UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PERSUANTPURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 19992000
Commission Registrant; State of Incorporation IRS Employer
File Number Address; and Telephone Number Identification No.
---------- --------------------------------- ---------------
001-09057 WISCONSIN ENERGY CORPORATION 39-1391525
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2949
Milwaukee, WI 53201
(414) 221-2345----------- ---------------------------------- ------------------
001-01245 WISCONSIN ELECTRIC POWER COMPANY 39-0476280
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2046
Milwaukee, WI 53201
(414) 221-2345
Indicate by check mark whether eachthe 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 eachthe 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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of eachthe Registrant's
knowledge, in the definitive Proxy or information statementsInformation Statement incorporated
by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the common stock of Wisconsin
Energy Corporation held by non-affiliates is approximately
$2,018,037,000 based upon the reported last sale price of such
securities as of March 8, 2000. All of the common stock of Wisconsin Electric Power Company is
held by Wisconsin Energy Corporation.
Name of Each Exchange
Registrant / Title of Each Class on Which Registered
----------------------------------- ----------------------
Securities Registered Pursuant to Section 12(b) of the Act:
Wisconsin Energy Corporation
Common Stock, $.01 Par Value New York StockName of Each Exchange
Wisconsin Electric Power CompanyTitle of Each Class on Which Registered
------------------- ---------------------
None N/A
Securities Registered Pursuant to Section 12(g) of the Act:
Wisconsin Energy Corporation
None
Wisconsin Electric Power Company
Serial Preferred Stock, 3.60% Series, $100 Par Value
N/A
Six Per Cent. Preferred Stock, $100 Par Value N/A
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest
practicable date (March 8, 2000)(February 28, 2001):
Wisconsin Energy Corporation Common Stock, $.01 Par Value,
120,031,967 shares outstanding.
Wisconsin Electric Power Company
Common Stock, $10 Par Value, 33,289,327 shares outstanding.
Wisconsin Energy Corporation is the sole holder of
Wisconsin Electric Power CompanyCompany's Common Stock.
Documents Incorporated by Reference
------------------------------------------
Portions of Wisconsin Energy Corporation's definitive Proxy
Statement for its Annual Meeting of Stockholders, to be held on
June 27, 2000, are incorporated by reference into Part III
hereof.-----------------------------------
Portions of Wisconsin Electric Power Company's definitive
Information Statement for its Annual Meeting of Stockholders, to
be held on June 22, 2000,April 27, 2001, are incorporated by reference into
Part III hereof.
This combined Form 10-K is separately filed by Wisconsin Energy
Corporation and by Wisconsin Electric Power Company. Information
contained herein relating to any individual Registrant is filed
by such Registrant on its own behalf.
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
--------------------------------
FORM 10-K REPORT FOR THE YEAR ENDED DECEMBER 31, 19992000
TABLE OF CONTENTS
-------------------------
Item Page
-
- ---- ----
Part I
------
1. Business...................................................................
Introduction.............................................................
Utility Segment..........................................................Operations.......................................................
Electric Operations....................................................Utility Operations............................................
Electric Sales.......................................................
Competition..........................................................
Electric Supply......................................................
Coal-Fired Generation................................................
Nuclear Generation...................................................
Hydroelectric Generation.............................................
Natural Gas-Fired Generation.........................................
Oil-Fired Generation.................................................
Purchase Power Commitments ..........................................
Interconnections with Other Utilities................................Commitments...........................................
Electric Transmission................................................
Renewable Electric Energy............................................
Gas Operations.........................................................Utility Operations.................................................
Gas Deliveries.......................................................
Competition..........................................................
Gas Supply...........................................................
Competition..........................................................
Acquisition of Wisconsin Gas Company.................................Supply, Pipeline Capacity and Storage............................
Steam Operations.......................................................Utility Operations...............................................
Utility Rate Matters...................................................
Utility Energy Efficiency..............................................
Non-Utility Segment......................................................
Non-Utility Energy Operations..........................................
Other Non-Utility Operations...........................................
Non-Utility Restrictions...............................................
Regulation...............................................................
Environmental Compliance.................................................
Environmental Expenditures.............................................
Solid Waste Landfills..................................................
Ash Landfills..........................................................Coal-Ash Landfills.....................................................
Manufactured Gas Plant Sites...........................................
Air Quality............................................................
Other....................................................................
2. Properties.................................................................
Utility Segment..........................................................
Non-Utility Segment......................................................
3. Legal Proceedings..........................................................
Environmental Matters....................................................
Utility Rate Matters.....................................................
Other Matters............................................................
4. Submission of Matters to a Vote of Security Holders........................
Executive Officers of the Registrants......................................Registrant.......................................
Part II
-------
5. Market for Registrants' Common Equity and Related Stockholders Matters.....
Number of Common Stockholders............................................
Common Stock Listing and Trading.........................................
Dividends and Common Stock Prices........................................Matter......
6. Selected Financial Data....................................................
Wisconsin Energy Corporation.............................................
Wisconsin Electric Power Company.........................................Selected Financial and Statistical Data..................................
Selected Quarterly Financial Data........................................
Selected Operating Data..................................................
7. Management's Discussion & Analysis of Financial ...........................
Condition &
Results of Operations........................................
Earnings...............................................................
Utility Segment Pretax Operating Results...............................Operations....................................................
Results of Operations..................................................
Earnings.............................................................
Electric Utility Revenues, Gross Margins and Sales...................Sales.................
Gas Utility Revenues, Gross Margins and Therm Deliveries.............
UtilityDeliveries...........
Other Items........................................................
Liquidity and Capital Resources........................................
Cash Flows...........................................................
Operating Expenses...........................................
Non-Utility Segment Pretax Operating Results...........................
Other Income & Expense Items .........................................Activities...............................................
Investing Activities...............................................
Financing Activities...............................................
Capital Resources and Requirements...................................
Capital Resources..................................................
Capital Requirements...............................................
Factors Affecting Results, of Operations..................................
Mergers................................................................
Nuclear Matters........................................................
Legal Matters..........................................................Liquidity and Capital Resources.............
Outlook..............................................................
Forecasts..........................................................
Factors Affecting Forecasts........................................
Investments, Mergers, and Asset Transfers............................
Electric System Reliability Matters....................................
Electric Generation Initiatives......................................
Electric Transmission Initiatives....................................Generation................................................
Energy Distribution................................................
Rates and Regulatory Matters.........................................
Wisconsin Jurisdiction.............................................
Michigan Jurisdiction..............................................
Industry Restructuring and Competition.................................
State of Wisconsin...................................................
State of Michigan....................................................
Wholesale competition................................................
Rates and Regulatory Matters...........................................Competition...............................
Electric Utility Industry..........................................
Natural Gas Utility Industry.......................................
Electric System Reliability..........................................
Nuclear Operations...................................................
Legal Matters........................................................
Environmental Matters..................................................
Outlook................................................................
Effects of Weather.....................................................
Effects of Inflation...................................................Matters................................................
Market Risks...........................................................
Year 2000 Technology Issues............................................Risks.........................................................
Accounting Matters.....................................................
Liquidity and Capital Resources..........................................
Operating Activities...................................................
Investing Activities...................................................
Financing Activities...................................................
Capital Requirements...................................................
Capital Resources......................................................Developments..............................................
Cautionary Factors.......................................................Factors...................................................
Operating, Financial & Industry Factors ..............................Factors............................
Business Combination Factors...........................................Factors.......................................
7A. Quantitative and Qualitative Disclosures About Market Risk.................
8. Financial Statements and Supplementary Data................................
IndexIncome Statement.........................................................
Statement of Cash Flows..................................................
Balance Sheet............................................................
Capitalization Statement.................................................
Statement of Common Equity...............................................
Notes to 1999 Financial Statements.......................................
Wisconsin Energy Corporation.............................................Statements............................................
Note A - Summary of Significant Accounting Policies....................
Note B - American Transmission Company.................................
Note C - Non-Recurring Charges.........................................
Note D - Income Taxes..................................................
Note E - Nuclear Operations............................................
Note F - Long-Term Debt................................................
Note G - Short-Term Debt...............................................
Note H - Fair Value of Financial Instruments...........................
Note I - Benefits......................................................
Note J - Segment Reporting.............................................
Note K - Commitments and Contingencies.................................
Note L - Transactions with Associated Companies........................
Report of Independent Accountants......................................
Wisconsin Electric Power Company.........................................
Report of Independent Accountants......................................Accountants........................................
9. Changes in and& Disagreements with Accountants
on Accounting and Financial Disclosure...................................
Part III
--------
10. Directors and Executive Officers of the Registrant.........................
11. Executive Compensation.....................................................
12. Security Ownership of Certain Beneficial Owners and Management.............
13. Certain Relationships and Related Transactions.............................
Part IV
-------
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...........
Schedule 1 - Condensed Parent Company Financial Statements.................
Consents of Independent Accountants........................................
Signatures.................................................................
Exhibit Index..............................................................
PART I
--------------
ITEM 1. BUSINESS
Wisconsin Energy Corporation was incorporated in the state of
Wisconsin in 1981 and became a holding company in 1986. Unless
qualified by the context used in this document, the terms
"Wisconsin Energy" or the "Company" refer to the holding company
and all of its subsidiaries. The operations of the Company and
its subsidiaries are conducted in a utility business segment and a
non-utility business segment. Wisconsin Energy's principal
subsidiary at December 31, 1999 wasINTRODUCTION
Wisconsin Electric Power Company ("Wisconsin Electric" or the
"Company"), an electric, gas and steam utility
whicha wholly-owned subsidiary of Wisconsin Energy
Corporation ("Wisconsin Energy"), was incorporated in the state
of Wisconsin in 1896. The
following discussion includes both Wisconsin Energy and Wisconsin Electric unless otherwise stated.
PENDING ACQUISITION OF WICOR, INC.: On June 27, 1999, Wisconsin
Energy and WICOR, Inc., a Wisconsin corporation, entered into an
Agreement and Plan of Merger providing for a strategic business
combination of Wisconsin Energy and WICOR. The merger will be
accounted for as a purchase transaction. WICOR is a diversified
holding company with consolidated total assets of approximately
$1.1 billion at December 31, 1999 in utility and non-utility
energy subsidiaries as well as in pump manufacturing subsidiaries.
Following the merger, WICOR and its subsidiaries will become
subsidiaries of Wisconsin Energy. Consummation of the merger is
subject to the satisfaction of certain closing conditions
including regulatory approvals and Federal Trade Commission
clearance. The Federal Trade Commission has closed its review and
Wisconsin Electric has obtained approval of the Public Service
Commission of Wisconsin. The only remaining required regulatory
approval is from the Securities and Exchange Commission. The
regulatory approval process is expected to be completed in time
for the transaction to be consummated on or about April 26, 2000.
ESELCO, INC.: Effective May 31, 1998, Wisconsin Energy acquired
ESELCO, Inc. in a tax free reorganization accounted for as a
pooling of interests. Due to the immaterial nature of this
transaction, Wisconsin Energy has not restated any historical
financial or statistical information contained in this document.
For additional information, see "Factors Affecting Results of
Operations - Mergers" in Item 7 of this report. ESELCO was the
parent company of Edison Sault Electric Company ("Edison Sault"), an electric, gas and
steam utility servingwhich serves over 1,000,000 electric customers in
Michigan's eastern Upper
Peninsula. Wisconsin Energy is operating Wisconsin Electric and
Edison Sault, an electric utility, as separate subsidiaries within
their historical service territories. Unless otherwise noted, the
discussion that follows includes Edison Sault's activity since
June 1, 1998.
Utility Segment
ELECTRIC OPERATIONS: Wisconsin Electric's electric operations
generate, transmit, distribute and sell electric energy in a
territory of approximately 12,000 square miles with a population
estimated at 2,300,000 in southeastern (including the metropolitan
Milwaukee area), east central and northern Wisconsin and in the Upper Peninsula of Michigan. Edison Sault generates, transmits,
distributesMichigan, over 400,000 gas
customers in Wisconsin and sells electric energyabout 450 steam customers in a territory of
approximately 2,000 square miles with a population of
approximately 55,000metro
Milwaukee. It maintains its principal executive offices in
the eastern Upper Peninsula of Michigan.
GAS OPERATIONS: Wisconsin Electric's gas operations purchase,
distribute and sell natural gas to retail customers and transport
customer-owned gas in four distinct service areas of about 3,800
square miles in Wisconsin: west and south of the City of
Milwaukee, the Appleton area, the Prairie du Chien area and areas
within Iron and Vilas Counties. The gas service territory has an
estimated population of approximately 1,200,000.
STEAM OPERATIONS: Wisconsin Electric's steam operations
generate, distribute and sell steam supplied by its Valley and
Milwaukee County Power Plants. Steam is used by customers for
space heating and processing, hot water and humidification in the
metropolitan Milwaukee area.
Non-Utility Segment
Wisconsin Energy's non-utility operations seek to grow shareholder
value by leveraging on the Company's core competencies. Wisconsin
Energy's non-utility subsidiaries are involved in various
activities, among which are development, ownership and operation
of electric generating facilities; waste/energy by-product
utilization/recycling; and real estate development.Wisconsin.
For information about the non-utility subsidiaries, see "Non-Utility
Segment" below.
* * * * *
For additionalfurther financial information about Wisconsin Energy'sElectric's
business segments, see "Results of Operations" in Item 7 and
"Note KJ - Segment Reporting" in Wisconsin
Energy'sthe Notes to Financial Statements
in Item 8 of this report.
Information for prior periods has been reclassified to reflectACQUISITION OF WICOR, INC.: On April 26, 2000, Wisconsin Energy
acquired WICOR, Inc. ("WICOR"), the 1999 change in the compositionparent of Wisconsin Energy's reportable
segments.Gas
Company ("Wisconsin Gas"), and is presently seeking authority
from the Public Service Commission of Wisconsin ("PSCW") to
transfer Wisconsin Electric's gas utility assets, together with
certain associated liabilities, to Wisconsin Gas in a tax free
exchange for an equity ownership by Wisconsin Electric in
Wisconsin Gas. For additional financial information, about Wisconsin
Electric's business segments, see "Note J - Segment Reporting" in
Wisconsin Electric's Notes to Financial Statements also in Item 8
of this report. For additional information concerning Wisconsin
Energy's acquisition of ESELCO and the pending acquisition of
WICOR, see "Factors
Affecting Results, of Operations - Mergers"Liquidity and Capital Resources" in Item 7 of
this report.
Cautionary FactorsCAUTIONARY FACTORS: A number of forward-looking statements are
included in this document. When used, the terms, "anticipate,"
"believe," "estimate," "expect," "objective," "plan," "possible,"
"potential," "project" and similar expressions are intended to
identify such forward-looking statements. Forward-looking
statements are subject to certain risks, uncertainties and
assumptions which could cause actual results to differ materially
from those that are described, including the factors described
throughout this document and in "Factors Affecting Results,
Liquidity and Capital Resources" in Item 7 of this report.
UTILITY SEGMENTOPERATIONS
ELECTRIC UTILITY OPERATIONS
The Company's electric utility operations consists of the
electric operations of Wisconsin Electric. Wisconsin Electric,
which is the largest electric utility in the state of Wisconsin,
generates, distributes and sells electric energy in a territory
of approximately 12,000 square miles with a population estimated
at 2,300,000 in southeastern (including the metropolitan
Milwaukee area), east central and northern Wisconsin and in the
Upper Peninsula of Michigan.
Electric Sales
See "Results of Operations - Utility Segment Pretax"Selected Operating Results - Electric Utility Revenues, Gross Margins and Sales"Data" in Item 76 of this report for
selectedcertain electric operating information
for Wisconsin Energy and additional selected electricutility operating information by customer class
for Wisconsin Electric.
WISCONSIN ELECTRIC:during the periods 1996 through 2000.
Wisconsin Electric is authorized to provide retail electric
service in designated territories in the state of Wisconsin, as
established by indeterminate permits, certificates of public
convenience and necessity, or boundary agreements with other
utilities, and in certain territories in the state of Michigan
pursuant to franchises granted by municipalities. Wisconsin
Electric also sells wholesale electric power.
Electric energy sales by Wisconsin Electric to all classes of
customers totaled approximately 30.631.4 million megawatt-hoursmegawatt hours
during 1999,2000, a 3.9%2.5% increase over 1998.1999. Approximately
0.2 million of megawatt-hour sales during 2000 were to Edison
Sault Electric Company ("Edison Sault"), an affiliated electric
utility serving retail and wholesale customers in the Upper
Peninsula of Michigan. There were approximately 1,006,0001,027,000
electric customers at December 31, 1999,2000, an increase of 1.7%2.1%
since December 31, 1998.1999.
Electric energy sales are impacted by seasonal factors and
varying weather conditions from year-to-year. Wisconsin
Electric, a summer peaking utility as a result of cooling load,
reached its all-time electric peak demand obligation of
5,974 megawatts on July 29, 1999. During the years 20002001 through
2004,2005, Wisconsin Electric currently estimates that electric peak
demand obligation will grow at an annualized rate of 0.5%1.8% to
6,118approximately 6,400 megawatts by the year 2004.
EDISON SAULT: Edison Sault is authorized to provide retail
electric service in certain territories in the state of Michigan
pursuant to franchises granted by municipalities. Edison Sault
also provides wholesale electric service under contract with one
rural cooperative.
Electric energy sales by Edison Sault to all classes of customers
totaled approximately 0.6 million megawatt-hours during 1999.
There were approximately 21,800 electric customers at December 31,
1999, an increase of 1.8% since December 31, 1998.
Edison Sault, a winter peaking utility as a result of heating
load, reached its all-time peak electric demand of 138 megawatts
on January 14, 1999. Edison Sault's peak load growth during the
past five years has averaged between 1% and 2% per year. Edison
Sault expects this level of growth to continue into the
foreseeable future.2005.
SALES TO LARGE ELECTRIC RETAIL CUSTOMERS: Wisconsin Electric
provides electric utility service to a diversified base of
large
commercial and industrial customers includingin such industries as mining, paper, foundry, food
products, and machinery production.production as well as to large retail chains.
Cleveland-Cliffs, IncInc. manages Wisconsin Electric'sthe Company's two largest retail
electric customers, the Empire and Tilden iron ore mines located
in the Upper Peninsula of Michigan. Due to a two month shutdown of bothWisconsin Electric currently
has special negotiated power-sales contracts with the mines during 1999, thethat
expire in 2007. The combined electric energy sales forto the two
mines accounted for 7.8%, 7.1% and 8.2% of Wisconsin Electric'sthe Company's total
electric utility energy sales during 2000, 1999 compared to 8.2% of Wisconsin Electric's total sales
during 1998. Overall, sales to Wisconsin Electric's largest 100
electric customers exceed $375 million annually.
Edison Sault provides electric service to large industrial
accounts in the paper, crude oil pipeline and limestone quarry
industries as well as to several state and federal government
facilities.1998,
respectively.
SALES TO WHOLESALE CUSTOMERS: During 1999,2000, Wisconsin Electric
sold wholesale electric energy to five municipally owned systems,
two rural cooperatives and two municipal joint action agencies
located in the states of Wisconsin, Michigan and Illinois.
Wholesale electric energy sales by Wisconsin Electric were also
made to 4843 other public utilities and power marketers throughout
the region under rates approved by the Federal Energy Regulatory
Commission. Wholesale sales accounted for approximately 12%12.2% of
Wisconsin Electric'sthe Company's total electric energy sales and 7%7.2% of total
electric operating revenues during 19992000 compared to 10%with 12.2% of
total electric energy sales and 6%6.9% of total electric operating
revenues during 1998.
Wisconsin Electric's existing Federal Energy Regulatory Commission
tariffs also provide for transmission service to its wholesale
customers. During 1999, Wisconsin Electric had 19 customers
taking transmission service.1999.
ELECTRIC SYSTEM RELIABILITY MATTERS: In spite of severalcontinued
tight regional electric supply, especially during episodes of hot
and humid weather, during the summer of 1999,
Wisconsin ElectricCompany had adequate capacity to meet all
of its firm electric load obligations during 19992000 and expects to
have adequate capacity to meet all of its firm obligations during
2000.2001. However, the Company anticipates that the regional
electric energy supply will remain tight during 2000. See2001. For
additional information, see "Factors Affecting Results, of Operations - Electric System Reliability Matters"Liquidity
and Capital Resources" in Item 7 of this reportreport.
"POWER THE FUTURE" STRATEGY: Demand for electricity in the
state of Wisconsin is currently expected to outstrip supply by
4,000 megawatts by 2010. Wisconsin Electric's electric load is
currently growing at approximately 100 to 150 megawatts per year.
In response, Wisconsin Energy announced an enhanced 10-year,
$7 billion strategy in February 2001 to improve the supply and
reliability of electricity in Wisconsin. For additional
information, concerning ongoing actionssee "Factors Affecting Results, Liquidity and
Capital Resources" in whichItem 7 of this report. As part of its
enhanced "Power the Future" strategy, Wisconsin Energy expects to
create a new non-utility energy subsidiary that would construct
and own 2,800 megawatts of new natural gas-fired and coal-fired
generating capacity in Wisconsin and that would be leased back to
Wisconsin Electric under 20- to 25-year contracts approved by the
PSCW. Wisconsin Electric would operate and maintain the new
plants and would have the right to renegotiate the leases or
acquire the associated plants outright at market value at the end
of the lease contracts. Implementation of the "Power the Future"
strategy is currently involvedsubject to improve
electric reliabilitya number of state and federal regulatory
approvals as well as the amendment of several state laws in
the Midwest region.Wisconsin.
Competition
Driven by a combination of market forces, regulatory and
legislative initiatives and technological changes, the nation's
electric utility industry continues a trend towards restructuring
and increased competition. SeeHowever, given the current status of
restructuring initiatives in regulatory jurisdictions where the
Company primarily does business, the Company cannot predict the
ultimate timing or impact of a restructured electric industry on
its financial position or results of operations. For additional
information, see "Factors Affecting Results, of
Operations - Industry RestructuringLiquidity and
Competition"Capital Resources" in Item 7 of this report for a description of competition issues and electric
industry restructuring initiatives that are underway in regulatory
jurisdictions where Wisconsin Electric and Edison Sault currently
do business.report.
Electric Supply
The table below indicates Wisconsin Energy's and Wisconsin
Electric'sthe Company's sources of electric
energy supply, for their electric
utility control areas, including net generation by fuel type, for the
following years ended December 31.
1997(a)2001 (a) 2000 1999 1998
1999 2000(b)
--------------- ---- ---- -----------
Wisconsin Energy (c)
Coal 71.8% 62.6% 62.3% 61.7%63.2% 64.2% 63.6% 63.4%
Nuclear 5.6 18.1 21.5 24.224.5 23.3 22.0 18.3
Hydroelectric 1.61.3 1.1 1.2 1.8 1.91.0
Natural Gas 1.90.7 1.0 1.3 1.8
1.3 0.8
Oil (d)and Other(b) 0.1 0.2 0.2 0.2 0.3
----- ----- ----- -----
Net Generation 81.1 83.9 87.1 88.989.8 89.8 88.3 84.7
Power Purchases (e) 18.9 16.1 12.9 11.1
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Wisconsin Electric
Coal 71.8% 63.4% 63.6% 63.0%
Nuclear 5.6 18.3 22.0 24.7
Hydroelectric 1.6 1.0 1.2 1.4
Natural Gas 1.9 1.8 1.3 0.8
Oil 0.2 0.2 0.2 0.3
----- ----- ----- -----
Net Generation 81.1 84.7 88.3 90.2
Power Purchases 18.910.2 10.2 11.7 15.3 11.7 9.8
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
(a) The mix of electric energy supply during 1997 reflects extended outages at
Wisconsin Electric's Point Beach Nuclear Plant Units 1 and 2. See "Nuclear
Generation" below for discussion of matters related to Point Beach.
(b) Estimated assuming that there are no unforeseen contingencies such as
unscheduled maintenance or repairs of Wisconsin Energy'sthe Company's generating
facilities or of regional electric transmission facilities. See
"Cautionary"Factors Affecting Results, Liquidity and Capital Resources -
Cautionary Factors" in Item 7 of this report.
(c) Wisconsin Energy's information includes Edison Sault beginning in June 1998.
(d)(b) Includes generation by Edison Sault's 4.8 megawatt diesel-fired peaking power
plant.
(e) Excludes purchases by Edison Sault of power supplied by Wisconsin Electric.alternative renewable sources.
WISCONSIN ELECTRIC: Wisconsin Electric'sThe Company's net generation totaled 2829.6 million megawatt-hours
during 2000 compared with 28.4 million megawatt hours during 1999
compared to 26and 26.3 million megawatt-hoursmegawatt hours during 1998 and 24 million megawatt-hours during
1997.1998. Net generation has
increased in each of the past two years in large part due to
higher availability of Wisconsin Electric's Point Beach
Nuclear Plant. The
dependable capability of Wisconsin Electric's generating stations
was 5,750 megawatts in August 1999 as more fully described in
Item 2 of this report.
Wisconsin Electric's average total fuel costs per million British
thermal units by fuel type for the years ended December 31 are
shown below. As described in further detail in "Factors
Affecting Results, Liquidity and Capital Resources" in Item 7 of
this report, the price of natural gas (as well as oil) increased
significantly during 2000 as fuel supplies failed to keep up with
growing demand.
19972000 1999 1998 1999
---- ---- ----
Coal $1.22$1.11 $1.10 $1.17
$1.10
Nuclear 0.49 0.53 0.600.55 0.53
Natural Gas 2.795.08 2.82 2.74
2.82
Oil 4.705.27 3.57 3.70 3.57
During 1999, Wisconsin Electric's generation was supplemented with
3.8 million megawatt-hours of power purchases from neighboring
utilities, from an independent power producer with whom Wisconsin
Electric has a long-term power purchase contract, and, to a minor
extent, from other sources. Wisconsin Electric purchased
4.5 million megawatt-hours and 5.5 million megawatt-hours of
electric energy during 1998 and 1997, respectively.
EDISON SAULT: During 1999, Edison Sault generated 24% of its
total electric energy requirements with its hydroelectric plant
and purchased the remaining 76% of such requirements. Edison
Sault's total average generating capability is 34.6 megawatts as
more fully described in Item 2 of this report.
Coal-Fired Generation
COAL SUPPLY: Wisconsin Electric diversifies the coal sourcessupply for
its power plants in the states of Wisconsin and Michigan by
purchasing from mines in northern and central Appalachia as well
as from various western mines. During 2000,2001, 99% of Wisconsin
Electric's projected coal requirements of 11.312.2 million tons will
be under contract. Wisconsin Electric does not anticipate any
problem in procuring its remaining 20002001 coal requirements through
short-term or spot purchases and inventory adjustments.
Following is a summary of the annual tonnage amounts for
Wisconsin Electric's principal long-term coal contracts by the
month and year in which the contracts expire.
Contract Expiration Date Annual Tonnage
------------------------ --------------
Dec. 2001 500,000
Dec. 2002 4,900,000
Dec. 2003 500,000
Dec. 2005 3,200,000
Dec. 2006 2,000,000
As of the beginning of 2000,2001, Wisconsin Electric had approximately
a 124-day107-day supply of coal in inventory at its coal-fired
facilities. The following summarizes the status of coal supply
for each of the coal-fired facilities that supply electricity to
Wisconsin Electric:
PLEASANT PRAIRIE POWER PLANT: All of the estimated 2001 coal
requirements for this plant are presently under contract.
OAK CREEK POWER PLANT: All of the estimated 2001 coal
requirements for this plant are presently under contract or
agreed upon in principle.
PRESQUE ISLE POWER PLANT: Approximately 99% of the estimated
2001 coal requirements for this plant are presently under
contract.
EDGEWATER 5 GENERATING UNIT: Coal for this unit, in which
Wisconsin Electric has a 25% interest, is purchased by the
majority owner of the facility, Wisconsin Power and Light
Company, a subsidiary of Alliant Energy Resources.
VALLEY AND PORT WASHINGTON POWER PLANTS: Coal requirements for
these plants will be supplied in 2001 under existing contracts or
contracts that have been agreed upon in principle.
MILWAUKEE COUNTY POWER PLANT: Coal for this facility is
purchased by Wisconsin Electric through annual spot purchases.
COAL DELIVERIES: Approximately 80% of Wisconsin Electric's 20002001
coal requirements are expected to be delivered by Wisconsin
Electric-owned unit trains. The unit trains will transport coal
for the Oak Creek and Pleasant Prairie Power Plants from
Pennsylvania, New Mexico and Wyoming mines. Coal from
Pennsylvania and Colorado mines is also transported via rail to
Lake Erie or Lake Michigan transfer docks and delivered to the
Valley and Port Washington Power Plants by lake vessels. Coal
from central Appalachia is shipped via rail to Lake Erie transfer
docks and delivered to the Milwaukee County Power Plant by truck
once it arrives by lake vessel in Milwaukee. Montana and Wyoming
coal for Presque Isle Power Plant is transported via rail to
Superior, Wisconsin, placed in dock storage and reloaded into
lake vessels for plant delivery. Central Appalachian and
Colorado coal bound for Presque Isle Power Plant is shipped via
rail to Lake Erie and Lake Michigan (Chicago) coal transfer
docks, respectively, for lake vessel delivery to the plant.
During 1997, coal deliveries to certain Wisconsin Electric
generating facilities as well as to the electric generating
facilities of many other utilities were impaired by massive
congestion problems on the Union Pacific Railroad. Coal delivery
performance improved during 1998 and 1999, and Wisconsin Electric
does not anticipate problems during 2000. During the fall of
1997, Wisconsin Electric completed construction of a rail spur at
the Pleasant Prairie Power Plant, which burns over 40% of
Wisconsin Electric's annual coal requirements. The new rail spur,
connecting to the rail line of a competitor of the Union Pacific
Railroad, provides Wisconsin Electric with another means of
delivery to Pleasant Prairie.
PLEASANT PRAIRIE POWER PLANT: All of the estimated 2000 coal
requirements for this plant are presently under contract.
OAK CREEK POWER PLANT: All of the estimated 2000 coal
requirements for this plant are presently under contract or agreed
upon in principle.
PRESQUE ISLE POWER PLANT: All of the estimated 2000 coal
requirements for this plant are presently under contract.
EDGEWATER 5 GENERATING UNIT: Coal for this unit, in which
Wisconsin Electric has a 25% interest, is purchased by the
majority owner of the facility, Wisconsin Power and Light Company,
a subsidiary of Alliant Energy Resources.
VALLEY AND PORT WASHINGTON POWER PLANTS: Coal requirements for
these plants will be supplied in 2000 under existing contracts or
contracts that have been agreed upon in principle.
MILWAUKEE COUNTY POWER PLANT: Coal for this facility is
purchased by Wisconsin Electric through annual spot purchases.
ENVIRONMENTAL MATTERS: For information regarding emission
restrictions, especially as they relate to coal-fired generating
facilities, see "Environmental Compliance" below.
Nuclear Generation
POINT BEACH NUCLEAR PLANT: Wisconsin Electric owns and operates
two approximately 510-megawatt510-
megawatt electric generating units at Point Beach Nuclear Plant
in Two Rivers, Wisconsin. Point Beach
provided approximately 6% of Wisconsin Electric's net electric
energy supply during 1997 compared to 18% during 1998 and 22%
during 1999, reflecting extended outages during 1997. The United States Nuclear Regulatory
Commission operating licenses for Point Beach expire in October
2010 for Unit 1 and in March 2013 for Unit 2. For additional
information concerning Point Beach, see "Factors Affecting
Results, of OperationsLiquidity and Capital Resources" in Item 7 and "Note E -
Nuclear Matters"Operations" in Item 78 of this report.
NUCLEAR MANAGEMENT COMPANY: In mid-2000, Wisconsin Electric
currently expects to transferAugust 2000, the Nuclear
Management Company, LLC assumed operating responsibility for
Point Beach Nuclear Plant along with the transfer of operating authority under its
operating licenses. During 1999, the plant's operating licenses to a management company,Company and the Nuclear
Management Company, LLC, which has been formed with affiliates
of three other unaffiliated investor-owned utilities in the
region.region formed the Nuclear Management Company, which manages seven
nuclear generating units in the Midwest as of December 31, 2000.
Wisconsin Electric continues to own Point Beach and retains
exclusive rights to the energy generated by the plant as well as
financial responsibility for the safe operation, maintenance and
decommissioning of Point Beach. For further information, see
"Factors Affecting Results, of
Operations - Nuclear Matters"Liquidity and Capital Resources" in
Item 7 of this report.
NUCLEAR FUEL SUPPLY: Wisconsin Electric purchases uranium
concentrates ("Yellowcake") and contracts for its conversion,
enrichment and fabrication. Wisconsin Electric maintains title
to the nuclear fuel until fabricated fuel assemblies are
delivered to Point Beach, whereupon it is sold to and leased back
from the Wisconsin Electric Fuel Trust. For further information
concerning this nuclear fuel lease, see "Note H" or "Note GF - Long-Term Debt"
in Wisconsin Energy's or Wisconsin Electric's Notes to Financial
Statements, respectively,
in Item 8 of this report.
URANIUM REQUIREMENTS: Wisconsin Electric requires approximately
400,000 pounds of Yellowcake to refuel a generating unit at Point
Beach. During 1998, Wisconsin Electric initiated staggered,
extended fuel cycles that are expected to average approximately
18 months in duration. The supply of Yellowcake for these
refuelings is currently provided through one long-term contract,
amended in 2000, which provides between 60% tosupplies 100% of annual requirements under
these staggered, extended fuel cycles. Wisconsin Electric may
exercise flexibility available in this contract and purchase
certain quantities of uranium on the spot market, should the
market conditions prove favorable. Negotiations for the supply of
the quantity of uranium not covered by the long-term contract will
be ongoing during 2000.cycles through 2007.
CONVERSION: Wisconsin Electric has a long-term contract with a
provider of uranium conversion services to supply 75% of the
conversion requirements for the Point Beach reactors from 2000
through
2004. Wisconsin Electric has an additional long-term conversion
contract with a second conversion supplier to supply the
remaining 25% of Wisconsin Electric's annual conversion
requirements.requirements through 2004.
ENRICHMENT: Wisconsin Electric currentlyeffectively has twoone long-term
contracts for the supply of enriched uranium. The combination of
the two contractscontract that provides for 100% of the required enrichment
services for the Point Beach reactors through the year 2006. The
final enriched uranium delivery under one of the enrichment
contracts is currently scheduled for November 2000.
FABRICATION: Fabrication of fuel assemblies from enriched
uranium for Point Beach is covered under a contract with
Westinghouse Electric Corporation for the balance of the plant's
current operating license.licenses. During 1995, an agreement was reached
between Wisconsin Electric and Westinghouse to supply Wisconsin
Electric withits fall 2000 refueling
outage, the first reload region of a new fuel design beginning in the fall of 1997.from
Westinghouse was loaded into Point Beach Unit 2. The 1995 agreement was modified in November 1996 due to delayed
licensing of a new analysis method desired for the use of the new
fuel design. Current plans now assume initial usefirst
reload of the new fuel design in Unit 1 is scheduled for the
fallspring of the year 2000.2001. The new fuel design is expected to provide
additional safety margin and cost savings and to reduce the
number of discharged spent fuel assemblies over the remaining
operating license.
SPENTUSED FUEL STORAGE & DISPOSAL: Wisconsin Electric currently has
the capacity to store limited amounts of spent nuclear fuel in the
spent fuel pool at Point Beach Nuclear Plant. In addition,
Wisconsin Electric completed construction of an Independent Spent
Fuel Storage Installation in 1995 for the temporary dry storage of
spent fuel at Point Beach. For information concerning spentused
fuel storage and disposal issues, see "Factors Affecting Results,
of
Operations - Nuclear Matters"Liquidity and Capital Resources" in Item 7 of this report.
NUCLEAR DECOMMISSIONING: Wisconsin Electric provides for costs
associated with the eventual decommissioning of Point Beach
through the use of an external trust fund. Payments to this
fund, together with investment earnings, brought the balance in
the trust fund at December 31, 19992000 to approximately $626 million.$613 million
compared with an estimated cost to decommission Point Beach of
$586 million in current dollars. For additional information
regarding decommissioning, see "Note E - Nuclear Operations" in the Notes to Financial Statements in
Item 8 of this report.
NUCLEAR PLANT INSURANCE: For information regarding nuclear
plant insurance, see "Note E - Nuclear Operations" in the Notes to
Financial Statements in Item 8 of
this report.
Hydroelectric Generation
WISCONSIN ELECTRIC: Wisconsin Electric's hydroelectric generating system consists of
fifteenfourteen operating plants with a total installed capacity of
approximately 9089 megawatts and a dependable capability of
approximately 65 megawatts. Of these fifteenfourteen plants, fourteenthirteen
are licensed by the Federal Energy Regulatory Commission. The
fifteenthfourteenth plant, with an installed generating capacity of
approximately 2 megawatts, does not require a license. Four ofOf the
fifteenthirteen licensed plants, twelve plants, representing 26a total of
85 megawatts of installed capacity, have received new long-term licenses from
the Federal Energy Regulatory Commission.Commission, and one plant, the
Sturgeon project, will not be relicensed and is intended to be
removed. In December of 2000, Wisconsin Electric is
in the process of selling onesold a
fifteenth plant, with an installed generating capacity of
approximately 1 megawatt, to an independent party.
Wisconsin Electric is seeking renewal of the remaining eight
operating licenses from the Federal Energy Regulatory Commission
for licenses that expired or expire during the period 1998 to
2001. Key issues concerning relicensing of these eight plants
were covered by the Wilderness Shores Settlement Agreement, signed
in February 1997. The agreement was the culmination of more than
two years of negotiations between Wisconsin Electric and
representatives of the Wisconsin Department of Natural Resources,
the Michigan Department of Environmental Quality, the Michigan
Department of Natural Resources, the U.S. Fish and Wildlife
Service, the Wisconsin Department of Administration, the National
Park Service and two river/recreational organizations: the
Michigan Hydro Relicensing Coalition and the River Alliance of
Wisconsin. Wisconsin Electric expects the Wilderness Shores
Settlement Agreement to assure the continued profitable operation
of its hydroelectric system in the Upper Menominee River Basin as
well as the protection of associated land and water resources for
40 years following license renewal by the Federal Energy
Regulatory Commission.
Wisconsin Electric's hydroelectric facilities covered by the
Wilderness Shores Settlement Agreement are the Big Quinnesec
Falls, Kingsford, Michigamme Falls, Twin Falls, Lower Paint Dam,
Peavy Falls, Hemlock Falls and Way Dam Projects, representing a
total of 59 megawatts of installed capacity. In September 1999,
Wisconsin Electric filed an applicant-prepared environmental
assessment, license applications and the Wilderness Shores
Settlement Agreement with the Federal Energy Regulatory Commission
as well as a surrender application for the Sturgeon plant.
Wisconsin Electric expects the Federal Energy Regulatory
Commission to issue the orders related to this filing by October
2000.
For additional information concerning Wisconsin Electric's
hydroelectric generating facilities, see Item 2 in this report.
EDISON SAULT: Edison Sault's primary source of generation is its
30-megawatt hydroelectric generating plant located on the
St. Marys River in Sault Ste. Marie, Michigan. The water for this
facility is leased under a contract with the United States Corps
of Engineers with tenure to December 31, 2050. However, the
Secretary of the Army has the right to terminate the contract
subsequent to December 2020. Edison Sault pays for all water
taken from the St. Marys River at predetermined rates with a
minimum annual payment of $100,000. The total flow of water taken
out of Lake Superior, which in effect is the flow of water in the
St. Marys River, is under the direction and control of the
International Joint Commission, created by the Boundary Water
Treaty of 1909 between the United States and Great Britain, now
represented by Canada.
Water elevation levels on Lake Superior have been below normal
levels since May 1998. As a result, the International Joint
Commission has placed limitations on the flow of water from Lake
Superior that limits Edison Sault's amount of hydroelectric
generation. During any limited flow months, it is necessary for
Edison Sault to purchase additional power from other sources and
increase the use of Edison Sault's diesel generation.
Hydroelectric generation is also purchased by Edison Sault under
contract from the United States Corps of Engineers' hydroelectric
generating plant located within the Soo Locks complex on the
St. Marys River in Sault Ste. Marie, Michigan. This 17-megawatt
contract has a tenure to November 1, 2040 and cannot be terminated
by the United States government prior to November 1, 2030.
During 1999, hydroelectric energy provided 42% of Edison Sault's
total energy requirements of which 24% was generated by Edison
Sault's facility and 18% was purchased from the United States
Corps of Engineers.
Natural Gas-Fired Generation
The Concord and Paris Combustion Turbine Power Plants, Germantown
Unit 5 and the Oak Creek combustion turbine use natural gas as
their primary fuel, with fuel oil as backup. Natural gas is also
used for boiler ignition and flame stabilization purposes forat the
Pleasant Prairie and Oak Creek Power Plants. Gas for these
plants is purchased on the spot market from gas marketers and/or
producers and delivered on the local distribution system of
Wisconsin Electric's gas operations.
Wisconsin Electric also has a power purchase agreement with
Mirant (formerly Southern Energy, Inc.) where Wisconsin Electric
delivers fuel to their Neenah Power Plant and receives the
electric power produced, as discussed in "Purchase Power
Commitments" below. This plant uses natural gas as its primary
fuel, with fuel oil as backup. Wisconsin Electric supplies fuel
to Mirant's Neenah Power Plant utilizing the same procedures and
agreements that are used for Wisconsin Electric's facilities.
An interruptible balancing and storage agreement with ANR
Pipeline is intended to facilitate the variable gas usage pattern
of the combustion turbine plants.
Natural gas for the gas-fired boiler at the Milwaukee County
Power Plant and for boiler ignition and flame stabilization at
the Valley Power Plant is purchased under an agency agreement
with a gas marketing company. The agent purchases natural gas
and arranges for interstate pipeline transportation to the local
gas distribution utility. The local gas distribution utilitiesutility
then transporttransports Wisconsin Electric's gas to each plant under
interruptible tariffs.
Wisconsin Electric's gas operationsElectric is the gas distribution utility for Concord,
Paris, Pleasant Prairie and Oak Creek Power Plants. Wisconsin
Gas Company, an unaffiliated company, is the gas distribution utility for the Valley and Milwaukee
County Power Plants. For information concerning Wisconsin Energy's pending
acquisition of Wisconsin Gas Company's parent company, WICOR,
Inc., see "Factors Affecting Results of Operations - Mergers" in
Item 7 of this report.
Natural gas will beBoth the primary fuel for Germantown Power Plant Unit 5, an 85-megawatt unit presently under construction, and
for
a 300-megawatt peaking power plant currently being built by a
subsidiary of Southern Energy, Inc. inMirant's Neenah Wisconsin.
Wisconsin Electric will purchase all of the power generated by
this new unaffiliated plant. Both facilities will bePower Plant are directly connected to the ANR
Pipeline, with no gas distribution utility involvement.
Firm gas transportation has been contracted for during the peak
summer period between the Joliet gas trading hub south of
Chicago, Illinois and theWisconsin Electric's power plant
interconnects. GasA portion of Wisconsin Electric's gas
requirements will be purchased at the Joliet hub. For further information
concerning construction of Germantown Unit 5, see "Factors
Affecting Results of Operations - Electric System Reliability
Matters" in Item 7 of this report. For further information
concerning Southern Energy's 300-megawatt power plant, see
"Purchase Power Commitments" below.
Oil-Fired Generation
Fuel oil is used for the combustion turbines at the Point Beach,
Germantown and Port Washington Power Plants. It is also used for
boiler ignition and flame stabilization at the Presque Isle Power
Plant, as backup for ignition at the Pleasant Prairie Power Plant
and as a backup fuel for the natural gas-fired gas turbines
discussed above. Fuel oil requirements are purchased under
partnering agreements with suppliers that assist Wisconsin
Electric with inventory tracking and oil market price trends.
Subject to various regulatory approvals, the four existingoriginal
generating units at the Germantown Power Plant will be converted,
one unit per year from 2001 to 2004, to dual fuel (natural gas
and oil). As noted above, aA fifth dual fuel combustion turbine is planned to
beginbegan commercial
operation at Germantown Power Plant in 2000.
For
further information about these Germantown Power Plant projects,
see "Factors Affecting Results of Operations - Electric System
Reliability Matters" in Item 7 of this report.
Purchase Power Commitments
WISCONSIN ELECTRIC:
To meet a portion of Wisconsin Electric'sits anticipated increase in future electric
energy supply needs, Wisconsin Electric hashad entered into separate
long-term power purchase contracts with subsidiaries of
Cogentrix, Energy, Inc. and Southern Energy, Inc., now Mirant. In
addition, in December 2000, Wisconsin Electric executed a power
purchase agreement with a subsidiary of the Calpine Corporation
for new capacity beginning in 2002.
The contract with LSP-Whitewater, LP, a subsidiary of Cogentrix,
Energy,
Inc., for 236 megawatts of firm capacity from a gas-fired
cogeneration facility located in Whitewater, Wisconsin, includes
nodoes not
include any minimum energy requirements. Wisconsin Electric
treats this power purchase contract as a capital lease. For
additional information, see "Note H" or "Note GF - Long-Term Debt" in
Wisconsin Energy's or Wisconsin Electric's Notes to Financial
Statements, respectively, in Item 8
of this report.
In August 1998, Wisconsin Electric entered into a power purchase
agreement with SEI-Wisconsin, a subsidiary of Southern Energy,
Inc., for SEI-Wisconsin to design, construct, own and operateMirant's Neenah Power Plant began commercial operations in May
2000. The Neenah plant is a 300-megawatt gas turbine peaking
facility in the town of Neenah, Wisconsin and to provide the output of this facility to Wisconsin
Electric for eight years. The facility is scheduled for
commercial operation by June 2000.Wisconsin. The purchase power
agreement is similar in structure to arrangements commonly
referred to in the electric industry as a "tolling arrangement."
That is, Wisconsin Electric delivers fuel to the facility and
takes awayreceives electric power. Wisconsin Electric pays SEI-WisconsinMirant a "toll"
to convert Wisconsin Electric's fuel into the electric energy.
The
entire output of the facility will be available for Wisconsin
Electric to dispatch during the eight yeareight-year term of the agreement
which ends in May 2008.
Wisconsin Electric's agreement with the Calpine Corporation calls
for new generating capacity to be constructed by a Calpine
subsidiary, with electric generating units in both northern
Illinois and in central Wisconsin, to supply power to Wisconsin
Electric. Two 150-megawatt natural gas-fired turbine peaking
units will be constructed, one each in 2002 and 2003, and one
225-megawatt natural gas-fired combined cycle facility is to be
constructed in 2004. The agreement remains contingent for both
parties upon certain site related issues that are anticipated to
be resolved in 2001. This power purchase agreement also is a
tolling agreement. For further information, see "Factors Affecting ResultsThe output of Operations -each unit will be committed to
Wisconsin Electric System Reliability Matters" in Item 7for ten years from its start of this report.
As a result of the existing regulatory environment in the state of
Wisconsin,commercial
operation.
Wisconsin Electric currently expects to utilize a combination of
new generating capacity identified in its "Power the Future"
proposal and purchase power commitments similar to the agreementagreements
with SEI-
WisconsinMirant and Calpine to meet its electric demand load growth where
appropriate.growth.
In the normal course of business, Wisconsin Electric utilizes
contracts of various duration for the forward purchase of
electricity to meet load requirements in an economic manner and
when the anticipated market price for electric energy is below
Wisconsin Electric's expected incremental cost of generation.
Contracts of this nature are one of the power supply resources
Wisconsin Electric uses to meet its reliability requirements.
EDISON SAULT: To meet 76%Electric Transmission
AMERICAN TRANSMISSION COMPANY: Effective January 1, 2001,
Wisconsin Energy transferred all of its energy requirements,the electric utility
transmission assets of Wisconsin Electric and Edison Sault purchasedto the
following megawatt-hours fromAmerican Transmission Company LLC in exchange for equity
interests in this new company. Joining the following
sources under contracts during 1999.
Megawatt-hours
--------------
Consumers EnergyAmerican Transmission
Company 322,757
Wisconsin Electric 175,200
U.S. Corps of Engineers - Hydro 159,271
Cloverland Electric Cooperative 323
-------
Total 657,551
=======
Interconnections with Other Utilities
WISCONSIN ELECTRIC: Wisconsin Electric's system is interconnected at various locationsconsistent with the systemsFederal Energy Regulatory
Commission's Order No. 2000, designed to foster competition,
efficiency and reliability in the electric industry.
The American Transmission Company is owned and governed by the
utilities that contributed facilities or capital in accordance
with 1999 Wisconsin Act 9. Governance of Commonwealth Edisonthe company also
includes outside directors not associated with the energy
business. Stock of the corporate manager of the American
Transmission Company Madison Gaseventually may be offered for public
ownership.
The American Transmission Company's sole business is to provide
reliable, economic transmission service to all customers in a
fair and Electricequitable manner. Specifically, the American
Transmission Company Northern States Power Company, Upper Peninsula Power Company,
Wisconsin Powerplans, constructs, operates, maintains and
Light Company, Wisconsin Public Service
Corporation and the Marquette, Michigan Board of Light and Power.
These interconnectionsexpands transmission facilities it owns to provide for interchangeadequate
and reliable transmission of powerelectric power. It is expected to
assure
system reliability as well as facilitating accessprovide comparable service to generating
capacity and the transfer of energy for economic purposes.all customers, including Wisconsin
Electric and Edison Sault, and to support effective competition
in energy markets without favoring any market participant. The
American Transmission Company is regulated by the Federal Energy
Regulatory Commission for all rate terms and conditions of
service and is a member of Mid-America Interconnected
Network, Inc., which is one of ten regional members of the North
American Electric Reliability Council. Membership in these groups
permits better utilization of reserve generating capacity and
coordination of long-range system planning and day-to-day
operations.
EDISON SAULT: Edison Sault's electric transmission system is
directly interconnected with the systems of Consumers Energy
Company and Cloverland Electric Cooperative. With completion of
the Central Upper Peninsula Transmission Project in the spring of
2000, Edison Sault will also be interconnected with the electric
transmission system of Wisconsin Electric. Edison Sault is
currently atransmission-owning member of the East Central Area Reliability Council,
another regional memberMidwest ISO.
Wisconsin Electric has contracted to provide, at cost, services
required by the American Transmission Company and which the
American Transmission Company is not able to provide itself at
the time of start-up. Services include transmission line and
substation operation and maintenance, engineering, project, real
estate, environmental, supply chain, control center, accounting
and miscellaneous services. The annual cost of the North American Electric Reliability
Council.
MIDWEST ISO: Wisconsin Electricservices is
currently participatingestimated to be about $67 million in the formationfirst year of a regional independent electric transmission
system operatoroperation
declining to promote reliability and to ensure
nondiscriminatory open electric transmission access in the
Midwest.less than $3 million after three years.
For further information, see "Factors Affecting Results,
of Operations - Electric System Reliability Matters" in Item 7 of
this report.
TRANSMISSION COMPANY: In response to 1999 Wisconsin Act 9,
Wisconsin legislation enacted in October 1999, Wisconsin Electric
has agreed to join the American Transmission Company, LLC by
contributing its transmission assets in exchange for an equity
interest in the new company. For further information, see
"Factors Affecting Results of Operations - Industry RestructuringLiquidity and Competition"Capital Resources" in Item 7 of this report.
Renewable Electric Energy
1999 Wisconsin Act 9 also includes aA renewable portfolio standard that will require retail energy
providers in the state of Wisconsin, like Wisconsin Electric, to
obtain an increasing percentage of their energy supply from
renewable resources.resources is also included under the provisions of 1999
Wisconsin Act 9. Beginning in 2001, retail energy providers must
provide 0.5% of their Wisconsin retail electric sales from
renewable energy, with the percentage increasing to 2.2% by the
year 2011. The Company's "Power the Future" proposal includes a
commitment to significantly increase the amount of renewable
generation utilized by the Company beyond that required by
Wisconsin law.
In May 1999, the Public Service Commission of WisconsinPSCW approved Wisconsin Electric's request to
expand its "energy for tomorrow"tomorrowT" renewable energy program to
allow participation of virtually all of its firm load customers
in Wisconsin. In November 1999, the Michigan Public Service
Commission approved Wisconsin Electric's request to offer the
"energy for tomorrow" renewable energy program to all of its
firm load customers in the state of Michigan. The program
currently has 11,300over 11,000 participants.
For information concerning efforts byGAS UTILITY OPERATIONS
The Company's gas utility operations consists of the gas
operations of Wisconsin Electric, to obtain
additional sources of renewable electric energy, see "Factors
Affecting Results of Operations - Electric System Reliability
Matters" in Item 7 of this report.
GAS OPERATIONS
Gas Deliveries
Wisconsin Electricwhich is authorized to provide
retail gas distribution service in designated territories in the
state of Wisconsin, as established by indeterminate permits,
certificates of public convenience and necessity, or boundary
agreements with other utilities. Wisconsin Electric also
transports customer-owned gas. Wisconsin Electric's gas utility
operates in four distinct service areas of about 3,800 square
miles in Wisconsin: west and south of the city of Milwaukee, the
Appleton area, the Prairie du Chien area and areas within Iron
and Vilas Counties with an estimated population of
approximately 1,200,000.
COMBINATION OF GAS UTILITY OPERATIONS: On November 1, 2000,
Wisconsin Electric and Wisconsin Gas filed a joint application
with the PSCW for authority to transfer the physical gas utility
assets of Wisconsin Electric together with certain liabilities
associated with such assets, with a net book value of
approximately $365 million as of December 31, 2000, to Wisconsin
Gas in return for stock in Wisconsin Gas in a tax free
transaction. Wisconsin Energy expects that the combined gas
operation will result in improved customer service and greater
synergies as a result of the WICOR acquisition. The combined gas
operations would retain the name Wisconsin Gas Company and become
the 9th largest gas distribution company in the United States as
measured by delivery volumes. Assuming that the PSCW approves
the transaction described above, Wisconsin Electric and Wisconsin
Gas expect to make a second filing in 2001 seeking authorization
to combine tariffs and rates. This transaction is also subject
to the approval of the Securities and Exchange Commission under
the Public Utility Holding Act of 1935.
Gas Deliveries
The Company's gas utility business is highly seasonal,
particularly as to residential and commercial sales for space
heating purposes, with a substantial portion of its gas
deliveries occurring during the winter heating months. Sales of
gas are also impacted by varying weather conditions from
year-to-year.
See "Selected Operating Data" in Item 6 of this report for
selected gas utility operating information by customer class
during the period 1996 through 2000.
Total gas therms delivered by Wisconsin Electric, including
customer-owned transported gas, were approximately 944944.9 million
therms during 1999,2000, a 2.3%0.1% increase compared to 1998.with 1999. At
December 31, 1999,2000, Wisconsin Electric was transporting gas for
approximately 370445 customers who choose to purchase gas directly
from other suppliers. Transported gas accounted for
approximately 43%41% of total therms delivered by Wisconsin Electric
during 2000, 43% during 1999 and 46% during 1998 and 40%
during 1997. There were1998. Wisconsin
Electric had approximately 398,500 natural407,800 gas customers at December 31,
1999,2000, an increase of approximately 2.6%2.3% since December 31, 1998.
See "Results of Operations - Utility Segment Pretax Operating
Results - Gas Utility Revenues, Gross Margins and Therm
Deliveries" in Item 7 of this report for additional selected gas
operating information by customer class.1999.
Wisconsin Electric's maximum daily send-out during 19992000 was
692,649706,810 dekatherms on January 4, 1999.December 5, 2000. A dekatherm is
equivalent to ten therms or one million British thermal units . Sales of gas
fluctuate with the heating cycle of the year and are also impacted
by varying weather conditions from year-to-year.
In July 1997, the Public Service Commission of Wisconsin approved
Wisconsin Electric's application to extend natural gas service to
more than 4,500 potential customers in northeastern Wisconsin.
When completed in 2002, the project will involve installation of
more than 350 miles of new gas main. As of the end of 1999,
approximately 3,400 customers have been connected and the
remainder are expected to be connected over the next three years.units.
SALES TO LARGE GAS CUSTOMERS: Wisconsin ElectricThe Company provides gas utility
service to a diversified base of industrial customers who are
largely within its electric service territory. Major industries
served by Wisconsin Electric's gas operations include the paper, food products and fabricated metal
products industries. During 1999, Wisconsin Electric'sThe electric utility operations took
delivery of 5.9% of total therm deliveries compared to 8.6% during
1998. No single retail customer of gas operations accounted for
more than 1.9% of total gas therms sold and transported during
1999.
Gas Supply
Wisconsin Electric's gas operations has entered into more than 60
gas service contracts for supply, pipeline capacity, underground
storage and balancing services. Contracts vary in term from less
than one year to ten years. Gas supply contracts contain pricing
options that allow pricing at market rates or the ability to fix
future prices for varying terms which
Wisconsin Electric can
exercise to mitigate substantial market price fluctuations. Theis the Company's largest single gas from these contracts is used to meet customer requirements on
a daily basis and to fill storage during the warm months to be
withdrawn from storage during the heating season in order to meet
system gas demands.
The use of storage increases the load factor of supply contracts
and allows Wisconsin Electric to take advantage of seasonal price
differentials. Wisconsin Electric's gas operations has six firm
gas storage agreements with pipelines that allow daily withdrawals
of 300,564 dekatherms and an annual capacity of 15.9 million
dekatherms. The initial terms of these contracts vary with the
last one expiring in May 2006. Gas stored at these facilities is
purchased by Wisconsin Electric from a number of suppliers.
Wisconsin Electric has 26 transportation contracts, the last of
which expires in 2006, that it uses to meet daily customer
requirements and to inject and withdraw from gas storage. In each
case, subject to certain provisions, Wisconsin Electric's gas
operations can extend the terms of these contracts at the time the
agreements would otherwise expire.
Wisconsin Electric also has two contracts for salt dome storage
that provide seasonal gas supply backup in the event of well
freeze-off or other loss of supply.customer.
Competition
Competition in thevarying degrees exists between natural gas industry continuesand
other forms of energy available to increase,
drivenconsumers. Many of the
Company's large commercial and industrial customers are dual-fuel
customers that are equipped to switch between natural gas and
alternate fuels. The Company offers lower-priced interruptible
rates and transportation services for these customers to enable
them to reduce their energy costs and use gas rather than other
fuels. Under gas transportation agreements, customers purchase
gas directly from gas marketers and arrange with interstate
pipelines and the Company to have the gas transported to the
facilities where it is used. The Company earns substantially the
same margin (difference between revenue and cost of gas), whether
it sells and transports gas to customers or only transports
their gas.
The Company's future ability to maintain its present share of the
industrial dual-fuel market (the market that is equipped to use
gas or other fuels) depends on the success of the Company and
third-party gas marketers in obtaining long-term and short-term
supplies of natural gas at marketable prices and their success in
arranging or facilitating competitively-priced transportation
service for those customers that desire to buy their own gas
supplies.
Federal and state regulators continue to implement policies to
bring more competition to the gas industry. For information
concerning proceedings by a combinationthe PSCW to consider how its regulation
of market forces and regulatory
initiatives. Natural gas companies are now operating in adistribution utilities should change to reflect the
changing competitive environment at the wholesale level, and regulators in
Wisconsin continue to evaluate competition at the retail level.
Acquisition of Wisconsin Gas Company
Upon consummation of the merger with WICOR, Inc., the Company will
acquire Wisconsin Gas Company, a wholly-owned subsidiary of WICOR
and the largest natural gas distribution utility in the state of
Wisconsin serving approximately 538,000 customers as of
December 31, 1999. For additional information concerning the
pending acquisition of WICOR,gas industry, see
"Factors Affecting Results, of
Operations - Mergers"Liquidity and Capital Resources" in
Item 7 of this report. While the gas utility distribution
function is expected to remain a heavily regulated, monopoly
function, the sales of the natural gas commodity and related
services are expected to become increasingly subject to
competition from third parties. However, it remains uncertain if
and when the current economic disincentives for small customers
to choose an alternative gas commodity supplier may be removed
such that the Company begins to face competition for the sale of
gas to its smaller firm customers.
Gas Supply, Pipeline Capacity and Storage
The gas operations of Wisconsin Electric has been able to meet
its contractual obligations with both its suppliers and its
customers despite periods of severe cold and unseasonably warm
weather.
PIPELINE CAPACITY AND STORAGE: Interstate pipelines serving
Wisconsin originate in three major gas producing areas of North
America: the Oklahoma and Texas basins, the Gulf of Mexico and
western Canada. The Company has contracted for long-term firm
capacity from each of these areas. This strategy reflects
management's belief that overall supply security is enhanced by
geographic diversification of the supply portfolios and that
Canada represents an important long-term source of reliable,
competitively-priced gas.
