UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31,September 30, 2000
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 each 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 the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest
practicable date (May 5,(October 31, 2000):
Wisconsin Energy Corporation Common Stock, $.01 Par Value,
120,451,611 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 Company Common Stock.
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
--------------------------------
FORM 10-Q REPORT FOR THE QUARTER ENDED MARCH 31,SEPTEMBER 30, 2000
TABLE OF CONTENTS
Item Page
- ---- ----
Introduction...............................................................
Part I - Financial Information
------------------------------
1. Financial Statements
Wisconsin Energy
Consolidated Condensed Income Statement................................
ConsolidatedStatement...............................................
Condensed Balance Sheet...................................
ConsolidatedSheet..................................................
Condensed Statement of Cash Flows...................................
Wisconsin Electric
Condensed Income Statement.............................................
Condensed Balance Sheet................................................
Statement of Cash Flows................................................Flows........................................
Notes to Financial Statement of
Wisconsin Energy and Wisconsin Electric................................Statement.............................................
2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations for Wisconsin Energy and Wisconsin Electric................Operations...........................
3. Quantitative and Qualitative Disclosures About Market Risk.................
Part II - Other Information
---------------------------
1. Legal Proceedings..........................................................
6. Exhibits and Reports on Form 8-K...........................................
Signatures.................................................................
INTRODUCTION
Wisconsin Energy Corporation ("Wisconsin Energy" or the
"Company") is a holding company whose principal subsidiary as of
March 31, 2000 is Wisconsin Electric Power Company ("Wisconsin Electric" or "the
Company"), a wholly-owned subsidiary of Wisconsin Energy
Corporation ("Wisconsin Energy"), is an electric, gas and steam
utility. Unless qualified
by its context when usedutility with operations in this combined Form 10-Q,the states of Wisconsin Energy refers to the holding company and all of its subsidiaries.Michigan.
The unaudited interim financial statements presented in this
combined Form 10-Q report include the consolidated statements of
Wisconsin Energy as well as separate statements for Wisconsin
Electric. These unaudited statements have been prepared by
Wisconsin Energy and Wisconsin Electric pursuant to
the rules and regulations of the Securities and Exchange
Commission. Certain information and footnotenote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Wisconsin Energy and
Wisconsin Electric financial
statements should be read in conjunction with the financial
statements and notes thereto included in the companies' combinedWisconsin Electric's
1999 Annual Report on Form 10-K
for the year ended December 31, 1999. This combined Form 10-Q is
separately filed by Wisconsin Energy and Wisconsin Electric.
Information contained herein relating to any individual
registrant is filed by such registrant on its own behalf.10-K.
PART 1I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED INCOME STATEMENT
(Unaudited)
Three Months Ended March 31
---------------------------
2000 1999
----------- ---------
(Thousands of Dollars, Except Per Share Amounts)
Operating Revenues $627,750 $556,717
Operating Expenses
Fuel 94,553 70,735
Purchased power 65,779 49,660
Cost of gas sold 69,292 68,860
Other operation and maintenance 185,140 182,466
Depreciation and amortization 103,660 66,956
Property and revenue tax 20,727 17,724
-------- --------
Total Operating Expenses 539,151 456,401
-------- --------
Pretax Operating Income 88,599 100,316
Other Income and Deductions
Interest income 6,789 8,349
Allowance for other funds
used during construction 862 984
Other 29,741 4,446
-------- --------
Total Other Income and Deductions 37,392 13,779
Interest Charges and Other
Interest expense 42,543 33,566
Allowance for borrowed funds
used during construction (3,099) (1,900)
Distributions on preferred
securities of subsidiary trust 3,425 228
Preferred dividend
requirement of subsidiary 301 301
-------- --------
Total Interest Charges and Other 43,170 32,195
-------- --------
Income Before Income Taxes 82,821 81,900
Income Taxes 32,227 28,389
-------- --------
Net Income $50,594 $53,511
======== ========
Average Number of Shares of Common
Stock Outstanding (Thousands) 119,512 115,926
Earnings Per Share of Common
Stock (Basic and Diluted) $0.42 $0.46
Dividends Per Share of Common Stock $0.39 $0.39
The accompanying notes, as they relate to Wisconsin Energy Corporation, are an integral
part of these financial statements.
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
March 31, 2000 December 31, 1999
-------------- -----------------
(Thousands of Dollars)
Assets
------
Property, Plant and Equipment
Electric utility $5,203,975 $5,153,388
Gas utility 557,212 552,405
Steam utility 63,935 63,461
Common utility 392,920 391,793
Energy non-utility 207,316 198,954
Other property 368,042 351,057
Accumulated provision for depreciation (3,335,613) (3,249,978)
---------- ----------
3,457,787 3,461,080
Construction work in progress 223,168 174,778
Leased facilities - net 125,907 127,327
Nuclear fuel - net 82,850 83,393
---------- ----------
Net Property, Plant and Equipment 3,889,712 3,846,578
Investments 969,921 950,322
Current Assets
Cash and cash equivalents 24,746 73,477
Accounts receivable 271,529 242,348
Accrued utility revenues 94,636 134,566
Materials, supplies and fossil fuel 196,051 231,615
Prepayments and other assets 99,487 123,865
---------- ----------
Total Current Assets 686,449 805,871
Deferred Charges and Other Assets
Accumulated deferred income taxes 199,832 197,988
Other 452,102 432,361
---------- ----------
Total Deferred Charges and Other Assets 651,934 630,349
---------- ----------
Total Assets $6,198,016 $6,233,120
========== ==========
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $862,627 $839,497
Retained earnings 1,174,830 1,170,765
Unearned compensation - restricted stock award (2,472) (2,518)
---------- ----------
Total Common Stock Equity 2,034,985 2,007,744
Preferred stock 30,450 30,450
Company-obligated, mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the Company 200,000 200,000
Long-term debt 2,135,505 2,134,636
---------- ----------
Total Capitalization 4,400,940 4,372,830
Current Liabilities
Long-term debt due currently 69,339 69,085
Short-term debt 370,285 507,500
Accounts payable 191,196 174,043
Accrued liabilities 151,469 99,666
Other 48,921 48,273
---------- ----------
Total Current Liabilities 831,210 898,567
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 624,325 624,864
Other 341,541 336,859
---------- ----------
Total Deferred Credits and Other Liabilities 965,866 961,723
---------- ----------
Total Capitalization and Liabilities $6,198,016 $6,233,120
========== ==========
The accompanying notes, as they relate to Wisconsin Energy Corporation, are an integral
part of these financial statements.
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31
---------------------------
2000 1999
----------- -----------
(Thousands of Dollars)
Operating Activities
Net income $50,594 $53,511
Reconciliation to cash
Depreciation and amortization 103,660 66,956
Nuclear fuel expense - amortization 7,160 4,718
Conservation expense - amortization 1,407 5,625
Debt premium, discount
and expense - amortization 1,195 762
Deferred income taxes - net (2,501) (2,786)
Investment tax credit - net (1,143) (1,148)
Allowance for other funds
used during construction (862) (984)
Change in - Accounts receivable (29,181) (18,361)
Inventories 35,564 26,647
Other current assets 64,308 28,712
Accounts payable 17,153 (47,556)
Other current liabilities 52,451 58,283
Other (6,791) (21,683)
-------- --------
Cash Provided by Operating Activities 293,014 152,696
Investing Activities
Construction expenditures (134,963) (105,967)
Allowance for borrowed funds
used during construction (3,099) (1,900)
Nuclear fuel (10,594) (6,306)
Nuclear decommissioning trust (36,013) (8,163)
Other 3,547 (1,365)
-------- --------
Cash Used in Investing Activities (181,122) (123,701)
Financing Activities
Sale of - Common stock 23,130 18,711
Long-term debt 15,539 31,482
Mandatorily redeemable trust
preferred securities - 200,000
Retirement of long-term debt (15,548) (11,821)
Change in short-term debt (137,215) (119,919)
Dividends on stock - Common (46,529) (45,169)
-------- --------
Cash Provided by (Used in) Financing Activities (160,623) 73,284
-------- --------
Change in Cash and Cash Equivalents (48,731) 102,279
Cash and Cash Equivalents at Beginning of Period 73,477 16,603
-------- --------
Cash and Cash Equivalents at End of Period $24,746 $118,882
======== ========
Supplemental Information -
Cash Paid (Received) For
Interest (net of amount capitalized) $31,207 $25,425
Income taxes (25,855) 14,649
The accompanying notes, as they relate to Wisconsin Energy Corporation, are an integral
part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED INCOME STATEMENT
(Unaudited)
Three Months Ended March 31
---------------------------------Nine Months Ended
September 30 September 30
------------------------- --------------------------
2000 1999 2000 1999
----------- ---------- ----------- (Thousands----------
(Millions of Dollars)
Operating Revenues $540,778 $527,839$532.7 $513.9 $1,570.4 $1,511.6
Operating Expenses
Fuel 75,272 70,735
Purchaseand purchased power 30,105 31,053138.4 133.2 360.3 344.3
Cost of gas sold 69,292 68,86030.0 22.5 138.6 119.1
Other operation and maintenance 160,772 173,452156.9 158.6 483.5 495.2
Depreciation, decommissioning
and amortization 98,099 64,45067.9 59.3 201.4 174.0
Property and revenue tax 17,445 16,831taxes 16.9 16.8 51.2 50.4
------ ------ -------- --------
Total Operating Expenses 450,985 425,381410.1 390.4 1,235.0 1,183.0
------ ------ -------- --------
Pretax Operating Income 89,793 102,458122.6 123.5 335.4 328.6
Other Income and Deductions
Interest income 3,047 5,6722.5 1.7 4.9 5.4
Allowance for other funds
used during construction 862 9840.5 0.7 2.4 3.1
Other 31,213 5,5240.1 (0.3) (0.2) 5.0
------ ------ -------- --------
Total Other Income and& Deductions 35,122 12,180
Interest Charges3.1 2.1 7.1 13.5
Financing Costs
Interest expense 29,248 28,39729.6 28.7 87.7 85.5
Allowance for borrowed funds
used during construction (423) (481)(0.3) (0.3) (1.2) (1.5)
------ ------ -------- --------
Total Interest Charges 28,825 27,916Financing Costs 29.3 28.4 86.5 84.0
------ ------ -------- --------
Income Before Income Taxes 96,090 86,72296.4 97.2 256.0 258.1
Income Taxes 37,251 30,76139.5 34.9 100.1 91.4
------ ------ -------- --------
Net Income 58,839 55,96156.9 62.3 155.9 166.7
Preferred Stock Dividend Requirement 301 3010.3 0.3 0.9 0.9
------ ------ -------- --------
Earnings Available for Common
Stockholder $58,538 $55,660$56.6 $62.0 $155.0 $165.8
====== ====== ======== ========
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 as they relate to Wisconsin Electric Power Company, are an integral part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED BALANCE SHEET
(Unaudited)
March 31,September 30, 2000 December 31, 1999
-------------------------------- -----------------
(Thousands(Millions of Dollars)
Assets
------
Property, Plant and Equipment
Electric utility $5,120,834 $5,070,246$5,270.9 $5,070.2
Gas utility 557,212 552,405570.8 552.4
Steam utility 63,935 63,46164.1 63.5
Common utility 392,920 391,793398.7 391.8
Other property 7,778 7,5817.2 7.6
Accumulated provision for depreciation (3,270,544) (3,189,890)
---------- ----------
2,872,135 2,895,596(3,349.9) (3,189.9)
-------- --------
2,961.8 2,895.6
Construction work in progress 122,876 99,00285.9 99.0
Leased facilities - net 125,907 127,327123.1 127.3
Nuclear fuel - net 82,850 83,393
---------- ----------87.9 83.4
-------- --------
Net Property, Plant and Equipment 3,203,768 3,205,3183,258.7 3,205.3
Investments 689,233 663,776675.6 663.8
Current Assets
Cash and cash equivalents 6,859 49,85221.0 49.9
Accounts receivable 180,467 166,651177.3 166.6
Accrued utility revenues 93,654 133,42289.5 133.4
Materials, supplies and fossil fuel 167,473 197,221212.9 197.2
Prepayments and other assets 63,694 98,802
---------- ----------52.3 98.8
-------- --------
Total Current Assets 512,147 645,948553.0 645.9
Deferred Charges and Other Assets
Accumulated deferred income taxes 189,997 188,192195.0 188.2
Other 363,561 349,369
---------- ----------365.1 349.4
-------- --------
Total Deferred Charges and Other Assets 553,558 537,561
---------- ----------560.1 537.6
-------- --------
Total Assets $4,958,706 $5,052,603
========== ==========$5,047.4 $5,052.6
======== ========
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $863,582 $863,582
Retained earnings 1,030,916 1,017,271
---------- ----------
Total Common Stock Equity 1,894,498 1,880,853equity $1,901.2 $1,880.9
Preferred stock 30,450 30,45030.4 30.4
Long-term debt 1,671,662 1,677,610
---------- ----------1,667.1 1,677.6
-------- --------
Total Capitalization 3,596,610 3,588,9133,598.7 3,588.9
Current Liabilities
Long-term debt due currently 30,297 30,82224.9 30.8
Short-term debt 117,088 264,664183.7 264.7
Accounts payable 123,068 127,108147.1 127.1
Accrued liabilities 134,502 86,089146.2 86.1
Other 43,341 39,677
---------- ----------31.7 39.7
-------- --------
Total Current Liabilities 448,296 548,360533.6 548.4
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 609,505 610,040611.3 610.0
Other 304,295 305,290
---------- ----------303.8 305.3
-------- --------
Total Deferred Credits and Other Liabilities 913,800 915,330
---------- ----------915.1 915.3
-------- --------
Total Capitalization and Liabilities $4,958,706 $5,052,603
========== ==========$5,047.4 $5,052.6
======== ========
The accompanying notes as they relate to Wisconsin Electric Power Company, are an integral part of these financial statements.
