UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2020~~2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ___________________

Commission
File Number

Registrant; State of Incorporation;
Address; and Telephone Number

IRS Employer
Identification No.

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

Securities registered pursuant to Section 12(b) of the Act:

None

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes ☐ No ☒

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

Common Stock, $10 Par Value,

33,289,327 shares outstanding at

June 30, ~~2020~~2021

All of the common stock of Wisconsin Electric Power Company is held by WEC Energy Group, Inc.

Table of Contents

WISCONSIN ELECTRIC POWER COMPANY

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended June 30, ~~2020~~2021

TABLE OF CONTENTS

Page

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

PART I.

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

Condensed Consolidated Income Statements

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Cash Flows

Condensed Consolidated Statements of Equity

Notes to Condensed Consolidated Financial Statements

Page

Regulatory Assets and Liabilities

Note 5

Property, Plant, and Equipment

Note 6

Common Equity

Note 67

Short-Term Debt and Lines of Credit

Note 78

~~Leases~~Long-Term Debt

Note 89

Materials, Supplies, and Inventories

Note 910

Income Taxes

Note 1011

Fair Value Measurements

Note 1112

Derivative Instruments

~~Note 15~~

~~Variable Interest Entities~~

1716

Note 16

~~Commitments and Contingencies~~Variable Interest Entities

1716

Note 17

~~Supplemental Cash Flow Information~~Commitments and Contingencies

2018

Note 18

~~Regulatory Environment~~Supplemental Cash Flow Information

2021

Note 19

Regulatory Environment

Note 20

New Accounting Pronouncements

2223

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

4139

ITEM 4.

CONTROLS AND PROCEDURES


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GLOSSARY OF TERMS AND ABBREVIATIONS

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

Affiliates

ATC

American Transmission Company LLC

~~UMERC~~

~~Upper Michigan Energy Resources Corporation~~

We Power

W.E. Power, LLC

WEC Energy Group

WEC Energy Group, Inc.

WGWEPCo Environmental Trust

~~Wisconsin Gas~~WEPCo Environmental Trust Finance I, LLC

WPS

Wisconsin Public Service Corporation

Federal and State Regulatory Agencies

EPA

United States Environmental Protection Agency

~~FERC~~

~~Federal Energy Regulatory Commission~~

PSCW

Public Service Commission of Wisconsin

SEC

United States Securities and Exchange Commission

Accounting Terms

AFUDC

Allowance for Funds Used During Construction

ASU

Accounting Standards Update

FASB

Financial Accounting Standards Board

GAAP

United States Generally Accepted Accounting Principles

OPEB

Other Postretirement Employee Benefits

VIE

Variable Interest Entity

Environmental Terms

ACE

Affordable Clean Energy

BATW

Bottom Ash Transport Water

~~BSER~~

~~Best System of Emission Reduction~~

BTA

Best Technology Available

~~CAA~~

~~Clean Air Act~~

CO₂

Carbon Dioxide

CSAPR

Cross-State Air Pollution Rule

ELG

Steam Electric Effluent Limitation Guidelines

FGD

Flue Gas Desulfurization

GHG

Greenhouse Gas

NAAQS

National Ambient Air Quality Standards

~~MATS~~NOx

~~Mercury and Air Toxics Standards~~Nitrogen Oxide

~~RTR~~

~~Risk and Technology Review~~

Measurements

Dth

Dekatherm

Megawatt

MWh

Megawatt-hour

Other Terms and Abbreviations

AMI

Advanced Metering Infrastructure

Badger Hollow II

Badger Hollow Solar ~~Farm~~Park II

CDC

Centers for Disease Control and Prevention

COVID-19

Coronavirus Disease – 2019

D.C. Circuit Court of Appeals

United States Court of Appeals for the District of Columbia Circuit

ERGS

Elm Road Generating Station

ESG Progress Plan

WEC Energy Group's Capital Investment Plan for Efficiency, Sustainability, and Growth for 2021-2025

ETB

Environmental Trust Bond

Exchange Act

Securities Exchange Act of 1934, as amended

Executive Order 13990

Executive Order 13990 of January 20, 2021 – Protecting Public Health and the Environment and Restoring Science To Tackle the Climate Crisis


06/30/2021 Form 10-Q			ii			Wisconsin Electric Power Company

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FTR						Financial Transmission Right
ITC						Investment Tax Credit
LIBOR						London Interbank Offered Rate
LNG						Liquefied Natural Gas
MISO						Midcontinent Independent System Operator, Inc.

OCPP						Oak Creek Power Plant


~~06/30/2020 Form 10-Q~~			ii			~~Wisconsin Electric Power Company~~

~~Table of~~ ~~Contents~~


OC 5						Oak Creek Power Plant Unit 5
~~OC 6~~						~~Oak Creek Power Plant Unit 6~~
OC 7						Oak Creek Power Plant Unit 7
OC 8						Oak Creek Power Plant Unit 8
~~PIPP~~PSB						~~Presque Isle Power Plant~~Public Service Building




PTC						Production Tax Credit
ROE						Return on Equity
SSR						System Support Resource
Tax Legislation						Tax Cuts and Jobs Act of 2017
~~Tilden~~						~~Tilden Mining Company~~
WHO						World Health Organization


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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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

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

Forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in the statements. These risks and uncertainties include those described in risk factors as set forth in ~~this report and~~ our ~~2019~~2020 Annual Report on Form 10-K, and those identified below:

•Factors affecting utility operations such as catastrophic weather-related damage, environmental incidents, unplanned facility outages and repairs and maintenance, and electric transmission or natural gas pipeline system constraints;

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

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

•The impact of health pandemics, including the COVID-19 pandemic, on our business functions, financial condition, liquidity, and results of operations;

•The impact of recent and future federal, state, and local legislative and/or regulatory changes, including changes in rate-setting policies or procedures, deregulation and restructuring of the electric and/or natural gas utility industries, transmission or distribution system operation, the approval process for new construction, reliability standards, pipeline integrity and safety standards, allocation of energy assistance, energy efficiency mandates, and tax laws, including ~~the Tax Legislation as well as~~ those that affect our ability to use ~~production tax credits~~PTCs and ~~investment tax credits;~~ITCs;

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

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

•The timely completion of capital projects within budgets and the ability to recover the related costs through rates;

•Factors affecting the implementation of WEC Energy Group's CO₂ emission and/or methane emission reduction goals, and ~~generation reshaping plan,~~opportunities and actions related to those goals, including related regulatory decisions, the cost of materials, supplies, and labor, technology advances, and the feasibility of competing generation projects;

•The financial and operational feasibility of taking more aggressive action to further reduce GHG emissions in order to limit future global temperature increases;

•The risks associated with changing commodity prices, particularly natural gas and electricity, and the availability of sources of natural gas and other fossil fuels, purchased power, materials needed to operate environmental controls at our electric


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generating facilities, or water supply due to high demand, shortages, transportation problems, nonperformance by electric energy or natural gas suppliers under existing power purchase or natural gas supply contracts, or other developments;

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

•Changes in the method of determining LIBOR or the replacement of LIBOR with an alternative reference rate;

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

•The direct or indirect effect on our business resulting from terrorist attacks and cyber security intrusions, as well as the threat of such incidents, including the failure to maintain the security of personally identifiable information, the associated costs to protect our utility assets, technology systems, and personal information, and the costs to notify affected persons to mitigate their information security concerns and to comply with state notification laws;

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

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

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

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

•Advances in technology, and related legislation or regulation supporting the use of that technology, that result in competitive disadvantages and create the potential for impairment of existing assets;

•Potential business strategies to acquire and dispose of assets, which cannot be assured to be completed timely or within budgets;

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

•The ability to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act, while both ~~integrating and~~ continuing to integrate and consolidate WEC Energy Group's enterprise systems with those of its other utilities;

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

•Other considerations disclosed elsewhere herein and in other reports we file with the SEC or in other publicly disseminated written documents.

WeExcept as may be required by law, we expressly disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.


06/30/~~2020~~2021 Form 10-Q			2			Wisconsin Electric Power Company

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WISCONSIN ELECTRIC POWER COMPANY


CONDENSED INCOME STATEMENTS (Unaudited)		Three Months Ended						Six Months Ended
CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)										CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)	Three Months Ended				Six Months Ended
		June 30						June 30							June 30				June 30
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020		2021		2020
Operating revenues	Operating revenues	$	769.5	$	791.7	$	1,640.5	$	1,752.5	Operating revenues	$	827.5	$	769.5	$	1,832.7	$	1,640.5

Operating expenses	Operating expenses									Operating expenses
Cost of sales	Cost of sales	235.6		253.5		524.8		610.7		Cost of sales	276.4		235.6		680.6		524.8
Other operation and maintenance	Other operation and maintenance	214.3		234.3		418.9		493.2		Other operation and maintenance	213.1		214.3		422.4		418.9
Depreciation and amortization	Depreciation and amortization	106.2		95.2		210.7		191.2		Depreciation and amortization	113.3		106.2		224.0		210.7
Property and revenue taxes	Property and revenue taxes	24.8		26.1		50.5		51.9		Property and revenue taxes	24.7		24.8		50.1		50.5
Total operating expenses	Total operating expenses	580.9		609.1		1,204.9		1,347.0		Total operating expenses	627.5		580.9		1,377.1		1,204.9

Operating income	Operating income	188.6		182.6		435.6		405.5		Operating income	200.0		188.6		455.6		435.6

Other income, net	Other income, net	4.9		5.9		10.2		11.4		Other income, net	7.3		4.9		14.7		10.2
Interest expense	Interest expense	116.6		119.6		235.2		239.5		Interest expense	116.0		116.6		232.2		235.2
Other expense	Other expense	(111.7)		(113.7)		(225.0)		(228.1)		Other expense	(108.7)		(111.7)		(217.5)		(225.0)

Income before income taxes	Income before income taxes	76.9		68.9		210.6		177.4		Income before income taxes	91.3		76.9		238.1		210.6
Income tax expense (benefit)		6.0		(16.3)		20.7		(22.8)
Income tax expense										Income tax expense	12.2		6.0		31.7		20.7
Net income	Net income	70.9		85.2		189.9		200.2		Net income	79.1		70.9		206.4		189.9

Preferred stock dividend requirements	Preferred stock dividend requirements	0.3		0.3		0.6		0.6		Preferred stock dividend requirements	0.3		0.3		0.6		0.6
Net income attributed to common shareholder	Net income attributed to common shareholder	$	70.6	$	84.9	$	189.3	$	199.6	Net income attributed to common shareholder	$	78.8	$	70.6	$	205.8	$	189.3