Because of the daily and seasonal variations in gas usage in
Wisconsin, the Company has also contracted for substantial
underground storage capacity, primarily in Michigan. Storage
enables the Company to manage significant changes in daily demand
and to optimize its overall gas supply and capacity costs. In
summer, gas in excess of market demand is transported into the
storage fields, and in winter, gas is withdrawn from storage and
combined with gas purchased in or near the production areas
("flowing gas") to meet the increased winter market demand. As a
result, the Company can contract for less long-line pipeline
capacity than would otherwise be necessary, and can purchase gas
on a more uniform daily basis from suppliers year-round. Each of
these capabilities enables the Company to reduce its overall
costs.
The Company also maintains high deliverability storage in the mid-
continent and Southeast production areas, as well as in its
market area. This storage capacity is designed to deliver gas
when other supplies cannot be delivered during extremely cold
weather in the producing areas, which can reduce long-line
supply.
The Company holds firm daily transportation and storage capacity
entitlements from pipelines and other service providers under
long-term contracts.
TERM GAS SUPPLY: The gas operations of Wisconsin Electric has
contracts for firm supplies with terms in excess of 30 days with
more than 20 gas suppliers for gas produced in each of the three
producing areas discussed above. The term contracts have varying
duration so that only a portion of the Company's firm gas supply
expires in any year. Management believes that the volume of gas
under contract is sufficient to meet its forecasted firm peak day
demand.
SECONDARY MARKET TRANSACTIONS: Capacity release is a mechanism
by which pipeline long-line and storage capacity and gas supplies
under contract can be resold in the secondary market. Local
distribution companies, such as the gas operations of Wisconsin
Electric, must contract for capacity and supply sufficient to
meet the firm peak day demand of their customers. Peak or near
peak demand days generally occur only a few times each year.
Capacity release facilitates higher utilization of contracted
capacity and supply during those times when the full contracted
capacity and supply are not needed by the utility, helping to
mitigate the fixed costs associated with maintaining peak levels
of capacity and gas supply. Through pre-arranged agreements and
day-to-day electronic bulletin board postings, interested parties
can purchase this excess capacity and supply. The proceeds from
these transactions are passed through to ratepayers, subject to
the incentive gas cost mechanism pursuant to which the Company
has an opportunity to share in the cost savings. See "Factors
Affecting Results, Liquidity and Capital Resources - Rates and
Regulatory Matters" in Item 7 of this report for information on
the incentive gas cost recovery mechanism. During 2000, the
Company continued its active participation in the capacity
release market.
SPOT MARKET GAS SUPPLY: The gas operations of Wisconsin
Electric expects to continue to make gas purchases in the 30-day
spot market as price and other circumstances dictate. The
Company has supply relationships with a number of sellers from
whom it purchases spot gas.
GUARDIAN PIPELINE: In March 1999, WICOR announced the formation
of a joint venture, Guardian Pipeline, L.L.C., to construct the
Guardian interstate natural gas pipeline from the Joliet,
Illinois market hub to southeastern Wisconsin ("Guardian
Pipeline"). CMS Energy, a Dearborn, Michigan-based international
energy company, and a subsidiary of Xcel Energy, a Minneapolis-
based diversified energy company, are cosponsors of the project
with WICOR. The three partners will have equal ownership
interests in the project. On March 14, 2001, the Federal Energy
Regulatory Commission issued a certificate of public convenience
and necessity authorizing construction and operation of the
Guardian Pipeline. The pipeline is scheduled to be in service in
November 2002. The Guardian Pipeline is expected to serve
growing demand for natural gas in Wisconsin and Northern Illinois.
STEAM UTILITY OPERATIONS
Wisconsin Electric's steam utility generates, distributes and
sells steam supplied by its Valley and Milwaukee County Power
Plants. Wisconsin Electric operates a district steam system in
downtown Milwaukee and the near south side of Milwaukee. Steam
is supplied to this system from Wisconsin Electric's Valley Power
Plant, a coal-fired cogeneration facility. Wisconsin Electric
also operates the steam production and distribution facilities of
the Milwaukee County Power Plant located on the Milwaukee County
Grounds in Wauwatosa, Wisconsin.
Annual sales of steam fluctuate from year to year based upon
system growth and variations in weather conditions. During 2000,
the steam utility had $21.9 million of operating revenues from
the sale of 3,085 million pounds of steam compared with
$21.3 million of operating revenues from the sale of
2,914 million pounds of steam during 1999. As of December 31,
1999,2000, steam was used by 450451 customers for processing, space
heating, domestic hot water and humidification.humidification compared with 450
customers at December 31, 1999.
UTILITY RATE MATTERS
See "Factors Affecting Results, of Operations - Rates and
Regulatory Matters" in Item 7 of this report for a discussion of
rate matters, including recent rate changes, and for a discussion
of the tariffs and procedures with respect to recovery of changes
in the costs of fuel, purchased power and gas purchased for
resale.
UTILITY ENERGY EFFICIENCY
The Public Service Commission of Wisconsin continues to require
utilities such as Wisconsin Electric to meet electric and natural
gas energy efficiency goals for residential, small commercial and
low income customers. Goals for large commercial and industrial
customers were eliminated in 1997. Wisconsin Electric uses a
bidding process to hire contractors to accomplish its goals.
Wisconsin Electric has contracts for 100% of its residential and
small commercial energy efficiency goals for 2000. Wisconsin
Electric works cooperatively with state weatherization operators
and community organizations in achieving its low income energy
efficiency goals.
In a related matter, as part of 1999 Wisconsin Act 9,
responsibility for energy efficiency goals will be transferred
from utilities to the Wisconsin Department of Administration over
the next three years. For further information, see "Factors
Affecting Results of Operations - Industry Restructuring and
Competition" in Item 7 of this report.
NON-UTILITY SEGMENT
See "Note K - Segment Reporting" in Wisconsin Energy's Notes to
Financial Statements in Item 8 of this report for information
concerning non-utility operating revenues, pretax operating
income, net identifiable assets and construction expenditures
during each of the three years ended December 31, 1999.
NON-UTILITY ENERGY OPERATIONS
WISVEST CORPORATION: Wisvest Corporation develops, owns and
operates electric generating facilities and invests in other
energy-related entities. Current Wisvest operations and
investments include:
* A wholly-owned subsidiary, Wisvest-Connecticut, LLC, which
owns and operates two fossil-fueled power plants in the state of
Connecticut. The plants include the Bridgeport Harbor Station,
which has an active generating capacity of 590 megawatts, and the
New Haven Harbor Station, which has an active generating capacity
of 466 megawatts. For additional information concerning
acquisition of these plants during 1999, see "Note B - Mergers &
Acquisitions" in Wisconsin Energy's Notes to Financial Statements
in Item 8 of this report.
* A wholly-owned subsidiary, Griffin Energy Marketing, L.L.C.,
which markets energy related services and trades electricity.
* The chilled water production and distribution facilities that
are part of the Milwaukee County Power Plant on the Milwaukee
County Grounds in Wauwatosa, Wisconsin.
* An investment in Calumet Energy Team, LLC, which signed two
agreements in November 1999 with the City of Chicago, Illinois.
The first provides for the lease, purchase and redevelopment of
land for the purpose of constructing a natural gas-fired peaking
power plant with a projected generating capacity of approximately
308 megawatts. The second is a ten year capacity reservation
agreement for 50 megawatts of plant capacity. The plant is
anticipated to be in commercial operation in June of 2001. For
additional information, see "LiquidityLiquidity and Capital Resources -
Capital Requirements" in Item 7 of this report.
* Loans to SkyGen Energy Holdings LLC, which develops, owns and
operates independent power plants and cogeneration facilities.
Under certain circumstances, certain of the loans may be converted
in stages to minority equity ownership in SkyGen. For additional
information, see "Note K - Segment Reporting" in Wisconsin
Energy's Notes to Financial Statements in Item 8 of this report.
* Investments in other energy-related entities such as a
strategic energy management services company with a focus on
natural gas management and a cogeneration facility in the state of
Maine, the Androscoggin Cogeneration Center. For additional
information related to the Androscoggin Cogeneration Center, see
"Note L - Commitments and Contingencies" in Wisconsin Energy's
Notes to Financial Statements in Item 8 of this report.
OTHER NON-UTILITY OPERATIONS
MINERGY CORP.: Minergy Corp. is engaged in the business of
developing and marketing proprietary technologies designed to
convert high volume industrial and municipal wastes into value-
added products. Current Minergy operations and investments
include:
* A facility in Neenah, Wisconsin, placed into commercial
operation during 1998, that recycles paper sludge from area paper
mills into two usable and salable products: glass aggregate and
steam. The plant also provides substantial environmental and
economic benefits to the area by providing an alternative to
landfilling paper sludge.
* A wholly-owned subsidiary, Minergy Detroit, LLC, which was
awarded a 15-year contract in September 1999 by the City of
Detroit, Michigan to recycle the city's wastewater solids into a
glass aggregate product used in the manufacture of floor tiles,
roofing shingle granules, sand blast grit and other construction
materials. Minergy Detroit, LLC expects to begin construction of
a proposed recycling facility in the fourth quarter of 2000 with
startup anticipated in 2002. For additional information about the
contract and related contingencies, see "Liquidity and Capital
Resources - Capital Requirements" in Item 7 of this report.
WISPARK CORPORATION: Wispark Corporation develops and invests in
real estate. While Wispark's core geographic area is southeastern
Wisconsin, it is currently developing properties in metropolitan
Minneapolis/St. Paul, Minnesota and Chicago, Illinois. Wispark's
initial development, LakeView Corporate Park, a 1,600-acre
business park located near Kenosha, Wisconsin, has developed 732
acres with over 6,816,000 square feet of buildings for 62
companies during its first eleven years of existence. Wispark is
also developing or has developed business parks such as those in
the following locations:
* Mitchell International Business Park - Cudahy, Wisconsin;
* Cottonwood Commerce Center - Hartland, Wisconsin;
* Business Park of Kenosha - Kenosha, Wisconsin;
* Westridge Business Park - New Berlin, Wisconsin;
* RidgeView Corporate Park - Pewaukee, Wisconsin;
* GrandView Business Park - Racine, Wisconsin;
* NorthWest Corporate Park - Elgin, Illinois;
* Grand Oak Business Park - Eagan, Minnesota; and
* Rice Creek Corporate Park - Shoreview, Minnesota.
In addition to developing business parks, Wispark has established
itself as one of southeastern Wisconsin's largest developers of
industrial buildings. In the last seven years, Wispark has
developed 3,315,000 square feet of buildings on a build-to-suit
basis, and just over 3,400,000 square feet of other building
space. Wispark has also developed mixed-use projects such as
Gaslight Pointe in Racine, Wisconsin and constructed a 120-room
Radisson Hotel and Conference Center in LakeView Corporate Park.
Wispark has also entered into a joint venture agreement to develop
Pabst Farms, a mixed use project in Oconomowoc / Summit,
Wisconsin.
WISCONSIN ENERGY CAPITAL CORPORATION: Wisconsin Energy Capital
Corporation, formerly Wisconsin Michigan Investment Corporation,
engages in investing and financing activities. Activities include
advances to affiliated companies and investments in financial
instruments and in partnerships developing low-and moderate-income
housing projects. Other investments may be made from time to
time. Wisconsin Energy Capital Corporation's subsidiary, WMF
Corp., engages in financing activities. Any funds obtained by WMF
Corp. through financing arrangements are advanced to Wisconsin
Energy Capital Corporation.
WEC NUCLEAR CORPORATION: WEC Nuclear Corporation has an
ownership interest in Nuclear Management Company, LLC. Formed
during the first quarter of 1999, it is intended that Nuclear
Management Company, LLC will provide services to Wisconsin
Electric in connection with Point Beach Nuclear Plant as well as
to other unaffiliated companies with nuclear generating
facilities. For additional information, see "Factors Affecting
Results of Operations - Nuclear Matters" in Item 7 of this report.
WEC INTERNATIONAL INC.: WEC International Inc. serves as
Wisconsin Energy's international investment vehicle. WEC
International, Inc. currently has investments in two joint
ventures in the Netherlands involving waste treatment and by-
product utilization activities.
WITECH CORPORATION: Witech Corporation is a venture capital
company operating in the state of Wisconsin. At December 31,
1999, Witech had investments in eleven companies and three funds
totaling more than $31 million. Among others, the companies
include an operator of a nationwide data communications network
for the agriculture industry, a manufacturer of electronic
components and a manufacturer of motor drives.
NORTHERN TREE SERVICE, INC.: Northern Tree Service, Inc., a
former subsidiary of ESELCO, Inc., is engaged in tree trimming in
the state of Michigan's eastern Upper Peninsula.
BADGER SERVICE COMPANY: Badger Service Company holds coal rights
in Indiana. Estimates indicate that 40 million tons of coal could
be recovered from this property with conventional mining
techniques. However, there are no current plans to develop the
property. Badger Service Company may sell or develop these rights
in the future as conditions warrant.
NON-UTILITY RESTRICTIONS
For information concerning restrictions, relaxed somewhat by 1999
Wisconsin Act 9, which limit diversification of Wisconsin Energy
into certain non-utility activities, see "Factors Affecting
Results of Operations -
Rates and Regulatory Matters" in Item 7 of this report.
For information concerning restrictions on the
ability of Wisconsin Electric to transfer funds to Wisconsin
Energy, which could limit internal funds available for non-utility
operations, see "Note A - Summary of Significant Accounting
Policies" in Wisconsin Energy's Notes to Financial Statements in
Item 8 of this report.
REGULATION
WISCONSIN ENERGY: Wisconsin Energy is an exempt holding company
by order of the United States Securities and Exchange Commission
under Section 3(a)(1) of the Public Utility Holding Company Act of
1935 and, accordingly, is exempt from the law's provisions other
than with respect to certain acquisitions of securities of a
public utility.
UTILITY SEGMENT:
Wisconsin Electric is subject to the regulation of the Public Service Commission of WisconsinPSCW as to
retail electric, gas and steam rates in the state of Wisconsin,
standards of service, issuance of securities, construction of new
facilities, transactions with affiliates, levels of short-term
debt obligations, billing practices and other various other matters.
Wisconsin Electric and Edison Sault are bothis subject to the regulation of the Michigan
Public Service Commission as to the various matters associated
with retail electric service in the state of Michigan as noted
above except as to issuance of securities, construction of
certain new facilities, levels of short-term debt obligations and
advance approval of transactions with affiliates. Wisconsin
Electric's hydroelectric facilities are regulated by the Federal
Energy Regulatory Commission. Wisconsin Electric and Edison Sault areis also subject
to regulation of the Federal Energy Regulatory Commission with
respect to wholesale power service, electric transmission, and accounting.
Edison
Sault is subject to regulationThe following table compares the source of the Federal Energy Regulatory
Commission with respect toCompany's
operating revenues by regulatory jurisdiction for each of the
issuancethree years in the period ended December 31, 2000.
2000 1999 1998
------------ ------------ ------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Millions of Dollars)
Public Service Commission of Wisconsin
Electric Utility - Retail $1,517.7 69.5% $1,465.7 72.7% $1,434.3 73.3%
Gas Utility - Retail 399.7 18.3% 306.8 15.2% 295.9 15.1%
Steam Utility - Retail 21.9 1.0% 21.3 1.1% 20.5 1.0%
-------- ------ -------- ------ -------- ------
Total 1,939.3 88.8% 1,793.8 89.0% 1,750.7 89.4%
Michigan Public Service Commission
Electric Utility - Retail 118.0 5.4% 106.6 5.3% 109.5 5.6%
Federal Energy Regulatory Commission
Electric Utility - Wholesale 127.7 5.8% 116.0 5.7% 97.6 5.0%
-------- ------ -------- ------ -------- ------
Total Utility Operating Revenues $2,185.0 100.0% $2,016.4 100.0% $1,957.8 100.0%
======== ====== ======== ====== ======== ======
For information concerning the pending implementation of certain securities.full
electric retail competition in the state of Michigan effective
January 1, 2002, see "Factors Affecting Results, Liquidity and
Capital Resources" in Item 7 of this report.
Operation and construction relating to Wisconsin Electric's Point
Beach Nuclear Plant facilities are subject to regulation by the
United States Nuclear Regulatory Commission. Total flow of water
to Edison Sault's hydroelectric generating plant is under the
control of the International Joint Commission, created by the
Boundary Water Treaty of 1909 between the United States and Great
Britain, now represented by Canada. Wisconsin
Electric's and
Edison Sault's operations are also subject to regulations, where
applicable, of the United States Environmental Protection Agency
("EPA"), the Wisconsin Department of Natural Resources, the
Michigan Department of Natural Resources and the Michigan
Department of Environmental Quality.
In 1999, the Wisconsin State Legislature passed and the Governor
of Wisconsin signed into law 1999 Wisconsin Act 9, which, among
other things included public benefits legislation as well as
amendments relaxing the non-utility asset cap provisions of
Wisconsin's public utility holding company law. For additional
information, see "Factors Affecting Results of Operations -
Industry Restructuring and Competition" in Item 7 of this report.ELECTRIC RELIABILITY LEGISLATION: In 1998, the Wisconsin State
Legislature passed and the Governor of Wisconsin signed into law
1997 Wisconsin Act 204, intended to address concerns with
electric reliability in the state of Wisconsin. The 1997
Wisconsin Act 204 included new requirements concerning market
power which utilities and their affiliates must meet in order to
construct generating facilities. The requirements apply to
utility facilities in excess of 100 megawatts. The Public Service Commission of WisconsinPSCW is
currently engaged in a rule making proceeding involving the
applicability of Act 204 to utility affiliates seeking to
construct facilities in the state of Wisconsin.
In 1994,PUBLIC BENEFITS: Public benefits legislation was also included
in 1999 Wisconsin Act 9. The law created new funding of
$44 million to be collected by utilities and remitted to the
Public Service CommissionWisconsin Department of Wisconsin ordered the
state'sAdministration. The law also required
utilities to competitively bid all new generation needs in
excesscontinue to collect the funds at existing levels for
low-income, conservation and environmental research and
development programs and to begin transferring the funds for
these programs to the Department of 12 megawatts to be built in the state of Wisconsin. The
two-stage process established by the Public Service Commission of
Wisconsin consists of an all-parties (including utilities) bidding
procedure for fossil-fueled and renewable generation projects, and
the conventional Certificate of Public Convenience and Necessity
procedure for the winner or winners. In the first quarter of
1997, the Public Service Commission of Wisconsin extended this to
include repowering or upgrades of existing generation in excess of
12 megawatts. The Public Service Commission of Wisconsin is
currently reconsidering these requirements and has asked utilities
for their comments.
NON-UTILITY SEGMENT: Wisvest-Connecticut, LLC is an exempt
wholesale generator pursuant to Section 32 of the Public Utility
Holding Company Act of 1935.Administration. The Company
implemented this change in October 2000. The utilities'
traditional role of providing these programs is subjectbeing shifted to
regulation
of the Federal Energy Regulatory Commission with respect to
wholesale power service. Wisvest-Connecticut, LLC's operations
are also subject to regulations, where applicable, of the United
States Environmental Protection Agency and the Connecticut Department of Environmental Protection.Administration, which will administer the funds
for a statewide public benefits program. The new law also
requires utilities to provide a specified proportion of its
retail energy sales in programs such as Wisconsin Electric's
"energy for tomorrow" renewable energy program.
AFFILIATE INTEREST POLICIES DOCKET: From late 1998 through
early 2000, the PSCW reviewed the policies on standards of
conduct governing diversification of activities that can be
performed within the utility and utility affiliates. During
these proceedings, Wisconsin Electric took the position that
state policy should protect competition, not individual
competitors, and that customers should have the choice to use
either Wisconsin Electric or another vendor for these products
and services. In April 2000, the PSCW issued an order which
allows utilities to continue to provide and sell products and
services other than core utility products as long as the related
costs are fully allocated and not subsidized by ratepayers.
ENVIRONMENTAL COMPLIANCE
ENVIRONMENTAL EXPENDITURESEnvironmental Expenditures
Expenditures for environmental compliance and remediation issues
noted below are included in anticipated constructioncapital expenditures described in
"Liquidity and Capital Resources - Capital
Requirements"Resources" in Item 7 of this report. For
discussion of additional environmental issues, see "Environmental
Matters" in Item 3 of this report. For further information
concerning air quality standards and rulemaking initiated by the
United States
Environmental Protection Agency,EPA, including estimated capital,
operation and maintenance costs of compliance, see "Factors
Affecting Results, of Operations - Environmental Matters"Liquidity and Capital Resources" in Item 7 of
this report.
UTILITY ENERGY SEGMENT: Compliance with federal, state and
local environmental protection requirements resulted in capital
expenditures by Wisconsin Electric of approximately $37 million
in 2000 compared with $44 million in 1999, an increase of $21 million over 1998.1999. Expenditures incurred
during 19992000 primarily included costs associated with the
installation of pollution abatement facilities at Wisconsin
Electric's power plants. Such expenditures at Wisconsin Electric
are budgeted at approximately $24$59 million during 2000 and
$77 million during 2001. These projections for 2000 and 2001, which are less than costs estimated in the Company's 1998 Annual
Report on Form 10-K due to a change in the timing of when these
costs are expected to be incurred, reflectreflecting
nitrogen oxide ("NOx") control equipment needed to comply with
ozone non-attainment rules promulgated by the Environmental
Protection Agency and Wisconsin's
one-hour ozone attainment plan.Agency.
Operation, maintenance and depreciation expenses for Wisconsin
Electric's fly ash removal equipment and other environmental
protection systems are estimated to have been approximately
$41 million during 2000 and $37 million during 1999 and 1998 and $30 million during 1997.
NON-UTILITY SEGMENT: Wisvest-Connecticut, LLC, a wholly owned
subsidiary of Wisvest Corporation, acquired two fossil-fueled
power plants in the state of Connecticut in April 1999. Wisvest-
Connecticut, LLC and all fossil / steam electric generating
stations in a 19 state region east of the Mississippi River will
be affected by the ozone non-attainment rules promulgated by the
United States Environmental Protection Agency.1998.
Solid Waste Landfills
The state of
Connecticut has adopted the Environmental Protection Agency's
requirements which will require affected plants, including those
owned by Wisvest-Connecticut, LLC, to reduce NOx emissions.
Wisvest-Connecticut, LLC currently estimates that efforts to
reduce these emissions and meet the existing regulatory
requirements would require between $7.5 million and $15 million in
capital expenditures prior to May 2003.
For further information concerning air quality standards and
rulemaking initiated by the state of Connecticut, see "Factors
Affecting Results of Operations - Environmental Matters" in Item 7
of this report.
Sub-surface, non-aqueous petroleum liquids have been identified at
both power plant sites that were acquired by Wisvest-
Connecticut, LLC. Based upon recent environmental studies, the
Company currently estimates that it will incur approximately
$3.3 million during the three years ending December 31, 2002 to
treat and remediate these sites. These expenditures are expected
to bring the two sites into compliance with applicable standards
in the state of Connecticut.
SOLID WASTE LANDFILLS
Wisconsin Electric and Edison Sault provideprovides for the disposal of non-ash related solid
wastes and hazardous wastes through licensed independent
contractors, but federal statutory provisions impose joint and
several liability on the generators of waste for certain cleanup
costs. Remediation-related activity pertaining to specific sites
is discussed below.
GIDDINGS AND LEWIS, INC./CITY OF WEST ALLIS LAWSUIT: In July
1999, a jury decided against Wisconsin Electric and awarded the
plaintiffs $4.5 million as actual damages and $100 million in
punitive damages in a lawsuit alleging that Wisconsin Electric
had placed contaminated wastes at two sites in the City of West
Allis, Wisconsin. Wisconsin Electric is preparing to file an appeal ofappealing the case. For
additional information, see "Note L" or"Environmental Matters" in Item 3 and
"Note K - Commitments and Contingencies" in Wisconsin Energy's or Wisconsin
Electric'sthe Notes to
Financial Statements respectively, in Item 8 of this report.
MUSKEGO LANDFILL: On January 2, 2001, three individuals filed
an action in the circuit court of Milwaukee County against Waste
Management of Wisconsin, Inc., Wisconsin Electric and others
alleging environmental contamination emanating from the Muskego
landfill in Muskego, Wisconsin. The Muskego landfill was
operated by Waste Management and was classified as an EPA
Superfund Site. The plaintiffs, who are adjacent landowners to
the site, are alleging that the defendants are liable on various
theories for groundwater contamination. Plaintiffs are
requesting, inter alia, further remediation, damages for personal
injury, loss of property value and punitive damages. Wisconsin
Electric is investigating the matter but believes that in 1996 it
entered into a buyout agreement as a De Minimis party with Waste
Management and nine other potentially responsible parties
("PRP's") concerning groundwater contamination on this site and
that the PRP's must therefore indemnify and defend Wisconsin
Electric in this action.
WEST AVENUE LANDFILL: During 1996, Wisconsin Electric was
informed by the City of Waukesha that it has been identified as a
"responsible party" at a former Waukesha landfill which the city
will be remediating under Wisconsin state law. The City of
Waukesha invoked a new statutory negotiation procedure to attempt
to obtain consensual agreement regarding responsible parties and
remediation cost sharing and hired a private environmental
allocation consultant to apportion cost shares in an attempt to
promote voluntary settlement. The consultant issued a non-bindingnon-
binding final allocation report assigning a zero share of
responsibility to Wisconsin Electric. The matter is pending further action by
the City of Waukesha.
ASH LANDFILLS
Wisconsin Electric aggressively seeks environmentally acceptable,
beneficial useswas
offered and accepted a De Minimis Party Settlement Agreement
releasing and indemnifying Wisconsin Electric from claims for
its combustion byproducts. However,
combustion byproducts have been, and to some degree continue to
be, disposedsite liabilities in exchange for a settlement payment of in company-owned, licensed landfills.$3,500.
Coal-Ash Landfills
Some early designed and constructed coal-ash landfills may allow
the release of low levels of constituents resulting in the need
for various levels of remediation. Where Wisconsin Electric has
become aware of these conditions, efforts have been expended to
define the nature and extent of any release, and work has been
performed to address these conditions. The costs of these efforts are includedFor additional
information, see "Note K - Commitments and Contingencies" in the
environmental operating and maintenance costs for Wisconsin
Electric.Notes to Financial Statements in Item 8 of this report. Sites
currently undergoing remediation include:
HIGHWAY 59 LANDFILL: In 1989, a sulfate plume was detected in
the groundwater beneath a Wisconsin Electric-owned former ash
landfill located in the Town of Waukesha, Wisconsin. After
notifying the Wisconsin Department of Natural Resources,
Wisconsin Electric initiated a five-year expanded monitoring
program. In July 1995, Wisconsin Electric prepared an
environmental contamination assessment of the landfill and
submitted the report to the Wisconsin Department of Natural
Resources. Wisconsin Electric has petitioned the City of
Waukesha to extend city water service to residents of the Town of
Waukesha affected by contamination from the site. The City
Council has agreed to extend service at Wisconsin Electric's
cost. In addition to providing cityCity water to the nine affected residents,
Wisconsin Electric anticipates excavatinghas completed excavation of saturated ash from and
cappingplacement of a cap on the landfill.landfill, and will complete final
landscaping of the site in early 2001. Total remediation cost for theof this
site is anticipatedestimated to be $6 million.
KANSAS AVE. LANDFILL: The Kansas Ave. site, located in the City
of St. Francis, Wisconsin, was a small landfill area used to
support the operations of Wisconsin Electric's former Lakeside
Power Plant. Wisconsin Electric has entered into an agreement
with the Wisconsin Department of Natural Resources to place a
cover over the former ash landfill site. Expenses associated
with a cover installation are expected to be minimal. No
groundwater treatment is planned at this time.
OAK CREEK NORTH LANDFILL: Groundwater impacts at this landfill,
located in the City of Oak Creek, Wisconsin, prompted Wisconsin
Electric to investigate, during 1998, the condition of the
existing cover and other conditions at the site. Surface water
drainage improvements were implemented at this site during 1999
and 2000, which are expected to eliminate ash contact with water
and remove unwanted ponding of water near monitoring systems.
Future financial impacts to Wisconsin Electric are projected to
be minimal.
MANUFACTURED GAS PLANT SITESLAKESIDE LANDFILL: During 2001, Wisconsin Electric expects to
begin investigation of property that was used primarily for coal
storage, fuel oil transport and coal ash disposal in support of
the former Lakeside Power Plant in St. Francis, Wisconsin. Until
the investigation work has been completed and a remedial plan
developed, Wisconsin Electric cannot estimate any related
remediation costs.
Manufactured Gas Plant Sites
The Company is reviewing and addressing environmental conditions
at a number of former manufactured gas plant sites. See
"Note L" or "Note K - Commitments and Contingencies" in Wisconsin Energy's or Wisconsin Electric'sthe Notes to
Financial Statements respectively, in Item 8 of this report.
AIR QUALITYAir Quality
The 1990 amendments to the Federal Clean Air Act mandate
significant nationwide reductions in air emissions. The most
significant sections of this law applicable to the country's
electric utilities are the acid rain and ozone nonattainment
provisionsprovisions. The acid rain provisions are scheduled to limit sulfur dioxideSO2 and nitrogen oxideNOx emissions
in phases. Phase I became effective in 1995 and Phase II becomesbecame
effective during the year 2000. The Company has met the
requirements of Phase I. The Phase II requirements of the 1990
amendments to the Federal Clean Air Act are expected to have
minimal future impacts on the Company's utilities because of
existing cost effective compliance strategies and previous
actions taken. Ozone nonattainment rules implemented by the
state of Wisconsin and ozone transport rules implemented by the
state of Michigan, both under authority of the Federal Clean Air
Act, will limit NOx emissions in phases over the next seven
years.
See "Factors Affecting Results, of Operations - Environment
Matters"Liquidity and Capital Resources"
in Item 7 of this report for information concerning National
Ambient Air Quality Standards established during 1997 by the United States Environmental Protection AgencyEPA
and ozone non-
attainmentnon-attainment rulemaking promulgated by the Environmental Protection
AgencyEPA
during 1998.
OTHER
YEAR 2000 TECHNOLOGY ISSUES: Due to the successful efforts of
the Company's Year 2000 program teams and consistent with industry
experience throughout the United States, Wisconsin Energy and
Wisconsin Electric had no significant problems with their business
application software nor with their infrastructure and process
control systems during the transition into the Year 2000. For
further information, see "Factors Affecting Results of Operations
- - - Year 2000 Technology Issues" in Item 7 of this report.
RESEARCH AND DEVELOPMENT: Research and development expenditures
by Wisconsin Electric amounted to $8$6.8 million during 2000,
$8.0 million during 1999 and $7.5 million during 1998 and $8.5 million during 1997.1998. Such
expenditures were primarily for improvement of service and
abatement of air and water pollution.pollution by the electric utility
operations. Research and development activities include work
done by employees, consultants and contractors, plus sponsorship
of research by industry associations.
EMPLOYEES: The Company added 470 employees during 1999 including
approximately 225 new employees at Wisconsin Electric. About half
of the new employees at Wisconsin Electric replaced existing
contract employees. Of the approximately 245 new non-utility
segment employees added during 1999, approximately 200 are
attributable to Wisvest-Connecticut, LLC's acquisition of two
fossil-fueled power plants during 1999. At December 31, 1999, the
following number2000, Wisconsin Electric had 5,570
employees of individualswhich 5,402 were employed byfull time and 168 were part time.
As of December 31, 2000, 3,733 of Wisconsin Energy
and its subsidiaries.
Full Time Part Time Total
--------- --------- -----
Utility
Wisconsin Electric 5,322 168 5,490
Edison Sault 70 3 73
----- --- -----
Total Utility 5,392 171 5,563
Non-Utility
Energy 226 - 226
Other 88 - 88
----- --- -----
Total Non-Utility 314 - 314
----- --- -----
Total Employees 5,706 171 5,877
===== === =====
Of theseElectric's employees the following number of individuals
were represented under labor agreements with the following bargaining
units as of December 31, 1999.
Expiration Date of
Number of Employees Current Labor Agreement
------------------- -----------------------
Wisconsin Electric
Local 2150 of International
Brotherhood of Electrical Workers 2,752 August 15, 2001
Local 317 of International
Union of Operating Engineers 505 January 1, 2000 *
Local 12005 of United
Steel Workers of America 201 November 3, 2001
Local 7-0111 of Paper, Allied
Industrial Chemical & Energy
Workers International Union 74 November 3, 2001
Local 510 of International
Brotherhood of Electrical Workers 163 May 1, 2000 *
-----
Total Wisconsin Electric 3,695
Edison Sault
Local 13457 of United
Steel Workers of America 49 October 31, 2001
Non-Utility
Local 470-1 of Utility Workers
Union of America 147 May 15, 2002
-----
Total Employees 3,891
=====
* Currently under negotiation
For anticipated employee additions during 2000, see "Factors
Affecting Results of Operations - Outlook" in Item 7 of this
report.agreements.
ITEM 2. PROPERTIES
The principal properties of Wisconsin Energy and its subsidiariesElectric are owned in fee
except that the major portion of utility electric transmission andutility distribution
lines, and steam utility distribution mains and gas utility
distribution mains and services are located, for the most part,
on or in streets and highways and on land owned by others.
Substantially all of Wisconsin Electric's utility plant is
subject to a first mortgage liens.
UTILITY SEGMENT
WISCONSIN ELECTRIC:lien.
Effective January 1, 2001, Wisconsin Electric exited the electric
transmission business by contributing all of its transmission
assets to the American Transmission Company LLC in exchange for
equity interests in this new company. For further information,
see "Factors Affecting Results, Liquidity and Capital Resources"
in Item 7 of this report.
Wisconsin Electric owns the following generating stations with
1999dependable capabilities as indicated.
Dependable Capability
In Megawatts (a)
No. of ---------------------
Generating August December
Name Fuel Units 1999 19992000 2000
---- ---- ----- ---- ----
Steam Plants
Point Beach Nuclear 2 1,012 1,022
Oak Creek Coal 4 1,135 1,139
Presque Isle Coal 9 617 617
Pleasant Prairie Coal 2 1,200 1,210
Port Washington Coal 4 320 320
Valley Coal 2 267 227
Edgewater 5 (b) Coal 1 102 102
Milwaukee County Coal 3 11 11
-- ----- -----
Total Steam Plants 27 4,664 4,648
Hydro Plants (15(14 in number) 37 63 67
Germantown Combustion Turbines (c) Gas/Oil 4 212 2525 345 345
Concord Combustion Turbines (c) Gas/Oil 4 376 376
Paris Combustion Turbines (c) Gas/Oil 4 376 376388 388
Other Combustion Turbines & Diesel Gas/Oil 6 59 7055 62
-- ----- -----
Total System 82 5,750 5,78983 5,891 5,886
== ===== =====
(a) Dependable capability is the net power output under average operating
conditions with equipment in an average state of repair as of a given month
in a given year. Changing seasonal conditions are responsible for the
different capabilities reported for the winter and summer periods in the
above table. The values were established by test and may change slightly
from year to year.
(b) Wisconsin Electric has a 25% interest in Edgewater 5 Generating Unit, which
is operated by Wisconsin Power and Light Company, an unaffiliated utility.
(c) InletDuring 2000, a fifth generating unit was added and inlet air coolers have beenwere
installed at Concord and Parison existing generating units at Germantown Power Plant,
increasing the capacity of the plant and improving dependable capability
during hot summer months.
At December 31, 1999, Wisconsin Electric's electric transmission
and distribution system had 2,870 miles of transmission circuits,
of which 711 miles were operating at 345 kilovolts, 123 miles at
230 kilovolts, 1,652 miles at 138 kilovolts, and 384 miles at
voltage levels less than 138 kilovolts. At December 31, 1999,2000, Wisconsin Electric was operating
21,927 pole milesapproximately 21,900 pole-miles of overhead distribution lines
and 16,29517,800 miles of underground distribution cable as well as
approximately 350 distribution substations and 233,726243,900 line
transformers. For information concerning the pending transfer of
Wisconsin Electric's electric transmission assets to the American
Transmission Company, LLC in exchange for an ownership interest in
this new company, see "Factors Affecting Results of Operations -
Industry Restructuring and Competition" in Item 7 of this report.
As of December 31, 1999, the2000, Wisconsin Electric's gas distribution
system included approximately 7,8958,200 miles of mains connected at
22 gate stations to the pipeline transmission systems of ANR
Pipeline Company, Natural Gas Pipeline Company of America,
Northern Natural Pipeline Company and Great Lakes Transmission
Company. Wisconsin Electric has a liquefied natural gas storage
plant which converts and stores in liquefied form natural gas
received during periods of low consumption. The liquefied
natural gas storage plant has a send-out capability of 70,000
dekatherms per day. Wisconsin Electric also has propane air
systems for peaking purposes. These propane air systems will
provide approximately 7,000 dekatherms per day of supply to the
system.
At December 31, 1999,2000, the combined steam systems supplied by the
Valley and Milwaukee County Power Plants consisted of
approximately 43 miles of both high pressure and low pressure
steam piping, 8.8 miles of walkable tunnels and other pressure
regulating equipment.
Wisconsin Electric owns various office buildings and service
centers throughout its service area.
EDISON SAULT: Edison Sault's major source of electric energy is
its 29.8-megawatt hydroelectric generating plant on the St. Marys
River in Sault Ste. Marie, Michigan. In addition, Edison Sault
owns and operates a 4.8-megawatt diesel-fired peaking power plant.
Edison Sault owns two 138 kilovolt submarine transmission cable
circuits which interconnect with Consumers Energy Company in the
Lower Peninsula of Michigan, as well as two 138 kilovolt
substations which interconnect with a 46 mile, 138 kilovolt
transmission line owned and operated by Cloverland Electric
Cooperative. In total, Edison Sault had 282 miles of transmission
line in service as of December 31, 1999 and maintained 792 miles
of primary distribution lines. Edison Sault renders service to
its customers through approximately 8,600 line transformers.
NON-UTILITY SEGMENT
WISVEST CORPORATION: Wisvest owns a chilled water production and
distribution facility located in Milwaukee County, Wisconsin.
Wisvest-Connecticut, LLC, a wholly owned subsidiary of Wisvest
Corporation, owns two fossil-fueled power plants in the state of
Connecticut: the Bridgeport Harbor Station with an active
generating capacity of 590 megawatts, and the New Haven Harbor
Station with an active generating capacity of 466 megawatts.
WISPARK CORPORATION: Wispark properties include the following
commercial and industrial parks in the state of Wisconsin:
LakeView, located near Kenosha; GrandView in Racine County,
RidgeView in Pewaukee; Westridge in New Berlin, Mitchell
International in Milwaukee County, and Cottonwood Commerce in
Hartland. Wispark also owns Gaslight Pointe, a residential and
commercial complex located in Racine, the Radisson Hotel and
Conference Center in Kenosha plus other properties located in
Wisconsin Electric's service territories that are held for future
development. Wispark is also developing other real estate
property located in the states of Illinois and Minnesota.
MINERGY CORP.: Minergy owns a glass aggregate facility located
in Neenah, Wisconsin
OTHER: Badger Service Company holds rights to coal in an area of
8,568 acres in Knox County, Indiana.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
The CompanyWisconsin Electric is subject to federal, state and certain local
laws and regulations governing the environmental aspects of its
operations. The Company believes that, perhaps with immaterial
exceptions, its existing facilities are in compliance with
applicable environmental requirements.
See "Environmental Compliance" in Item 1 of this report, which is
incorporated by reference herein, for a discussion of matters
related to certain solid waste and ashcoal-ash landfills,
manufactured gas plant sites and air quality.
GIDDINGS & LEWIS, INC./CITY OF WEST ALLIS LAWSUIT: See
"Factors
Affecting Results of Operations"Note K - Legal Matters"Commitments and Contingencies" in the Notes to
Financial Statements in Item 78 of this report for matters related
to a July 1999 jury verdict against Wisconsin Electric in a
lawsuit alleging that Wisconsin Electric had placed contaminated
wastes at two sites in the City of West Allis, Wisconsin.
Two shareholders have brought separate derivative proceedings in
Milwaukee County Circuit Court for alleged damages resulting from
the Giddings & Lewis/City of West Allis Lawsuit. All of the
directors of Wisconsin Energy and Wisconsin Electric are named as
defendants in one of the derivative actions and a number of
individual employees, as well as the Chief Executive Officer of
Wisconsin Energy and Wisconsin Electric, are named as defendants
in the other. In accordance with Wisconsin law, a special
committee of independent directors of Wisconsin Energy, based
upon an investigation of the allegations contained in both
lawsuits, concluded that the maintenance of these actions is not
in the best interests of the Company. Accordingly Wisconsin
Energy has moved to dismiss the actions. The matter is pending.
UTILITY RATE MATTERS
WISCONSIN RETAIL JURISDICTION:
See "Factors Affecting Results, of
Operations - RatesLiquidity and Regulatory Matters"Capital Resources"
in Item 7 of this report for information concerning (1) Wisconsin Electric's pending
request beforerate matters
in the Public Service Commission of Wisconsin for
electric and gas increases related to the 2000/2001 test years,
(2) rate orders issued by the Public Service Commission of
Wisconsin for the 1998/1999 and 1997 test years, (3) an interim
rate order issued by the Public Service Commission of Wisconsin
for the 1998 test year, (4) Wisconsin's fuel cost adjustment
procedure, (5) a fuel credit and a fuel surcharge approved by the
Public Service Commission of Wisconsin during 1999 and 1997,
respectively, (6) approval by the Public Service Commission of
Wisconsin during 1997 forjurisdictions where Wisconsin Electric to defer certain
excess non-fuel nuclear operation and maintenance costs, and
(7) Wisconsin's purchase gas adjustment and gas cost recovery
mechanisms. See "Note B - Mergers & Acquisitions" in Wisconsin
Energy's Notes to Financial Statements in Item 8 of this report
for information concerning a qualified five-year electric, gas and
steam rate freeze ordered by the Public Service Commission of
Wisconsin as a condition of approval of Wisconsin Energy's pending
acquisition of WICOR, Inc.
MICHIGAN RETAIL ELECTRIC JURISDICTION: See "Factors Affecting
Results of Operations - Rates and Regulatory Matters" in Item 7 of
this report for information concerning (1) a Wisconsin Electric
rate order issued by the Michigan Public Service Commission for
the 1998 test year, (2) Edison Sault's temporary price cap
approved by the Michigan Public Service Commission, and
(3) Michigan's Power Supply Cost Recovery Clause.
WHOLESALE ELECTRIC JURISDICTION: Some customers served under
Wisconsin Electric's and Edison Sault's wholesale rates are
subject to automatic fuel adjustment or purchased power pass
through provisions to reflect varying fuel and purchased power
costs.does business.
OTHER MATTERS
MINERGY GLASS AGGREGATE PLANT SUIT: In 1996, three individuals
and two environmental organizations filed an action in Circuit
Court for Winnebago County against Minergy Corp., a non-utility
subsidiary of Wisconsin Energy, against the City of Neenah,
Wisconsin, and against a paper company, challenging the legality
of the city's lease of certain land to Minergy for construction
and operations of a facility that recycles paper sludge from area
paper mills into glass aggregate and steam. The plaintiffs
alleged that the lease violated the public trust doctrine under
Wisconsin law and requested that the court declare the lease a
public nuisance and grant a permanent injunction against
construction of the facility. On December 17, 1999, the parties
reached settlement of the litigation on a non-material basis.
SPENTUSED NUCLEAR FUEL STORAGE & REMOVAL: See "Factors Affecting
Results, of Operations - Nuclear Matters"Liquidity and Capital Resources" in Item 7 of this
report for information concerning the United States Department of
Energy's breach of a contract with Wisconsin Electric that
required the United States Department of Energy to begin
permanently removing spent nuclear fuel from Point Beach Nuclear
Plant by January 31, 1998.
URANIUM ENRICHMENT CHARGES: On August 25, 1999, the U.S. Court
of Appeals for the Federal Circuit reversed an August 12, 1998
decision of the U.S. Court of Federal Claims which had granted the
government's motion for summary judgment dismissing claims of
Wisconsin Electric and six other utilities for damages by reason
of overcharges for uranium enrichment services provided by the
Department of Energy. The damages sought by Wisconsin Electric
total $1.3 million. The Court of Appeals remanded the case to the
Court of Federal Claims for trial. The matter is pending.
WISCONSIN INTERNATIONAL ELECTRIC POWER LITIGATION: See "Factors
Affecting Results of Operations - Legal Matters" in Item 7 of this
report for information concerning settlement during the fourth
quarter of 1999 of litigation claiming that Wisconsin Electric had
breached contractual duties allegedly owed to the plaintiff
relating to the development of an electric generating plant at
Subic Bay in the Philippines.
WICOR, INC. SHAREHOLDER SUIT: In September 1999, a stipulation
of settlement was entered into with respect to an action filed in
July 1999 by a shareholder of WICOR, Inc. against WICOR, all of
the members of its board of directors, and Wisconsin Energy. The
complaint sought certification as a class action suit on behalf of
all WICOR shareholders, an injunction against proceeding with the
pending merger of WICOR with Wisconsin Energy, an auction or open
bidding process for the sale of WICOR, and unspecified damages.
As provided in the stipulation of settlement, the merger agreement
was amended on September 9, 1999 to remove a provision
contractually obligating WICOR to resist another acquisition
proposal that is not a superior proposal to Wisconsin Energy's and
to reduce from $30 million to $25 million the amount of the break-
up fee payable by WICOR to Wisconsin Energy if WICOR pursues or
closes another transaction instead of completing the merger with
Wisconsin Energy. The settlement was approved by the court on
January 24, 2000. Consummation of the settlement is subject to,
and the related amendments to the merger agreement are conditioned
upon, consummation of the merger.
STRAY VOLTAGE: On July 11, 1996, the Public Service Commission
of WisconsinPSCW issued its final
order regarding the stray voltage policies of Wisconsin's
investor ownedinvestor-owned utilities. The order clarified the definition of
stray voltage, affirmed the level at which utility action is
required, and appropriately placed some of the responsibility for
this issue in the hands of the customer. Additionally, the order
established a uniform stray voltage tariff which delineates
utility responsibility and provides for the recovery of costs
associated with unnecessary customer demanded services. While
this action has been beneficial in Wisconsin Electric's efforts
to manage this controversial issue, it has not had a significant
impact on Wisconsin Electric's financial position or results of
operation.operations.
In recent years, several actions by dairy farmers have been
commenced or claims made against Wisconsin Electric for loss of
milk production and other damages allegedly caused by stray
voltage resulting from the operation of its electrical system.
At the present time, four such actions are pending.pending and one case
is on appeal. Wisconsin Electric does not believe however, that these or
any other claims thus far made or threatened against Wisconsin
Electric by reason of stray voltage will result in any
substantial liability on its part. Currently, there are no cases pending or threatened against
Edison Sault.
ELECTROMAGNETIC FIELDS: Claims have been made or threatened
against electric utilities across the country for bodily injury,
disease or other damages allegedly caused or aggravated by
exposure to electromagnetic fields associated with electric
transmission and distribution lines. Results of scientific
studies conducted to date have not established the existence of a
causal connection between electromagnetic fields and any adverse
health affects. Wisconsin Electric and Edison Sault believebelieves that theirits facilities
are constructed and operated in accordance with all applicable
legal requirements and standards. Currently, there are no cases
pending or threatened against Wisconsin Electric nor
against Edison Sault.Electric.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Wisconsin Energy's nor
Wisconsin Electric's
security holders during the fourth quarter of the fiscal year covered by this report.2000.
EXECUTIVE OFFICERS OF THE REGISTRANTSREGISTRANT
The names, ages at December 31, 19992000 and positions of the
executive officers of Wisconsin Energy and Wisconsin Electric are listed below along
with their business experience during the past five years. All
officers are appointed until they resign, die or are removed
pursuant to the Bylaws. There are no family relationships among
these officers, nor is there any agreement or understanding
between any officer and any other person pursuant to which the
officer was selected.
Richard A. Abdoo (55)(56): Chairman of the Board, President and
Chief Executive Officer of Wisconsin
Energy since 1991; Director of Wisconsin Energy since
1988.1991. Chairman of the Board
and Chief Executive Officer of Wisconsin
Electric a
subsidiarysince 1990. Chairman of the
Board and Director of WICOR and Wisconsin
Gas since April 2000. Director of
Wisconsin Energy since 1990;1988. Director of
Wisconsin Electric since 1989.
Chairman of the Board and Chief Executive
OfficerCharles R. Cole (54): Senior Vice President of Wisconsin
Natural Gas Company, a
former subsidiaryElectric since January 1, 2001. Vice
President - Distribution Operations of
Wisconsin Electric from August 1999 to
December 2000. Vice President - Customer
Services of Kansas City Power & Light
from 1995 to 1999.
Stephen P. Dickson Controller of Wisconsin Energy that
was merged intoand
(40): Wisconsin Electric on
January 1, 1996, from 1990 through 1995;since April 2000.
Controller of Wisconsin Gas since June
1998. Director of Wisconsin Natural Gas CompanyBusiness Risk
Consulting Services of Arthur
Andersen LLP from 1989 through 1995.1997 to 1998. Senior
Manager of Arthur Andersen LLP from 1995
to 1997.
Paul Donovan (52)(53): Senior Vice President and Chief Financial
Officer of Wisconsin Energy since August
1999.1999, and of Wisconsin Electric and
Wisconsin Gas since July 2000. Executive
Vice President of
Sundstrand Corporation from 1990 through
June 10, 1999;and Chief Financial
Officer of Sundstrand Corporation from
1988 through
June 10,1990 and 1998, respectively, to 1999.
Richard R. Grigg (51)(52): Senior Vice President of Wisconsin Energy
and WICOR since 1995; Director of Wisconsin Energy since
1995.July 2000 and President
and Chief Operating Officer of Wisconsin
Electric since 1995;1995. Vice President of
Wisconsin Energy from 1995 to June 2000.
Chief Nuclear Officer of Wisconsin
Electric from December 1996 to March
1998;1998. Director of Wisconsin Energy since
1995. Director of Wisconsin Electric
since 1994.
Larry Salustro (53): Senior Vice President and General Counsel
of Wisconsin Energy, WICOR, Wisconsin
Electric and Wisconsin Gas since July
2000. Vice President of Wisconsin
Electric from 1997 through June 2000.
Regional Vice President - Law and
Governmental Affairs with AT&T from 1995
to 1997.
Thomas F. Schrader President of Wisconsin Gas since October
(51): 2000. Senior Vice President - Strategic
Process Integration of Wisconsin Electric
since April 2000. Senior Vice President
of WICOR since August 2000 and Director
of WICOR since 1988. Vice President of
WICOR from 1988 to 1997. President and
Chief Operating Officer of WICOR and Vice
Chairman of its subsidiaries from 1997 to
2000. President and Chief Executive
Officer of Wisconsin Natural Gas Company during
1995;from 1988 to
1997.
Georger E. Wardeberg Vice Chairman of the Board of Wisconsin
(65): Energy, WICOR, Wisconsin Electric and
Wisconsin Gas and Director of Wisconsin
Natural Gas
Company during 1995.
Calvin H. Baker (56): Treasurer of Wisconsin Energy since 1996;
Chief Financial Officer of Wisconsin Energy
from 1996 to August 1999. Chief Financial
Officer ofand Wisconsin Electric since 1996;
Vice President - FinanceApril
2000. Director of WICOR and Wisconsin
ElectricGas since 1994.
Anne K. Klisurich (52): Controller1992. Chairman of Wisconsin Energy since 1995;
Assistant Corporate Secretarythe Board
and Chief Executive Officer of Wisconsin
EnergyWICOR from July
1997 to March 1998.
Controller of Wisconsin Electric since 1994;
Assistant Corporate Secretary of Wisconsin
Electric from July 1997 to March 1998.
Controller of Wisconsin Natural Gas Company
from 1994 through 1995.
Kristine M. Krause (45): Vice President - Fossil Operations of
Wisconsin Electric since 1994.
David K. Porter (56): Senior Vice President of Wisconsin Electric
since 1989; Director of Wisconsin Electric
since 1989. Vice President of Wisconsin
Natural Gas Company from 1989 through 1995;
Director of Wisconsin Natural Gas Company
from 1988 through 1995. Director of Edison
Sault Electric Company since 1998.
Michael B. Sellman (52): President - Nuclear Management Company, LLC
since February 1999. Senior Vice President
- Nuclear Power Business Unit and Chief
Nuclear Officer of Wisconsin Electric since
March 1998. President, Maine Yankee Atomic
Power Company from February 1997 to March
1998. Vice President - Waterford Nuclear
Plant, Entergy Arkansas, Inc. from February
1996 to February 1997; General Manager -
River Bend Nuclear Plant, Entergy Gulf
States, Inc. from September 1993 to February
1996.April 2000.
Certain executive officers also hold offices in Wisconsin
Energy's non-utility subsidiaries.
PART II
-----------------
ITEM 5. MARKET FOR REGISTRANTS'REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
NUMBER OF COMMON STOCKHOLDERS
As of year-end 1999, based on the number of Wisconsin Energy
Corporation stockholder accounts (including accounts in Wisconsin
Energy's dividend reinvestment and stock purchase plan), there
were 91,062 registered stockholders.
COMMON STOCK LISTING AND TRADING
Wisconsin Energy Corporation common stock is listed on the New
York Stock Exchange. The ticker symbol is WEC. Daily trading
prices and volume can be found in the "NYSE Composite" section of
most major newspapers, usually abbreviated as WiscEn or WiscEngy.
DIVIDENDS AND COMMON STOCK PRICES
COMMON STOCK DIVIDENDS OF WISCONSIN ENERGY: Cash dividends on
Wisconsin Energy's common stock, as declared by the board of
directors, are normally paid on or about the first day of March,
June, September and December. Wisconsin Energy reviews its
dividend policy on a regular basis. Subject to any regulatory
restrictions or other limitations on the payment of dividends,
future dividends will be at the discretion of the board of
directors and will depend upon, among other factors, earnings,
financial condition and other requirements.
RANGE OF WISCONSIN ENERGY COMMON STOCK PRICES AND DIVIDENDS:
1999 1998
----------------------------------- -------------------------------------
Quarter High Low Dividend High Low Dividend
- - ------- ---- --- -------- ---- --- --------
First $31-9/16 $25-1/16 $.39 $31 $27 $.385
Second 28-1/8 25-1/16 .39 31-11/16 28-1/2 .390
Third 26 22-7/16 .39 32 27-3/8 .390
Fourth 24-3/16 19-1/16 .39 34 30 .390
------ ------
Year $31-9/16 $19-1/16 $1.56 $34 $27 $1.555
====== ======
COMMON STOCK DIVIDENDS OF WISCONSIN ELECTRIC: Cash dividendsDividends declared on Wisconsin Electric Power Company's common
stock during the two most recent fiscal years are set forth
below. With the exception of the third quarter of 2000,
dividends were paid entirely in cash. Dividends were paid to
Wisconsin Electric's sole common stockholder, Wisconsin Energy.Energy
Corporation.
Total Dividends
------------------------------------------
Quarter 2000 1999
1998
- - ------- ------------ ---------------- ----
First $44,893,000 $44,322,000$44.9 $44.9
Second 44,893,000 44,893,00044.9 44.9
Third 44,893,000 44,893,00044.9 (a) 44.9
Fourth 44,893,000 44,893,000
------------ ------------44.9 44.9
------ ------
Total $179,572,000 $179,001,000
============ ============$179.6 $179.6
====== ======
(a) During the third quarter of 2000, the Board of Directors
approved that $1.0 million of the dividend be paid in a
property dividend with the balance paid in cash.
In February 2001, to meet additional future anticipated capital
requirements and to maintain an appropriate capital structure,
Wisconsin Electric's Board of Directors authorized a quarterly
cash dividend, payable to Wisconsin Energy on March 1, 2001, of
$32.5 million ($130.0 million on an annualized basis), which was
reduced from prior quarterly dividends paid during 2000 of
$44.9 million (or $179.6 million on an annualized basis).
Various financing arrangements and regulatory requirements impose
certain restrictions on the ability of Wisconsin Electric to
transfer funds to Wisconsin Energy in the form of cash dividends,
loans or advances. Under Wisconsin law, Wisconsin Electric is
prohibited from loaning funds, either directly or indirectly, to
Wisconsin Energy.
ITEM 6. SELECTED FINANCIAL DATA
WISCONSIN ENERGY CORPORATION
CONSOLIDATEDELECTRIC POWER COMPANY
SELECTED FINANCIAL AND STATISTICAL DATA
Financial 2000 1999 1998 1997 1996
1995- --------- ---- ---- ---- ---- ----
(Thousands of Dollars, Except Per Share Amounts)
Year Ended December 31
Net income $208,989 $188,132 $60,716Earnings available for
common stockholder (Millions)(e) $163.5 (a) $218,135 $234,034
Earnings per share of common
stock (basic and diluted) $1.79 $1.65 $0.54 (a) $1.97 $2.13
Dividends per share of
common stock $1.56 $1.555 $1.535 $1.5075 $1.455$211.9 (b) $183.0 $69.4 (c) $210.1
Operating revenues Energy
Utility $2,050,218 $1,979,986 $1,789,602 $1,773,820 $1,770,484
Non-Utility 193,240 34,108 6,959 - -
---------- ---------- ---------- ---------- ----------
Total energy 2,243,458 2,014,094 1,796,561 1,773,820 1,770,484
Other 29,181 25,339 10,368 13,647 6,503
---------- ---------- ---------- ---------- ----------(Millions)
Electric $1,763.4 $1,688.3 $1,641.4 $1,412.1 $1,393.3
Gas 399.7 306.8 295.9 355.2 364.9
Steam 21.9 21.3 20.5 22.3 15.6
-------- -------- -------- -------- --------
Total operating revenues $2,272,639 $2,039,433 $1,806,929 $1,787,467 $1,776,987
========== ========== ========== ========== ==========$2,185.0 $2,016.4 $1,957.8 $1,789.6 $1,773.8
======== ======== ======== ======== ========
At December 31 (Millions)
Total assets $6,233,120 $5,361,757 $5,037,684 $4,810,838 $4,560,735$5,025.1 $4,901.9 $4,608.9 $4,520.9 $4,384.2
Long-term debt and mandatorily
redeemable trust preferred
securities $2,334,636 $1,749,024 $1,532,405 $1,416,067 $1,367,644$1,679.6 $1,677.6 $1,512.5 $1,448.6 $1,371.4
Utility Energy Statistics
-----------------
Utility-------------------------
Electric
Megawatt-hours sold 31,257,050 29,940,384 27,671,946 27,560,428 27,283,869
Customer(Thousands) 31,398.8 30,619.9 29,475.2 27,671.8 27,560.4
Customers (End of year) 1,027,785 1,010,3181,026,691 1,006,013 988,929 978,835 968,735 955,616
Gas
Therms delivered (Thousands) 944,063 922,836 983,676 936,894 886,729
Customer(Millions) 944.9 944.1 922.8 980.7 936.9
Customers (End of year) 407,761 398,508 388,478 376,732 367,275
357,030
Steam
Pounds sold (Millions) 2,914 2,773 3,161 2,705 2,532
Customer3,085.2 2,913.9 2,773.1 3,160.6 2,704.6
Customers (End of year) 451 450 454 474 465 473
Non-Utility
Electric megawatt-hours sold 2,297,756 - - - -
(a) Includes May 1997 nonrecurring $31 million charge ($19 million net of tax or
$.17 per share) to write-off deferred merger costs related to the terminated
merger agreement with Northern States Power Company and December 1997
$30 million write-down ($18 million net of tax or $.16 per share) of equipment
purchased for the Kimberly Cogeneration Project.
CONSOLIDATEDSELECTED QUARTERLY FINANCIAL DATA (Thousands(Unaudited)
(Millions of Dollars Except Per Share Amounts)Dollars) (d)
---------------------------------------------------
March June
----- ----------------------- -------------------
Three Months Ended 2000 1999 19982000 1999 1998
-
- ------------------ ---- ---- ---- ----
Total operating revenues $556,717 $515,677 $539,008 $475,576
Pretax operating$540.8 $527.8 $496.9 $469.9
Operating income 100,316 92,584 102,031 67,783
Net income 53,511 49,048 48,903 28,854121.4 106.2 91.4 98.9
Earnings per share ofavailable for
common stock (basic and diluted) $0.46 $0.43 $0.42 $0.25stockholder (e) 58.5 55.7 39.9 48.1
September December
--------- --------------------------- -------------------
Three Months Ended 2000 1999 19982000 1999 1998
-
- ------------------ ---- ---- ---- ----
Total operating revenues $591,297 $519,649 $585,617 $528,531
Pretax operating$532.7 $513.9 $614.6 $504.8
Operating income 134,968 117,767 119,079 96,620
Net income 68,853 58,176 37,722 52,054122.6 123.5 58.5 118.5
Earnings per shareavailable for
common stockholder (e) 56.6 62.0 8.5 (a) 46.1 (b)
(a) Includes net non-recurring costs, after tax, of common
stock (basic$43.9 million related to
severance benefits and diluted) $0.59 $0.50 $0.32 $0.45
other items.
