Edgar Filing: WEC ENERGY GROUP, INC.

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2015



Commission File Number	Registrant; State of Incorporation Address; and Telephone Number	IRS Employer Identification No.
001-09057	WEC ENERGY GROUP, INC.	39-1391525
	(A Wisconsin Corporation)
	231 West Michigan Street
	P.O. Box 1331
	Milwaukee, WI 53201
	(414) 221-2345

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.



	Large accelerated filer [X]		Accelerated filer [ ]
	Non-accelerated filer [ ]		Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

Common Stock, $.01 Par Value,

315,684,451 shares outstanding at

September 30, 2015

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WEC ENERGY GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended September 30, 2015

TABLE OF CONTENTS



				Page
	CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION			1
PART I.	FINANCIAL INFORMATION			3
ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)			3
	Condensed Consolidated Income Statements			3
	Condensed Consolidated Statements of Comprehensive Income			4
	Condensed Consolidated Balance Sheets			5
	Condensed Consolidated Statements of Cash Flows			6
	Notes to Condensed Consolidated Financial Statements			7
			Page
	Note 1	General Information	7
	Note 2	Acquisition	7
	Note 3	Dispositions	9
	Note 4	Common Equity	10
	Note 5	Short-Term Debt and Lines of Credit	13
	Note 6	Long-Term Debt	13
	Note 7	Inventories	14
	Note 8	Fair Value Measurements	14
	Note 9	Derivative Instruments	16
	Note 10	Guarantees	18
	Note 11	Employee Benefits	19
	Note 12	Goodwill and Other Intangible Assets	19
	Note 13	Investment in ATC	20
	Note 14	Segment Information	21
	Note 15	Variable Interest Entities	22
	Note 16	Commitments and Contingencies	23
	Note 17	Supplemental Cash Flow Information	24
	Note 18	Michigan Settlement	24
	Note 19	New Accounting Pronouncements	24
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			26
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			47
ITEM 4.	CONTROLS AND PROCEDURES			48
PART II.	OTHER INFORMATION			49
ITEM 1.	LEGAL PROCEEDINGS			49
ITEM 1A.	RISK FACTORS			49
ITEM 6.	EXHIBITS			51
SIGNATURE				52

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GLOSSARY OF TERMS AND ABBREVIATIONS

The abbreviations and terms set forth below are used throughout this report and have the meanings assigned to them below:



Subsidiaries and Affiliates
ATC		American Transmission Company LLC
Integrys		Integrys Holding, Inc. (previously known as Integrys Energy Group, Inc.)
ITF		Integrys Transportation Fuels, LLC (doing business as Trillium CNG)
MERC		Minnesota Energy Resources Corporation
MGU		Michigan Gas Utilities Corporation
NSG		North Shore Gas Company
PDL		WPS Power Development, LLC
PGL		The Peoples Gas Light and Coke Company
WBS		WEC Business Services, LLC
We Power		W.E. Power, LLC
WECC		Wisconsin Energy Capital Corporation
Wisconsin Electric		Wisconsin Electric Power Company
Wisconsin Gas		Wisconsin Gas LLC
WPS		Wisconsin Public Service Corporation

Federal and State Regulatory Agencies
EPA		United States Environmental Protection Agency
FCC		Federal Communications Commission
FERC		Federal Energy Regulatory Commission
ICC		Illinois Commerce Commission
MDEQ		Michigan Department of Environmental Quality
MPSC		Michigan Public Service Commission
MPUC		Minnesota Public Utilities Commission
PSCW		Public Service Commission of Wisconsin
SEC		United States Securities and Exchange Commission
WDNR		Wisconsin Department of Natural Resources

Accounting Terms
AFUDC		Allowance for Funds Used During Construction
ASU		Accounting Standards Update
FASB		Financial Accounting Standards Board
GAAP		United States Generally Accepted Accounting Principles
LIFO		Last-In, First-Out
OPEB		Other Postretirement Employee Benefits

Environmental Terms
BTA		Best Technology Available
EM		Entrainment Mortality
GHG		Greenhouse Gas
IM		Impingement Mortality
MATS		Mercury and Air Toxics Standards
NAAQS		National Ambient Air Quality Standards
SO₂		Sulfur Dioxide
WPDES		Wisconsin Pollutant Discharge Elimination System

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Measurements
Btu		British Thermal Unit
Dth		Dekatherm (One Dth equals one million Btu)
MW		Megawatt (One MW equals one million Watts)
MWh		Megawatt-hour

Other Terms and Abbreviations
Amended Agreement		Amended and Restated Settlement Agreement with the Attorney General of the State of Michigan, the Staff of the MPSC, and Tilden Mining Company and Empire Iron Mining Partnership
AMRP		Accelerated Natural Gas Main Replacement Program
CNG		Compressed Natural Gas
Compensation Committee		Compensation Committee of the Board of Directors
Exchange Act		Securities Exchange Act of 1934, as amended
Fitch		Fitch Ratings, Inc.
FTRs		Financial Transmission Rights
Junior Notes		WEC Energy Group's 2007 6.25% Series A Junior Subordinated Notes due 2067, Integrys's 2006 6.11% Junior Subordinated Notes due 2066, and Integrys's 2013 6.00% Junior Subordinated Notes due 2073
Merger Agreement		Agreement and Plan of Merger, dated as of June 22, 2014, between Integrys and Wisconsin Energy Corporation
MISO		Midcontinent Independent System Operator, Inc.
PIPP		Presque Isle Power Plant
ROE		Return on Equity
SSR		System Support Resource
VAPP		Valley Power Plant

iii

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

In this report, we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, and future events or performance. These statements are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). Readers are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements may be identified by reference to a future period or periods or by the use of terms such as "anticipates," "believes," "could," "estimates," "expects," "forecasts," "goals," "guidance," "intends," "may," "objectives," "plans," "possible," "potential," "projects," "seeks," "should," "targets," "will," or variations of these terms.

Forward-looking statements include, among other things, statements concerning management's expectations and projections regarding earnings, completion of capital projects, sales and customer growth, rate actions and related filings with regulatory authorities, environmental and other regulations and associated compliance costs, legal proceedings, dividend payout ratios, effective tax rate, projections related to the pension and other postretirement benefit plans, fuel costs, sources of electric energy supply, coal and natural gas deliveries, remediation costs, liquidity and capital resources, and other matters.

Forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in the statements. These risks and uncertainties include those described in risk factors as set forth in this Form 10-Q and our and Integrys Energy Group, Inc.'s (Integrys) Annual Reports on Form 10-K for the year ended December 31, 2014, and the following:


•	Factors affecting utility operations such as catastrophic weather-related damage, environmental incidents, unplanned facility outages and repairs and maintenance, changes in the cost or availability of materials needed to operate environmental controls at our electric generating facilities, and electric transmission or natural gas pipeline system constraints;


•	Factors affecting the demand for electricity and natural gas, including political developments, unusual weather, changes in economic conditions, customer growth and declines, commodity prices, energy conservation efforts, and continued adoption of distributed generation by customers;


•	The timing, resolution, and impact of rate cases and negotiations, including recovery of deferred and current costs and the ability to earn a reasonable return on investment, and other regulatory decisions impacting our regulated businesses;


•	The ability to obtain and retain customers, including wholesale customers, due to increased competition in our electric and natural gas markets from retail choice and alternative electric suppliers, and continued industry consolidation;


•	The timely completion of capital projects within budgets, as well as the recovery of those costs through rates;

•

The impact of federal, state, and local legislative and regulatory changes, including changes in rate-setting policies or procedures, tax law changes, including the extension of bonus depreciation, deregulation and restructuring of the electric and/or natural gas utility industries, transmission or distribution system operation, the approval process for new construction, reliability standards, pipeline integrity and safety standards, allocation of energy assistance, and energy efficiency mandates;


•	Federal and state legislative and regulatory changes relating to the environment, including climate change and other environmental regulations impacting generation facilities and renewable energy standards, the enforcement of these laws and regulations, changes in the interpretation of permit conditions by regulatory agencies, and the recovery of associated remediation and compliance costs;


•	The risks associated with changing commodity prices, particularly natural gas and electricity, and the availability of sources of fossil fuel, natural gas, purchased power, or water supply due to high demand, shortages, transportation problems, nonperformance by electric energy or natural gas suppliers under existing power purchase or natural gas supply contracts, or other developments;


•	Changes in credit ratings, interest rates, and our ability to access the capital markets, caused by volatility in the global credit markets, our capitalization structure, and market perceptions of the utility industry, us, or any of our subsidiaries;


•	Costs and effects of litigation, administrative proceedings, investigations, settlements, claims, and inquiries;

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•	Restrictions imposed by various financing arrangements and regulatory requirements on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans or advances;


•	The risk of financial loss, including increases in bad debt expense, associated with the inability of our customers and affiliates to meet their obligations;


•	Changes in the creditworthiness of the counterparties with whom we have contractual arrangements, including participants in the energy trading markets and fuel suppliers and transporters;


•	The direct or indirect effect on our business resulting from terrorist incidents, the threat of terrorist incidents, and cyber intrusion, including the failure to maintain the security of personally identifiable information, the associated costs to protect our assets and personal information, and the costs to notify affected persons to mitigate their information security concerns;


•	The financial performance of American Transmission Company LLC (ATC) and its corresponding contribution to our earnings, as well as the ability of ATC and the Duke-American Transmission Company to obtain the required approvals for their transmission projects;


•	The investment performance of our employee benefit plan assets, as well as unanticipated changes in related actuarial assumptions, which could impact future funding requirements;


•	Factors affecting the employee workforce, including loss of key personnel, internal restructuring, work stoppages, and collective bargaining agreements and negotiations with union employees;


•	Advances in technology that result in competitive disadvantages and create the potential for impairment of existing assets;


•	The terms and conditions of the governmental and regulatory approvals of the acquisition of Integrys that could reduce anticipated benefits and our ability to successfully integrate the operations of the combined company;


•	The risk associated with the values of goodwill and other intangible assets and their possible impairment;


•	Potential business strategies to acquire and dispose of assets or businesses, which cannot be assured to be completed timely or within budgets, and legislative or regulatory restrictions or caps on non-utility acquisitions, investments or projects, including the State of Wisconsin's public utility holding company law;


•	The timing and outcome of any audits, disputes, and other proceedings related to taxes;


•	The effect of accounting pronouncements issued periodically by standard-setting bodies; and


•	Other considerations disclosed elsewhere herein and in other reports we file with the United States Securities and Exchange Commission (SEC) or in other publicly disseminated written documents.

We expressly disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WEC ENERGY GROUP, INC.



CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)	Three Months Ended						Nine Months Ended
	September 30						September 30
(in millions, except per share amounts)	2015			2014			2015			2014
Operating revenues	$	1,698.7		$	1,033.3		$	4,077.8		$	3,772.0

Operating expenses
Cost of sales	590.6			407.4			1,557.5			1,735.9
Other operation and maintenance	535.9			249.4			1,153.6			780.8
Depreciation and amortization	176.5			99.8			382.6			295.2
Property and revenue taxes	50.0			30.6			113.8			91.5
Total operating expenses	1,353.0			787.2			3,207.5			2,903.4

Operating income	345.7			246.1			870.3			868.6

Equity in earnings of transmission affiliate	40.0			18.0			70.4			52.8
Other income, net	11.1			2.9			40.2			12.1
Interest expense	103.8			60.4			225.6			181.7
Other expense	(52.7		)	(39.5		)	(115.0		)	(116.8		)

Income before income taxes	293.0			206.6			755.3			751.8
Income tax expense	110.5			80.3			296.1			284.9
Net income	$	182.5		$	126.3		$	459.2		$	466.9

Earnings per share
Basic	$	0.58		$	0.56		$	1.79		$	2.07
Diluted	$	0.58		$	0.56		$	1.78		$	2.05

Weighted average common shares outstanding
Basic	315.7			225.5			256.2			225.6
Diluted	317.1			227.4			257.8			227.6

Dividends per share of common stock	$	—		$	0.39		$	1.29		$	1.17

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

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WEC ENERGY GROUP, INC.



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)	Three Months Ended					Nine Months Ended
	September 30					September 30
(in millions)	2015			2014		2015			2014
Net income	$	182.5		$	126.3	$	459.2		$	466.9

Other comprehensive (loss) income, net of tax
Derivatives accounted for as cash flow hedges
Gains on settlement, net of tax of $7.6 million	—			—		11.4			—
Reclassification of gains to net income, net of tax	(0.4		)	—		(0.5		)	—
Other comprehensive (loss) income, net of tax	(0.4		)	—		10.9			—

Comprehensive income	$	182.1		$	126.3	$	470.1		$	466.9

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

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WEC ENERGY GROUP, INC.



CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except share and per share amounts)	September 30, 2015			December 31, 2014
Assets
Property, plant and equipment
In service	$	25,741.5		$	15,509.0
Accumulated depreciation	(7,930.6		)	(4,485.1		)
	17,810.9			11,023.9
Construction work in progress	936.4			191.8
Leased facilities, net	37.9			42.0
Net property, plant and equipment	18,785.2			11,257.7
Investments
Equity investment in transmission affiliate	999.4			424.1
Other	97.0			32.8
Total investments	1,096.4			456.9
Current assets
Cash and cash equivalents	22.2			61.9
Accounts receivable and unbilled revenues, net of reserves of $128.7 and $74.5, respectively	844.7			643.4
Materials, supplies, and inventories	719.8			400.6
Assets held for sale	140.2			—
Deferred income taxes	250.8			242.7
Other	204.2			186.8
Total current assets	2,181.9			1,535.4
Deferred charges and other assets
Regulatory assets	2,805.5			1,271.2
Goodwill	3,389.1			441.9
Other long-term assets	511.5			200.3
Total deferred charges and other assets	6,706.1			1,913.4
Total assets	$	28,769.6		$	15,163.4

Capitalization and liabilities
Capitalization
Common stock - $.01 par value; 325,000,000 shares authorized; 315,684,451 and 225,517,339 shares outstanding, respectively	$	3.2		$	2.3
Additional paid in capital	4,350.6			300.1
Retained earnings	4,264.9			4,117.0
Accumulated other comprehensive income	11.2			0.3
Preferred stock of subsidiaries	81.5			30.4
Long-term debt	8,727.0			4,186.4
Total capitalization	17,438.4			8,636.5
Current liabilities
Current portion of long-term debt	606.0			424.1
Short-term debt	661.5			617.6
Accounts payable	777.6			363.3
Accrued payroll and benefits	154.9			95.1
Other	466.8			168.6
Total current liabilities	2,666.8			1,668.7
Deferred credits and other liabilities
Regulatory liabilities	1,312.3			830.6
Deferred income taxes	4,690.4			2,906.7
Deferred revenue, net	588.1			614.1
Pension and other postretirement benefit obligations	427.7			203.8
Environmental remediation	611.5			32.6
Other long-term liabilities	1,034.4			270.4
Total deferred credits and other liabilities	8,664.4			4,858.2

Commitments and contingencies (Note 16)

Total capitalization and liabilities	$	28,769.6		$	15,163.4

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

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WEC ENERGY GROUP, INC.



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	Nine Months Ended
	September 30
(in millions)	2015			2014
Operating Activities
Net income	$	459.2		$	466.9
Reconciliation to cash provided by operating activities
Depreciation and amortization	390.9			312.9
Deferred income taxes and investment tax credits, net	220.1			258.5
Contributions to pension and other postretirement plans	(109.3		)	(12.0		)
Change in –
Accounts receivable and unbilled revenues	269.5			221.1
Inventories	(101.4		)	(49.9		)
Other current assets	75.6			37.2
Accounts payable	(55.9		)	(27.7		)
Accrued taxes, net	57.9			(10.3		)
Other current liabilities	40.0			(36.8		)
Other, net	(173.4		)	(125.3		)
Net cash provided by operating activities	1,073.2			1,034.6

Investing Activities
Capital expenditures	(765.1		)	(513.0		)
Cost of removal, net of salvage	(26.7		)	(18.2		)
Business acquisition, net of cash acquired of $156.3 million	(1,329.9		)	—
Investment in transmission affiliate	(5.6		)	(10.5		)
Proceeds from asset sales	26.7			—
Other, net	4.7			12.8
Net cash used in investing activities	(2,095.9		)	(528.9		)

Financing Activities
Exercise of stock options	26.4			31.7
Purchase of common stock	(66.1		)	(84.2		)
Dividends paid on common stock	(310.9		)	(264.0		)
Issuance of long-term debt	1,650.0			250.0
Retirement of long-term debt	(27.1		)	(322.0		)
Change in short-term debt	(270.5		)	(61.6		)
Other, net	(18.8		)	7.1
Net cash provided by (used in) financing activities	983.0			(443.0		)

Net change in cash and cash equivalents	(39.7		)	62.7
Cash and cash equivalents at beginning of period	61.9			26.0
Cash and cash equivalents at end of period	$	22.2		$	88.7

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

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WEC ENERGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2015

NOTE 1—GENERAL INFORMATION

On June 29, 2015, Wisconsin Energy Corporation acquired Integrys, and the combined company was renamed WEC Energy Group, Inc. The Company serves approximately 1.6 million electric customers and 2.8 million natural gas customers, and it owns approximately 60% of ATC. See Note 2, Acquisition, for more information on this acquisition.

As used in these notes, the term "financial statements" refers to the condensed consolidated financial statements. This includes the condensed consolidated income statements, condensed consolidated statements of comprehensive income, condensed consolidated balance sheets, and condensed consolidated statements of cash flows, unless otherwise noted. In this report, when we refer to "the Company," "us," "we," "our," or "ours," we are referring to WEC Energy Group and all of its subsidiaries.

We have prepared the unaudited interim financial statements presented in this Form 10-Q pursuant to the rules and regulations of the SEC and United States Generally Accepted Accounting Principles (GAAP). Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and footnotes in our Annual Report on Form 10-K for the year ended December 31, 2014. Financial results for an interim period may not give a true indication of results for the year. In particular, the results of operations for the three and nine months ended September 30, 2015, are not necessarily indicative of expected results for 2015 due to the acquisition of Integrys, seasonal variations, and other factors.

In management's opinion, we have included all adjustments, normal and recurring in nature, necessary for a fair presentation of our financial results.

NOTE 2—ACQUISITION

On June 29, 2015, Wisconsin Energy acquired 100% of the outstanding common shares of Integrys, a provider of regulated natural gas and electricity, as well as nonregulated renewable energy and compressed natural gas (CNG) products and services. Integrys also holds a 34% interest in ATC, a for-profit transmission company regulated by the Federal Energy Regulatory Commission (FERC). The acquisition of Integrys provides increased scale, the potential for long-term cost savings through a combination of lower capital and operating costs, and the potential for operating efficiencies.

Purchase Price

Pursuant to the Agreement and Plan of Merger, dated as of June 22, 2014, between Integrys and Wisconsin Energy Corporation (Merger Agreement), Integrys’s shareholders received 1.128 shares of Wisconsin Energy common stock and $18.58 in cash per share of Integrys common stock. The total consideration transferred was based on the closing price of Wisconsin Energy common stock on June 29, 2015, and was calculated as follows:



	Consideration Paid
(in millions, except per share amounts)	Stock		Cash		Total
Integrys common shares outstanding at June 29, 2015	79,963,091		79,963,091
Exchange ratio	1.128
Wisconsin Energy shares issued for Integrys shares *	90,187,884
Closing price of Wisconsin Energy common shares on June 29, 2015	$45.16
Fair value of common stock issued	$	4,072.9			$	4,072.9
Cash paid per share of Integrys shares outstanding			$18.58
Fair value of cash paid for Integrys shares *			$	1,486.2	$	1,486.2
Consideration attributable to settlement of equity awards, net of tax			$	24.0	$	24.0
Total purchase price	$	4,072.9	$	1,510.2	$	5,583.1


*	Fractional shares of 10,483 totaling $0.5 million were paid in cash.

