COMMON EQUITY

Stock-Based Compensation Plans

The following table summarizes our pre-tax stock-based compensation expense and the related tax benefit for the years ended December 31:



(in millions)	2016		2015		2014
Stock options	$	1.8	$	3.2	$	3.6
Restricted stock	1.8		2.1		2.1
Performance units	3.9		7.5		12.7
Stock-based compensation expense	$	7.5	$	12.8	$	18.4
Related tax benefit	$	3.0	$	5.1	$	7.4

Stock-based compensation costs capitalized during 2016, 2015, and 2014 were not significant.

Stock Options

The following is a summary of our employees' WEC Energy Group stock option activity during 2016:



Stock Options	Number of Options		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in millions)
Outstanding as of January 1, 2016	5,687,714		$	33.58
Granted	92,880		$	50.93
Exercised	(439,043	)	$	27.57
Transferred *	(4,055,745	)	$	34.68
Outstanding as of December 31, 2016	1,285,806		$	33.41	4.6	$	32.4
Exercisable as of December 31, 2016	1,010,061		$	29.64	3.7	$	29.3


*	Relates to the transfer of certain employees into WBS. See Note 4, Related Parties, for more information.

The aggregate intrinsic value of outstanding and exercisable options in the above table represents the total pre-tax intrinsic value that would have been received by the option holders had they exercised all of their options on December 31, 2016. This is calculated as the difference between WEC Energy Group's closing stock price on December 31, 2016, and the option exercise price, multiplied by the number of in-the-money stock options. The intrinsic value of options exercised during the years ended December 31, 2016, 2015, and 2014 was $14.1 million, $34.6 million, and $47.5 million, respectively. Cash received by WEC Energy Group from exercises of its options by our employees was $12.1 million, $29.2 million, and $47.9 million during the years ended December 31, 2016, 2015, and 2014, respectively. The actual tax benefit realized for the tax deductions from option exercises for the same periods was approximately $5.6 million, $14.0 million, and $18.8 million, respectively.

As of December 31, 2016, our estimated unrecognized compensation cost related to unvested WEC Energy Group stock options was not significant.

During the first quarter of 2017, the Compensation Committee awarded 80,770 non-qualified WEC Energy Group stock options with an exercise price of $58.31 and a weighted-average grant date fair value of $7.12 per option to certain of our officers and other key employees under its normal schedule of awarding long-term incentive compensation.

Restricted Shares

The following is a summary of our employees' WEC Energy Group restricted stock activity during 2016:



Restricted Shares	Number of Shares		Weighted-Average Grant Date Fair Value
Outstanding as of January 1, 2016	175,443		$	47.66
Granted	8,049		$	51.78
Released	(7,901	)	$	44.66
Transferred *	(158,635	)	$	47.73
Forfeited	(695	)	$	50.42
Outstanding as of December 31, 2016	16,261		$	50.39


*	Relates to the transfer of certain employees into WBS. See Note 4, Related Parties, for more information.

The intrinsic value of WEC Energy Group restricted stock held by our employees that was released was $0.4 million, $2.7 million, and

$2.3 million for the years ended December 31, 2016, 2015, and 2014, respectively. The actual tax benefit realized for the tax deductions from released restricted shares for the same years was $0.2 million, $1.1 million, and $0.9 million, respectively.

As of December 31, 2016, our estimated unrecognized compensation cost related to WEC Energy Group restricted stock was not significant.

During the first quarter of 2017, the Compensation Committee awarded 8,001 WEC Energy Group restricted shares to our officers and other key employees under its normal schedule of awarding long-term incentive compensation. The grant date fair value of these awards was $58.10 per share.

Performance Units

In 2016, 2015, and 2014, the Compensation Committee awarded 35,700; 187,450; and 224,735 WEC Energy Group performance units, respectively, to our officers and other key employees under the WEC Energy Group Performance Unit Plan.

In 2016, we transferred 573,499 performance units to WBS in connection with the transfer of certain employees. See Note 4, Related Parties, for more information.

Performance units with an intrinsic value of $3.4 million, $11.6 million, and $13.1 million were settled during 2016, 2015, and 2014, respectively. The actual tax benefit realized for the tax deductions from the distribution of performance units for the same years was approximately $0.5 million, $4.2 million, and $4.7 million, respectively.

As of December 31, 2016, we expect to recognize approximately $4.4 million of unrecognized compensation cost related to WEC Energy Group performance units over the next 1.4 years on a weighted-average basis.

During the first quarter of 2017, performance units held by our employees with an intrinsic value of $1.4 million were settled. The actual tax benefit realized from the distribution of these awards was $0.4 million. In January 2017, the Compensation Committee also awarded 34,765 WEC Energy Group performance units to our officers and other key employees under its normal schedule of awarding long-term incentive compensation.

Restrictions

Various financing arrangements and regulatory requirements impose certain restrictions on our ability to transfer funds to WEC Energy Group in the form of cash dividends, loans or advances. In addition, under Wisconsin law, we are prohibited from loaning funds, either directly or indirectly, to WEC Energy Group.

In accordance with our most recent rate order, we may not pay common dividends above the test year forecasted amount reflected in our rate case, if it would cause our average common equity ratio, on a financial basis, to fall below our authorized level of 51%. A return of capital in excess of the test year amount can be paid by us at the end of the year provided that our average common equity ratio does not fall below the authorized level.

We may not pay common dividends to WEC Energy Group under our Restated Articles of Incorporation if any dividends on our outstanding preferred stock have not been paid. In addition, pursuant to the terms of our 3.60% Serial Preferred Stock, our ability to declare common dividends would be limited to 75% or 50% of net income during a twelve month period if our common stock equity to total capitalization, as defined in the preferred stock designation, is less than 25% and 20%, respectively.

See Note 12, Short-Term Debt and Lines of Credit, for discussion of certain financial covenants related to short-term debt obligations.

As of December 31, 2016, our restricted retained earnings totaled $1.9 billion. Our equity in undistributed earnings of investees accounted for by the equity method was $142.2 million at December 31, 2016.

We do not believe that these restrictions will materially affect our operations or limit any dividend payments in the foreseeable future.