(b) Includes non-recurring charges, after tax, of $10.8 million for the
settlement of litigation.
(c) Includes non-recurring charges, after tax, of $13.1 million related to the
terminated merger agreement with Northern States Power Company and
$18.0 million related to the write-down of equipment.
(d) Quarterly results of operations are not directly comparable because of
seasonal and other factors. See Management's Discussion and Analysis of
Financial Condition and Results of Operations.
WISCONSIN ELECTRIC POWER COMPANY
SELECTED FINANCIAL DATA
Financial 1999 1998 1997 1996 1995
--------- ---- ---- ---- ---- ----
(Thousands of Dollars)
Year Ended December 31
Earnings available for
common stockholders $211,947 $182,971 $69,412 (a) $210,112 $239,465
Operating revenues
Electric $1,688,277 $1,641,403 $1,412,115 $1,393,270 $1,437,480
Gas 306,802 295,848 355,172 364,875 318,262
Steam 21,311 20,506 22,315 15,675 14,742
---------- ---------- ---------- ---------- ----------
Total operating revenues $2,016,390 $1,957,757 $1,789,602 $1,773,820 $1,770,484
========== ========== ========== ========== ==========
At December 31
Total assets $5,052,603 $4,768,942 $4,667,840 $4,507,160 $4,318,924
Long-term debt $1,677,610 $1,512,531 $1,448,558 $1,371,446 $1,325,169
Sales and Customer - Utility
- - ----------------------------
Electric
Megawatt-hours sold 30,619,868 29,475,163 27,671,946 27,560,428 27,283,869
Customer (End of year) 1,006,013 988,929 978,835 968,735 955,616
Gas
Therms delivered (Thousands) 944,063 922,836 983,676 936,894 886,729
Customer (End of year) 398,508 388,478 376,732 367,275 357,030
Steam
Pounds sold (Millions) 2,914 2,773 3,161 2,705 2,532
Customer (End of year) 450 454 474 465 473
(a) Includes May 1997 nonrecurring $22 million charge ($13 million net of tax to write-off deferred
merger costs related to the terminated merger agreement with Northern States Power Company and
December 1997 $30 million write-down ($18 million net of tax) of equipment purchased for the
Kimberly Cogeneration Project.
QUARTERLY FINANCIAL DATA
(Thousands of Dollars)
---------------------------------------------------
March June
----- ----
Three Months Ended 1999 1998 1999 1998
- - ------------------ ---- ---- ---- ----
Total operating revenues $527,839 $510,681 $469,906 $461,771
Pretax operating income 102,458 94,043 92,763 68,600
Earnings available for
common stockholder 55,660 49,995 48,132 31,071
September December
--------- --------
Three Months Ended 1999 1998 1999 1998
- - ------------------ ---- ---- ---- ----
Total operating revenues $513,890 $496,603 $504,755 $488,702
Pretax operating income 115,920 115,599 116,304 89,424
Earnings available for
common stockholder 62,020 57,956 46,135 43,949
Quarterly results of operations are not directly comparable because of seasonal and other factors.
See Management's Discussion and Analysis of Financial Condition and Results of Operations.(e) Earnings and dividends per share are not provided as all of Wisconsin
Electric Power Company'sElectric's common stock is held by Wisconsin Energy Corporation.
WISCONSIN ELECTRIC POWER COMPANY
SELECTED OPERATING DATA
Year Ended December 31 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Electric Utility
----------------
Operating Revenues (Millions)
Residential $597.2 $574.8 $571.4 $487.2 $494.1
Small Commercial/Industrial 534.7 510.1 487.6 430.2 421.5
Large Commercial/Industrial 464.9 451.2 450.1 402.7 383.1
Other - Retail/Municipal 58.3 51.2 51.2 55.3 56.3
Resale - Utilities 84.0 79.1 60.9 24.5 26.4
Other Operating Revenues 24.3 21.9 20.2 12.2 11.9
-------- -------- -------- -------- --------
Total Operating Revenues $1,763.4 $1,688.3 $1,641.4 $1,412.1 $1,393.3
======== ======== ======== ======== ========
Megawatt-hour Sales (Thousands)
Residential 7,477.6 7,346.8 7,327.0 6,863.6 6,998.8
Small Commercial/Industrial 8,287.5 8,028.2 7,612.4 7,433.1 7,204.7
Large Commercial/Industrial 11,626.2 11,333.6 11,392.0 11,021.5 10,785.5
Other - Retail/Municipal 1,527.3 1,314.0 1,287.2 1,412.6 1,477.0
Resale - Utilities 2,480.2 2,597.3 1,856.6 941.0 1,094.4
-------- -------- -------- -------- --------
Total Sales 31,398.8 30,619.9 29,475.2 27,671.8 27,560.4
======== ======== ======== ======== ========
Number of Customers (Average)
Residential 916,028 897,333 886,635 876,776 867,917
Small Commercial/Industrial 98,277 95,964 94,675 93,259 91,565
Large Commercial/Industrial 712 716 720 714 706
Other 2,283 1,938 1,855 1,844 1,832
--------- ------- ------- ------- ---------
Total Customers 1,017,300 995,951 983,885 972,593 962,020
========= ======= ======= ======= =========
Gas Utility
-----------
Operating Revenues (Millions)
Residential $244.3 $193.8 $176.5 $222.0 $218.8
Commercial/Industrial 132.0 95.1 87.9 113.6 108.1
Interruptible 5.3 5.3 7.1 9.0 11.5
------ ------ ------ ------ ------
Total Retail Gas Sales 381.6 294.2 271.5 344.6 338.4
Transported Customer-Owned Gas 17.4 14.6 12.0 13.4 11.7
Transported - Interdepartmental 1.5 1.8 2.5 3.1 3.1
Other Operating Revenues (0.8) (3.8) 9.9 (5.9) 11.7
------ ------ ------ ------ ------
Total Operating Revenues $399.7 $306.8 $295.9 $355.2 $364.9
====== ====== ====== ====== ======
Therms Delivered (Millions)
Residential 335.7 329.0 289.5 347.9 372.0
Commercial/Industrial 206.2 195.3 182.0 211.5 225.2
Interruptible 12.0 16.3 23.3 24.5 35.9
----- ----- ----- ----- -----
Total Retail Gas Sales 553.9 540.6 494.8 583.9 633.1
Transported Customer-Owned Gas 349.9 347.9 349.4 387.2 292.6
Transported - Interdepartmental 41.1 55.6 78.6 9.6 11.2
----- ----- ----- ----- -----
Total Therms Delivered 944.9 944.1 922.8 980.7 936.9
===== ===== ===== ===== =====
Number of Customers (Average)
Residential 369,210 360,084 347,747 339,002 330,153
Commercial/Industrial 33,275 32,594 31,586 30,594 29,936
Interruptible 33 89 146 170 190
Transported Customer-Owned Gas 383 328 271 254 230
Transported - Interdepartmental 6 6 6 7 8
------- ------- ------- ------- -------
Total Customers 402,907 393,101 379,756 370,027 360,517
======= ======= ======= ======= =======
Degree Days (a)
---------------
Heating (6,887 Normal) 6,716 6,318 5,848 7,101 7,469
Cooling (681 Normal) 566 753 800 407 608
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Wisconsin Energy Corporation is a holding company whose principal
subsidiary is Wisconsin Electric Power Company ("Wisconsin Electric"), an electric, gas and steam utility. Unless qualified
by the context used in this document, the terms "Wisconsin
Energy" or the
"Company" refer to), a wholly-owned subsidiary of Wisconsin Energy
Corporation ("Wisconsin Energy"), is engaged primarily in the
holding companybusiness of generating electricity and alldistributing electricity
and natural gas with operations in the states of Wisconsin and
Michigan. During 2000, Wisconsin Energy performed a
comprehensive review of its subsidiaries. During 1999, approximately 89%portfolio of Wisconsin
Energy's consolidated operating revenuesbusinesses and 94% of Wisconsin
Energy's consolidated pretax operating income were attributable
to Wisconsin Electric. As of December 31, 1999,began
implementing, among others, the following general strategies that
will affect Wisconsin Electric accounted for approximately 81%over the next decade:
* ELECTRIC GENERATION: Improve the supply of reasonably
priced electric power in Wisconsin through the "Power the Future"
strategy.
* ENERGY DISTRIBUTION: Upgrade the Company's consolidated total assets. The following discussionelectric and
analysisgas utility distribution systems to increase reliability and
enable economic expansion in Wisconsin through the "Power the
Future" strategy and combine the gas operations and the customer
service functions of financial conditionits gas utilities to realize synergy savings
and results of operations includes both
Wisconsin Energy and Wisconsin Electric unless otherwise stated.
See "Note A - Summary of Significant Accounting Policies" in the
Notes to Financial Statements forincrease customer satisfaction.
For information concerning the 1999
reclassification"Power the Future" strategy, see
"Factors Affecting Results, Liquidity and Capital Resources"
below.
ACQUISITION OF WICOR, INC.: On April 26, 2000, Wisconsin Energy
acquired WICOR, Inc. ("WICOR"), the parent of Wisconsin Gas
Company ("Wisconsin Gas"), and is presently seeking authority
from the Public Service Commission of Wisconsin ("PSCW") to
transfer Wisconsin Electric's gas utility assets, together with
certain amountsassociated liabilities, to Wisconsin Gas in a tax free
exchange for an equity ownership by Wisconsin Electric in
Wisconsin Energy'sGas. For additional information, see "Factors
Affecting Results, Liquidity and Wisconsin Electric's prior year financial statements to conform
to current year presentation.Capital Resources" below.
CAUTIONARY FACTORS: A number of forward-looking statements are
included in this document. When used, the terms "anticipate,"
"believe," "estimate," "expect," "objective," "plan," "possible,"
"potential," "project" and similar expressions are intended to
identify such forward-looking statements. Forward-looking statements
are subject to certain risks, uncertainties and assumptions which
could cause actual results to differ materially from those that
are described, including the factors describedmentioned throughout this
document and below under "Factors Affecting Results of Operations," "Liquidity
and Capital Resources" andin "Cautionary Factors."
ACQUISITION OF ESELCO, INC.: Effective May 31, 1998, Wisconsin
Energy acquired ESELCO, Inc. in a tax free reorganization
accounted for as a pooling of interests. Due to the immaterial
nature of the transaction, Wisconsin Energy has not restated any
historical financial or statistical information. For additional
information, see "Factors Affecting Results of Operations -
Mergers" below. ESELCO was the parent of Edison Sault Electric
Company, an electric utility serving customers in Michigan's
eastern Upper Peninsula ("Edison Sault"). Where appropriate,
discussions as well as financial and statistical information of
Wisconsin Energy include Edison Sault's operations since June 1,
1998.
RESULTS OF OPERATIONS
The following analysis of Wisconsin Energy's and Wisconsin
Electric's results of operations should be read in conjunction
with each company's 1999 Financial Statements and Notes to
Financial Statements.
EARNINGS
During 1999, Wisconsin Energy's consolidated net income and
earnings per share of common stock increased to $209Earnings declined by $48.4 million and
$1.79 per share, respectively,during 2000 when compared with
$1881999 due in large part to non-recurring charges primarily
associated with the WICOR merger. In December 2000, Wisconsin
Electric recorded non-recurring charges totaling $43.9 million,
after tax, including $34.3 million related to severance benefits
and $1.65 per share, respectively, during 1998other items and compared with
$61a one-time contribution of $9.6 million,
and $0.54 per share, respectively, during 1997. Forafter tax, to the same periods,Wisconsin Energy Foundation to assist it in
becoming self-funded. During 2000, Wisconsin Electric's earnings
before non-recurring items declined by $15.3 million due in large
part to higher fuel and purchased power expenses and cool summer
weather during 2000.
During 1999, earnings increased to
$212by $28.9 million during 1999when compared
with $183 million during 1998 and $69 million during 1997. Excluding the impact of a one-time
charge of $18 million ($10.8 million, or $0.09 per share for
Wisconsin Energy, after tax) related to the settlement of
litigation, Wisconsin Energy's and Wisconsin Electric's earnings
from continuing operations during 1999 were $220 million and
$223 million, respectively. The following table summarizes
contributions to Wisconsin Energy's earnings per share (basic and
diluted) by business segment during the comparative periods.
% Change % Change
Earnings Per Share - 1998 1997
Wisconsin Energy 1999 1998 to 1999 1997 to 1998
- - -------------------- ---- ---- -------- ---- --------
Utility Operations $1.85 $1.62 14.2% $0.62 161.3%
Non-Utility Operations
Energy 0.02 (0.02) 200.0% (0.01) (100.0%)
Other (0.08) 0.05 (260.0%) (0.07) 171.4%
----- ----- -----
Total Earnings Per Share $1.79 $1.65 8.5% $0.54 205.6%
===== ===== =====
An analysis of the Company's pretax operating results by the
utility and non-utility business segments as well as an analysis
of other income & expense items follows.
UTILITY SEGMENT PRETAX OPERATING RESULTS
During 1999, Wisconsin Energy's and Wisconsin Electric's pretax
utility operating income increased by $64 million or 17.3% and by
$60 million or 16.3%, respectively, when compared to 1998
primarily due in large part to increases in electric and gas
utility gross margins. During 1998, Wisconsin Energy's andmargins offset in part by a one time charge during
1999 related to the settlement of litigation.
Earnings Available
for Common Stockholder 2000 1999 1998
---------------------- ---- ---- ----
(Millions of Dollars)
Earnings Before Non-Recurring Items $207.4 $222.7 $183.0
Non-Recurring Items (43.9) (10.8) -
------ ------ ------
Net Earnings $163.5 $211.9 $183.0
====== ====== ======
The following table summarizes Wisconsin Electric's pretax utility operating income increased by
$115 million or 44.5%earnings
during 2000, 1999 and by $110 million or 42.9%, respectively,
when compared to 1997 primarily due to increases in electric
utility gross margins that were partially offset by increased
other operations and maintenance expenses.1998.
Wisconsin Electric Power Company 2000 1999 1998
- ---------------------------------- ---- ---- ----
(Millions of Dollars)
Gross Margin
Electric (See below) $1,271.9 $1,249.4 $1,196.8
Gas (See below) 141.0 132.8 120.4
Steam 15.7 15.2 15.1
-------- -------- --------
Gross Margin 1,428.6 1,397.4 1,332.3
Other Operating Expenses
Other Operation and Maintenance 696.1 649.5 662.1
Depreciation, Decommissioning
and Amortization 272.7 234.2 225.7
Property and Revenue Taxes 65.9 66.6 60.9
-------- -------- --------
Operating Income 393.9 447.1 383.6
Other Income (Deductions) (9.8) (4.9) 8.0
Financing Costs 116.2 112.9 110.7
-------- -------- --------
Income Before Income Taxes 267.9 329.3 280.9
Income Taxes 103.2 116.2 96.7
Preferred Stock Dividend Requirement 1.2 1.2 1.2
-------- -------- --------
Earnings Available for Common Stockholder $163.5 $211.9 $183.0
======== ======== ========
Electric Utility Revenues, Gross Margins and Sales
WISCONSIN ENERGY:The following table compares Wisconsin Electric's electric
utility operating revenues and gross margin (total electric
utility operating revenues less fuel and purchased power
expenses) during 2000 with similar information for 1999 and 1998.
Electric Utility Operations 2000 1999 1998
- --------------------------- ---- ---- ----
(Millions of Dollars)
Electric Operating Revenues $1,763.4 $1,688.3 $1,641.4
Fuel and Purchased Power
Fuel 325.3 299.1 303.0
Purchased Power 166.2 139.8 141.6
-------- -------- --------
Total Fuel and Purchased Power 491.5 438.9 444.6
-------- -------- --------
Gross Margin $1,271.9 $1,249.4 $1,196.8
======== ======== ========
During 2000, Wisconsin Electric's total electric utility
operating revenues increased by $75.1 million or 4.4% compared
with 1999. Wisconsin Electric attributes this growth mostly to
higher electric energy sales and rate increases during 2000.
Interim and final electric rate increases, that became effective
in early April 2000 and on August 30, 2000, respectively,
contributed approximately $22.1 million to the increase in
electric operating revenues. For additional information
concerning these rate increases, see "Factors Affecting Results,
Liquidity and Capital Resources" below. Fuel and purchased power
expenses increased by $52.6 million or 12.0% during 2000,
reflecting increased generation and significantly higher natural
gas prices. Purchased power expenses also grew due to higher
fixed costs during 2000 associated with long-term purchased power
contracts. To a certain extent, Wisconsin Electric was able to
limit the increase in fuel and purchased power costs during 2000
by changing its electric supply mix away from higher cost natural
gas-fired generation and power purchases to lower cost nuclear
and coal-fired generation.
Primarily due to an increase in total electric utility energy sales
during 1999, Wisconsin Energy's total electric utility operating
revenues increased by $58$46.9 million or 3.5%2.9% and the gross margin
on electric utility
operating revenues (total electric utility operating revenues
less fuel and purchased power expenses) increased by $61$52.6 million or 5.1%4.4% when compared towith 1998.
During 1998, Wisconsin Energy's total electric utility operating
revenues increased by $252 million or 17.8% and the gross margin
on electric utility operating revenues increased by $235 million
or 24.3% when compared to 1997. Wisconsin Energy attributes
these increases primarily to interim and final electric retail
rate increases for Wisconsin Electric in the Wisconsin
jurisdiction that became effective in the first half of 1998, to
an increase in total 1998 electric utility energy sales and to
the return to service of Point Beach Nuclear Plant during 1998.
The following table summarizes Wisconsin Energy's comparative
total electric utility operating revenues, gross margins and
electric energy sales for 1999, 1998 and 1997.
% Change % ChangeOperating Revenues Megawatt-Hour Sales
------------------------------- -------------------------------
Electric Utility Operations - 1998 1997
Wisconsin Energy2000 1999 1998 to2000 1999 1997 to 1998
- - --------------------------- -------- -------- -------- -------- --------------------------------------- ---- ---- ---- ---- ---- ----
(Millions of Dollars) (Thousands)
Electric Gross Margin ($000's)
Total
Customer Class
Residential $597.2 $574.8 $571.4 7,477.6 7,346.8 7,327.0
Small Commercial/Industrial 534.7 510.1 487.6 8,287.5 8,028.2 7,612.4
Large Commercial/Industrial 464.9 451.2 450.1 11,626.2 11,333.6 11,392.0
Other-Retail/Municipal 58.3 51.2 51.2 1,527.3 1,314.0 1,287.2
Resale-Utilities 84.0 79.1 60.9 2,480.2 2,597.3 1,856.6
Other Operating Revenues $1,722,105 $1,663,632 3.5% $1,412,115 17.8%24.3 21.9 20.2 - - -
-------- -------- -------- -------- -------- --------
Total Fuel & Purchased Power 458,863 461,365 (0.5%) 444,655 3.8%
---------- ---------- ----------
Gross Margin $1,263,242 $1,202,267 5.1% $967,460 24.3%
========== ========== ==========
Total Electric Sales (Mwh) 31,257,050 29,940,384 4.4% 27,671,946 8.2%
Total Average Customers 1,017,620 1,005,184 1.2% 972,593 3.4%$1,763.4 $1,688.3 $1,641.4 31,398.8 30,619.9 29,475.2
======== ======== ======== ======== ======== ========
Weather - Degree Days (a)
Heating (6,887 Normal) 6,716 6,318 5,848
Cooling (681 Normal) 566 753 800
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin,
normal degree days are based upon a twenty-year moving average.
Further detail about Wisconsin Electric's contribution to
Wisconsin Energy's electric utility operating revenues, gross
margins and energy sales follows.
WISCONSIN ELECTRIC: Largely due to higher total electric energy
sales during 1999, Wisconsin Electric's total electric operating
revenues increased by $47 million or 2.9% and the gross margin on
electric operating revenues increased by $52 million or 4.4% when
compared to 1998. Lower fuel and purchased power expenses during
1999 also contributed to the increase in gross margin.
As described below in further detail, Wisconsin Electric'sDuring 2000, total electric energy sales increased by
3.9% during778.9 thousand megawatt-hours or 2.5% compared with 1999, comparedmostly
reflecting growth in the average number of residential, small
commercial/industrial and other retail/municipal customers and a
13.1% increase in sales to 1998. While meeting thisthe Empire and Tilden iron ore mines,
Wisconsin Electric's two largest retail customers. Excluding the
Empire and Tilden mines, total electric sales increased demand during 1999, however,
Wisconsin Electric was ableby 1.7%
and sales to reduce total fuel and purchased
power expensesthe remaining large commercial/industrial customers
increased by $5 million or 1.1%0.1% between the comparative periods. Wisconsin Electric accomplished this reductionGrowth in total
fuel and purchased power expenses by substituting lower cost
generationthe
average number of customers partially offset the effects of
cooler weather during 1999, especially from its Point Beach Nuclear
Plant, for the higher cost generation and power purchases used to
meet its demand for electricity during 1998.
During 1998, Wisconsin Electric's total electric operating
revenues increased by $229 million or 16.2% compared to 1997 and
the gross margin2000 cooling season on electric operating revenues increased by
$224 million or 23.1%. Wisconsin Electric attributes these
increases to (1) an interim Wisconsin retail electric rate
increase, effective from January 1, 1998 through April 30, 1998,
of $135 million on an annualized basis, (2) a final Wisconsin
electric retail rate increase, effective May 1, 1998, of
$160 million or 12.7% on an annualized basis that replaced the
interim rate increase, and (3) a 6.5% increase in total electric
energy sales during 1998. The increase in gross margin during
1998 can also be partly attributed to the availability of a lower
cost mix of generation compared to 1997.
Compared to 1997, Wisconsin Electric's total fuel and purchased
power expenses increasedoperating revenues. As measured by $5 million or 1.2% during 1998.
Increased availability of lower cost generating capacity at Point
Beach Nuclear Plant during 1998 allowed Wisconsin Electric to
generate 11.3% more electricity while permitting the decrease in
fuel costs. However, an increase in purchased power expenses
morecooling
degree days, 2000 was 24.8% cooler than offset the decrease in fuel costs, resulting in the net
increase in total fuel1999 and purchased power expenses.
Contributing to the increased purchased power expenses, Wisconsin
Electric arranged for the purchase of more reliable firm supplies
of energy during 1998 and incurred a full twelve months of demand
charges for the first time under a long-term power purchase
contract, resulting in higher fixed contract costs. In addition,
the per unit cost of wholesale electric energy fluctuated more
during 1998 compared to 1997, increasing the cost of certain spot
market purchases.
% Change % Change
Electric Utility Operations - 1998 1997
Wisconsin Electric 1999 1998 to 1999 1997 to 1998
------------------ -------- -------- -------- -------- --------
Electric Gross Margin ($000's)
Operating Revenues
Residential $574,770 $571,378 0.6% $487,219 17.3%
Small Commercial/Industrial 510,094 487,549 4.6% 430,193 13.3%
Large Commercial/Industrial 451,164 450,138 0.2% 402,684 11.8%
Other-Retail/Municipal 51,219 51,211 - 55,246 (7.3%)
Resale-Utilities 79,139 60,927 29.9% 24,538 148.3%
Other Operating Revenues 21,891 20,200 8.4% 12,235 65.1%
---------- ---------- ----------
Total Operating Revenues 1,688,277 1,641,403 2.9% 1,412,115 16.2%
Fuel & Purchased Power
Fuel 305,169 308,374 (1.0%) 311,966 (1.2%)
Purchased Power 139,848 141,619 (1.3%) 132,689 6.7%
---------- ---------- ----------
Total Fuel & Purchased Power 445,017 449,993 (1.1%) 444,655 1.2%
---------- ---------- ----------
Gross Margin $1,243,260 $1,191,410 4.4% $967,460 23.1%
========== ========== ==========
Sales (Mwh)
Residential 7,346,839 7,327,024 0.3% 6,863,569 6.8%
Small Commercial/Industrial 8,028,191 7,612,397 5.5% 7,433,087 2.4%
Large Commercial/Industrial 11,333,561 11,391,979 (0.5%) 11,021,476 3.4%
Other-Retail/Municipal 1,314,021 1,287,162 2.1% 1,412,623 (8.9%)
Resale-Utilities 2,597,256 1,856,601 39.9% 941,191 97.3%
---------- ---------- ----------
Total Electric Sales 30,619,868 29,475,163 3.9% 27,671,946 6.5%
========== ========== ==========
Average Customers
Residential 897,333 886,635 1.2% 876,776 1.1%
Small Commercial/Industrial 95,964 94,675 1.4% 93,259 1.5%
Large Commercial/Industrial 716 720 (0.6%) 714 0.8%
Other-Retail/Municipal 1,880 1,804 4.2% 1,811 (0.4%)
Resale-Utilities 58 51 13.7% 33 54.5%
---------- ---------- ----------
Total Average Customers 995,951 983,885 1.2% 972,593 1.2%
========== ========== ==========
16.9% cooler
than normal.
From August through mid-October 1999, the Empire and Tilden iron
ore mines Wisconsin Electric's two largest electric retail
customers, were temporarily shut down for inventory reduction.down. As a result, electric
energy sales to the mines decreased 9.8% during 1999 compared to
1998. Excluding the Empire and Tilden iron ore mines, total
electric energy sales increased by 5.1% during 1999 and sales to
the remaining large commercial/industrial customers increased by
2.0% between the comparative periods.when compared with 1998. Sales for resale to other
utilities increased by 39.9% during 1999 primarily due to higher
opportunity sales. When comparing 1999 electric sales with 1998,
summer cooling load due to weather was not a significant factor.
As measured by cooling degree days, 1999 was 5.9% cooler than
1998. However, 1999 and 1998 were 12.4%10.6% and 21.8%17.5% warmer than
normal, respectively.
During 1998, cooling load due to weather did contribute to the
6.5% increase in total electric energy sales when compared to
1997, especially to residential and small commercial/industrial
customers who tend to be more weather sensitive and contribute a
higher margin to earnings. As measured by cooling degree days,
1998 was 96.6% warmer than 1997.
Electric energy sales to the Empire and Tilden iron ore mines
increased 7.4% from 1997 to 1998 primarily due to a temporary
shutdown of the Tilden mine during July and August 1997.
Excluding the Empire and Tilden ore mines, Wisconsin Electric's
total 1998 electric energy sales increased 6.4% and sales to the
remaining large commercial/industrial customers increased 2.3%
compared to 1997. During 1998, sales in the other-
retail/municipal customer class decreased 8.9% primarily due to
reduced contractual requirements nominations, effective May 1997,
by Wisconsin Electric's largest municipal wholesale customer.
This customer had been reducing its purchases from Wisconsin
Electric over the past several years subsequent to acquiring
generating capacity and expanding use of its existing generation
facilities. Mostly due to higher opportunity sales, sales for
resale to other utilities increased 97.3% between the comparative
periods.
Gas Utility Revenues, Gross Margins and Therm Deliveries
Due in large part to increased retail gas sales during 1999 as
described in further detail below, especially to higher margin
residential and commercial/industrial customers,The following table compares Wisconsin Electric's gross margin on gas utility
operating revenues (gasand its gross margin (total gas utility
operating revenues less cost of gas sold) increased by
$12 million or 10.3% compared toduring 2000 with
similar information for 1999 and 1998. In spite of the increaseGross margin is a better
performance indicator than revenues because changes in retail gas sales, however, the cost
of gas sold decreasedflow through to revenue under gas cost recovery
mechanisms that do not impact gross margin.
Gas Utility Operations 2000 1999 1998
- --------------------------- ---- ---- ----
(Millions of Dollars)
Gas Operating Revenues $399.7 $306.8 $295.9
Cost of Gas Sold 258.7 174.0 175.5
------ ------ ------
Gross Margin $141.0 $132.8 $120.4
====== ====== ======
During 2000, Wisconsin Electric's total gas utility operating
revenues increased by 0.8% between$92.9 million or 30.3% while gross margin
increased by $8.2 million or 6.2% when compared with 1999.
Significantly higher natural gas prices mostly contributed to the
comparative periods due to a decreaseincrease in the per
unit cost of purchased gas.total gas utility operating revenues. Because
changes in the cost of natural gas purchased at market prices
were included in customer rates through the purchased gas adjustment mechanism and the gas cost recovery
mechanism, during the comparative periods, gas operating revenues changed atby approximately the
same rateamount as the cost of gas sold and gross margin was
unaffected by such changes. Despite an interim retail gas rate increase, effective from
January 1, 1998 through April 30, 1998, of $19 million on an
annualized basisInterim and a final retail gas rate
increases, that became effective in early April 2000 and on
August 30, 2000, respectively, along with a weather-related
increase effective
May 1, 1998,in higher margin residential and commercial/industrial
retail gas sales during the fourth quarter of $19 million or 5.4% on an annualized basis that
replaced2000, contributed
to the interim rate increase total gasin operating revenues decreased by $59 million or 16.7% and the gross margin on gas
utility operatingduring
2000. For additional information concerning the rate increases,
see "Factors Affecting Results, Liquidity and Capital Resources"
below. A decrease in revenues decreased by $1 million or 0.8%from interdepartmental therm
deliveries to Wisconsin Electric's natural gas-fired electric
generating facilities during 1998 when compared to 1997. Total2000 partially offset the increases
in gas utility operating revenues and gross margin both declinednoted above.
Due in 1998 duelarge part to a significant
decreaseincreased retail gas sales during 1999,
especially to higher margin residential and commercial/industrial
customers, Wisconsin Electric's gross margin increased by
$12.4 million or 10.3% compared with 1998. In spite of the
increase in retail gas sales, especially to residential and
commercial/industrial customers who contribute higher margins to
earnings than other customers. Between the comparative periods,however, the cost of gas sold
decreased by $58 million or 25.0%0.9% during 1999 due to decreased gas sales and to a lower cost per unitdecrease in the price of
purchased gas.
As noted above, however, lower cost of gas sold reduced
operating revenues but not gross margin due to the purchased gas
adjustment mechanism.
For additional information concerning the purchased gas
adjustment mechanism and the gas cost recovery mechanism, which
became effective during 1999, as well as for information
concerning Wisconsin Electric's 1998 Rate Order, see "Rates and
Regulatory Matters" below in "Factors Affecting Results of
Operations." Other operating revenues reflect adjustments for
the over and under collection of gas costs that were included in
operating revenues from gas sales.
The following table summarizes Wisconsin Energy's comparative
total gas utility operating revenues, gross margins, retail gas
sales and total therm deliveries during 1999, 1998 and 1997.
% Change % Change
1998 1997Operating Revenues Therm Deliveries
------------------------------ -----------------------------
Gas Utility Operations 2000 1999 1998 to2000 1999 1997 to 1998
---------------------- -------- -------- -------- -------- --------- ------------------------------- ---- ---- ---- ---- ---- ----
(Millions of Dollars) (Millions)
Gas Gross Margin ($000's)
Operating Revenues
Customer Class
Residential $193,766 $176,499 9.8% $221,968 (20.5%)$244.3 $193.8 $176.5 335.7 329.0 289.5
Commercial/Industrial 95,127 87,899 8.2% 113,609 (22.6%)132.0 95.1 87.9 206.2 195.3 182.0
Interruptible 5,111 7,003 (27.0%) 8,970 (21.9%)
Interdepartmental 172 138 24.6% 3,096 (95.5%)
-------- -------- --------5.3 5.3 7.1 12.0 16.3 23.3
------ ------ ------ ----- ----- -----
Total Retail Gas Sales 294,176 271,539 8.3% 347,643 (21.9%)381.6 294.2 271.5 553.9 540.6 494.8
Transported Customer OwnedCustomer-Owned Gas 14,560 12,014 21.2% 11,295 6.4%17.4 14.6 12.0 349.9 347.9 349.4
Transported-Interdepartmental 1,851 2,462 (24.8%) 2,105 17.0%1.5 1.8 2.5 41.1 55.6 78.6
Other Operating Revenues (3,785) 9,833 (138.5%) (5,871) 267.5%
-------- -------- --------
Total Operating Revenues 306,802 295,848 3.7% 355,172 (16.7%)
Cost of Gas Sold 174,046 175,475 (0.8%) 233,877 (25.0%)
-------- -------- --------
Gross Margin $132,756 $120,373 10.3% $121,295 (0.8%)
======== ======== ========
Therms Delivered (000's)
Residential 329,005 289,509 13.6% 347,859 (16.8%)
Commercial/Industrial 195,328 182,033 7.3% 211,453 (13.9%)
Interruptible 15,914 22,872 (30.4%) 24,532 (6.8%)
Interdepartmental 339 398 (14.8%) 9,696 (95.9%)
-------- -------- --------
Total Retail Gas Sales 540,586 494,812 9.3% 593,540 (16.6%)
Transported Customer Owned Gas 347,918 349,443 (0.4%) 313,466 11.5%
Transported-Interdepartmental 55,559 78,581 (29.3%) 76,670 2.5%
-------- -------- --------
Total Gas Delivered 944,063 922,836 2.3% 983,676 (6.2%)
======== ======== ========
Average Customers
Residential 360,084 347,747 3.5% 339,002 2.6%
Commercial/Industrial 32,594 31,586 3.2% 30,594 3.2%
Interruptible 89 146 (39.0%) 170 (14.1%)
Interdepartmental(0.8) (3.8) 9.9 - - -
2 (100.0%)
-------- -------- -------------- ------ ------ ----- ----- -----
Total Sales Customers 392,767 379,479 3.5% 369,768 2.6%
Transportation 328 271 21.0% 254 6.7%
Transportation-Interdepartmental 6 6$399.7 $306.8 $295.9 944.9 944.1 922.8
====== ====== ====== ===== ===== =====
Weather - 5 20.0%
-------- -------- --------
Total Average Customers 393,101 379,756 3.5% 370,027 2.6%
======== ======== ========Degree Days (a)
Heating (6,887 Normal) 6,716 6,318 5,848
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin,
normal degree days are based upon a twenty-year moving average.
During 1999, total therm deliveries of natural gasOther Items
OTHER OPERATION AND MAINTENANCE EXPENSES: Other operation and
maintenance expenses increased 2.3%
and total retail gas sales increased 9.3% compared to 1998
primarily due to a 13.6% increase in sales to residential
customers and a 7.3% increase in sales to commercial/industrial
customers. Residential and commercial/industrial sales increased
due to an increase in the number of customers and to an increase
in usage per customer, with the increase in sales per customer
due in part to colder weatherby $46.6 million during the heating months of 1999.
As measured by heating degree days, 1999 was 8.0% colder than
1998. However, 1999 was still 8.6% warmer than normal while 1998
was 15.4% warmer than normal.
During 1999, total interdepartmental therm deliveries
(interdepartmental retail sales plus interdepartmental transport
deliveries) decreased 29.2%. As noted in the discussion about
electric utility operations above, higher availability of company-
owned, low cost generation allowed Wisconsin Electric to change
its power supply mix during 1999 away from higher cost per unit
gas-fired, company-owned generating facilities. Excluding total
interdepartmental therm deliveries, total gas deliveries during
1999 increased 5.3%2000 when
compared to 1998.
During 1998, total therm deliveries of natural gas decreased 6.2%with 1999. The most significant change in other
operation and total retail gas sales decreased 16.6% compared to the same
period in 1997 primarily due to significantly lower therm use per
residential and commercial/industrial customer. While the number
of residential and commercial/industrial customers increasedmaintenance expenses between the comparative
periods residentialresulted from $52.7 million of pre-tax non-recurring
charges associated with the WICOR merger including severance,
benefits and commercial/industrial gas sales decreased 16.8%other items. Increased other operation and
13.9%,
respectfully,maintenance expenses during 2000 were also attributable to
$14.8 million of higher non-fuel fossil generation expenses and
$9.0 million of higher electric distribution expenses offset in
part by an $8.8 million decline in nuclear non-fuel expenses and
a $9.9 million decline in customer service expenses.
Non-fuel fossil generation expenses increased during 2000
primarily due to differences in the scope and timing of scheduled
maintenance outages for various generating facilities. Electric
distribution expenses were higher due in large part to warmer weather duringincreased
forestry and maintenance activity. During 2000, nuclear non-fuel
expenses were lower as a result of continued progress on various
performance improvement initiatives. Between the heating months of 1998, which reduced heating needs.
During 1998, therm deliveries to the Whitewater Cogeneration
Facility, owned by an unaffiliated independent power producer,
primarily contributed to an 11.5% increase in transportedcomparative
periods, customer owned gas deliveries compared to 1997. The Whitewater
Cogeneration Facility, a gas-fired electric cogeneration plant in
Wisconsin Electric's gas service territory, went into commercial
operation in September 1997. Wisconsin Electric purchases the
majority of the electricity generated by the Whitewater
Cogeneration Facility under a long-term power purchase contract.
During 1998, natural gas therm deliveries to the
interdepartmental customer classes decreased 8.6%expenses were lower primarily due to increased availability of Point Beach Nuclear Plant, allowing
Wisconsin Electric to reduce generation at its Concord and Paris
Power Plants, natural gas-fired peaking facilities. Therm
deliveries to the Concord and Paris Power Plants are at rates
approved by the Public Service Commission of Wisconsin.
Excluding deliveries to Wisconsin Electric's facilities, total
therm deliveries during 1998 decreased 6.0% compared to 1997.
For further information concerning Wisconsin Electric's long-term
power purchase contract for electric energy from the Whitewater
Cogeneration Facility, see "Note H - Long-Term Debt"a
change in the Notes
to Financial Statements.
Utility Operating Expenses
OTHER OPERATIONS AND MAINTENANCE:period over which conservation expenses are being
amortized.
During 1999, Wisconsin
Energy's other operation and maintenance expenses for the utility
segment decreased
by $10$12.6 million or 1.6% when compared to 1998,
including a $13 million or 1.9% decrease at Wisconsin Electric.with 1998. The most significant
changes in Wisconsin Electric's other operationsoperation and maintenance expenses during 1999between the
comparative periods include a $28$28.0 million decrease in nuclear
non-fuel expenses partially offset by a $5$4.9 million increase in
administrative and general expenses, a $2 million increase in payroll taxes, a $3$2.9 million increase in
electric transmission expenses, a $2.2 million increase in
payroll taxes and a $2$2.1 million increase in non-fuel steam powerfossil
generation expenses. Nuclear non-fuel expenses decreased as a
result of progress on various performance improvement
initiatives, while administrative and general expenses increased
primarilymostly due to higher employee benefits paid and to increased
staffing, which also increased payroll taxes. Electric
transmission expenses increased primarily due to higher purchased
power transmission fees during 1999, and non-fuel steam powerfossil
generation expenses increased as a result of an increase in the
number of maintenance outages early in 1999 at Wisconsin
Electric's fossil-fuel power plants early in 1999 in anticipation of higher
electric demand during the summer.
Duringsummer of 1999.
DEPRECIATION, DECOMMISSIONING AND AMORTIZATION EXPENSES:
Depreciation, decommissioning and amortization expenses were
$38.5 million higher during 2000 compared with 1999. Pursuant to
a 1998 Wisconsin Energy's other operation and maintenance
expensesrate order for the utility segment increased1998/1999 test year, Wisconsin Electric
was amortizing pre-1991 contributions in aid of construction.
This amortization, which was completed as of December 31, 1999,
had the effect of reducing depreciation expense by $109$22.8 million
or
19.6% when comparedduring 1999. Higher average depreciable property during 2000
also contributed to 1997, including a $49 millionan increase in Wisconsin Electric's nuclear non-fuel expenses, a $40 million
increase in Wisconsin Electric's administrative and general
expenses, an $11 million increase in Wisconsin Electric's
electric distribution expenses and a $10 million increase in
Wisconsin Electric's non-fuel steam power generation expenses.
Nuclear non-fuel expenses increased during 1998 primarily due to
efforts by Wisconsin Electric to continue to improve the overall
performance at Point Beach Nuclear Plant. Also influencing the
1998 increase in nuclear non-fuel expenses, Wisconsin Electric
deferred $18 million of nuclear non-fuel operation expenses
during 1997 which began to be amortized to expense on a five-year
straight line basis in 1998. Administrative and general expenses
increased during 1998 primarily due to efforts to resolve
Year 2000 technology issues, to various other corporate
technology improvement efforts and to increased staffing and
higher employee pension and benefit expenses. Electric
distribution expenses increased in large part as a result of
damage from an unusually high number of violent storms that
struck Wisconsin Electric's service territory during 1998 and as
a result of increased tree trimming/forestry efforts intended to
improve reliability of the electric distribution system. Non-
fuel steam power generation expenses increased primarily due to a
scheduled maintenance outage during the second quarter of 1998 at
Wisconsin Electric's Oak Creek Power Plant and to other
reliability improvement efforts throughout 1998.
For additional insight into Wisconsin Electric's nuclear
operations and the deferred nuclear non-fuel operations expenses,
see "Nuclear Matters" below in "Factors Affecting Results of
Operations" and "Note E - Nuclear Operations" in the Notes to
Financial Statements. For further information concerning efforts
to address the change to the Year 2000, see "Year 2000 Technology
Issues" below in "Factors Affecting Results of Operations."
DEPRECIATION AND AMORTIZATION:depreciation expense.
Primarily due to an increase in average depreciable property,
at Wisconsin Electric during 1999 as
well as to an increase in nuclear decommissioning expenses due to
higher nuclear decommissioning trust fund earnings, Wisconsin
Energy's and Wisconsin Electric's utility segment depreciation, decommissioning and
amortization expenses increased by $14$8.5 million or 5.6%during 1999 when
compared with 1998.
OTHER INCOME AND DEDUCTIONS: Other income and $12deductions was
$4.9 million or 5.1%, respectively, comparedlower when comparing 2000 with 1999 and
$12.9 million lower when comparing 1999 with 1998. The change
during 2000 primarily reflects increased contributions to 1998.
During 1998, utility segment depreciation and amortization
expense increased by $6 million or 2.3% atthe
Wisconsin Energy and
by $4 million or 1.6% atFoundation during the fourth quarter of 2000.
In 1999, Wisconsin Electric when compared to 1997
primarily due to increased average depreciable property and
increased decommissioning expenses at Wisconsin Electric. The
effect of these increases, however,made a one-time $18.0 million pre-tax
litigation settlement payment that was offset to a large extentin part by a
change$6.1 million gain on the sale of certain properties.
INCOME TAXES: The effective income tax rate increased during
2000 due in large part to the regulatory accounting treatmentend of amortization of pre-1991
contributioncontributions in aid of construction balances atas described above.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
The following table summarizes Wisconsin Electric, which reduced current period depreciation expense. For
further information, see "Note A - Summary of Significant
Accounting Policies" in the Notes to Financial Statements.
NON-UTILITY SEGMENT PRETAX OPERATING RESULTS
Due to growth in non-utility energy operationsElectric's cash flows
during 2000, 1999 including the addition of independent power production revenues
from two fossil-fueled power plants acquired in April 1999,
Wisconsin Energy's non-utility pretax operating income increased
by $17 million when compared to 1998. During 1998, Wisconsin
Energy's non-utility pretax operating income increased by
$2 million when compared to 1997 due to increased returns from
its non-utility real estate investment and development
activities.1998:
% Change % Change
1998 1997
Non-Utility Operations ($000)Wisconsin Electric Power Company 2000 1999 1998
to 1999 1997 to 1998
- - ----------------------------- -------- -------- -------- -------- ---------------------------------------- ---- ---- ----
(Millions of Dollars)
Cash Provided by (Used in):
Operating Revenues
Independent Power Production $101,087 $ - - $ - -
Energy Marketing, Trading
and Services 74,541 25,069 197.3% - -
Other 46,793 34,378 36.1% 17,327 98.4%
------- ------- -------
Total Operating Revenues 222,421 59,447 274.2% 17,327 243.1%
Operating Expenses
Fuel and Purchased Power 129,217 24,871 419.5% - -
Other 72,832 31,582 130.6% 16,527 91.1%
------- ------- -------
Total Operating Expenses 202,049 56,453 257.9% 16,527 241.6%
------- ------- -------
Pretax Operating Income $20,372 $2,994 580.4% $800 274.3%
======= ======= =======Activities $572.7 $335.3 $481.8
Investing Activities (419.3) (393.1) (364.8)
Financing Activities (192.7) 93.5 (112.9)
For further information concerning the April 1999 non-utility
power plant acquisitions, see "Note B - Mergers & Acquisitions"
in Wisconsin Energy's Notes to Financial Statements.
NON-UTILITY OPERATING REVENUES: As a result of the power plant
acquisitions noted above, non-utility energy operations realized
$101 million ofOperating Activities
During 2000, cash provided by operating revenues during 1999 through the sale
of 2,298,000 megawatt-hours of electric energy in the New England
region. In addition, non-utility energy operations increased its
operating revenues by $49 million during 1999 as a result of
increased energy marketing, trading and services activities.
Compared to 1998, other non-utility operating revenuesactivities increased by
$12$237.4 million or 36.1% duringcompared with 1999, including $9reflecting a $110 million
of
additional ancillary revenues from energy activities and
$3 million of additional operating revenues from recycling
activities.
During 1998, non-utility energy operations began energy
marketing, trading and services activities, adding $25 million of
operating revenues compared to 1997. Between the comparative
periods, other non-utility operating revenues increased by
$17 million including $8 million from real estate investment and
development activities and $7 million from recycling activities.
NON-UTILITY OPERATING EXPENSES: During 1999, the non-utility
energy operations' fuel and purchased power expenses increased by
$104 million when compared to 1998 due to independent power
production activities that began in the New England region during
1999 as well as to increased energy marketing, trading and
services activities. Other operating expenses increased by
$41 million during 1999 primarily due to operation of the fossil-
fueled power plants acquired by non-utility energy operations in
April 1999.
Compared to 1997, the non-utility energy operations' fuel and
purchased power expenses increased by $25 million due to energy
marketing, trading and services activities that began in 1998.
Between the comparative periods, other operating expenses
increased by $15 million including $8 million from recycling
activities and $3 million from real estate investment and
development activities and the start-up of energy marketing,
trading and services activities.
OTHER INCOME & EXPENSE ITEMS
OTHER INCOME AND DEDUCTIONS: During 1999, Wisconsin Energy's
interest income increased by $10 million or 36.9% when compared
to 1998 primarily due to increased loan investments made by
Wisconsin Energy's non-utility segment. Other income and
deductions - Other, net decreased by $23 million at Wisconsin
Energy and by $12 million at Wisconsin Electric primarily due to
a one-time $18 million litigation settlementcontested liability payment made by
Wisconsin Electric in the fourth quarter of 1999. For additional
further information concerning Wisconsin Energy's non-utility
loan investments, see "Note K - Segment Reporting" in Wisconsin
Energy's Notes to Financial Statements. For additional
information concerning Wisconsin Electric's $18 million
litigation settlement during the fourth quarter of
1999 see
"Legal Matters"in the Giddings & Lewis Inc./City of West Allis lawsuit,
changes in working capital requirements and reduced tax payments
during 2000 as well as increased non-cash charges for
depreciation and amortization offset in part by decreased non-
cash charges for net deferred income taxes.
Cash provided by operating activities decreased by $146.5 million
during 1999 compared with 1998, reflecting the $110 million
contested liability payment in the Giddings & Lewis Inc./City of
West Allis lawsuit noted above and changes in working capital
requirements, offset in part by increased non-cash charges for
depreciation and amortization and for net deferred income taxes.
During 2000, cash from operations provided for approximately 163%
and 112% of the Company's capital expenditure requirements before
and after the payment of common dividends, respectively, compared
with 97% and 45%, respectively, during 1999 and 147% and 92%,
respectively, during 1998. During 1999 and 1998, Wisconsin
Energy used net borrowings as well as a capital contribution from
Wisconsin Energy during 1999 to supplement the funding of its
capital requirements.
Investing Activities
For the year ended December 31, 2000, Wisconsin Electric spent
$419.3 million in investing activities including $352.5 million
for the acquisition or construction of new or improved
facilities, $41.6 million for the acquisition of nuclear fuel and
$17.6 million of payments to the nuclear decommissioning trust
fund for the eventual decommissioning of Point Beach Nuclear Plant.
Financing Activities
During 2000, Wisconsin Electric used $192.7 million of net cash
in its financing activities consisting primarily of the payment
of $178.6 million of dividends to Wisconsin Energy.
CAPITAL RESOURCES AND REQUIREMENTS
Capital Resources
Wisconsin Electric currently expects cash from operations to
provide about 125% of the Company's capital expenditure
requirements during 2001 before the payment of common dividends.
In February 2001, to meet additional future anticipated capital
requirements and to maintain an appropriate capital structure,
Wisconsin Electric's Board of Directors authorized a quarterly
cash dividend, payable to Wisconsin Energy on March 1, 2001, of
$32.5 million ($130.0 million on an annualized basis), which was
reduced from prior quarterly dividends paid during 2000 of
$44.9 million (or $179.6 million on an annualized basis). In
addition, Wisconsin Electric anticipates receiving approximately
$105 million of cash distributions from the American Transmission
Company LLC during the first half of 2001. Beyond 2001,
Wisconsin Electric expects to meet its capital requirements
through internally generated funds supplemented, when required,
through the issuance of capital market securities.
The Company has access to outside capital markets and has been
able to generate funds internally and externally to meet its
capital requirements. Wisconsin Electric's ability to attract
the necessary financial capital at reasonable terms is critical
to the Company's overall strategic plan. Wisconsin Electric
believes that it has adequate capacity to fund its operations for
the foreseeable future through its borrowing arrangements and
internally generated cash.
On December 31, 2000, Wisconsin Electric had $128 million of
available unused lines of bank credit. Wisconsin Electric has
historically used these lines primarily to support its
outstanding commercial paper and other short-term borrowings.
The following table shows Wisconsin Electric's capitalization
structure at December 31:
Capitalization Structure 2000 1999
- ------------------------ --------------------- ----------------------
(Millions of Dollars)
Common Equity $1,864.8 48.3% $1,880.9 48.4%
Preferred Stock 30.4 0.8% 30.4 0.8%
Long-Term Debt (including
current maturities) 1,707.7 44.2% 1,708.4 44.0%
Short-Term Debt 257.0 6.7% 264.7 6.8%
-------- ------ -------- ------
Total $3,859.9 100.0% $3,884.4 100.0%
======== ====== ======== ======
Access to capital markets at a reasonable cost is determined in
large part by credit quality. In conjunction with Wisconsin
Energy's issuance of $1 billion of unsecured senior notes in
March 2001, Standard & Poors Corporation ("S&P") maintained its
negative outlook for Wisconsin Energy and its subsidiaries,
including Wisconsin Electric. Moody's Investors Service
("Moody's") and Fitch reaffirmed their ratings of the securities
of Wisconsin Electric. Moody's outlook remains stable for
Wisconsin Electric. The following table summarizes the current
ratings of the securities of Wisconsin Electric by S&P, Moody's
and Fitch.
Wisconsin Electric Power Company S&P Moody's Fitch
- -------------------------------- --- ------- -----
Commercial Paper A-1+ P-1 F1+
Senior Secured Debt AA- Aa2 AA
Unsecured Debt A+ Aa3 AA-
Preferred Stock A aa3 AA-
These ratings provide a significant degree of flexibility in
obtaining funds on competitive terms and reflect the views of the
rating agencies. Any rating can be revised upward or downward or
withdrawn at any time by a rating agency if it decides the
circumstances warrant that change. Each rating should be
evaluated independently of any other rating. An explanation of
the significance of these ratings may be obtained from each
rating agency. Such ratings are not a recommendation to buy,
sell or hold securities, but rather an indication of
creditworthiness.
Capital Requirements
Total capital expenditures, excluding the purchase of nuclear
fuel, are currently estimated to be approximately $395 million
during 2001. Due to changing environmental and other regulations
such as air quality standards or electric reliability
initiatives, future long-term capital requirements may vary from
recent capital requirements. Wisconsin Electric currently
expects capital expenditures, excluding the purchase of nuclear
fuel, to be between approximately $340 million and $400 million
per year during the next five years. These forward-looking
estimated capital expenditures include costs for upgrades to
Wisconsin Electric's existing electric generating capacity and
its electric and gas utility distribution systems contemplated
under the "Power the Future" strategy.
FACTORS AFFECTING RESULTS, LIQUIDITY AND CAPITAL RESOURCES
OUTLOOK
The following forecasts are forward-looking statements subject to
certain risks, uncertainties and assumptions. Actual results may
vary materially. Factors that could cause actual results to
differ materially include, but are not limited to: general
economic conditions; business, competitive and regulatory
conditions in the deregulating and consolidating energy industry,
in general, and in the Company's utility service territories;
availability of the Company's generating facilities; changes in
purchased power costs and supply availability; changes in coal or
natural gas prices and supply availability; unusual weather;
regulatory decisions; obtaining the necessary regulatory
approvals and investment capital to implement the growth
strategy; the timing and extent of realization of anticipated
synergy benefits from the WICOR merger; disposition of legal
proceedings; and other factors referred to under "Market Risks"
and "Cautionary Factors" below.
Forecasts
ELECTRIC SALES: Assuming moderate growth in the economy of its
electric utility service territories and normal weather, the
Company presently anticipates its total retail and municipal
electric kilowatt-hour sales to grow at a compound annual rate of
2.5% over the five-year period ending December 31, 2005.
GAS DELIVERIES: Assuming moderate growth in the economy of its
gas utility service territories and normal weather, the Company
currently forecasts total therm deliveries of natural gas to grow
at a compound annual rate of approximately 1.9% over the five-
year period ending December 31, 2005.
Factors Affecting Forecasts
GAS COSTS: The cost of natural gas rose approximately 325%
during 2000, affecting Wisconsin Electric's electric and gas
utility operations. Based upon December closing prices for
natural gas futures on the New York Mercantile Exchange, the cost
of gas increased from $2.344 per decatherm in January 2000 to
$9.978 per decatherm in January 2001. Based upon February
closing prices, the cost of gas increased from $2.603 per
decatherm in March 2000 to $4.998 per decatherm in March 2001, an
increase of approximately 90%.
Gas costs have increased significantly because the supply of gas
in recent years has not kept pace with the demand for natural
gas, which has grown throughout the United States as a result of
increased reliance on natural gas-fired electric generating
facilities and colder winter weather in late 2000. Wisconsin
Electric expects that demand for natural gas will remain high
into the foreseeable future and that significant price relief
will not occur until additional natural gas is added to the
nation's energy supply mix over a period of several years.
Higher gas costs increase the working capital requirements of the
Company, result in higher gross receipts taxes in the state of
Wisconsin and expose the Company to greater risks of accounts
receivable write-offs.
As a result of gas cost recovery mechanisms, the gas distribution
operations of Wisconsin Electric receive dollar for dollar pass
through on most of the cost of natural gas. However, increased
natural gas costs increase the risk that customers will switch to
alternative fuel sources, which could reduce future gas margins.
The electric operations of Wisconsin Electric burns natural gas
in several of its peaker power plants or as a supplemental fuel
at several coal-fired plants, and the cost of purchased power is
tied to the cost of natural gas in many instances. As described
below, Wisconsin Electric bears significant regulatory risk for
the recovery of fuel costs related to electric generation and
purchased power that are higher than the base rate established in
its rate structure.
RECOVERY OF FUEL AND PURCHASED POWER COSTS: The electric
operations of Wisconsin Electric operate under "Factors Affecting Resultsa fuel cost
adjustment clause for its fuel and purchased power costs
associated with the generation and delivery of electricity. This
clause establishes a base rate for fuel and purchased power, and
Wisconsin Electric assumes the risks and benefits of fuel cost
variances that are within 3% of the base rate. For 2000 and
1998, actual Wisconsin Electric fuel and purchased power costs
exceeded base costs by $25.9 million and $11.3 million,
respectively. For 1999, actual Wisconsin Electric fuel and
purchased power costs were $1.5 million less than base costs.
For 2001, the 3% range is plus or minus approximately
$14 million. If actual fuel and purchased power costs exceed the
3% window, Wisconsin Electric has the opportunity to make a
filing with the Public Service Commission of Wisconsin ("PSCW")
to establish new base fuel costs prospectively and adjust rates
accordingly. This procedure is subject to normal PSCW hearings
and the regulatory process but is limited to only fuel costs. If
costs are less than the 3% window, the rate is reduced
immediately. The base fuel rates include, among other things,
assumptions regarding the availability of the Company's
generating assets, including Point Beach Nuclear Plant, and the
cost of natural gas and purchased power. As described in further
detail below in "Rates and Regulatory Matters," Wisconsin
Electric implemented an interim fuel adjustment surcharge in
February 2001 under this procedure.
In December 2000, the PSCW initiated a review of fuel rules and
solicited comments from Wisconsin utilities. The Company has
submitted comments to the PSCW which seek to minimize or
eliminate risks associated with fuel costs. It is expected that
the PSCW will modify existing fuel rules during the latter part
of 2001. Any permanent changes to the fuel rules will require
Wisconsin legislative approval.
WEATHER: The rates of Wisconsin Electric are set by the PSCW
based upon weather which approximates 20-year averages. Electric
revenues are sensitive to the summer cooling season, and to some
extent, to the winter heating season. Gas revenues are sensitive
to the winter heating season. A summary of actual weather
information for 2000, 1999 and 1998 as measured by degree-days
may be found above in "Results of Operations."
During 1998, merger expense decreased by $31INTEREST RATES: The Company has approximately $257.0 million atof
variable rate short-term debt and $165.4 million of variable rate
long-term debt outstanding as of December 31, 2000. Changes in
future interest rates will have an impact on future interest
expense.
INFLATION: The Company continues to monitor the impact of
inflation in order to minimize its effects in future years
through pricing strategies, productivity improvements and cost
reductions. With expectations of low-to-moderate inflation,
Wisconsin Electric does not believe the impact of inflation will
have a material effect on its future results of operations.
INVESTMENTS, MERGERS AND ASSET TRANSFERS
Electric Generation
"POWER THE FUTURE" STRATEGY: In late February 2001, Wisconsin
Energy whenannounced enhancements to a 10-year, $7 billion strategy,
originally proposed in September 2000, that would improve the
supply and reliability of electricity in Wisconsin and that is
expected to improve the Company's financial results. The "Power
the Future" strategy is needed to meet growing load and ensure a
diverse fuel mix while keeping electricity prices reasonable.
Demand for electricity in the state of Wisconsin is currently
expected to outstrip supply by 4,000 megawatts by 2010.
Wisconsin Electric's load is growing at approximately 100-
150 megawatts per year. "Power the Future" adds new coal
capacity to the power portfolio and allows Wisconsin Electric to
maintain roughly the same fuel mix as today. A mix of coal and
gas capacity is expected to save customers over $1.6 billion
(over the life of the plants and estimating future natural gas
costs) compared to 1997, including $22 million which was
attributable to Wisconsin Electric. These decreases reflect a
one-time write offthe alternative all-gas scenario.
As part of deferred merger costs during 1997 related
toits "Power the terminated merger agreement with Northern States Power
Company. For further information concerning this terminated
merger agreement, see "Mergers" below under "Factors Affecting
Results of Operations." Compared to 1997, the net expense in
other income and deductions - other, net decreased by $45 million
during 1998 atFuture" strategy, Wisconsin Energy
would invest in the following over the next ten years:
* Approximately $3 billion in at least 2,800 megawatts of which $37 million was
attributable tonew
natural gas-fired and coal-fired generating capacity;
* Approximately $1.3 billion in existing electric generating
assets; and
* Approximately $2.7 billion in new and existing electric
utility distribution system assets and other capital projects.
Wisconsin Electric. Significantly contributing
to these decreased expenses,Energy anticipates creating a new non-utility energy
subsidiary that would construct and own the new generating
capacity noted above. Under the enhanced "Power the Future"
strategy, Wisconsin Electric recordedwould sign 20 to 25-year leases for
each facility, approved by the PSCW, and would operate and
maintain the new plants as part of the lease agreements. At the
end of the original contracts, Wisconsin Electric would have the
right to renegotiate and continue the leases, or acquire the
associated plants outright, at market value. Smaller investor-
owned or municipal utilities, cooperatives and power marketing
associations would have some opportunity to expand or extend
wholesale power purchases from Wisconsin Electric as a one-
time $30 million impairment chargeresult of
the additional electric generating capacity included in December 1997 forthe
proposal.
Implementation of the "Power the Future" strategy is subject to a
number of state and federal regulatory approvals as well as the
amendment of several state laws in Wisconsin. In late February
2001, Wisconsin Energy filed its Kimberly Cogeneration Equipment basedenhanced "Power the Future"
proposal with the PSCW. The enhanced "Power the Future" proposal
has benefited from a broad coalition of support including
customer groups, public power, municipal and cooperative
utilities and smaller investor-owned utilities in Wisconsin.
