading Dividend Growth
33 Targeting dividend payout ratio of 65 - 70 percent of earnings in 2017 A Track Record of Performance Industry Leading Dividend Growth $0.46 $0.50 $0.54 $0.68 $0.80 $1.04 $1.20 $1.45 $1.56 $1.69 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E
Slide 34: Power the Future Investments – Natural Gas
34 A Track Record of Performance Power the Future Investments – Natural Gas Capacity 1,090 MW Investment $664 million ROE 12.7% Equity 53% In Service Dates Unit 1 – July 2005 Unit 2 – May 2008 Cost Per Unit of Capacity $609/kW Meeting the Region’s Energy Needs
Slide 35: Power the Future Investments – Coal
35 Capacity 1,030 MW1 Investment $2 billion1 ROE 12.7% Equity 55% In Service Dates Unit 1 – February 2010, Unit 2 – January 2011 Cost Per Unit Approximately of Capacity $1,950/kW 1 All capacity and investment amounts reflect WEC ownership only. Demonstrated capacity for the coal units is 1,057 MW –
Slide 36: Strong Financial Foundation
36 A Track Record of Performance Strong Financial Foundation Moody’s S&P Fitch WEC(1) A3 A- A- WE A1 A- A WG A1 A A- Well-Funded Pension … Over 100% funded at year-end 2014 Solid credit ratings … Positive Cash Flow … Project $300 million of free cash flow from 2015-2019 Expect to generate free
Slide 37: Five-Year Capital Investment in our Retail Utilities
37 Where We Go From Here Five-Year Capital Investment in our Retail Utilities (Projected Investment, In millions) 57 86 61 96 97 99 191 127 125 108 84 108 234 236 229 235 242 247 208 316 213 219 225 227 $690 350 $765 362 $628 377 $657 404 $647 420 $681 439 $0 $100 $200 $300 $400 $500 $600 $700 $800
Slide 38: Ten-Year Capital Projection 2015-2024
38 Where We Go From Here Ten-Year Capital Projection 2015 - 2024 Plus Additional Growth Opportunities ATC – Traditional Footprint $3.3 to $3.9 billion WEC Ownership 26.2% DATC – Outside ATC Traditional Footprint $4.0 billion + WEC Interest 13.1% Natural Gas Expansion/Conversion State
Slide 39: Western Wisconsin Gas Expansion
39 Where We Go From Here Western Wisconsin Gas Expansion Additional natural gas distribution capacity needed to address reliability and to meet growth in customer demand Frac sand mining - increase from 10 to 121 licensed sand mining operations since 2010 Propane conversion - ten municipalitie
Slide 40: Renewable Energy Investments
40 Where We Go From Here Renewable Energy Investments Biomass plant completed 50MW Investment of $269 million Commercial operation began in November of 2013 Renewable fleet in place Glacier Hills Wind Park (162 MW, in service since 2011) Blue Sky Green Field Wind Park (145 MW, in servi
Slide 41: Valley Power Plant
41 Converting Valley from coal to natural gas Unit 1 conversion completed in November Targeting completion of project in late 2015 Follows construction of a $30 million gas pipeline upgrade (now in service) Where We Go From Here Valley Power Plant Projected conversion cost for Valley: $65
Slide 42: Twin Falls Hydroelectric Powerhouse
42 Building a new powerhouse at Twin Falls as existing powerhouse is in need of repair Construction began in the fall of 2013 with scheduled completion in 2016 Expected cost: $60 to $65 million Where We Go From Here Twin Falls Hydroelectric Powerhouse
Slide 43: Oak Creek Plant Projects
43 Where We Go From Here Oak Creek Plant Projects In May Wisconsin Commission approved: $21 million of additional capital for plant modifications that will enable testing of up to 100% PRB coal Investment of $58 million for fuel handling and an expanded storage facility Objective is to have
Slide 44: Amended Michigan Settlement
44 Where We Go From Here Amended Michigan Settlement Entered into an agreement in March with the Michigan Governor, Attorney General of Michigan, MPSC Staff and owners of the two iron ore mines in the Upper Peninsula (UP) of Michigan Wisconsin Electric retains ownership of Presque Isle Power Pla
Slide 45: Service Territory and Economy