WISCONSIN ELCETRICELECTRIC POWER COMPANY
STATEMENT OF CASH FLOWS
(Unaudited)
ThreeNine Months Ended March 31
---------------------------September 30
------------------------------
2000 1999
----------- -----------
(Thousands---------- ----------
(Millions of Dollars)
Operating Activities
Net income $58,839 $55,961$155.9 $166.7
Reconciliation to cash
Depreciation, decommissioning
and amortization 98,099 64,450207.4 192.9
Nuclear fuel expense - amortization 7,160 4,718
Conservation expense - amortization 1,407 5,625
Debt premium, discount
and expense - amortization 734 65622.5 20.3
Deferred income taxes - net (2,509) (2,794)(6.0) (8.7)
Investment tax credit - net (1,127) (1,132)(3.4) (3.4)
Allowance for other funds
used during construction (862) (984)(2.4) (3.1)
Change in - Accounts receivable (13,816) (22,756)(10.7) (1.1)
Inventories 29,748 26,649(15.7) (2.5)
Other current assets 74,876 32,09390.4 61.7
Accounts payable (4,040) (42,409)20.0 (33.3)
Other current liabilities 52,077 59,01952.1 28.8
Other (5,607) (9,974)
-------- --------26.2 14.7
------ ------
Cash Provided by Operating Activities 294,979 169,122536.3 433.0
Investing Activities
ConstructionCapital expenditures (86,980) (81,432)(252.4) (263.7)
Allowance for borrowed funds
used during construction (423) (481)(1.2) (1.5)
Nuclear fuel (10,594) (6,306)(31.4) (16.0)
Nuclear decommissioning trust (36,013) (8,163)(44.5) (30.7)
Other (3,644) (4,283)
-------- --------(2.8) (6.1)
------ ------
Cash Used in Investing Activities (137,654) (100,665)(332.3) (318.0)
Financing Activities
SaleIssuance of long-term debt - 29,4442.8 30.7
Retirement of long-term debt (7,548) (7,247)(22.7) (70.6)
Change in short-term debt (147,576) (52,819)(81.0) 58.1
Dividends paid on stock - Common (44,893) (44,893)stock (131.1) (134.6)
Preferred (301) (301)
-------- --------stock (0.9) (0.9)
------ ------
Cash Used in Financing Activities (200,318) (75,816)
-------- --------(232.9) (117.3)
------ ------
Change in Cash and Cash Equivalents (42,993) (7,359)(28.9) (2.3)
Cash and Cash Equivalents at Beginning of Period 49,852 14,183
-------- --------49.9 14.2
------ ------
Cash and Cash Equivalents at End of Period $6,859 $6,824
======== ========$21.0 $11.9
====== ======
Supplemental Information - Cash Paid (Received) For
Interest (net of amount capitalized) $25,412 $26,069$93.9 $91.0
Income taxes (26,013) 11,33431.3 98.4
The accompanying notes as they relate to Wisconsin Electric Power Company, are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
GENERAL INFORMATION
1. The accompanying unaudited consolidated financial statements
for Wisconsin Energy Corporation and the unaudited financial statements for Wisconsin
Electric Power Company should be read in conjunction with the companies' combinedItem 8.
Financial Statements and Supplementary Data in Wisconsin
Electric's 1999 Annual Report on Form 10-K. In the opinion of
management, all adjustments, normal and recurring in nature,
necessary to a fair statement of the results of operations, cash
flows and financial position of Wisconsin Energy
and Wisconsin Electric, have been
included in the accompanying income statements, statements of
cash flows and balance sheets. The results of operations for the
three and nine months ended March 31,September 30, 2000 are not
necessarily indicative, however, of the results which may be
expected for the entire year 2000 because of seasonal and other
factors.
2. Due primarily to acquisitions during 1999 by Wisconsin Energy
that increased the size of Wisconsin Energy's non-utility
operations and assets, Wisconsin Energy and Wisconsin Electric
modified their income statement and balance sheet presentations
effective with the second quarter of 1999. PriorCertain prior year financial statementsstatement amounts have been
reclassified to reflectconform to their current year presentation.
ACCOUNTING PRONOUNCEMENTS
3. In June 1998, the new
presentation.
3. On April 26, 2000, Wisconsin Energy acquired WICOR, Inc.
(with its subsidiaries, "WICOR") through the mergerFinancial Accounting Standards Board issued
Statement of an
acquisition subsidiary of Wisconsin Energy into WICOR inFinancial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities
("FAS 133")," which each outstanding share of WICOR common stock (except shares of
restricted stock) was converted into the right to receive $31.50
in cash. WICOR is a diversified holding company with two
principal business groups: energy serviceshas been amended by FAS 137, "Accounting
for Derivative Instruments and pump
manufacturing. The business combination was effected through the
payment of approximately $1.2 billion in cash, including related
fees and expenses. Approximately $300 million of WICOR debt
remained outstanding following the acquisition. In addition,
WICOR's unexercised equity-based compensation awards outstanding
at the effective timeHedging Activities - Deferral
of the merger were converted into 57,745
sharesEffective Date of restricted Wisconsin Energy common stock, into optionsFAS 133, an amendment of FAS 133,"
and by FAS 138, "Accounting for up to 4,619,969 sharesCertain Derivative
Instruments and Certain Hedging Activities, an amendment of
Wisconsin Energy common stock with
a weighted average exercise price of $13.691 per share, and into
deferred stock units payable in 105,520 shares of Wisconsin
Energy common stock. The acquisition was funded throughFAS 133." FAS 133 requires that every derivative instrument
be recorded on the issuance of commercial paper in the institutional private
placement market and will be accounted forbalance sheet as a purchase.
Accordingly, the purchase price will be allocated to the acquired
assets and assumed liabilities based upon theiran asset or liability
measured at its fair value and that changes in the
estimated total costderivative's fair value be recognized currently in excessearnings
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: (a) derivative
instruments; and (b) certain derivative instruments embedded
in hybrid contracts that were issued, acquired or
substantively modified after December 31, 1998. Wisconsin
Electric is in the process of net assets will be
reflected as goodwillidentifying all derivative
instruments, determining fair market values of derivatives,
designating and amortized over 40 years. The
consolidated financial statementsdocumenting hedge relationships, and
evaluating the effectiveness of those hedge relationships.
Through this process, the Company has identified a limited
number of physical 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 Wisconsin Electric's exposure to commodity price
volatility. While a number of derivatives have been
identified, the inventory process is not yet complete and the
fair market values of all derivatives identified have not
been determined. Consequently, Wisconsin Electric has not
completed an assessment of the Company will reflect
the business combination and WICOR's financial results from and
after the dateimplications of acquisition.
For additional information relatedadopting
FAS 133 at this time. Wisconsin Electric expects to
the acquisition of
WICOR, see Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Factors
Affecting Results of Operations" and "Liquidity and Capital
Resources" in Part I of this report.implement FAS 133 on January 1, 2001.
SEGMENT INFORMATION
4. During the first three months of 2000, Wispark Corporation,Wisconsin Electric, a wholly-owned subsidiary of Wisconsin
Energy secured
$15.5 million of bank financing in the form of adjustable rate
mortgage notes due 2000-2003Corporation, has organized its operating segments
according to finance the construction or
purchase of various facilities.
5. WISCONSIN ENERGY:how it is currently regulated. Wisconsin Energy, a holding company with
subsidiaries in utility and non-utility businesses, has twoElectric's
reportable operating segments: a utility energy 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 fromsegments include electric, natural gas and
steam operations.
Electric operations engageutility segments. The electric utility engages 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 inThe natural gas utility is 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. Steam
operations engage in the production, distributionThe steam utility produces, distributes and
sale ofsells steam to space heating and processing customers in the
Milwaukee, Wisconsin area.
The reportable non-utility energy segment derives its
revenues primarily from energy activities including
independent power production and energy marketing, services
and trading.
The following table summarizes the reportable operating
segments of Wisconsin Energy for the three month periods
ended March 31.
Energy
---------------------------------------
Wisconsin Energy
Corporation Utility Non-Utility Subtotal Other (a) Total
- ---------------- ----------- ----------- ---------- ----------- ----------
(Thousands of Dollars)
March 31, 2000
--------------
Three Months Ended
Operating Revenues $549,722 $69,073 $618,795 $8,955 $627,750
Pretax Operating
Income (Loss) (b) 91,400 (1,898) 89,502 (903) 88,599
March 31, 1999
--------------
Three Months Ended
Operating Revenues $536,720 $14,039 $550,759 $5,958 $556,717
Pretax Operating
Income (Loss) (b) 104,316 (3,981) 100,335 (19) 100,316
(a) Other includes non-utility real estate investment and development and non-utility
investments in recycling technology.
(b) Interest income and interest expense are not included in segment pretax operating
income.
WISCONSIN ELECTRIC: Wisconsin Electric, Wisconsin Energy's
principal subsidiary, has organized its operating segments
according to how it is currently regulated. Wisconsin
Electric's reportable operating segments include electric,
gas and steam utility segments. The following table summarizes the
reportable operating segments of Wisconsin Electric for the three
and nine month periods ended March 31.September 30, 2000 and 1999.
