Wisconsin Energy Corporation Q1 2010 Earnings Call Transcript

Wisconsin Energy Corporation Q1 2010 Earnings Call Transcript
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Wisconsin Energy Corporation (WEC)

Q1 2010 Earnings Call Transcript

May 4, 2010 2:00 pm ET

Executives

Gale Klappa, Chairman, President and CEO

Allen Leverett – EVP and CFO

Steve Dickson – VP and Controller

Analysts

Bill Appicelli – Morgan Stanley

Michael Lapides – Goldman Sachs

Paul Ridzon – KeyBanc

Leon Dubov – Catapult Capital Management

Vedula Murti – CDP

Reza Hatefi – Decade Capital

Phyllis Gray – Dwight Asset Management

Dan Jenkins – State of Wisconsin Investment Board

Presentation

Operator

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Good afternoon. Thank you for holding ladies and gentlemen, and welcome to Wisconsin Energy Corporation conference call to review 2010 first quarter results. This conference is being recorded for re-brought cast and all participants are in a listen-only only mode at this time.

Before the conference call begins, I will read the forward-looking language all statements in this presentation other than historical facts are forward-looking statements that involve risks and uncertainties which are subject to change at any time. Such statements are based on management's expectations at the time they are made. In addition to the assumptions and other factors referred to in connection with the statements, factors described in the company's latest form 10-K and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated. During the discussions, referenced earnings per share will be based on diluted earnings per share unless otherwise noted.

After the prepared remarks, the conference will be open to analysts for questions-and-answers. In conjunction with this call, Wisconsin Energy has posted on its website a package of detailed financial information on its 2010 first quarter results at www.wisoncsinenergy.com. A replay of our remark will be available at approximately two hours after the conclusion of this call.

And now, I would like to introduce Mr. Gale Klappa, Chairman of the Board, President and Chief Executive Officer of Wisconsin Energy Corporation.

Gale Klappa

Thank you. Good afternoon everyone, we appreciate you taking part in our conference call today to review the company's 2010 first quarter results. Let me begin as always by introducing the members of the Wisconsin Energy management team who are here with me. We have Rick Kuester, President and CEO of V-Generation, Allen Leverett our Chief Financial Officer, Jim Fleming our General Counsel, Jeff West Treasure and Steve Dickson, Controller. Allen will review our financial results in detail in just a moment, as you saw from our News Release this morning we reported earnings from continuing operations of $1.10 a share for the first quarter 2010. This compares with $1.20 a share for the first quarter 2009. As we mentioned on our conference call back in February, we expected our first quarter to be lower than last year because of fuel recoveries.

Fuel recoveries caused a negative swing for $0.26 share for the quarter but on the other side of the ledger we benefited from earnings related to the first expansion unit at Oak Creek, which was placed into commercial service one minute after midnight on February 2. Overall, we're pleased with our first quarter's results.

Now, I'd like spend just a moment on our continuing effort to upgrade the energy infrastructure in Wisconsin. Our power of the future plan is fundamental to the principle of energy self sufficiency. Key component on our focus of self-sufficiency include investing in two combined cycle natural gas fired unit at Port Washington, North of Milwaukee. The construction of two super critical plant arise cold unit at Oak Creek which is south of the City and building a significant amount of renewable generation. As we discussed on previous calls, both unit at Port Washington are in service, construction was completed on time and on three budgets. The units are among the most efficient in the mid-west market, they're operating well and our customers are now benefiting from the low price of natural gas that fuels these units.

Turning now to the status of the two new coal fired units at Oak Creek. Unit one passed all of its performance tests was placed into commercial service as I mentioned on February 2 and is currently on-line. Since early February, Bechtel has been addressing a number of punch list items and resolving several warranty issues that were identified after the turnover. This type of activity is quite normal for a major new generating unit in its first year of operation. We're very optimistic about the long-term performance of the Oak Creek expansion units. The demonstrated heat rate for unit one is outstanding. And based on that data, we believe that the Oak Creek expansion will rank among the 4 or 5 most efficient coal fired power plants in the country.

We also made significant progress on the construction of unit two during the quarter. In fact, the first fire of unit two with natural gas was successfully achieved on April 20. Bechtel is now working on steam blows, a process used to clean scale and debris from the thousands of feet of tubes and pipes in the unit. Once steam blows are complete the unit will be re-configured so that steam can be directed to the high pressure turbine. The unit will then be fired again on natural gas and the turbine generator will be synchronized to the grid for the first time this is scheduled to occur by the end of June or early July, we then expect the boiler to be fired on full for the first time. From there we will follow a routine similar to the commissioning schedule we saw in unit one. Testing and tuning will be conducted, as the output of the unit is gradually raised from 0 to 100% capacity. The final step will be a series of rigorous performance tests.

Now there's no question that we're benefiting from the lessoned learns on unit one. As a result, we expect the unit two at Oak Creek to have a smoother and shorter time line for commissioning. The guaranteed turnover date as you recall, for unit two, which was set as part of the settlement agreement with Bechtel is November 28 of this year. Now, as we first reported to you last December, we have settled all claims with Bechtel that were raised in the arbitration proceeding. Through its claim Bechtel was seeking additional construction costs of $517 million and scheduled relief of seven months and 4 months for the completion of units 1 and Unit 2 respectively.

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