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WEC Energy accelerating CapEx due to bonus depreciation

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WEC Energy accelerating CapEx due to bonus depreciation

plans toincrease its capital expenditure program for 2016 and 2017 as a result of thebonus depreciation tax break, company executives said May 3.

WEC increasedits capital budget forecast for 2016 to $1.55 billion and its 2017 budget to$1.9 billion, company President and CEO Allen Leverett said on thefirst-quarter 2016 earnings call. Those are increases over the capital plan WECpresented in April, when it forecast $1.499 billion in 2016 and $1.553 billionin 2017. In April, WEC planned a total capital spend over the 2016-2020 periodof $7.5 billion to $8 billion.

Thereason behind the CapEx change was the impact to WEC's earnings from theextension, by Congress inDecember 2015, of the bonusdepreciation tax break to 2019. Leverett said WEC estimates it willreceive approximately $1 billion in cash tax benefits from the bonusdepreciation extension, two-thirds of which will occur in 2016 and 2017.Although WEC does not anticipate bonus depreciation to have any "significant"impact on 2016 earnings, according to Leverett, the company is modifying itscapital plan to minimize impacts in 2017 and following years by advancingseveral projects in its development pipeline at an estimated investment ofroughly $500 million. "I expect that we will continue to identifyprojects that can be advanced into our current five-year forecast," headded.

Any increases to 2016 and 2017 spending don't necessarilycorrespond to a decrease in later years, Leverett said. As for what projectsWEC may move up, executives listed an update to the company's enterpriseresource system, which could represent an investment of up to $100 million. WECExecutive Vice President and CFO Scott Lauber also described $150 million in "value-addedcustomer projects" for the gas and electric distribution system inWisconsin, and $35 million in safety and reliability upgrades at a gas storagefacility in Illinois.

Leverett also suggested WEC could be looking to develop orpurchase gas storage facilities in Wisconsin.

"One of the things we've talked about a lot, althoughin Illinois and in Michigan our gas utilities there actually own some gasstorage, in Wisconsin our gas utilities, to my knowledge, have never owned gasstorage. They've always leased it, and we think that it would make more senseto have a mix of owned storage as well as leased storage," Leverett said. "SoI think that would be a nice opportunity, investment opportunity for thecompany, but we think it would also be beneficial for customers."

For the first quarter, WEC of $346.2million, or $1.09 per share, compared to $204.1 million, or 90 cents per share,in first-quarter 2015. That performance topped the S&P Global MarketIntelligence consensus EPS estimate of $1.01 per share for WEC. On the call,WEC reaffirmed full-year 2016 earnings guidance of $2.88 to $2.94 per share.For the second quarter of 2016, WEC expects earnings of 51 cents to 55 centsper share.