Wisconsin Electric
Power Company Electric Gas Steam Total
- ------------------ ---------- ------- --------- ---------
--------- ---------
(Thousands(Millions of Dollars)
March 31, 2000
--------------
Three Months Ended
------------------
September 30, 2000
Operating Revenues (a) $414,890 $118,457 $7,431 $540,778
Pretax$481.6 $48.6 $2.5 $532.7
Operating Income (Loss) (b) 132.8 (8.2) (2.0) 122.6
September 30, 1999
Operating Revenues (a) $468.7 $41.6 $3.6 $513.9
Operating Income (Loss) (b) 130.2 (5.9) (0.8) 123.5
Nine Months Ended
-----------------
September 30, 2000
Operating Revenues (a) $1,323.7 $231.5 $15.2 $1,570.4
Operating Income (b) 65,766 21,826 2,201 89,793
March 31,323.5 11.1 0.8 335.4
September 30, 1999
--------------
Three Months Ended
Operating Revenues (a) $397,674 $121,983 $8,182 $527,839
Pretax$1,282.8 $213.1 $15.7 $1,511.6
Operating Income (b) 72,520 27,270 2,668 102,458307.6 19.3 1.7 328.6
(a) Wisconsin Electric accounts for intersegment revenues at tariff rates
established by the Public Service Commission of Wisconsin. Intersegment
revenues are not material.
(b) Interest income, and interest expense and operating income taxes are not
included in segment pretax
operating income.
6. 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 of the case. In December 1999, in
order to stop the post-judgment accrual of interest at 12% per
annum 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
condensed balance sheets, to the Clerk of Circuit Court for
Milwaukee County 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 Milwaukee County 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. On April 27, 2000, the Circuit
Court Judge 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 its appeal of the judgment
entered on the jury's verdict, Wisconsin Electric will also
appeal the Judge's ruling on the sanctions 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. For further information,
see Item 1. Legal Proceedings - "Environmental Matters" in
Part II of this report.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wisconsin Electric Power Company, a wholly-owned subsidiary of
Wisconsin Energy Corporation, is a holding company whose principal
subsidiary as of March 31, 2000 is Wisconsin Electric Power
Company, an energy utility with electric,
natural gas and steam utility. Unless qualified by
their context when used in this document, the terms "Wisconsin
Energy" or the "Company" refer to the holding company and all of
its subsidiaries. During the first three months of 2000,
approximately 86% of Wisconsin Energy's consolidated operating
revenues and 101% of Wisconsin Energy's consolidated pretax
operating income were attributable to Wisconsin Electric. As of
March 31, 2000, approximately 80% of Wisconsin Energy's
consolidated total assets were attributable to Wisconsin
Electric. The following discussion and analysis of financial
condition and results of operations includes both Wisconsin
Energy and Wisconsin Electric unless otherwise stated.
See Note 2 above in Item 1. Financial Statements - "Notes to
Financial Statements" for information concerning the
reclassification of certain prior year amounts in the condensed
financial statements. See Note 3 above in Item 1. Financial
Statements - "Notes to Financial Statements" and "Factors
Affecting Results of Operations" below for information concerning
Wisconsin Energy's April 26, 2000 acquisition of WICOR, Inc.
Because this business combination will be accounted for as a
purchase and, therefore, reflected prospectively in Wisconsin
Energy's consolidated financial statements from and after the
date of the acquisition, the analysis of "Results of Operations"
below does not consider the historical operations of WICOR.utility operations.
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 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 that are noted in "Factors
Affecting Results of Operations" and "Cautionary Factors" below.Factors."
RESULTS OF OPERATIONS - 2000 FIRSTTHIRD QUARTER
EARNINGS
During the firstthird quarter of 2000, Wisconsin Energy's consolidated
net income andElectric's earnings per share of common stock
decreased to $50.6$56.6 million and $0.42 per share, respectively, compared with $53.5$62.0 million and $0.46 per share, respectively, during the
firstthird quarter of 1999. ForAs discussed in further detail below,
earnings decreased primarily because higher depreciation,
decommissioning and amortization expenses offset a $7.5 million
increase in electric gross margin that was limited by cooler
weather and by higher fuel and purchased power expenses during
the same periods,third quarter of 2000. The following table reconciles the
change in Wisconsin Electric's earnings increased to $58.5 million during 2000 compared with
$55.7 million during 1999.
Between the comparative periods, a modest increase in earnings
from Wisconsin Energy's utility operations, including Wisconsin
Electric, was insufficient to offset higher net losses by
Wisconsin Energy's non-utility operations, resulting in the
decline in Wisconsin Energy's consolidated earnings. A decrease
in gas utility gross margin due to unusually warm winter weather
during the first quarter of 2000 limited the growth in earnings
from utility operations. Scheduled outages at two fossil-fueled
non-utility power plants in the state of Connecticut limited
their contribution to non-utility earnings during the first
quarter of 2000. As a result, net losses from non-utility
operations increased during the first quarter of 2000 due to
higher costs associated with financing acquisition of these two
non-utility power plants in mid-April 1999 and, to a lesser
extent, associated with the financing of other non-utility
acquisitions made within the past year.
The following table summarizes contributions to Wisconsin
Energy's consolidated earnings per share (basic and diluted) by
business segment duringbetween the comparative
periods.
Three Months Ended March 31
---------------------------------------
Earnings Per Share (basic & diluted)-September 30
----------------------------------------------
Increase
Wisconsin EnergyElectric 1999 (Decrease) 2000
1999 % Change
- ------------------------------------------------------------- -------- ---------- --------
--------(Millions of Dollars)
Gross Margin
Electric Utility Operations $0.50 $0.49 2.0%
Non-Utility Operations
Energy (0.04) (0.03) (33.3%)$336.5 $7.5 $344.0
Gas Utility 19.1 (0.5) 18.6
Steam Utility 2.6 (0.9) 1.7
------ ----- ------
Gross Margin 358.2 6.1 364.3
Other (0.04) 0.00Operating Expenses
Other Operation and Maintenance 158.6 (1.7) 156.9
Depreciation, Decommissioning
and Amortization 59.3 8.6 67.9
Property and Revenue Taxes 16.8 0.1 16.9
------ ----- ------
Operating Income 123.5 (0.9) 122.6
Other Income, Net 2.1 1.0 3.1
Financing Costs 28.4 0.9 29.3
------ ----- ------
Income Before Income Taxes 97.2 (0.8) 96.4
Income Taxes 34.9 4.6 39.5
Preferred Stock Dividend Requirement 0.3 - 0.3
------ ----- -----
Total $0.42 $0.46 (8.7%)------
Earnings Available to Common
Stockholder $62.0 ($5.4) $56.6
====== ===== ===========
An analysis ofOPERATING REVENUES AND GROSS MARGINS: For further information
concerning electric utility operations, see "Electric Utility
Revenues, Gross Margins and Sales" below. For further
information concerning gas utility operations, see "Gas Utility
Revenues, Gross Margins and Therm Deliveries" below.
OTHER OPERATION AND MAINTENANCE EXPENSES: Other operation and
maintenance expenses decreased by $1.7 million during the Company's utility and non-utility pretax
operating income as well as an analysis of other income and
expense items follows.
UTILITY PRETAX OPERATING INCOME
During the firstthird
quarter of 2000 Wisconsin Energy's utility
pretax operating income decreased by $12.9 million or 12.4% and
Wisconsin Electric's pretax operating income decreased by
$12.7 million or 12.4% when compared to the firstthird quarter of 1999. For both Wisconsin Energy and Wisconsin Electric, the
positive effects of higher electric utility gross margins due to
increased electric energy sales and of lowerThe most
significant changes in other operation and maintenance expenses
include $2.6 million of higher non-fuel fossil generation
expenses and $3.0 million of higher electric distribution
expenses offset by a $3.4 million decline in customer service
expenses and $3.1 million of lower administrative and general
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 at
Wisconsin Electric. Electric distribution expenses were higher
due to increased forestry and maintenance activity. Between the
comparative periods, customer service expenses were lower
primarily due to a change in the period over which conservation
expenses are being amortized. Administrative and general
expenses decreased primarily due to a decline in costs associated
with contract labor, which was used during 1999 to prepare the
Company for the Year 2000 and for other technology matters.
DEPRECIATION, DECOMMISSIONING AND AMORTIZATION EXPENSES:
Depreciation, decommissioning and amortization expenses were
$8.6 million higher during the firstthird quarter of 2000 were more
than offsetcompared
with the third quarter of 1999. Pursuant to a 1998 rate order
for the 1998/1999 test year, Wisconsin Electric was amortizing
pre-1991 contributions in aid of construction at a rate which
reduced annual depreciation expense by $22.8 million. This
amortization, which was completed as of December 31, 1999, had
the effectseffect of a weather-related decrease in gas
utility gross margin and significantly higherreducing depreciation and
amortization expenses.
Theexpense by $5.7 million
during the third quarter of 1999. Higher average depreciable
plant during the third quarter of 2000 also contributed to an
increase in depreciation and amortization expenses duringexpense.
INCOME TAXES: The effective income tax rate increased in the
firstthird quarter of 2000 wasas compared with the prior year primarily
due to higher nuclear
decommissioning expenses at Wisconsin Electric. Nuclear
decommissioning expenses consistthe end of payments to and earningsamortization of the nuclear decommissioning trust fund. While payments to the
nuclear decommissioning trust fund were unchanged between the
comparative periods, earnings from nuclear decommissioning trust
fund investments, consistingpre-1991 contributions in aid
of interest and dividends fromconstruction as well as gains on the investments, increased by $27.9 million.
Because earnings from nuclear trust fund investments are also
recognized in "Other Income and Deductions" on the condensed
income statements, they are earnings neutral to Wisconsin
Electric and to Wisconsin Energy. Excluding the effect of
Wisconsin Electric's nuclear decommissioning trust fund earnings
on depreciation and amortization expenses, Wisconsin Energy's
utility pretax operating income grew by $15.0 million and
Wisconsin Electric's pretax operating income grew by
$15.2 million between the comparative periods.described above.
Electric Utility Revenues, Gross Margins and Sales
WISCONSIN ENERGY: Primarily due to higher total electric
utility energy sales duringDuring the firstthird quarter of 2000, Wisconsin Energy'sElectric's total
electric utility operating revenues increased by $17.3$12.9 million or
4.3%2.8% compared to the firstthird quarter of 1999 and
gross1999. Gross margin on
electric utility operating revenues (electric utility operating
revenues less fuel and purchased power expenses) increased by
$13.3$7.5 million or 4.4%.
Three Months Ended March 31
Electric Utility Operations - ---------------------------------------
Wisconsin Energy 2000 1999 % Change
- ------------------------------ --------- -------- --------
Electric Gross Margin ($000)
Electric Operating Revenues $423,834 $406,555 4.3%
Fuel & Purchased Power 109,687 105,720 3.8%
-------- --------
Gross Margin $314,147 $300,835 4.4%
======== ========
Total Electric Sales
(Megawatt-hours) 7,789,891 7,393,205 5.4%
Further detail about Wisconsin Electric's contributions to
Wisconsin Energy's electric utility revenues, gross margins and
energy sales follows.
WISCONSIN ELECTRIC: During the first quarter of 2000, Wisconsin
Electric's total electric operating revenues increased by
$17.2 million or 4.3% compared to the first quarter of 1999 and
gross margin on electric operating revenues increased by
$13.6 million or 4.6%2.2%. Wisconsin Electric attributes this growth
in large part to interim and final electric retail rate increases that
became effective in early April 2000 and on August 31, 2000,
respectively. For additional information concerning these rate
increases, see Item 1. Legal Proceedings - "Utility Rates and
Regulatory Matters" in Part II of this report. The third quarter
of 2000 was 30% cooler than the third quarter of 1999 which
significantly reduced higher totalmargin residential electric energy sales
during the third quarter of 2000.