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All Integrys unvested stock-based compensation awards became fully vested upon the close of the transaction and were either paid to award recipients in cash, or the value of the awards was deferred into a deferred compensation plan. In addition, all vested but unexercised Integrys stock options were paid in cash. In accordance with accounting guidance for business combinations, the expense caused by the acceleration of the vesting was an expense related to the acquisition.

Allocation of Purchase Price

The Integrys assets acquired and liabilities assumed were measured at estimated fair value as defined in the accounting guidance. Substantially all of Integrys's operations are subject to the rate-setting authority of federal and state regulatory commissions. These operations are accounted for in accordance with GAAP accounting guidance for regulated operations. In addition, the underlying assets and liabilities of ATC are regulated by FERC. The fair values of Integrys's assets and liabilities subject to these rate-setting provisions approximate their carrying values, and the assets and liabilities acquired and pro forma financial information do not reflect any adjustments related to these amounts.

The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was recognized as goodwill. The goodwill reflects the value paid for the increased scale and efficiencies as a result of the combination. The goodwill recognized is not deductible for income tax purposes, and as such, no deferred taxes have been recorded related to goodwill. The allocation of goodwill to our reportable segments has not yet been completed.

In the third quarter of 2015, adjustments were made to the estimated fair values of the assets acquired and liabilities assumed as additional information was obtained. The preliminary purchase price allocation is as follows:



(in millions)
Current assets	$	1,178.2
Net property, plant and equipment	7,097.9
Goodwill	2,947.2
Deferred charges and other assets, excluding goodwill	2,393.7
Current liabilities, including current maturities of long-term debt	(1,261.3		)
Deferred credits and other liabilities	(3,774.0		)
Long-term debt	(2,947.5		)
Preferred stock of subsidiary	(51.1		)
Total purchase price	$	5,583.1

Conditions of Approval

The acquisition was subject to the approvals of various government agencies, including the FERC, Federal Communications Commission (FCC), Public Service Commission of Wisconsin (PSCW), Illinois Commerce Commission (ICC), Michigan Public Service Commission (MPSC), and Minnesota Public Utilities Commission (MPUC). Approvals were obtained from all agencies subject to several conditions.

The PSCW order includes the following conditions:

•

Wisconsin Electric Power Company (Wisconsin Electric) and Wisconsin Gas LLC (Wisconsin Gas) will be subject to an earnings sharing mechanism for three years beginning January 1, 2016. Under the earnings sharing mechanism, if either company earns above its authorized return, 50% of the first 50 basis points of additional utility earnings will be shared with customers. For Wisconsin Electric, the additional utility earnings will be used to reduce the company’s transmission escrow. For Wisconsin Gas, additional utility earnings will be used to reduce the costs of the Western Gas Lateral. All utility earnings above the first 50 basis points will be used to reduce the transmission escrow for Wisconsin Electric or reduce the costs of the Western Gas Lateral for Wisconsin Gas.

•

Any future electric generation projects affecting Wisconsin ratepayers submitted by us or our subsidiaries will first consider the extent to which existing intercompany resources can meet energy and capacity needs. In September 2015, Wisconsin Public Service Corporation (WPS) and Wisconsin Electric filed a joint integrated resource plan with the PSCW for their combined loads, which indicated that no new generation is currently needed.

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The ICC order included a base rate freeze for The Peoples Gas Light and Coke Company (PGL) and North Shore Gas Company (NSG) effective for two years after the close of the acquisition. This base rate freeze does not impact our ability to adjust rates through various riders or the gas supply cost recovery mechanism.

We do not believe that the conditions set forth in the various regulatory orders approving the acquisition will have a material impact on our operations or financial results.

Pro Forma Information

The following unaudited pro forma financial information reflects the consolidated results and amortization of purchase price adjustments as if the acquisition had taken place on January 1, 2014. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved or our future consolidated results.

The pro forma financial information does not reflect any potential cost savings from operating efficiencies resulting from the acquisition and does not include certain acquisition-related costs.



	Three Months Ended September 30				Nine Months Ended September 30
(in millions, except per share amounts)	2015		2014		2015		2014
Unaudited Pro Forma Financial Information
Operating Revenues	$	1,698.7	$	1,689.8	$	5,878.8	$	6,898.0
Net Income	$	185.5	$	210.7	$	664.9	$	712.1
Earnings per share (Basic)	$	0.59	$	0.67	$	2.11	$	2.26
Earnings per share (Diluted)	$	0.58	$	0.66	$	2.10	$	2.24

Impact of Acquisition

As a result of the acquisition, our ownership of ATC increased to approximately 60%. We have made commitments with respect to our voting rights of the combined ownership of ATC, which are included as enforceable conditions in the orders approving the acquisition by the FERC and the PSCW. We also expect that ATC's governance documents will include these voting commitments. Under GAAP, these commitments do not allow for the consolidation of ATC in our financial statements and the 60% ownership is accounted for as an equity method investment subsequent to the close of the acquisition. See Note 13, Investment in ATC, for more information.

In connection with the acquisition, WEC Energy Group and its subsidiaries recorded pre-tax acquisition costs of $6.5 million and $80.2 million during the three and nine months ended September 30, 2015, and $3.6 million and $8.6 million for the same periods in 2014, respectively. These costs consisted of employee-related expenses, professional fees, and other miscellaneous costs. They are recorded in the other operation and maintenance line item on the condensed consolidated income statements.

Our revenues for the three and nine months ended September 30, 2015, include revenues attributable to Integrys of $633.4 million. Included in our net income for the three and nine months ended September 30, 2015, is net income attributable to Integrys of $46.2 million and $19.6 million, respectively.

NOTE 3—DISPOSITIONS

Corporate and Other Segment—Potential Sale of Integrys Transportation Fuels, LLC (ITF)

In the third quarter of 2015, we began to actively market ITF for sale with the use of outside consultants. ITF is a provider of CNG fueling services and a single-source provider of CNG fueling facility design, construction, operation and maintenance. The potential sale of ITF meets the criteria to qualify as held for sale but does not meet the requirements to qualify as a discontinued operation. The potential sale of ITF does not represent a shift in our corporate strategy and will not have a major effect on our operations and financial results. Therefore, ITF's results of operations remain in continuing operations.

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The following table shows the carrying values of the major classes of assets and liabilities included as held for sale on the balance sheet:



(in millions)	September 30, 2015
Property, plant and equipment, net of accumulated depreciation of $6.4	$	46.2
Accounts receivable and unbilled revenues	42.9
Materials, supplies and inventories	16.6
Other current assets	5.1
Other long-term assets	29.4
Total assets	$	140.2

Accounts payable	$	11.9
Accrued payroll and benefits	1.8
Other current liabilities	7.1
Pension and other postretirement benefit obligations	0.4
Other long-term liabilities	0.4
Total liabilities *	$	21.6


*	Included in other current liabilities on the balance sheet.