45 Largest electric and gas company in Wisconsin 1.1 million electric customers 1.1 million natural gas customers Service Territory and Economy Stand Alone Service Territory
Slide 46: Electric Retail Customer Base
46 Service Territory and Economy Electric Retail Customer Base Large C&I 30% Small C&I 36% Residential 33% Other 1% 2014 Retail KWh Sales Mix* C&I Sector Largest Segments* % of 2014 Electric C&I Sales Office 12.5% Retail 6.3% Primary Metals 5.9% Health Care 5.3% Food 5.2% Education 4.8% Hospitality
Slide 47: Forecast of Electric Sales
47 Service Territory and Economy Forecast of Electric Sales* 2015 Forecast vs. 2014 Actual 2015 Forecast vs. 2014 Normalized Residential 2.0% 0.2% Small C&I 0.5% 0.3% Large C&I (ex. Mines) 0.3% -0.3% Total Retail w/o Mines 0.9% 0.1% *Delivered Volumes or Supply and Distribution Volumes
Slide 48: Combined Company Operating Company View
48 Chicago Green Bay Milwaukee Service Territory and Economy Combined Company Operating Company View Michigan Gas Utilities Corporation Wisconsin Energy Corp. Minnesota Energy Resources Corporation North Shore Gas Company The Peoples Gas Light and Coke Company Wisconsin Public Service Corporation Mi
Slide 49: Regulatory Environment – Wisconsin and Michigan
49 Wisconsin Commissioners Name Party Began Serving Term Ends Ellen Nowak Chairman R 07/2011 03/2019 Mike Huebsch R 03/2015 03/2021 Phil Montgomery R 03/2011 03/2017 Wisconsin Commission 3 Commissioners Gubernatorial appointment, Senate confirmation Chairman: Gubernatorial appointment Term
Slide 50: Regulatory Environment – Illinois and Minnesota
50 Service Territory and Economy Regulatory Environment Name Party Began Serving Term Ends Brien Sheahan Chairman R 01/2015 01/2019 Miguel del Valle D 02/2013 01/2018 Sherina Maye I 03/2013 01/2018 Ann McCabe R 03/2012 01/2017 John Rosales 03/2015 01/2019 Illinois Commission 5 Commissioners Gu
Slide 51: Pro Forma Company Size Relative To Peers
51 6,679 5,099 4,379 3,600 3,369 3,338 3,000 2,792 2,114 1,953 $21.3 $21.0 $19.3 $18.2 $17.0 $16.9 $16.4 $15.8 $15.3 $13.4 $12.1 $11.2 $10.1 $9.8 $9.6 $6.3 $6.3 $5.9 $5.6 Financial Summary Pro Forma Company Size Relative To Peers Publicly Traded Electric and Gas Utilities - Market Value (in $ billio
Slide 52: WEC Rate Base Investment – end of 2014
52 Retail Electric and Gas Utilities Wisconsin, Michigan, and FERC jurisdictions Growth driven by projected capital spend averaging $700 million per year, primarily for electric and gas infrastructure renewal (Deliver the Future) Power the Future 12.7% ROE fixed in lease agreements Whole
Slide 53: Pro Forma Rate Base Investment – end of 2015
53 WI FERC IL MI/MN $12.1 $2.8 $1.8 Utilities PTF Transmission Financial Summary Pro Forma Rate Base Investment – end of 2015 Note: Power the Future value is book value of investment. $16.7 Billion Retail Electric and Gas Utilities Wisconsin, Illinois, Michigan, Minnesota, and FERC jurisdictions
Slide 54: Dividend Parity – Illustrative Example
54 Financial Summary Dividend Parity – Illustrative Example (based on current dividend rates per share) ___________________________ 1. For illustrative purposes, assumes Wisconsin Energy’s 10 trading day average closing price at the effective merger close date is equal to Wisconsin Energy’s closing
Slide 55: Integrys Energy Group Company Structure
55 Integrys Overview Integrys Energy Group Company Structure
Slide 56: Integrys Regulated Utilities – Rate Base and Return on Equity
56 Integrys Overview Integrys Regulated Utilities – Regulatory Rate Base and Return on Equity Retail last authorized, IL/MN Rate base/investment ($ mill ions) 1,670 217 190 Allowed ROE 9.05% 9.05% 9.35% Authorized regulatory equity % 50.33% 50.48% 50.31% Date of decision 2/11/2015 2/11/2015 10/28/20
Slide 57: Non-GAAP Earnings Measures
57 Non-GAAP Earnings Measures Adjusted earnings (non-GAAP earnings), which generally exclude nonoperational items that are not associated with the company’s ongoing operations, are provided as a complement to, and should not be considered as an alternative to, reported earnings presented in accord