Depending upon the resultsresponse of a
discounted cash flow analysis. For further information, see
"Note L" or "Note K - Commitments and Contingencies" in Wisconsin
Energy's or Wisconsin Electric's Notesthe PSCW to Financial Statements,
respectively. In addition, the comparative net expense in other
income and deductions - other, net decreased during 1998 due to a
$9 million increase in net pretax miscellaneous income at Witech
Corporation and a $4 million reduction in charitable donations by
Wisconsin Electric. Witech Corporation is a non-utility
subsidiary of Wisconsin Energy.
INTEREST CHARGES AND OTHER: During 1999, Wisconsin Energy's
interest on long-term debt increased by $16 million or 14.5% when
compared to 1998 primarily due to the financing requirements
necessary for the April 1999 non-utility segment power plant
acquisitions noted above. Between the comparative periods, other
interest expense increased by $5 million or 24.6% atthis preliminary
filing, Wisconsin Energy and by $3 million or 29.0% at Wisconsin Electric primarily
due to increased 1999 short-term borrowing levels. During 1999,anticipates filing detailed plans later
in 2001. Wisconsin Energy made approximately $11 millionanticipates obtaining the capital
necessary to finance and execute this strategy from a combination
of distributions
on preferred securities of a subsidiary trust that were issued in
March 1999. For further information concerning issuance of the
trust preferred securities, see "Note G - Trust Preferred
Securities" in Wisconsin Energy's Notes to Financial Statements.
Primarily due to increased short-term borrowing levels during
1998, Wisconsin Energy'sinternal and Wisconsin Electric's other interest
expense increased by $10 million or 102.4% and by $3 million or
34.7%, respectively, compared to 1997.
INCOME TAXES: During 1999, both Wisconsin Energy's and
Wisconsin Electric's income taxes increased by $19 million when
compared to 1998 primarily due to increased pretax income.
Similarly, Wisconsin Energy's and Wisconsin Electric's income
taxes increased by $61 million and $62 million, respectively,
during 1998 due to increased pretax income compared to 1997.
FACTORS AFFECTING RESULTSexternal sources.
Energy Distribution
ACQUISITION OF OPERATIONS
MERGERS WICOR, INC: On June 27, 1999,April 26, 2000, Wisconsin Energy
andacquired WICOR, Inc.,
a Wisconsin corporation [NYSE: WIC], entered into an Agreement
and Plan of Merger providing for a strategic The business combination of Wisconsin Energy and WICOR. The merger will bewas accounted for
as a purchase transaction.purchase.
WICOR iswas a diversified utility holding company with consolidated
total assets of approximately $1.1 billion at December 31, 1999
in utility and non-utility energy subsidiaries as well as in pump
manufacturing subsidiaries. Following the merger, WICOR and its
subsidiaries, including Wisconsin Gas Company, the largest
natural gas distribution public utility in Wisconsin, will becomebecame
subsidiaries of Wisconsin Energy. The merger agreementWisconsin Energy intends to
continue the primary business operations of WICOR. Wisconsin
Energy has been
approved byintegrated the boards of directors and the shareholdersgas operations of Wisconsin EnergyElectric
and WICOR.Wisconsin Gas as well as many corporate support areas and
expects to integrate customer billing systems in the third
quarter of 2001.
On November 1, 2000, Wisconsin Electric and Wisconsin Gas filed
an application with the PSCW for authority to transfer Wisconsin
Electric's gas utility assets, together with certain associated
liabilities, to Wisconsin Gas in a tax free exchange for an
equity ownership by Wisconsin Electric in Wisconsin Gas. The
matter is pending. This transaction is also subject to the
approval of the Securities and Exchange Commission under the
Public Utility Holding Act of 1935. For additional information,
see "Note A - Summary of Significant Accounting Policies" in the
Notes to Financial Statements.
Assuming timely realization of estimated cost savings and
avoidances expected to resultsynergies from the
merger, Wisconsin Energy expects the business combinationmerger to result in increased earnings
per share beginning in the first full year following the merger.
While no definitive synergies study has been performed, net
merger-related cost savings are anticipated to bebegin contributing
approximately $35 million annually beginning in the first full year after the
merger. Savingsto annual pre-tax earnings during 2001.
Synergies are expected from lower expenses for the cost of gas,
materials and services through enhanced purchasing power, through
elimination of duplication through attrition, and through sharing
of resources. Additional cost savingssynergies are anticipated from the
logical consolidation of common functions over time as well as
from savings insuch areas such as insurance and regulatory costs and legal,
audit and consulting fees.
Consummation ofThe PSCW approved the WICOR merger is subject toin March 2000. As described
in further detail below in "Rates and Regulatory Matters," the
satisfaction of
certain closing conditions including approval by the Securities
and Exchange Commission. In early March 2000, the Federal Trade
Commission closed its review of the proposed acquisition. On
March 15, 2000, the Public Service Commission of Wisconsin issued
its final decision approving the merger and providingPSCW's order provided for a qualified five-year rate freeze for
Wisconsin Electric's and Wisconsin Gas' natural gas, electric and
steam utility services beginning the later of January 1, 2001 or upon receipt of all state and
federal approvals. The2001. In its order,
the commission also found that it was reasonable to allow the
utilities to retain synergy savings associated with the merger
during the 5-year partial rate freezerestriction period.
The regulatory approval process is expected to be
completed in time for the transaction to be consummated on or
about April 26, 2000.
For additional information concerning the WICOR merger, including
information about the purchase price and the form in which it may
be paid, see "Note B - Mergers & Acquisitions" in Wisconsin
Energy's Notes to Financial Statements. For further information
concerning how Wisconsin Energy expects to finance the
acquisition of WICOR, see "Liquidity And Capital Resources -
Capital Requirements" below.
ESELCO, INC.: Effective May 31, 1998, Wisconsin Energy acquired
ESELCO, Inc. in a tax free reorganization accounted for as a
pooling of interests. In connection with the acquisition,
Wisconsin Energy issued 2,407,275 shares of common stock, with
fractional interests paid in cash, based upon an exchange ratio
of 1.5114 shares of Wisconsin Energy common stock for each
outstanding share of ESELCO common stock.
Due to the immaterial nature of the transaction, Wisconsin Energy
has not restated any historical financial or statistical
information. Instead, Wisconsin Energy combined ESELCO's May 31,
1998 balance sheet with Wisconsin Energy's, including a
$1.2 million credit to retained earnings of which $0.9 million
represents ESELCO's consolidated net income during the first five
months of 1998.
ESELCO was the parent company of Edison Sault Electric Company,
an electric utility which serves approximately 21,800
residential, commercial and industrial customers in the state of
Michigan's eastern Upper Peninsula. Where appropriate,
discussions as well as financial or statistical information of
Wisconsin Energy include Edison Sault's operations since June 1,
1998. Wisconsin Energy is operatingAMERICAN TRANSMISSION COMPANY LLC: During 2000, Wisconsin
Electric and Edison Sault Electric Company ("Edison Sault"), an
affiliate of Wisconsin Electric, agreed to join the American
Transmission Company LLC by transferring all of its electric
utility transmission assets in exchange for an equity interest in
the new company. Transfer of Wisconsin Electric's electric
transmission assets, with a net book value of approximately
$222 million, became effective on January 1, 2001. During the
first half of 2001, the American Transmission Company is expected
to issue debt and to distribute cash to Wisconsin Electric in an
amount equal to approximately 50% of the net book value of the
assets originally transferred. Joining the American Transmission
Company is consistent with the Federal Energy Regulatory
Commission's Order No. 2000, designed to foster competition,
efficiency and reliability in the electric industry.
Wisconsin Electric expects to receive earnings contributions from
the American Transmission Company in proportion to its ownership
share. The Company anticipates that transfer of its electric
transmission assets to the American Transmission Company will be
earnings neutral subject to future rate recovery of any related
deferred charges.
RATES AND REGULATORY MATTERS
The Public Service Commission of Wisconsin regulates retail
electric, natural gas, steam and water rates in the state of
Wisconsin, while the Federal Energy Regulatory Commission
regulates wholesale power, electric transmission and interstate
gas transportation service rates. The Michigan Public Service
Commission regulates retail electric rates in the state of
Michigan.
Wisconsin Jurisdiction
WICOR MERGER ORDER: As a condition of its March 2000 approval
of the WICOR acquisition, the PSCW ordered a qualified five-year
freezing of rates for Wisconsin Electric's electric, natural gas
and steam utility services and for natural gas rates at Wisconsin
Gas that were in effect on January 1, 2001. The Company may seek
biennial rate reviews during the five-year rate restriction
period limited to changes in revenue requirements as a result of:
* Governmental mandates;
* Abnormal levels of capital additions required to maintain or
improve reliable electric service; or
* Major gas lateral projects associated with approved natural
gas pipeline construction projects.
To the extent that natural gas rates and rules need to be
modified during the integration of the gas operations of
Wisconsin Electric and Wisconsin Gas, the Company's total gas
revenue requirements are to remain revenue neutral under the
merger order. In its order, the PSCW found that electric fuel
cost adjustment procedures as well as gas cost recovery
mechanisms would not be subject to the five-year rate restriction
period and that it was reasonable to allow the Company to retain
synergy savings associated with the merger. A full rate review
will be required by the PSCW at the end of the five-year rate
restriction period.
The table below summarizes the anticipated annualized revenue
impact of recent rate changes, primarily in the Wisconsin
jurisdiction, authorized by regulatory commissions for Wisconsin
Electric's electric, natural gas and steam utilities.
Annualized Authorized
Revenue Percent Return on
Increase Change Common Effective
Service - Wisconsin Electric (Decrease) in Rates Equity Date
- ---------------------------- ---------- -------- ---------- ---------
(Millions) (%) (%)
Fuel electric, WI (a) $37.8 2.5% - 2/09/01
Fuel electric, MI 1.0 2.4% - 1/01/01
Retail electric, WI 27.5 1.8% 12.2% 1/01/01
Retail electric, WI (b) 36.5 2.5% 12.2% 8/30/00
Retail gas (b) 8.0 2.1% 12.2% 8/30/00
Retail electric, WI (b) 25.2 1.7% 12.2% 4/11/00
Retail gas (b) 11.6 3.3% 12.2% 4/11/00
Fuel electric, WI (7.8) (0.5%) - 5/01/99
Retail electric, MI 2.1 6.0% 11.0% 4/13/99
Retail electric, WI (c) 160.2 12.7% 12.2% 5/01/98
Retail gas (c) 18.5 5.4% 12.2% 5/01/98
Steam heating (c) 1.2 9.3% 12.2% 5/01/98
Retail electric, WI (c) 134.9 10.7% 12.2% 1/01/98
Retail gas (c) 18.5 5.5% 12.2% 1/01/98
Steam heating (c) 0.8 6.3% 12.2% 1/01/98
Fuel electric, WI (d) 11.9 1.0% - 1/01/98
(a) The February 9, 2001 order is an interim order subject to refund pending
the outcome of a full review of fuel costs by the PSCW. A final order is
expected in May 2001.
(b) The April 11, 2000 order was an interim order that was effective until the
August 30, 2000 final order was received from the PSCW. The final
August 30, 2000 order superseded the April 11, 2000 interim order.
(c) The January 1, 1998 order was an interim order that was effective until the
May 1, 1998 final order was received from the PSCW. The final May 1, 1998
order superseded the January 1, 1998 interim order.
(d) A final order from the PSCW, dated December 23, 1997, authorized a total
increase in fuel revenue of $27.2 million less $15.3 million previously
collected through an interim order during 1997.
On March 23, 2000, the PSCW approved Wisconsin Electric's request
for interim price increases related to the 2000/2001 biennial
period, authorizing a $25.2 million (1.7%) increase for electric
operations and an $11.6 million (3.3%) increase for gas
operations. The interim increase, which was subject to potential
refund, became effective April 11, 2000. Rates in the interim
order were based upon a 12.2% return on common equity.
On August 30, 2000, the PSCW issued its final order in the
2000/2001 pricing proposal. The final order authorized a
$36.5 million (2.5%) increase for electric operations (or
$11.3 million higher than authorized in the interim order) as
well as an $8 million (2.1%) increase for gas operations (or
$3.6 million lower than authorized in the interim order).
Wisconsin Electric has refunded to gas customers revenues that
resulted from the difference in gas rates between the interim and
final orders. In its August 30, 2000 final order, the PSCW
authorized a second $27.5 million (1.8%) increase for electric
operations effective January 1, 2001. Rates in the final order
were based upon a 12.2% return on common equity.
Wisconsin Electric filed a petition for a rehearing of the final
order with the PSCW to reconsider the revenue increase for gas
operations. On November 9, 2000, the PSCW denied Wisconsin
Electric's petition. On November 14, 2000, Wisconsin Electric
filed a petition for judicial review with the Milwaukee County
Circuit Court seeking its review of the PSCW's decision. The
court has set a briefing schedule with final briefs due on
May 5, 2001.
In its final order related to the 2000/2001 biennial period, the
PSCW authorized recovery of revenue requirements for, among other
things, electric reliability and safety construction expenditures
as well as for nitrogen oxide ("NOx") remediation expenditures.
Revenue requirements for electric reliability and safety
construction expenditures are subject to refund at the end of
2001 to the extent that actual expenditures are less than
forecasted expenditures included in the final order. In March
2000, the PSCW had previously authorized all Wisconsin utilities
to depreciate NOx emission reduction costs over an accelerated
10-year recovery period. Due to the uncertainty regarding the
level and timing of these expenditures, the PSCW, in its final
order, required Wisconsin Electric to establish escrow accounting
for revenue requirement components associated with NOx
expenditures. Depending upon Wisconsin Electric's actual NOx
remediation expenditures during the 2000/2001 biennial period,
any over or under-spent balances at the end of 2001 in the NOx
escrow account will need to be addressed in future rate making
activities.
FUEL COST ADJUSTMENT PROCEDURE: As noted above, Wisconsin
Electric operates under a fuel cost adjustment clause for its
fuel and purchased power costs associated with the generation and
delivery of electricity. On December 8, 2000, Wisconsin Electric
submitted an application with the PSCW seeking a $51.4 million
increase in rates in it's Wisconsin jurisdiction to recover
increased cost of fuel and purchased power in 2001 on an
expedited basis to be effective February 1, 2001. Wisconsin
Electric revised it's projected fuel cost shortfall on
January 10, 2001 to reflect updated natural gas cost projections
for 2001. This update resulted in a request for an additional
$11.1 million in 2001, bringing the total requested increase to
$62.5 million. Hearings on this matter were held on January 17,
2001. On February 9, 2001, the PSCW issued an interim order
authorizing a $37.8 million increase in rates for 2001 fuel costs
subject to refund pending the outcome of a full review of fuel
costs. Hearings on the final phase of the case have been
scheduled for March 23 and April 2, 2001. A final order in this
case is expected in early spring 2001.
GAS COST RECOVERY MECHANISM: As a result of the acquisition of
WICOR by Wisconsin Energy, the PSCW required similar gas cost
recovery mechanisms ("GCRM") for the gas operations of Wisconsin
Electric and for Wisconsin Gas. In recent years, Wisconsin
Electric has operated under a modified dollar for dollar GCRM,
which includes after the fact prudence reviews by the PSCW, while
the Wisconsin Gas GCRM includes an incentive mechanism that
provides an opportunity for Wisconsin Gas to increase or decrease
earnings within certain limited ranges as a result of gas
acquisition activities and transportation costs. For both
companies, the majority of gas costs are passed through to
customers under their existing gas cost recovery mechanisms.
In February 2001, the PSCW issued separate orders to Wisconsin
Electric and to Wisconsin Gas authorizing a similar GCRM for each
company. These new GCRMs, which are effective April 1, 2001, are
similar to the existing GCRM at Wisconsin Gas. Under the new
GCRMs, gas costs will be passed directly to customers through a
purchased gas adjustment clause. However, both companies will
have the opportunity to increase or decrease earnings by up to
approximately 2.5% of their total annual gas costs based upon how
closely actual gas commodity and capacity costs compare to
benchmarks established by the PSCW.
Michigan Jurisdiction
In mid-November 2000, Wisconsin Electric submitted an application
with the Michigan Public Service Commission requesting an
electric retail rate increase of $3.7 million (9.4%) on an
annualized basis. Hearings on this rate relief request are
scheduled for April of 2001 with a final order anticipated to be
issued in August of 2001.
FUEL COST ADJUSTMENT PROCEDURE: In September 2000, Wisconsin
Electric submitted applications with the Michigan Public Service
Commission requesting reinstatement on January 1, 2001 of its
Power Supply Cost Recovery ("PSCR") mechanism. On January 1,
2001, Wisconsin Electric self-implemented a PSCR factor of
1.41 mills per kilowatt-hour and expects to collect approximately
$1 million of PSCR revenue during 2001. Hearings on Wisconsin
Electric's application are anticipated in the second quarter of
2001. PSCR revenues collected during 2001 are subject to a true-
up hearing procedure in 2002.
INDUSTRY RESTRUCTURING AND COMPETITION
Electric Utility Industry
Driven by a combination of market forces, regulatory and
legislative initiatives and technological changes, the nation's
electric industry continues a trend towards restructuring and
increased competition. In the region, the state of Illinois has
passed legislation that introduced retail electric choice for
large customers in 1999 and introduces choice for all retail
customers by May 2002. As described in further detail below,
full retail electric choice is scheduled to be introduced in the
state of Michigan in January 2002. Congress continues to
evaluate restructuring proposals at the federal level. However,
recent severe electric supply constraints and a resulting rise in
the cost of electricity in California has revitalized public
debate in Wisconsin concerning deregulation. Given the current
status of restructuring initiatives in regulatory jurisdictions
where the Company primarily does business, the Company cannot
predict the ultimate timing or impact of a restructured electric
industry on its financial position or results of operations.
RESTRUCTURING IN WISCONSIN: Due to many factors, including
relatively competitive electric rates charged by the state's
electric utilities, Wisconsin is proceeding with restructuring of
the electric utility subsidiaries withinindustry at a much slower pace than many
other states in the United States. Instead, the PSCW has been
focussed in recent years on electric reliability infrastructure
issues for the state of Wisconsin such as:
* Improvements to existing and addition of new electric
transmission lines in the state;
* Addition of new generating capacity in the state;
* Modifications to the regulatory process to facilitate
development of merchant generating plants;
* Development of a regional independent electric transmission
system operator; and
* The previously described formation of a statewide
transmission company, the American Transmission Company LLC,
which became operational January 1, 2001.
The PSCW continues to maintain the position that the question of
whether to implement electric retail competition in Wisconsin
should ultimately be decided by the Wisconsin legislature. No
such legislation has been introduced in Wisconsin to date.
RESTRUCTURING IN MICHIGAN: In June 2000, the Governor of the
state of Michigan signed the "Customer Choice and Electric
Reliability Act" into law empowering the Michigan Public Service
Commission to enforce implementation of prior electric retail
access plans. In effect, the new law provides that all Michigan
retail customers of investor-owned utilities will have the
ability to choose their historical service territories.electric power producer as of
January 1, 2002.
As directed by the Michigan Public Service Commission, Wisconsin
Electric jointly submitted a customer choice implementation plan
with its affiliate, Edison Sault, in October 2000 and updated the
filing in February 2001. Such plan envisions certain additional
filings in June 2001 including proposed unbundled rates. During
2000, revenues in the state of Michigan from Wisconsin Electric's
electric retail customers were approximately $118 million,
representing 5.4% of total operating revenues and 6.7% of total
electric utility operating revenues. The Empire and Tilden iron
ore mines, Wisconsin Electric's two largest retail customers, are
located in the Upper Peninsula of Michigan. These mines, from
which Wisconsin Electric received approximately $74 million of
electric utility operating revenues during 2000, will not be
subject to Michigan's customer choice plan until special
negotiated power sales contracts between Wisconsin Electric and
the mines expire in 2007. Wisconsin Electric and Edison Sault
continuebelieve that their power supply costs are and will be competitive
when the customer choice program commences in January of 2002.
In addition, alternative electric suppliers will use the
companies' electric distribution systems under unbundled
effective rates.
Natural Gas Utility Industry
RESTRUCTURING IN WISCONSIN: The PSCW has instituted generic
proceedings to be separately regulatedconsider how its regulation of gas distribution
utilities should change to reflect the changing competitive
environment in the natural gas industry. To date, the commission
has made a policy decision to deregulate the sale of natural gas
in customer segments with workably competitive market choices and
has adopted standards for transactions between a utility and its
gas marketing affiliates. However, work on deregulation of the
gas distribution industry by their respective
states.
NORTHERN STATES POWER COMPANY: On May 16, 1997, the boardsPSCW is presently on hold.
Currently, Wisconsin Electric is unable to predict the impact of
directorspotential future deregulation on the Company's results of
operations or financial position.
ELECTRIC SYSTEM RELIABILITY
Wisconsin Electric had adequate capacity to meet all of its firm
electric load obligations during 2000. Public appeals for
conservation were not required, nor was there the need to
interrupt or curtail service to non-firm customers who
participate in load management programs in exchange for
discounted rates. All of Wisconsin EnergyElectric's generating plants
performed well during the hottest periods of the summer and Northern States Powerall
power purchase commitments under firm contract were received.
Wisconsin Electric expects to have adequate capacity to meet all
of its firm load obligations during 2001. However, the Company
a Minnesota corporation, agreed to terminateanticipates that the Agreement and
Plan of Merger which provided for a business combination of
Wisconsin Energy and Northern States to form Primergy
Corporation.regional electric energy supply will remain
tight into the foreseeable future. As a result of this, or of
extremely hot weather along with unexpected equipment
unavailability, Wisconsin Energy recorded a
$31 million chargeElectric could be required to call upon
load management procedures during 2001 as it has in past years.
Wisconsin Electric is proceeding with several long-term measures
to enhance the reliability of its own system, including
participation in the second quarter of 1997 ($19 million net
of tax or approximately 17 cents per share) to write off"Power the deferred transaction costs and costs to achieve the merger.
Approximately $22 million of merger write-off costs were
attributable to Wisconsin Electric.Future" strategy discussed above.
NUCLEAR MATTERSOPERATIONS
POINT BEACH NUCLEAR PLANT: Wisconsin Electric owns and operates
two approximately 510-megawatt510-
megawatt electric generating units at Point Beach Nuclear Plant
in Two Rivers, Wisconsin. During 2000, 1999, 1998
and 1997,1998, Point
Beach provided 22%23%, 18%22% and 6%18% of Wisconsin Electric's net
electric energy supply, respectively. The United States Nuclear
Regulatory Commission operating licenses for Point Beach expire
in October 2010 for Unit 1 and in March 2013 for Unit 2.
From late 1996 through early 1999, Point Beach experienced
several scheduled and unscheduled outages or power reductions
involving both generating units. As a result of these outages
and various performance improvement initiatives,
Wisconsin Electric's total nuclear operation and maintenance
expenses, excluding fuel and benefit overheads, increaseddecreased from $107 million
in 1997 to
$156 million induring 1998 before falling to $128 million in
1999. Between 1997during 1999 and
1999, availability of Point Beach
increased significantly, and Wisconsin Electric expects the
reliability of the units to continue to improve$119 million during 2000 as
these improvement efforts progress. During 2000, Wisconsin
Electric currently anticipates that nuclear non-fuel operating
and maintenance expenses will decline from 1999 levels.
Additional unplanned2000. Unplanned shutdowns or power
reductions of Point Beach Units 1 or 2 may be necessaryoccur from time to
time as Wisconsin Electric continues to perform reviews of
facility design and to implement otherfurther improvement initiatives
For information concerninginitiatives.
In July 2000, Wisconsin Electric's deferralsenior management authorized
the commencement of initial design work for the power uprate of
both units at Point Beach. Subject to approval by the PSCW, the
project is scheduled to be completed by May 2004 and is expected
to add approximately $18 million76 megawatts of nuclear non-fuel operating and
maintenance costs during 1997, see "Note E - Nuclear Operations"
in the Noteselectrical output to
Financial Statements.
During scheduled refueling and maintenance outages of Point Beach
Units 1 and 2 in 1998 and 1999, respectively,Beach.
Wisconsin Electric initiated extended fuel cycles that allow for operation of the
units for periods longer than the historical practice of
refueling each unit annually.
Wisconsin Electric is currently forminghas formed an operating license renewal team
which is expected to complete a technical and economic evaluation
of license renewal by mid-2002. Based upon the results of this
evaluation and subject to approval by executive management and by
the boards of directors of Wisconsin Electric and Wisconsin
Energy in the second half of 2002, Wisconsin Electric currently anticipates seekingwill
determine whether to seek appropriate regulatory approvals,
including submittal of an application to the Nuclear Regulatory
Commission, in 2003 for an extension of the operating licenses for Point
Beach Nuclear Plant for a period of up to 20 years.
NUCLEAR MANAGEMENT COMPANY: In FebruaryDuring 1999, WEC Nuclear
Corporation, a subsidiary of Wisconsin Energy, Northern States
Power Company and(now Xcel Energy), WPS Nuclear Corporation a(a
subsidiary of WPS Resources Corporation,Corporation) and an affiliate of
Alliant Energy Resources announced the formation of the Nuclear
Management Company, LLC.LLC ("NMC"). In November 1999,2000, Consumers
Energy signed an affiliate of
Alliantagreement to become a full partner in the NMC.
Assuming that Consumers Energy Resources also became a member ofreceives requisite regulatory
approvals to transfer its operating licenses to the Nuclear
Management Company. The four participants or their affiliatesNMC during
2001, the NMC will operate a total of seveneight nuclear generating
units at fivesix sites in the states of Wisconsin, Minnesota,
Michigan and Iowa with a total combined generating capacity exceeding 3,600of
about 4,500 megawatts.
Each
utility will continue to own its respective nuclear units,
maintain exclusive rights toDuring 2000, the energy generated,four original participants in the NMC received
all necessary regulatory approvals, and retain
financialthe NMC assumed operating
responsibility in August 2000 for safe operation, maintenance and
decommissioning.
The primary goals of the Nuclear Management Company are to
identify and achieve enhanced reliability and continued safe
operation of the seven nuclear generating units as well as to
provide enhanced nuclear plant support and operating services.
The Nuclear Management Company will provide services to Wisconsin
Electric's Point Beach Nuclear Plant and, upon transfer of
operating authority under the operating licenses, will also be
responsible for the day-to-day operation of Point Beach.
During the fourth quarter of 1999, all participants in the
Nuclear Management Company, including Wisconsin Electric, filed
applications with the Nuclear Regulatory Commission to transfer
applicable nuclear generating unit operating authority under
their operating licenses to the Nuclear Management Company.
Wisconsin Electric currently anticipates a decision by the
Nuclear Regulatory Commission on transfer of operating authority
in the Spring of 2000. Also during the fourth quarter of 1999,
Wisconsin Electric submitted an affiliated interest application
with the Public Service Commission of Wisconsin for approval of
its nuclear power plant operating services agreement with the
Nuclear Management Company. WPS Resources Corporation and
Northern States Power Company also filed similar applications
with their respective state regulatory commissions. Assuming
approval by all required regulatory authorities, Wisconsin
Electric currently expects the Nuclear Management Company to
assume operating responsibility for Point Beach with
the transfer of operating authority under its operating licenses.
Each NMC participant continues to own its respective nuclear
generating units and retains exclusive rights to the operating licensesenergy
generated as well as financial responsibility for the safe
operation, maintenance and decommissioning of its respective
plants.
On September 7, 2000, the NMC announced the combination of the
operations of Point Beach with Kewaunee Nuclear Power Plant into
a "virtual 3-unit site." Kewaunee Nuclear Power Plant, owned by
two other participants in mid-2000.
SPENTthe NMC, is located about five miles
from Point Beach. Support functions including training,
engineering, assessment, business and site services have been
combined under this new management structure.
USED NUCLEAR FUEL STORAGE AND DISPOSAL: During 1995, Wisconsin
Electric completed construction of an Independent Spent Fuel
Storage Installationa facility at Point Beach for
the temporary dry storage of spentup to 48 canisters containing used
nuclear fuel at Point Beach. The Public Service Commission of
Wisconsin has authorizedfuel. During 2000, Wisconsin Electric to load up tofinished loading
the last of twelve casks containing a total of 288 fuel assemblies with spent fuel
and transfer the casks to the Independent Spent Fuel Storage
Installation. To date, eight VSC-24 casks, designed by Sierra
Nuclear Corporation and containing a total of 192 spent fuel
assemblies, have been loaded and moved. Wisconsin Electric
currently plans to load the four remaining authorized casks in
2000.
To maintain flexibility associated with the continued temporary
dry storage of spent fuel at Point Beach, Wisconsin Electric is
in the process of procuring three alternative model TN-32 casks,
designed by Transnuclear Corp., which should be available by mid-
2000. TN-32 dry storage casks have been previously approved by
the Nuclear Regulatory Commission for specific use at other
nuclear generating facilities in the United States, and Wisconsin
Electric anticipates that the Nuclear Regulatory Commission will
certify use of TN-32 casks for use at Point Beach in April 2000.
In August 1998, the Public Service Commission of Wisconsin issued
an order approving the substitution of up to six TN-32 casks for
VSC-24 casks at Point Beach in the event that this becomes
necessary.
Wisconsin Electric estimates that, with implementation of the
extended fuel cycles noted above, with the four remaining caskscanisters originally authorized by the Public Service Commission of
Wisconsin and withPSCW.
On March 13, 2001, the remaining space in the spent fuel pool, it
has sufficient temporary spent fuel storage capacity to continue
operating Point Beach until the Spring of 2005. Wisconsin
Electric currently plans to apply to the Public Service
Commission of Wisconsin inPSCW approved a May 2000 application for
authority to load additional caskstemporary used fuel dry storage
containers beyond the twelve that are currentlywere originally authorized.
The application requested authorization for sufficient additional
containers, at a cost of up to approximately $46 million, to
operate Point Beach Units 1 and 2 to the end of their current
operating licenses, but not to exceed the original 48-canister
capacity of the facility. The PSCW's decision is expected to be
finalized in an order to be issued in the second quarter of 2001.
Temporary spent fuel storage alternatives at Point Beach Nuclear
Plant are necessary until
the United States Department of Energy takes ownership of and
permanently removes the spentused fuel as mandated by the Nuclear
Waste Policy Act of 1982, as amended in 1987 (the "Waste Act").
Effective January 31, 1998, the Department of Energy has failed to
meet its contractual obligation to begin removing spentused fuel from
Point Beach, a responsibility for which Wisconsin Electric has
paid a total of $163$170.8 million as of December 31, 1999.2000. The
Department of Energy has indicated that it does not expect a
permanent spentused fuel repository to be available any earlier than
2010. AtIt is not possible, at this time, Wisconsin Electric is unable to predict with
certainty when the Department of Energy will actually begin
accepting spentused nuclear fuel.
On August 24, 1999, Wisconsin Electric filed a petition for
review and for writ of mandamus in13, 2000, the United States Court of Appeals for the
District of ColumbiaFederal Circuit seeking both
monetaryruled in a lawsuit brought by Maine Yankee and
non-monetary relief under its Standard Contract with
the Department of Energy as a result ofNorthern States Power Company that the Department of Energy's
failure to comply with its unconditional obligation
underbegin performance by January 31, 1998 constituted a
breach in the Waste Act to disposeStandard Contract, providing clear grounds for
filing complaints in the Court of the spent nuclear fuel at Point
Beach Nuclear Plant.Federal Claims. Consequently,
Wisconsin Electric requestedfiled a contract
modification requiringcomplaint on November 16, 2000 against
the Department of Energy to provide
storage casks forin the spent fuel, to take titleCourt of the spent fuel
when itFederal Claims. The
matter is placed in dry storage at Point Beach and to reimbursepending. As of August 2000, Wisconsin Electric for costshas
incurred as a resultdamages in excess of $35 million, which it seeks to
recover from the Department of Energy's failureEnergy. Damages will continue to
comply with its obligations.
On October 12, 1999, the government filed a motion to dismiss
Wisconsin Electric's petition for review on grounds of failure to
exhaust administrative remediesaccrue, and, lack of jurisdiction. On
October 25, 1999,accordingly, Wisconsin Electric filed a responseexpects to the
government's motion, asking the Appeals Courtseek to
deny the motion.
On November 24, 1999, the Court orderedrecover all of its damages in this lawsuit.
During 2000, President Clinton vetoed legislation that the motion to
dismiss be referred to a merits panel and directed the parties to
submit briefs on the merits with oral argument scheduled for
May 18, 2000.
During 1997 and again in 1998, the United States Senate and the
United States House of Representatives each passed versions of
the Nuclear Waste Policy Acts of 1997 and 1998, respectively.
The legislation would have
required the Department of Energy to establish a temporary spentused
fuel repository in the state of Nevada until a permanent
repository is available and to begin taking ownership from
utilities and removing spentused fuel as required by the Waste Act.
Differences between Senate and House
versions of the bill were not reconciled in 1997 nor in 1998.
During 1999, neither house of congress passed similar legislation
that had been introduced. The Senate and the House failed to override the President's veto.
Wisconsin Electric is unable to predict whether similar
legislation might be reintroduced and passed a modified
version of temporary nuclear waste disposal legislation in
Februaryduring 2001 or
whether the new administration might support and March 2000, respectively. President Clinton has
threatened to veto any legislation which mandates a temporary
spent fuel repository in Nevada.sign such
legislation.
LEGAL MATTERS
GIDDINGS & LEWIS INC./CITY OF WEST ALLIS LAWSUIT: In July 1999,
a jury decidedissued a verdict against Wisconsin Electric and awardedawarding the
plaintiffs $4.5 million as actualin compensatory damages and $100 million
in punitive damages in a lawsuitan action alleging that Wisconsin Electric
had placeddeposited contaminated wastes at two sites in the City of West Allis,
Wisconsin.Wisconsin owned by the plaintiffs. Internal investigations lead
Wisconsin Electric is preparing to file an
appealbelieve that it was not the source of the case.this
waste. In December 1999, in order to stop the post-
judgmentpost-judgment
accrual of interest at 12% per annum during the pendency of thean appeal,
Wisconsin Electric tendered a contested liability payment of
$110 million, appearing aswhich is part of Deferred Charges and Other Assets
- - Other on the Consolidated Balance Sheet, to the Milwaukee
County Clerk of Circuit Court representing the amount of the
verdict and accrued interest. In further post-trial proceedings,
the plaintiffs filedCircuit Court Judge issued a motion for sanctions based uponruling during 2000 related to
representations made by Wisconsin Electric during trial.trial, imposing
sanctions against Wisconsin Electric. Wisconsin Electric is
appealing the judgment entered on the jury's verdict as well as
the Judge's ruling on the sanctions matter.
As further developments, two shareholders filed separate
shareholder derivative proceedings in Milwaukee County Circuit
Court during 2000 for alleged injuries to shareholders resulting
from this litigation. The hearing on this matter occurred in February 2000.two lawsuits have been consolidated
for pre-trial purposes. The matter was
briefed by the parties and oral argument is scheduled in April
2000.pending.
In the opinion of management, based in part on the advice of
legal counsel, the jury verdict was not supported by the evidence
or the law and the unprecedented award of punitive damages of
this magnitude was unwarranted and should therefore be reversed
or substantially reduced on appeal. Management also believes
that the sanctions imposed by the Judge were not supported by the
evidence or the law. As such, Wisconsin Electric has not
established a reserve for potential damages from this suit. For
further information, see "Note L" or "Note K - Commitments and Contingencies"
in Wisconsin Energy's or Wisconsin
Electric'sthe Notes to Financial Statements, respectively.Statements.
WISCONSIN INTERNATIONAL ELECTRIC POWER LITIGATION: During the
fourth quarter of 1999,
Wisconsin Electric and Wisconsin International Electric
Power, Ltd. reached settlement of litigation brought by Wisconsin
International Electric Power against Wisconsin Electric claiming
that Wisconsin Electric had breached contractual duties allegedly
owed to the plaintiff relating to development of an electric
generating plant at Subic Bay in the Philippines. While
Wisconsin Electric does not believe that it breached any
contractual duties allegedly owed to the plaintiff, Wisconsin
Electric paid Wisconsin International Electric Power, Ltd.
$18$18.0 million ($10.8 million or $0.09 per
share for Wisconsin Energy, after tax) in November 1999 to
settle the case, and the plaintiff's claims were dismissed with
prejudice.
For further information, see "Note L" or "Note K -
Commitments and Contingencies"ENVIRONMENTAL MATTERS
Consistent with other companies in Wisconsin Energy's or Wisconsin
Electric's Notes to Financial Statements, respectively.
ELECTRIC SYSTEM RELIABILITY MATTERS
In spite of several episodes of hot and humid weather during the summer of 1999,energy industry, Wisconsin
Electric had adequate capacityfaces potentially significant ongoing environmental
compliance and remediation challenges related to meet
all of its firm electric load obligations. Public appeals for
conservation were not required,current and the need to interrupt or
curtail service to non-firm customers who participate in load
management programs in exchange for discounted rates was greatly
reduced from recent years. All of Wisconsin Electric's
generating plants were available and in operation during the
hottest periods in late July 1999, and all power purchase
commitments under firm contract were received.
Wisconsin Electric expects to have adequate capacity to meet all
of its firm load obligations during 2000. However,past
operations. Specific environmental issues affecting the Company
anticipates thatinclude but are not limited to (1) air emissions such as carbon
dioxide ("CO2"), sulfur dioxide ("SO2"), nitrogen oxide ("NOx"),
small particulates and mercury, (2) disposal of combustion by-
products such as fly ash, (3) remediation of former manufactured
gas plant sites, (4) disposal of used nuclear fuel, and (5) the
regional electric energy supply will remain
tight during 2000. As a resulteventual decommissioning of this, or of extremely hot
weather along with unexpected equipment unavailability, Wisconsin
Electric could be required to call upon load management
procedures during 2000, as it has in past years.
Wisconsin Electric is proceeding with several long-term measures
to enhance the reliability of its own system and that of the
midwestern region as discussed below.
Electric Generation Initiatives
300-MEGAWATT CONTRACT WITH SOUTHERN ENERGY: In August 1998,
Wisconsin Electric signed an agreement with Atlanta-based
Southern Energy, Inc. to purchase for eight years the electric
output from a 300-megawatt natural gas-fired peakingnuclear power plant
that Southern Energy is currently constructing in Neenah,
Wisconsin. The facility is scheduled for commercial operation by
June 2000.
As a result of the existing regulatory environment in the state
of Wisconsin, Wisconsin Electric currently expects to utilize
purchase power commitments similar to the agreement with Southern
Energy to meet its electric demand load growth where appropriate.
GERMANTOWN GENERATION PROJECTS: Based upon updated load growth
projections, Wisconsin Electric determined that it needed
additional generating capacity by the summer of 2000. As a
result,plants. Wisconsin
Electric is currently installingpursuing a new 85-
megawatt combustion turbine atproactive strategy to manage its
Germantown Power Plant that is
expected to be in service by June 2000. In addition, Wisconsin
Electric is installing inlet cooling facilities on the four
existing combustion turbine units at the Germantown Power Plant
as well as on the new unit. Installation of the inlet cooling
facilities, which counteract the reduction in generating capacity
due to hot summer weather, is expected to be completed by mid-
summer of 2000. A net increase in summer capacity of
approximately 59 megawatts will be available as a result of the
inlet cooling facilities that are being installed. Natural gas
burning facilities are also being added at the Germantown Power
Plant to provide dual fuel capability for the new as well as the
existing units. As part of the dual fuel project, dry low-
nitrogen oxide burners are being installed on the existing units
to reduce air emissions. The dual fuel project is expected to be
completed in 2003.
NEW RENEWABLE ELECTRIC ENERGY: In September 1999, Wisconsin
Electric signed an agreement to purchase 25.2 megawatts of
capacity from a 29.7-megawatt wind farm that FPL Energy Wisconsin
Wind LLC plans to construct and operate near Allenton, Wisconsin.
Siting for the wind farm is pending. In October 1999, Wisconsin
Electric signed an agreement to purchase 7.7 megawattsenvironmental issues including (1) substitution of new landfill gas-fueled generation capacity installed at several
Waste Management, Inc. landfills. All landfill gasand
cleaner generating facilities are expected to be on-line prior to the end of 2000. The total
32.9 megawatts of renewable capacity will be used to meet
Wisconsin Electric's 27 megawatt share of a renewable energy
mandate included in 1997 Wisconsin Act 204 and support Wisconsin
Electric's "energy for tomorrow" renewable energy program.
In June 1999, Wisconsin Electric placed in service two
660 kilowatt Vestas V47 wind turbines. The wind turbines are
located in southern Fond du Lac County in the Town of Byron,
Wisconsin. The electricity generated from this project is being
sold to "energy for tomorrow" customers.
Electric Transmission Initiatives
WISCONSIN ELECTRIC PROJECTS: Wisconsin Electric recently
completed or is currently involved in multiple projects designed
to increase electric import capability into eastern Wisconsin and
to improve electric system reliability for its customers. In
June 1999, Wisconsin Electric completed the Northern Interface
Project which allows for an additional 80 megawatts of generating
capacity in the Upper Peninsula of Michigan to be available to
Wisconsin Electric's transmission system in the state of
Wisconsin. Also in June 1999, Wisconsin Electric completed the
Southern Interface Project which was the first of several
projects being undertaken to improve system reliability in
southeast Wisconsin and the metropolitan Milwaukee area as well
as to eliminate constraints on the Wisconsin Electric system for
future increased electric transfer capability between northern
Illinois and southern Wisconsin. In September 1999, the Public
Service Commission of Wisconsin authorized Wisconsin Electric to
proceed with the Oak Creek-Arcadian Transmission Upgrade Project,
intended to also improve system reliability in southeast
Wisconsin. In December 1999, Wisconsin Electric filed an
application with the Public Service Commission of Wisconsin to
upgrade transmission systemolder facilities in downtown Milwaukee as
well as facilities serving the northern metropolitan Milwaukee
area.
WISCONSIN RELIABILITY ASSESSMENT ORGANIZATION: The Wisconsin
Reliability Assessment Organization was formed in early 1998 to
coordinate activities relating to generation and transmission
reliability issues in the state of Wisconsin. Wisconsin Electric
is an active participant in the Wisconsin Reliability Assessment
Organization, whose members include all of the state's other
investor owned utilities, staff from the Public Service
Commission of Wisconsin, several municipal utilities and
cooperatives, and utilities from surrounding states.
In June 1999, the Wisconsin Reliability Assessment Organization
issued a report to the Public Service Commission of Wisconsin
describing a recently completed comprehensive study of
transmission system reinforcement plans and the abilities of
those plans to achieve numerous technical, environmental and
policy criteria. Based upon the report, the Wisconsin
Reliability Assessment Organization recommended construction of a
new 345 kilovolt transmission line between Duluth, Minnesota and
Wausau, Wisconsin. Wisconsin Public Service Corporation and
Minnesota Power Company, two unaffiliated investor owned
utilities, have applied to regulatory commissions in Wisconsin
and Minnesota for authority to construct this facility. Several
groups are opposing the project and have indicated their intent
to intervene in proceedings before the Public Service Commission
of Wisconsin.
In addition to substantial generation system expansion throughout
the state of Wisconsin, the Wisconsin Reliability Assessment
Organization's recommendations assume that numerous other
transmission system enhancement projects will be completed
including Wisconsin Electric's Oak Creek-Arcadian Transmission
Upgrade Project noted above and construction of a 230 kilovolt
transmission line from Chisago County, Minnesota to Amery,
Wisconsin. Northern States Power Company, an unaffiliated
investor owned utility, and Dairyland Power Cooperative, an
unaffiliated electric cooperative, have applied for necessary
certification for the Chisago / Amery project.
MIDWEST ISO: Wisconsin Electric is currently participating in
the formation of a regional independent electric transmission
system operator to promote reliability in the Midwest (the
"Midwest ISO"). In June 1999, the Public Service Commission of
Wisconsin granted Wisconsin Electric authority to transfer
control of its electric transmission system to the Midwest ISO.
The Midwest ISO installed its independent board of directors and
hired its executive management team during 1999 and plans to
begin operation in 2001. Once established, the American
Transmission Company, LLC described below under "Industry
Restructuring and Competition" will become a member of the
Midwest ISO.
INDUSTRY RESTRUCTURING AND COMPETITION
Driven by a combination of market forces, regulatory and
legislative initiatives and technological changes, the electric
industry continues a trend towards restructuring and increased
competition. The state of Illinois has passed legislation that
introduced retail electric choice for large customers in 1999 and
introduces choice for all customers by May 2002. For information
concerning restructuring in the state of Michigan, see "Electric
Utility Industry Restructuring In Michigan" below. Congress
continues to evaluate restructuring proposals at the federal
level. The Company cannot predict the ultimate timing or impact
of a restructured electric industry. Among others, the following
electric industry restructuring initiatives are underway in
regulatory jurisdictions where the Company currently does
business.
State of Wisconsin
ELECTRIC UTILITY INDUSTRY INVESTIGATION IN WISCONSIN: The
Public Service Commission of Wisconsin is currently focusing on
electric infrastructure issues for the state of Wisconsin such
as:
* Improvements to existing and addition of new electric
transmission lines in the state,
* Addition of new generating capacity in the state,
* Modifications to the regulatory process to facilitate
development of merchant generating plants,
* Development of a regional independent electric transmission
system operator, and
* Formation of a statewide transmission company.
The Public Service Commission of Wisconsin continues to maintain
the position that the question of whether to implement electric
retail competition in Wisconsin should ultimately be decided by
the Wisconsin legislature. No such legislation has been
introduced in Wisconsin to date.
TRANSMISSION COMPANY: Wisconsin Electric has agreed to join the
American Transmission Company, LLC by contributing its
transmission assets in exchange for an equity interest in the new
company. As a result, Wisconsin Energy will receive partial
relief from statutory limits on its non-utility assets (the non-
utility asset cap) as authorized by 1999 Wisconsin Act 9. For
additional information, see "Rates and Regulatory Matters" below.
Joining the American Transmission Company is consistent with the
Federal Energy Regulatory Commission's Order No. 2000, designed
to foster competition, efficiency and reliability in the electric
industry.
The American Transmission Company will be owned and governed in
accordance with 1999 Wisconsin Act 9 by utilities that contribute
facilities or capital. Governance of the company will also
include outside directors not associated with the energy
business. Stock of the American Transmission Company eventually
may be offered for public ownership.
The American Transmission Company's sole business will be to
provide reliable, economic transmission service to all customers
in a fair and equitable manner. Specifically, the American
Transmission Company will plan, construct, operate, maintain and
expand transmission facilities it will own to provide for
adequate and reliable transmission of power. It will provide
comparable service to all customers, including Wisconsin
Electric, and it will support effective competition in energy
markets without favoring any market participant. Formation of
the company will require federal and state regulatory approvals.
The American Transmission Company will be regulated by the
Federal Energy Regulatory Commission for all rate terms and
conditions of service. The company will be a transmission-owning
member of the Midwest ISO as discussed in further detail above
under "Electric System Reliability Matters."
Wisconsin Electric outlined its proposed classification of
transmission assets in a February 2000 filing with the Public
Service Commission of Wisconsin. A ruling in that proceeding is
expected in June 2000. Shortly thereafter, Wisconsin Electric
plans to file with both the Public Service Commission of
Wisconsin and the Federal Energy Regulatory Commission for
permission to transfer assets to the new company. Wisconsin
Electric estimates that it will transfer approximately $200
million in transmission utility assets at net book value when the
American Transmission Company becomes operational in late 2000.
Wisconsin Electric's transmission assets have traditionally
contributed an estimated 3% of Wisconsin Electric's total
electric utility operating revenues. While it is expected that
Wisconsin Energy will receive earnings distributions from the
American Transmission Company in proportion to its ownership
share, the overall impact of the transaction on Wisconsin Energy
earnings is not yet known.
AFFILIATE INTEREST POLICIES DOCKET: From late 1998 through
early 2000, the Public Service Commission of Wisconsin has
reviewed the policies on standards of conduct governing
diversification of activities that can be performed within the
utility and utility affiliates. On February 17, 2000, the Public
Service Commission voted to continue to support the full
allocation method which allows utilities to continue to provide
and sell products and services other than core utility products
as long as the costs are fully allocated and not subsidized by
ratepayers. During these proceedings, Wisconsin Electric has
taken the position that state policy should protect competition,
not individual competitors, and that customers should have the
choice to use either Wisconsin Electric or another vendor for
these products and services. The Public Service Commission of
Wisconsin still intends to look at a streamlined process for
reviewing complaints on a case-by-case basis and then is expected
to issue an order on this matter and close the docket.
PUBLIC BENEFITS: On October 27, 1999, the Wisconsin State
legislature passed public benefits legislation as part of the
1999-2001 biennial state budget, 1999 Wisconsin Act 9, which also
included amendments"Power the Future" strategy, (2) development of additional
sources of renewable electric energy supply, (3) participation in
regional initiatives to reduce the non-utility asset cap provisionsemissions of Wisconsin's public utility holding company law. The law creates
new funding of $44 million to be collected by utilities and
remitted toNOx from the
Company's fossil fuel-fired generating facilities,
(4) participation in voluntary programs with the Wisconsin
Department of Administration. The law
also requires utilitiesNatural Resources and the United States
Environmental Protection Agency to continue to collect the funds at
existing levels for low-income, conservation and environmental
research and development programs and to begin transferring the
funds for these programs to the Department of Administration
within a three-year transition period. The utilities'
traditional role of providing these programs will be shifted to
the Department of Administration, which will administer the funds
for a statewide public benefits program. The new law also
requires utilities to provide a specified proportion of its
retail energy sales in programs such asreduce overall emissions,
including mercury, from Wisconsin Electric's "energy for tomorrow" renewable energy program.coal-fired power
plants, (5) recycling of ash from coal-fired generating units and
(6) the voluntary clean-up of former manufactured gas plant
sites. For additionalfurther information concerning the non-utility asset cap, see "Rates and
Regulatory Matters" below.
Statedisposal of Michigan
ELECTRIC UTILITY INDUSTRY RESTRUCTURING IN MICHIGAN: In June
1999, in response to earlier actions by the Michigan Public
Service Commission to implement retail access for all retail
customers of regulated utilities and co-ops in the state of
Michigan beginning January 1, 2002, the Michigan Supreme Court
ruled that the Michigan Public Service Commission did not have
authority to mandate direct access plans.
On September 1, 1999, Michigan's two largest utilities, Detroit
Edison and Consumers Energy Company, filed an agreement to
voluntarily implement a phase-in of direct access beginning in
late 1999 followed by full access on January 1 , 2002. In
October 1999, the Michigan Public Service Commission's authority
to implement access on a voluntary basis was challenged in the
courts. The Michigan Public Service Commission is expected to
continue to support its authority to implement voluntary open
access programs. Meanwhile, the phase-in programs have begun for
Detroit Edison and Consumers Energy Company.
In January 2000, a bill was introduced in the Michigan Senate
providing for a phase-in of direct access with full access on
January 1, 2002. The bill addresses market power concerns and
remedies and contains modifications for smaller utilities and co-
ops. Wisconsin Electric believes that passage of the bill as
introduced is unlikely. However, a modified bill could be
enacted by late 2000.
During 1999, 6.8% of Wisconsin Energy's and 5.3% of Wisconsin
Electric's total utility operating revenues were under the
jurisdiction of the Michigan Public Service Commission.
Wholesale Competition
Wholesale sales of electric energy accounted for 7%, 6% and 5% of
Wisconsin Electric's total electric operating revenues in 1999,
1998 and 1997, respectively. Wisconsin Electric attributes the
increase in the past year to additional sales for resale.
RATES AND REGULATORY MATTERS
The table below summarizes the anticipated annualized revenue
impact of recent rate changes authorized by regulatory
commissions for Wisconsin Electric's electric, natural gas and
steam utilities based upon the sales projections utilized by
those commissions in setting rates. Edison Sault implemented a
temporary price cap in 1995. The Public Service Commission of
Wisconsin regulates retail electric, steam and natural gas rates
in the state of Wisconsin, while the Federal Energy Regulatory
Commission regulates wholesale power, electric transmission and
gas transportation service rates. The Michigan Public Service
Commission regulates retail electric rates in the state of
Michigan.
Revenue Percent
Increase Change
Service (Decrease) in Rates Effective Date
------- ---------- -------- --------------
(Millions) (%)
Retail electric, WI (a) $25.2 1.7% (a)
Retail gas (a) 11.6 3.3% (a)
Fuel electric, WI (7.8) (0.5%) 05/01/99
Retail electric, MI 2.1 6.0% 04/13/99
Retail electric, WI (b) 160.2 12.7% 05/01/98
Retail gas (b) 18.5 5.4% 05/01/98
Steam heating (b) 1.2 9.3% 05/01/98
Retail electric, WI (b) 134.9 10.7% 01/01/98
Retail gas (b) 18.5 5.5% 01/01/98
Steam heating (b) 0.8 6.3% 01/01/98
Fuel electric, WI (c) 11.9 1.0% 01/01/98
Fuel electric, WI (d) 15.3 1.2% 05/23/97
Retail electric, WI (7.4) (0.6%) 02/18/97
Retail gas (6.4) (2.0%) 02/18/97
Steam heating 0.1 0.5% 02/18/97
(a) Interim increase approved by the Public Service Commission of Wisconsin
on March 23, 2000. The interim increase will become effective upon
the issuance of a written order subject to any conditions imposed in
the order. A final order is expected in June 2000.
(b) The January 1, 1998 order was an interim order that was effective until
the May 1, 1998 final order was received from the Public Service Commission
of Wisconsin. The final May 1, 1998 order superseded the January 1, 1998
interim order.
(c) A final order from the Public Service Commission of Wisconsin, dated
December 23, 1997, authorized a total increase in fuel revenue of $27.2
million less the amount of $15.3 million previously collected through an
interim order during 1997. See footnote (d). The remaining $11.9 million
under the final order was authorized during the period January 1, 1997
through April 30, 1998.
(d) An interim order from the Public Service Commission of Wisconsin, issued
May 23, 1997 was in effect through December 31, 1997 and resulted in a
$15.3 million increase in revenue from Wisconsin retail customers.
The Public Service Commission of Wisconsin requires that rate
cases be conducted once every two years. During 1999, Wisconsin
Electric filed test year data for the 2000/2001 biennial period.
The next test year filing with the Public Service Commission of
Wisconsin under the current biennial cycle is scheduled to be in
2001 for the 2002/2003 biennial period. However, as described in
further detail in "Note B - Mergers & Acquisitions" in Wisconsin
Energy's Notes to Financial Statements, the Public Service
Commission of Wisconsin ordered, as a condition of its approval
of Wisconsin Energy's pending merger with WICOR, a qualified five-
year rate freeze following completion of Wisconsin Electric's
current pricing request for 2000/2001.
A review of recent rate and regulatory actions follows.
2000/2001 TEST YEARS: On September 17, 1999, Wisconsin Electric
submitted an application with the Public Service Commission of
Wisconsin requesting incremental price relief for specific
capital investments for electric and gas system reliability and
safety and for a one-time accounting adjustment. The application
further recommended the adoption of performance-based measures
and incentives. In its application, Wisconsin Electric proposed
a two-step price increase. The first requested increase, to be
effective January 1, 2000, totaled $46 million (3.1%) for
electric operations and $8 million (2.3%) for gas operations.
The second requested price increase, to be effective January 1,
2001, totaled $29 million (2.0%) for electric operations.
On December 23, 1999, Wisconsin Electric requested that interim
price relief be granted by the Public Service Commission of
Wisconsin, subject to refund, as soon as possible because it
anticipated that a final order on its price request would not be
issued until June 2000. On an interim basis, Wisconsin Electric
requested a 3.1% increase on electric prices and a 2.3% increase
on gas prices. Wisconsin Electric withdrew its request to be
allowed to implement performance-based prices because some
elements of the proposed performance-based price plan are not
compatible with the Public Service Commission of Wisconsin's
approval of the WICOR merger. Hearings on Wisconsin Electric's
request for interim price relief were held on February 9, 2000.
On March 23, 2000, the Public Service Commission of Wisconsin
approved Wisconsin Electric's request for interim price
increases, authorizing a $25.2 million (1.7%) increase for
electric operations and an $11.6 million (3.3%) increase for gas
operations. The interim increase will become effective upon the
issuance of a written interim order subject to any conditions
imposed in the order.
1998/1999 TEST YEARS: On December 23, 1997, the Public Service
Commission of Wisconsin issued an order authorizing Wisconsin
Electric to implement interim Wisconsin retail rate increases
effective January 1, 1998 in the amount of $154 million on an
annualized basis, including $135 million for electric operations,
$19 million for gas operations and $1 million for steam
operations. The Public Service Commission of Wisconsin
authorized permanent annualized retail base rate increases in the
state of Wisconsin effective May 1, 1998 of $160 million for
electric operations, $19 million for gas operations and
$1 million for steam operations. The permanent rate increases,
which replaced the interim rate increases, were based upon an
authorized regulatory return on common equity of 12.2%.
In November 1998, Wisconsin Electric filed testimony and exhibits
with the Michigan Public Service Commission showing a
$3.8 million annual revenue deficiency for its electric utility
operations in the state of Michigan. On April 12, 1999, the
Michigan Public Service Commission issued an order authorizing
Wisconsin Electric to implement retail electric rate increases
effective April 13, 1999 in the amount of $2.1 million on an
annualized basis. The increase was based upon an authorized
regulatory return on common equity of 11.0%.
1997 TEST YEAR: In an order dated February 13, 1997, the Public
Service Commission of Wisconsin directed Wisconsin Electric to
implement rate decreases for retail electric and gas customers in
the state of Wisconsin of $7 million and $6 million,
respectively, on an annualized basis, and a steam rate increase
of $0.1 million on an annualized basis. The order was effective
February 18, 1997 and was based upon a regulatory return on
common equity of 11.8%. The Public Service Commission of
Wisconsin had determined that it required a special full review
of Wisconsin Electric's rates for the 1997 test year in
connection with consideration of the application for approval of
the proposed merger of Wisconsin Energy and Northern States Power
Company discussed above under "Mergers."
EDISON SAULT PRICE CAP: On August 22, 1995, Edison Sault filed
an application with the Michigan Public Service Commission for
authority to implement price cap regulation for its electric
customers in the state of Michigan. In the application, Edison
Sault proposed that its base rates be capped at existing levels,
that its existing Power Supply Cost Recovery factor be rolled
into base rates and that its existing Power Supply Cost Recovery
Clause be suspended. On September 21, 1995, the Michigan Public
Service Commission approved Edison Sault's application subject to
the modification that Edison Sault give thirty days notice rather
than two weeks notice for rate decreases. Edison Sault will file
an application with the Michigan Public Service Commission by
October 1, 2000 to address the experience under the price cap
mechanism. The order authorizing Edison Sault's price cap
represents a temporary experimental regulatory mechanism and
allows Edison Sault to file an application seeking an increase in
rates under extraordinary circumstances.
FUEL COST ADJUSTMENT PROCEDURE: Effective in 1998 under the
Public Service Commission of Wisconsin's retail electric fuel
cost adjustment procedure in the state of Wisconsin, retail
electric rates may be adjusted, on a prospective basis, if
cumulativeused
nuclear fuel and purchasednuclear power costs, when compared to the
costs projected in the retail electric rate proceeding, deviate
from a prescribed rangeplant decommissioning, see
"Nuclear Operations" above and are expected to continue to be above
or below the authorized annual range of 2%.
As part of the Public Service Commission of Wisconsin's 1998 Rate
Order, Wisconsin Electric was required to file by October 1, 1998
its forecast of electric fuel costs for the 1999 calendar year.
Wisconsin Electric filed the forecast indicating no change in
fuel costs compared to 1998. Following subsequent discussions,
the Public Service Commission of Wisconsin issued an order
effective May 1, 1999 authorizing Wisconsin Electric to implement
a retail revenue fuel credit of $.00033 per kilowatt-hour or
approximately $7.8 million on an annualized basis.
During 1997, extended outages at Point Beach, an extended
maintenance outage at Oak Creek Power Plant that was concluded in
June 1997, delayed commercial operation of a cogeneration
facility owned by an independent power producer with whom
Wisconsin Electric had entered into a long-term power purchase
contract, and higher than projected purchased power costs per
megawatt-hour due to regional electric energy supply constraints
resulted in increased fuel and purchased power costs at Wisconsin
Electric. Wisconsin Electric estimates that such costs were
approximately $116 million higher than those included in 1997
base electric rates in all jurisdictions.
Effective May 24, 1997, the Public Service Commission of
Wisconsin approved a $0.00109 per kilowatt-hour fuel surcharge
for the 1997-1998 biennial period based upon an estimated
$50 million increase in fuel and purchased power costs allocated
to the Wisconsin jurisdiction during this biennial period.