GrossThe change in gross margin on electric operating revenuesbetween the comparative periods also
increased due to
a lower cost mix ofreflects higher fuel and purchased power usedcosts. Wisconsin
Electric was able to meet
electric demandlimit its increase in fuel costs to
$0.7 million or 0.8% by changing its mix of generation from high
cost natural gas-fired generation to lower cost coal-fired
generation during the firstthird quarter of 2000. However, purchased
power expenses grew by $4.7 million or 10.1% due to higher fixed
costs during the third quarter of 2000 associated with long-term
purchased power contracts.
The following table compares Wisconsin Electric's electric
utility operating revenues, gross margins and electric utility
energy sales during the third quarter of 2000 with similar
information for the third quarter of 1999.
Gross Margin Megawatt-Hour Sales
Three Months Ended March 31September 30 Three Months Ended September 30
Wisconsin Electric -------------------------------- --------------------------------
Electric Utility Operations - ---------------------------------------
Wisconsin Electric2000 1999 % Change 2000 1999 % Change
- --------------------------------------------------------- ------ ------ -------- ------ ------ --------
--------(Millions of Dollars) (Thousands, Except
Degree Days)
Electric
Operating Revenues
Residential $153.7 $155.5 (1.2%) 1,931.4 2,019.6 (4.4%)
Small Commercial/Industrial 143.6 136.9 4.9% 2,243.0 2,180.8 2.9%
Large Commercial/Industrial 123.5 115.6 6.8% 3,099.2 2,870.2 8.0%
Other-Retail/Municipal 16.9 15.3 10.5% 393.0 376.9 4.3%
Resale-Utilities 36.5 39.6 (7.8%) 855.0 1,017.8 (16.0%)
Other-Operating Revenues 7.4 5.8 27.6% - - -
------ ------ ------- -------
Total Operating Revenues 481.6 468.7 2.8% 8,521.6 8,465.3 0.7%
Fuel and Purchased Power ======= =======
Fuel 86.4 85.7 0.8%
Purchased Power 51.2 46.5 10.1%
------ ------
Total Fuel and Purchased Power 137.6 132.2 4.1%
------ ------
Gross Margin ($000)
Electric Operating Revenues $414,890 $397,674 4.3%
Fuel & Purchased Power 105,377 101,788 3.5%
-------- --------
Gross Margin $309,513 $295,886 4.6%
======== ========$344.0 $336.5 2.2%
====== ======
Weather - Degree Days (a)
Heating (153 Normal) 184 122 50.8%
Cooling (509 Normal) 395 570 (30.7%)
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
As a resultDuring the third quarter of the higher2000, total electric energy sales
during the
first quarter of 2000 noted above, Wisconsin Electric's total
fuel and purchased power expenses increased by $3.6 million or
3.5% between0.7% compared with the comparative periods. However, due to higher
availability of low cost generation from Point Beach Nuclear
Plant during the first quarter of 2000, the rate of increase in
total fuel and purchased power expenses was less than the rate of
increase in total electric energy sales as well as in total
electric operating revenues, contributing to the growth in gross
margin on electric operating revenues. During the first quarter
of 2000, Wisconsin Electric obtained 25% of its electric energy
supply from nuclear generation compared to 17% during the first
quarter of 1999.
Wisconsin Electric's total electric energy sales grew by 5.5%
between the comparative periods.
Three Months Ended March 31
Electric Utility Operations - ---------------------------------------
Wisconsin Electric 2000 1999 % Change
- ------------------------------ --------- --------- --------
Electric Sales (Megawatt-hours)
Residential 1,850,412 1,792,252 3.2%
Small Commercial/Industrial 1,986,716 1,948,435 2.0%
Large Commercial/Industrial 2,813,349 2,760,640 1.9%
Other-Retail/Municipal 363,924 309,240 17.7%
Resale-Utilities 606,810 415,499 46.0%
--------- ---------
Total Electric Sales 7,621,211 7,226,066 5.5%
========= =========
Compared to the firstthird quarter of 1999 electric energy sales at
Wisconsin Electric increased during the first quarter of 2000
primarily due to
higher use per customer unrelated to weather.
Growth in the average number of customers between the comparative
periods in the residential, small commercial/industrial and other
retail/municipal customer classes also contributed to thea 77.2% increase in electric energy sales. Salessales to the Empire and Tilden iron ore
mines, Wisconsin Electric's two largest electric
retail customers, decreased 2.5% during the first quarter of
2000.customers.
Excluding the Empire and Tilden iron ore mines, total
electric energy sales between the comparative periods grew by
6.2% and sales to the remaining
large commercial/industrial customers grewdecreased by 3.2%2.2% and total
electric sales decreased by 2.8%. Sales for resale toGrowth in the average number
of residential, small commercial/industrial and other
utilities
increased by 46.0% primarily due to higher opportunityretail/municipal customers between the comparative periods offset
some of the effects on total electric energy sales and operating
revenues of significantly cooler weather during the firstthird quarter
of 2000. As measured by cooling degree days, the third quarter
of 2000 was 30.7% cooler than the third quarter of 1999 and 22.4%
cooler than normal.
Gas Utility Revenues, Gross Margins and Therm Deliveries
Primarily due to a weather-related decrease in higher margin
residential and commercial/industrial retail gas sales duringDuring the firstthird quarter of 2000, Wisconsin Electric's total gas
utility operating revenues increased by $7.0 million while gross
margin on gas utility operating revenues (gas operating revenues
less cost of gas sold) declineddecreased by $4.0 million or 7.5% compared$0.5 million. Significantly
higher per unit gas costs during the third quarter of 2000 as
well as interim and final retail gas rate increases that became
effective in early April 2000 and on August 31, 2000,
respectively, contributed to the firstincrease in operating revenues.
However, gross margin declined primarily due to a decrease in
interdepartmental therm deliveries to Wisconsin Electric's
natural gas-fired electric generating facilities during the third
quarter of 1999.2000. For additional information concerning the rate
increases, see Item 1. Legal Proceedings - "Utility Rates and
Regulatory Matters" in Part II of this report.
Comparative gas utility operating revenues, gross margins and gas
utility therm deliveries during the reporting periods are
summarized below. Gross margin is a better performance indicator
than revenues because changes in the cost of gas sold are flowed
through to revenue under a purchased gas adjustment mechanism
that does not impact gross margin.
Gross Margin Therm Deliveries
Three Months Ended March 31September 30 Three Months Ended September 30
Wisconsin Electric -------------------------------- --------------------------------
Gas Utility Operations - ---------------------------------------
Wisconsin Electric2000 1999 % Change 2000 1999 % Change
- ---------------------------------------------------- ------- ------ -------- ------ ------ --------
--------(Millions of Dollars) (Millions, Except
Degree Days)
Gas Gross Margin ($000)
Gas
Operating Revenues
$118,457 $121,983 (2.9%Residential $20.5 $16.7 22.8% 24.3 24.4 (0.4%)
Commercial/Industrial 10.8 7.4 45.9% 14.6 14.7 (0.7%)
Interruptible 0.7 0.6 16.7% 1.5 1.8 (16.7%)
----- ----- ----- -----
Total Retail Gas Sales 32.0 24.7 29.6% 40.4 40.9 (1.2%)
Transported Customer-Owned Gas 3.5 3.4 2.9% 67.3 73.6 (8.6%)
Transported-Interdepartmental 0.6 0.8 (25.0%) 10.6 26.2 (59.5%)
Other-Operating Revenues 12.5 12.7 (1.6%) - - -
----- ----- ----- -----
Total Operating Revenues 48.6 41.6 16.8% 118.3 140.7 (15.9%)
Cost of Gas Sold 69,292 68,860 0.6%
-------- --------30.0 22.5 33.3% ===== =====
----- -----
Gross Margin $49,165 $53,123 (7.5%$18.6 $19.1 (2.6%)
======== ============= =====
Weather - Degree Days (a)
Heating (153 Normal) 184 122 50.8%
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year average.
BetweenRESULTS OF OPERATIONS - 2000 YEAR-TO-DATE
EARNINGS
During the comparative periods,first nine months of 2000, Wisconsin Electric's
total
natural gas therm deliveries fell by 5.1%earnings decreased to $155.0 million compared with $165.8 million
during the first nine months of 1999. As described in further
detail below, earnings decreased primarily because higher
depreciation, decommissioning and total retail gas
sales fell by 9.2% due in large part to an 8.0%amortization expenses and a
weather-related decrease in retail gas sales to residential customers andgross margin during the winter
months of 2000 offset a 9.3% decrease$24.6 million increase in retail gas sales to commercial/industrial customers. Weather
sensitive residential and commercial/industrial retail sales
declined due to significantly warmerelectric gross
margin that was limited by cooler weather during the first
three months of 2000. As measured by heating degree days, the
firstthird
quarter of 2000 was 9.4% warmer thanand limited by higher fuel and purchased power
expenses. The following table reconciles the first quarter of
1999 and 13.1% warmer than normal.change in Wisconsin
Electric's earnings between the comparative periods.
ThreeNine Months Ended March 31
Gas Utility Operations - ---------------------------------------September 30
-------------------------------------------
Increase
Wisconsin Electric 1999 (Decrease) 2000
1999 % Change
- ------------------------------------------------- -------- ---------- --------
--------(Millions of Dollars)
Gross Margin
Electric Utility $941.1 $24.6 $965.7
Gas Deliveries (000's of Therms)
Residential 139,558 151,734 (8.0%)
Commercial/Industrial 85,437 94,233 (9.3%)
Interruptible 4,187 6,613 (36.7%)
Interdepartmental 246 192 28.1%Utility 94.0 (1.1) 92.9
Steam Utility 13.1 (0.2) 12.9
------- ------ -------
Total Retail Gas Sales 229,428 252,772 (9.2%)
Transported CustomerGross Margin 1,048.2 23.3 1,071.5
Other Operating Expenses
Other Operation and Maintenance 495.2 (11.7) 483.5
Depreciation, Decommissioning
and Amortization 174.0 27.4 201.4
Property and Revenue Taxes 50.4 0.8 51.2
------- ------ -------
Operating Income 328.6 6.8 335.4
Other Income, Net 13.5 (6.4) 7.1
Financing Costs 84.0 2.5 86.5
------- ------ -------
Income Before Income Taxes 258.1 (2.1) 256.0
Income Taxes 91.4 8.7 100.1
Preferred Stock Dividend Requirement 0.9 - Owned Gas 109,136 108,200 0.9%
Transported - Interdepartmental 8,090 4,294 88.4%0.9
------- ------ -------
Total Gas Deliveries 346,654 365,266 (5.1%)Earnings Available to Common
Stockholder $165.8 ($10.8) $155.0
======= ====== =======
OPERATING REVENUES AND GROSS MARGINS: For further information
concerning electric utility operations, see "Electric Utility
Operating ExpensesRevenues, Gross Margins and Sales" below. For further
information concerning gas utility operations, see "Gas Utility
Revenues, Gross Margins and Therm Deliveries" below.
OTHER OPERATION AND MAINTENANCE: Compared to the first quarter
of 1999, otherMAINTENANCE EXPENSES: Other operation and
maintenance expenses in Wisconsin
Energy's utility business segment decreased by $12.8$11.7 million or
7.2% during the first
quarternine months of 2000 compared with mostthe first nine months of the decrease
attributable to Wisconsin Electric.
At Wisconsin Electric, the1999.
The most significant changes in other operation and maintenance
expenses between the comparative periods include a $12.0$12.2 million
decline in nuclear non-fuel expenses, a $4.0 million decline in customer account expenses and
a $3.8$10.5 million decline in
customer service expenses offset in
part byand a $2.5$2.9 million increase in steam power generation
expenses, a $2.5 million increasedecline in
administrative and general expenses offset in part by
$8.2 million of higher non-fuel fossil generation expenses
and a $1.3$6.2 million increase inof higher electric transmissiondistribution expenses.