NOTE 4—COMMON EQUITY

Stock Option Activity

The following table identifies non-qualified stock options granted by the Compensation Committee of the Board of Directors (Compensation Committee):



	Nine Months Ended September 30
	2015			2014
Non-qualified stock options granted	516,475			899,500

Estimated fair value per non-qualified stock option	$	5.29		$	4.18

Assumptions used to value the options using a binomial option pricing model:
Risk-free interest rate	0.1% – 2.1%			0.1% – 3.0%
Dividend yield	3.7		%	3.8		%
Expected volatility	18.0		%	18.0		%
Expected forfeiture rate	2.0		%	2.0		%
Expected life (years)	5.8			5.8

The risk-free interest rate is based on the U.S. Treasury interest rate with a term consistent with the expected life of the stock options. Dividend yield, expected volatility, expected forfeiture rate, and expected life assumptions are based on our historical experience.

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The following is a summary of our stock option activity for the three and nine months ended September 30, 2015:



					Weighted-Average
					Remaining	Aggregate
	Number of		Weighted-Average		Contractual Life	Intrinsic Value
Stock Options	Options		Exercise Price		(in years)	(in millions)
Outstanding as of July 1, 2015	6,750,930		$	32.32
Granted	—		$	—
Exercised	(599,752	)	$	23.72
Outstanding as of September 30, 2015	6,151,178		$	33.16

Outstanding as of January 1, 2015	6,770,194		$	29.99
Granted	516,475		$	52.90
Exercised	(1,135,491	)	$	23.25
Outstanding as of September 30, 2015	6,151,178		$	33.16	5.8	$	117.2

Exercisable as of September 30, 2015	3,419,728		$	26.49	4.0	$	88.0

The intrinsic value of options exercised was $15.8 million and $31.2 million for the three and nine months ended September 30, 2015, and $12.7 million and $30.2 million for the same periods in 2014, respectively. Cash received from options exercised was $26.4 million and $31.7 million for the nine months ended September 30, 2015, and 2014, respectively. The actual tax benefit realized for the tax deductions from option exercises for the same periods was $12.5 million and $12.1 million, respectively.

Options to purchase 516,475 shares of common stock with an exercise price of $52.90 were outstanding during the third quarter of 2015, but were not included in the computation of diluted earnings per share because they were anti-dilutive.

As of September 30, 2015, total compensation cost related to non-vested stock options not yet recognized was approximately $2.3 million, which is expected to be recognized over the next 17 months on a weighted-average basis.

Restricted Shares

The following restricted stock activity occurred during the three and nine months ended September 30, 2015:



			Weighted-Average
Restricted Shares	Number of Shares		Grant Date Fair Value
Outstanding as of July 1, 2015	147,214		$	45.43
Granted	82,943		$	49.17
Released	—		$	—
Forfeited	(181	)	$	46.16
Outstanding as of September 30, 2015	229,976		$	46.78

Outstanding as of January 1, 2015	155,479		$	38.45
Granted	143,107		$	51.13
Released	(68,429	)	$	36.95
Forfeited	(181	)	$	46.16
Outstanding as of September 30, 2015	229,976		$	46.78

On July 31, 2015, the Compensation Committee awarded certain officers and other employees of WEC Energy Group and its subsidiaries an aggregate of 82,943 shares of restricted stock for the key role each played in WEC Energy Group's acquisition of Integrys. The restricted stock vests in three equal installments on January 29, 2016; January 31, 2017; and, July 31, 2018.

We recognize the grant date fair value of restricted stock awards in expense over the vesting period of the awards. The intrinsic value of restricted stock vesting was zero and $3.7 million for the three and nine months ended September 30, 2015, and zero and $2.7 million for the same periods in 2014, respectively. The actual tax benefit realized for the tax deductions from released restricted shares was zero and $1.3 million for the three and nine months ended September 30, 2015, and zero and $1.0 million for the same periods in 2014, respectively.

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As of September 30, 2015, total compensation cost related to restricted stock not yet recognized was approximately $3.8 million, which is expected to be recognized over the next 22 months on a weighted-average basis.

Performance Units

In January 2015 and 2014, the Compensation Committee granted 195,365 and 233,735 performance units, respectively, to officers and other key employees under the Wisconsin Energy Performance Unit Plan. Performance units earned as of December 31, 2014 and 2013, vested and were settled during the first quarter of 2015 and 2014, and had a total intrinsic value of $13.2 million and $14.8 million, respectively. The actual tax benefit realized for the tax deductions from the settlement of performance units was approximately $4.8 million and $5.3 million, respectively. As of September 30, 2015, total compensation cost related to performance units not yet recognized was approximately $21.8 million, which is expected to be recognized over the next 21 months on a weighted-average basis.

Restrictions

Our ability as a holding company to pay common stock dividends primarily depends on the availability of funds received from our utility subsidiaries and our non-utility subsidiary, W.E. Power, LLC (We Power). Various financing arrangements and regulatory requirements impose certain restrictions on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans, or advances. All of our utility subsidiaries, with the exception of Michigan Gas Utilities Corporation (MGU), are prohibited from loaning funds to us, either directly or indirectly.

The PSCW allows WPS to pay dividends on its common stock of no more than 103% of the previous year’s common stock dividend. WPS may return capital to us if its average financial debt to common equity ratio is at least 51% on a calendar-year basis. WPS must obtain PSCW approval if a return of capital would cause its average financial common equity ratio to fall below this level. Our right to receive dividends on the common stock of WPS is also subject to the prior rights of WPS's preferred shareholders and to provisions in WPS's restated articles of incorporation, which limit the amount of common stock dividends that WPS may pay if its common stock and common stock surplus accounts constitute less than 25% of its total capitalization.

Integrys has short-term and long-term debt obligations that contain financial and other covenants, including, but not limited to, a requirement to maintain a debt to total capitalization ratio not to exceed 65%.

NSG's long-term debt obligations contain provisions and covenants restricting the payment of cash dividends and the purchase or redemption of its capital stock.

PGL and WPS have short-term debt obligations containing financial and other covenants, including, but not limited to, a requirement to maintain a debt to total capitalization ratio not to exceed 65%.

See Note H, Common Equity, in our 2014 Annual Report on Form 10-K for additional information on restrictions at our other subsidiaries. We do not believe that these restrictions will materially affect our operations or limit any dividend payments in the foreseeable future.