However, this interim surcharge was superceded by a final
December 23, 1997 Public Service Commission of Wisconsin order.
During 1997, Wisconsin Electric collected $15.3 million through
the interim surcharge.
On December 23, 1997, the Public Service Commission of Wisconsin
issued a combined final order on two 1997 Wisconsin Electric
filings under Wisconsin's fuel cost adjustment procedure,
authorizing Wisconsin Electric to recover $11.9 million of
additional 1997 fuel and purchased power costs from Wisconsin
retail electric customers during the 1997-1998 biennial period.
This temporary fuel surcharge ended as of May 1, 1998. Wisconsin
Electric estimates that of $116 million of total excess fuel and
purchased power costs incurred during 1997, it recovered a total
of $27.2 million as a result of the interim May 1997 and final
December 1997 orders, leaving $89 million unrecovered.
In December 1995, the Michigan Public Service Commission approved
the suspension of the Power Supply Cost Recovery Clause (fuel
adjustment procedure) for a five-year period for Michigan retail
electric customers.
NUCLEAR OPERATION AND MAINTENANCE COST DEFERRAL: See "Note E - Nuclear Operations" in
the Notes to Financial Statements, for
information regarding authority granted to Wisconsin Electric by
the Public Service Commission of Wisconsin to defer certain non-
fuel nuclear operation and maintenance costs incurred during
1997.
PURCHASED GAS ADJUSTMENT MECHANISM: Purchased gas adjustment
mechanisms have been evaluated as part of an ongoing generic
investigation by the Public Service Commission of Wisconsin into
the natural gas industry in the state of Wisconsin. On July 1,
1997, Wisconsin Electric filed a modified dollar for dollar gas
cost recovery mechanism in accordance with a November 1996 order
from the Public Service Commission of Wisconsin. This filing,
which was updated on June 30, 1998, was approved on March 23,
1999 and implemented July 1, 1999. The new gas cost recovery
mechanism includes after the fact prudence reviews by the Public
Service Commission of Wisconsin. Wisconsin Electric does not
expect that the major portion of gas costs that are currently
passed through to customers will be subject to price risk under
the new gas cost recovery mechanism.
Prior to July 1, 1999, differences between the test year estimate
and the actual cost of purchased gas were accounted for and
passed through to customers on a dollar for dollar basis through
a purchased gas adjustment clause.
NON-UTILITY ASSET CAP: On October 27, 1999, the Governor of the
state of Wisconsin signed Wisconsin's 1999-2001 biennial state
budget, 1999 Wisconsin Act 9, which included amendments to
Wisconsin's public utility holding company law. As a result,
Wisconsin Energy remains subject to certain restrictions which
have the potential of limiting diversification into non-utility
activities. Under the amended public utility holding company
law, the sum of certain assets of all non-utility affiliates in a
holding company system may not exceed 25% of the assets of all
public utility affiliates. However, among other exemptions, the
amended law exempts energy-related assets and assets used for
providing environmental engineering services and for processing
waste materials from being counted against the asset cap provided
that they are employed in qualifying businesses. In addition,
the amended law exempts the provision of metering services and
manufacturing, distributing or selling products for filtration,
pumping water or other fluids, processing or heating water,
handling fluids or other related activities.
As described in further detail above under "Industry
Restructuring and Competition," a voluntary state electric
transmission company, the American Transmission Company, LLC is
being created as part of the amendment to Wisconsin's public
utility holding company law. For a public utility holding
company system to qualify for the amended non-utility asset cap
rules, all of its public utility affiliates are required to
irrevocably transfer their electric transmission facilities and
rights of way in the state of Wisconsin to the American
Transmission Company in exchange for an ownership interest in the
American Transmission Company. Wisconsin Electric is currently
working with other electric transmission system owners in the
state of Wisconsin to transfer its electric transmission assets
when the American Transmission Company becomes operational in
late 2000.
Other amendments to the non-utility asset cap provisions of the
public utility holding company law require public utility
affiliates of a public utility holding company, such as Wisconsin
Electric, to commit to certain spending levels for low-income
residents and for conservation programs and to meet certain
renewable energy source targets as a percent of total retail
energy sales between 2000 and 2010. For further information, see
"Industry Restructuring and Competition" above. In addition, non-
supervisory employees must be retained for a 30 month period at
the same wage and with similar benefits in the event of any
energy business acquisition.
ENVIRONMENTAL MATTERSrespectively.
NATIONAL AMBIENT AIR QUALITY STANDARDS: In July 1997, the
United States Environmental Protection Agency revised the
National Ambient Air Quality Standards for ozone and particulate
matter. Although specific emission control requirements are not
yet defined and despite legal challenges to these standards that
will impact compliance requirements and timing, Wisconsin
Electric believes that the revised standards will likely require
significant reductions in sulfur dioxide ("SO2")SO2 and nitrogen
oxide ("NOx")NOx emissions from coal-fired
generating facilities. If these new standards withstand ongoing
legal challenges, Wisconsin Electric expects that reductions
needed to achieve compliance with the ozone attainment standards
will be implemented in stages from 20032004 through 2012, beginning
with the ozone transport reductions described below. Reductions
associated with the new particulate matter standards will likely
be implemented in stages after the year 2010 and extending to the
year 2017. Beyond the cost estimates identified below, Wisconsin
Electric is currently unable to estimate the impact of the
revised air quality standards on its future liquidity, financial
condition or results of operation.
OZONE NON-ATTAINMENT RULEMAKING: In October 1998, the
Environmental Protection Agency promulgated ozone transport rules
to address transport of NOx and ozone into ozone non-attainment
areas in the eastern half of the United States. The rules would
have required electric utilities in 22 eastern states and the
District of Columbia, including the state of Wisconsin, to
significantly reduce NOx emissions by May 1, 2003. Affected
states were required to submit their respective state
implementation plans to the Environmental Protection Agency by
September 1999. This submittal date was stayed pending the
outcome of legal challenges against the rule. A court
decision on these challenges was issued onin March 3, 2000 excluding
the state of Wisconsin but continuing to include southern
Michigan as one of 19 states in a region east of the Mississippi
River that would remain subject to the October 1998 rules.
Further appeals are likely.ongoing.
Independent of any court decisions, Wisconsin and thesome other
states in the Lake Michigan region are proceeding withhave concluded rulemakings
by December 2000 that will require utilities, including Wisconsin Electric, to reduce
NOx emissions as part of separate, existing 1-hour ozone
attainment demonstration rules required by the Environmental
Protection Agency for the Lake Michigan region's severe non-attainmentnon-
attainment areas.
Wisconsin Electric is working with a variety of state and
regional stakeholders to
provide input to the plan under development by the statesstate of
Wisconsin and Michigan. Wisconsin's rule is already in effect. Wisconsin
Electric is evaluating various NOx control techniques under
various regulatory scenarios to develop a least cost compliance
plan and currently expects to incur total capital costs of
$150 million to $200 million and annual operation and maintenance
costs of $2 million to $10$4 million during the period 20002001 through
2004 to comply with such a plan. Wisconsin Electric believes
that compliance with the NOx emission reductions as a result of
the Environmental Protection Agency'srequired by
Wisconsin's non-attainment rules will likelysubstantially mitigate
costs to comply with the Environmental Protection Agency's July
1997 revisions to the ozone National Ambient Air Quality
Standards discussed above.
In January 2000, the Public Service Commission of WisconsinPSCW approved Wisconsin Electric's
comprehensive plan to meet the Environmental Protection Agency
regulations, permitting recovery in rates of NOx emission
reduction costs over an accelerated 10-
year10-year recovery period and
requiring that these costs be separately itemized on customer
bills.
NON-UTILITY AIR QUALITY MATTERS: As a result of the
Environmental Protection Agency's October 1998 ozone transport
rules and the regulations adopted by the state of Connecticut to
implement such rules, the Company's non-utility energy operations
expect to incur capital costs of $7.5 million to $15 million
prior to May 2003 at its two fossil-fueled power plants in the
state of Connecticut.
In February 2000, legislation was introduced in the state of
Connecticut's legislature that would require additional NOx and
SO2 emission reductions from the two power plants by 2003.
Wisvest-Connecticut, LLC is reviewing several methods to achieve
compliance with the proposed legislation in its present form.
The Company expects to have the studies completed by the end of
2000. If enacted in its present form, the pending legislation
would require Wisvest-Connecticut, LLC to make additional
investments and may result in an impairment of the assets. The
details of that final legislation, including required
expenditures and the nature of any impairment, cannot be known at
this time. For additional information concerning the acquisition
of the two Connecticut power plants, see "Liquidity and Capital
Resources - Investing Activities" below as well as "Note B -
Mergers & Acquisitions" in Wisconsin Energy's Notes to Financial
Statements.
MANUFACTURED GAS PLANT SITES: Wisconsin Electric is voluntarily
reviewing and addressing environmental conditions at a number of
former manufactured gas plant sites. For further information,
see "Note L" or "Note K - Commitments and Contingencies" in Wisconsin Energy's or Wisconsin Electric'sthe Notes to
Financial Statements, respectively.Statements.
ASH LANDFILL SITES: Wisconsin Electric aggressively seeks
environmentally acceptable, beneficial uses for its combustion
byproducts. However, combustion byproducts have been, and to
some degree continue to be, disposed in company-owned, licensed
landfills. Some early designed and constructed landfills may
allow the release of low levels of constituents resulting in the
need for various levels of remediation. Where Wisconsin Electric
has become aware of these conditions, efforts have been expended
to define the nature and extent of any release, and work has been
performed to address these conditions. The costs of these
efforts are included in the environmental operating and
maintenance costs of Wisconsin Electric.
OUTLOOK
The following forecasts are forward-looking statements subject to
certain risks, uncertainties and assumptions. Actual results may
vary materially. Factors that could cause actual results to
differ materially include, but are not limited to: business,
competitive and regulatory conditions in the energy industry, in
general, and in the Company's service territory; availability of
the Company's generating facilities; changes in purchased power
costs; and the economy, weather, the restructuring of the
electric and gas utility industries and other factors referred to
under "Cautionary Factors" below.
ELECTRIC SALES: Assuming moderate growth in the economy of its
service territory and normal weather, the Company presently
anticipates total retail and municipal electric kilowatt-hour
sales to grow at a compound annual rate of 2.4% over the five-
year period ending December 31, 2004.
GAS DELIVERIES: Assuming moderate growth in the economy of its
service territory and normal weather, and excluding the effect of
the WICOR merger, the Company currently forecasts total therm
deliveries of natural gas to grow at a compound annual rate of
approximately 1.9% over the five-year period ending December 31,
2004.
EMPLOYEES: Excluding the WICOR merger, the Company expects to
add approximately 260 full-time equivalent employees during 2000.
Of these 260 full-time equivalent employees, approximately 220
are attributable to Wisconsin Electric, primarily in such key
areas as distribution operations, customer service and
information resources. Approximately half of the new employees
at Wisconsin Electric are expected to replace contract labor that
has been used during the past couple of years. Approximately 35
full-time equivalent non-utility employees are expected to be
added by the Company's non-utility energy operations during 2000.
The Company anticipates adding approximately 3,970 full-time
equivalent employees when it acquires WICOR.
EFFECTS OF WEATHER
By the nature of its utility business segment, Wisconsin Energy's
and Wisconsin Electric's earnings are sensitive to weather
variations from period to period. Variations in winter weather
affect heating load for both the gas and electric utilities.
Variations in summer weather affect cooling load for the electric
utilities as well as therm deliveries to gas-fired electric
generating customers. The table below summarizes weather as
measured by degree days at Mitchell International Airport in
Milwaukee, Wisconsin for each of the three years ended
December 31. Normal degree days are based upon a twenty year
average.
% Change % Change
1998 1997
Degree Days 1999 1998 to 1999 1997 to 1998
----------- -------- -------- -------- -------- --------
Heating (6,912 Normal) 6,318 5,848 8.0% 7,101 (17.6%)
Cooling (670 Normal) 753 800 (5.9%) 407 96.6%
EFFECTS OF INFLATION
With expectations of low-to-moderate inflation, the Company does
not believe the impact of inflation will have a material effect
on its future results of operations.
MARKET RISKS
The Company is potentially exposed to market risk due to changes
in interest rates, the return on marketable securities and the
market price of electricity as well as to changes in fuel costs
incurred to generate electricity and in the cost of gas for its
gas operations. Exposure to interest rate changes relates to the
Company's short and long-term debt as well as its preferred
equity obligations, while exposure to fluctuations in the return
on marketable securities relates to debt and equity security
investments held in various trust funds. Exposure to electricity
market price risk relates to forward activities taken to manage
the supply of and demand for electric energy, and exposureenergy. Exposure to fuel
and gas cost variations relates to the supply of and demand for
coal, uranium, natural gas and fuel oil. As part of the financing package used to acquire the two fossil-
fueled power plants in the state of Connecticut in April 1999,
Wisvest-Connecticut, LLC entered into an interest rate swap
agreement to exchange fixed rate payment obligations for variable
rate receipt rights without exchanging the underlying notional
amounts. Other than this interest rate swap, the Company does
not utilize derivative financial instruments. The Company is
evaluating to what extent it will use derivative financial and
commodity instruments in the normal course of their future
business.
For additional
information concerning risk factors, including market risks, see
"Cautionary Factors" below.
For additional
information concerning the acquisition of the two Connecticut
power plants, see "Liquidity and Capital Resources - Investing
Activities" below as well as "Note B - Mergers & Acquisitions" in
Wisconsin Energy's Notes to Financial Statements.
INTEREST RATE RISK: The Company including its affiliates, havehas various short-term
borrowing arrangements to provide working capital and general
corporate funds. The level of borrowings under such arrangements
vary from period to period, depending upon, among other factors,
capital investments. Future short-
termshort-term interest expense and
payments will reflect both the level of
future short-term interest rates and
borrowing levels.
As of December 31, 2000, the Company had approximately
$257.0 million of short-term debt outstanding with a weighted
average interest rate of 6.58%, representing approximately
$16.9 million of annual pre-tax interest expense. A 1/8 percent
change in effective interest rates would increase or decrease
annual interest expense by approximately $0.3 million.
The table below provides information about the long-term
financial instruments that were held by the Company at
December 31, 19992000 and that are sensitive to changes in interest
rates. For long-term debt, the table presents anticipated
principal cash flows by maturity date and the related annualized
average interest rate of the maturing long-term debt. The
annualized average interest rate on the variable rate long-term
debt was estimated based upon a weighted average interest rate at
December 31, 1999.
For the interest rate swap, the table presents notional amounts
and weighted average interest rates by expected (contractual)
maturity dates. Notional amounts are used to calculate the
contractual payments to be exchanged under contract. Weighted
average variable rates are based upon implied forward rates in
the yield curve at the reporting date. Fair value of the
interest rate swap is the amount that Wisvest-Connecticut, LLC
would receive if the outstanding contract were terminated at the
reporting date.2000.
Expected Maturity Date Fair Value
Wisconsin Electric ---------------------------------------------- as of
2000Power Company 2001 2002 2003 2004 2005 Thereafter Total 12/31/9900
- ---------------------------- ---- ---- ---- ---- ---- ---------- ----- -------------------
(Millions of Dollars)
Fixed Rate Long-Term Debt Wisconsin Electric $1.9 $1.9 $151.9 $1.9 $141.9 $1,051.2 $1,350.7 $1,278.4$1.9 $1,049.3 $1,348.8 $1,308.5
Average Interest Rate 7.5% 7.5% 6.6% 7.5% 7.3% 7.2% 7.2%
Wisconsin Energy (a) $32.6 $21.7 $176.8 $16.5 $144.5 $1,194.0 $1,586.1 $1,497.3
Average Interest Rate 6.5% 6.8% 6.7% 6.9% 7.3% 7.2% 7.1%7.50% 6.64% 7.50% 7.25% 7.50% 7.23% 7.17%
Variable Rate Long-Term Debt
Wisconsin Electric - - - - - $165.4 $165.4 $165.4
Average Interest Rate 5.5% 5.5%
Wisconsin Energy (a) $15.8 $20.6 $35.1 $12.5 $10.3 $331.9 $426.2 $426.2
Average Interest Rate 7.6% 7.6% 7.9% 7.7% 7.5% 6.5% 6.8%
Interest Rate Swaps - Fixed
to Variable
Wisconsin Energy (a) (b) $3.0 $3.2 $3.5 $3.7 $4.0 $58.7 $76.1 ($3.1)
Average Pay Rate 5.99% 5.99% 5.99% 5.99% 5.99% 5.99% 5.99%
Average Receive Rate 6.58% 7.00% 7.05% 7.07% 7.10% 7.22% 7.00%
Trust Preferred Securities
Wisconsin Energy (a) - - - - - - $200.0 $156.0
Average Dividend Rate 6.85%4.81% 4.81%
Preferred Stock Not Subject to
Mandatory Redemption Wisconsin Electric
and Wisconsin Energy (a) - - - - - - 30.4 $18.0$30.4 $15.4
Average Dividend Rate - - - - - - 4.0%
(a) Wisconsin energy includes the holding company as well as all subsidiaries.
(b) Fair value that Wisvest-Connecticut, LLC would receive if the outstanding
interest rate swap agreement were terminated.
For additional information concerning Wisconsin Energy's short-
term debt, long-term debt and interest rate swap as well as its
trust preferred securities and preferred stock, see "Note I -
Notes Payable," "Note H - Long-Term Debt," "Note G - Trust
Preferred Securities" and "Note F - Preferred Stock,"
respectively, in Wisconsin Energy's Notes to Financial
Statements. For additional information concerning Wisconsin
Electric's short-term debt, long-term debt and preferred stock,
see "Note H - Notes Payable," "Note G - Long-Term Debt" and
"Note F - Preferred Stock," respectively, in Wisconsin Electric's
Notes to Financial Statements.
MARKETABLE SECURITIES RETURN RISK: The Company funds its
pension, other postretirement benefit and nuclear decommissioning
obligations through various trust funds, which in turn invest in
debt and equity securities. Changes in the market price of the
assets in these trust funds can affect pension, other
postretirement benefit and nuclear decommissioning expenses in
future periods. Future annuity payments to these trust funds can
be affected by changes in the market price of the trust fund
assets. Wisconsin EnergyElectric expects that the risk of expense and
annuity payment variations as a result of changes in the market
price of trust fund assets would be mitigated in part through
future rate actions by the Company's various utility regulators.
At December 31, 1999,2000, the Company had the following total trust
fund assets at fair value, primarily consisting of publicly
traded debt and equity security investments.
Wisconsin Energy Wisconsin Electric ---------------- ------------------
(ThousandsPower Company Millions of Dollars)Dollars
- -------------------------------- -------------------
Pension trust funds $944,857 $915,218$873.2
Nuclear decommissioning trust fund 625,748 625,748613.3
Other postretirement benefits trust funds 82,325 82,32579.4
For additional information concerning Wisconsin Energy's pension
and other postretirement benefits as well as nuclear
decommissioning, see "Note J - Benefits" and "Note E - Nuclear
Operations," respectively, in Wisconsin Energy's Notes to
Financial Statements. For additional information concerning
Wisconsin Electric's pension and other postretirement benefits as
well as nuclear decommissioning, see "Note I - Benefits" and
"Note E - Nuclear Operations," respectively, in Wisconsin
Electric's Notes to Financial Statements.
COMMODITY PRICE RISK: In the normal course of business,
the
Company's utility and non-utility power generation subsidiaries
utilizeWisconsin Electric utilizes contracts of various duration for the
forward sale and purchase of electricityelectricity. This is done to
effectively manage utilization of
their available generating capacity
and energy during periods when available power resources are
expected to exceed the requirements of theirthe Company's obligations.
This practice may also include forward contracts for the purchase
of power during periods when the anticipated market price of
electric energy is below expected incremental power production
costs. The Company manages its fuel and gas supply costs through
a portfolio of short and long-term procurement contracts with
various suppliers.
To a certain extent, Wisconsin Electric's retail fuel cost adjustment procedure in
Wisconsin may mitigatemitigates some of the risk of fuel cost price
fluctuation. Currently,On a prospective basis, if cumulative fuel and
purchased power costs for electric utility operations deviate
from a prescribed range when compared to the costs projected in
the most recent retail rate proceeding, retail electric rates may
be adjusted. For its gas utility operations, the gas cost
recovery mechanism in Wisconsin currently mitigates most of
theWisconsin Electric's risk of gas cost variations.
For additional information concerning the electric utility fuel
cost adjustment procedure and the purchasednatural gas adjustment mechanism,utilities' gas cost
recovery mechanisms, see "Rates and Regulatory Matters" above in "Factors Affecting
Results of Operations."
YEAR 2000 TECHNOLOGY ISSUES
Due to the successful efforts of the Company's Year 2000 program
teams and consistent with industry experience throughout the
United States, Wisconsin Energy and Wisconsin Electric had no
significant problems with their business application software nor
with their infrastructure and process control systems during the
transition into the Year 2000. During the first quarter of 2000,
these teams are completing miscellaneous related clean-up work
and disbanding. There are no known significant residual
Year 2000 matters outstanding at Wisconsin Energy nor at
Wisconsin Electric.
During 1998 and 1999, Wisconsin Energy incurred a total of
$32.1 million of expenses for its Year 2000 program of which
$32.0 million is attributable to Wisconsin Electric. In
addition, Wisconsin Energy incurred capital expenditures of
$17.1 million during 1998 and 1999 for its Year 2000 program of
which $16.7 million is attributable to Wisconsin Electric. In
its May 1998 rate order from the Public Service Commission of
Wisconsin, Wisconsin Electric had received approval for recovery
in Wisconsin retail rates of approximately $13 million per year
of Year 2000-related expenses during the 1998-1999 biennial
period. In addition, the rate order included associated capital
expenditures related to Wisconsin Electric's Year 2000 program.above.
ACCOUNTING MATTERSDEVELOPMENTS
NEW PRONOUNCEMENTS: SeeStatement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging
Activities ("FAS 133"), is effective for fiscal years beginning
after June 15, 2000. The Company will adopt this statement
effective January 1, 2001, which will have an insignificant
impact on net income and other comprehensive income. For further
information, see "Note A - Summary of Significant Accounting
Policies" in the Notes to Financial Statements for
information concerning new pronouncements issued by the Financial
Accounting Standards Board during 1999 that are significant to
the Company.
In February 2000, the Financial Accounting Standards Board
released for comment an exposure draft of a Proposed Statement of
Financial Accounting Standards entitled "Accounting for
Obligations Associated with the Retirement of Long-Lived Assets"
("Proposed FAS"). The Proposed FAS would establish standards for
accounting for unavoidable obligations to retire tangible long-
lived assets that have been acquired or operated. The Proposed
FAS would require the Company to recognize the fair value of an
obligation associated with the retirement of a tangible long-
lived asset as a liability when incurred and to correspondingly
capitalize those costs as an increase in the carrying amount of
the related long-lived asset. The capitalized costs would then
be depreciated to expense over the useful life of the asset. The
Proposed FAS would require that, subsequent to initial
measurement, an entity recognize changes in the amount of the
liability resulting from the passage of time and revisions to
either the timing or amount of estimated cash flows. The
Proposed FAS would be effective for financial statements issued
for fiscal years beginning after June 15, 2001.
The scope of the Proposed FAS would include decommissioning costs
for Point Beach Nuclear Plant and may also apply to other
facilities of the Company. The Company has not yet assessed the
specific applicability and implications of the Proposed FAS.
With respect to decommissioning costs for Point Beach Nuclear
Plant, the Proposed FAS would result in Wisconsin Electric
recording a decommissioning liability and a corresponding asset
as required by the pronouncement. Currently, nuclear
decommissioning costs are accrued as depreciation expense over
the expected service lives of the two units at Point Beach
Nuclear Plant based upon an external sinking fund method. Any
changes in depreciation expense due to differing assumptions
between the Proposed FAS and those currently required by the
Public Service Commission of Wisconsin are not expected to be
material and would most likely be deferrable and recoverable in
rates. For additional information on the costs of
decommissioning Point Beach, see "Note E - Nuclear Operations"
in the Notes to Financial Statements.
REGULATORY ACCOUNTING: Wisconsin Energy's applicable utility
subsidiaries, Wisconsin Electric operates under rates
established by state and Edison Sault Electric
Company, operate under electric utility ratesfederal regulatory commissions which are subject
to the approval of the Public Service Commission of Wisconsin,
the Michigan Public Service Commission and the Federal Energy
Regulatory Commission, and natural gas and steam utility rates
that are subject to the approval of the Public Service Commission
of Wisconsin (see "Rates and Regulatory Matters" above). Such
rates are
designed to recover the cost of service and provide a reasonable
return to investors. Developing competitive pressures in the
utility industry may result in future utility prices which are
based upon factors other than the traditional original cost of
investment. In such a situation, continued deferral of certain
regulatory asset and liability amounts on the utility's'utilities' books, may no longer be appropriate
as allowed under Statement of Financial Accounting Standards
No. 71, Accounting for the Effects of Certain Types of Regulation
("FAS 71"), may no longer be appropriate and the unamortized
regulatory assets net of the regulatory liabilities would be
recorded as an extraordinary after-tax non-cash charge to
earnings. As discussed above under "Rates and Regulatory Matters," the
Michigan Public Service Commission issuedSuch a five-year
experimental price cap order for Edison Sault's electric rates
that expires in the year 2000. This order allows Edison Sault to
seek rate relief for costs incurred under extraordinary
circumstances.
Because of Edison Sault's price cap order and other potential
changes in the industry, thecharge could be material. The Company
continually reviews the applicability of FAS 71 and has
determined that it is currently appropriate to continue following
FAS 71. At this time, the Company is unable to predict whether
any adjustments to regulatory assets and liabilities will occur
in the future at
either Wisconsin Electric or at Edison Sault.future. See "Note A - Summary of Significant Accounting
Policies" in the Notes to Financial Statements for additional
information.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
During the three years ended December 31, 1999, total cash
provided by operating activities was $1.2 billion at Wisconsin
Energy and at Wisconsin Electric. After the payment of
dividends, internal sources funded the following percent of
Wisconsin Energy's and Wisconsin Electric's total construction
expenditures and power plant acquisitions during the three years
ended December 31, 1999.
1999 1998 1997 Total Period
---- ---- ---- ------------
Wisconsin Energy 18.2% (a) (b) 72.7% 68.9% 43.7%
Wisconsin Electric 50.6% (b) 97.0% 67.2% 71.5%
(a) Among other factors, decrease during 1999 due to $277 million acquisition
of two power plants by Wisvest-Connecticut, LLC in April 1999. For further
information, see "Note B - Mergers & Acquisitions" in Wisconsin Energy's
Notes to Financial Statements.
(b) Decrease during 1999 due in part to $110 million contested liability
payment during 1999 in a lawsuit alleging that Wisconsin Electric had placed
contaminated wastes at two sites in the City of West Allis, Wisconsin. This
contested liability payment reduced Wisconsin Energy's and Wisconsin
Electric's available internal funds from operating activities. For further
information, see "Note L" or Note K - Commitments and Contingencies" in
Wisconsin Energy's or Wisconsin Electric's Notes to Financial Statements,
respectively.
INVESTING ACTIVITIES
Wisconsin Energy invested a net total of $1.8 billion in its
businesses during the three years ended December 31, 1999 of
which $1.1 billion was at Wisconsin Electric. Investments during
this three-year period included $1.5 billion for construction of
or investment in new or improved facilities or projects:
$0.9 billion for the construction of new or improved utility
plant at Wisconsin Electric and $0.6 billion for projects at
Wisconsin Energy's remaining subsidiaries. Additional
investments during this three-year period included $61 million
for the acquisition of nuclear fuel and $96 million for the
eventual decommissioning of Wisconsin Electric's Point Beach
Nuclear Plant. The following further summarizes the Company's
significant construction or investment projects during the three
years ended December 31, 1999.
WISCONSIN ELECTRIC: Of the $0.9 billion of expenditures during
the past three years for new or improved utility plant at
Wisconsin Electric, $158 million was primarily for new or
upgraded non-nuclear electric generation facilities and
$62 million was primarily for new or upgraded nuclear generation
facilities. In addition, $75 million was for new or upgraded
electric transmission facilities, $534 million was primarily for
new or upgraded electric and gas distribution facilities, and
$109 million was primarily for new or upgraded technology
initiatives, including efforts to prepare for the Year 2000, and,
to a lesser extent, for facility improvements. For additional
information concerning the Company's efforts to prepare for the
Year 2000, see "Factors Affecting Operations" above.
NON-UTILITY SEGMENT: Wisconsin Energy's net non-utility assets
amounted to approximately $1.1 billion at December 31, 1999, an
increase of $804 million over the past three years. Primary
additions during this three-year period included $621 million of
energy related investments and $192 million of real estate and
recycling technology investments.
In April 1999, Wisvest-Connecticut, LLC, a wholly owned
subsidiary of Wisvest Corporation which is, in turn, a wholly
owned subsidiary of Wisconsin Energy, acquired two fossil-fueled
power plants in the state of Connecticut for $277 million.
Wisvest-Connecticut, LLC financed the acquisition through the
issuance of $195 million of long-term, nonrecourse notes; an
equity contribution of $105 million from Wisvest Corporation by
Wisconsin Energy; $30 million of working capital arrangements and
a $25 million letter of credit facility. For further information
concerning the Wisvest-Connecticut, LLC power plant acquisitions,
see "Note B - Mergers & Acquisitions" in Wisconsin Energy's Notes
to Financial Statements.
FINANCING ACTIVITIES
Financing activities during the three-year period ended
December 31, 1999 included the issuance of $804 million of long-
term debt of which $349 million was issued by Wisconsin Electric.
The proceeds of these new long-term debt issues were used to
retire maturing debt in the amount of $386 million, including
$351 million at Wisconsin Electric, and for other investing and
general corporate purposes. During 1999, WEC Capital Trust I, a
Delaware business trust of which Wisconsin Energy owns all of the
outstanding common securities, issued $200 million of trust
preferred securities. During the three years ended December 31,
1999, Wisconsin Energy and Wisconsin Electric increased their
short-term debt by $433 million and $219 million, respectively,
and Wisconsin Energy added $119 million of common equity from the
issuance of new shares through the Company's stock plans. No
preferred stock was issued or retired during this period.
Dividends on Wisconsin Energy's common stock were $182 million,
$177 million and $173 million during 1999, 1998 and 1997,
respectively. Wisconsin Electric paid dividends to Wisconsin
Energy of $180 million, $179 million and $214 million during
1999, 1998 and 1997, respectively, and received a total of
$250 million in capital contributions from Wisconsin Energy
during this three-year period.
During 1999, Wisconsin Energy issued 3,296,821 new shares of
common stock which were purchased by participants in the
Company's stock plans with cash investments and reinvested
dividends aggregating $79 million.
During 1999, Wispark Corporation, a non-utility subsidiary of
Wisconsin Energy, secured $53 million of bank financing in the
form of adjustable and fixed rate mortgage notes due 2001-2012 to
finance the construction or purchase of various facilities.
In December 1999, Wisconsin Electric issued $150 million of 6-
5/8% debentures due 2002. Proceeds from the issue were used to
reduce short-term borrowings and for other general corporate
purposes.
In November 1999, Wisconsin Energy Capital Corporation sold
$200 million aggregate principal amount of nine-month adjustable
medium-term notes due August 16, 2000. The initial interest rate
for the Wisconsin Energy Capital Corporation medium-term notes
was 6.16375%. The interest rate is reset quarterly based on 3-
month LIBOR plus 10 basis points. Proceeds from the notes were
used to fund a $150 million capital contribution by Wisconsin
Energy to Wisconsin Electric and to reduce short-term borrowings
and for other general corporate purposes.
In April 1999, Wisvest-Connecticut, LLC issued $210 million of
nonrecourse variable rate notes due 2005, the proceeds of which
were used to help finance the purchase of the two fossil-fueled
power plants mentioned above and for related working capital.
Associated with issuance of this debt, Wisvest-Connecticut, LLC
entered into an interest rate swap agreement to exchange fixed
rate payment obligations for variable rate receipt rights without
exchanging the underlying notional amounts.
In March 1999, WEC Capital Trust I issued $200 million of 6.85%
trust preferred securities due March 31, 2039. WEC Capital Trust
I used the proceeds from the sale of the trust preferred
securities to purchase corresponding junior subordinated
debentures due March 31, 2039 from Wisconsin Energy. Wisconsin
Energy used the proceeds from the sale of its junior subordinated
debentures to fund a capital contribution of approximately
$105 million to Wisvest-Connecticut, LLC for acquisition of the
two fossil-fueled power plants mentioned above and for repayment
of short-term borrowings.
For additional information concerning the trust preferred
securities and the interest rate swap, see "Note G - Trust
Preferred Securities" and "Note H - Long-Term Debt,"
respectively, in Wisconsin Energy's Notes to Financial
Statements.
During 1998, Wispark Corporation secured $18 million of bank
financing in the form of adjustable rate mortgage notes due 2000-
2008 to finance the construction or purchase of various
facilities.
In December 1998, Wisconsin Energy Capital Corporation, another
non-utility subsidiary of Wisconsin Energy then named Wisconsin
Michigan Investment Corporation, issued $20 million of 6.21%
medium-term notes due 2008, $30 million of 6.51% medium-term
notes due 2013 and $50 million of 6.94% medium-term notes due
2028. Proceeds of the issues were added to Wisconsin Energy
Capital Corporation's general funds and were used to finance non-
utility projects and for other general corporate purposes.
In June 1998, Wisconsin Electric issued $150 million of 6-1/2%
debentures due 2028. Proceeds from the issue were added to
Wisconsin Electric's general funds and were used to reduce short-
term borrowings and for other general corporate purposes.
In April 1998, Wisconsin Energy Capital Corporation issued
$25 million of 6.48% medium-term notes due 2008. Proceeds from
the issue were added to Wisconsin Energy Capital Corporation's
general funds and were used to finance non-utility projects and
for other general corporate purposes.
In October 1997, Wisconsin Energy Capital Corporation, issued
$15 million of 6.40% medium-term notes due 2001 and $12 million
of 6.33% medium-term notes due 2002. In November 1997, Wisconsin
Energy Capital Corporation issued $20 million of 6.22% medium-
term notes due 2000. Proceeds were added to Wisconsin Energy
Capital Corporation's general funds and were used to finance
various non-utility projects and for other general corporate
purposes.
See "Note A - Summary of Significant Accounting Policies" in
Wisconsin Energy's Notes to Financial Statements for a discussion
of various limitations on the ability of Wisconsin Electric to
transfer funds to Wisconsin Energy.
CAPITAL REQUIREMENTS
CONSTRUCTION EXPENDITURES: Excluding the WICOR acquisition, the
Company's total construction budget for 2000 is approximately
$660 million, including $412 million for Wisconsin Electric and
$248 million for Wisconsin Energy's non-utility subsidiaries as
well as for Edison Sault.
Wisconsin Electric's $412 million of construction expenditures
during 2000 include additions to and/or improvements of
generation, transmission and distribution facilities to assure
the reliability of electric service; anticipated expenditures at
fossil power plants to comply with evolving air quality standards
and technology-related expenditures.
Of Wisconsin Energy's $248 million capital budget for the non-
utility subsidiaries and for Edison Sault, approximately
$177 million is for non-utility energy operations. The remaining
capital budget is primarily for non-utility real estate
development and investment as well as recycling technology
activities.
In September 1999, the City Council of Detroit, Michigan, awarded
a 15 year contract to Minergy Detroit, LLC, a wholly owned
subsidiary of Minergy Corp. which is in turn a wholly owned
subsidiary of Wisconsin Energy, to recycle 500 to 600 dry tons
per day of the city's wastewater solids into a glass aggregate
construction product used in the manufacture of floor tiles,
roofing shingle granules, sand blast grit and other construction
materials. Minergy Detroit, LLC expects to begin construction of
a proposed $115 million recycling facility project in the Delray
area of Detroit in the fourth quarter of 2000 with startup
anticipated in 2002. The proposed facility would replace
existing wastewater solids incinerators operated by Detroit's
Water and Sewer Department. The 15 year contract will be
contingent upon obtaining proper performance bonding and
financing as well as upon reaching agreement with the City of
Detroit on the results of a series of post-startup tests of the
proposed recycling facility. Minergy Detroit, LLC has not yet
identified specific financing plans for the facility.
In November 1999, Calumet Energy Team, LLC signed two agreements
with the City of Chicago, Illinois. The first provides for the
lease, purchase and redevelopment of land for the purpose of
constructing a 308-megawatt natural gas-fired peaking power
plant. The second is a ten year capacity reservation agreement
for 50 megawatts of plant capacity. Wisvest Corporation, a
wholly owned subsidiary of Wisconsin Energy, has an 82% ownership
interest in Calumet Energy Team, LLC. Permit approvals for this
project are expected to be received in the spring of 2000 with
construction to begin thereafter. The facility is anticipated to
have a total project cost of approximately $140 million with
startup anticipated in the summer of 2001. While no specific
plans have been developed, Calumet Energy Team, LLC expects to
obtain project financing for the facility with remaining amounts
to be funded by equity participants in the project.
Wisconsin Energy intends to obtain the cash needed for the
$1.2 billion acquisition of WICOR, Inc. through the issuance of
commercial paper. Wisconsin Energy is arranging a $1.0 billion
364-day bank back-up credit facility and a $0.5 billion 3-year
bank back-up credit facility to provide credit support for the
issuance of Wisconsin Energy's commercial paper. In addition,
Wisconsin Energy will assume approximately $300 million of WICOR
debt. For additional information, see "Note B - Mergers &
Acquisitions" in Wisconsin Energy's Notes to Financial
Statements.
Due to changing environmental and other regulations that
especially impact the Company's utility and non-utility energy
segments, future long-term capital requirements may vary from
recent capital requirements. For example, see "Environmental
Matters" and "Industry Restructuring and Competition" above in
"Factors Affecting Results of Operations" for a discussion of the
United States Environmental Protection Agency's and the state of
Connecticut's evolving air quality standards and for a discussion
of the evolving utility industry, respectively. Wisconsin
Electric currently expects to spend approximately $300 million to
$400 million for new construction in each of the next five years.
Wisconsin Energy is reviewing non-utility growth opportunities
and strategic dispositions on an ongoing basis. The Company may
make further investments and/or acquisitions from time to time in
projects or entities that are expected to provide a satisfactory
return on the investment. Currently, the Company is conducting a
strategic assessment of its portfolio of non-utility assets. The
Company may sell all or a portion of Wispark and Witech and a
portion of its ownership interest in certain Wisvest investments.
As a result, the Company expects that its future long-term
capital requirements as well as its capital resources may
continue to vary from historical levels.
CAPITAL RESOURCES
Wisconsin Energy's and Wisconsin Electric's capitalization
structures at December 31 were:
Wisconsin Energy Wisconsin Electric
---------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
Common Equity 40.6% 46.6% 48.4% 47.5%
Preferred Stock 0.6% 0.7% 0.8% 0.9%
Trust Preferred Securities 4.0% - - -
Long - Term Debt (including
current maturities) 44.5% 45.7% 44.0% 45.5%
Short - Term Debt 10.3% 7.0% 6.8% 6.1%
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
The following table summarizes various current ratings of
Wisconsin Energy's and Wisconsin Electric's debt by Standard &
Poors Corporation ("S&P"), Moody's Investors Service ("Moody's"),
Duff & Phelps Inc. ("D&P") and Fitch Investors Service ("Fitch").
S & P Moody's D & P Fitch
--------- --------- --------- ---------
Wisconsin Electric Power Company
Commercial Paper A-1+ P-1 D-1+ -
Senior Secured Debt AA+ Aa2 AA+ AA
Unsecured Debt AA Aa3 AA AA-
Preferred Stock AA- aa3 AA AA-
Wisconsin Energy Corporation
Commercial Paper A-1+ P-1 D-1 -
Wisconsin Energy Capital Corporation
Unsecured Debt AA A1 A+ -
WEC Capital Trust I
Trust Preferred Securities A+ a1 A -
Following the announcement of the proposed merger with WICOR,
Moody's Investors Service, Duff & Phelps Inc., and Fitch
Investors Service affirmed their previous ratings of Wisconsin
Energy's and Wisconsin Electric's securities, and Standards &
Poors Corporation placed its ratings of certain of Wisconsin
Energy's securities on credit watch with negative implications.
At December 31, 1999, Wisconsin Energy had $398 million of unused
lines of bank credit on a consolidated basis of which
$128 million was at Wisconsin Electric.
The Company expects internal sources of funds from operations
after the payment of dividends to provide approximately 55% and
80% of Wisconsin Energy's and Wisconsin Electric's respective
construction expenditures for 2000. The remaining cash
requirements at Wisconsin Energy and Wisconsin Electric during
2000 are expected to be met through one or more of the following:
short-term borrowings, the issuance of intermediate or long-term
debt, the issuance of trust preferred securities, and proceeds
from the sale of new issue common stock under Wisconsin Energy's
stock plans. Beyond 2000, capital requirements will be met
through internally generated funds supplemented, when required,
by debt and equity financings. The specific form, amount and
timing of securities which may be issued have not yet been
determined and will depend, to a large extent, on market
conditions and other factors.
CAUTIONARY FACTORS
This report and other documents or oral presentations contain or
may contain forward-looking statements made by or on behalf of
Wisconsin Energy or Wisconsin Electric. Such statements are based upon management's
current expectations and are subject to risks and uncertainties
that could cause Wisconsin Energy's or Wisconsin Electric's actual results to differ
materially from those contemplated in the statements. Readers
are cautioned not to place undue reliance on the forward-looking
statements. When used in written documents or oral
presentations, the terms "anticipate," "believe," "estimate,"
"expect," "objective," "plan," "possible," "potential," "project"
and similar expressions are intended to identify forward-looking
statements. In addition to the assumptions and other factors
referred to specifically in connection with such statements,
factors that could cause Wisconsin Energy's or Wisconsin Electric's actual results to
differ materially from those contemplated in any forward-looking
statements include, among others, the following:
OPERATING, FINANCIAL AND INDUSTRY FACTORSfollowing.
Operating, Financial and Industry Factors
* Factors affecting utility operations such as unusual weather
conditions; catastrophic weather-related damage; availability of
Wisconsin Electric's, Edison Sault's or Wisvest'selectric generating facilities; unscheduled generation outages,
or unplanned maintenance or repairs; unanticipated changes in
fossil fuel, nuclear fuel, purchased power, gas supply or water
supply costs or availability due to higher demand, shortages,
transportation problems or other developments; nonperformance by
electric energy or natural gas suppliers under existing power
purchase or gas supply contracts; nuclear or environmental
incidents; resolution of spentused nuclear fuel storage and disposal
issues; electric transmission or gas pipeline system constraints;
unanticipated organizational structure or key personnel changes;
collective bargaining agreements with union employees or work
stoppages; inflation rates; or demographic and economic factors
affecting utility service territories or operating environment.
* Regulatory factors such as unanticipated changes in rate-
setting policies or procedures; unanticipated changes in
regulatory accounting policies and practices; industry
restructuring initiatives; transmission system operation and/or
administration initiatives; recovery of costs of previous
investments made under traditional regulation; required approvals
for new construction; changes in the United States Nuclear
Regulatory Commission's regulations related to Point Beach
Nuclear Plant; changes in the United States Environmental
Protection Agency's regulations as well as regulations from the
Wisconsin or Michigan DepartmentDepartments of Natural Resources or the
state of Connecticut related to
emissions from fossil-fuel-firedfossil fuel power plants; or the siting approval
process for new generation and transmission facilities.
* The rapidly changing and increasingly competitive electric
and gas utility environment as market-based forces replace strict
industry regulation and other competitors enter the electric and
gas markets resulting in increased wholesale and retail
competition.
* Consolidation of the industry as a result of the combination
and acquisition of utilities in the midwest,Midwest, nationally and
globally.
* Restrictions imposed by various financing arrangements and
regulatory requirements on the ability of Wisconsin Electric or
other subsidiaries to transfer funds to Wisconsin Energy in the
form of cash dividends, loans or advances.
* Changes in social attitudes regarding the utility and power
industries.
* Customer business conditions including demand for their
products or services and supply of labor and material used in
creating their products and services.
* The cost and other effects of legal and administrative
proceedings, settlements, investigations and investigations, claims, and changes
in those matters, including the final outcome of the Giddings &
Lewis, Inc./City of West Allis lawsuit against Wisconsin
Electric.
* Factors affecting the availability or cost of capital such
asas: changes in interest rates; the Company's capitalization
structure; market perceptions of the utility industry or the
Company or any of its subsidiaries;Company; or security ratings.
* Federal, state or local legislative factors such as changes
in tax laws or rates; changes in trade, monetary and fiscal
policies, laws and regulations; electric and gas industry
restructuring initiatives; or changes in environmental laws and
regulations.
* Authoritative generally accepted accounting principle or
policy changes from such standard setting bodies as the Financial
Accounting Standards Board and the Securities and Exchange
Commission.
* Unanticipated technological developments that result in
competitive disadvantages and create the potential for impairment
of existing assets.
* Possible risks associated with non-utility diversification
such as competition; operating risks; dependence upon certain
suppliersFactors which impede execution of Wisconsin Energy's "Power
the Future" strategy announced in September 2000 and customers; the cyclical naturerevised in
February 2001, including receipt of property values
that could affect real estate investments; risks associated with
international investments, including foreign currency valuations;
unanticipated changesnecessary state and federal
regulatory approvals and amendment of applicable laws in environmental or energy regulations;
timely regulatory approval without onerous conditions of
potential acquisitions; risks associated with minority
investments, where there is a limited ability to control the
development, management or operation of the project; and the risk
of higher interest costs associated with potentially reduced
securities ratings by independent rating agencies as a result of
these and other factors.
* Legislative or regulatory restrictions or caps on non-
utility acquisitions, investments or projects, including the
state of Wisconsin's amended public utility holding company law.
* Factors affecting foreign non-utility operations including
foreign governmental actions; foreign economicWisconsin, and currency
risks; political instability; and unanticipated changes in
foreign environmental or energy regulations.obtaining the investment capital from
outside sources necessary to implement the strategy.
* Other business or investment considerations that may be
disclosed from time to time in Wisconsin Energy's or Wisconsin
Electric's Securities
and Exchange Commission filings or in other publicly disseminated
written documents.
BUSINESS COMBINATION FACTORS
* Consummation of the merger with WICOR, which will have a
significant effect on the future operations and financial
position of Wisconsin Energy. Specific factors include:Business Combination Factors
* Unanticipated costs or difficulties related to the
integration of the businesses of Wisconsin Energy and WICOR.
* Unanticipated financing or other consequences resulting from
the additional short-term debt issued to fund the acquisition of
WICOR.
* Unexpected difficulties or delays in realizing anticipated
net cost savings or unanticipated effects of the qualified five-
year electric and gas rate freeze ordered by the Public Service
Commission of WisconsinPSCW as a
condition of approval of the merger.
Wisconsin Energy and Wisconsin Electric undertakeundertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
See "Factors Affecting Results, of OperationsLiquidity and Capital Resources -
Market Risks" in Item 7,7. Management's Discussion and Analysis of
Financial Condition and Results of Operations in this report for
information concerning potential market risks to which Wisconsin
Energy and Wisconsin Electric areis exposed due to changes in interest rates, the return
on marketable equity securities and the market price of electricity, fuel to generate electricity and
gas to supply Wisconsin Electric's gas operations.commodities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO 1999 FINANCIAL STATEMENTS
Page
----
Wisconsin Energy Corporation:
Consolidated Income Statement..............................................
Consolidated Statement of Cash Flows.......................................
Consolidated Balance Sheet.................................................
Consolidated Capitalization Statement......................................
Consolidated Common Stock Equity Statement.................................
Notes to Financial Statements..............................................
Report of Independent Accountants..........................................
Wisconsin Electric Power Company:
Income Statement...........................................................
Statement of Cash Flows....................................................
Balance Statement..........................................................
Capitalization Statement...................................................
Common Stock Equity Statement..............................................
Notes to Financial Statements..............................................
Report of Independent Accountants..........................................
WISCONSIN ENERGY CORPORATION
CONSOLIDATEDELECTRIC POWER COMPANY
INCOME STATEMENT
Year Ended December 31
2000 1999 1998
1997
----------- ---------- -----------
(Thousands---------- ----------
(Millions of Dollars, Except Per Share Amounts)Dollars)
Operating Revenues
Energy
Utility $2,050,218 $1,979,986 $1,789,602
Non-Utility 193,240 34,108 6,959
---------- ---------- ----------
Total Energy 2,243,458 2,014,094 1,796,561
Other 29,181 25,339 10,368
---------- ---------- ----------Electric $1,763.4 $1,688.3 $1,641.4
Gas 399.7 306.8 295.9
Steam 21.9 21.3 20.5
-------- -------- --------
Total Operating Revenues 2,272,639 2,039,433 1,806,9292,185.0 2,016.4 1,957.8
Operating Expenses
Fuel (Note H) 352,979 308,385 311,966
Purchasedand purchased power (Note H) 235,101 177,852 132,689497.7 445.0 450.0
Cost of gas sold 174,046 175,475 233,877258.7 174.0 175.5
Other operation and maintenance 708,758 691,535 569,237696.1 649.5 662.1
Depreciation, decommissioning
and amortization (Note A) 270,484 248,337 240,895272.7 234.2 225.7
Property and revenue tax 74,877 63,095 60,218
---------- ---------- ----------taxes 65.9 66.6 60.9
-------- -------- --------
Total Operating Expenses 1,816,245 1,664,679 1,548,882
---------- ---------- ----------
Pretax1,791.1 1,569.3 1,574.2
-------- -------- --------
Operating Income 456,394 374,754 258,047393.9 447.1 383.6
Other Income and Deductions
Interest income 38,200 27,903 24,4974.0 7.5 8.4
Allowance for other funds
used during construction (Note D) 3,770 2,936 3,349
Merger Expenses (Note B) (744) (563) (31,934)2.6 3.8 2.9
Other (Note L) (27,011) (3,511) (48,306)
---------- ---------- ----------(16.4) (16.2) (3.3)
-------- -------- --------
Total Other Income and Deductions 14,215 26,765 (52,394)(9.8) (4.9) 8.0
Financing Costs
Interest Charges and Other
Long-term debt 124,218 108,509 110,138
Other interest 24,095 19,337 9,552expense 117.5 114.7 112.2
Allowance for borrowed funds
used during construction (Note D) (9,546) (7,828) (6,961)
Distribution on preferred securities
of subsidiary trust 10,503 - -
Preferred dividend
requirement of subsidiary 1,203 1,203 1,203
---------- ---------- ----------(1.3) (1.8) (1.5)
-------- -------- --------
Total Interest Charges and Other 150,473 121,221 113,932Financing Costs 116.2 112.9 110.7
-------- -------- --------
Income Before Income Taxes (Note C) 111,147 92,166 31,005
---------- ---------- ----------267.9 329.3 280.9
Income Taxes 103.2 116.2 96.7
-------- -------- --------
Net Income $208,989 $188,132 $60,716
========== ========== ==========
Average Number of Shares of164.7 213.1 184.2
Preferred Stock Dividend Requirement 1.2 1.2 1.2
-------- -------- --------
Earnings Available for Common
Stock Outstanding (Thousands) 117,019 114,315 112,570
========== ========== ==========
Earnings Per Share of Common
Stock (Basic and Diluted) $1.79 $1.65 $0.54
========== ========== ==========Stockholder $163.5 $211.9 $183.0
======== ======== ========
The accompanying notes are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION
CONSOLIDATEDELECTRIC POWER COMPANY
STATEMENT OF CASH FLOWS
Year Ended December 31
2000 1999 1998
1997
----------- ----------- -----------
(Thousands---------- ---------- ----------
(Millions of Dollars)
Operating Activities
Net income $208,989 $188,132 $60,716$164.7 $213.1 $184.2
Reconciliation to cash
Depreciation, decommissioning
and amortization 270,484 248,337 240,895287.3 265.6 257.2
Nuclear fuel expense - amortization 25,808 18,922 5,426
Conservation expense - amortization 22,498 22,498 22,498
Debt premium, discount &
expense - amortization 3,859 4,202 7,93027.4 25.8 18.9
Deferred income taxes, - net 33,637 586 (3,952)(5.9) 33.7 0.8
Investment tax credit, - net (4,340) (3,434) (927)(4.5) (4.3) (3.4)
Allowance for other funds
used during construction (3,770) (2,936) (3,349)
Write-off of merger costs - - 30,684
Write-down of equipment - - 30,000(2.6) (3.8) (2.9)
Change in - Accounts receivable (52,245) (39,559) 5,736and
accrued revenues (95.7) (3.9) (14.7)
Inventories (6,843) (562) (12,788)(0.2) 0.8 (0.8)
Other current assets (56,070) 10,881 8,45231.1 (46.5) (5.2)
Accounts payable (13,409) 36,001 15986.4 (42.4) 26.7
Other current liabilities 6,210 (11,572) 31,93342.8 (1.7) (14.3)
Other (Note A) (108,246) (4,195) (12,307)41.9 (101.1) 35.3
-------- -------- -------------- ------
Cash Provided by Operating Activities 326,562 467,301 411,106572.7 335.3 481.8
Investing Activities
ConstructionCapital expenditures (518,081) (398,982) (345,908)
Acquisition of power plants (276,792) - -(352.5) (346.4) (328.5)
Allowance for borrowed funds
used during construction (9,546) (7,828) (6,961)(1.3) (1.8) (1.5)
Nuclear fuel (18,596) (17,533) (24,496)(41.6) (18.6) (17.5)
Nuclear decommissioning trust (37,358) (31,379) (27,248)funding (17.6) (17.7) (15.5)
Other (48,155) (29,552) 25,531(6.3) (8.6) (1.8)
-------- -------- -------------- ------
Cash Used in Investing Activities (908,528) (485,274) (379,082)(419.3) (393.1) (364.8)
Financing Activities
SaleIssuance of - Common stock 79,146 10,275 29,586
Long-termlong-term debt 443,170 313,610 47,000
Mandatorily redeemable trust
preferred securities 193,700 - -25.0 179.6 169.4
Retirement of long-term debt (115,501) (93,023) (177,725)(30.2) (100.7) (78.8)
Change in short-term debt 220,641 (38,496) 250,688(7.7) 45.4 (23.3)
Stockholder capital contribution - 150.0 -
Dividends paid on common stock - Common (182,316) (177,397) (172,714)(178.6) (179.6) (179.0)
Dividends paid on preferred stock (1.2) (1.2) (1.2)
-------- -------- -------------- ------
Cash Provided by (Used in)
Financing Activities 638,840 14,969 (23,165)(192.7) 93.5 (112.9)
-------- -------- -------------- ------
Change in Cash and Cash Equivalents 56,874 (3,004) 8,859(39.3) 35.7 4.1
Cash and Cash Equivalents at
Beginning of Period 16,603 19,607 10,748Year 49.9 14.2 10.1
-------- -------- -------------- ------
Cash and Cash Equivalents at
End of Period $73,477 $16,603 $19,607Year $10.6 $49.9 $14.2
======== ======== ============== ======
Supplemental Information - Cash Paid For
Interest (net of amount capitalized) $156,149 $133,244 $111,383$137.8 $131.2 $125.3
Income taxes 114,872 103,855 42,85959.7 117.9 106.6
The accompanying notes are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION
CONSOLIDATEDELECTRIC POWER COMPANY
BALANCE SHEET
December 31
ASSETS 2000 1999
1998
--------- ---------
(Thousands------ -------- --------
(Millions of Dollars)
Property, Plant and Equipment
(Note A)
Electric utility $5,153,388 $4,900,836$5,300.7 $5,070.2
Gas utility 552,405 523,187578.2 552.4
Steam utility 63,461 62,83264.4 63.5
Common utility 391,793 420,750
Energy non-utility 198,954 -372.9 391.8
Other property 351,057 256,912
---------- ----------
6,711,058 6,164,5177.3 7.6
-------- --------
6,323.5 6,085.5
Accumulated provision for depreciation (3,249,978) (3,021,548)
---------- ----------
3,461,080 3,142,969(3,339.2) (3,189.9)
-------- --------
2,984.3 2,895.6
Construction work in progress 174,778 135,544106.8 99.0
Leased facilities, - net (Note H) 127,327 133,007121.7 127.3
Nuclear fuel, - net (Note H) 83,393 87,660
---------- ----------93.1 83.4
-------- --------
Net Property, Plant and Equipment 3,846,578 3,499,1803,305.9 3,205.3
Investments
Nuclear decommissioning trust fund (Note E) 625,748 518,505613.3 625.7
Other 324,574 277,171
---------- ----------28.9 38.1
-------- --------
Total Investments 950,322 795,676642.2 663.8
Current Assets
Cash and cash equivalents 73,477 16,60310.6 49.9
Accounts receivable, net of allowance for
doubtful accounts - $17,564of $19.7 and $16,653 242,348 190,103$17.5 232.7 166.6
Accrued utility revenues 134,566 130,518
Fossil fuel (at average cost) 143,628 123,618163.0 133.4
Materials, supplies and supplies (at average cost) 87,987 75,434inventories 197.4 197.2
Prepayments 111,599 68,74571.5 98.0
Deferred income taxes 32.5 37.5
Other 12,266 3,098
---------- ----------1.2 0.8
-------- --------
Total Current Assets 805,871 608,119708.9 683.4
Deferred Charges and Other Assets
Accumulated deferred income taxes (Note C) 197,988 199,372
Deferred regulatory assets (Note A) 216,879 225,464232.0 215.1
Other 215,482 33,946
---------- ----------136.1 134.3
-------- --------
Total Deferred Charges and Other Assets 630,349 458,782
---------- ----------368.1 349.4
-------- --------
Total Assets $6,233,120 $5,361,757
========== ==========$5,025.1 $4,901.9
======== ========
The accompanying notes are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION
CONSOLIDATEDELECTRIC POWER COMPANY
BALANCE SHEET
December 31
CAPITALIZATION AND LIABILITIES 2000 1999
1998
--------- ---------
(Thousands------------------------------ -------- --------
(Millions of Dollars)
Capitalization (See Capitalization Statement)
Common stock equity $2,007,744 $1,903,105$1,864.8 $1,880.9
Preferred stock (Note F) 30,450 30,450
Company-obligated, mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the
Company (Note G) 200,000 -30.4 30.4
Long-term debt (Note H) 2,134,636 1,749,024
---------- ----------1,679.6 1,677.6
-------- --------
Total Capitalization 4,372,830 3,682,5793,574.8 3,588.9
Current Liabilities
Long-term debt due currently (Note H) 69,085 119,14028.1 30.8
Notes payable (Note I) 507,500 286,859257.0 264.7
Accounts payable 174,043 187,452213.5 127.1
Payroll and vacation accrued 35,552 29,57839.0 35.5
Taxes accrued - income and other 41,959 38,17726.6 31.8
Interest accrued 22,155 20,75518.8 18.8
Other 48,273 53,219
---------- ----------84.2 39.7
-------- --------
Total Current Liabilities 898,567 735,180667.2 548.4
Deferred Credits and Other Liabilities
Accumulated deferred income taxes (Note C) 624,864 570,750466.1 459.3
Accumulated deferred investment tax credits 79,876 84,21674.7 79.2
Deferred regulatory liabilities (Note A) 124,813 159,078123.6 124.0
Other 132,170 129,954
---------- ----------118.7 102.1
-------- --------
Total Deferred Credits and Other Liabilities 961,723 943,998783.1 764.6
Commitments and Contingencies (Note L)
---------- ----------K) - -
-------- --------
Total Capitalization and Liabilities $6,233,120 $5,361,757$5,025.1 $4,901.9
========== ================== ========
The accompanying notes are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION
CONSOLIDATEDELECTRIC POWER COMPANY
CAPITALIZATION STATEMENT
December 31
2000 1999 1998
-------- --------
(Thousands(Millions of Dollars)
Common Stock Equity (See Statement of Common Stock Equity Statement)Equity)
Common stock - $.01$10 par value; authorized
325,000,00065,000,000 shares; outstanding - 118,904,210 and 115,607,38933,289,327 shares $1,189 $1,156$332.9 $332.9
Other paid in capital 838,308 759,195530.7 530.7
Retained earnings 1,170,765 1,144,092
Unearned compensation - restricted stock award (2,518) (1,338)
---------- ----------1,001.2 1,017.3
------- --------
Total Common Stock Equity 2,007,744 1,903,1051,864.8 1,880.9
Preferred Stock - Wisconsin Electric Power Company, Cumulative
Six Per Cent. Preferred Stock - $100 par value;
authorized 45,000 shares; outstanding - 44,498 shares 4,450 4,4504.4 4.4
Serial preferred stock -
$100 par value; authorized 2,286,500 shares; outstanding - 3.60% Series
redeemable at $101 per share; outstanding - 260,000 shares 26,000 26,000
---------- ----------26.0 26.0
$25 par value; authorized 5,000,000 shares; none outstanding - -
------- --------
Total Preferred Stock (Note F) 30,450 30,450
Company-obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely debentures of the Company (Note G) 200,000 -30.4 30.4
Long-Term Debt
First mortgage bonds Wisconsin Electric Power Company - 6-1/2% to 7-1/4% due 1999-2004 140,000 231,0002004 140.0 140.0
7-1/8% due 2016 100.0 100.0
6.85% todue 2021 9.0 9.0
7-3/4% due 2016-2023 209,000 209,0002023 100.0 100.0
7.05% todue 2024 60.0 60.0
9-1/8% due 2024-2027 363,443 363,443
Edison Sault Electric Company - 7.90% to 10.31%2024 3.4 3.4
8-3/8% due 2001-2009 5,200 6,1702026 100.0 100.0
7.70% due 2027 200.0 200.0
Debentures (unsecured) Wisconsin Electric Power Company - 6-5/8% due 2002 150.0 150.0
6-5/8% due 2006 200.0 200.0
9.47% due 2006 4.2 4.9
8-1/4% due 2022 25.0 25.0
6-1/2% to 9.47% due 2002-2095 629,900 480,6002028 150.0 150.0
6-7/8% due 2095 100.0 100.0
Notes (secured)
Northern Tree Service, Inc. - Variable rate due 2003 - 36
Wispark Corporation - Variable rate due 2000-2008 54,897 15,463
7.20% to 8.67% due 2002-2012 15,687 2,469
Wisvest Corporation(unsecured) - 6.36% effective rate due 2006 7,664 8,758
Notes (unsecured)
Wisconsin Electric Power Company - Variable rate due 2006-2030 165,350 165,350
6.36% effective7.2 8.4
4.75% variable rate due 2006 8,436 9,642
Edison Sault Electric Company - 6.55% to 8.00% due 1999-2008 5,448 6,756
Variable(a) 1.0 1.0
4.75% variable rate due 1999 - 2,750
Wisconsin Energy Capital Corporation - 6.22% to 6.85% due 2000-2005 74,600 74,600
6.21% to 6.94% due 2008-2028 125,400 125,400
Wisvest Corporation - Variable2015 (a) 17.4 17.4
4.90% variable rate due 2005 205,927 -
WMF Corp. - 9.1%2016 (a) 67.0 67.0
4.75% variable rate due 2001 1,310 1,8802030 (a) 80.0 80.0
Obligations under capital leases - Wisconsin Electric Power Company 215,899 189,980215.5 215.9
Unamortized discount - net (24,440) (25,133)(22.0) (23.6)
Long-term debt due currently (69,085) (119,140)
---------- ----------(28.1) (30.8)
-------- --------
Total Long-Term Debt (Note H) 2,134,636 1,749,024
---------- ----------1,679.6 1,677.6
-------- --------
Total Capitalization $4,372,830 $3,682,579
========== ==========$3,574.8 $3,588.9
======== ========
The accompanying notes are an integral part of these financial statements.