Nuclear non-fuel expenses declinedwere lower during the first nine months
of 2000 as a result of continued progress on various performance
improvement initiatives. DuringBetween the same period, customer account expenses
declined primarily due to lower bad debt expenses andperiods, customer
service expenses declinedwere lower primarily due to a change in the
period over which conservation investmentsexpenses are being amortized.
Between the comparative periods, steam power generationAdministrative and general expenses increaseddecreased primarily due to a
scheduled four week outage at
Wisconsin Electric's Pleasant Prairie Power Plantdecline in costs associated with contract labor, which was used
during 1999 to prepare the Company for the Year 2000 and for
other technology matters. Non-fuel fossil generation
expenses increased during the first quarternine months of 2000. During the same periods, administrative
and general expenses grew in large part due to higher salary and
benefit costs incurred, and electric transmission expenses grew2000 primarily
due to differences in the scope and timing of scheduled
maintenance outages for various generating facilities at
Wisconsin Electric. Electric distribution expenses were higher
transmission linedue to increased forestry and transmission right
of way maintenance activitiesactivity.
DEPRECIATION, DECOMMISSIONING AND AMORTIZATION EXPENSES:
Depreciation, decommissioning and amortization expenses were
$27.4 million higher during the first quarternine months of 2000.
DEPRECIATION AND AMORTIZATION: During2000
compared with the first quarternine months of 2000, Wisconsin Energy's total utility depreciation and
amortization expense increased by $33.7 million compared1999. Pursuant to a 1998
rate order for the first quarter of 1998/1999 while Wisconsin Electric's total
depreciation and amortization expense increased by $33.6 million.
Between the comparative periods, total utility depreciation and
amortization grew at both companies primarily due to the higher
nuclear decommissioning expenses attest year, Wisconsin Electric noted
above. Also contributing to the growth in total depreciation and
amortization expenses, at the end of 1999 Wisconsin Electric
completedwas
amortizing a credit to depreciation for pre-1991 contributions in aid of construction. During the first quarter
of 1999,construction, which
reduced annual depreciation expense by $22.8 million. This
amortization, which was reducedcompleted as of December 31, 1999, had
the effect of reducing depreciation expense by $5.7$17.1 million as a
result of this credit.
NON-UTILITY PRETAX OPERATING INCOME
Due to operation of the Bridgeport Harbor Station ("Bridgeport")
and the New Haven Harbor Station ("New Haven")
during the first quarternine months of 2000, which were acquired by Wisvest-Connecticut, LLC
in mid-April 1999, Wisconsin Energy's non-utility pretax
operating loss decreased by $1.2 million or 30.0%1999. Higher average depreciable
plant during the first quarternine months of 2000 comparedalso contributed to the first quarter of 1999. In
anticipation of the 2000 summer cooling season, however, the
Bridgeport and New Haven power plants, locatedan
increase in the State of
Connecticut, underwent scheduled outages during the first quarter
of 2000, limiting their contribution to pretax operating income.
Bridgeport has returned to service, but the outage for New Haven
is not expected to be completed until mid-May 2000, which will
also limit its contribution to pretax operatingdepreciation expense.
OTHER INCOME, NET: Net other income during the
second quarter of 2000. Wisvest-Connecticut, LLC is a wholly-
owned non-utility energy subsidiary of Wisvest Corporation, which
is in turn a wholly-owned subsidiary of Wisconsin Energy.
The following table includes a summary of Wisconsin Energy's non-
utility pretax operating losses during the comparative periods.
Three Months Ended March 31
---------------------------------------
Non-Utility Operations ($000) 2000 1999 % Change
- ----------------------------- -------- -------- --------
Operating Revenues
Independent Power Production $31,784 $ - -
Energy Marketing, Trading
& Services 31,408 14,005 124.3%
Other 14,836 5,992 147.6%
------- -------
Total Operating Revenues 78,028 19,997 290.2%
Operating Expenses
Fuel and Purchased Power 50,645 14,675 245.1%
Other 30,184 9,322 223.8%
------- -------
Total Operating Expenses 80,829 23,997 236.8%
------- -------
Pretax Operating Loss ($2,801) ($4,000) 30.0%
======= =======
NON-UTILITY OPERATING REVENUES: As a result of the power plant
acquisitions noted above, non-utility energy operations realized
$31.8was $6.4 million of operating revenues during the first quarter of
2000 through the sale of 838,870 megawatt-hours of electric
energy by Wisvest-Connecticut, LLC. In addition, non-utility
energy operations increased its operating revenues by
$17.4 million or 124.3% between the first quarter of 2000 and the
first quarter of 1999 as a result of a growth in energy
marketing, trading and services activities. Between the
comparative periods, other non-utility operating revenues
increased by $8.8 million or 147.6%, including $5.8 million of
additional ancillary revenues from energy activities,
$1.9 million of additional rental income from real estate
activities and $1.1 million of additional operating revenues from
recycling activities.
NON-UTILITY OPERATING EXPENSES: During the first quarter of
2000, non-utility fuel and purchased power expenses increased by
$36.0 million or 245.1% when compared to the first quarter of
1999 due to independent power production activities that began in
mid-April 1999 by Wisvest-Connecticut, LLC and to a growth in
energy marketing, trading and services activities. Other
operating expenses grew by $20.9 million or 223.8%lower
between the comparative periods primarily due to operation of the Bridgeport
and New Haven Harbor Stations since mid-April 1999, and, to a lesser extent, due to additional recycling activities.
OTHER ITEMS
OTHER INCOME AND DEDUCTIONS: Compared to the three months ended
March 31, 1999, Other Income and Deductions - Other increased by
$25.3 million at Wisconsin Energy and by $25.7 million at
Wisconsin Electric primarily due to higher gains on nuclear
decommissioning trust fund investments during the three months
ended March 31, 2000. As noted above, however, gains on nuclear
decommissioning trust fund investments are also recognized as a
corresponding charge to depreciation expensenonrecurring
gain on the condensed
income statements and are earnings neutral.
INTEREST CHARGES AND OTHER: Wisconsin Energy's total interest
expense grew by $9.0 million between the comparative periodssale of which $8.2 million was attributable to non-utility operations.
Non-utility distributions on trust preferred securities also
increased by $3.2 million during the first quarter of 2000.
These higher costs are associated primarily with financing
Wisvest-Connecticut, LLC's acquisition of the Bridgeport Harbor
Station and the New Haven Harbor Station in mid-April 1999 and,
to a lesser extent, with additional outside financing required
for increased non-utility real estate activities during the past
year.
INCOME TAXES: Compared to the first quarter of 1999, Wisconsin
Energy's income taxes increased by approximately $3.8 million and
Wisconsin Electric's income taxes increased by $6.5 million due
to increased taxable incomecertain properties at Wisconsin Electric
during the first nine months of 1999.
INCOME TAXES: The effective income tax rate increased in the
first nine months of 2000 as compared with the prior year
primarily due to the end of amortization of pre-1991
contributions in aid of construction as described above.
Electric Utility Revenues, Gross Margins and Sales
During the first nine months of 2000, Wisconsin Electric's total
electric utility operating revenues increased by $40.9 million or
3.2% compared to the same period during 1999. Gross margin on
electric utility operating revenues increased by $24.6 million or
2.6%. Wisconsin Electric attributes this growth in part to
higher total electric energy sales during 2000 and to interim and
final electric retail rate increases that became effective in
early April 2000 and on August 31, 2000, respectively. For
additional information concerning these rate increases, see
Item 1. Legal Proceedings - "Utility Rates and Regulatory
Matters" in Part II of this report. The third quarter of 2000
was 30% than the third quarter of 1999 which constrained
higher-margin residential electric sales during the first
nine months of 2000.
The change in gross margin between the comparative periods also
reflects a $16.3 million or 4.8% increase in total fuel and
purchased power expenses during the first nine months of 2000.
Fuel costs increased by 2.4% due in large part to higher
generation required to supply the growth in total electric energy
sales during 2000. However, Wisconsin Electric was able to limit
its increase in fuel costs by changing the mix of generation from
high cost natural gas-fired generation to lower cost nuclear and
coal-fired generation during the first nine months of 2000.
Purchased power expenses grew by 9.7% due to higher fixed costs
during 2000 associated with long-term purchased power contracts.
The following table compares Wisconsin Electric's electric
utility operating revenues, gross margins and electric utility
energy sales during the first nine months of 2000 with similar
information for the first nine months of 1999.
Gross Margin Megawatt-Hour Sales
Nine Months Ended September 30 Nine Months Ended September 30
Wisconsin Electric ------------------------------- -------------------------------
Electric Utility Operations 2000 1999 % Change 2000 1999 % Change
- --------------------------- ------ ------ -------- ------ ------ --------
(Millions of Dollars) (Thousands, Except
Degree Days)
Operating Revenues
Residential $436.1 $431.1 1.2% 5,495.2 5,528.6 (0.6%)
Small Commercial/Industrial 400.8 385.6 3.9% 6,249.2 6,086.7 2.7%
Large Commercial/Industrial 353.6 341.5 3.5% 8,871.5 8,576.4 3.4%
Other-Retail/Municipal 43.8 39.4 11.2% 1,124.1 999.8 12.4%
Resale-Utilities 68.4 68.7 (0.4%) 2,008.5 2,137.8 (6.0%)
Other-Operating Revenues 21.0 16.5 27.3% - - -
------- ------- -------- --------
Total Operating Revenues 1,323.7 1,282.8 3.2% 23,748.5 23,329.3 1.8%
Fuel and Purchased Power ======== ========
Fuel 235.6 230.1 2.4%
Purchased Power 122.4 111.6 9.7%
------- -------
Total Fuel and Purchased Power 358.0 341.7 4.8%
------- -------
Gross Margin $965.7 $941.1 2.6%
======= =======
Weather - Degree Days (a)
Heating (4,485 Normal) 4,067 4,232 (3.9%)
Cooling (676 Normal) 556 752 (26.1%)
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
During the first nine months of 2000, total electric energy sales
increased by 1.8% compared to the first nine months of 1999 due
in large part to a 16.2% increase in sales to the Empire and
Tilden iron ore mines, Wisconsin Electric's two largest retail
customers and, to a lesser extent, to growth in the average
number of residential, small commercial/industrial and other
retail/municipal customers. Excluding the Empire and Tilden
mines, sales to the remaining large commercial/industrial
customers increased by 0.3% and total electric sales increased by
0.7% between the comparative periods. Growth in the average
number of customers noted above partially offset the effects on
total electric energy sales and operating revenues of cooler
weather during the 2000 cooling season. As measured by cooling
degree days, the first nine months of 2000 were 26.1% cooler than
the first nine months of 1999 and 17.8% cooler than normal.
Gas Utility Revenues, Gross Margins and Therm Deliveries
During the first nine months of 2000, Wisconsin Energy's total
gas utility operating revenues increased by $18.4 million while
gross margin on gas utility operating revenues decreased by
$1.1 million. Significantly higher per unit gas costs during the
first nine months of 2000 as well as interim and final retail gas
rate increases that became effective in early April 2000 and on
August 31, 2000, respectively, primarily drove the increase in
operating revenues. For additional information concerning these
rate increases, see Item 1. Legal Proceedings - "Utility Rates
and Regulatory Matters" in Part II of this report. A weather-
related decrease in higher margin residential and
commercial/industrial retail gas sales during the winter months
of 2000 offset the impact of the rate increases on operating
revenues and gross margin. A decrease in interdepartmental therm
deliveries to Wisconsin Electric's natural gas-fired electric
generating facilities during the third quarter of 2000 also
offset the impact of the rate increases on gross margin.