Share Repurchase Program

In December 2013, our Board of Directors authorized a share repurchase program for the purchase of up to $300 million of our common stock through open market purchases or privately negotiated transactions from January 1, 2014, through the end of 2017. On June 22, 2014, in connection with entering into the Merger Agreement, the Board of Directors terminated this share repurchase program. In addition, we have instructed our independent agents to purchase shares on the open market to fulfill exercised stock options and restricted stock awards. The following table identifies shares purchased in the following periods:



	Nine Months Ended September 30
	2015			2014
(in millions)	Shares	Cost		Shares	Cost
Under share repurchase program	—	$	—	0.4	$	18.6
To fulfill exercised stock options and restricted stock awards	1.3	66.1		1.5	65.6
Total	1.3	$	66.1	1.9	$	84.2

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Integrys Acquisition

On June 29, 2015, we issued approximately 90.2 million common shares to acquire Integrys. All Integrys unvested stock-based compensation awards became fully vested upon the close of the transaction and were paid to award recipients in cash or deferred into a deferred compensation plan. In addition, all vested but unexercised Integrys stock options were paid in cash. See Note 2, Acquisition, for more information on this acquisition.

Common Stock Dividends

During the quarter ended June 30, 2015, our Board of Directors declared common stock dividends which are summarized below:



Date Declared	Date Payable	Per Share	Period
April 16, 2015	June 1, 2015	$0.4225	Second Quarter
June 12, 2015	July 6, 2015	$0.2067	45 days through June 28, 2015
June 12, 2015	September 1, 2015	$0.2337	47 days through Aug. 14, 2015

Pro rata dividends were declared on June 12, 2015 in anticipation of the acquisition of Integrys. The dividend payable on July 6, 2015, was based on a quarterly rate of $0.4225 per share. Pursuant to the terms of the Merger Agreement, our Board of Directors adopted a new dividend policy. The dividend payable on September 1, 2015, was based on our new quarterly rate of $0.4575 per share, which represents an 8.3% increase over the prior quarterly rate.

NOTE 5—SHORT-TERM DEBT AND LINES OF CREDIT

Our outstanding short-term borrowings were as follows:



(in millions, except percentages)	September 30, 2015			December 31, 2014
Commercial paper	$	661.5		$	617.6
Weighted-average interest rate on commercial paper outstanding	0.32		%	0.22		%

Our average amount of commercial paper borrowings based on daily outstanding balances during the nine months ended September 30, 2015, was $785.6 million with a weighted-average interest rate during the period of 0.27%.

We manage our liquidity by maintaining what we believe to be adequate external financing commitments. The information in the table below relates to our revolving credit facilities used to support our commercial paper borrowing program, including remaining available capacity under these facilities:



(in millions)	Maturity	September 30, 2015
WEC Energy Group	December 2019	$	400.0
Wisconsin Electric	December 2019	500.0
Wisconsin Gas	December 2019	350.0
Integrys	June 2017	285.0
Integrys	May 2019	265.0
WPS	May 2019	135.0
WPS	June 2017	115.0
PGL	June 2017	250.0
Total short-term credit capacity		$	2,300.0

Less:
Letters of credit issued inside credit facilities		$	18.0
Commercial paper outstanding		661.5
Available capacity under existing agreements		$	1,620.5

NOTE 6—LONG-TERM DEBT

Our outstanding long-term debt, including current maturities as of September 30, 2015, included approximately $3.0 billion of Integrys debt assumed on June 29, 2015. The amount assumed included $46.2 million of fair value adjustments recorded in

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connection with purchase accounting, which will be amortized over the estimated remaining life of the debt and will not be a part of future principal payments. See Note 2, Acquisition, for more information regarding the acquisition.

On September 30, 2015, Wisconsin Gas issued $200.0 million of 3.53% Debentures due September 30, 2025. The net proceeds were used to repay short-term debt and for general corporate purposes.

On August 1, 2015, the interest rate on PGL's $50.0 million of 2.625% Series WW Bonds was reset. The new interest rate is 1.875%. The new mandatory interest reset date is August 1, 2020. The final maturity of these bonds is February 1, 2033.

In July 2015, Integrys tendered an offer to repurchase all $55.0 million outstanding of its 8.00% Senior Notes due June 1, 2016, and $5.0 million of this amount was tendered and purchased. The $50.0 million balance of these notes was included in the current portion of long-term debt on our balance sheet at September 30, 2015.

In June 2015, WEC Energy Group issued $300.0 million of 1.65% Senior Notes due June 15, 2018, $400.0 million of 2.45% Senior Notes due June 15, 2020, and $500.0 million of 3.55% Senior Notes due June 15, 2025. The net proceeds were used to pay a portion of the cash consideration for the acquisition of Integrys and related transaction costs, and for general corporate purposes.

In May 2015, Wisconsin Electric issued $250.0 million of 3.10% Debentures due June 1, 2025. The net proceeds were used to repay short-term debt and for general corporate purposes.

In May 2014, Wisconsin Electric issued $250.0 million of 4.25% Debentures due June 1, 2044. The net proceeds were used to repay short-term debt and for general corporate purposes.

On April 1, 2014, Wisconsin Electric used short-term borrowings to retire $300.0 million of long-term debt that matured.

NOTE 7—INVENTORIES

Our inventory consisted of:



(in millions)	September 30, 2015		December 31, 2014
Materials, supplies, and inventories
Natural gas in storage	$	310.3	$	124.8
Materials and supplies	226.7		150.2
Fossil fuel	182.8		125.6
Total	$	719.8	$	400.6

PGL and NSG price natural gas storage injections at the calendar year average of the cost of natural gas supply purchased. Withdrawals from storage are priced on the Last-In, First-Out (LIFO) cost method. For interim periods, the difference between current projected replacement cost and the LIFO cost for quantities of natural gas temporarily withdrawn from storage is recorded as a temporary LIFO liquidation debit or credit. At September 30, 2015, all LIFO layers were replenished, and the LIFO liquidation balance was zero.

Substantially all other natural gas in storage, materials and supplies, and fossil fuel inventories are recorded using the weighted-average cost method of accounting.

NOTE 8—FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

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Fair value accounting rules provide a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are defined as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Pricing inputs are observable, either directly or indirectly, but are not quoted prices included within Level 1. Level 2 includes those financial instruments that are valued using external inputs within models or other valuation methods.

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methods that result in management's best estimate of fair value. Level 3 instruments include those that may be more structured or otherwise tailored to customers' needs.