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


06/30/~~2020~~2021 Form 10-Q			3			Wisconsin Electric Power Company

Table of Contents

WISCONSIN ELECTRIC POWER COMPANY


CONDENSED BALANCE SHEETS (Unaudited) (in millions, except share and per share amounts)		June 30, 2020		December 31, 2019
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except share and per share amounts)						CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except share and per share amounts)	June 30, 2021		December 31, 2020
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	2.0	$	19.1	Cash and cash equivalents	$	4.7	$	7.2
Accounts receivable and unbilled revenues, net of reserves of $45.7 and $38.1, respectively		427.1		434.6
Accounts receivable and unbilled revenues, net of reserves of $71.3 and $59.3, respectively						Accounts receivable and unbilled revenues, net of reserves of $71.3 and $59.3, respectively	565.9		466.1
Accounts receivable from related parties	Accounts receivable from related parties	45.2		86.5		Accounts receivable from related parties	50.0		67.9
Materials, supplies, and inventories	Materials, supplies, and inventories	220.0		229.8		Materials, supplies, and inventories	209.1		219.5
Prepaid taxes	Prepaid taxes	93.4		104.4		Prepaid taxes	92.0		98.5

Other	Other	18.6		33.6		Other	46.1		36.4
Current assets	Current assets	806.3		908.0		Current assets	967.8		895.6

Long-term assets	Long-term assets					Long-term assets
Property, plant, and equipment, net of accumulated depreciation and amortization of $4,725.3 and $4,564.0, respectively		9,680.5		9,586.7
Regulatory assets		2,767.8		2,755.2
Property, plant, and equipment, net of accumulated depreciation and amortization of $4,989.1 and $4,849.2, respectively						Property, plant, and equipment, net of accumulated depreciation and amortization of $4,989.1 and $4,849.2, respectively	9,885.0		9,789.9
Regulatory assets (June 30, 2021 includes $106.0 related to WEPCo Environmental Trust)						Regulatory assets (June 30, 2021 includes $106.0 related to WEPCo Environmental Trust)	2,790.6		2,803.3
Other	Other	100.6		110.9		Other	139.5		116.4
Long-term assets	Long-term assets	12,548.9		12,452.8		Long-term assets	12,815.1		12,709.6
Total assets	Total assets	$	13,355.2	$	13,360.8	Total assets	$	13,782.9	$	13,605.2

Liabilities and Equity	Liabilities and Equity					Liabilities and Equity
Current liabilities	Current liabilities					Current liabilities
Short-term debt	Short-term debt	$	27.0	$	115.5	Short-term debt	$	202.0	$	292.0
Current portion of long-term debt (June 30, 2021 includes $4.1 related to WEPCo Environmental Trust)						Current portion of long-term debt (June 30, 2021 includes $4.1 related to WEPCo Environmental Trust)	4.1		300.0
Current portion of finance lease obligations	Current portion of finance lease obligations	62.2		57.8		Current portion of finance lease obligations	71.0		66.8
Accounts payable	Accounts payable	231.0		267.6		Accounts payable	306.6		261.2
Accounts payable to related parties	Accounts payable to related parties	145.6		184.5		Accounts payable to related parties	163.8		172.0
Accrued payroll and benefits	Accrued payroll and benefits	45.2		51.3		Accrued payroll and benefits	45.9		43.3
Accrued taxes	Accrued taxes	58.3		12.3		Accrued taxes	30.6		25.0
Other	Other	99.0		105.6		Other	115.8		97.1
Current liabilities	Current liabilities	668.3		794.6		Current liabilities	939.8		1,257.4

Long-term liabilities	Long-term liabilities					Long-term liabilities
Long-term debt		2,760.0		2,759.2
Long-term debt (June 30, 2021 includes $111.1 related to WEPCo Environmental Trust)						Long-term debt (June 30, 2021 includes $111.1 related to WEPCo Environmental Trust)	2,871.0		2,461.2
Finance lease obligations	Finance lease obligations	2,796.9		2,783.1		Finance lease obligations	2,747.0		2,774.4
Deferred income taxes	Deferred income taxes	1,355.5		1,347.4		Deferred income taxes	1,376.8		1,357.2
Regulatory liabilities	Regulatory liabilities	1,726.9		1,744.2		Regulatory liabilities	1,700.8		1,703.7
Pension and OPEB obligations	Pension and OPEB obligations	49.8		59.8		Pension and OPEB obligations	70.9		85.9
Other	Other	271.5		281.0		Other	267.6		272.8
Long-term liabilities	Long-term liabilities	8,960.6		8,974.7		Long-term liabilities	9,034.1		8,655.2

Commitments and contingencies (Note 16)
Commitments and contingencies (Note 17)						Commitments and contingencies (Note 17)	0		0

Common shareholder's equity	Common shareholder's equity					Common shareholder's equity
Common stock – $10 par value; 65,000,000 shares authorized; 33,289,327 shares outstanding	Common stock – $10 par value; 65,000,000 shares authorized; 33,289,327 shares outstanding	332.9		332.9		Common stock – $10 par value; 65,000,000 shares authorized; 33,289,327 shares outstanding	332.9		332.9
Additional paid in capital	Additional paid in capital	995.0		929.5		Additional paid in capital	1,090.7		1,060.1
Retained earnings	Retained earnings	2,368.0		2,298.7		Retained earnings	2,355.0		2,269.2
Common shareholder's equity	Common shareholder's equity	3,695.9		3,561.1		Common shareholder's equity	3,778.6		3,662.2

Preferred stock	Preferred stock	30.4		30.4		Preferred stock	30.4		30.4
Total liabilities and equity	Total liabilities and equity	$	13,355.2	$	13,360.8	Total liabilities and equity	$	13,782.9	$	13,605.2