Gas utility operating revenues, gross margins and gas utility
therm deliveries during the comparative periods are summarized
below. Gross margin is a better performance indicator than
revenues because changes in the cost of gas sold are flowed
through to revenue under a purchased gas adjustments mechanism
that does not impact gross margin.
Gross Margin Therm Deliveries
Nine Months Ended September 30 Nine Months Ended September 30
Wisconsin Electric ------------------------------- -------------------------------
Gas Utility Operations 2000 1999 % Change 2000 1999 % Change
- --------------------------- ------- ------ -------- ------- ------ --------
(Millions of Dollars) (Millions, Except
Degree Days)
Operating Revenues
Residential $130.8 $130.9 (0.1%) 207.1 219.8 (5.8%)
Commercial/Industrial 70.8 64.6 9.6% 130.6 135.5 (3.6%)
Interruptible 3.1 4.1 (24.4%) 8.2 12.6 (34.9%)
------ ------ ----- -----
Total Retail Gas Sales 204.7 199.6 2.6% 345.9 367.9 (6.0%)
Transported Customer-Owned Gas 12.8 9.9 29.3% 253.7 257.4 (1.4%)
Transported-Interdepartmental 1.5 1.5 - 33.3 47.9 (30.5%)
Other-Operating Revenues 12.5 2.1 495.2% - - -
------ ------ ----- -----
Total Operating Revenues 231.5 213.1 8.6% 632.9 673.2 (6.0%)
Cost of Gas Sold 138.6 119.1 16.4% ===== =====
------ ------
Gross Margin $92.9 $94.0 (1.2%)
====== ======
Weather - Degree Days (a)
Heating (4,485 Normal) 4,067 4,232 (3.9%)
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
FACTORS AFFECTING RESULTS OF OPERATIONS
"POWER THE FUTURE" GROWTH STRATEGY
On September 11, 2000, Wisconsin Energy Corporation, Wisconsin
Electric's parent company, announced a 10-year, $6 billion growth
strategy to improve the supply and reliability of electricity in
Wisconsin. Demand for electricity in the state of Wisconsin is
currently growing at approximately a 3% annual rate and is
expected to outstrip supply by 4,000 megawatts by 2010.
Wisconsin Energy anticipates that the announced growth strategy
will help address Wisconsin's growing electric energy supply
needs and improve financial results. Key components of the
"Power The Future growth strategy include:
* Construction of at least three new generating units at a cost
of approximately $2 billion over the next 10 years with total new
generating capacity of 1,700 megawatts:
* Construction of one 500 megawatt combined cycle natural gas-
fired unit would begin in 2003 and would be completed in 2005;
* Construction of two 600 megawatt coal fired units would begin
in 2004 to be operational in 2007 and 2009, respectively; and
* Construction of additional generating units after 2010 would
be contemplated.
* Investment of $1.3 billion over the next 10 years in existing
electric generating assets.
* Investment of $2.7 billion over the next 10 years in new and
existing electric utility distribution system assets.
* Restructuring of Wisconsin Energy's current utility business
by creating a new non-utility subsidiary that would own and
operate the new generating capacity noted above as well as
existing non-nuclear electric generating capacity currently owned
by Wisconsin Electric. Electricity generated by the new
subsidiary would be offered to Wisconsin Electric and to other
Wisconsin utilities through long-term purchase power agreements
approved by the Public Service Commission of Wisconsin.
* Increasing available capital of Wisconsin Energy for
investment in core competencies of electric generation, utility
distribution and pump manufacturing through a board approved
reduction in the quarterly common stock dividend, effective
December 1, 2000, from $0.39 per share (or $1.56 on an annualized
basis) to $0.20 per share (or $0.80 on an annualized basis).
* Increasing from $200 million to $400 million a board approved
open market common stock purchase plan during the next 24 months.
A number of state and federal regulatory approvals will be
required for Wisconsin Energy to execute the investment and
restructuring components of the "Power The Future" growth plan.
Several laws will also require amendment by the state legislature
including Wisconsin's Public Utility Holding Company Act and
Wisconsin's 1997 electric reliability Act 204. Wisconsin Energy
expects to file an application with the Public Service Commission
of Wisconsin during the fourth quarter of 2000 on the threshold
question of whether the new non-utility subsidiary may own and
operate electric generating facilities called non-utility
merchant power plants and will seek a response from the Public
Service Commission of Wisconsin in early 2001. Depending upon
the response of the Public Service Commission of Wisconsin,
Wisconsin Energy anticipates filing detailed plans later in 2001.
Wisconsin Energy will also need to obtain the capital from
outside sources necessary to finance and execute the growth
strategy.
ACQUISITION OF WICOR, INC.
On April 26, 2000, Wisconsin Energy Corporation acquired WICOR,
Inc. through
a subsidiary merger involving the payment of approximately
$1.2 billion in cash, including related fees and expenses, for
all outstanding shares of WICOR common stock (except for shares
of restricted stock). Approximately $300 million of WICOR debt
remained outstanding following the acquisition. The business
combination, which was funded through the issuance of commercial
paper, will be accounted for as a purchase prospectively from the
date of acquisition. As a result, Wisconsin Energy anticipates
that it will incur significant increases in interest expense and
goodwill amortization expense in its results of operations during
the remainder of 2000.
WICOR is, a diversified holding company with two principal business
groups: energy services and pump manufacturing.
Wisconsin Energy is undertaking a thorough review of WICOR's
operations and studying the manner in which the operations of the
two companies can best be optimized and intends to take such
actions as a result of this review as may be deemed appropriate
under the circumstances. Wisconsin Energy
currently intends to continue the primary business operations of
WICOR and to continue to use the physical assets of such primary
business operations for that purpose, while integrating such
operations with its own.
As provided byother Wisconsin Energy operations. Wisconsin
Energy is undertaking a thorough review of WICOR's operations and
studying the merger agreement, effective withmanner in which the merger,
George E. Wardeberg, the Chairman and Chief Executive Officer of
WICOR, was elected as a director and appointed as Vice Chairmanoperations of the Board of Directors of Wisconsin Energy. Willie D. Davis,
an outside director of WICOR, was also elected to thetwo companies
can best be optimized. Wisconsin Energy Board of Directors.
For additional informationand Wisconsin Electric
anticipate recording a restructuring charge related to the acquisitionWICOR
merger during the fourth quarter of WICOR,
see "Liquidity and Capital Resources" below2000. Wisconsin Energy
expects to take such actions as well as Item 1.
Financial Statements - "Notes to Financial Statements" in Part I
of this report.
NUCLEAR MATTERS
SPENT FUEL STORAGE AND DISPOSAL: As a result of implementationthis review as may be
deemed appropriate under the circumstances including the
combination of extended fuel cycles, three remaining casks originally
authorized for temporary dry storagethe gas utility operations of spent fuel byWisconsin Electric
with WICOR's wholly-owned natural gas distribution utility
subsidiary, Wisconsin Gas Company.
Gas Utility Operations Combination
On November 1, 2000, Wisconsin Electric and Wisconsin Gas Company
filed a joint application with the Public Service Commission of
Wisconsin 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
$319 million at December 31, 1999, 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 remaining spacegreater synergy savings as a result
of the WICOR acquisition. The combined gas operations would
retain the name Wisconsin Gas Company and become the 11th largest
gas distribution company in the spent
fuel pool, Wisconsin Electric currently estimatesUnited States. Assuming that it has
sufficient temporary spent fuel storage capacity to continue
operating Point Beach Nuclear Plant until the spring of 2005. On
May 2, 2000, Wisconsin Electric applied to the
Public Service Commission of Wisconsin for authority to obtain and load enough
additional casks to hold all spent fuel from Point Beach duringapproves the remainder of the plant's current licensed life. The current
United States Nuclear Regulatory Commission operating licenses
for Point Beach expire in October 2010 for Unit 1 and in March
2013 for Unit 2.
LEGAL MATTERS
GIDDINGS & LEWIS INC. / CITY OF WEST ALLIS LAWSUIT: See Item 1.
Legal Proceedings - "Environmental Matters" in Part II of this
report for information concerning a July 1999 jury verdict
againsttransaction
described above, Wisconsin Electric awarding the plaintiffs $4.5 million
of actual damages and $100 millionWisconsin Gas expect to
make a second filing in punitive damages in a
lawsuit alleging that Wisconsin Electric had placed contaminated
wastes at two sites in the City of West Allis, Wisconsin.
ELECTRIC SYSTEM RELIABILITY MATTERS
300-MEGAWATT CONTRACT WITH SOUTHERN ENERGY: As previously
reported, Wisconsin Electric signed an eight year agreement in
August 1998 with Atlanta-based Southern Energy, Inc.2001 seeking authorization to purchase
all of the electric output from Southern Energy's 300-megawatt
natural gas-fired peaking power plant in Neenah, Wisconsin. This
new facility began commercial operations on May 8, 2000.combine
tariffs and rates.
INDUSTRY RESTRUCTURING AND COMPETITION
ELECTRIC UTILITY INDUSTRY RESTRUCTURING IN MICHIGAN: On June 3,
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 electric power
producer as of January 1, 2002. As directed by the Michigan
Public Service Commission, Wisconsin Electric and its electric
utility affiliate, Edison Sault Electric Company, jointly
submitted a customer choice implementation plan on October 2,
2000. Such plan envisions certain additional filings in June
2001 including proposed unbundled rates. Revenue in the state of
Michigan during 1999 from electric retail customers of Wisconsin
Electric were approximately $107 million, representing 5.3% of
Wisconsin Electric's total utility operating revenues and 6.3% of
Wisconsin Electric's total electric utility operating revenues.
Wisconsin Electric believes that its power supply costs are and
will be competitive when the customer choice program commences in
January of 2002. In addition, other suppliers will use Wisconsin
Electric's unbundled electric distribution system under effective
rates.
NUCLEAR MATTERS
NUCLEAR MANAGEMENT COMPANY: As previously reported, all
participants in the Michigan LegislatureNuclear 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. This application was approved on
May 15, 2000. The Nuclear Management Company assumed operating
responsibility for Point Beach Nuclear Plant with the transfer of
operating authority under the operating licenses on August 7,
2000. Wisconsin Electric continues to consider bills addressing retail accessown Point Beach and
retains exclusive rights to the energy generated as well as
financial responsibility for customersthe plant's safe operation,
maintenance and decommissioning. On September 7, 2000, the
Nuclear Management Company announced the combination of electric
service providers,the
operation of Point Beach and mitigationKewaunee Nuclear Power Plant, owned
by another participant in the Nuclear Management Company, into a
"virtual 3-unit site." Kewaunee Nuclear Power Plant is located
about five miles from Point Beach. Management of market power, among other
subjects. To date, no bill hassupport
functions including training, engineering, assessment, business
and site services have also been passed by either legislative
chamber, and the prospects for passage of any bill during the
remainder of 2000 are uncertain.combined under this new
management structure.
UTILITY RATES AND REGULATORY MATTERS
2000/2001 TEST YEARS:
See Item 1. Legal Proceedings - "Rates"Utility Rates and Regulatory
Matters" in Part II of this report for information concerning
an application that Wisconsin Electric filed with the
Public Service Commission of Wisconsin in September 1999
requesting incremental price relief for specific capital
investments and for a one-time accounting adjustment as well as a
related interim order received from the Public Service Commission
of Wisconsin in April 2000.