(a) Variable interest rate as of December 31, 2000.
WISCONSIN ENERGY CORPORATION
CONSOLIDATEDELECTRIC POWER COMPANY
STATEMENT OF COMMON STOCK EQUITY STATEMENT
Common Stock
--------------------
$.01$10 Par Other Paid Retained Unearned
Shares Value In Capital Earnings Compensation Total
----------------- ------- ---------- ---------- ------------ ----------
(Thousands-------- -----
(Millions of Dollars)
Balance - December 31, 1996 111,678,795 $1,117 $700,080 $1,244,147 $ - $1,945,3441997 33,289,327 $332.9 $380.7 $981.0 $1,694.6
Net income 60,716 60,716184.2 184.2
Cash dividends
Common stock cash dividends
$1.535 per share (172,714) (172,714)
Sale of common(179.0) (179.0)
Preferred stock 1,187,049 12 29,574 29,586
-----------(1.2) (1.2)
---------- ------ ------ -------- ---------- ------ ----------
Balance - December 31, 1997 112,865,844 1,129 729,654 1,132,149 - 1,862,932
Net income 188,132 188,132
Common stock cash dividends
$1.555 per share (177,397) (177,397)
Sale of common stock 334,270 3 10,292 (20) 10,275
Acquisition of
ESELCO, Inc. (Note B) 2,407,275 24 19,249 1,228 20,501
Restricted stock award (1,338) (1,338)
----------- ------ -------- ---------- ------ ----------
Balance - December 31, 1998 115,607,389 1,156 759,195 1,144,092 (1,338) 1,903,10533,289,327 332.9 380.7 985.0 1,698.6
Net income 208,989 208,989213.1 213.1
Cash dividends
Common stock cash dividends
$1.56 per share (182,316) (182,316)
Sale of common(179.6) (179.6)
Preferred stock 3,296,821 33 79,113 79,146
Restricted stock award (1,180) (1,180)
-----------(1.2) (1.2)
Stockholder capital contribution 150.0 150.0
---------- ------ ------ -------- ---------- ------ ------------------
Balance - December 31, 1999 118,904,210 $1,189 $838,308 $1,170,765 ($2,518) $2,007,744
===========33,289,327 332.9 530.7 1,017.3 1,880.9
Net income 164.7 164.7
Property dividend - common stock (1.0) (1.0)
Cash dividends
Common stock (178.6) (178.6)
Preferred stock (1.2) (1.2)
---------- ------ ------ -------- --------
Balance - December 31, 2000 33,289,327 $332.9 $530.7 $1,001.2 $1,864.8
========== ====== ====== ======== ========== ====== ==================
The accompanying notes are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATIONELECTRIC POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL: The consolidated financial statements include the
accountsaccounting records of Wisconsin Energy Corporation ("Wisconsin Energy" or
the "Company"); its utility subsidiaries, Wisconsin Electric Power
Company ("Wisconsin Electric") and Edison Sault Electric
Company; and its non-utility subsidiaries, Wisvest Corporation,
Minergy Corp., Wispark Corporation, Wisconsin Energy Capital
Corporation, WEC Nuclear Corporation, WEC International, Inc.,
Witech Corporation, Northern Tree Service, Inc., Badger Service
Company and other non-utility companies. All significant
intercompany transactions and balances have been eliminated from or the financial statements.
The accounting records of the Company's utility subsidiaries"Company") are maintained as
prescribed by the Federal Energy Regulatory Commission. Wisconsin Electric's accounting records areCommission, modified
for requirements of the Public Service Commission of Wisconsin.
On April 26, 2000, Wisconsin Energy Corporation, the parent
company of Wisconsin Electric, acquired WICOR, Inc. in a business
combination that was accounted for as a purchase. WICOR was a
diversified utility holding company with utility and non-utility
energy subsidiaries as well as pump manufacturing subsidiaries.
Following the merger, WICOR and its subsidiaries, including
Wisconsin Gas Company ("Wisconsin Gas"), the largest natural gas
distribution public utility in Wisconsin, became subsidiaries of
Wisconsin Energy. Wisconsin Energy has integrated the gas
operations of Wisconsin Electric and Wisconsin Gas as well as
many corporate support areas and expects to integrate customer
billing systems in the third quarter of 2001. On November 1,
2000, Wisconsin Electric and Wisconsin Gas filed an application
with the PSCW for authority to transfer Wisconsin Electric's gas
utility assets together with certain identified liabilities
associated with such assets (with a net book value of
approximately $365 million as of December 31, 2000) to Wisconsin
Gas in a tax free exchange for shares of Wisconsin Gas which have
a fair value equal to the fair value of the assets transferred
and represent at least 80% of the total combined voting power of
all classes of stock that is entitled to vote. The matter is
pending.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of certain assets and liabilities and disclosure of contingent
assets and liabilities at the date of financial statements and
the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS: Certain prior year financial statement
amounts have been reclassified to conform to their current year
presentation. Due to recent acquisitions by Wisconsin Energy that have
increased the size of Wisconsin Energy's non-utility operations
and assets, Wisconsin Energy and Wisconsin Electric have modified
their income statement and balance sheet presentations. The
primary income statement modifications include reclassifying the
results of non-utility operations from Other Income and
Deductions to the various lines within operating income and
disclosing operating income before income taxes. This
modification does not changeThese reclassifications had no effect on net
income. The primary balance
sheet modification includes reclassification of utility and non-
utility property and plant and the related accumulated provision
for depreciation into a new category called Property, Plant and
Equipment. This modification does not change total assets.
REVENUES: Revenues are recognized on the accrual basis and
include estimated amounts for service rendered but not billed.
FUEL:Wisconsin Electric's electric rates include base amounts for
estimated fuel and purchased power costs. The costCompany can
request recovery of fuel is expensedand purchased power costs prospectively
from retail electric customers in the period consumed.Wisconsin jurisdiction
through its rate review process with the Public Service
Commission of Wisconsin ("PSCW") and in interim fuel cost
hearings when such annualized costs are more than 3% higher than
the forecasted costs used to establish rates. Wisconsin
Electric's retail gas rates include monthly adjustments which
permit the recovery or refund of actual purchased gas costs
incurred.
PROPERTY AND DEPRECIATION: Property is recorded at cost.
Additions to and significant replacements of property are charged
to property, plant and equipment at cost; minor items are charged
to maintenance expense. Cost includes material, labor and
capitalized interest or allowance for funds used during
construction (see Note D).construction. The cost of depreciable utility property, together
with removal cost less salvage, is charged to accumulated
provision for
depreciation when property is retired. In 1998, Wisconsin
Electric began classifying certain utility plant as common. Common plant is allocated
to electric, gas and steam utility plant in rate proceedings.
Depreciation expense is accrued at straight line rates over the
estimated useful lives of the assets.
Utility depreciation rates are certified by the state regulatory
commissions and include estimates for salvage and removal costs.
Depreciation as a percent of average depreciable utility plant
was 4.4%4.5% in 2000 and 4.1% in 1999 and 1998 and 4.5% in 1997.1998. Nuclear plant
decommissioning iscosts are accrued asand included in depreciation
expense (see Note E).
In its 1998 Rate Order, the Public Service Commission of
Wisconsin authorized Wisconsin Electric to amortize the remaining
$45.7 million balance of pre-1991 contributions in aid of
construction at December 31, 1997 on a straight line basis over
the 1998-1999 biennial period. As a result, credits to
depreciation expense for pre-1991 contributions were
$22.8 million in 1999 and $22.9 million in 1998 compared to
$3.5 million in 1997. General plant and software are amortized
over periods approved by the state regulatory commissions.
The estimated useful livesALLOWANCE FOR FUNDS USED DURING CONSTRUCTION: Allowance for
non-utility equipmentfunds used during construction is 3 to 15
yearsincluded in utility plant
accounts and for non-utility buildings it is 30 to 40 years.
GOODWILL: Goodwill represents the excesscost of acquisition costs
overborrowed funds used during
plant construction and a return on stockholders' capital used for
construction purposes. On the fair market valueIncome Statement, the cost of
borrowed funds (before income taxes) is a reduction of interest
expense and the net assetsreturn on stockholder's capital is an item of acquired
businessesnon-
cash other income.
As approved by the PSCW, Wisconsin Electric's allowance for funds
used during construction was capitalized during the following
periods on 50% of construction work in progress at the following
rates:
* September 1, 2000 - December 31, 2000 10.18%
* June 1, 1998 - August 31, 2000 10.21%
* January 1, 1998 - May 31, 1998 10.29%
MATERIALS, SUPPLIES AND INVENTORIES: Inventory at December 31,
2000 and is amortized on a straight line basis over its
estimated life. The Company1999 consists of:
Materials,
Supplies and Inventories 2000 1999
- ------------------------ ---- ----
(Millions of Dollars)
Fossil Fuel $78.2 $87.9
Gas in Storage 36.6 29.8
Materials and Supplies 82.6 79.5
------ ------
Total $197.4 $197.2
====== ======
Substantially all fossil fuel, materials and supplies and gas in
storage inventories are priced using the weighted average method
of accounting.
LONG-LIVED ASSETS: Wisconsin Electric reviews the carrying
value of goodwilllong-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable. An impairment would be determined based onupon
a comparison of the undiscounted future operating cash flows
anticipated to be generated during the remaining life of the goodwilllong-
lived assets to the carrying value. Measurement of any
impairment loss would be based onupon discounted operating cash
flows.
REGULATORY MATTERS: Pursuant toACCOUNTING: Wisconsin Electric accounts for its
regulated operations in accordance with Statement of Financial
Accounting Standards No. 71, Accounting for the Effects of
Certain Types of Regulation,Regulation. This statement sets forth the
utility subsidiaries capitalize,
as regulatory assets, incurredapplication of generally accepted accounting principles to those
companies whose rates are determined by an independent third-
party regulator. The economic effects of regulation can result
in regulated companies recording costs whichthat have been or are
expected to be recoveredallowed in future utilitythe ratemaking process in a period
different from the period in which the costs would be charged to
expense by an unregulated enterprise. When this occurs, costs
are deferred as assets in the balance sheet (regulatory assets)
and recorded as expenses in the periods when those same amounts
are reflected in rates. The utility subsidiaries also
record, as regulatoryAdditionally, regulators can impose
liabilities the current recovery in
utility rates of costs whichupon a regulated company for amounts previously
collected from customers and for amounts that are expected to be
paid in the
future.
The following deferredrefunded to customers (regulatory liabilities).
Deferred regulatory assets and liabilities are
reflected in the Consolidated Balance Sheet at December 31.31
consist of:
Deferred Regulatory Assets and Liabilities 2000 1999
1998- ------------------------------------------ ---- ----
(Thousands(Millions of Dollars)
Deferred Regulatory Assets
Deferred income taxes $155,337 $160,941$148.4 $155.1
Purchase power commitment 30.6 22.1
Lightweight aggregate plant 19.7 -
Department of Energy assessments 21,123 24,84118.5 21.1
Deferred nuclear costs 11,787 15,324
Purchase power commitment 22,054 13,3798.3 11.8
Other 6,588 10,979
-------- --------6.5 5.0
------ ------
Total Deferred Regulatory Assets $216,879 $225,464
======== ========$232.0 $215.1
====== ======
Deferred Regulatory Liabilities
Deferred income taxes $117,824 $142,483$110.2 $117.0
Tax and interest refunds 2,335 8,66710.2 2.3
Other 4,654 7,928
-------- --------3.2 4.7
------ ------
Total Deferred Regulatory Liabilities $124,813 $159,078
======== ========$123.6 $124.0
====== ======
During 2000, Wisconsin Electric directs a varietydiscontinued operation of demand-side management
programs to help foster energy conservation by its
customers.lightweight aggregate plant at Oak Creek Power Plant. As
authorized by the Public Service Commission of Wisconsin,PSCW, Wisconsin Electric capitalized certain conservation program costs
prior to 1995. Utility rates approved bytransferred the
Public Service
Commissionassociated remaining undepreciated plant balance of Wisconsin provide for a current return$19.7 million
on these
conservation investments. Included in Investments on the
Consolidated Balance Sheet at December 31, 1999 and 1998 are
conservation investments of $23.4 million and $46.4 million,
respectively,2000 to a deferred regulatory asset account,
which arewill be amortized to income based upon Public
Service Commission of Wisconsin order.on a straight line basis over the five-
year period ending December 31, 2005.
STATEMENT OF CASH FLOWS: Cash and cash equivalents include
marketable debt securities acquired three months or less from
maturity. During 1997, Wisconsin Electric recorded a
$140 million non-cash capital lease transaction for a long-term
power purchase contract (see Note H). During 1998, Wisconsin
Energy recorded a $19.3 million non-cash acquisition of ESELCO,
Inc. accounted for as a pooling of interests (see Note B). In 1999, Wisconsin Electric recorded a $110 million
cash payment, included in Operating Activities - Other, related
to a contested July 1999 jury verdict (see Note L)K).
RESTRICTIONS: Various financing arrangements and regulatory
requirements impose certain restrictions on the ability of
Wisconsin Energy's utility subsidiariesElectric to transfer funds to Wisconsin Energy in the
form of cash dividends, loans or advances. Under Wisconsin law,
Wisconsin Electric is prohibited from loaning funds, either
directly or indirectly, to Wisconsin Energy.
The Company does not believe that such restrictions will
affect its operations.
NEW ACCOUNTING PRONOUNCEMENTS: OnIn June 15, 1998, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"). Pursuant to Statement of
Financial Accounting Standards No., which has been
amended by FAS 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FAS 133,
which was issued by the FASB on June 30, 1999,an amendment of FAS 133, will be adoptedand by Wisconsin Energy on January 1, 2001.FAS 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an
amendment of FAS 133. FAS 133 requires that allevery derivative
investmentsinstrument be recorded on the balance sheet as an asset or
liability measured at its fair value. Changesvalue and that changes in the
derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met.
FAS 133, as amended, is effective for fiscal years beginning
after June 15, 2000 and must be applied to: (1) derivative
instruments; and (2) certain derivative instruments embedded in
hybrid contracts that were issued, acquired or substantively
modified after December 31, 1998. Wisconsin Electric has
identified a limited number of commodity contracts that meet the
definition of a derivative under FAS 133 in its electric and
natural gas utility operations. These contracts are used to
manage the Company's exposure to commodity price rate volatility.
The adoption of FAS 133, as amended, on January 1, 2001, was
insignificant to the income statement and to other comprehensive
income. Wisconsin Electric believes that its electric capacity
contracts qualify for the normal purchase and sale exception
under FAS 133, and therefore are not considered derivative
instruments. The Financial Accounting Standards Board is
currently reviewing a proposal that would allow electric capacity
option contracts to qualify for the normal purchase and sale
exception. The Financial Accounting Standards Board's final
conclusion may impact the Company's ongoing application of FAS
133 related to its electric capacity contracts.
Following initial adoption of FAS 133, changes in the net value
of the effective portion of derivatives qualifying as cash flow
hedges are recorded, net of tax, in other comprehensive income.
The ineffective portion of the derivative's change in fair value
is required to be recognized in earnings immediately.
The fair value of derivatives are then recorded each period in current earnings or
in other comprehensive income, depending upon how the derivative investments is designated. Wisconsin Energy is currently evaluating FAS 133determined by
reference to quoted market prices of listed contracts, published
quotations or quotations from independent parties. In the
absence thereof, the Company utilizes mathematical models based
on current and has not yet identified the implications of adoption.historical data.
B - MERGERS & ACQUISITIONS
WICOR, INC.: On June 27, 1999,AMERICAN TRANSMISSION COMPANY
In 2000, Wisconsin Energy and WICOR,
Inc.,Electric agreed to join the American
Transmission Company LLC by transferring its electric utility
transmission assets in exchange for an equity interest in this
new company. Transfer of these electric transmission system
assets, with a Wisconsin corporation, entered into an Agreement and Plan
of Merger providing for a strategic business combination of
Wisconsin Energy and WICOR. WICOR is a diversified holding
company with total assetsnet book value of approximately $1.1 billion at
December 31, 1999 in utility and non-utility energy subsidiaries
as well as in pump manufacturing subsidiaries. Following$222 million,
became effective on January 1, 2001. During the merger, WICOR and its subsidiaries will become subsidiariesfirst half of
Wisconsin Energy. The merger agreement has been approved by2001, the boards of directors and the shareholders of Wisconsin Energy and
WICOR.
The transaction is intended to qualify as a tax-free
reorganization to the extent that shares of Wisconsin Energy
common stock are issued in the merger and will be accounted for
as a purchase transaction. Under the terms of the agreement,
Wisconsin Energy will acquire all of the outstanding shares of
WICOR common stock for a fixed price of $31.50 for each WICOR
share representing a total purchase price of approximately
$1.2 billion at December 31, 1999. In addition, WICOR had
approximately $300 million of assumable debt outstanding at
December 31, 1999.
The agreement calls for at least 40% of the purchase price to be
paid in Wisconsin Energy common stock with the balance paid in
cash. Wisconsin Energy has the option to increase the percentage
of stock to 60%. The actual stock exchange ratio will depend
upon the average closing prices of Wisconsin Energy common stock
on the New York Stock Exchange during a valuation period
consisting of ten trading days ending with the fifth trading day
prior to closing. Under the terms of the merger agreement, if
the average closing price of Wisconsin Energy common stock is
less than $22.00 per share, Wisconsin Energy may and most likely
will elect to pay all cash. Wisconsin Energy common stock closed
at $19-1/4 per share on December 31, 1999.
The Public Service Commission of Wisconsin approved the merger in
January 2000 with a written order in March 2000. As part of its
approval, the Public Service Commission of Wisconsin ordered a
qualified five-year rate freeze to begin following completion of
Wisconsin Electric's current pricing request for 2000-2001.
While the Company's retail electric, gas and steam rates in the
state of Wisconsin will be frozen for five years, theAmerican Transmission Company can
request review and approval of price changes every two years to
address increased costs for such reasons as government mandates
and reliability upgrades. During this qualified five-year rate
freeze period, Wisconsin Electric will continue to reflect
changes in fuel and gas costs in its rates. In March 2000, the
Federal Trade Commission closed its review of the proposed
acquisition. Consummation of the merger is subject to the
satisfaction of certain remaining closing conditions including
approval by the Securities and Exchange Commission under the
Public Utility Holding Company Act of 1935, as amended. The
regulatory approval processLLC is expected to be completedissue
debt and distribute cash to Wisconsin Electric in time
for the transactionan amount equal
to be consummated on or about April 26, 2000.
UNITED ILLUMINATING GENERATING PLANTS: In April 1999, Wisvest-
Connecticut, LLC, a wholly owned subsidiary of Wisvest
Corporation, acquired two fossil-fueled power plants in the state
of Connecticut for $277 million from The United Illuminating
Company, an unaffiliated investor-owned utility in New Haven,
Connecticut. Pursuant to the agreement, Wisvest-Connecticut, LLC
purchased the Bridgeport Harbor Station, which has an active
generating capacity of 590 megawatts, as well as the New Haven
Harbor Station, which has an active generating capacity of 466
megawatts. Wisconsin Energy accounted for the transaction under
the purchase method of accounting. Included in Deferred Charges
and Other Assets - Other on the Consolidated Balance Sheet at
December 31, 1999 is $57 million of related goodwill which is
being amortized over a 30-year estimated life. Due to the
immaterial natureapproximately 50% of the transaction,net book value of the assets
transferred.
C - NON-RECURRING CHARGES
During the fourth quarter of 2000, Wisconsin Energy has not
presented pro forma financial information.
ESELCO, INC.: On May 31, 1998, Wisconsin Energy acquired
ESELCO, Inc. in a tax-free reorganization accounted for as a
pooling of interests. ESELCOElectric recorded
charges totaling $43.9 million after tax. Of this, $34.3 million
was the parent company of Edison
Sault, an electric utility serving approximately 21,800
residential, commercialrelated to severance benefits and industrial customers in Michigan's
eastern Upper Peninsula.other items. In connection
with the acquisition,WICOR merger, approximately 170 employees are to receive
severance benefits under severance agreements and enhanced
retirement initiatives. As of December 31, 2000, approximately
$7.4 million of severance benefits remained as an outstanding
liability on the balance sheet. In addition, Wisconsin Electric
made a contribution of $9.6 million after tax to the Wisconsin
Energy issued 2,407,275 sharesFoundation to assist it in becoming self funded.
During 1999, Wisconsin Electric reached agreement in the
settlement of Wisconsin Energy
common stock for the outstanding shares of ESELCO common stock.
Duelitigation related to the immaterial naturedevelopment of the transaction, Wisconsin Energy
has not restated any historical financial or statistical
information. Instead, Wisconsin Energy combined ESELCO's May 31,
1998 balance sheet with Wisconsin Energy's, including a
$1.2 million credit to retained earnings of which $0.9 million
represented ESELCO's consolidated net income during the first
five months of 1998. Wisconsin Energy is operating Edison Sault
as a separate utility subsidiary.
NORTHERN STATES POWER COMPANY: On May 16, 1997, the boards of
directors of Wisconsin Energy and Northern States Power Company,
a Minnesota corporation, agreed to terminate by mutual written
consent an
Agreement and Plan of Merger which provided for a
business combination of Wisconsin Energy and Northern States
Power Company to form Primergy Corporation. As a result,
Wisconsin Energy recorded a $30.7 million chargeelectric generating plant in the second
quarterPhilippines at a cost of
1997 ($18.8$10.8 million net of tax or approximately
17 cents per share) to write off deferred transaction costs and
costs to achieve the merger.
Cafter tax.
D - INCOME TAXES
The CompanyWisconsin Electric follows the liability method in accounting for
income taxes as prescribed by Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("FAS 109").
FAS 109 requires the recording of deferred assets and liabilities
to recognize the expected future tax consequences of events that
have been reflected in the Company'sWisconsin Electric's financial statements
or tax returns and the adjustment of deferred tax balances to
reflect tax rate changes.
The following table is a summary of income tax expense and a
reconciliationfor each
of total income tax expense with the tax expected
at the federal statutory rate.years ended December 31:
Income Tax Expense 2000 1999 1998 1997
------------------ ---- ---- ----
(Thousands(Millions of Dollars)
Current tax expense $81,850 $95,014 $35,884$113.6 $86.8 $99.3
Deferred income taxes, - net 33,637 586 (3,952)(5.9) 33.7 0.8
Investment tax credit, - net (4,340) (3,434) (927)
-------- -------- -------(4.5) (4.3) (3.4)
------ ------ -----
Total Tax Expense $111,147 $92,166 $31,005
======== ======== =======$103.2 $116.2 $96.7
====== ====== =====
The provision for income taxes for each of the years ended
December 31 differs from the amount of income tax determined by
applying the applicable U.S. statutory federal income tax rate to
income before income taxes as a result of the following:
2000 1999 1998
--------------------- --------------------- ---------------------
Effective Effective Effective
Income Before Income Taxes
and Preferred Dividend $321,339 $281,501 $92,924
======== ======== =======Tax Expense Amount Tax Rate Amount Tax Rate Amount Tax Rate
------------------ ------ --------- ------ --------- ------ ---------
(Millions of Dollars)
Expected tax at
statutory federal
statutory rate $112,469 $98,525 $32,523tax rates $93.8 35.0% $115.2 35.0% $98.3 35.0%
State income taxtaxes
net of federal
tax benefit 16,622 13,550 6,176
Unrealized capital loss - - 2,32114.4 5.4% 16.1 4.9% 13.5 4.8%
Investment tax
credit restored (4.5) (1.7%) (4.5) (1.4%) (4.7) (1.7%)
Flowback of prior
contributions in aid
of construction (8,080) (8,039) (1,157)
Investment tax credit restored (4,592) (4,729) (4,487)
Low-income housing credits (2,627) (2,846) (2,831)
Excess federal deferred income tax amortization (2,598) (3,810) (2,681)- - (8.1) (2.5%) (8.0) (2.9%)
Other, (no item over 5% of expected tax) (47) (485) 1,141
-------- ------- -------net (0.5) (0.2%) (2.5) (0.8%) (2.4) (0.9%)
------ ----- ------ ----- ----- -----
Total Tax Expense $111,147 $92,166 $31,005
======== ======== =======$103.2 38.5% $116.2 35.2% $96.7 34.3%
====== ===== ====== ===== ===== =====
Following is a summaryThe components of FAS 109 deferred income taxes under FAS 109classified as net
current assets and net long-term liabilities at December 31.31 are
as follows:
Current Assets (Liabilities) Long-Term Liabilities (Assets)
---------------------------- ------------------------------
Deferred Income Taxes 2000 1999 19982000 1999
--------------------- ---- ---- (Thousands---- ----
(Millions of Dollars)
Deferred Income Tax Assets
Property-related $ - $ - $564.5 $562.7
Construction advances - - (65.5) (60.9)
Decommissioning trust $44,237 $48,812
Construction advances 61,838 55,696- - (52.9) (44.2)
Contested liability payment - - 43.8 43.8
Uncollectible account expense 7.0 6.6 - -
Employee benefits
42,204 38,430and compensation 9.5 8.4 (17.4) (33.2)
Asset impairment charge 10.8 12.1 - -
Other 49,709 56,434
-------- --------5.2 10.4 (6.4) (8.9)
----- ----- ------ ------
Total Deferred Income Tax Asset $197,988 $199,372
======== ========
Deferred Income Tax Liabilities
Property related $576,370 $553,393
Contested liability payment (Note L) 43,859 -
Other 4,635 17,357
-------- --------
Total deferred Income Tax Liabilities $624,864 $570,750
======== ========Taxes $32.5 $37.5 $466.1 $459.3
===== ===== ====== ======
Wisconsin Electric and Edison Sault havehas also recorded deferred regulatory assets
and liabilities representing the future expected impact of
deferred taxes on utility revenues (see Note A).
D - ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
Allowance for funds used during construction is included in
utility plant accounts and represents the cost of borrowed funds
used during plant construction and a return on stockholders'
capital used for construction purposes. Allowance for borrowed
funds also includes interest capitalized on qualifying assets of
non-utility subsidiaries. On the Consolidated Income Statement,
the cost of borrowed funds (before income taxes) is a reduction
of interest expense and the return on stockholders' capital is an
item of non-cash other income.
As approved by the Public Service Commission of Wisconsin,
Wisconsin Electric's allowance for funds used during construction
was capitalized during the following periods on 50% of
construction work in progress at the following rates:
* June 1, 1998 - December 31, 1999 10.21%
* February 18, 1997 - May 31, 1998 10.29%
* January 1, 1997 - February 17, 1997 10.17%
E - NUCLEAR OPERATIONS
POINT BEACH NUCLEAR PLANT: Wisconsin Electric owns and operates
two approximately 510-megawatt510-
megawatt electric generating units at Point Beach Nuclear Plant
in Two Rivers, Wisconsin. During 1999, 1998
and 1997, Point Beach provided 22%, 18% and 6%, respectively,Nuclear Plant is operated
by the Nuclear Management Company, a company that, as of
December 31, 2000, manages seven nuclear generating units in the
Midwest owned by four different companies in the region.
Wisconsin Electric's net electric energy supply. The United
States Nuclear Regulatory CommissionElectric currently expects the two units at Point Beach
to operate to the end of their operating licenses, for Point
Beachwhich expire
in October 2010 for Unit 1 and in March 2013 for Unit 2.
In 1997, the Public Service Commission of WisconsinPSCW authorized Wisconsin Electric to defer certain
nuclear non-fuel operation and maintenance costs in excess of
those included in 1997 rates. As a result, Wisconsin Electric
deferred $18 million during 1997. During 1998, the Public Service Commission of WisconsinPSCW
authorized a five-year recovery in the electric retail
jurisdiction in the state of Wisconsin of the excess 1997 nuclear
non-fuel operation and maintenance costs, and Wisconsin Electric
began amortizing the $18 million of deferred costs on a straight
line basis over the five year recovery period. As of
December 31, 1999, $122000, $8.3 million of deferred costs remain on the
Consolidated
Balance Sheet in Deferred Charges and Other Assets - Deferred
Regulatory Assets (see Note A).
NUCLEAR INSURANCE: The Price-Anderson Act as amended and
extended to August 1, 2002, currently limits the total public
liability for damages arising from a nuclear incident at a
nuclear power plant to approximately $9.8$9.5 billion, of which
$200 million is covered by liability insurance purchased from
private sources, and $9.6sources. The remaining $9.3 billion is covered by an
industry retrospective loss sharing plan whereby in the event of
a nuclear incident resulting in damages exceeding the private
insurance coverage, each owner of a nuclear plant would be
assessed a deferred premium of up to $88.1 million per reactor
(Wisconsin Electric owns two) with a limit of $10 million per
reactor within one calendar year. As the owner of Point Beach,
Wisconsin Electric would be obligated to pay its proportionate
share of any such assessment.
Wisconsin Electric participated in an industry-wide insurance
program, with an aggregate limit of $200 million which covered
radiation injury claims of nuclear workers first employed after
1987. This program was replaced with a new program (which has no
retrospective assessment provisions) at the end of 1997.
However, the discovery period for claims covered under the former
program remains open until the end of 2007 for those few former
insureds who no longer need to participate in the new,
replacement program. If claims in excess of the funds available
under the old program develop, Wisconsin Electric would be
assessed up to a maximum of approximately $6.3 million.
Wisconsin Electric, through its membership in Nuclear Electric
Insurance Limited ("NEIL"), carries decontamination, property
damage and decommissioning shortfall insurance covering losses of
up to $1.5 billion at Point Beach. Under policies issued by
NEIL, the insured member is liable for a retrospective premium
adjustment in the event of catastrophic losses exceeding the full
financial resources of NEIL. Wisconsin Electric's maximum
retrospective liability under its policies is $8.9$7.8 million.
Wisconsin Electric also maintains insurance with NEIL covering
business interruption and extra expenses during any prolonged
accidental outage at Point Beach, where such outage is caused by
accidental property damage from radioactive contamination or
other risks of direct physical loss. Wisconsin Electric's
maximum retrospective liability under this policy is
$3.7$3.8 million.
It should not be assumed that, in the event of a major nuclear
incident, any insurance or statutory limitation of liability
would protect Wisconsin Electric from material adverse impact.
NUCLEAR DECOMMISSIONING: Nuclear decommissioning costs are
included in depreciation expense under an external sinking fund
method as these costs are recovered through rates over the
expected service lives of the generating units. Decommissioning
expenses of $17.6 million, $17.7 million and $15.5 million were
accrued during 2000, 1999 and 1998, respectively, under this
method.
Decommissioning costs collected through rates are deposited into
the nuclear decommissioning trust fund and also included in
accumulated depreciation. As a result, these funds do not add to
the cash flows available for general corporate purposes.
Earnings on the fund balance accumulate in the nuclear
decommissioning trust fund and in accumulated depreciation as
part of the decommissioning liability.
It is expected that the annual payments to the nuclear
decommissioning trust fund along with related earnings will
provide sufficient funds at the time of decommissioning.
Wisconsin Electric currently expects
to operate the two units at Point Beach to the expiration of
their current operating licenses.believes it is probable that any shortfall in
funding would be recoverable in utility rates.
The estimated cost to decommission the plant in 19992000 dollars is
$518$586 million based upon a site specific decommissioning cost
study completed in 1998.1998, and includes additional costs from prior
estimates for work management by an independent decommissioning
general contractor. Assuming plant shutdown at the expiration of
the current operating licenses, prompt dismantlement and annual
escalation of costs at specific inflation factors established by
the Public
Service Commission of Wisconsin,PSCW, it is projected that approximately $1.8$1.9 billion will be
spent over a thirty-three year period, beginning in 2010, to
decommission the plant.
Nuclear decommissioning costs are accrued as depreciation expense
over the expected service livesFollowing is a summary at December 31 of the two units following an
external sinking fund method. It is expected that the annual
payments to the Nuclear
Decommissioning Trust Fund ("Fund") along
withbalance, stated at fair value, which
is equal to the earnings on the Fund will provide sufficient funds at
the time of decommissioning. Wisconsin Electric believes it is
probable that any shortfallaccrued decommissioning liability balance
included in funding would be recoverable in
utility rates.accumulated depreciation.
Nuclear Decommissioning Trust Fund 2000 1999
- ---------------------------------- ---- ----
(Millions of Dollars)
Total funding and realized net earnings $408.1 $357.7
Unrealized gains, net 205.2 268.0
------ ------
Total $613.3 $625.7
====== ======
As required by Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity
Securities, Wisconsin Electric's debt and equity security
investments in the Nuclear Decommissioning Trust Fund are
classified as available for sale. Gains and losses on the Fundfund
were determined on the basis of specific identification; net
unrealized holding gains on the Fundfund were recorded as part of the
fund and as part of accumulated provision for
depreciation.
Following is a summary of decommissioning costs and earnings
charged to depreciation expense and the Fund balance included in
accumulated provision for depreciation at December 31. The Fund
balance is stated at fair value.
1999 1998 1997
---- ---- ----
(Thousands of Dollars)
Decommissioning costs $17,673 $15,461 $11,402
Earnings 19,685 15,918 15,846
-------- -------- -------
Depreciation Expense $37,358 $31,379 $27,248
======== ======== =======
Total costs accrued to date $357,714 $320,356
Unrealized gain 268,034 198,149
-------- --------
Accumulated Provision for Depreciation $625,748 $518,505
======== ========
DECONTAMINATION AND DECOMMISSIONING FUND: The Energy Policy Act
of 1992 established a Uranium Enrichment Decontamination and
Decommissioning Fund ("D&D Fund") for the United States
Department of Energy's nuclear fuel enrichment facilities.
Deposits to the D&D Fund are derived in part from special
assessments on utilities using enrichment services. As of
December 31, 1999,2000, Wisconsin Electric has recorded its remaining
estimated liability equal to projected special assessments of
$18.8$16.1 million. A corresponding deferred regulatory asset is
detailed in Note A. The deferred regulatory asset will be
amortized to nuclear fuel expense and included in utility rates
over the next eight years. In Wisconsin Electric's 1998 Rate
Order, the Public Service Commission of Wisconsin approved
recovery over the 1998-1999 biennial period of D&D Fund costs
disallowedseven years ending in 1997.2007.
F - PREFERRED STOCK
Preferred stock authorized but unissued is: Wisconsin Energy,
$.01 par value, 15,000,000 shares and Wisconsin Electric,
cumulative, $25 par value, 5,000,000 shares.
The 3.60% series preferred stock is redeemable in whole or in
part at the option of Wisconsin Electric at $101 per share plus
any accrued dividends.
The fair value of Wisconsin Electric's preferred stock was
$18.0 million and $20.2 million at December 31, 1999 and 1998,
respectively.
G - TRUST PREFERRED SECURITIES
In March 1999, WEC Capital Trust I, a Delaware business trust of
which Wisconsin Energy owns all of the outstanding common
securities, issued $200 million of 6.85% trust preferred
securities to the public. The sole asset of WEC Capital Trust I
is $206 million of 6.85% junior subordinated debentures issued by
Wisconsin Energy and due March 31, 2039. The terms and interest
payments on these debentures correspond to the terms and
distributions on the trust preferred securities. Wisconsin
Energy used the proceeds from the sale of its junior subordinated
debentures to fund a capital contribution of approximately
$105 million to Wisvest-Connecticut, LLC for acquisition in mid-
April 1999 of two fossil-fueled power plants (see Note B) and for
repayment of short-term borrowings. WEC Capital Trust I has been
consolidated into Wisconsin Energy's financial statements.
For tax purposes, Wisconsin Energy is allowed to deduct an amount
equal to the distributions on the trust preferred securities.
Wisconsin Energy may elect to defer interest payments on the
debentures for up to 20 consecutive quarters, causing
corresponding distributions on the trust preferred securities to
also be deferred. In case of a deferral, interest and
distributions will continue to accrue, along with quarterly
compounding interest on the deferred amounts.
Wisconsin Energy may redeem all or a portion of the debentures
after March 25, 2004, requiring an equal amount of trust
preferred securities to be redeemed at face value plus accrued
and unpaid distributions. Wisconsin Energy has entered into a
limited guarantee of payment of distributions, redemption
payments and payments in liquidation with respect to the trust
preferred securities. This guarantee, when considered together
with Wisconsin Energy's obligations under the related debentures
and indenture and the applicable declaration of trust, provide a
full and unconditional guarantee by Wisconsin Energy of amounts
due on the outstanding trust preferred securities.
The fair value of Wisconsin Energy's trust preferred securities
was $156.0 million at December 31, 1999.
H - LONG-TERM DEBT
FIRST MORTGAGE BONDS, DEBENTURES AND NOTES: TheAt December 31,
2000, the maturities and sinking fund requirements through 20042005
for the aggregate amount of long-term debt outstanding (excluding
obligations under capital lease) at December 31, 1999 follow.leases) were:
(Thousands(Millions of Dollars)
2000 $48,432
2001 42,276$ 1.9
2002 211,363151.9
2003 29,5091.9
2004 154,344141.9
2005 1.9
Thereafter 1,214.7
--------
Total $1,514.2
========
Sinking fund requirements for the years 20002001 through 2004,2005,
included in the preceding table, are $78.0$9.5 million. Substantially
all of Wisconsin Electric's utility plant is subject to thea first
mortgage of the
respective subsidiary.lien.
Long-term debt premium or discount and expense of issuance are
amortized by the straight line method over the lives of the debt
issues and included as interest expense. Unamortized amounts
pertaining to reacquired debt are written off currently, when
acquired for sinking fund purposes, or amortized in accordance
with state regulatory commission orders, when acquired for early
retirement.
In April 1998, Wisconsin Energy Capital Corporation issued
$25 million of 6.48% medium-term notes due 2008. Proceeds from
the issue were added to Wisconsin Energy Capital Corporation's
general funds and were used to finance non-utility projects and
for other general corporate purposes.
In June 1998, Wisconsin Electric issued $150 million of 6-1/2%
debentures due 2028. Proceeds from the issue were added to
Wisconsin Electric's general funds and were used to reduce short-
term borrowings and for other general corporate purposes.
In December 1998, Wisconsin Energy Capital Corporation issued
$20 million of 6.21% medium-term notes due 2008, $30 million of
6.51% medium-term notes due 2013, and $50 million of 6.94% medium-
term notes due 2028. Proceeds of the issues were added to
Wisconsin Energy Capital Corporation's general funds and were
used to finance non-utility projects and for other general
corporate purposes.
During 1998, Wispark Corporation secured $18 million of bank
financing in the form of adjustable rate mortgage notes due 2000-
2008 to finance the construction or purchase of various
facilities.
In April 1999, Wisvest-Connecticut, LLC issued $210 million of
nonrecourse variable rate notes due December 31, 2005, the
proceeds of which were used to help finance the acquisition of
two fossil-fueled power plants (see Note B) and for related
working capital. Associated with issuance of this debt, Wisvest-
Connecticut, LLC has entered into an interest rate swap agreement
to exchange fixed rate payment obligations for variable rate
receipt rights without exchanging the underlying notional
amounts. This agreement, which expires on December 31, 2005,
serves to convert variable rate debt under Wisvest-Connecticut,
LLC's long-term nonrecourse notes to fixed rate debt to reduce
the impact of interest rate fluctuations. The variable rate is
based upon a three-month LIBOR rate and the fixed rated is 5.99%.
At year-end 1999, three-month LIBOR was 6.18375%. The notional
amounts parallel a portion of the underlying debt levels and are
used to measure interest to be paid or received and do not
represent an exposure to credit loss. The notional amount of
Wisvest-Connecticut, LLC's interest rate swaps was $76.1 million
at December 31, 1999. This notional amount decreases on a
quarterly basis over the remaining term of the agreement. The
difference between the amounts paid and received under the
interest rate swap is accrued as interest rates change and is
recorded as an adjustment to interest expense over the life of
the hedged agreement. Wisvest-Connecticut, LLC is exposed to
credit loss in the event of nonperformance by the other party to
the interest rate swap. However, it does not anticipate any
losses from this agreement, which is with a major financial
institution.
In December 1999, Wisconsin Electric issued $150 million of 6-
5/8% debentures due 2002. Proceeds from the issue were added to
Wisconsin Electric's general funds and were used to reduce short-
term borrowings and for other general corporate purposes.
During 1999, Wispark Corporation secured $53 million of bank
financing in the form of adjustable and fixed rate mortgage notes
due 2001-2012 to finance the construction or purchase of various
facilities.
Following is Wisconsin Energy's long-term debt outstanding at
December 31.
Long - Term Debt 1999 1998
---------------- ---- ----
(Thousands of Dollars)
First Mortgage Bonds
Wisconsin Electric Power Company- 6-1/2% Series due 1999 $ - $40,000
6-5/8% Series due 1999 - 51,000
7-1/4% Series due 2004 140,000 140,000
7-1/8% Series due 2016 100,000 100,000
6.85% Series due 2021 9,000 9,000
7-3/4% Series due 2023 100,000 100,000
7.05% Series due 2024 60,000 60,000
9-1/8% Series due 2024 3,443 3,443
8-3/8% Series due 2026 100,000 100,000
7.70% Series due 2027 200,000 200,000
Edison Sault Electric Company- 10.31% Series F due 2001 600 900
7.90% Series H due 2002 900 1,200
10-1/4% Series G due 2009 3,700 4,070
Debentures (unsecured)
Wisconsin Electric Power Company- 6-5/8% due 2002 150,000 -
6-5/8% due 2006 200,000 200,000
9.47% due 2006 4,900 5,600
8-1/4% due 2022 25,000 25,000
6-1/2% due 2028 150,000 150,000
6-7/8% due 2095 100,000 100,000
Notes (secured)
Northern Tree Service, Inc.- Variable rate due 2003 - 36
Wispark Corporation- Variable rate due 2000 8,264 7,886
Variable rate due 2001 12,414 4,070
Variable rate due 2002 26,296 -
Variable rate due 2003 3,000 -
Variable rate due 2008 4,923 3,507
7.68% due 2002 6,072 -
7.71% due 2002 4,404 -
7.4% due 2003 2,433 2,469
7.2% due 2004 479 -
8.67% due 2012 2,299 -
Wisvest Corporation- 6.36% effective rate due 2006 7,664 8,758
Notes (unsecured)
Wisconsin Electric Power Company- Variable rate due 2006 1,000 1,000
Variable rate due 2015 17,350 17,350
Variable rate due 2016 67,000 67,000
Variable rate due 2030 80,000 80,000
6.36% effective rate due 2006 8,436 9,642
Edison Sault Electric Company- 6.55% - 8.00% due 2000-2008 5,448 6,756
Variable rate due 1999 - 2,750
Wisconsin Energy Capital Corporation- 6.49% due 2000 7,000 7,000
6.22% due 2000 20,000 20,000
6.40% due 2001 15,000 15,000
6.33% due 2002 12,000 12,000
6.66% due 2003 10,600 10,600
6.85% due 2005 10,000 10,000
6.48% due 2008 25,400 25,400
6.21% due 2008 20,000 20,000
6.51% due 2013 30,000 30,000
6.94% due 2028 50,000 50,000
Wisvest Corporation- Variable rate due 2005 205,927 -
WMF Corp.- 9.1% due 2001 1,310 1,880
Obligations under capital leases - Wisconsin Electric Power Company 215,899 189,980
Unamortized discount - net (24,440) (25,133)
Long-term debt due currently (69,085) (119,140)
---------- ----------
Total Long-Term Debt $2,134,636 $1,749,024
========== ==========
Following is additional information concerning the variable rate
notes outstanding and their corresponding interest rates at
December 31, 1999.
Variable Rate Notes Interest Rate
------------------- -------------
(Thousands of Dollars)
Wispark Corporation $8,264 Due 2000 7.57%
4,070 Due 2001 7.68%
8,344 Due 2001 7.57%
9,703 Due 2002 7.97625%
12,477 Due 2002 7.9788%
4,116 Due 2002 7.9786%
3,000 Due 2003 7.9786%
4,923 Due 2008 7.60%
Wisconsin Electric Power Company 67,000 Due 2016 5.50%
98,350 Due 2006-2030 5.45%
Wisvest Corporation 114,853 Due 2005 7.535%
76,074 Due 2005 7.55875%
15,000 Due 2005 7.535%
OBLIGATIONS UNDER CAPITAL LEASE:LEASES: To meet a portion of its
electric energy supply needs, Wisconsin Electric entered into a
long-term power purchase contract with an unaffiliated
independent power producer. The contract, for 236 megawatts of
firm capacity from a gas-fired cogeneration facility, includes no
minimum energy requirements. When the contract expires in 2022,
Wisconsin Electric may, at its option and with proper notice,
renew for another ten years or purchase the generating facility
at fair value or allow the contract to expire. Wisconsin
Electric treats this contract as a capital lease. The leased
facility and corresponding obligation under capital lease were
recorded at the estimated fair value of the plant's electric
generating facilities. The leased facility is being amortized on
a straight line basis over the original 25-year term of the
contract.
Imputed interest costs on the capitalized purchase power
obligation were $23.9 million, $23.4 million and $22.9 million
during 2000, 1999 and 1998, respectively, and total amortization
costs of the leased facilities were $5.7 million per year during
1998 through 2000. The long-term power purchase contract is
treated as an operating lease for rate-making purposes. As a
result, the difference between the minimum lease payments and the
sum of the imputed interest and amortization costs are recorded
as a deferred regulatory asset (see Note A). Due to the timing
of the minimum lease payments, Wisconsin Electric expects the
regulatory asset to increase to approximately $78.5 million by
the year 2009 and the total obligation under capital lease to
increase to $160.2 million by the year 2005 before each is
reduced over the remaining life of the contract. The minimum
lease payments are classified as purchased power expense on the
Income Statement. Interest expense on the purchase power
obligation, included in purchased power expense, was
$21.0 million, $20.4 million and $20.3 million during 2000, 1999
and 1998, respectively.
Wisconsin Electric has a nuclear fuel leasing arrangement with
Wisconsin Electric Fuel Trust ("Trust") which is treated as a
capital lease. The nuclear fuel is leased and amortized to fuel
expense for a period of 60 months or until the removal of the
fuel from the reactor, if earlier. Lease payments include
charges for the cost of fuel burned, financing costs and
management fees. In the event Wisconsin Electric or the Trust
terminates the lease, the Trust would recover its unamortized
cost of nuclear fuel from Wisconsin Electric. Under the lease
terms, Wisconsin Electric is in effect the ultimate guarantor of
the Trust's commercial paper and line of credit borrowings
financing the investment in nuclear fuel. Interest expense on
the nuclear fuel lease, included in fuel expense, was
$3.9 million, $3.5 million and $3.1 million and $0.9 million during 1999, 1998 and 1997, respectively.
To meet a portion of its electric energy supply needs, Wisconsin
Electric entered into a long-term power purchase contract with an
unaffiliated independent power producer. The contract, for 236
megawatts of firm capacity from a gas-fired cogeneration
facility, includes no minimum energy requirements. When the
contract expires in 2022, Wisconsin Electric may, at its option
and with proper notice, renew for another ten years or purchase
the generating facility at fair value or allow the contract to
expire. Wisconsin Electric treats this contract as a capital
lease. The leased facility and corresponding obligation under
capital lease were recorded at the estimated fair value of the
plant's electric generating facilities. The leased facility is
being amortized on a straight line basis over the original 25-
year term of the contract.
Beginning with commercial operation of the facility in September
1997, imputed interest costs on the capitalized purchase power
obligation were $23.4 million, $22.9 million and $6.5 million
during 1999, 1998 and 1997, respectively, and total amortization
costs of the leased facilities were $5.7 million during2000, 1999 and
1998, and $1.6 million during 1997. The long-term power purchase
contract is treated as an operating lease for rate-making
purposes. As a result, the difference between the minimum lease
payments and the sum of the imputed interest and amortization
costs are recorded as a deferred regulatory asset (see Note A).
Due to the timing of the minimum lease payments, Wisconsin
Electric expects the regulatory asset to increase to
approximately $78 million by the year 2009 and the total
obligation under capital lease to increase to $160 million by the
year 2005 before each is reduced over the remaining life of the
contract. The minimum lease payments are classified as purchased
power expense on the Consolidated Income Statement. Interest
expense on the purchase power obligation, included in purchased
power expense, was $20.4 million, $20.3 million and $5.6 million
during 1999, 1998 and 1997, respectively.
Following is a summary of Wisconsin Electric's capitalized leased
facilities and nuclear fuel and
leased facilities at December 31.
Capital Lease Assets 2000 1999
1998- ---------------------------------------- ---- ----
(Thousands(Millions of Dollars)
Nuclear Fuel
Under capital lease $112,595 $100,809
Accumulated provision for amortization (51,799) (62,888)
In process/stock 22,597 49,739
-------- --------
Total Nuclear Fuel $ 83,393 $87,660
======== ========
Leased Facilities
Long-term purchase power commitment $140,312 $140,312$140.3 $140.3
Accumulated provision for amortization (12,985) (7,305)
-------- --------(18.6) (13.0)
------ ------
Total Leased Facilities $127,327 $133,007
======== ========$121.7 $127.3
====== ======
Nuclear Fuel
Under capital lease $121.4 $112.6
Accumulated amortization (63.1) (51.8)
In process/stock 34.8 22.6
------ ------
Total Nuclear Fuel $93.1 $83.4
====== ======
Future minimum lease payments under the capital leases and the
present value of the net minimum lease payments as of
December 31, 19992000 are as follows:
Purchase
Power Nuclear
PowerCapital Lease Obligations Commitment Fuel Lease Commitment Total
- ------------------------------------------- ---------- ---------- -----
(Thousands(Millions of Dollars)
2000 $31,559 $25,031 $56,590
2001 20,649 25,968 46,617$26.0 $29.0 $55.0
2002 13,418 26,961 40,37926.9 22.5 49.4
2003 4,959 27,954 32,91328.0 11.4 39.4
2004 1,922 29,004 30,92629.0 4.3 33.3
2005 30.1 1.9 32.0
Later Years 501.1 - 531,187 531,187
------- -------- --------501.1
------ ----- ------
Total Minimum Lease Payments 72,507 666,105 738,612641.1 69.1 710.2
Less: Estimated Executory Costs (132.2) - (136,229) (136,229)
------- -------- --------(132.2)
------ ----- ------
Net Minimum Lease Payments 72,507 529,876 602,383508.9 69.1 578.0
Less: Interest (5,989) (380,495) (386,484)
------- -------- --------(356.6) (5.9) (362.5)
------ ----- ------
Present Value of Net Minimum Lease Payments 66,518 149,381 215,899152.3 63.2 215.5
Less: Due Currently (28,917) - (28,917)
------- -------- --------
$37,601 $149,381 $186,982
======= ======== ========(26.2) (26.2)
------ ----- ------
$152.3 $37.0 $189.3
====== ===== ======
FAIR VALUE: The carrying amount of Wisconsin Energy's long-term
debt outstanding (excluding obligations under capital lease) was
$2,012 million and $1,703 million at December 31, 1999 and 1998,
respectively, with a fair value of $1,924 million and
$1,789 million, respectively. The fair value of the first
mortgage bonds and debentures is estimated based upon the market
value of the same or similar issues. Book value approximates
fair value for Wisconsin Energy's notes.
The fair value of the interest rate swap is the amount that
Wisvest-Connecticut, LLC would receive if the outstanding
contract were terminated at the reporting date. Wisvest-
Connecticut, LLC would have received $3.1 million to terminate
the contract at December 31, 1999.
IG - NOTES PAYABLESHORT-TERM DEBT
Short-term notes payable balances and their corresponding
weighted averageweighted-average interest rates at December 31 consist of:
2000 1999
1998
------------------------ ---------------------------------------------- ----------------------
Interest Interest
Short-Term Debt Balance Rate Balance Rate
- --------------------------- ------- -------- ------- --------
(Thousands(Millions of Dollars)
Banks $50,899 6.32% $51,503 5.42%$50.0 6.49% $50.4 6.30%
Commercial paper 256,601 6.20% 235,356 5.35%
Medium-term notes due in less
than one year 200,000 6.16% - -
-------- --------
$507,500 $286,859
======== ========207.0 6.60% 214.3 6.21%
------ ------
$257.0 6.58% $264.7 6.23%
====== ======
In November 1999, Wisconsin Energy Capital Corporation sold
$200 million aggregate principal amount of nine-month adjustable
medium-term notes due August 16, 2000. The initial interest rate
for the Wisconsin Energy Capital Corporation medium-term notes
was 6.16375%. The interest rate is reset quarterly based on 3-
month LIBOR plus 10 basis points. Proceeds from the notes were
used to fund a $150 million capital contribution by Wisconsin
Energy toAt December 31, 2000, Wisconsin Electric and to reduce short-term borrowings
and for other general corporate purposes.
Unusedhad $128.0 million of
available unused lines of bank credit for short-term borrowing amounted to
$398 million at December 31, 1999primarily in support of which $378 million supports
commercial paper. In support of various informal lines of credit
from banks, Wisconsin Energy's subsidiaries haveElectric has agreed to maintain
unrestricted compensating balances or to pay commitment fees;
neither the compensating balances nor the commitment fees are
significant.
JH - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of certain of
Wisconsin Electric's recorded financial instruments at
December 31 are as follows:
2000 1999
--------------------- ---------------------
Carrying Fair Carrying Fair
Financial Instruments Amount Value Amount Value
- ----------------------------- -------- ----- -------- -----
(Millions of Dollars)
Nuclear decommissioning trust fund $613.3 $613.3 $625.7 $625.7
Preferred stock - redemption required 30.4 15.4 30.4 18.0
Long-term debt including
current portion 1,514.2 1,473.9 1,516.1 1,443.8
The carrying value of cash and cash equivalents, net accounts
receivable, accounts payable and short-term borrowings
approximates fair value due to the short maturities of these
instruments. The nuclear decommissioning trust fund is carried
at fair value as reported by the trustee (see Note E). The fair
value of Wisconsin Electric's preferred stock - redemption
required is estimated based upon the quoted market value for the
same or similar issues. The fair value of Wisconsin Electric's
long-term debt, including the current portion of long-term debt
but excluding capitalized leases, is estimated based upon quoted
market value for the same or 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.
I - BENEFITS
The CompanyPENSIONS AND OTHER POSTRETIREMENT BENEFITS: Wisconsin Electric
provides defined benefit pension and other postretirement benefit
plans to employees. The status of these plans, including a
reconciliation of benefit obligations, a reconciliation of plan
assets and the funded status of the plans follows.
Also disclosed below is the aggregate funded status of
those pension and other postretirement benefit plans with
accumulated net benefit obligations in excess of plan assets.
Other Postretirement
Pension Benefits Benefits
----------------------------------- --------------------
Pension & Postretirement Plan Status of Benefit Plans 2000 1999 19982000 1999
1998
- - ----------------------------------------------------------------------- ---- ---- ---- ----
(Thousands(Millions of Dollars)
Change in Benefit Obligation
Benefit Obligation at January 1 $729,100 $649,256 $180,767 $148,181$749.8 $737.0 $192.3 $178.8
Service cost 15,697 12,503 3,338 2,66014.4 15.6 4.2 3.3
Interest cost 49,526 46,831 12,508 11,75155.3 49.2 14.4 12.4
Plan participants' contributions - - 5,096 5,9085.3 5.1
Plan amendments 4.6 - (29.7) -
Actuarial (gain) loss 0.2 (4.4) 2.2 7.8
Special termination benefits 1.2 - - -
3,737
Actuarial (gain) loss (8,854) 52,508 7,713 22,333
Acquisitions 17,711 13,676 - 1,862
Benefits paid (47,443) (45,674) (15,294) (15,665)
-------- -------- --------- ---------(52.0) (47.6) (15.3) (15.1)
------ ------ ------ -------
Benefit Obligation at December 31 $755,737 $729,100 $194,128 $180,767
-------- -------- --------- ---------$773.5 $749.8 $173.4 $192.3
Change in Plan Assets
Fair Value at January 1 $839,659 $761,881 $68,913 $59,841$915.2 $828.5 $82.3 $68.9
Actual return on plan assets 137,261 104,658 13,015 8,5158.4 134.5 (1.7) 13.0
Employer contributions 1,180 7,551 10,495 10,2521.6 1.3 8.8 10.4
Plan participants' contributions - - 5,096 5,908
Acquisitions 14,200 11,2435.3 5.1
Plan merger - (1.5) - -
Benefits paid (47,443) (45,674) (15,194) (15,603)
-------- -------- --------- ---------(52.0) (47.6) (15.3) (15.1)
------ ------ ------ -------
Fair Value at December 31 $944,857 $839,659 $82,325 $68,913
-------- -------- --------- ---------$873.2 $915.2 $79.4 $82.3
------ ------ ------ -------
Funded Status of Plans
Funded status at December 31 $189,120 $110,559$99.7 $165.4 ($111,803)94.0) ($111,854)110.0)
Unrecognized
Net actuarial (gain) loss (199,018) (117,185) 5,557 4,673(123.9) (182.9) 8.5 5.6
Prior service cost 28,534 31,646 2,365 2,58229.6 28.0 0.3 2.4
Net transition obligation (asset) (23,424) (27,220) 60,284 64,918
-------- -------- --------- ---------(9.0) (11.2) 26.6 59.6
------ ------ ------ -------
Net AccruedAsset (Accrued Benefit CostCost) ($4,788)3.6) ($2,200)0.7) ($43,597)58.6) ($39,681)
======== ======== ========= =========
Funded Status of Plans with Net
Benefit Obligations at December 31
Fair value of plan assets $22,290 $11,168 $82,325 $68,444
Benefit obligation (24,461) (14,664) (194,128) (180,494)
-------- -------- --------- ---------
Net Benefit Obligation ($2,171) ($3,496) ($111,803) ($112,050)
======== ======== ========= =========42.4)
====== ====== ====== =======
The components of net periodic pension and other postretirement
benefit costs as well as the weighted-average assumptions used in
accounting for the plans include the following:
Other Postretirement
Pension Benefits Benefits
----------------------------- ---------------------------------------------------------
Benefit Plan Cost Components 2000 1999 1998 19972000 1999 1998 1997
-
- ---------------------------- ---- ---- ---- ---- ---- ----
(Thousands(Millions of Dollars)
Net Periodic Benefit Cost
Service cost $15,697 $12,503 $9,216 $3,338 $2,660 $1,911$14.4 $15.6 $12.9 $4.2 $3.3 $2.7
Interest cost 49,526 46,831 45,613 12,508 11,751 10,34355.3 49.2 47.7 14.4 12.4 11.8
Expected return on plan assets (64,309) (57,384) (51,592) (5,804) (5,008) (4,085)(68.4) (62.4) (56.8) (7.0) (5.8) (5.0)
Amortization of
Transition obligation (asset) (3,795) (3,798) (3,802) 4,635 4,615 4,586(2.2) (2.2) (2.2) 4.6 4.6 4.6
Prior service cost 3,112 3,090 3,061 217 217 (100)3.9 3.1 3.1 0.1 0.2 0.2
Actuarial loss (gain) 28 70.5 0.6 0.6 (0.2) 0.1 (0.3)
Terminations/curtailment 1.2 - 118 (270) (235)
------- ------- ------- ------- ------- -------- 8.8 - -
----- ----- ----- ----- ----- -----
Net Periodic Benefit Cost $259 $1,249 $2,496 $15,012 $13,965 $12,420
======= ======= ======= ======= ======= =======$4.7 $3.9 $5.3 $24.9 $14.8 $14.0
===== ===== ===== ===== ===== =====
Weighted-Average Assumptions
at December 31 (%)
Discount rate 7.5 6.75 7.25 7.5 6.75 7.257.5 7.5 6.75
Expected return on plan assetassets 9.0 9.0 9.0 9.0 9.0 9.0
Rate of compensation increase 3.0 to 3.04.5 to 4.75 to 4.75 to 3.04.5 to 4.75 to 4.75 to
5.0 5.0 5.0 5.0 5.0 5.0
PENSION PLANS: Pension plan assets, the majority of which are
equity securities, are held by pension trusts. Other pension
plan assets include corporate and government bonds and real
estate. In the opinion of the Company, current pension trust
assets and amounts which are expected to be paid to the trusts in
the future will be adequate to meet pension payment obligations
to current and future retirees.