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We use a mid-market pricing convention (the mid-point price between bid and ask prices) as a practical measure for valuing certain derivative assets and liabilities. We primarily use a market approach for recurring fair value measurements and attempt to use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

When possible, we base the valuations of our risk management assets and liabilities on quoted prices for identical assets and liabilities in active markets. These valuations are classified in Level 1. The valuations of certain contracts not classified as Level 1 may be based on quoted market prices received from counterparties and/or observable inputs for similar instruments. Transactions valued using these inputs are classified in Level 2. Certain derivatives are categorized in Level 3 due to the significance of unobservable or internally-developed inputs.

The following tables summarize our financial assets and liabilities that were accounted for at fair value on a recurring basis, categorized by level within the fair value hierarchy:



	As of September 30, 2015
(in millions)	Level 1		Level 2		Level 3		Total
Assets
Derivative Assets
Natural gas contracts	$	2.6	$	3.9	$	—	$	6.5
Financial transmission rights (FTRs)	—		—		5.8		5.8
Petroleum product contracts	0.4		—		—		0.4
Coal contracts	—		0.8		—		0.8
Total Derivative Assets	$	3.0	$	4.7	$	5.8	$	13.5

Investment in exchange-traded funds *	$	49.6	$	—	$	—	$	49.6

Liabilities
Derivative Liabilities
Natural gas contracts	$	15.0	$	21.5	$	—	$	36.5
Petroleum product contracts	2.1		—		—		2.1
Coal contracts	—		2.5		5.4		7.9
Total Derivative Liabilities	$	17.1	$	24.0	$	5.4	$	46.5


*	Exchange-traded funds are held in the Integrys rabbi trust. The Integrys rabbi trust is an irrevocable trust used to fund participants' benefits under the Integrys deferred compensation program and certain Integrys nonqualified pension plans.

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	As of December 31, 2014
(in millions)	Level 1		Level 2		Level 3		Total
Assets
Derivative Assets
Natural gas contracts	$	1.1	$	3.9	$	—	$	5.0
FTRs	—		—		7.0		7.0
Coal contracts	—		3.3		—		3.3
Total Derivative Assets	$	1.1	$	7.2	$	7.0	$	15.3

Liabilities
Derivative Liabilities
Natural gas contracts	$	11.5	$	0.8	$	—	$	12.3
Coal contracts	—		0.2		—		0.2
Total Derivative Liabilities	$	11.5	$	1.0	$	—	$	12.5

The derivative assets and liabilities listed in the tables above include options, swaps, futures, physical commodity contracts, and other instruments used to manage market risks related to changes in commodity prices. They also include FTRs, which are used to manage electric transmission congestion costs in the Midcontinent Independent System Operator, Inc. (MISO) market.

The following table summarizes the changes to derivatives classified as Level 3 in the fair value hierarchy:



	Three Months Ended September 30						Nine Months Ended September 30
(in millions)	2015			2014			2015			2014
Balance at the beginning of the period	$	2.3		$	14.1		$	7.0		$	3.5
Realized and unrealized gains	0.2			—			0.2			—
Purchases	—			—			3.9			15.6
Settlements	(2.1		)	(4.0		)	(9.4		)	(9.0		)
Acquisition of Integrys	—			—			(1.3		)	—
Balance at the end of the period	$	0.4		$	10.1		$	0.4		$	10.1

Unrealized gains and losses on Level 3 derivatives are deferred as regulatory assets or liabilities. Therefore, these fair value measurements have no impact on earnings. Realized gains and losses on these instruments flow through cost of sales on the condensed consolidated income statements.

Fair Value of Financial Instruments

The following table shows the financial instruments included on our condensed consolidated balance sheets that are not recorded at fair value:



	September 30, 2015				December 31, 2014
(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Preferred stock	$	81.5	$	78.8	$	30.4	$	27.1
Long-term debt, including current portion	$	9,300.7	$	9,386.4	$	4,552.4	$	5,126.0

Due to the short-term nature of cash and cash equivalents, net accounts receivable, accounts payable, and short-term borrowings, the carrying amount of each such item approximates fair value. The fair value of our preferred stock is estimated based on the quoted market value for the same issue, similar issues, or by using a perpetual dividend discount model. The fair value of our long-term debt, including the current portion of long-term debt, but excluding capitalized leases and unamortized discount on debt, is estimated based upon the quoted market value for the same issue, similar issues, or upon the quoted market prices of U.S. Treasury issues having a similar term to maturity, adjusted for the issuing company's bond rating and the present value of future cash flows.

NOTE 9—DERIVATIVE INSTRUMENTS

We use derivatives as part of our risk management program to manage the risks associated with the price volatility of purchased power, generation, and natural gas costs for the benefit of our customers and shareholders. Our approach is non-speculative and designed to mitigate risk. Regulated hedging programs are approved by our state regulators.

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We record derivative instruments on the balance sheet as an asset or liability measured at fair value. Changes in the derivative's fair value are recognized currently in earnings unless specific hedge accounting criteria are met or we receive regulatory treatment for the derivative. For most energy-related physical and financial contracts in our regulated operations that qualify as derivatives, our regulators allow the effects of fair value accounting to be offset to regulatory assets and liabilities.

The following table shows our derivative assets and derivative liabilities:



		September 30, 2015				December 31, 2014
(in millions)	Balance Sheet Presentation	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Natural gas	Other current	$	6.1	$	33.0	$	5.0	$	11.5
Natural gas	Other long-term	0.4		3.5		—		0.8
Petroleum products	Other current	0.2		1.7		—		—
Petroleum products	Other long-term	0.2		0.4		—		—
FTRs	Other current	5.8		—		7.0		—
Coal	Other current	0.8		5.2		2.7		0.2
Coal	Other long-term	—		2.7		0.6		—
	Other current	12.9		39.9		14.7		11.7
	Other long-term	0.6		6.6		0.6		0.8
Total		$	13.5	$	46.5	$	15.3	$	12.5

Gains (losses) on derivative instruments are primarily included in cost of sales on the condensed consolidated income statements. Our estimated notional sales volumes and gains (losses) were as follows:



	Three Months Ended September 30, 2015				Three Months Ended September 30, 2014
(in millions)	Volume	Gains (Losses)			Volume	Gains (Losses)
Natural gas	24.2 Dth	$	(13.2	)	6.3 Dth	$	(0.8	)
Petroleum products	2.8 gallons	(0.9		)	2.6 gallons	—
FTRs	8.6 MWh	3.1			6.6 MWh	2.0
Total		$	(11.0	)		$	1.2



	Nine Months Ended September 30, 2015				Nine Months Ended September 30, 2014
(in millions)	Volume	Gains (Losses)			Volume	Gains
Natural gas	47.5 Dth	$	(26.2	)	31.1 Dth	$	9.3
Petroleum products	4.5 gallons	(0.9		)	7.0 gallons	0.6
FTRs	20.7 MWh	6.0			19.7 MWh	11.6
Total		$	(21.1	)		$	21.5

The amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral are not offset against the fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. At September 30, 2015, and December 31, 2014, we had posted collateral of $35.7 million and $11.2 million, respectively, in our margin accounts. These amounts were recorded on the condensed consolidated balance sheets in other current assets.