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


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WISCONSIN ELECTRIC POWER COMPANY


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	Six Months Ended
	June 30
(in millions)	2021		2020
Operating activities
Net income	$	206.4	$	189.9
Reconciliation to cash provided by operating activities
Depreciation and amortization	224.0		210.7
Deferred income taxes and ITCs, net	(14.3)		(26.5)


Change in –
Accounts receivable and unbilled revenues, net	(37.6)		49.2
Materials, supplies, and inventories	10.4		9.8
Prepaid taxes	6.5		11.0

Other current assets	16.5		16.4
Accounts payable	30.3		(67.2)
Accrued taxes	5.6		46.0

Other current liabilities	25.4		(8.6)
Other, net	0.5		30.4
Net cash provided by operating activities	473.7		461.1

Investing activities
Capital expenditures	(387.6)		(311.1)

Proceeds from assets transferred to affiliates	10.7		0.3


Other, net	3.4		5.1
Net cash used in investing activities	(373.5)		(305.7)

Financing activities
Change in short-term debt	(90.0)		(88.5)
Issuance of long-term debt	418.8		0
Retirement of long-term debt	(300.0)		0
Payments for finance lease obligations	(32.5)		(28.2)
Equity contribution from parent	30.0		65.0
Payment of dividends to parent	(120.0)		(120.0)
Other, net	(6.8)		(0.8)
Net cash used in financing activities	(100.5)		(172.5)

Net change in cash, cash equivalents, and restricted cash	(0.3)		(17.1)
Cash, cash equivalents, and restricted cash at beginning of period	7.2		19.1
Cash, cash equivalents, and restricted cash at end of period	$	6.9	$	2.0

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


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WISCONSIN ELECTRIC POWER COMPANY

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended
June 30
(in millions) 2020 2019
Operating activities
Net income $ 189.9 $ 200.2
Reconciliation to cash provided by operating activities
Depreciation and amortization 210.7 191.2
Deferred income taxes and investment tax credits, net (26.5) (42.6)
Change in –
Accounts receivable and unbilled revenues 49.2 112.9
Materials, supplies, and inventories 9.8 13.4
Prepaid taxes 11.0 25.1
Other current assets 16.4 (9.2)
Accounts payable (67.2) (98.5)
Accrued taxes 46.0 (0.3)
Other current liabilities (8.6) (16.8)
Other, net 30.4 60.0
Net cash provided by operating activities 461.1 435.4
Investing activities
Capital expenditures (311.1) (230.4)
Other, net 5.4 5.1
Net cash used in investing activities (305.7) (225.3)
Financing activities
Change in short-term debt (88.5) (95.4)
Payments for finance lease obligations (28.2) (24.4)
Equity contribution from parent 65.0 105.0
Payment of dividends to parent (120.0) (210.0)
Other, net (0.8) (0.9)
Net cash used in financing activities (172.5) (225.7)
Net change in cash and cash equivalents (17.1) (15.6)
Cash and cash equivalents at beginning of period 19.1 20.2
Cash and cash equivalents at end of period $ 2.0 $ 4.6


CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

	Wisconsin Electric Power Company Common Shareholder's Equity
(in millions)	Common Stock		Additional Paid In Capital		Retained Earnings		Total Common Shareholder's Equity		Preferred Stock		Total Equity
Balance at December 31, 2020	$	332.9	$	1,060.1	$	2,269.2	$	3,662.2	$	30.4	$	3,692.6
Net income attributed to common shareholder	0		0		127.0		127.0		0		127.0
Payment of dividends to parent	0		0		(60.0)		(60.0)		0		(60.0)
Equity contribution from parent	0		30.0		0		30.0		0		30.0
Stock-based compensation and other	0		0.5		0.1		0.6		0		0.6
Balance at March 31, 2021	$	332.9	$	1,090.6	$	2,336.3	$	3,759.8	$	30.4	$	3,790.2
Net income attributed to common shareholder	0		0		78.8		78.8		0		78.8
Payment of dividends to parent	0		0		(60.0)		(60.0)		0		(60.0)
Stock-based compensation and other	0		0.1		(0.1)		0		0		0
Balance at June 30, 2021	$	332.9	$	1,090.7	$	2,355.0	$	3,778.6	$	30.4	$	3,809.0


	Wisconsin Electric Power Company Common Shareholder's Equity
(in millions)	Common Stock		Additional Paid In Capital		Retained Earnings		Total Common Shareholder's Equity		Preferred Stock		Total Equity
Balance at December 31, 2019	$	332.9	$	929.5	$	2,298.7	$	3,561.1	$	30.4	$	3,591.5
Net income attributed to common shareholder	0		0		118.7		118.7		0		118.7
Payment of dividends to parent	0		0		(60.0)		(60.0)		0		(60.0)

Stock-based compensation and other	0		0.5		0		0.5		0		0.5
Balance at March 31, 2020	$	332.9	$	930.0	$	2,357.4	$	3,620.3	$	30.4	$	3,650.7
Net income attributed to common shareholder	0		0		70.6		70.6		0		70.6
Payment of dividends to parent	0		0		(60.0)		(60.0)		0		(60.0)
Equity contribution from parent	0		65.0		0		65.0		0		65.0