Commencing November 1, 1992, pension costs or credits for
Wisconsin Electric has been calculated in accordance with FAS 87,
Employers' Accounting for Pensions, and are recoverable from
utility customers. Prior to this date, pension costs were
recoverable in rates as funded.
Open Window benefits were offered to certain participants in the
Wisconsin Electric Retirement Account Plan. This benefit
enhancement resulted in a one-time FAS 88 cost.
OTHER POSTRETIREMENT BENEFITS PLANS: The CompanyWisconsin Electric uses
Employees' Benefit Trusts to fund a major portion of other
postretirement benefits for employees of Wisconsin Electric and
the non-utility affiliates.its employees. The majority of the
trusts' assets are mutual funds or commingled indexed funds.
Effective January 1, 1992, postretirement benefit costs have been
calculated in accordance with FAS 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, and are recoverable
from the utility customers of Wisconsin Electric.
In 2000, the benefit attribution period was modified for the
Wisconsin Electric Postretirement medical plans to equal the 10
years of service following the later of age at hire or age 45.
This change resulted in a "negative" plan amendment and a "plan
curtailment".
The assumed health care cost trend rate for 2001 is at December 31, 1999 was
10.0%9% for all
plan participants decreasing gradually to 5.0%5% in 2005 and
thereafter. Assumed health care cost trend rates have a
significant effect on the amounts reported for health care plans.
A one-percentage-point change in assumed health care cost trend
rates would have the following effects:
1% Increase 1% Decrease
----------- -----------
(Thousands(Millions of Dollars)
Effect on
Postretirement benefit obligation $19,390$15.7 ($17,132)13.9)
Total of service and interest cost components 1,878 (1,634)2.2 (1.9)
SAVINGS PLAN: The CompanyPLANS: Wisconsin Electric sponsors a defined contribution
savings planplans which
allowsallow employees to contribute a portion of their pretax and/or
after tax income in accordance with plan
specifiedplan-specified guidelines.
The Company matches 50% of employeeMatching contributions up to 6% of the employee's annual compensation.
Matching contributionsunder these plans charged to expense
amounted to $9.1$9.0 million, $7.4$8.7 million and $6.8$7.2 million during
1999, 1998 and
1997, respectively.
OMNIBUS STOCK INCENTIVE PLAN: The Omnibus Stock Incentive Plan
("OSIP"), as approved by stockholders in 1993 and amended by the
board of directors in 1998, enables the Company to provide a long-
term incentive, through equity interests in Wisconsin Energy, to
outside directors, selected officers and key employees. The OSIP
provides for the granting of stock options, stock appreciation
rights, stock awards and performance units during the ten year
term of the plan. Awards may be paid in common stock, cash or a
combination thereof. No stock appreciation rights have been
granted to date. Four million shares of common stock have been
reserved under the OSIP.
The exercise price of a stock option under the OSIP is to be no
less than 100% of the common stock's fair market value on the
grant date and options may not be exercised within six months of
the grant date. The following is a summary of stock options
issued through December 31, 1999 under the Omnibus Stock
Incentive Plan.
1999 1998 1997
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
OSIP Stock Options Options Price Options Price Options Price
------------------ ------- -------- ------- -------- ------- --------
Outstanding at January 1 858,700 $28.531 530,200 $27.999 523,900 $28.038
Granted 346,000 $27.313 331,500 $29.372 40,000 $27.653
Exercised - - (3,000) $27.375 - -
Forfeited - - - - (33,700) $28.085
-------- ------- -------
Outstanding at December 31 1,204,700 $28.181 858,700 $28.531 530,200 $27.999
======== ======= =======
As of December 31, 1999, the 1,204,700 options outstanding under
the OSIP are exercisable at per share prices of between $26.813
and $30.875 with a weighted average remaining contractual life of
7.7 years. Under "cliff vesting" terms, 527,200 of these options
are exercisable four years after the grant date, while 632,500 of
these options vest on a straight-line "graded" basis over a four-
year period from the grant date and 45,000 of these options vest
on a straight-line "graded" basis over a three-year period from
the grant date. All outstanding options have an exercise period
of ten years from the grant date.
The earliest year in which any of the options could be exercised
was 1997. As of December 31, 1999, the 287,700 of exercisable
options outstanding under the OSIP are exercisable at per share
prices of between $26.813 and $30.188 with a weighted average
remaining contractual life of 5.4 years.
Each stock option granted prior to 1999 under the Omnibus Stock
Incentive Plan includes performance units based upon contingent
dividends for four years from the date of grant. Payment of
these dividends depends on the achievement of certain performance
goals. No performance units have been earned to date.
Wisconsin Energy has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation ("FAS 123"), and continues to apply
the intrinsic value method of accounting for awards under the
OSIP as required by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"). If
Wisconsin Energy had adopted the optional FAS 123 accounting
method, the effect on net income and earnings per share for 1999,
1998 and 1997 would have been immaterial.
During 1999, 1998 and 1997, the Company granted to certain key
employees restricted shares of common stock under the OSIP at
their weighted-average fair market values on the grant date.
1999 1998 1997
--------------- ----------------- -----------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Market of Market of Market
Shares Price Shares Price Shares Price
------ --------- ------ --------- ------ ---------
Outstanding at January 1 55,750 6,000 -
Granted 51,500 $27.4060 49,750 $28.6213 6,000 $28.8140
------- ------ -----
Outstanding at December 31 107,250 55,750 6,000
======= ====== =====
Recipients of the restricted shares have the right to vote the
shares and to receive restricted dividends and are not required
to provide consideration to the Company other than rendering
service. Forfeiture provisions on the restricted stock expire 10
years after award grant subject to an accelerated expiration
schedule based on the achievement of certain financial
performance goals.
Under the provisions of APB 25, the market value of the
restricted stock awards on the date of grant is recorded as a
separate unearned compensation component of common stock equity
and is then charged to expense over the vesting period of the
awards. Adjustments are also made to expense for achievement of
performance goals. Restricted stock compensation charged to
expense during 1999, 1998 and 1997 was immaterial.
K - SEGMENT REPORTING
Wisconsin Energy, a holding company with subsidiaries in utility
and non-utility businesses, has two reportable operating
segments. Operating segments are defined as components of an
enterprise about which separate financial information is
available that is evaluated regularly in deciding how to allocate
resources or in assessing performance. Wisconsin Energy
previously had organized its electric, gas and steam utility
operating segments based upon how its principal subsidiary,
Wisconsin Electric, organized its segments. During 1999,
Wisconsin Energy changed its reportable operating segments due to
an increase in non-utility energy assets and revenues. Wisconsin
Energy's reportable operating segments now include a utility and
a non-utility energy segment.
The reportable utility energy segment includes Wisconsin Energy's
two utility subsidiaries, Wisconsin Electric Power Company and
Edison Sault Electric Company. This segment derives its revenues
from electric, gas and steam operations. Electric operations
engage in the generation, transmission, distribution and sale of
electric energy in southeastern (including Metropolitan
Milwaukee), east central and northern Wisconsin and in the Upper
Peninsula of Michigan. Gas operations engage in the purchase,
distribution and sale of natural gas to retail customers and the
transportation of customer-owned gas in four service areas in
southeastern, east central, western and northern Wisconsin.
Steam operations engage in the production, distribution and sale
of steam to space heating and processing customers in the
Milwaukee, Wisconsin area.
The reportable non-utility energy segment derives its revenues
from activities including independent power production and energy
marketing, services and trading.
The following table summarizes the reportable operating segments
of Wisconsin Energy for the years ended December 31.
Reportable Operating Segments (a)
--------------------------------------------------------
Energy
--------------------------
Utility Non-Utility Subtotal Other (b) Total
------- ----------- -------- --------- -----
(Thousands of Dollars)
1999
Operating Revenues (c) $2,050,218 $193,240 $2,243,458 $29,181 $2,272,639
Depreciation and Amortization 256,910 7,037 263,947 6,537 270,484
Pretax Operating Income (d) 436,022 19,721 455,743 651 456,394
Segment Assets 5,129,003 640,949 5,769,952 386,620 6,156,572
Construction Expenditures 356,671 43,039 399,710 118,162 517,872
1998
Operating Revenues (c) $1,979,986 $34,108 $2,014,094 $25,339 $2,039,433
Depreciation and Amortization 243,271 1,203 244,474 3,863 248,337
Pretax Operating Income (d) 371,760 (876) 370,884 3,870 374,754
Segment Assets 4,839,017 169,216 5,008,233 287,444 5,295,677
Construction Expenditures 336,015 243 336,258 62,510 398,768
1997
Operating Revenues (c) $1,789,602 $6,959 $1,796,561 $10,368 $1,806,929
Depreciation and Amortization 237,699 1,125 238,824 2,071 240,895
Pretax Operating Income (d) 257,247 149 257,396 651 258,047
Segment Assets 4,667,840 59,426 4,727,266 241,323 4,968,589
Construction Expenditures 260,649 576 261,225 84,638 345,863
(a) The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies (see Note A).
(b) Other includes non-utility real estate investment and development and
non-utility investments in recycling technology.
(c) Intersegment revenues are not material.
(d) Interest income and interest expense are not included in segment pretax
operating income.
Included in non-utility energy segment assets, Wisvest
Corporation had $141.4 million of loans receivable outstanding as
of December 31, 1999 under two loan facilities with SkyGen Energy
Holdings LLC (with its affiliate defined as "SkyGen"). SkyGen
develops, owns and operates independent power plants and
cogeneration facilities. SkyGen has approximately 350 megawatts
of generation plants in operation, 1,500 megawatts under
construction and 2,500 megawatts in advanced development. The
loan facilities follow Wisvest Corporation's 1997 collaboration
with SkyGen to develop and jointly own the Androscoggin Energy
Center, a 160-megawatt cogeneration facility located in Jay,
Maine.
The first loan, in the amount of $30 million, provides secured
short-term financing for the purchase of combustion turbines
associated with various SkyGen power projects. Under certain
circumstances, the second loan may be converted in stages to a
minority equity ownership of 25% to up to 49.9% in SkyGen Energy
Holdings LLC. Following any such conversion, management control
remains with SkyGen. As of December 31, 1998 and 1997, Wisvest
Corporation had $66.4 million and $15.0 million of loans
receivable from SkyGen. The fair value of these loans in all
periods equals their face value.
A reconciliation of the totals reported for the operating
segments to the applicable line items in the financial statements
is as follows:
1999 1998 1997
---- ---- ----
(Thousands of Dollars)
Assets
Reportable segments $5,769,952 $5,008,233 $4,727,266
Other non-utility - operating (a) 386,620 287,444 241,323
Other non-utility (b) 76,548 66,080 69,095
---------- ---------- ----------
Total Assets $6,233,120 $5,361,757 $5,037,684
========== ========== ==========
Construction Expenditures
Reportable segments $399,710 $336,258 $261,225
Other non-utility - operating (a) 118,162 62,510 84,638
Other non-utility (b) 209 214 45
---------- ---------- ----------
Total Construction Expenditures $518,081 $398,982 $345,908
========== ========== ==========
(a) Other includes non-utility real estate investment and development and
non-utility investments in recycling technology.
(b) Primarily venture capital and other property and investments.
L - COMMITMENTS AND CONTINGENCIES
GIDDINGS & LEWIS, INC./CITY OF WEST ALLIS LAWSUIT: In July
1996, Giddings & Lewis, Inc., Kearney & Trecker Corporation, now
a part of Giddings & Lewis, Inc., and the City of West Allis
brought an action in the Milwaukee County Circuit Court alleging
that Wisconsin Electric had deposited cyanide contaminated wood
chips in 1959 at two sites in West Allis, Wisconsin owned by the
plaintiffs. Environmental remediation at both sites was
completed several years ago, with the current owners paying for
disposal of materials found on their respective portions of the
sites. Internal investigations led Wisconsin Electric to believe
that it was not the source of this waste.
In July 1999, a jury issued a verdict against Wisconsin Electric
awarding the plaintiffs $4.5 million in compensatory damages for
clean-up costs and loss of property value and $100 million in
punitive damages. In October 1999, the Circuit Court denied
Wisconsin Electric's post trial motions and directed that
judgment on the verdict be entered. Wisconsin Electric has filed
notice of appeal of the judgment to the Wisconsin Court of
Appeals.
In December 1999, in order to stop the post-judgment accrual of
interest at 12% during the pendency of the appeal, Wisconsin
Electric tendered a contested liability payment of $110 million,
which is part of Deferred Charges and Other Assets - Other on the
Consolidated Balance Sheet, to the Milwaukee County Clerk of
Circuit Court representing the amount of the verdict and accrued
interest. Under Wisconsin law, the plaintiffs are liable to
Wisconsin Electric upon reversal or reduction of the judgment for
the applicable amount of the funds tendered with interest.
In further post-trial proceedings, the plaintiffs filed with the
Circuit Court a motion for sanctions based upon representations
made by Wisconsin Electric during trial that Wisconsin Electric
had no insurance coverage for the punitive damage award. The
Circuit Court held hearings on the sanctions issue in February
2000. Wisconsin Electric vigorously defended against the
plaintiffs' allegations and does not believe that a basis for
sanctions based upon intentional misrepresentation exists. The
Circuit Court is requiring further briefing on the matter and
will hear oral argument in April 2000.
In the opinion of management, based in part on the advice of
legal counsel, the jury verdict was not supported by the evidence
or the law and the unprecedented award of punitive damages of
this magnitude was unwarranted and should therefore be reversed
or substantially reduced on appeal. As such, Wisconsin Electric
has not established a reserve for potential damages from this
suit.
MANUFACTURED GAS PLANT SITES: Wisconsin Electric continues a
voluntary program to investigate the remediation of eleven former
manufactured gas plant sites. Wisconsin Electric currently
estimates that future costs for detailed site investigation and
remediation will be $25 million to $40 million over the next ten
years. Actual costs are uncertain pending the results of further
site specific investigations and the selection of site specific
remediation.
Of the eleven sites, Wisconsin Electric has begun remediation
activities at former manufactured gas plant sites in the Cities
of Burlington and Kenosha, Wisconsin. Wisconsin Electric also
expects to begin remediation at sites in Fort Atkinson and
Waukesha, Wisconsin in 2001. Wisconsin Electric's expected
remediation of these sites is anticipated to be accomplished at
an aggregate cost of between $8 million and $13 million.
In Wisconsin Electric's February 13, 1997 Rate Order, the Public
Service Commission of Wisconsin amplified its position on the
recovery of manufactured gas plant site remediation costs. It
reiterated its position that such costs should be deferred and
amortized and recovered, without carrying costs, in future rate
cases. Since the timing and recovery of remediation costs will
be affected by the biennial rate case cycle, the timing and
magnitude of remediation expenditures, and their recovery may be
affected.
KIMBERLY COGENERATION EQUIPMENT: In conjunction with the
proposed construction of an electric cogeneration facility in
Kimberly, Wisconsin, Wisconsin Electric purchased three
combustion turbines, three heat recovery boilers and a steam
turbine (the "Equipment"). Following a change in the status of
the original project and an extensive review of other potential
uses, Wisvest Corporation agreed to use the Equipment in a joint
independent power project. Under the provisions of Statement of
Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, Wisconsin Electric refined its cash flow projection
for the Equipment based upon this proposal. As measured by
expected gross cash flows to be earned under this project,
Wisconsin Electric determined that an impairment existed. As a
result, Wisconsin Electric recorded a $30.0 million impairment
charge in the fourth quarter of 1997 which was included in the
Other Income and Deductions - Other line of the Consolidated
Income Statement. During the second quarter of 1998, Wisvest
Corporation purchased the Equipment from Wisconsin Electric and
contributed it to a joint independent power project, the
Androscoggin Energy Center.
In a related matter, Wisconsin Electric and Wisconsin
International Electric Power, Ltd reached agreement during 1999
on settlement of litigation brought by Wisconsin International
Electric Power against Wisconsin Electric claiming that Wisconsin
Electric had breached contractual duties allegedly owed to the
plaintiff relating to the development of an electric generating
plant at Subic Bay in the Philippines involving the Equipment.
While Wisconsin Electric does not believe that it breached any
contractual duties allegedly owed to the plaintiff, Wisconsin
Electric paid the plaintiff $18 million ($10.8 million, or
$0.09 per share for Wisconsin Energy, after tax) in November 1999
to settle the case, and the plaintiff's claims were dismissed
with prejudice.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the
Stockholders of Wisconsin Energy Corporation
In our opinion, the consolidated financial statements listed in
the index appearing under Item 14(a)(1) present fairly, in all
material respects, the financial position of Wisconsin Energy
Corporation and its subsidiaries at December 31,2000, 1999 and 1998,
and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the
United States. In addition, in our opinion, the financial
statement schedule listed in the index appearing under Item
14(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements. These financial
statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements and financial
statement schedule based on our audits. We conducted our audits
of these statements in accordance with auditing standards
generally accepted in the United States, which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
/s/PricewaterhouseCoopers LLP
________________________________
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
January 25, 2000
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN ELECTRIC POWER COMPANY
INCOME STATEMENT
Year Ended December 31
1999 1998 1997
----------- ---------- -----------
(Thousands of Dollars)
Operating Revenues
Electric $1,688,277 $1,641,403 $1,412,115
Gas 306,802 295,848 355,172
Steam 21,311 20,506 22,315
---------- ---------- ----------
Total Operating Revenues 2,016,390 1,957,757 1,789,602
Operating Expenses
Fuel (Note G) 305,169 308,374 311,966
Purchased power (Note G) 139,848 141,619 132,689
Cost of gas sold 174,046 175,475 233,877
Other operation and maintenance 649,398 662,182 557,010
Depreciation and amortization (Note A) 253,855 241,572 237,698
Property and revenue tax 66,629 60,869 59,114
---------- ---------- ----------
Total Operating Expenses 1,588,945 1,590,091 1,532,354
---------- ---------- ----------
Pretax Operating Income 427,445 367,666 257,248
Other Income and Deductions
Interest income 23,431 21,651 17,974
Allowance for other funds used
during construction (Note D) 3,770 2,936 3,349
Merger expenses (Note B) - - (21,881)
Other (Note K) (12,504) (684) (37,531)
---------- ---------- ----------
Total Other Income and Deductions 14,697 23,903 (38,089)
Interest Charges
Long-term debt 99,558 100,420 106,573
Other interest 15,161 11,756 8,730
Allowance for borrowed funds used
during construction (Note D) (1,848) (1,480) (1,771)
---------- ---------- ----------
Total Interest Charges 112,871 110,696 113,532
Income Taxes (Note C) 116,121 96,699 35,012
---------- ---------- ----------
Net Income 213,150 184,174 70,615
Preferred Stock Dividend Requirement 1,203 1,203 1,203
---------- ---------- ----------
Earnings Available for Common
Stockholder $211,947 $182,971 $69,412
========== ========== ==========
Note: Earnings and dividends per share of common stock are not applicable
because all of Wisconsin Electric Power Company's common stock is owned
by Wisconsin Energy Corporation.
The accompanying notes are an integral part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY
STATEMENT OF CASH FLOWS
Year Ended December 31
1999 1998 1997
--------- --------- ---------
(Thousands of Dollars)
Operating Activities
Net income $213,150 $184,174 $70,615
Reconciliation to cash
Depreciation and amortization 253,855 241,572 237,698
Nuclear fuel expense - amortization 25,808 18,922 5,426
Conservation expense - amortization 22,498 22,498 22,498
Debt premium, discount &
expense - amortization 2,682 3,794 7,561
Deferred income taxes - net 33,668 806 (3,952)
Investment tax credit - net (4,274) (3,395) (927)
Allowance for other funds used
during construction (3,770) (2,936) (3,349)
Write-off of merger costs - - 21,881
Write-down of equipment - - 30,000
Change in - Accounts receivable (3) (26,537) 145
Inventories 794 (811) (12,788)
Other current assets (42,948) 14,224 10,782
Accounts payable (42,395) 26,706 (3,097)
Other current liabilities (1,716) (14,268) 29,074
Other (Note A) (102,349) 32,974 (22,726)
-------- -------- --------
Cash Provided by Operating Activities 355,000 497,723 388,841
Investing Activities
Construction expenditures (346,441) (328,482) (260,649)
Allowance for borrowed funds used
during construction (1,848) (1,480) (1,771)
Nuclear fuel (18,596) (17,533) (24,496)
Nuclear decommissioning trust (37,358) (31,379) (27,248)
Other (8,632) (1,873) 22,359
-------- -------- --------
Cash Used in Investing Activities (412,875) (380,747) (291,805)
Financing Activities
Sale of long-term debt 179,628 169,434 -
Retirement of long-term debt (100,684) (78,779) (171,155)
Change in short-term debt 45,375 (23,344) 197,243
Stockholder capital contribution 150,000 - 100,000
Dividends on - Common stock (179,572) (179,001) (213,692)
Preferred stock (1,203) (1,203) (1,203)
-------- -------- --------
Cash Provided by (Used in)
Financing Activities 93,544 (112,893) (88,807)
-------- -------- --------
Change in Cash and Cash Equivalents 35,669 4,083 8,229
Cash and Cash Equivalents at
Beginning of Period 14,183 10,100 1,871
-------- -------- --------
Cash and Cash Equivalents at
End of Period $49,852 $14,183 $10,100
======== ======== ========
Supplemental Information - Cash Paid For
Interest (net of amount capitalized) $131,232 $125,344 $112,682
Income taxes 117,938 106,550 45,210
The accompanying notes are an integral part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY
BALANCE SHEET
December 31
ASSETS
1999 1998
--------- ---------
(Thousands of Dollars)
Property, Plant and Equipment (Note A)
Electric utility $5,070,246 $4,820,239
Gas utility 552,405 523,187
Steam utility 63,461 62,832
Common utility 391,793 420,750
Other property 7,581 7,511
---------- ----------
6,085,486 5,834,519
Accumulated provision for depreciation (3,189,890) (2,975,749)
---------- ----------
2,895,596 2,858,770
Construction work in progress 99,002 109,412
Leased facilities - net (Note G) 127,327 133,007
Nuclear fuel - net (Note G) 83,393 87,660
---------- ----------
Net Property, Plant and Equipment 3,205,318 3,188,849
Investments
Nuclear decommissioning trust fund (Note E) 625,748 518,505
Other 38,028 55,354
---------- ----------
Total Investments 663,776 573,859
Current Assets
Cash and cash equivalents 49,852 14,183
Accounts receivable, net of allowance for
doubtful accounts - $17,532 and $16,621 166,651 166,648
Accrued utility revenues 133,422 129,463
Fossil fuel (at average cost) 117,730 123,616
Materials and supplies (at average cost) 79,491 74,399
Prepayments 98,006 59,046
Other 796 767
---------- ----------
Total Current Assets 645,948 568,122
Deferred Charges and Other Assets
Accumulated deferred income taxes (Note C) 188,192 190,114
Deferred regulatory assets (Note A) 215,059 222,951
Other 134,310 25,047
---------- ----------
Total Deferred Charges and Other Assets 537,561 438,112
---------- ----------
Total Assets $5,052,603 $4,768,942
========== ==========
The accompanying notes are an integral part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY
BALANCE SHEET
December 31
CAPITALIZATION AND LIABILITIES
1999 1998
--------- ---------
(Thousands of Dollars)
Capitalization (See Capitalization Statement)
Common stock equity $1,880,853 $1,698,478
Preferred stock (Note F) 30,450 30,450
Long-term debt (Note G) 1,677,610 1,512,531
---------- ----------
Total Capitalization 3,588,913 3,241,459
Current Liabilities
Long-term debt due currently (Note G) 30,822 112,454
Notes payable (Note H) 264,664 219,289
Accounts payable 127,108 169,503
Payroll and vacation accrued 35,542 29,569
Taxes accrued - income and other 31,763 31,475
Interest accrued 18,784 19,864
Other 39,677 46,574
---------- ----------
Total Current Liabilities 548,360 628,728
Deferred Credits and Other Liabilities
Accumulated deferred income taxes (Note C) 610,040 559,574
Accumulated deferred investment tax credits 79,202 83,476
Deferred regulatory liabilities (Note A) 123,985 157,951
Other 102,103 97,754
---------- ----------
Total Deferred Credits and Other Liabilities 915,330 898,755
Commitments and Contingencies (Note K)
---------- ----------
Total Capitalization and Liabilities $5,052,603 $4,768,942
========== ==========
The accompanying notes are an integral part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY
CAPITALIZATION STATEMENT
December 31
1999 1998
-------- --------
(Thousands of Dollars)
Common Stock Equity (See Common Stock Equity Statement)
Common stock - $10 par value; authorized 65,000,000 shares;
outstanding - 33,289,327 shares $332,893 $332,893
Other paid in capital 530,689 380,689
Retained earnings 1,017,271 984,896
---------- ----------
Total Common Stock Equity 1,880,853 1,698,478
Preferred Stock - Cumulative
Six Per Cent. Preferred Stock - $100 par value;
authorized 45,000 shares; outstanding - 44,498 shares 4,450 4,450
Serial preferred stock - $100 par value; authorized 2,286,500 shares;
outstanding - 3.60% Series - 260,000 shares 26,000 26,000
---------- ----------
Total Preferred Stock (Note F) 30,450 30,450
Long-Term Debt
First mortgage bonds - 6-1/2% to 7-1/4% due 1999-2004 140,000 231,000
6.85% to 7-3/4% due 2016-2023 209,000 209,000
7.05% to 9-1/8% due 2024-2027 363,443 363,443
Debentures (unsecured) - 6-1/2% to 9.47% due 2002-2095 629,900 480,600
Notes (unsecured) - Variable rate due 2006-2030 165,350 165,350
6.36% effective rate due 2006 8,436 9,642
Obligations under capital leases 215,899 189,980
Unamortized discount - net (23,596) (24,030)
Long-term debt due currently (30,822) (112,454)
---------- ----------
Total Long-Term Debt (Note G) 1,677,610 1,512,531
---------- ----------
Total Capitalization $3,588,913 $3,241,459
========== ==========
The accompanying notes are an integral part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY
COMMON STOCK EQUITY STATEMENT
Common Stock
----------------------
$10 Par Other Paid Retained
Shares Value In Capital Earnings Total
---------- -------- ---------- ---------- ----------
(Thousands of Dollars)
Balance - December 31, 1996 33,289,327 $332,893 $280,689 $1,125,206 $1,738,788
Net income 70,615 70,615
Cash dividends
Common stock (213,692) (213,692)
Preferred stock (1,203) (1,203)
Stockholder capital contribution 100,000 100,000
---------- -------- -------- ---------- ----------
Balance - December 31, 1997 33,289,327 332,893 380,689 980,926 1,694,508
Net income 184,174 184,174
Cash dividends
Common stock (179,001) (179,001)
Preferred stock (1,203) (1,203)
---------- -------- -------- ---------- ----------
Balance - December 31, 1998 33,289,327 332,893 380,689 984,896 1,698,478
Net income 213,150 213,150
Cash dividends
Common stock (179,572) (179,572)
Preferred stock (1,203) (1,203)
Stockholder capital contribution 150,000 150,000
---------- -------- -------- ---------- ----------
Balance - December 31, 1999 33,289,327 $332,893 $530,689 $1,017,271 $1,880,853
========== ======== ======== ========== ==========
The accompanying notes are an integral part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL: The accounting records of Wisconsin Electric Power
Company ("Wisconsin Electric") are maintained as prescribed by
the Federal Energy Regulatory Commission, modified for
requirements of the Public Service Commission of Wisconsin.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of certain assets and liabilities and disclosure of contingent
assets and liabilities at the date of financial statements and
the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS: Certain prior year financial statement
amounts have been reclassified to conform to their current year
presentation.
Wisconsin Electric has modified its income statement and balance
sheet presentations. Wisconsin Electric is now disclosing
operating income before income taxes. This modification does not
change net income. The primary balance sheet modification
includes reclassification of utility and non-utility property and
plant and the related accumulated provision for depreciation into
a new category called Property, Plant and Equipment. This
modification does not change total assets.
REVENUES: Revenues are recognized on the accrual basis and
include estimated amounts for service rendered but not billed.
FUEL: The cost of fuel is expensed in the period consumed.
PROPERTY AND DEPRECIATION: Property is recorded at cost.
Additions to and significant replacements of property are charged
to property, plant and equipment at cost; minor items are charged
to maintenance expense. Cost includes material, labor and
allowance for funds used during construction (see Note D).
The cost of depreciable utility property, together with removal
cost less salvage, is charged to accumulated provision for
depreciation when property is retired. In 1998, Wisconsin
Electric began classifying certain utility plant as common.
Common plant is allocated to electric, gas and steam utility
plant in rate proceedings.
Depreciation expense is accrued at straight line rates over the
estimated useful lives of the assets.
Utility depreciation rates are certified by the state regulatory
commissions and include estimates for salvage and removal costs.
Depreciation as a percent of average depreciable utility plant
was 4.4% in 1999 and 1998 and 4.5% in 1997. Nuclear plant
decommissioning is accrued as depreciation expense (see Note E).
In its 1998 Rate Order, the Public Service Commission of
Wisconsin authorized Wisconsin Electric to amortize the remaining
$45.7 million balance of pre-1991 contributions in aid of
construction at December 31, 1997 on a straight line basis over
the 1998-1999 biennial period. As a result, credits to
depreciation expense for pre-1991 contributions were
$22.8 million in 1999 and $22.9 million in 1998 compared to
$3.5 million in 1997. General plant and software are amortized
over periods approved by the state regulatory commissions.
REGULATORY MATTERS: Pursuant to Statement of Financial
Accounting Standards No. 71, Accounting for the Effects of
Certain Types of Regulation, Wisconsin Electric capitalizes, as
regulatory assets, incurred costs which are expected to be
recovered in future utility rates. Wisconsin Electric also
records, as regulatory liabilities, the current recovery in
utility rates of costs which are expected to be paid in the
future.
The following deferred regulatory assets and liabilities are
reflected in the Balance Sheet at December 31.
1999 1998
---- ----
(Thousands of Dollars)
Deferred Regulatory Assets
Deferred income taxes $155,112 $160,752
Department of Energy assessments 21,123 24,841
Deferred nuclear costs 11,787 15,324
Purchase power commitment 22,054 13,379
Other 4,983 8,655
-------- --------
Total Deferred Regulatory Assets $215,059 $222,951
======== ========
Deferred Regulatory Liabilities
Deferred income taxes $116,996 $141,356
Tax and interest refunds 2,335 8,667
Other 4,654 7,928
-------- --------
Total Deferred Regulatory Liabilities $123,985 $157,951
======== ========
Wisconsin Electric directs a variety of demand-side management
programs to help foster energy conservation by its customers. As
authorized by the Public Service Commission of Wisconsin,
Wisconsin Electric capitalized certain conservation program costs
prior to 1995. Utility rates approved by the Public Service
Commission of Wisconsin provide for a current return on these
conservation investments. Included in Investments on the Balance
Sheet at December 31, 1999 and 1998 are conservation investments
of $23.4 million and $46.4 million, respectively, which are
amortized to income based upon Public Service Commission of
Wisconsin order.
STATEMENT OF CASH FLOWS: Cash and cash equivalents include
marketable debt securities acquired three months or less from
maturity. During 1997, Wisconsin Electric recorded a
$140 million non-cash capital lease transaction for a long-term
power purchase contract (see Note G). In 1999, Wisconsin
Electric recorded a $110 million cash payment, included in
Operating Activities - Other, related to a contested July 1999
jury verdict (see Note K).
NEW PRONOUNCEMENTS: On June 15, 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities ("FAS 133"). Pursuant to Statement of
Financial Accounting Standards No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective
Date of FAS 133, which was issued by the FASB on June 30, 1999,
FAS 133 will be adopted by Wisconsin Electric on January 1, 2001.
FAS 133 requires that all derivative investments be recorded on
the balance sheet at fair value. Changes in fair value of
derivatives are then recorded each period in current earnings or
in other comprehensive income, depending upon how the derivative
is designated. Wisconsin Electric is currently evaluating
FAS 133 and has not yet identified the implications of adoption.
B - MERGERS
NORTHERN STATES POWER COMPANY: On May 16, 1997, the boards of
directors of Wisconsin Energy Corporation and Northern States
Power Company, a Minnesota corporation, agreed to terminate by
mutual written consent an Agreement and Plan of Merger which
provided for a business combination of Wisconsin Energy, parent
company of Wisconsin Electric, and Northern States Power Company
to form Primergy Corporation. Primergy Corporation would have
become the parent company of Wisconsin Electric under the
proposed business combination. As a result, Wisconsin Energy
recorded a $30.7 million charge in the second quarter of 1997
($18.8 million net of tax or approximately 17 cents per share) to
write off deferred transaction costs and costs to achieve the
merger of which approximately $21.9 million was attributable to
Wisconsin Electric.
C - INCOME TAXES
Wisconsin Electric follows the liability method in accounting for
income taxes as prescribed by Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("FAS 109").
FAS 109 requires the recording of deferred assets and liabilities
to recognize the expected future tax consequences of events that
have been reflected in Wisconsin Electric's financial statements
or tax returns and the adjustment of deferred tax balances to
reflect tax rate changes.
The following table is a summary of income tax expense and a
reconciliation of total income tax expense with the tax expected
at the federal statutory rate.
Income Tax Expense 1999 1998 1997
------------------ ---- ---- ----
(Thousands of Dollars)
Current tax expense $86,727 $99,288 $39,891
Deferred income taxes - net 33,668 806 (3,952)
Investment tax credit - net (4,274) (3,395) (927)
-------- -------- --------
Total Tax Expense $116,121 $96,699 $35,012
======== ======== ========
Income Before Income Taxes
and Preferred Dividends $329,271 $280,873 $105,627
======== ======== ========
Expected tax at federal statutory rate $115,245 $98,306 $36,969
State income tax net of federal tax benefit 16,076 13,461 6,125
Flowback of prior contributions
in aid of construction (8,080) (8,039) (1,157)
Investment tax credit restored (4,526) (4,690) (4,487)
Excess federal deferred income tax amortization (2,615) (3,827) (2,681)
Other (no item over 5% of expected tax) 21 1,488 243
-------- -------- --------
Total Tax Expense $116,121 $96,699 $35,012
======== ======== ========
Following is a summary of deferred income taxes under FAS 109 at
December 31.
Deferred Income Taxes 1999 1998
--------------------- ---- ----
(Thousands of Dollars)
Deferred Income Tax Assets
Decommissioning trust $44,237 $48,812
Construction advances 60,878 54,820
Employee benefits 41,450 37,502
Other 41,627 48,980
-------- --------
Total Deferred Income Tax Assets $188,192 $190,114
======== ========
Deferred Income Tax Liabilities
Property related $562,684 $542,898
Contested liability payment (Note K) 43,859 -
Other 3,497 16,676
-------- --------
Total deferred Income Tax Liabilities $610,040 $559,574
======== ========
Wisconsin Electric has also recorded deferred regulatory assets
and liabilities representing the future expected impact of
deferred taxes on utility revenues (see Note A).
D - ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
Allowance for funds used during construction is included in
utility plant accounts and represents the cost of borrowed funds
used during plant construction and a return on stockholders'
capital used for construction purposes. On the Income Statement,
the cost of borrowed funds (before income taxes) is a reduction
of interest expense and the return on stockholders' capital is an
item of non-cash other income.
As approved by the Public Service Commission of Wisconsin,
allowance for funds used during construction was capitalized
during the following periods on 50% of construction work in
progress at the following rates:
* June 1, 1998 - December 31, 1999 10.21%
* February 18, 1997 - May 31, 1998 10.29%
* January 1, 1997 - February 17, 1997 10.17%
E - NUCLEAR OPERATIONS
POINT BEACH NUCLEAR PLANT: Wisconsin Electric owns and operates
two approximately 510-megawatt electric generating units at Point
Beach Nuclear Plant in Two Rivers, Wisconsin. During 1999, 1998
and 1997, Point Beach provided 22%, 18% and 6%, respectively, of
Wisconsin Electric's net electric energy supply. The United
States Nuclear Regulatory Commission operating licenses for Point
Beach expire in October 2010 for Unit 1 and in March 2013 for
Unit 2.
In 1997, the Public Service Commission of Wisconsin authorized
Wisconsin Electric to defer certain nuclear non-fuel operation
and maintenance costs in excess of those included in 1997 rates.
As a result, Wisconsin Electric deferred $18 million during 1997.
During 1998, the Public Service Commission of Wisconsin
authorized a five-year recovery in the electric retail
jurisdiction in the state of Wisconsin of the excess 1997 nuclear
non-fuel operation and maintenance costs, and Wisconsin Electric
began amortizing the $18 million of deferred costs on a straight
line basis over the five year recovery period. As of
December 31, 1999, $12 million of deferred costs remain on the
Balance Sheet in Deferred Charges and Other Assets - Deferred
Regulatory Assets (see Note A).
NUCLEAR INSURANCE: The Price-Anderson Act as amended and
extended to August 1, 2002, currently limits the total public
liability for damages arising from a nuclear incident at a
nuclear power plant to approximately $9.8 billion, of which
$200 million is covered by liability insurance purchased from
private sources, and $9.6 billion is covered by an industry
retrospective loss sharing plan whereby in the event of a nuclear
incident resulting in damages exceeding the private insurance
coverage, each owner of a nuclear plant would be assessed a
deferred premium of up to $88.1 million per reactor (Wisconsin
Electric owns two) with a limit of $10 million per reactor within
one calendar year. As the owner of Point Beach, Wisconsin
Electric would be obligated to pay its proportionate share of any
such assessment.
Wisconsin Electric participated in an industry-wide insurance
program, with an aggregate limit of $200 million which covered
radiation injury claims of nuclear workers first employed after
1987. This program was replaced with a new program (which has no
retrospective assessment provisions) at the end of 1997.
However, the discovery period for claims covered under the former
program remains open until the end of 2007 for those few former
insureds who no longer need to participate in the new,
replacement program. If claims in excess of the funds available
under the old program develop, Wisconsin Electric would be
assessed up to a maximum of approximately $6.3 million.
Wisconsin Electric, through its membership in Nuclear Electric
Insurance Limited ("NEIL"), carries decontamination, property
damage and decommissioning shortfall insurance covering losses of
up to $1.5 billion at Point Beach. Under policies issued by
NEIL, the insured member is liable for a retrospective premium
adjustment in the event of catastrophic losses exceeding the full
financial resources of NEIL. Wisconsin Electric's maximum
retrospective liability under its policies is $8.9 million.
Wisconsin Electric also maintains insurance with NEIL covering
business interruption and extra expenses during any prolonged
accidental outage at Point Beach, where such outage is caused by
accidental property damage from radioactive contamination or
other risks of direct physical loss. Wisconsin Electric's
maximum retrospective liability under this policy is
$3.7 million.
It should not be assumed that, in the event of a major nuclear
incident, any insurance or statutory limitation of liability
would protect Wisconsin Electric from material adverse impact.
NUCLEAR DECOMMISSIONING: Wisconsin Electric currently expects
to operate the two units at Point Beach to the expiration of
their current operating licenses. The estimated cost to
decommission the plant in 1999 dollars is $518 million based upon
a site specific decommissioning cost study completed in 1998.
Assuming plant shutdown at the expiration of the current
operating licenses, prompt dismantlement and annual escalation of
costs at specific inflation factors established by the Public
Service Commission of Wisconsin, it is projected that
approximately $1.8 billion will be spent over a thirty-three year
period, beginning in 2010, to decommission the plant.
Nuclear decommissioning costs are accrued as depreciation expense
over the expected service lives of the two units following an
external sinking fund method. It is expected that the annual
payments to the Nuclear Decommissioning Trust Fund ("Fund") along
with the earnings on the Fund will provide sufficient funds at
the time of decommissioning. Wisconsin Electric believes it is
probable that any shortfall in funding would be recoverable in
utility rates.
As required by Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity
Securities, Wisconsin Electric's debt and equity security
investments in the Fund are classified as available for sale.
Gains and losses on the Fund were determined on the basis of
specific identification; net unrealized holding gains on the Fund
were recorded as part of the accumulated provision for
depreciation.
Following is a summary of decommissioning costs and earnings
charged to depreciation expense and the Fund balance included in
accumulated provision for depreciation at December 31. The Fund
balance is stated at fair value.
1999 1998 1997
---- ---- ----
(Thousands of Dollars)
Decommissioning costs $17,673 $15,461 $11,402
Earnings 19,685 15,918 15,846
-------- -------- -------
Depreciation Expense $37,358 $31,379 $27,248
======== ======== =======
Total costs accrued to date $357,714 $320,356
Unrealized gain 268,034 198,149
-------- --------
Accumulated Prevision for Depreciation $625,748 $518,505
======== ========
DECONTAMINATION AND DECOMMISSIONING FUND: The Energy Policy Act
of 1992 established a Uranium Enrichment Decontamination and
Decommissioning Fund ("D&D Fund") for the United States
Department of Energy's nuclear fuel enrichment facilities.
Deposits to the D&D Fund are derived in part from special
assessments on utilities using enrichment services. As of
December 31, 1999, Wisconsin Electric has recorded its remaining
estimated liability equal to projected special assessments of
$18.8 million. A corresponding deferred regulatory asset is
detailed in Note A. The deferred regulatory asset will be
amortized to nuclear fuel expense and included in utility rates
over the next eight years. In a 1998 Rate Order, the Public
Service Commission of Wisconsin approved recovery over the 1998-
1999 biennial period of D&D Fund costs disallowed in 1997.
F - PREFERRED STOCK
Serial preferred stock authorized but unissued is cumulative, $25
par value, 5,000,000 shares.
In the event of default in the payment of preferred dividends, no
dividends or other distributions may be paid on Wisconsin
Electric's common stock.
The 3.60% series preferred stock is redeemable in whole or in
part at the option of Wisconsin Electric at $101 per share plus
any accrued dividends.
The fair value of Wisconsin Electric's preferred stock was
$18.0 million and $20.2 million at
December 31, 1999 and 1998, respectively.
G - LONG-TERM DEBT
FIRST MORTGAGE BONDS, DEBENTURES AND NOTES: The maturities and
sinking fund requirements through 2004 for the aggregate amount
of long-term debt outstanding (excluding obligations under
capital lease) at December 31, 1999 follow.
(Thousands of Dollars)
2000 $1,905
2001 1,905
2002 151,905
2003 1,905
2004 141,905
Sinking fund requirements for the years 2000 through 2004,
included in the preceding table, are $9.5 million.
Substantially all utility plant is subject to the mortgage.
Long-term debt premium or discount and expense of issuance are
amortized by the straight line method over the lives of the debt
issues and included as interest expense. Unamortized amounts
pertaining to reacquired debt are written off currently, when
acquired for sinking fund purposes, or amortized in accordance
with Public Service Commission of Wisconsin orders, when acquired
for early retirement.
In June 1998, Wisconsin Electric issued $150 million of 6-1/2%
debentures due 2028. Proceeds from the issue were added to
Wisconsin Electric's general funds and were used to reduce short-
term borrowings and for other general corporate purposes.
In December 1999, Wisconsin Electric issued $150 million of 6-
5/8% debentures due 2002. Proceeds from the issue were added to
Wisconsin Electric's general funds and were used to reduce short-
term borrowings and for other general corporate purposes.
Following is Wisconsin Electric's long-term debt outstanding at
December 31.
Long-Term Debt 1999 1998
-------------- ---- ----
(Thousands of Dollars)
First Mortgage Bonds
6-1/2% Series due 1999 $ - $40,000
6-5/8% Series due 1999 - 51,000
7-1/4% Series due 2004 140,000 140,000
7-1/8% Series due 2016 100,000 100,000
6.85% Series due 2021 9,000 9,000
7-3/4% Series due 2023 100,000 100,000
7.05% Series due 2024 60,000 60,000
9-1/8% Series due 2024 3,443 3,443
8-3/8% Series due 2026 100,000 100,000
7.70% Series due 2027 200,000 200,000
Debentures (unsecured)
6-5/8% due 2002 150,000 -
6-5/8% due 2006 200,000 200,000
9.47% due 2006 4,900 5,600
8-1/4% due 2022 25,000 25,000
6-1/2% due 2028 150,000 150,000
6-7/8% due 2095 100,000 100,000
Notes (unsecured)
Variable rate due 2006 1,000 1,000
Variable rate due 2015 17,350 17,350
Variable rate due 2016 67,000 67,000
Variable rate due 2030 80,000 80,000
6.36% effective rate due 2006 8,436 9,642
Obligations under capital leases 215,899 189,980
Unamortized discount - net (23,596) (24,030)
Long-term debt due currently (30,822) (112,454)
---------- ----------
Total Long-Term Debt $1,677,610 $1,512,531
========== ==========
At December 31, 1999, the interest rate for the $67 million
variable rate note due 2016 was 5.50% and the interest rate for
the $98.35 million variable rate notes due 2006-2030 was 5.45%.
OBLIGATIONS UNDER CAPITAL LEASE: Wisconsin Electric has a
nuclear fuel leasing arrangement with Wisconsin Electric Fuel
Trust ("Trust") which is treated as a capital lease. The nuclear
fuel is leased and amortized to fuel expense for a period of 60
months or until the removal of the fuel from the reactor, if
earlier. Lease payments include charges for the cost of fuel
burned, financing costs and management fees. In the event
Wisconsin Electric or the Trust terminates the lease, the Trust
would recover its unamortized cost of nuclear fuel from Wisconsin
Electric. Under the lease terms, Wisconsin Electric is in effect
the ultimate guarantor of the Trust's commercial paper and line
of credit borrowings financing the investment in nuclear fuel.
Interest expense on the nuclear fuel lease, included in fuel
expense, was $3.5 million, $3.1 million and $0.9 million during
1999, 1998 and 1997, respectively.
To meet a portion of its electric energy supply needs, Wisconsin
Electric entered into a long-term power purchase contract with an
unaffiliated independent power producer. The contract, for 236
megawatts of firm capacity from a gas-fired cogeneration
facility, includes no minimum energy requirements. When the
contract expires in 2022, Wisconsin Electric may, at its option
and with proper notice, renew for another ten years or purchase
the generating facility at fair value or allow the contract to
expire. Wisconsin Electric treats this contract as a capital
lease. The leased facility and corresponding obligation under
capital lease were recorded at the estimated fair value of the
plant's electric generating facilities. The leased facility is
being amortized on a straight line basis over the original 25-
year term of the contract.
Beginning with commercial operation of the facility in September
1997, imputed interest costs on the capitalized purchase power
obligation were $23.4 million, $22.9 million and $6.5 million
during 1999, 1998 and 1997, respectively, and total amortization
costs of the leased facilities were $5.7 million during 1999 and
1998 and $1.6 million during 1997. The long-term power purchase
contract is treated as an operating lease for rate-making
purposes. As a result, the difference between the minimum lease
payments and the sum of the imputed interest and amortization
costs are recorded as a deferred regulatory asset (see Note A).
Due to the timing of the minimum lease payments, Wisconsin
Electric expects the regulatory asset to increase to
approximately $78 million by the year 2009 and the total
obligation under capital lease to increase to $160 million by the
year 2005 before each is reduced over the remaining life of the
contract. The minimum lease payments are classified as purchased
power expense on the Income Statement. Interest expense on the
purchase power obligation, included in purchased power expense,
was $20.4 million, $20.3 million and $5.6 million during 1999,
1998 and 1997, respectively.
Following is a summary of Wisconsin Electric's nuclear fuel and
leased facilities at December 31.
1999 1998
---- ----
(Thousands of Dollars)
Nuclear Fuel
Under capital lease $112,595 $100,809
Accumulated provision for amortization (51,799) (62,888)
In process/stock 22,597 49,739
-------- --------
Total Nuclear Fuel $83,393 $87,660
======== ========
Leased Facilities
Long - term purchase power commitment $140,312 $140,312
Accumulated provision for amortization (12,985) (7,305)
-------- --------
Total Leased Facilities $127,327 $133,007
======== ========
Future minimum lease payments under the capital leases and the
present value of the net minimum lease payments as of
December 31, 1999 are as follows:
Purchase
Nuclear Power
Fuel Lease Commitment Total
---------- ---------- -----
(Thousands of Dollars)
2000 $31,559 $25,031 $56,590
2001 20,649 25,968 46,617
2002 13,418 26,961 40,379
2003 4,959 27,954 32,913
2004 1,922 29,004 30,926
Later Years - 531,187 531,187
------- -------- --------
Total Minimum Lease Payments 72,507 666,105 738,612
Less: Estimated Executory Costs - (136,229) (136,229)
------- -------- --------
Net Minimum Lease Payments 72,507 529,876 602,383
Less: Interest (5,989) (380,495) (386,484)
------- -------- --------
Present Value of Net Minimum Lease Payments 66,518 149,381 215,899
Less: Due Currently (28,917) - (28,917)
------- -------- --------
$37,601 $149,381 $186,982
======= ======== ========
FAIR VALUE: The carrying amount of Wisconsin Electric's long-
term debt outstanding (excluding obligations under capital lease)
was $1,516 million and $1,459 million at December 31, 1999 and
1998, respectively, with a fair value of $1,444 million and
$1,544 million, respectively. The fair value of the first
mortgage bonds and debentures is estimated based upon the market
value of the same or similar issues. Book value approximates
fair value for Wisconsin Electric's unsecured notes.
H - NOTES PAYABLE
Short-term notes payable balances and their corresponding
weighted average interest rates at December 31 consist of:
1999 1998
------------------------ ------------------------
Interest Interest
Balance Rate Balance Rate
------- -------- ------- --------
(Thousands of Dollars)
Banks $50,400 6.30% $50,495 5.42%
Commercial paper 214,264 6.21% 168,794 5.32%
-------- --------
$264,664 $219,289
======== ========
Unused lines of credit for short-term borrowing amounted to
$128 million at December 31, 1999 all of which supports
commercial paper. In support of various informal lines of credit
from banks, Wisconsin Electric has agreed to maintain
unrestricted compensating balances or to pay commitment fees;
neither the compensating balances nor the commitment fees are
significant.
I - BENEFITS
Wisconsin Electric provides defined benefit pension and other
postretirement benefit plans to employees. The status of these
plans, including a reconciliation of benefit obligations, a
reconciliation of plan assets and the funded status of the plans
follows. Also disclosed below is the aggregate funded status of
those pension and other postretirement benefit plans with
accumulated net benefit obligations in excess of plan assets.
Other Postretirement
Pension Benefits Benefits
------------------- -------------------
Pension & Postretirement Plan Status 1999 1998 1999 1998
- - ------------------------------------ ---- ---- ---- ----
(Thousands of Dollars)
Change in Benefit Obligation
Benefit Obligation at January 1 $714,436 $649,256 $178,836 $148,181
Service cost 14,960 12,408 3,325 2,654
Interest cost 47,660 46,261 12,380 11,676
Plan participants' contributions - - 5,096 5,908
Plan amendments - - - 3,737
Actuarial (gain) loss (5,366) 51,512 7,849 22,283
Benefits paid (46,239) (45,001) (15,153) (15,603)
-------- -------- --------- ---------
Benefit Obligation at December 31 $725,451 $714,436 $192,333 $178,836
-------- -------- --------- ---------
Change in Plan Assets
Fair Value at January 1 $828,491 $761,881 $68,913 $59,841
Actual return on plan assets 134,436 104,264 13,015 8,515
Employer contributions - 7,347 10,353 10,252
Plan participants' contributions - - 5,096 5,908
Acquisitions / divestitures (1,470) - - -
Benefits paid (46,239) (45,001) (15,052) (15,603)
-------- -------- --------- ---------
Fair Value at December 31 $915,218 $828,491 $82,325 $68,913
-------- -------- --------- ---------
Funded Status of Plans
Funded status at December 31 $189,767 $114,055 ($110,008) $(109,923)
Unrecognized
Net actuarial (gain) loss (194,773) (119,025) 5,606 4,587
Prior service cost 28,021 31,284 2,365 2,582
Net transition obligation (asset) (23,246) (27,207) 59,653 64,239
-------- -------- --------- ---------
Net Accrued Benefit Cost ($231) ($893) ($42,384) ($38,515)
======== ======== ========= =========
Funded Status of Plans with Net
Benefit Obligations at December 31
Fair value of plan assets $ - $ - $82,325 $68,444
Benefit obligation - - (192,333) (178,563)
-------- -------- --------- ---------
Net Benefit Obligation $ - $ - ($110,008) ($110,119)
======== ======== ========= =========
The components of net periodic pension and other postretirement
benefit costs as well as the weighted-average assumptions used in
accounting for the plans include the following:
Other Postretirement
Pension Benefits Benefits
--------------------------- -----------------------------
Benefit Plan Cost Components 1999 1998 1997 1999 1998 1997
---------------------------- ---- ---- ---- ---- ---- ----
(Thousands of Dollars)
Net Periodic Benefit Cost
Service cost $14,960 $12,408 $9,216 $3,325 $2,654 $1,911
Interest cost 47,660 46,261 45,613 12,380 11,677 10,343
Expected return on plan assets (62,399) (56,822) (51,592) (5,803) (5,008) (4,085)
Amortization of
Transition obligation (asset) (3,801) (3,801) (3,802) 4,586 4,586 4,586
Prior service cost 3,061 3,061 3,061 217 217 (100)
Actuarial loss (gain) - - - 118 (270) (235)
------- ------- ------- ------- ------- -------
Net Periodic Benefit Cost ($519) $1,107 $2,496 $14,823 $13,856 $12,420
======= ======= ======= ======= ======= =======
Weighted-Average Assumptions
at December 31 (%)
Discount rate 7.5 6.75 7.25 7.5 6.75 7.25
Expected return on plan asset 9.0 9.0 9.0 9.0 9.0 9.0
Rate of compensation increase 4.75 to 4.75 to 4.75 to 4.75 to 4.75 to 4.75 to
5.0 5.0 5.0 5.0 5.0 5.0
PENSION PLANS: Pension plan assets, the majority of which are
equity securities, are held by pension trusts. Other pension
plan assets include corporate and government bonds and real
estate. In the opinion of Wisconsin Electric, current pension
trust assets and amounts which are expected to be paid to the
trusts in the future will be adequate to meet pension payment
obligations to current and future retirees.
OTHER POSTRETIREMENT BENEFITS PLANS: Wisconsin Electric uses
Employees' Benefit Trusts to fund a major portion of other
postretirement benefits for its employees. The majority of the
trusts' assets are mutual funds.
The assumed health care cost trend rate at December 31, 1999 was
10.0% for all plan participants decreasing gradually to 5.0% in
2005 and thereafter. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care
plans.
A one-percentage-point change in assumed health care cost trend
rates would have the following effects:
1% Increase 1% Decrease
----------- -----------
(Thousands of Dollars)
Effect on
Postretirement benefits obligation $19,190 ($16,943)
Total of service and interest cost components 1,864 (1,620)
SAVINGS PLAN: Wisconsin Electric sponsors a defined
contribution savings plan which allows employees to contribute a
portion of their pretax and/or after tax income in accordance
with plan specified guidelines. Wisconsin Electric matches 50%
of employee contributions up to 6% of the employee's annual
compensation. Matching contributions charged to expense amounted
to $8.7 million, $7.2 million and $6.7 million during 1999, 1998
and 1997, respectively.
J - SEGMENT REPORTING
Wisconsin Electric, a wholly-owned subsidiary of Wisconsin Energy
Corporation's principal
subsidiary,Corporation, has organized its operating segments according to
how it is currently regulated. Operating segments are defined as
components of an enterprise about which separate financial
information is available that is evaluated regularly in deciding
how to allocate resources or in assessing performance. Wisconsin Electric's reportable
operating segments include electric, natural gas and steam
utility segments. The accounting policies of the reportable
operating segments are the same as those described in Note A.
The electric utility segment derives its revenues fromengages in the generation, transmission,
distribution and sale of electric energy in southeastern
(including metropolitan Milwaukee), east central and northern
Wisconsin and in the Upper Peninsula of Michigan. The natural
gas utility segment derives its revenues fromis responsible for the purchase, distribution and
sale of natural gas to retail customers and the transportation of
customer-owned natural gas in four service areas in southeastern,
east central, western, and northern Wisconsin. The steam utility
segment derives its
revenues from the production, distributionproduces, distributes and sale ofsells steam to space heating and
processing customers in the Milwaukee, Wisconsin area.
The following table summarizes theSummarized financial information concerning Wisconsin Electric's
reportable operating segments for each of Wisconsin Electric for the years ended
December 31.31, 2000, 1999 and 1998 is shown in the following table.
Reportable Operating Segments
(a)
-------------------------------------------------------------------------------------------
Year Ended Electric Gas Steam Other (a) Total
------------------- -------- --- ----- --------- -----
(Thousands(Millions of Dollars)
1999
December 31, 2000
-----------------
Operating Revenues (b) $1,688,277 $306,802 $21,311 $2,016,390$1,763.4 $399.7 $21.9 $ - $2,185.0
Depreciation,
Decommissioning
and Amortization 227,569 23,692 2,594 253,855
Pretax239.5 30.0 3.2 - 272.7
Operating Income (c) 393,221 31,675 2,549 427,445
Segment368.9 23.2 1.8 - 393.9
Capital Expenditures 318.9 32.1 1.2 0.3 352.5
Total Assets (d) 4,179,314 427,224 47,576 4,654,114
Construction Expenditures 313,746 31,690 1,278 346,714
19984,163.1 445.3 48.0 368.7 5,025.1
December 31, 1999
-----------------
Operating Revenues (b) $1,641,403 $295,848 $20,506 $1,957,757$1,688.3 $306.8 $21.3 $ - $2,016.4
Depreciation,
Decommissioning
and Amortization 215,669 23,272 2,631 241,572
Pretax207.9 23.7 2.6 - 234.2
Operating Income (c) 344,164 20,235 3,267 367,666
Segment412.9 31.7 2.5 - 447.1
Capital Expenditures 313.7 31.7 1.3 (0.3) 346.4
Total Assets (d) 4,087,413 421,951 48,358 4,557,722
Construction Expenditures 283,367 43,447 1,600 328,414
19974,179.3 427.2 47.6 247.8 4,901.9
December 31, 1998
-----------------
Operating Revenues (b) $1,412,115 $355,172 $22,315 $1,789,602$1,641.4 $295.9 $20.5 $ - $1,957.8
Depreciation,
Decommissioning
and Amortization 213,785 21,421 2,492 237,698
Pretax199.8 23.3 2.6 - 225.7
Operating Income (c) 218,559 33,095 5,594 257,248
Segment360.0 20.3 3.3 - 383.6
Capital Expenditures 283.4 43.5 1.6 - 328.5
Total Assets (d) 3,900,889 392,865 45,131 4,338,885
Construction Expenditures 236,384 22,977 1,006 260,3674,087.4 421.9 48.4 51.2 4,608.9
(a) The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies (see Note A).Primarily other property and investments, materials and supplies and
deferred charges.