ENVIRONMENTAL MATTERS
NON-UTILITY AIR QUALITY MATTERS: As previously reported, the
Connecticut legislature was considering legislation that would
have imposed air quality restrictions on Wisvest-Connecticut,
LLC's Bridgeport Harbor Station and New Haven Harbor Station in
addition to those air quality restrictions required by current
federal and state law. On May 3, 2000, the Connecticut
legislature adjourned without enacting any legislation on this
subject, and is not expected to reconvene until 2001.
2000 OUTLOOK
EARNINGS: Wisconsin Energy currently projects that its 2000
earnings will beutility rate-related activities in the range of $1.65 to $1.85 per share. This
earnings projection includes or assumes, among other factors, the
effects of: unusually warm weather during the first quarter of
2000; goodwill amortizationWisconsin and interest charges associated with
the WICOR acquisition; modest synergy savings as a result of the
WICOR merger; the absence of WICOR's results from January through
April 26, 2000; and normal weather and operations of Wisconsin
Energy and all of its subsidiaries, including WICOR and its
subsidiaries, during the remainder of 2000. Subject to the many
variables which can affect such a projection, earnings in 2001
are expected to increase from these levels reflecting a full year
of earnings contributions from WICOR and attainment of a higher
level of merger-related savings.
These earnings projections 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 and competitive 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 natural gas prices and supply
availability; unusual weather; risks associated with non-utility
diversification; timely realization of anticipated net cost
savings from the WICOR merger; regulatory decisions; disposition
of legal proceedings; and foreign governmental, economic,
political and currency risk. See "Cautionary Factors" below.Michigan
retail jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES: Cash provided by operating activities
totaled $293.0increased to $536.3 million at Wisconsin Energy and $295.0 million at
Wisconsin Electric during the first threenine months of 2000. This
compares to $152.72000
compared with $433.0 million at Wisconsin Energy and $169.1 million
at Wisconsin Electric during the same period in 1999.1999,
reflecting increased non-cash charges for depreciation and
amortizations as well as reduced tax payments during 2000.
INVESTING ACTIVITIES: Net cash used in investing activities
totaled $181.1$332.3 million at Wisconsin Energy and $137.7 million at
Wisconsin Electric during the first threenine months of 2000
compared to $123.7with $318.0 million at Wisconsin Energy and $100.7 million at
Wisconsin Electric during the same period in 1999.
Wisconsin Energy's consolidatedElectric's investing activities during the
first three months of 2000 included
$135.0$252.4 million for the acquisition or construction of new or
improved facilities of
which $87.0 million was for a number of projects related to
utility plant at Wisconsin Electric, $26.3 million was for non-
utility real estate development activities by Wispark Corporation
and $17.7 million was for non-utility energy projects at Wisvest
Corporation.facilities. During the nine months ended September 30,
2000, Wisconsin Electric recorded $36.0$31.4 million for the
acquisition of nuclear fuel and $44.5 million of payments to and
reinvested earnings of the Nuclear Decommissioning Trust Fund for
the eventual decommissioning of Point Beach Nuclear Plant and $10.6 million for the acquisition
of nuclear fuel.Plant.
FINANCING ACTIVITIES: During the first threenine months of 2000,
Wisconsin EnergyElectric used $160.6$232.9 million of net cash forin its
financing activities compared to receiving a net of $73.3 million during
the first three months of 1999. Wisconsin Electric used a net of
$200.3 million for financing activities during the first quarter
of 2000 compared to using a net of $75.8$117.3 million
during the same
period infirst nine months of 1999. During the first quarter ofnine months
ended September 30, 2000, Wisconsin Energy issued
1,252,854 new shares of common stock which were purchased by
participants in the Company's stock plans with cash investments
and reinvested dividends aggregating approximately $23.1 million.
Also during the three months ended March 31, 2000, Wispark
Corporation secured $15.5 million of bank financing in the form
of adjustable rate mortgage notes due 2000-2003 to finance the
construction or purchase of various facilities. During the three
months ended March 31, 2000, Wisconsin Energy decreasedElectric reduced its short-
term debt in the form of commercial paper by $137.2$81.0 million the
net of a $10.4 million increase by Wisconsin Energy's non-utility
operations and a $147.6 million decrease attributable to
Wisconsin Electric. Also during the first quarter of 2000,
Wisconsin Energy paid $46.5$131.1 million of dividends
on its common
stock compared to $44.9 million paid by Wisconsin Electric.Energy.
CAPITAL REQUIREMENTS AND RESOURCES: Excluding the cash paid for
the WICOR acquisition, capitalCapital requirements during
the remainder of 2000 are expected to be principally for
construction expenditures and for other investments, for long-termlong and
short-term debt maturity and sinking fund requirements and for
payments to the Nuclear Decommissioning Trust Fund for the
eventual decommissioning of Point Beach Nuclear Plant. Including WICOR
and its subsidiaries, Wisconsin
Energy'sElectric's total consolidated construction and other investment budget for the
remainder of 2000 is approximately $580 million, including $325 million at
Wisconsin Electric.$120 million.
These cash requirements are expected to be met through a
combination of the following possible resources: internal sources
of funds from operations, short-term borrowings and the issuance
of intermediate or long-term debt, the issuance of
additional trust preferred securities, and proceeds from the sale
of new-issue common stock under Wisconsin Energy's stock plans.debt. The amount and timing of any
capital market financing has not been determined and will depend
on market conditions and other factors.
Wisconsin Energy funded the April 26, 2000 acquisition of WICOR,
Inc. through issuance in the institutional private placement
market of $1.2 billion of commercial paper with a weighted
average effective interest rate of 6.09%. Wisconsin Energy has
arranged for two new bank back-up credit facilities to provide
credit support for the issuance of Wisconsin Energy's commercial
paper: a $1.0 billion 364-day bank back-up credit facility and a
$500 million three-year bank back-up credit facility. In
addition, approximately $300 million of WICOR debt remains
outstanding. The following table shows Wisconsin Energy's
consolidatedElectric's capitalization
structure at March 31, 2000, as
reported, and pro formed to give effect to the acquisition of
WICOR as if the merger had occurred as of that date.September 30, 2000.
March 31,September 30, 2000
Capitalization Structure - ------------------------------------------------------
Wisconsin Energy As Reported As Adjusted
- --------------------------
------------------------- --------------------------
(Thousands(Millions of Dollars)
Common Equity $2,034,985 42.0% $2,062,182 32.5%$1,901.2 50.0%
Preferred Stock 30,450 0.6% 30,450 0.5%
Trust Preferred Securities 200,000 4.1% 200,000 3.1%30.4 0.8%
Long-Term Debt (Including(including
current maturities 2,204,844 45.6% 2,426,544 38.2%maturities) 1,692.0 44.4%
Short-Term Debt 370,285 7.7% 1,635,137 25.7%
----------183.7 4.8%
-------- ------
---------- ------
$4,840,564$3,807.3 100.0%
$6,354,313 100.0%
========== ====== ================== ======
For additional information relatedAs previously reported, Wisconsin Electric has agreed to join the
acquisitionAmerican Transmission Company LLC by contributing electric
utility transmission assets in exchange for equity interests in
the new company. Transfer of WICOR,
see "Factors Affecting Resultsthese electric transmission system
assets, with a net book value of Operations" above as well as
Item 1. Financial Statements - "Notes to Financial Statements" in
Part I of this report.
Currently, Wisconsin Energyapproximately $224 million, is conducting a strategic assessment
of its portfolio of non-utility assets. 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 onoccur by January 1, 2001. Shortly following transfer
of the investment.assets, the American Transmission Company LLC is expected
to issue debt and distribute cash back to Wisconsin Energy may sell all or a
portionElectric in
an amount equal to approximately 50% of Witech Corporation and a portionthe net book value of its ownership
interest in certain Wisvest Corporation 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.
On May 11,assets transferred.
In September 2000, Wisconsin Energy announced that certain assets
of its non-utility real estate development company, Wispark
Corporation, would be sold over the next 12 to 18 months.
Wispark Corporation's assets are currently valued at
approximately $300 million, and Wisconsin Energy expects to sell
approximately 80% of these assets. Proceeds from the sale will
be used to pay down the Company's corporate debt.
In April 2000, in conjunction with consummation offollowing Wisconsin Energy's acquisition of WICOR, Moody's Investors Service
("Moody's") assigned a general corporate rating of A1 to
Wisconsin Energy and maintained its ratingsannouncement of
the debt
securities of Wisconsin Energy and Wisconsin Electric. Duff &
Phelps Inc. ("D&P") reaffirmed its long-term credit ratings of
Wisconsin Energy and Wisconsin Energy Capital Corporation as well
as its short-term rating of Wisconsin Electric, but downgraded
its long-term credit ratings of Wisconsin Electric. Fitch
Investors Service ("Fitch") assigned initial credit ratings for
Wisconsin Energy, Wisconsin Energy Capital Corporation, WEC
Capital Trust I trust preferred securities and Wisconsin Electric
commercial paper and reaffirmed its long-term ratings of
Wisconsin Electric. Also in April 2000,"Power The Future" growth strategy plan, Standard & Poors
Corporation ("S&P") loweredreaffirmed its ratings onof the securities of
the subsidiaries of Wisconsin Energy andincluding Wisconsin
Energy's subsidiaries except forElectric.
The following table summarizes the short-term ratings
of Wisconsin Electric, which were reaffirmed. In conjunction
with its debt rating adjustments at the end of April 2000, S&P
removed all long-term ratings on Wisconsin Energy and its
subsidiaries from credit watch with negative implications,
assigning a negative outlook.
In June 1999, S&P and Moody's confirmed thecurrent ratings of securities
of Wisconsin Gas Company, WICOR's natural gas distribution
utility subsidiaryElectric by Standard & Poors Corporation, Moody's
Investors Service ("Wisconsin Gas"Moody's"). These rating actions
followed the June 28, 1999 announcement that Wisconsin Energy
would acquire WICOR. In April 2000, S&P revised the outlook on
Wisconsin Gas from stable to negative and Fitch assigned initial
credit ratings for Wisconsin Gas.
The following table summarizes various current ratings of
Wisconsin Energy's and Wisconsin Electric's securities by S&P,
Moody's, D&P and Fitch as well as securities of Wisconsin Gas by
S&P and Moody's. WICOR's holding company has no debt outstanding
and the commercial paper of WICOR Industries, Inc., a wholly-
owned subsidiary of WICOR, is unrated.Investors Service
("Fitch").
Wisconsin Electric Power Company S & P&P Moody's D & P Fitch
---------- -------------------------------- --------- --------- ---------
Wisconsin Energy Corporation
Commercial Paper A-1 P-1 D-1 F1
Wisconsin Electric Power Company
Commercial Paper A-1+ P-1 D-1+ F1+
Senior Secured Debt AA- Aa2 AA
AA
Unsecured Debt A+ Aa3 AA-
AA-
Preferred Stock A aa3 AA- AA-
Wisconsin Gas Company
Commercial Paper A-1+ P-1 - F1+
Senior Unsecured Debt AA- Aa2 - AA-
Wisconsin Energy Capital Corporation
Unsecured Debt A+ A1 A+ A+
WEC Capital Trust I
Trust Preferred Securities A- a1 A A
At March 31,September 30, 2000, Wisconsin EnergyElectric had $398approximately
$130 million of unused lines of bank credit on a consolidated basis of which
$128 million was attributablecredit. Wisconsin Electric
has historically used these lines primarily to Wisconsin Electric. As noted
above, Wisconsin Energy obtained an additional $1.5 billion of
bank lines in April 2000 in conjunction withsupport its
acquisition of
WICOR. At March 31, 2000, WICOR had approximately $130 million
of unused bank lines on a consolidated basis of which $77 million
was attributable to Wisconsin Gas.outstanding commercial paper and other short-term borrowings.