Balance at June 30, 2020	$	332.9	$	995.0	$	2,368.0	$	3,695.9	$	30.4	$	3,726.3

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


06/30/~~2020 Form 10-Q~~			5			~~Wisconsin Electric Power Company~~

~~Table of~~ ~~Contents~~

~~WISCONSIN ELECTRIC POWER COMPANY~~

CONDENSED STATEMENTS OF EQUITY (Unaudited)
Wisconsin Electric Power Company Common Shareholder's Equity
(in millions) Common Stock Additional Paid In Capital Retained Earnings Total Common Shareholder's Equity Preferred Stock Total Equity
Balance at December 31, 2019 $ 332.9 $ 929.5 $ 2,298.7 $ 3,561.1 $ 30.4 $ 3,591.5
Net income attributed to common shareholder — — 118.7 118.7 — 118.7
Payment of dividends to parent — — (60.0) (60.0) — (60.0)
Stock-based compensation and other — 0.5 — 0.5 — 0.5
Balance at March 31, 2020 $ 332.9 $ 930.0 $ 2,357.4 $ 3,620.3 $ 30.4 $ 3,650.7
Net income attributed to common shareholder — — 70.6 70.6 — 70.6
Payment of dividends to parent — — (60.0) (60.0) — (60.0)
Equity contribution from parent — 65.0 — 65.0 — 65.0
Balance at June 30, 2020 $ 332.9 $ 995.0 $ 2,368.0 $ 3,695.9 $ 30.4 $ 3,726.3

Wisconsin Electric Power Company Common Shareholder's Equity
(in millions) Common Stock Additional Paid In Capital Retained Earnings Total Common Shareholder's Equity Preferred Stock Total Equity
Balance at December 31, 2018 $ 332.9 $ 831.3 $ 2,296.6 $ 3,460.8 $ 30.4 $ 3,491.2
Net income attributed to common shareholder — — 114.7 114.7 — 114.7
Payment of dividends to parent — — (150.0) (150.0) — (150.0)
Stock-based compensation and other — 0.2 — 0.2 — 0.2
Balance at March 31, 2019 $ 332.9 $ 831.5 $ 2,261.3 $ 3,425.7 $ 30.4 $ 3,456.1
Net income attributed to common shareholder — — 84.9 84.9 — 84.9
Payment of dividends to parent — — (60.0) (60.0) — (60.0)
Equity contribution from parent — 105.0 — 105.0 — 105.0
Transfer of net assets to UMERC — (7.3) — (7.3) — (7.3)
Balance at June 30, 2019 $ 332.9 $ 929.2 $ 2,286.2 $ 3,548.3 $ 30.4 $ 3,578.7

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


~~06/30/2020~~2021 Form 10-Q			6			Wisconsin Electric Power Company

Table of Contents

WISCONSIN ELECTRIC POWER COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, ~~2020~~2021

NOTE 1—GENERAL INFORMATION

Wisconsin Electric Power Company serves approximately 1.1 million electric customers and 0.5 million natural gas customers.

As used in these notes, the term "financial statements" refers to the condensed consolidated financial statements. This includes the income statements, balance sheets, statements of cash flows, and statements of equity, unless otherwise noted. In this report, when we refer to "the Company," "us," "we," "our," or "ours," we are referring to Wisconsin Electric Power Company.

On our financial statements, we consolidate VIEs of which we are the primary beneficiary.

We have prepared the unaudited interim financial statements presented in this Form 10-Q pursuant to the rules and regulations of the SEC and GAAP. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and footnotes in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Financial results for an interim period may not give a true indication of results for the year. In particular, the results of operations for the three and six months ended June 30, ~~2020~~2021 are not necessarily indicative of expected results for ~~2020~~2021 due to seasonal variations and other factors, including any continuing financial impacts from the COVID-19 pandemic.

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

NOTE 2—OPERATING REVENUES

For more information about our operating revenues, see Note 1(d), Operating Revenues, in our ~~2019~~2020 Annual Report on Form 10-K.

Disaggregation of Operating Revenues

The following tables present our operating revenues disaggregated by revenue source for our utility segment. We do not have any revenues associated with our other segment. We disaggregate revenues into categories that depict how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors. Revenues are further disaggregated by electric and natural gas operations and then by customer class. Each customer class within our electric and natural gas operations have different expectations of service, energy and demand requirements, and can be impacted differently by regulatory activities within their jurisdictions.


		Wisconsin Electric Power Company
		Three Months Ended June 30						Six Months Ended June 30							Three Months Ended June 30				Six Months Ended June 30
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020		2021		2020
Wisconsin Electric Power Company										Wisconsin Electric Power Company
Electric utility	Electric utility	$	707.3	$	723.7	$	1,436.3	$	1,502.5	Electric utility	$	758.9	$	707.3	$	1,542.4	$	1,436.3
Natural gas utility	Natural gas utility	61.9		64.7		200.9		242.6		Natural gas utility	62.3		61.9		278.1		200.9
Total revenues from contracts with customers	Total revenues from contracts with customers	769.2		788.4		1,637.2		1,745.1		Total revenues from contracts with customers	821.2		769.2		1,820.5		1,637.2
Other operating revenues	Other operating revenues	0.3		3.3		3.3		7.4		Other operating revenues	6.3		0.3		12.2		3.3
Total operating revenues	Total operating revenues	$	769.5	$	791.7	$	1,640.5	$	1,752.5	Total operating revenues	$	827.5	$	769.5	$	1,832.7	$	1,640.5


06/30/~~2020~~2021 Form 10-Q			7			Wisconsin Electric Power Company

Table of Contents

Revenues from Contracts with Customers

Electric Utility Operating Revenues

The following table disaggregates electric utility operating revenues into customer class:


		Electric Utility Operating Revenues
		Three Months Ended June 30						Six Months Ended June 30							Three Months Ended June 30				Six Months Ended June 30
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020		2021		2020
Residential	Residential	$	312.4	$	266.5	$	607.4	$	569.1	Residential	$	307.6	$	312.4	$	619.8	$	607.4
Small commercial and industrial	Small commercial and industrial	222.5		241.9		458.5		487.0		Small commercial and industrial	248.7		222.5		491.2		458.5
Large commercial and industrial	Large commercial and industrial	122.8		139.4		245.7		295.4		Large commercial and industrial	138.0		122.8		267.1		245.7
Other	Other	4.6		4.9		9.7		10.5		Other	4.6		4.6		10.2		9.7
Total retail revenues	Total retail revenues	662.3		652.7		1,321.3		1,362.0		Total retail revenues	698.9		662.3		1,388.3		1,321.3
Wholesale	Wholesale	18.0		20.1		37.7		49.0		Wholesale	17.9		18.0		38.7		37.7
Resale	Resale	22.0		41.8		61.2		73.1		Resale	36.1		22.0		92.6		61.2
Steam	Steam	4.1		4.3		12.5		14.4		Steam	4.2		4.1		19.0		12.5
Other utility revenues	Other utility revenues	0.9		4.8		3.6		4.0		Other utility revenues	1.8		0.9		3.8		3.6
Total electric utility operating revenues	Total electric utility operating revenues	$	707.3	$	723.7	$	1,436.3	$	1,502.5	Total electric utility operating revenues	$	758.9	$	707.3	$	1,542.4	$	1,436.3

Natural Gas Utility Operating Revenues

The following table disaggregates natural gas utility operating revenues into customer class:


		Natural Gas Utility Operating Revenues
		Three Months Ended June 30						Six Months Ended June 30							Three Months Ended June 30				Six Months Ended June 30
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020		2021		2020
Residential	Residential	$	39.2	$	35.4	$	138.7	$	161.0	Residential	$	70.3	$	39.2	$	183.0	$	138.7
Commercial and industrial	Commercial and industrial	13.0		14.1		57.3		75.0		Commercial and industrial	31.6		13.0		84.2		57.3
Total retail revenues	Total retail revenues	52.2		49.5		196.0		236.0		Total retail revenues	101.9		52.2		267.2		196.0
Transport		3.5		2.9		8.5		7.2
Transportation										Transportation	3.8		3.5		9.1		8.5
Other utility revenues ⁽¹⁾	Other utility revenues ⁽¹⁾	6.2		12.3		(3.6)		(0.6)		Other utility revenues (1)	(43.4)		6.2		1.8		(3.6)
Total natural gas utility operating revenues	Total natural gas utility operating revenues	$	61.9	$	64.7	$	200.9	$	242.6	Total natural gas utility operating revenues	$	62.3	$	61.9	$	278.1	$	200.9

⁽¹⁾Includes ~~amounts collected from (refunded to) customers for~~the revenues subject to our purchased gas ~~adjustment costs.~~recovery mechanism. The negative amount for the three months ended June 30, 2021 primarily relates to the approval by the PSCW to recover from customers, over the second quarter of 2021, the higher natural gas costs that were incurred as a result of the extreme winter weather conditions in February 2021. As these amounts were billed to customers, they were reflected in retail revenues with an offsetting decrease in other utility revenues. See Note 19, Regulatory Environment, for more information.

Other Operating Revenues

Other operating revenues consist primarily of the following:


		Three Months Ended June 30						Six Months Ended June 30							Three Months Ended June 30				Six Months Ended June 30
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020		2021		2020
Late payment charges (1)										Late payment charges (1)	$	4.4	$	0	$	8.1	$	2.7
Rental revenues	Rental revenues	$	1.6	$	1.5	$	2.3	$	2.2	Rental revenues	1.6		1.6		2.4		2.3
Late payment charges ⁽¹⁾		—		2.0		2.7		4.7
Alternative revenues ⁽²⁾	Alternative revenues ⁽²⁾	(1.3)		(0.2)		(1.7)		0.5		Alternative revenues (2)	0.3		(1.3)		1.7		(1.7)
Total other operating revenues	Total other operating revenues	$	0.3	$	3.3	$	3.3	$	7.4	Total other operating revenues	$	6.3	$	0.3	$	12.2	$	3.3

⁽¹⁾The ~~reduction~~increase in late payment charges isduring the three and six months ended June 30, 2021, compared with the same periods in 2020, was a result of the expiration of a regulatory order from the PSCW in response to the COVID-19 pandemic, which ~~includes~~included the suspension of late payment charges during a designated time period. See Note ~~18,~~19, Regulatory Environment, for more information.

⁽²⁾Negative amounts can result from alternative revenues being reversed to revenues from contracts with customers as the customer is billed for these alternative revenues. Negative amounts can also result from revenues to be refunded to wholesale customers subject to true-up, as discussed in Note 1(d), Operating Revenues, in our ~~2019~~2020 Annual Report on Form 10-K.


06/30/~~2020~~2021 Form 10-Q			8			Wisconsin Electric Power Company

Table of Contents

NOTE 3—CREDIT LOSSES

Effective January 1, 2020, we adopted FASB ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, using the modified retrospective transition method. This ASU amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables. The amendment requires entities to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of loss. The cumulative effect of adopting this standard was not significant to our financial statements.