(b) Wisconsin Electric accounts for intersegment revenues at a tariff rate
established by the Public Service Commission of Wisconsin. Intersegment
revenues are not material.
(c) Interest income and interest expense are not included in segment
pretax
operating income.
(d) Common utility plant is allocated tot electric, gas and steam to determine
segment assets (see Note A).
A reconciliation of the totals reported for the operating
segments to the applicable line items in the financial statements
is as follows:
1999 1998 1997
---- ---- ----
(Thousands of Dollars)
Assets
Reportable segments $4,654,114 $4,557,722 $4,338,885
Non-utility 4,710 4,769 5,308
Other - corporate (a) 393,779 206,451 323,647
---------- ---------- ----------
Total Assets $5,052,603 $4,768,942 $4,667,840
========== ========== ==========
Construction Expenditures
Reportable segments $346,714 $328,414 $260,367
Non-utility (273) 68 282
---------- ---------- ----------
Total Construction Expenditures $346,441 $328,482 $260,649
========== ========== ==========
(a) Primarily other property and investments, materials and supplies and
deferred charges.
K - COMMITMENTS AND CONTINGENCIES
WISCONSIN ENERGY CORPORATION / WICOR, INC. MERGER: On June 27,
1999, Wisconsin Energy Corporation and WICOR, Inc., a Wisconsin
corporation, entered into an Agreement and Plan of Merger
providing for a strategic business combination of Wisconsin
Energy and WICOR. WICOR is a diversified holding companyCAPITAL EXPENDITURES: Certain commitments have been made in
connection with 2001 capital expenditures. During 2001, total
assets of approximately $1.1 billion at December 31, 1999
in utility and non-utility energy subsidiaries as well as in pump
manufacturing subsidiaries. Following the merger, WICOR and its
subsidiaries will become subsidiaries of Wisconsin Energy. The
merger agreement has been approved by the boards of directors and
the shareholders of Wisconsin Energy and WICOR.
The Public Service Commission of Wisconsin approved the merger in
January 2000 with a written order in March 2000. As part of its
approval, the Public Service Commission of Wisconsin ordered a
qualified five-year rate freeze to begin following completion of
Wisconsin Electric's current pricing request for 2000-2001.
While Wisconsin Electric's retail electric, gas and steam rates
in the state of Wisconsin will be frozen for five years,
Wisconsin Electric can request review and approval of price
changes every two years to address increased costs for such
reasons as government mandates and reliability upgrades. During
this qualified five-year rate freeze period, Wisconsin Electric
will continue to reflect changes in fuel and gas costs in its
rates. The remaining regulatory approval process is expectedcapital expenditures are estimated to be completed in time forapproximately
$395 million of which approximately $355 million, excluding the
transactionpurchase of nuclear fuel, is attributable to be consummated on or
about April 26, 2000.electric operations,
$35 million is attributable to gas operations and $5 million is
attributable to steam operations.
GIDDINGS & LEWIS, INC./CITY OF WEST ALLIS LAWSUIT: In July
1996,1999, a jury issued a verdict against Wisconsin Electric awarding
the plaintiffs, Giddings & Lewis, Inc., Kearney & Trecker
Corporation, now a part of Giddings & Lewis, Inc., and the City of West
Allis, brought$4.5 million in compensatory damages and $100 million in
punitive damages in an action in the Milwaukee County Circuit Court alleging that Wisconsin Electric
had deposited cyanide contaminated wood chips in 1959 at two
sites in West Allis, Wisconsin owned by the plaintiffs. Internal
investigations lead Wisconsin Electric to believe that it was not
the source of this waste. Environmental remediation at both
sites was completed several years ago, with the current owners
paying for disposal of materials found on their respective
portions of the sites. Internal investigations led Wisconsin Electric to believe
that it was not the source of this waste.
In July 1999, a jury issued a verdict against Wisconsin Electric
awarding the plaintiffs $4.5 million in compensatory damages for
clean-up costs and loss of property value and $100 million in
punitive damages. In October 1999, the Circuit Court denied
Wisconsin Electric's post trial motions and directed that
judgment on the verdict be entered. Wisconsin Electric has filed
notice of appeal of the judgment to the Wisconsin Court of
Appeals.
In December 1999, in order to stop the post-judgment accrual of
interest at 12% during the pendency of the appeal, Wisconsin
Electric tendered a contested liability payment of $110 million,
which is part of Deferred Charges and Other Assets - Other on the
Balance Sheet, to the Milwaukee County Clerk of Circuit Court
representing the amount of the verdict and accrued interest.
Under Wisconsin law, the plaintiffs are liable to Wisconsin
Electric upon reversal or reduction of the judgment for the
applicable amount of the funds tendered with interest.
In further post-trial proceedings, the plaintiffs filed with the
Circuit Court a motion for sanctions based upon representations
made by Wisconsin Electric during trial that Wisconsin Electric
had no insurance coverage for the punitive damage award. TheOn
April 27, 2000, the Circuit Court held hearingsJudge issued a ruling on the
matter, imposing the following sanctions against Wisconsin
Electric: (i) "judgment in the alternative" as a sanction,
thereby finding an alternative basis upon which to sustain the
$104.5 million verdict returned by the jury; (ii) a bar against
Wisconsin Electric pursuing insurance coverage for the punitive
damage portion of the verdict; and (iii) a requirement that
Wisconsin Electric pay the plaintiffs' costs relating to the
sanctions matter. In addition to appealing the judgment entered
on the jury's verdict, Wisconsin Electric is appealing the
Judge's ruling on the sanctions issue in February
2000. Wisconsin Electric vigorously defended against the
plaintiffs' allegations and does not believe that a basis for
sanctions based upon intentional misrepresentation exists. The
Circuit Court is requiring further briefing on the matter and
will hear oral argument in April 2000.matter.
In the opinion of management, based in part on the advice of
legal counsel, the jury verdict was not supported by the evidence
or the law and the unprecedented award of punitive damages of
this magnitude was unwarranted and should therefore be reversed
or substantially reduced on appeal. Management also believes
that the sanctions imposed by the Judge were not supported by the
evidence or the law. As such, Wisconsin Electric has not
established a reserve for potential damages from this suit.
As further developments, two shareholders filed separate
shareholder derivative proceedings in Milwaukee County Circuit
Court in August and September 2000 for alleged injuries to
shareholders resulting from the Giddings & Lewis/City of West
Allis litigation. The two lawsuits have been consolidated for
pre-trial purposes. In accordance with Wisconsin law, a special
committee of independent directors of Wisconsin Energy conducted
an investigation into the allegations contained in the lawsuits
and concluded that the maintenance of the two actions is not in
the best interest of the Company. As a result, Wisconsin Energy
moved to dismiss the actions, which is pending before the court.
ENVIRONMENTAL MATTERS: Wisconsin Electric periodically reviews
its reserves for remediation costs as evidence becomes available
indicating that its remediation liability has changed. Given
current information, including the following, management believes
that future costs in excess of the amounts accrued and/or
disclosed on all presently known and quantifiable environmental
contingencies will not be material to the Company's financial
position or results of operations.
During 2000, Wisconsin Electric expanded a voluntary program of
comprehensive environmental remediation planning for former
manufactured gas plant sites and coal-ash disposal sites.
Wisconsin Electric has performed a preliminary assessment of
twenty-one sites, including eleven manufactured gas plant sites
discussed below, and expects to conduct additional investigations
during 2001 as well as to begin discussions with the Wisconsin
Department of Natural Resources as necessary. At this time,
Wisconsin Electric cannot estimate future remediation costs
associated with these sites beyond those described below.
MANUFACTURED GAS PLANT SITES: Included as part of its voluntary
program noted above, Wisconsin Electric continues a
voluntary program to investigate
the remediation of eleven former manufactured gas plant sites. Wisconsin Electricsites and
currently estimates that future costs for detailed site
investigation and remediation of its eleven sites will be
$25 million to $40 million over the next ten years. Actual costs
are uncertain pending the results of further site specific
investigations and the selection of site specific remediation.
Of the eleven sites, Wisconsin Electric has begun remediation activities at former
manufactured gas plant sites in the Cities of Burlington and
Kenosha, Wisconsin. Wisconsin Electric alsoand expects to begin remediation at sites in
Fort Atkinson and Waukesha, Wisconsin in 2001. Wisconsin Electric's expected
remediationRemediation of
these sites is anticipated to be accomplished at an aggregate
cost of between $8$5 million and $13$6 million. In Wisconsin
Electric's February 13, 1997 Rate Order, the Public
Service Commission of WisconsinPSCW amplified its
position on the recovery of manufactured gas plant site
remediation costs. It reiterated its position that such costs
should be deferred and amortized and recovered, without carrying
costs, in future rate cases. Since the timing and recovery of
remediation costs will be affected by the biennial rate case
cycle, the timing and magnitude of remediation expenditures, and
their recovery, may be affected.
KIMBERLY COGENERATION EQUIPMENT: In conjunction with the
proposed construction of an electric cogeneration facility in
Kimberly, Wisconsin,ASH LANDFILL SITES: Wisconsin Electric purchased threeaggressively seeks
environmentally acceptable, beneficial uses for its combustion turbines, three heat recovery boilersby-
products. However, such coal-ash by-products have been, and a steam
turbine (the "Equipment"). Following a changeto
some degree, continue to be disposed in company-owned, licensed
landfills. Some early designed and constructed landfills may
allow the release of low levels of constituents resulting in the
statusneed for various levels of the original project and an extensive review of other potential
uses, WISVEST Corporation, a non-utility subsidiary of Wisconsin
Energy, agreed to use the Equipment in a joint independent power
project. Under the provisions of Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,remediation. Where Wisconsin Electric
refined its cash flow projection forhas become aware of these conditions, efforts have been expended
to define the Equipment based upon this proposal. As measured by expected
gross cash flowsnature and extent of any release, and work has been
performed to be earned under this project, Wisconsin
Electric determined that an impairment existed. As a result,
Wisconsin Electric recorded a $30.0 million impairment charge in
the fourth quarteraddress these conditions. The costs of 1997 which wasthese
efforts are included in the Other Incomeenvironmental operating and
Deductions - Other linemaintenance costs of Wisconsin Electric. During 2000, the
Income Statement. During the
second quarter of 1998, WISVEST Corporation purchased the
Equipment from Wisconsin ElectricCompany incurred $2.9 million in coal-ash remediation expenses
and contributed itexpects to a joint
independent power project, the Androscoggin Energy Center.
In a related matter, Wisconsin Electric and Wisconsin
International Electric Power, Ltd reached agreement during 1999
on settlement of litigation brought by Wisconsin International
Electric Power against Wisconsin Electric claiming that Wisconsin
Electric had breached contractual duties allegedly owed to the
plaintiff relating to development of an electric generating plant
at Subic Bayincur $3.0 million in the Philippines involving the Equipment. While
Wisconsin Electric does not believe that it breached any
contractual duties allegedly owed to the plaintiff, Wisconsin
Electric paid the plaintiff $18 million ($10.8 million after tax)
in November 1999 to settle the case, and the plaintiff's claims
were dismissed with prejudice.2001.
L - TRANSACTIONS WITH ASSOCIATED COMPANIES
Managerial, financial, accounting, legal, data processing and
other services may be rendered between associated companies and
are billed in accordance with service agreements approved by the
Public Service Commission of Wisconsin. Wisconsin Electric
received stockholder capital contributions from Wisconsin Energy
of $150 million in 19991999. Intercompany sales, accounts receivable
and $100 million in 1997.accounts payable are all immaterial.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the
Stockholder of Wisconsin Electric Power Company
In our opinion, the financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material
respects, the financial position of Wisconsin Electric Power
Company at December 31, 19992000 and 1998,1999, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 1999,2000 in conformity with accounting
principles generally accepted in the United States.States of America.
These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted
our audits of these statements in accordance with auditing
standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed
above.our opinion.
/s/PricewaterhouseCoopersPRICEWATERHOUSECOOPERS LLP
________________________________
PRICEWATERHOUSECOOPERS- -----------------------------
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
January 25, 2000February 6, 2001
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None for Wisconsin Energy nor for Wisconsin Electric.Information regarding a change in accountants was previously
reported in a Current Report on Form 8-K dated as of
March 8, 2001.
PART III
-----------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
WISCONSIN ENERGY: The information under "Proposal 1: Election
of Directors - Terms Expiring in 2003" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in Wisconsin Energy's
definitive Proxy Statement for its Annual Meeting of Stockholders
to be held June 27, 2000 (the "2000 Annual Meeting Proxy
Statement") is incorporated herein by reference. Also see
"Executive Officers of the Registrant" in Part I of this report.
WISCONSIN ELECTRIC:
The information under "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in Wisconsin
Electric's definitive Information Statement for its Annual
Meeting of Stockholders to be held June 22, 2000April 27, 2001 (the "2000"2001
Annual Meeting Information Statement") is incorporated herein by
reference. Also see "Executive Officers of the Registrant" in
Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
WISCONSIN ENERGY: The information under "Corporate Governance -
Compensation"Compensation of the Board of Directors",Directors,"
"Executive Officers' Compensation," "Employment and Severance
Arrangements" and "Retirement Plans" in the 2000 Annual Meeting Proxy Statement is
incorporated herein by reference.
WISCONSIN ELECTRIC: The information under "Compensation,"
"Employment and Severance Arrangements" and "Retirement Plans" in
the 20002001 Annual Meeting
Information Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
WISCONSIN ENERGY: The security ownership information under "WEC
Common Stock Ownership" in the 2000 Annual Meeting Proxy
Statement is incorporated herein by reference.
WISCONSIN ELECTRIC: All of Wisconsin Electric's Common Stock (100% of such class) is
owned by theits parent company, Wisconsin Energy Corporation,
231 West Michigan Street, P.O. Box 2949, Milwaukee, Wisconsin
53201. The directors, director nominees and executive officers
of Wisconsin Electric do not own any of the voting securities of
Wisconsin Electric. The information concerning their beneficial
ownership of Wisconsin Energy Corporation stock set forth under
"Stock Ownership of Directors, Nominees and Executive Officers"
in the 20002001 Annual Meeting Information Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
WISCONSIN ENERGY: The information under "Certain Related Transactions" in the 2000 Annual Meeting Proxy Statement is
incorporated herein by reference.
WISCONSIN ELECTRIC: The information under "Certain Related
Transactions" in the 20002001
Annual Meeting Information Statement is incorporated herein by
reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS AND REPORTS OF INDEPENDENT
ACCOUNTANTS INCLUDED IN PART II OF THIS REPORT
Wisconsin Energy Corporation:
Consolidated Income Statement for the three years ended
December 31, 1999.
Consolidated2000.
Statement of Cash Flows for the three years ended
December 31, 1999.
Consolidated2000.
Balance Sheet at December 31, 19992000 and 1998.
Consolidated1999.
Capitalization Statement at December 31, 19992000 and 1998.
Consolidated1999.
Statement of Common Stock Equity statement for the three years ended
December 31, 1999.
Notes to Financial Statements.
Report of Independent Accountants.
Wisconsin Electric Power Company:
Income Statement for the three years ended December 31, 1999.
Statement of Cash Flows for the three years ended December 31, 1999.
Balance Sheet at December 31, 1999 and 1998.
Capitalization Statement at December 31, 1999 and 1998.
Common Stock Equity Statement for the three years ended
December 31, 1999.2000.
Notes to Financial Statements.
Report of Independent Accountants.
2. FINANCIAL STATEMENT SCHEDULES INCLUDED IN PART IV OF
THIS REPORT
Wisconsin Energy Corporation:
Schedule I Condensed Parent Company Financial Statements
for the periods ended December 31, 1999. Other schedules
are omitted because of the absence of conditions under
which they are required or because the required information
is given in the financial statements or notes thereto.
Wisconsin Electric Power Company:
Financial statement schedules are omitted because of the
absence of conditions under which they are required or
because the required information is given in the financial
statements or notes thereto.
3. EXHIBITS AND EXHIBIT INDEX
See the Exhibit Index included as the last part of this
report, which is incorporated herein by reference. Each
Management Contractmanagement contract and compensatory plan or arrangement
required to be filed as an exhibit to this report is
identified in the Exhibit Index by two asterisks (**)
following the description of the exhibit.
(b) REPORTS ON FORM 8-K
No Current Reports on Form 8-K were filed by Wisconsin Energy
during the quarter ended December 31, 2000.
A Current Report on Form 8-K dated as of October 6, 1999 wereMarch 8, 2001 was
filed by Wisconsin Energy and Wisconsin Electric on March 15, 2001 to report that the Wisconsin trial court had denied Wisconsin
Electric's post trial motions and directed that judgement on
the verdict be entered against Wisconsin Electrica
change in a
lawsuit involving contaminated wastes on two properties in
the City of West Allis, Wisconsin (the "West Allis lawsuit").
Current Reports on Form 8-K dated as of November 30, 1999
were filed by Wisconsin Energy and Wisconsin Electric to
report further developments in the West Allis lawsuit.
Current Reports on Form 8-K dated as of December 22, 1999
were filed by Wisconsin Energy and Wisconsin Electric to
report additional developments in the West Allis lawsuit and
that, in order to cease any further accrual of interest at
the rate of 12% per annum on the judgment, Wisconsin Electric
had tendered to the Milwaukee County Clerk of Circuit Court
the judgment amount including interest to the date of tender
aggregating $110.2 million.
WISCONSIN ENERGY CORPORATION
INCOME STATEMENT
(Parent Company Only)
SCHEDULE I - CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS
Year Ended December 31
---------------------------------------------------
1999 1998 1997
---- ---- ----
(Thousands of Dollars)
Miscellaneous Income $6,875 $1,921 $3,298
Miscellaneous Expense 3,772 1,943 886
Interest Expense 2,984 3,193 67
Distributions on Preferred Securities 10,503 - -
Merger Expense 744 480 9,968
-------- -------- -------
(11,128) (3,695) (7,623)
Income Taxes (3,882) (1,054) (2,222)
-------- -------- -------
(7,246) (2,641) (5,401)
Equity in Subsidiaries' Earnings 216,235 190,773 66,117
-------- -------- -------
Net Income $208,989 $188,132 $60,716
======== ======== =======
See accompanying notes to condensed parent company financial statements.
WISCONSIN ENERGY CORPORATION
STATEMENT OF CASH FLOWS
(Parent Company Only)
SCHEDULE I - CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS - (Cont'd)
Year Ended December 31
-------------------------------------
1999 1998 1997
---- ---- ----
(Thousands of Dollars)
Operating Activities
Net Income $208,989 $188,132 $60,716
Reconciliation to cash
Equity in subsidiaries' earnings (216,235) (190,773) (66,117)
Dividends from subsidiaries 181,572 179,001 213,692
Other (7,878) (679) 10,203
-------- -------- --------
Cash Provided by Operating Activities 166,448 175,681 218,494
Investing Activities
Equity investment in subsidiaries - net (255,000) (19,000) (133,000)
Change in notes receivable -
associated companies 20,075 (43,100) 42,000
Other (275) 2,691 75
-------- -------- --------
Cash Used in Investing Activities (235,200) (59,409) (90,925)
Financing Activities
Sale of common stock 79,146 10,275 29,586
Sale of manditorily redeemable trust preferred
securities 193,700 - -
Dividends on common stock (182,316) (177,397) (172,714)
Change in notes payable (24,225) 66,562 -
Change in notes payable -
associated companies 6,925 (15,550) 15,550
-------- -------- --------
Cash Provided By (Used in) Financing Activities 73,230 (116,110) (127,578)
-------- -------- --------
Change in Cash and Cash Equivalents $4,478 $162 ($9)
======== ======== ========
Cash Paid For
Interest $2,853 $2,984 $ -
Income taxes (1,277) (2,235) 345
See accompanying notes to condensed parent company financial statements.
WISCONSIN ENERGY CORPORATION
BALANCE SHEET
(Parent Company Only)
SCHEDULE I - CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS - (Con'd)
December 31
------------------------------
1999 1998
---- ----
(Thousands of Dollars)
Assets
------
Current Assets
Cash and cash equivalents $4,649 $171
Accounts and notes receivable
from associated companies 23,719 43,914
Other 5,274 2,113
---------- ----------
Total Current Assets 33,642 46,198
Property and Investments
Investment in subsidiary companies 2,217,389 1,927,726
Other 1,010 844
---------- ----------
Total Property and Investments 2,218,399 1,928,570
Deferred Charges 24,464 11,209
---------- ----------
Total Assets $2,276,505 $1,985,977
========== ==========
Liabilities and Equity
----------------------
Current Liabilities
Accounts and notes payable $42,738 $66,772
Accounts and notes payable
to associated companies 7,637 113
Other 118 571
---------- ----------
Total Current Liabilities 50,493 67,456
Deferred Credits 15,478 12,627
Manditorily Redeemable Trust Preferred Securities 200,000 -
Stockholders' Equity
Common stock 842,287 763,141
Retained earnings 134,732 143,901
Undistributed subsidiaries' earnings 1,033,515 998,852
---------- ----------
Total Stockholders' Equity 2,010,534 1,905,894
---------- ----------
Total Liabilities and Equity $2,276,505 $1,985,977
========== ==========
See accompanying notes to condensed parent company financial statements.
WISCONSIN ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Parent Company Only)
SCHEDULE I - CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS - (Cont'd)
1. The condensed parent company financial statements and notes
should be read in conjunction with the consolidated financial
statements and notes of Wisconsin Energy Corporation appearing in
this Annual Report on Form 10-K.
2. Various financing arrangements and regulatory requirements
impose certain restrictions on the ability of Wisconsin Electric
Power Company, a utility subsidiary of Wisconsin Energy
Corporation to transfer funds to Wisconsin Energy Corporation in
the form of cash dividends, loans, or advances. Under Wisconsin
law, Wisconsin Electric is prohibited from loaning funds, either
directly or indirectly, to Wisconsin Energy. Wisconsin Energy
Corporation does not believe that such restrictions will affect
its operations.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements and Prospectuses constituting part of the
Registration Statements listed below of Wisconsin Energy
Corporation of our report dated January 25, 2000 relating to the
financial statements and financial statement schedule, which
appears in this Form 10-K.
1. Registration Statement on Form S-3 (Registration No.
333-24277) - Stock Plus Investment Plan.
2. Registration Statement on Form S-8 (Registration No.
333-86467) - Employee Retirement Savings Plan.
3. Registration Statement on Form S-8 (Registration No.
33-65225) - 1993 Omnibus Stock Incentive Plan.
4. Registration Statement on Form S-3 (Registration No.
333-73137) - Trust Preferred Securities.
/s/PricewaterhouseCoopers LLP
_________________________________
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
March 29, 2000accountants.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectuses constituting part of the Registration Statement on
Form S-3 (No. 333-40319) of Wisconsin Electric Power Company of
our report dated January 25, 2000February 6, 2001 relating to the financial
statements, which appears in this Form 10-K.
/s/PricewaterhouseCoopersPRICEWATERHOUSECOOPERS LLP
_________________________________
PRICEWATERHOUSECOOPERS- -----------------------------
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
March 29, 20002001
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, therunto duly authorized.
WISCONSIN ENERGY CORPORATIONELECTRIC POWER COMPANY
By /s/R.A. Abdoo
----------------------------------RICHARD A. ABDOO
----------------------------------------
Date: March 29, 2000 R.2001 Richard A. Abdoo, Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/R.RICHARD A. AbdooABDOO March 29, 20002001
- - ---------------------------------------------
R. A. Abdoo, Chairman of the Board, President
and Chief Executive Officer and Director-
Principal Executive Officer
/s/P. Donovan March 29, 2000
- - ---------------------------------------------
P. Donovan, Senior Vice President and Chief
Financial Officer - Principal Financial Officer
/s/R. R. Grigg March 29, 2000
- - ---------------------------------------------
R. R. Grigg, Vice President and Director
/s/A. K. Klisurich March 29, 2000
- - ---------------------------------------------
A. K. Klisurich, Controller -
Principal Accounting Officer
/s/J. F. Ahearne March 29, 2000
- - ---------------------------------------------
J. F. Ahearne, Director
/s/J. F. Bergstrom March 29, 2000
- - ---------------------------------------------
J. F. Bergstrom, Director
/s/B. L. Bowles March 29, 2000
- - ---------------------------------------------
B. L. Bowles, Director
/s/R. A. Cornog March 29, 2000
- - ---------------------------------------------
R. A. Cornog, Director
/s/J. N. MacDonough March 29, 2000
- - ---------------------------------------------
J. N. MacDonough, Director
/s/J. B. North March 29, 2000
- - ---------------------------------------------
J. B. North, Director
/s/F. P. Stratton, Jr. March 29, 2000
- - ---------------------------------------------
F. P. Stratton, Jr., Director
[/CAPTION]
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, therunto duly authorized.
WISCONSIN ELECTRIC POWER COMPANY
By /s/R.A. Abdoo
----------------------------------
R. A. Abdoo, Chairman of the Board
Date: March 29, 2000 and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/R. A. Abdoo March 29, 2000
- - ---------------------------------------------
R.--------------------------------------------------
Richard A. Abdoo, Chairman of the Board,
Chief Executive Officer and Director-
Principal Executive Officer
/s/RICHARD R. R. GriggGRIGG March 29, 20002001
- - ---------------------------------------------
R.--------------------------------------------------
Richard R. Grigg, President, Chief Operating
Officer and Director
/s/D. K. PorterPAUL DONOVAN March 29, 20002001
- - ---------------------------------------------
D. K. Porter,--------------------------------------------------
Paul Donovan, Senior Vice President and
Director
/s/C. H. Baker March 29, 2000
- - ---------------------------------------------
C. H. Baker, Vice President - Finance, Chief
Financial Officer - Principal Financial Officer
/s/A. K. KlisurichSTEPHEN P. DICKSON March 29, 20002001
- - ---------------------------------------------
A. K. Klisurich,--------------------------------------------------
Stephen P. Dickson, Controller -
Principal Accounting Officer
/s/J.JOHN F. AhearneAHEARNE March 29, 20002001
- - ---------------------------------------------
J.--------------------------------------------------
John F. Ahearne, Director
/s/J.JOHN F. BergstromBERGSTROM March 29, 20002001
- - ---------------------------------------------
J.--------------------------------------------------
John F. Bergstrom, Director
/s/B.BARBARA L. BowlesBOWLES March 29, 20002001
- - ---------------------------------------------
B.--------------------------------------------------
Barbara L. Bowles, Director
/s/R.ROBERT A. CornogCORNOG March 29, 20002001
- - ---------------------------------------------
R.--------------------------------------------------
Robert A. Cornog, Director
/s/J. N. MacDonoughWILLIE D. DAVIS March 29, 20002001
- - ---------------------------------------------
J. N. MacDonough,--------------------------------------------------
Willie D. Davis, Director
/s/J. B. NorthFREDRICK P. STRATTON, JR. March 29, 20002001
- - ---------------------------------------------
J. B. North, Director
/s/F.--------------------------------------------------
Fredrick P. Stratton, Jr., Director
/s/GEORGE E. WARDEBERG March 29, 20002001
- - ---------------------------------------------
F. P. Stratton, Jr.,--------------------------------------------------
George E. Wardeberg, Director
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
EXHIBIT INDEX
to
Annual Report on Form 10-K
For the year ended December 31, 1999
The following exhibits are filed with or incorporated by reference in the report
with respect to Wisconsin Energy and/or Wisconsin Electric as denoted by an "X"
in the last two columns.WISCONSIN ELECTRIC POWER COMPANY
(Commission File No. 001-01245)
EXHIBIT INDEX
to
Annual Report on Form 10-K
For the year ended December 31, 2000
The following exhibits are filed with or incorporated by
reference in the report with respect to Wisconsin Electric. (An
asterisk (*) indicates incorporation by reference
pursuant to Exchange Act Rule 12b-32.)
Wisconsin Wisconsin
Number Exhibit Energy Electric
- - -------- --------------------------------------------------------------- --------- ---------
2 Plan of acquisition, reorganization, arrangement, liquidation,
or succession
2.1* Agreement and Plan of Merger, dated as of X
June 27, 1999, as amended as of September 9,
1999, by and among Wisconsin Energy
Corporation, WICOR, Inc. and CEW Acquisition,
Inc. (Incorporated by reference to Appendix A to
the joint proxy statement/propectus dated
September 10, 1999, included in Wisconsin
Energy's Registration on Form S-4 filed on
September 9, 1999 (File No. 333-86827) (the
"Form S-4").)
2.2* Amendment to Agreement and Plan of Merger X
dated as of September 9, 1999. (Incorporated by
reference to Exhibit 2.2 to the Form S-4.
3 Articles of Incorporation and By-laws
3.1* Restated Articles of Incorporation of Wisconsin Energy X
Corporation, as amended and restated effective June
12, 1995. (Exhibit (3)-1 to Wisconsin Energy's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, File No. 1-9057.)
3.2 Bylaws of Wisconsin Energy, as amended to X
January 25, 2000.
3.3* Restated Articles of Incorporation of Wisconsin X
Electric Power Company, as amended and restated
effective January 10, 1995. (Exhibit (3)-1 to Wisconsin
Electric's Annual Report of Form 10-K for the year
ended December 31, 1994, File No. 1-1245.)
3.4 Bylaws of Wisconsin Electric, as amended to January 25, X
2000.
4 Instruments defining the rights of security holders, including indentures
4.1* Reference is made to Article III of the Restated X X
Articles of Incorporation. (Exhibits 3.1 and 3.3
herein.)
Mortgage, Indenture, Supplemental Indenture or Securities Resolution:
4.2* Mortgage and Deed of Trust of Wisconsin Electric, dated X X
October 28, 1938 (Exhibit B-1 under File No. 2-4340.)
4.3* Second Supplemental Indenture of Wisconsin Electric, X X
dated June 1, 1946 (Exhibit 7-C under File No. 2-6422.)
4.4* Third Supplemental Indenture of Wisconsin Electric, X X
dated March 1, 1949 (Exhibit 7-C under File
No. 2-8456.)
4.5* Fourth Supplemental Indenture of Wisconsin Electric, X X
dated June 1, 1950 (Exhibit 7-D under File No. 2-8456.)
4.6* Fifth Supplemental Indenture of Wisconsin Electric, X X
dated May 1, 1952 (Exhibit 4-G under File No. 2-9588.)
4.7* Sixth Supplemental Indenture of Wisconsin Electric, X X
dated May 1, 1954 (Exhibit 4-H under File No. 2-10846.)
4.8* Seventh Supplemental Indenture of Wisconsin Electric, X X
dated April 15, 1956 (Exhibit 4-I under File
No. 2-12400.)
4.9* Eighth Supplemental Indenture of Wisconsin Electric, X X
dated April 1, 1958 (Exhibit 2-I under File
No. 2-13937.)
4.10* Ninth Supplemental Indenture of Wisconsin Electric, X X
dated November 15, 1960 (Exhibit 2-J under File
No. 2-17087.)
4.11* Tenth Supplemental Indenture of Wisconsin Electric, X X
dated November 1, 1966 (Exhibit 2-K under File
No. 2-25593.)
4.12* Eleventh Supplemental Indenture of Wisconsin Electric, X X
dated November 15, 1967 (Exhibit 2-L under File
No. 2-27504.)
4.13* Twelfth Supplemental Indenture of Wisconsin Electric, X X
dated May 15, 1968 (Exhibit 2-M under File
No. 2-28799.)
4.14* Thirteenth Supplemental Indenture of Wisconsin X X
Electric, dated May 15, 1969 (Exhibit 2-N under
File No. 2-32629.)
4.15* Fourteenth Supplemental Indenture of Wisconsin X X
Electric, dated November 1, 1969 (Exhibit 2-O under
File No. 2-34942.)
4.16* Fifteenth Supplemental Indenture of Wisconsin Electric, X X
dated July 15, 1976 (Exhibit 2-P under File
No. 2-54211.)
4.17* Sixteenth Supplemental Indenture of Wisconsin Electric, X X
dated January 1, 1978 (Exhibit 2-Q under File
No. 2-61220.)
4.18* Seventeenth Supplemental Indenture of Wisconsin X X
Electric, dated May 1, 1978 (Exhibit 2-R under File
No. 2-61220.)
4.19* Eighteenth Supplemental Indenture of Wisconsin X X
Electric, dated May 15, 1978 (Exhibit 2-S under
File No. 2-61220.)
4.20* Nineteenth Supplemental Indenture of Wisconsin X X
Electric, dated August 1, 1979 (Exhibit (a)2(a) under
File No. 1-1245, 9/30/79 Wisconsin Electric Form 10-Q.)
4.21* Twentieth Supplemental Indenture of Wisconsin Electric, X X
dated November 15, 1979 (Exhibit (a)2(a) under File
No. 1-1245, 12/31/79 Wisconsin Electric Form 10-K.)
4.22* Twenty-First Supplemental Indenture of Wisconsin X X
Electric, dated April 15, 1980 (Exhibit (4)-21 under
File No. 2-69488.)
4.23* Twenty-Second Supplemental Indenture of Wisconsin X X
Electric, dated December 1, 1980 (Exhibit (4)-l under
File No. 1-1245, 12/31/80 Wisconsin Electric
Form 10-K.)
4.24* Twenty-Third Supplemental Indenture of Wisconsin X X
Electric, dated September 15, 1985 (Exhibit (4)-l under
File No. 1-1245, 9/30/85 Wisconsin Electric Form 10-Q.)
4.25* Twenty-Fourth Supplemental Indenture of Wisconsin X X
Electric, dated September 15, 1985 (Exhibit (4)-1 under
File No. 1-1245, 9/30/85 Wisconsin Electric Form 10-Q.)
4.26* Twenty-Fifth Supplemental Indenture of Wisconsin X X
Electric, dated December 15, 1986 (Exhibit (4)-25 under
File No. 1-1245, 12/31/86 Wisconsin Electric
Form 10-K.)
4.27* Twenty-Sixth Supplemental Indenture of Wisconsin X X
Electric, dated January 1, 1988 (Exhibit 4 under File
No. 1-1245, 1/26/88 Wisconsin Electric Form 8-K.)
4.28* Twenty-Seventh Supplemental Indenture of Wisconsin X X
Electric, dated April 15, 1988 (Exhibit 4 under File
No. 1-1245, 3/31/88 Wisconsin Electric Form 10-Q.)
4.29* Twenty-Eighth Supplemental Indenture of Wisconsin X X
Electric, dated September 1, 1989 (Exhibit 4 under File
No. 1-1245, 9/30/89 Wisconsin Electric Form 10-Q.)
4.30* Twenty-Ninth Supplemental Indenture of Wisconsin X X
Electric, dated October 1, 1991 (Exhibit 4-1 under File
No. 1-1245, 12/31/91 Wisconsin Electric Form 10-K.)
4.31* Thirtieth Supplemental Indenture of Wisconsin Electric, X X
dated December 1, 1991 (Exhibit 4-2 under File
No. 1-1245, 12/31/91 Wisconsin Electric Form 10-K.)
4.32* Thirty-First Supplemental Indenture of Wisconsin X X
Electric, dated August 1, 1992 (Exhibit 4-1 under File
No. 1-1245, 6/30/92 Wisconsin Electric Form 10-Q.)
4.33* Thirty-Second Supplemental Indenture of Wisconsin X X
Electric, dated August 1, 1992 (Exhibit 4-2 under File
No. 1-1245, 6/30/92 Wisconsin Electric Form 10-Q.)
4.34* Thirty-Third Supplemental Indenture of Wisconsin X X
Electric, dated October 1, 1992 (Exhibit 4-1 under File
No. 1-1245, 9/30/92 Wisconsin Electric Form 10-Q.)
4.35* Thirty-Fourth Supplemental Indenture of Wisconsin X X
Electric, dated November 1, 1992 (Exhibit 4-2 under
File No. 1-1245, 9/30/92 Wisconsin Electric Form 10-Q.)
4.36* Thirty-Fifth Supplemental Indenture of Wisconsin X X
Electric, dated December 15, 1992 (Exhibit 4-1 under
File No. 1-1245, 12/31/92 Wisconsin Electric
Form 10-K.)
4.37* Thirty-Sixth Supplemental Indenture of Wisconsin X X
Electric, dated January 15, 1993 (Exhibit 4-2 under
File No. 1-1245, 12/31/92 Wisconsin Electric
Form 10-K.)
4.38* Thirty-Seventh Supplemental Indenture of Wisconsin X X
Electric, dated March 15, 1993 (Exhibit 4-3 under File
No. 1-1245, 12/31/92 Wisconsin Electric Form 10-K.)
4.39* Thirty-Eighth Supplemental Indenture of Wisconsin X X
Electric, dated August 1, 1993 (Exhibit (4)-l under
File No. 1-1245, 6/30/93 Wisconsin Electric
Form 10-Q.)
4.40* Thirty-Ninth Supplemental Indenture of Wisconsin X X
Electric, dated September 15, 1993 (Exhibit (4)-1 under
File No. 1-1245, 9/30/93 Wisconsin Electric Form 10-Q.)
4.41* Fortieth Supplemental Indenture of Wisconsin Electric, X X
dated January 1, 1996 (Exhibit (4)-1 under File
No. 1-1245, 1/1/96 Wisconsin Electric Form 8-K.)
4.42* Indenture for Debt Securities of Wisconsin Electric X X
(the "Wisconsin Electric Indenture"), dated December 1,
1995 (Exhibit (4)-l under File No. 1-1245, 12/31/95
Wisconsin Electric Form 10-K.)
4.43* Securities Resolution No. 1 of Wisconsin Electric X X
under the Wisconsin Electric Indenture, dated
December 5, 1995 (Exhibit (4)-2 under File No. 1-1245,
12/31/95 Wisconsin Electric Form 10-K.)
4.44* Securities Resolution No. 2 of Wisconsin Electric X X
under the Wisconsin Electric Indenture, dated
November 12, 1996 (Exhibit 4.44 under File No. 1-9057,
12/31/96 Wisconsin Energy Corporation Form 10-K.)
4.45* Securities Resolution No. 3 of Wisconsin Electric X X
under the Wisconsin Electric Indenture, dated May 27,
1998 (Exhibit (4)-1 under File No. 1-1245, 6/30/98
Wisconsin Electric Form 10-Q.)
4.46 Securities Resolution No. 4 of Wisconsin Electric X X
under the Wisconsin Electric Indenture, dated
November 30, 1999.
4.47* Indenture for Debt Securities of Wisconsin X
Energy (the "Wisconsin Energy Indenture"),
dated as of March 15, 1999 (Exhibit 4.46 under
File No. 1-9057, 3/25/1999 Wisconsin Energy
Form 8-K.)
4.48* Securities Resolution No. 1 of Wisconsin Energy X
under the Wisconsin Energy Indenture, dated as
of March 16, 1999 (Exhibit 4.47 under File
No. 1-9057, 3/25/1999 Wisconsin Energy
Form 8-K.)
4.49* Amended and Restated Trust Agreement among X
Wisconsin Energy, as Depositor, The First
National Bank Chicago, as property Trustee,
First Chicago Delaware Inc, as Trustee, and the
Administrative Trustees for WEC Capital Trust I,
dated as of March 25, 1999 (Exhibit 4.48 under
File No. 1-9057, 3/25/1999 Wisconsin Energy
Form 8-K.)
4.50* Guarantee Agreement between Wisconsin X
Energy, as Guarantor, and The First National
Bank of Chicago, as Trustee, dated as of
March 25, 1999 (Exhibit 4.49 under File No.
1-9057, 3/25/1999 Wisconsin Energy Form 8-K.)
Certain agreements and instruments with respect
to long-term debt not exceeding 10 percent of the
total assets of the Registrant and its subsidiaries
on a consolidated basis have been omitted as
permitted by related instructions. The Registrant
agrees pursuant to Item 601 (b)(4) of Regulation
S-K to furnish to the Securities and Exchange
Commission, upon request, a copy of all such
agreements and instruments.
10 Material Contracts
10.1(a)*Employment arrangement with Michael B. Sellman as Chief X X
Nuclear Officer of Wisconsin Electric, effective
March 2, 1998, as amended and restated as of August 3,
1999. (Exhibit 10.1 to Wisconsin Energy's Annual Report
on Form 10-K for the year ended December 31, 1997,
File No. 1-9057.) ** See Note.
10.1(b) Letter agreement amending employment agreement as of X X
August 3, 1999.** See Note.
10.2* Supplemental Executive Retirement Plan of Wisconsin X
Energy Corporation (as amended and restated as of
January 2, 1999). (Exhibit (10)-1 to Wisconsin Energy
Corporation's 6/30/1999 10-Q.) ** See Note.
10.3* Amended Non-Qualified Trust Agreement by and between X X
Wisconsin Energy Corporation and Firstar Trust Company
dated January 26, 1996, regarding trust established to
provide a source of funds to assist in meeting of the
liabilities under various nonqaulified deferred
compensation plans made between Wisconsin Energy
Corporation or its subsidiaries and various plan
participants. (Exhibit (10)-2 to Wisconsin Energy's
Annual Report on Form 10-K for the year
ended December 31, 1995, File No. 1-9057.) ** See Note.
10.4* Executive Deferred Compensation Plan of Wisconsin X
Energy Corporation, effective January 1, 1989, as
amended and restated as of June 2, 1999. (Exhibit
(10)-2 to Wisconsin Energy Corporation's 6/30/1999
10-Q.) **See Note.
10.5* Directors' Deferred Compensation Plan of Wisconsin X
Energy Corporation, effective January 1, 1987, and as
restated as of January 1, 1996. (Exhibit (10)-4 to
Wisconsin Energy Corporation's Annual Report on Form
10-K for the year ended December 31, 1995, File
No. 1-9057.) ** See Note.
10.6* Forms of Stock Option Agreements under 1993 Omnibus X
Stock Incentive Plan. (Exhibit (10)-5 to Wisconsin
Energy Corporation's Annual Report on Form 10-K for the
year ended December 31, 1995,File No. 1-9057.)
** See Note.
10.7* Supplemental Benefits Agreement between Wisconsin X X
Energy Corporation and Calvin H. Baker dated
November 21, 1994. (Exhibit (10)-7 to Wisconsin
Energy Corporation's Annual Report on Form 10-K for
the year ended December 31, 1995, File No. 1-9057.)
**See Note.
10.8* Supplemental Benefits Agreement between Wisconsin X X
Energy Corporation and Richard A. Abdoo dated
November 21, 1994, as amended by and April 26, 1995
letter agreement. (Exhibit (10)-1 to Wisconsin Energy
Corporation's 6/30/95 10-Q.) ** See Note.
10.9* Wisconsin Energy Corporation Senior Executive Severance X X
Policy, as adopted effective April 28, 1995 and amended
on July 26, 1995. (Exhibit (10)-3 to Wisconsin Energy
Corporation's 6/30/95 10-Q.)** See Note.
10.10* 1993 Omnibus Stock Incentive Plan adopted by the board X
of directors on December 15, 1993, approved by
shareholders at the Annual Meeting of Stockholders held
on May 11, 1994, and amended by the board of directors
on May 19, 1998 offering performance-based incentives
and other equity interests in Wisconsin Energy
Corporation to directors, officers and other key
employees (Exhibit 10.10 to Wisconsin Energy
Corporation's 12/31/1998 10-K.)** See Note.
10.11* 1998 Revised forms of award agreements under 1993 X
Omnibus Stock Incentive Plan, as amended, for
non-qualified stock option awards to non-employee
directors, restricted stock awards, incentive stock
option awards (Exhibit 10.11 to Wisconsin Energy
Corporation's 12/31/1998 10-K.)** See Note.
10.12* Short-Term Performance Plan of Wisconsin Energy X
Corporation effective January 1, 1992, as amended and
restated as of June 2, 1999. (Exhibit (10)-3 to
Wisconsin Energy Corporation's 6/30/1999 10-Q.)**
See Note.
10.13* Service Agreement dated January 1, 1987, between X X
Wisconsin Electric, Wisconsin Energy Corporation and
other non-utility affiliated companies. (Exhibit
(10)-(a) to Wisconsin Electric's Current Report on Form
8-K dated January 2, 1987 in File No. 1-1245.)
10.14* Senior Officer Change in Control Agreement X
between Wisconsin Energy Corporation and
Richard A. Abdoo effective July 29, 1999.
(Exhibit (10)-4 to Wisconsin Energy Corporation's
6/30/1999 10-Q.)** See Note.
10.15* Employment arrangement with Paul Donovan as Senior X
Vice President and Chief Financial Officer of
Wisconsin Energy Corporation, effective August 20,
1999. (Exhibit (10)-1 to Wisconsin Energy
Corporation's 9/30/1999 10-Q.)** See Note.
10.16 Senior Officer Change in Control, Severance and Special X
Pension Agreement between Wisconsin Energy Corporation
and Paul Donovan effective March 8, 2000.** See Note.
Note: Two asterisks (**) identify management contracts and
executive compensation plans or arrangements required to be
filed as exhibits pursuant to Item 14(c ) of Form 10-K.
Certain compensatory plans in which directors or executive
officers of Wisconsin Electric are eligible to participate are
not filed as Wisconsin Electric exhibits in reliance on the
exclusion in Item 601(b)(10)(iii)(B)(6) of Regulation S-K.
21 Subsidiaries of the registrant
21.1 Subsidiaries of Wisconsin Energy Corporation X
23 Consents of experts and counsel
23.1 PricewaterhouseCoopers LLP - Milwaukee, WI Consent of X X
Independent Accountants appearing in this Annual Report
on Form 10-K for the year ended December 31, 1999.
27 Financial data schedule
27.1 Financial Data Schedule for the fiscal year ended X X
December 31, 1999.
27.2 Restated Financial Data Schedule for the fiscal year X X
ended December 31, 1998.
27.3 Restated Financial Data Schedule for the fiscal year X X
ended December 31, 1997.
Additional exhibits
99 99.1 Information furnished in lieu of the Form 11-K Annual X
Report for Employee Retirement Savings Plan for the
year ended December 31, 1999. (To be filed by
amendment.)
indicates incorporation by reference pursuant to
Exchange Act Rule 12b-32.)
Number Exhibit
- ------ ----------------------------------------------------
3 Articles of Incorporation and Bylaws
3.1 * Restated Articles of Incorporation of
Wisconsin Electric Power Company, as
amended and restated effective
January 10, 1995. (Exhibit (3)-1 to
Wisconsin Electric's Annual Report of
Form 10-K for the year ended
December 31, 1994, File No. 1-1245.)
3.2 * Bylaws of Wisconsin Electric, as amended to
May 1, 2000. (Exhibit 3.1 to Wisconsin
Electric's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000).
4 Instruments defining the rights of security
holders, including indentures
4.1 * Reference is made to Article III of the
Restated Articles of Incorporation.
(Exhibits 3.1 herein.)
Mortgage, Indenture, Supplemental Indenture or
Securities Resolutions:
4.2 * Mortgage and Deed of Trust of Wisconsin
Electric, dated October 28, 1938 (Exhibit B-
1 under File No. 2-4340.)
4.3 * Second Supplemental Indenture of Wisconsin
Electric, dated June 1, 1946 (Exhibit 7-C
under File No. 2-6422.)
4.4 * Third Supplemental Indenture of Wisconsin
Electric, dated March 1, 1949 (Exhibit 7-C
under File No. 2-8456.)
4.5 * Fourth Supplemental Indenture of Wisconsin
Electric, dated June 1, 1950 (Exhibit 7-D
under File No. 2-8456.)
4.6 * Fifth Supplemental Indenture of Wisconsin
Electric, dated May 1, 1952 (Exhibit 4-G
under File No. 2-9588.)
4.7 * Sixth Supplemental Indenture of Wisconsin
Electric, dated May 1, 1954 (Exhibit 4-H
under File No. 2-10846.)
4.8 * Seventh Supplemental Indenture of Wisconsin
Electric, dated April 15, 1956 (Exhibit 4-I
under File No. 2-12400.)
4.9 * Eighth Supplemental Indenture of Wisconsin
Electric, dated April 1, 1958 (Exhibit 2-I
under File No. 2-13937.)
4.10 * Ninth Supplemental Indenture of Wisconsin
Electric, dated November 15, 1960
(Exhibit 2-J under File No. 2-17087.)
4.11 * Tenth Supplemental Indenture of Wisconsin
Electric, dated November 1, 1966 (Exhibit 2-
K under File No. 2-25593.)
4.12 * Eleventh Supplemental Indenture of
Wisconsin Electric, dated November 15, 1967
(Exhibit 2-L under File No. 2-27504.)
4.13 * Twelfth Supplemental Indenture of Wisconsin
Electric, dated May 15, 1968 (Exhibit 2-M
under File No. 2-28799.)
4.14 * Thirteenth Supplemental Indenture of
Wisconsin Electric, dated May 15, 1969
(Exhibit 2-N under File No. 2-32629.)
4.15 * Fourteenth Supplemental Indenture of
Wisconsin Electric, dated November 1, 1969
(Exhibit 2-O under File No. 2-34942.)
4.16 * Fifteenth Supplemental Indenture of
Wisconsin Electric, dated July 15, 1976
(Exhibit 2-P under File No. 2-54211.)
4.17 * Sixteenth Supplemental Indenture of
Wisconsin Electric, dated January 1, 1978
(Exhibit 2-Q under File No. 2-61220.)
4.18 * Seventeenth Supplemental Indenture of
Wisconsin Electric, dated May 1, 1978
(Exhibit 2-R under File No. 2-61220.)
4.19 * Eighteenth Supplemental Indenture of
Wisconsin Electric, dated May 15, 1978
(Exhibit 2-S under File No. 2-61220.)
4.20 * Nineteenth Supplemental Indenture of
Wisconsin Electric, dated August 1, 1979
(Exhibit (a)2(a) under File No. 1-1245,
9/30/79 Wisconsin Electric Form 10-Q.)
4.21 * Twentieth Supplemental Indenture of
Wisconsin Electric, dated November 15, 1979
(Exhibit (a)2(a) under File No. 1-1245,
12/31/79 Wisconsin Electric Form 10-K.)
4.22 * Twenty-First Supplemental Indenture of
Wisconsin Electric, dated April 15, 1980
(Exhibit (4)-21 under File No. 2-69488.)
4.23 * Twenty-Second Supplemental Indenture of
Wisconsin Electric, dated December 1, 1980
(Exhibit (4)-1 under File No. 1-1245,
12/31/80 Wisconsin Electric Form 10-K.)
4.24 * Twenty-Third Supplemental Indenture of
Wisconsin Electric, dated September 15,
1985 (Exhibit (4)-1 under File No. 1-1245,
9/30/85 Wisconsin Electric Form 10-Q.)
4.25 * Twenty-Fourth Supplemental Indenture of
Wisconsin Electric, dated September 15,
1985 (Exhibit (4)-1 under File No. 1-1245,
9/30/85 Wisconsin Electric Form 10-Q.)
4.26 * Twenty-Fifth Supplemental Indenture of
Wisconsin Electric, dated December 15, 1986
(Exhibit (4)-25 under File No. 1-1245,
12/31/86 Wisconsin Electric Form 10-K.)
4.27 * Twenty-Sixth Supplemental Indenture of
Wisconsin Electric, dated January 1, 1988
(Exhibit 4 under File No. 1-1245, 1/26/88
Wisconsin Electric Form 8-K.)
4.28 * Twenty-Seventh Supplemental Indenture of
Wisconsin Electric, dated April 15, 1988
(Exhibit 4 under File No. 1-1245, 3/31/88
Wisconsin Electric Form 10-Q.)
4.29 * Twenty-Eighth Supplemental Indenture of
Wisconsin Electric, dated September 1, 1989
(Exhibit 4 under File No. 1-1245, 9/30/89
Wisconsin Electric Form 10-Q.)
4.30 * Twenty-Ninth Supplemental Indenture of
Wisconsin Electric, dated October 1, 1991
(Exhibit 4-1 under File No. 1-1245,
12/31/91 Wisconsin Electric Form 10-K.)
4.31 * Thirtieth Supplemental Indenture of
Wisconsin Electric, dated December 1, 1991
(Exhibit 4-2 under File No. 1-1245,
12/31/91 Wisconsin Electric Form 10-K.)
4.32 * Thirty-First Supplemental Indenture of
Wisconsin Electric, dated August 1, 1992
(Exhibit 4-1 under File No. 1-1245, 6/30/92
Wisconsin Electric Form 10-Q.)
4.33 * Thirty-Second Supplemental Indenture of
Wisconsin Electric, dated August 1, 1992
(Exhibit 4-2 under File No. 1-1245, 6/30/92
Wisconsin Electric Form 10-Q.)
4.34 * Thirty-Third Supplemental Indenture of
Wisconsin Electric, dated October 1, 1992
(Exhibit 4-1 under File No. 1-1245, 9/30/92
Wisconsin Electric Form 10-Q.)
4.35 * Thirty-Fourth Supplemental Indenture of
Wisconsin Electric, dated November 1, 1992
(Exhibit 4-2 under File No. 1-1245, 9/30/92
Wisconsin Electric Form 10-Q.)
4.36 * Thirty-Fifth Supplemental Indenture of
Wisconsin Electric, dated December 15, 1992
(Exhibit 4-1 under File No. 1-1245,
12/31/92 Wisconsin Electric Form 10-K.)
4.37 * Thirty-Sixth Supplemental Indenture of
Wisconsin Electric, dated January 15, 1993
(Exhibit 4-2 under File No. 1-1245,
12/31/92 Wisconsin Electric Form 10-K.)
4.38 * Thirty-Seventh Supplemental Indenture of
Wisconsin Electric, dated March 15, 1993
(Exhibit 4-3 under File No. 1-1245,
12/31/92 Wisconsin Electric Form 10-K.)
4.39 * Thirty-Eighth Supplemental Indenture of
Wisconsin Electric, dated August 1, 1993
(Exhibit (4)-1 under File No. 1-1245,
6/30/93 Wisconsin Electric Form 10-Q.)
4.40 * Thirty-Ninth Supplemental Indenture of
Wisconsin Electric, dated September 15,
1993 (Exhibit (4)-1 under File No. 1-1245,
9/30/93 Wisconsin Electric Form 10-Q.)
4.41 * Fortieth Supplemental Indenture of
Wisconsin Electric, dated January 1, 1996
(Exhibit (4)-1 under File No. 1-1245,
1/1/96 Wisconsin Electric Form 8-K.)
4.42 * Indenture for Debt Securities of Wisconsin
Electric (the "Wisconsin Electric
Indenture"), dated December 1, 1995
(Exhibit (4)-1 under File No. 1-1245,
12/31/95 Wisconsin Electric Form 10-K.)
4.43 * Securities Resolution No. 1 of Wisconsin
Electric under the Wisconsin Electric
Indenture, dated December 5, 1995
(Exhibit (4)-2 under File No. 1-1245,
12/31/95 Wisconsin Electric Form 10-K.)
4.44 * Securities Resolution No. 2 of Wisconsin
Electric under the Wisconsin Electric
Indenture, dated November 12, 1996
(Exhibit 4.44 under File No. 1-9057,
12/31/96 Wisconsin Energy Corporation
Form 10-K.)
4.45 * Securities Resolution No. 3 of Wisconsin
Electric under the Wisconsin Electric
Indenture, dated May 27, 1998 (Exhibit (4)-
1 under File No. 1-1245, 6/30/98 Wisconsin
Electric Form 10-Q.)
4.46 * Securities Resolution No. 4 of Wisconsin
Electric under the Wisconsin Electric
Indenture, dated November 30, 1999
Certain agreements and instruments with
respect to long-term debt not exceeding
10 percent of the total assets of the
Registrant and its subsidiaries on a
consolidated basis have been omitted as
permitted by related instructions. The
Registrant agrees pursuant to
Item 601(b)(4) of Regulation S-K to furnish
to the Securities and Exchange Commission,
upon request, a copy of all such agreements
and instruments.
10 Material Contracts
10.1 * Non-Qualified Trust Agreement by and
between Wisconsin Energy Corporation and
The Northern Trust Company dated
December 1, 2000, regarding trust
established to provide a source of funds to
assist in meeting of the liabilities under
various nonqualified deferred compensation
plans made between Wisconsin Energy
Corporation or its subsidiaries and various
plan participants. (Exhibit 10.2 to
Wisconsin Energy's Annual Report on Form 10-
K for the year ended December 31, 2000,
File No. 001-09057.)** See Note.
10.2 * Supplemental Benefits Agreement between
Wisconsin Energy Corporation and Richard A.
Abdoo dated November 21, 1994, as amended
by an April 26, 1995 letter agreement.
(Exhibit 10.1 to Wisconsin Energy
Corporation's 6/30/95 Form 10-Q.) **
See Note.
10.3 * Amended and Restated Wisconsin Energy
Corporation Special Executive Severance
Policy, effective April 26, 2000.
(Exhibit 10.3 to Wisconsin Energy
Corporation's 3/31/2000 Form 10-Q.)
** See Note.
10.4 * Service Agreement dated January 1, 1987,
between Wisconsin Electric, Wisconsin
Energy Corporation and other non-utility
affiliated companies. (Exhibit (10)(a) to
Wisconsin Electric's Current Report on
Form 8-K dated January 2, 1987 in File
No. 1-1245.)
10.5* Employment arrangement with Charles R.
Cole, effective August 1, 1999.
(Exhibit 10.3 to Wisconsin Energy's Annual
Report on Form 10-K for the year ended
December 31, 2000, File No. 001-09057.)**
See Note.
10.6* Employment arrangement with Larry Salustro,
effective December 12, 1997. (Exhibit 10.7
to Wisconsin Energy's Annual Report on
Form 10-K for the year ended December 31,
2000, File No. 001-09057.)** See Note.
10.7* Service Agreement, dated April 25, 2000,
between Wisconsin Electric Power Company
and Wisconsin Gas Company. (Exhibit 10.32
to Wisconsin Energy's Annual Report on
Form 10-K for the year ended December 31,
2000, File No. 001-09057.)
10.8* Service Agreement, dated December 29, 2000,
between Wisconsin Electric Power Company
and American Transmission Company LLC.
(Exhibit 10.33 to Wisconsin Energy's Annual
Report on Form 10-K for the year ended
December 31, 2000, File No. 001-09057.)
10.9* Senior Officer Change in Control,
Severance, Special Pension, and Non-Compete
Agreement between Wisconsin Energy
Corporation and Paul Donovan effective
November 8, 2000. (Exhibit 10.1 to
Wisconsin Energy Corporation's 9/30/00
Form 10-Q, File No. 001-09057.)** See
Note.
10.10* Employment agreement with George E.
Wardeberg as Vice Chairmen of the Board of
Directors of Wisconsin Energy Corporation,
effective April 26, 2000. (Exhibit 10.2(a)
to Wisconsin Energy Corporation's 3/31/2000
Form 10-Q, File No. 001-09057.)** See
Note.
10.11* Non-Qualified Stock Option Agreement with
George E. Wardeberg, dated April 26, 2000,
granted pursuant to the Employment
Agreement. (Exhibit 10.2(b) to Wisconsin
Energy Corporation's 3/31/2000 Form 10-Q,
File No. 001-09057.)** See Note.
10.12* Senior Officer Change in Control, Severance
and Non-Compete Agreement between Wisconsin
Energy Corporation and Richard R. Grigg
effective January 29, 2001. (Exhibit 10.20
to Wisconsin Energy's Annual Report on
Form 10-K for the year ended December 31,
2000, File No. 001-09057.)**See Note.
10.13* Form of Deferred Compensation Agreements
between Wisconsin Gas Company and certain
of its executive officers (Incorporated by
reference to WICOR, Inc.'s Annual Report on
Form 10-K for 1990 (File No. 001-
079511).)**See Note.
10.14* Form of amendment to the Deferred
Compensation Agreement between Wisconsin
Gas Company and Thomas F. Schrader
(Incorporated by reference to Exhibit 10.1
to WICOR, Inc.'s Quarterly Report on
Form 10-Q dated November 12, 1999 (File
No. 001-07951).)**See Note.
Note: Two asterisks (**) identify management
contracts and executive compensation plans or
arrangements required to be filed as exhibits
pursuant to Item 14(c) of Form 10-K. Certain
compensatory plans in which directors or
executive officers of Wisconsin Electric are
eligible to participate are not filed as
Wisconsin Electric exhibits in reliance on the
exclusion in Item 601(b)(10)(iii)(B)(6) of
Regulation S-K.
21 Subsidiaries of the registrant
21.1 Subsidiaries of Wisconsin Electric Power
Company
23 Consents of experts and counsel
23.1 PricewaterhouseCoopers LLP - Milwaukee, WI
Consent of Independent Accountants
appearing in this Annual Report on
Form 10-K for the year ended
December 31, 2000.