*****
For certain other information which may impact Wisconsin Energy's
and Wisconsin
Electric's future financial condition or results of operations,
see Item 1. Financial Statements - "Notes to Financial
Statements" in Part I of this report as well as Item 1. Legal
Proceedings in Part II of this report.
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, Wisconsin Electric or Wisconsin Gas.Electric. Such statements are based upon management's
current expectations and are subject to risks and uncertainties
that could cause Wisconsin Energy's, Wisconsin Electric's or Wisconsin Gas' actual results to differ
materially from those contemplated in the statements. Readers
are cautioned not to place undue reliance on the forward-
lookingforward-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, Wisconsin Electric's
or Wisconsin Gas' actual results to
differ materially from those contemplated in any forward-looking
statements include, among others, the following.
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 Electric Company's or Wisvest
Corporation'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 Departments of Natural Resources or the
state of Connecticut related to emissions from fossil fuel power
plants;Resources; 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, nationally and
globally.
* Restrictions imposed by various financing arrangements and
regulatory requirements on the ability of Wisconsin Electric,
Wisconsin Gas 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 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 as
changes in interest rates; the Company's capitalization
structure; market perceptions of the utility industry, the
Company or any of its subsidiaries;industry; 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" growth strategy announced in September 2000,
including receipt of necessary state and customers; the cyclical naturefederal regulatory
approvals and amendment of property values
that could affect real estate investments; unanticipated changesapplicable 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 operationsWisconsin, and investments including foreign governmental actions; foreign
economic 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 growth strategy.
* Other business or investment considerations that may be
disclosed from time to time in Wisconsin Energy's Wisconsin
Electric's or Wisconsin Gas' 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:
* 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 Wisconsin as a condition of approval of the merger.
Wisconsin Energy, Wisconsin Electric and Wisconsin Gas undertakeundertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
For information concerning Wisconsin Energy's and Wisconsin
Electric's market risk
exposures, see Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Factors
Affecting Results of Operations - Market Risks" in Part II of
Wisconsin Energy's and Wisconsin Electric's combined1999 Annual Report on Form 10-K for the year ended
December 31, 1999.10-K.
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
The following should be read in conjunction with Item 3. Legal
Proceedings in Part I of Wisconsin Energy's and Wisconsin
Electric's combined1999 Annual Report
on Form 10-K and Item 1. Legal Proceedings in Part II of
Wisconsin Electric's Quarterly Report on Form 10-Q for the
yearperiods ended DecemberMarch 31, 1999.2000 and June 30, 2000.
ENVIRONMENTAL MATTERS
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 in 1959 Wisconsin Electric had deposited cyanide
contaminated wood chips 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
a 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% per annum 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 condensed balance sheets,sheet, to the Clerk of
Circuit Court for Milwaukee County 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 it had no insurance
coverage for the punitive damage award. The Circuit Court held
hearings on the sanctions issue in February 2000. On April 27,
2000, the Circuit Court Judge issued a ruling on the sanctions
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 its appeal of the judgment
entered on the jury's verdict, Wisconsin Electric will also
appealis appealing
the Judge's ruling on the sanctions 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 a further development, Wisconsin Energy Corporation, in May
and June 2000, respectively, received letters from two separate
shareholders demanding that Wisconsin Energy bring a derivative
suit for alleged injuries to shareholders resulting from the
Giddings & Lewis/City of West Allis litigation. In accordance
with Wisconsin law, the board of directors of Wisconsin Energy
has created a special committee of independent directors, which
has retained independent counsel to assist it, to investigate the
allegations raised in the shareholder letters and determine
whether a derivative action should be brought.
On August 21, 2000, the shareholder who had served the first
demand upon Wisconsin Energy requesting the derivative suit,
filed a lawsuit individually and on behalf of Wisconsin Energy in
Milwaukee County Circuit Court. On September 29, 2000, the
shareholder who served the second demand on Wisconsin Energy to
bring a derivative suit also filed a lawsuit in Milwaukee County
Circuit Court. The first lawsuit has been stayed until
December 1, 2000 pending the results of the investigation being
conducted by the special committee of independent directors of
Wisconsin Energy Corporation. Wisconsin Energy's response to
both lawsuits will depend upon the conclusions reached by the
special committee of independent directors.
UTILITY RATES AND REGULATORY MATTERS
Wisconsin Retail Jurisdiction
2000/2001 TEST YEARS: In September 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 the summer of 2000. Wisconsin Electric
withdrew its request to implement performance-based prices
because some elements of the proposed performance-based price
plan were not compatible with the Public Service Commission of
Wisconsin's approval of the Company's merger with WICOR. The
Public Service Commission of Wisconsin proceeded to review
Wisconsin Electric's 2000/2001 test year data as a traditional
cost of service rate request.
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 (3.1%) increase for gas
operations. The interim increase, which iswas subject to potential
refund, became effective April 11, 2000. Rates in the interim
order arewere based onupon a 12.2% return on common equity and will be in effect until superceded by
a final order establishing new rates.
The Public Service Commission of Wisconsin finished hearing
testimony on Wisconsin Electric's original September 1999
application on April 26, 2000. Subject to unexpected delays or
other matters that might arise in the interim, Wisconsin Electric
expects a final order on its September 1999 incremental price
relief application to be issued byequity.
On August 30, 2000, the Public Service Commission of Wisconsin
issued its final order in the summer2000/2001 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 is in the process of
2000.refunding to gas customers overcollection of revenues as a result
of the difference in gas rates between the interim and final
orders. In its August 30, 2000 final order, the Public Service
Commission of Wisconsin 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 Public Service Commission of Wisconsin to
reconsider their revenue increase for gas operations. On
November 9, 2000, the Public Service Commission of Wisconsin
denied Wisconsin Electric's petition. Wisconsin Electric intends
to seek judicial review.
As a condition of its approval of Wisconsin Energy's merger with
WICOR, the Public Service Commission of Wisconsin ordered a
qualified five-year rate freeze that becomes effective on
January 1, 2001 concurrent with anythe second step rate changes
included in the final order.
Michigan Electric Retail Jurisdiction
2001 TEST YEAR: In mid-November 2000, Wisconsin Electric
expects to submit 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 expected during the first quarter of 2001
with a final order anticipated to become effective during the
second quarter of 2001.
FUEL COST ADJUSTMENT PROCEDURE: On September 29, 2000,
Wisconsin Electric submitted applications with the Michigan
Public Service Commission requesting reinstatement of its Power
Supply Cost Recovery mechanism (a type of fuel cost adjustment
procedure) on January 1, 2001. If approved as filed, Wisconsin
Electric would expect to recover approximately $1 million in
higher projected fuel costs during 2001 in the 2000/2001 test years.Michigan
jurisdiction.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following Exhibits are filed with or incorporated by
reference in the applicablethis Form 10-Q report:
Exhibit No.
- -----------
WISCONSIN ENERGY CORPORATION
2.1 Agreement and Plan of Merger, dated as of June 27, 1999,
as amended as of September 9, 1999, by and among Wisconsin Energy
Corporation, WICOR, Inc. and CEW Acquisition, Inc.(incorporated
herein by reference to Appendix A to the joint proxy
statement/prospectus 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 dated as of
September 9, 1999 (incorporated herein by reference to Exhibit
2.2 to the Form S-4).
2.3 Second Amendment to Agreement and Plan of Merger dated as
of April 26, 2000 (incorporated herein by reference to Exhibit
2.3 to Wisconsin Energy's Current Report on Form 8-K dated as of
April 26, 2000).
3.1 Bylaws of Wisconsin Energy, as amended to May 1, 2000.
10.1(a) Updated form of Incentive Stock Option Agreement under
1993 Omnibus Stock Incentive Plan, as amended.
10.1(b) Updated form of Non-Qualified Stock Option Agreement
under 1993 Omnibus Stock Incentive Plan, as amended.
10.2(a) Employment Agreement with George E. Wardeberg as Vice
Chairman of the Board of Directors of Wisconsin Energy
Corporation, effective April 26, 2000.
10.2(b) Non-Qualified Stock Option Agreement with George E.
Wardeberg, dated April 26, 2000, granted pursuant to
the Employment Agreement.
10.3 Amended and Restated Wisconsin Energy Corporation
Special Executive Severance Policy, effective as of
April 26, 2000.
10.4 Amended and Restated Wisconsin Energy Corporation
Executive Severance Policy, effective as of April 26,
2000.
27.1 Wisconsin Energy Corporation Financial Data Schedule
for the three months ended March 31, 2000.
27.2 Wisconsin Energy Corporation Restated Financial Data
Schedule for the three months ended March 31, 1999,
which reflects the reclassification of certain amounts
to conform to Wisconsin Energy's current financial
statement presentation.
WISCONSIN ELECTRIC POWER COMPANY
3.2 Bylaws of Wisconsin Electric Power Company as amended
to May 1, 2000.
27.3 Wisconsin Electric Power Company Financial Data
Schedule for the threenine months ended March 31,September 30, 2000.
27.427.2 Wisconsin Electric Power Company RestatedReclassified Financial
Data Schedule for the threenine months ended March 31,September 30,
1999, which reflects the reclassification of certain
amounts to conform to Wisconsin Electric's current
financial statement presentation.
(b) REPORTS ON FORM 8-K
On September 13, 2000, Wisconsin Electric filed a Current
Report on Form 8-K dated as of September 10, 2000 disclosing
Wisconsin Energy's new 10-Year, $6 billion "Power The Future"
growth strategy plan.
No other reports on Form 8-K were filed by Wisconsin Energy or by
Wisconsin Electric
during the quarter ended March 31,September 30, 2000.
A Current Report on Form 8-K dated as of April, 26, 2000 was
filed by Wisconsin Energy disclosing the consummation of
Wisconsin Energy's acquisition of WICOR, Inc., an update on
securities ratings, and the Circuit Court Judge's ruling on
the sanctions matter relating to the Giddings & Lewis / City
of West Allis lawsuit, and incorporating and filing as an
exhibit WICOR's historical financial statements.
A Current Report on Form 8-K dated as of April 27, 2000 was
filed by Wisconsin Electric disclosing an update on
securities ratings and the Circuit Court Judge's ruling on
the sanctions matter relating to the Giddings & Lewis / City
of West Allis lawsuit.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, eachthe registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
WISCONSIN ENERGY CORPORATION
----------------------------
(Registrant)
/s/ Paul Donovan
Date: May 12, 2000 -----------------------------------
Paul Donovan, Senior Vice President,
Chief Financial Officer and duly
authorized officer
WISCONSIN ELECTRIC POWER COMPANY
--------------------------------
(Registrant)
/s/ Calvin H. BakerStephen P. Dickson
--------------------------------------
Date: May 12,November 14, 2000 -----------------------------------------
Calvin H. Baker, Vice President -
Finance,Stephen P. Dickson, Controller, Chief
FinancialAccounting Officer and duly authorized
officer
WISCONSIN ELECTRIC POWER COMPANY
FORM 10-Q REPORT FOR THE QUARTER ENDED MARCH 31,SEPTEMBER 30, 2000
EXHIBIT INDEX
The following exhibits are in this report:
Exhibit No.
-------------
3.2 Bylaws of Wisconsin Electric Power Company as amended
to May 1, 2000.
27.3-----------
27.1 Wisconsin Electric Power Company Financial Data
Schedule for the threenine months ended March 31,September 30, 2000.
27.427.2 Wisconsin Electric Power Company Restated Financial
Data Schedule for the threenine months ended March 31,September 30,
1999, which reflects the reclassification of certain
amounts to conform to Wisconsin Electric's current
financial statement presentation.