Our exposure to credit losses is related to our accounts receivable and unbilled revenue balances, which are generated from the sale of electricity and natural gas by our regulated utility operations. Our regulated utility operations are included in our utility segment. NaN accounts receivable and unbilled revenue balances were reported in the other segment at June 30, 2021 and December 31, 2020.

We evaluate the collectability of our accounts receivable and unbilled revenue balances considering a combination of factors. For some of our larger customers and also in circumstances where we become aware of a specific customer's inability to meet its financial obligations to us, we record a specific allowance for credit losses against amounts due in order to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we use the accounts receivable aging method to calculate an allowance for credit losses. Using this method, we classify accounts receivable into different aging buckets and calculate a reserve percentage for each aging bucket based upon historical loss rates. The calculated reserve percentages are updated on at least an annual basis, in order to ensure recent macroeconomic, political, and regulatory trends are captured in the calculation, to the extent possible. Risks identified that we do not believe are reflected in the calculated reserve percentages, are assessed on a quarterly basis to determine whether further adjustments are required. The increase recorded to our allowance for credit losses at June 30, 2020, specific to the economic risks associated with the COVID-19 pandemic not already reflected in our calculated reserve, was not significant. We will continue to monitor the economic impacts of COVID-19 and the resulting effects that these impacts may have on the ability of our customers to pay their energy bills.

We monitor our ongoing credit exposure through active review of counterparty accounts receivable balances against contract terms and due dates. Our activities include timely account reconciliation, dispute resolution and payment confirmation. To the extent possible, we work with customers with past due balances to negotiate payment plans, but will disconnect customers for non-payment as allowed by ~~our regulators~~the PSCW, if necessary, and employ collection agencies and legal counsel to pursue recovery of defaulted receivables. For our larger customers, detailed credit review procedures may be performed in advance of any sales being made. We sometimes require letters of credit, parental guarantees, prepayments or other forms of credit assurance from our larger customers to mitigate credit risk. See Note ~~18,~~19, Regulatory Environment, for information on certain regulatory actions that were and/or are being taken for the purpose of ensuring that essential utility services are available to our customers during the COVID-19 pandemic.

We have included a table below that shows our gross third-party receivable balances and related allowance for credit losses.


~~(in millions)~~	~~June 30, 2020~~
~~Accounts receivable and unbilled revenues~~	$	~~472.8~~
~~Allowance for credit losses~~	~~45.7~~
~~Accounts receivable and unbilled revenues, net~~ ⁽¹⁾	$	~~427.1~~

~~Total accounts receivable, net – past due greater than 90 days~~ ⁽¹⁾	$	~~41.3~~
~~Past due greater than 90 days – collection risk mitigated by regulatory mechanisms~~ ⁽¹⁾	~~95.8~~		%


(in millions)	June 30, 2021			December 31, 2020
Accounts receivable and unbilled revenues	$	637.2		$	525.4
Allowance for credit losses	71.3			59.3
Accounts receivable and unbilled revenues, net (1)	$	565.9		$	466.1

Total accounts receivable, net – past due greater than 90 days (1)	$	39.6		$	56.3
Past due greater than 90 days – collection risk mitigated by regulatory mechanisms (1)	95.6		%	98.2		%

⁽¹⁾Our exposure to credit losses for certain regulated utility customers is mitigated by a regulatory mechanism we have in place. Specifically, our residential tariffs include a mechanism for cost recovery or refund of uncollectible expense based on the difference between actual uncollectible write-offs and the amounts recovered in rates. As a result, at June 30, ~~2020, $204.4~~2021, $219.9 million, or ~~47.9%~~38.9%, of our net accounts receivable and unbilled revenues balance had regulatory protections in place to mitigate the exposure to credit losses. In addition, ~~in its March 24, 2020 order, the PSCW authorized~~we have received specific orders related to the deferral of certain costs (including credit ~~losses for our commercial and industrial customers, to the extent these losses exceed the amount included in rates,~~losses) incurred as a result of the COVID-19 pandemic and the related actions we have been required to take to ensure essential utility services are available to customers during this public health emergency. As a result, our exposure to credit lossespandemic. The additional protections related to ~~certain commercial and industrial~~our accounts receivable and unbilled revenue balances ~~were also mitigated~~provided by ~~regulatory protections at June 30, 2020, but~~these orders are subject to prudency reviews and are still being assessed. They are not ~~included~~reflected in the percentages in the above table or this ~~note as we continue to assess the impacts of the order.~~note. See Note ~~18,~~19, Regulatory Environment, for more ~~information.~~information on these orders.

A rollforward of the allowance for credit losses for the three and six months ended June 30, 2021 and 2020 is included below:


	Three Months Ended
(in millions)	June 30, 2021		June 30, 2020
Balance at March 31	$	78.8	$	39.8
Provision for credit losses	4.4		6.8
Provision for credit losses deferred for future recovery or refund	(3.5)		3.7
Write-offs charged against the allowance	(10.7)		(10.7)
Recoveries of amounts previously written off	2.3		6.1
Balance at June 30	$	71.3	$	45.7


06/30/~~2020~~2021 Form 10-Q			9			Wisconsin Electric Power Company

Table of Contents

~~A rollforward of the allowance for credit losses is included below:~~


~~(in millions)~~	~~Six Months Ended June 30, 2020~~
~~Balance at December 31, 2019~~	$	~~38.1~~
~~Provision for credit losses~~	~~13.7~~
~~Provision for credit losses deferred for future recovery or refund~~	~~3.5~~
~~Write-offs charged against the allowance~~	~~(21.6)~~
~~Recoveries of amounts previously written off~~	~~12.0~~
~~Balance at June 30, 2020~~	$	~~45.7~~