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The following table shows derivative assets and derivative liabilities if derivative instruments by counterparty were presented net on the condensed consolidated balance sheet:



	September 30, 2015						December 31, 2014
	Derivative			Derivative			Derivative			Derivative
(in millions)	Assets			Liabilities			Assets			Liabilities
Gross amount recognized on the balance sheet	$	13.5		$	46.5		$	15.3		$	12.5
Gross amount not offset on balance sheet *	(5.0		)	(19.2		)	(0.4		)	(11.5		)
Net Amount	$	8.5		$	27.3		$	14.9		$	1.0


*	Includes cash collateral posted of $14.2 million and $10.3 million as of September 30, 2015, and December 31, 2014, respectively.

Certain of our derivative and nonderivative commodity instruments contain provisions that could require "adequate assurance" in the event of a material change in our creditworthiness, or the posting of additional collateral for instruments in net liability positions, if triggered by a decrease in credit ratings. The aggregate fair value of all derivative instruments with specific credit risk-related contingent features that were in a liability position was $20.9 million at September 30, 2015, and zero at December 31, 2014. At September 30, 2015, and December 31, 2014, we had not posted any cash collateral related to the credit risk-related contingent features of these commodity instruments. If all of the credit risk-related contingent features contained in commodity instruments (including derivatives, nonderivatives, normal purchase and normal sales contracts, and applicable payables and receivables) had been triggered at September 30, 2015, we would have been required to post collateral of $19.6 million. No collateral would have been required at December 31, 2014.

During the second quarter of 2015, we settled several forward interest rate swap agreements entered into earlier in the quarter to mitigate interest risk associated with the issuance of $1.2 billion of long-term debt related to the acquisition of Integrys. As these agreements qualified for cash flow hedging accounting treatment, the payments of $19.0 million received upon settlement of these agreements were deferred in accumulated other comprehensive income and are being amortized as a decrease to interest expense over the periods in which the interest costs are recognized in earnings.

During the nine months ended September 30, 2015, we reclassified $0.4 million of forward interest rate swap agreement settlements deferred in accumulated other comprehensive income as a reduction to interest expense. We estimate that during the next twelve months, $1.3 million will be reclassified from accumulated other comprehensive income as a reduction to interest expense.

NOTE 10—GUARANTEES

The following table shows our outstanding guarantees:



	Total Amounts Committed		Expiration
(in millions)	at September 30, 2015		Less Than 1 Year		1 to 3 Years		Over 3 Years
Guarantees
Guarantees supporting commodity transactions of subsidiaries ⁽¹⁾	$	161.4	$	89.4	$	—	$	72.0
Standby letters of credit ⁽²⁾	28.6		28.5		0.1		—
Surety bonds⁽³⁾	36.6		36.6		—		—
Other guarantees⁽⁴⁾	71.2		20.7		0.1		50.4
Total guarantees	$	297.8	$	175.2	$	0.2	$	122.4

⁽¹⁾

Consists of (a) $5.0 million and $6.0 million to support the business operations of WEC Business Services, LLC (WBS) and WPS Power Development, LLC (PDL), respectively; and, (b) $0.9 million, $113.8 million and $35.7 million related to natural gas supply at ITF, Minnesota Energy Resources Corporation (MERC) and MGU, respectively. These guarantees are not reflected on our condensed consolidated balance sheets.


⁽²⁾	At our request or the request of our subsidiaries, financial institutions have issued standby letters of credit for the benefit of third parties that have extended credit to our subsidiaries. These amounts are not reflected on our condensed consolidated balance sheets.


⁽³⁾	Primarily for the construction and operation of CNG fueling stations by ITF, workers compensation self-insurance programs, and obtaining various licenses, permits and rights-of-way. These amounts are not reflected on our condensed consolidated balance sheets.

⁽⁴⁾

Consists of (a) $19.1 million to support PDL's future payment obligations related to its distributed solar generation projects, of which $6.6 million is covered by a reciprocal guarantee from a third party; (b) $20.0 million for an interconnection agreement between WPS and ATC; (c) $10.0 million related to the sale of a nonregulated retail marketing business previously owned by Integrys; (d) $11.2 million related to the

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performance of an operating and maintenance agreement by ITF; and (e) $10.9 million related to other indemnifications. The amounts discussed in items (a), (b) and (d) are not reflected on our condensed consolidated balance sheets. An insignificant liability was recorded for item (c) related to the possible imposition of additional miscellaneous gross receipts tax in the event of a change in law or interpretation of the law. In addition, a liability of $10.2 million related to workers compensation coverage was recorded for item (e).

NOTE 11—EMPLOYEE BENEFITS

Defined Benefit Plans

The following tables show the components of net periodic pension and other postretirement employee benefits (OPEB) costs for our benefit plans. Our pension and OPEB costs for the three and nine months ended September 30, 2015, include costs attributable to the Integrys pension and OPEB plans that were incurred subsequent to the acquisition of Integrys on June 29, 2015. The terms and conditions of the legacy company plans have not changed since the acquisition.



	Pension Costs
	Three Months Ended September 30						Nine Months Ended September 30
(in millions)	2015			2014			2015			2014
Service cost	$	11.3		$	2.6		$	19.1		$	7.6
Interest cost	31.9			17.0			62.2			51.1
Expected return on plan assets	(52.1		)	(24.7		)	(103.5		)	(74.0		)
Amortization of:
Prior service cost	0.7			0.6			1.7			1.6
Net actuarial loss	22.7			9.1			45.7			27.5
Net periodic benefit cost	$	14.5		$	4.6		$	25.2		$	13.8



	OPEB Costs
	Three Months Ended September 30						Nine Months Ended September 30
(in millions)	2015			2014			2015			2014
Service cost	$	8.0		$	2.1		$	12.7		$	6.4
Interest cost	9.3			4.4			17.4			13.3
Expected return on plan assets	(13.9		)	(5.9		)	(25.7		)	(17.8		)
Amortization of:
Prior service credit	(2.9		)	(0.4		)	(3.5		)	(1.3		)
Net actuarial loss	1.5			0.3			2.5			0.9
Net periodic benefit cost	$	2.0		$	0.5		$	3.4		$	1.5

We contributed $100.0 million to our qualified pension plan during the first nine months of 2015. No such contribution was made during the first nine months of 2014.

NOTE 12—GOODWILL AND OTHER INTANGIBLE ASSETS

The following table shows changes to the carrying amount of our goodwill. There were no impairments recorded in 2015. We have not yet completed the allocation o