Fitch: No Surprises in Illinois' Approval of the WEC-Integrys Merger

NEW YORK--(BUSINESS WIRE)-- The merger concessions imposed by the Illinois Commerce Commission (ICC) in its approval of Wisconsin Energy Corp.'s (WEC) acquisition of Integrys Energy Group, Inc. (Integrys) are neutral to WEC's pro forma credit profile, and are reflected in our existing 'BBB+' long-term Issuer Default Rating. With both the Illinois and Minnesota approvals now in hand, WEC expects to close the merger in the next few days.

The concessions are consistent with the 'no harm' standard applied by the ICC in its review of proposed mergers, and include implementation of two-year base rate freezes at Integrys' regulated natural gas utilities Peoples Gas Light and Coke (PGLC) and North Shore Gas (NSG), the commitment by PGLC and NSG to invest at least $1 billion and $43 million, respectively, in their distribution infrastructure over the 2015-2017 period, and the prohibition to recover transaction-related costs and acquisition premiums from ratepayers. On a positive note, all existing supportive regulatory mechanisms, including decoupling, riders for gas pipeline replacement and bad debt, and a purchased gas adjustment clause, will remain in place. Fitch views these types of regulatory mechanisms as supportive of utility credit quality.

The ICC decision alleviates Fitch's concerns regarding the public scrutiny and commission investigation stemming from PGLC's alleged mismanagement of its accelerated main replacement program (AMRP) which made the approval process somewhat more contentious than what WEC experienced in other jurisdictions. As a condition to its approval of the transaction, the ICC requires shareholders to shoulder the burden of any potential fines that may be levied against the combined entity in the event that PGLC is found liable of misconduct in its management of the AMRP. The commission investigation remains ongoing.

Completion of the acquisition further diversifies WEC's consolidated earnings and cash flows, with the addition of Integrys' five low-risk regulated electric and natural gas utility businesses, including PGLC and NSG, which management projects will represent approximately 13% of combined rate base and near 23% of combined earnings.

Additional information is available on www.fitchratings.com

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Fitch Ratings
Philippe Beard
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Fitch Ratings, Inc.
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or
Shalini Mahajan
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Media Relations:
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Source: Fitch Ratings

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