	Six Months Ended
(in millions)	June 30, 2021		June 30, 2020
Balance at December 31	$	59.3	$	38.1
Provision for credit losses	12.5		13.7
Provision for credit losses deferred for future recovery or refund	13.9		3.5
Write-offs charged against the allowance	(22.2)		(21.6)
Recoveries of amounts previously written off	7.8		12.0
Balance at June 30	$	71.3	$	45.7

The increase in the allowance for credit losses at June 30, 2021, compared to December 31, 2020, was driven by higher past due accounts receivable balances, primarily related to residential customers. This increase in accounts receivable balances in arrears related to the continued economic disruptions caused by the COVID-19 pandemic, including continued high unemployment rates. However, as seen in the quarterly rollforward above, the allowance for credit losses began to decrease in the second quarter of 2021, which we believe is related to the start of normal collection practices. See Note 19, Regulatory Environment, for more information.

The increase in the allowance for credit losses from December 31, 2019 to June 30, 2020, was driven by an increase in past due accounts receivable ~~balances from December 31, 2019 to June 30, 2020.~~balances. This is a trend we generally see over the winter moratorium months, when we are not allowed to disconnect customer service as a result of non-payment. In Wisconsin, the winter moratorium begins on November 1 and ends on April 15. However, as a result of the COVID-19 pandemic and related regulatory orders we ~~are still~~received, we were also unable to disconnect any of our ~~customers. See Note 18, Regulatory Environment, for more information.~~customers during the second quarter of 2020.

NOTE 4—REGULATORY ASSETS AND LIABILITIES

The following regulatory assets and liabilities were reflected on our balance sheets at June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. For more information on our regulatory assets and liabilities, see Note 5, Regulatory Assets and Liabilities, in our ~~2019~~2020 Annual Report on Form 10-K.


(in millions)	(in millions)	June 30, 2020		December 31, 2019		(in millions)	June 30, 2021		December 31, 2020
Regulatory assets	Regulatory assets					Regulatory assets
Finance leases	Finance leases	$	958.7	$	930.5	Finance leases	$	1,010.2	$	985.5
Plant retirements	Plant retirements	776.6		788.8		Plant retirements	661.7		669.8
Pension and OPEB costs	Pension and OPEB costs	440.8		459.4		Pension and OPEB costs	457.4		477.0
Income tax related items	Income tax related items	398.6		403.2		Income tax related items	390.4		392.6
SSR	SSR	138.8		151.5		SSR	132.8		135.6
Securitization (1)						Securitization (1)	106.0		105.2
Asset retirement obligations						Asset retirement obligations	27.9		28.6
Other, net	Other, net	54.3		21.8		Other, net	4.2		9.0
Total regulatory assets	Total regulatory assets	$	2,767.8	$	2,755.2	Total regulatory assets	$	2,790.6	$	2,803.3

(1)See Note 16, Variable Interest Entities, for more information.

(in millions) June 30, 2020 December 31, 2019
Regulatory liabilities
Income tax related items $ 847.3 $ 888.1
Removal costs 666.3 654.7
Pension and OPEB benefits 116.6 120.4
Electric transmission costs 54.6 38.6
Uncollectible expense 25.3 28.8
Energy costs refundable through rate adjustments 22.3 12.3
Other, net 9.2 13.3
Total regulatory liabilities $ 1,741.6 $ 1,756.2
Balance sheet presentation
Other current liabilities $ 14.7 $ 12.0
Regulatory liabilities 1,726.9 1,744.2
Total regulatory liabilities $ 1,741.6 $ 1,756.2


(in millions)	June 30, 2021		December 31, 2020
Regulatory liabilities
Income tax related items	$	768.7	$	806.7
Removal costs	689.3		677.2
Pension and OPEB benefits	129.1		132.1
Electric transmission costs	61.4		61.7
Derivatives	36.1		5.9
Other, net	19.1		24.3
Total regulatory liabilities	$	1,703.7	$	1,707.9

Balance sheet presentation
Other current liabilities	$	2.9	$	4.2
Regulatory liabilities	1,700.8		1,703.7
Total regulatory liabilities	$	1,703.7	$	1,707.9


06/30/~~2020~~2021 Form 10-Q			10			Wisconsin Electric Power Company

Table of Contents

NOTE 5—PROPERTY, PLANT, AND EQUIPMENT

During a significant rain event in May 2020, an underground steam tunnel in downtown Milwaukee flooded and steam vented into our PSB. The damage to the building from the flooding and steam was extensive and requires significant repairs and restorations. As of June 30, 2021, we have incurred $74.8 million of costs related to these repairs and restorations. We received $20.0 million of insurance proceeds in 2020 to cover a portion of these costs and $42.3 million was recorded in accounts receivable on our balance sheet as of June 30, 2021 for future insurance recoveries. The remaining $12.5 million of costs were included in other operation and maintenance expense in 2020 as we do not intend to seek recovery of these costs.

In June 2021, we received approval from the PSCW to restore the PSB and to defer the project costs, net of insurance proceeds, to include in rate base. As such, we do not currently expect a significant impact to our future results of operations, and although we may experience differences between periods in the timing of cash flows, we also do not currently expect a significant impact to our long-term cash flows from this event.

NOTE 6—COMMON EQUITY

Various financing arrangements and regulatory requirements impose certain restrictions on our ability to transfer funds to WEC Energy Group in the form of cash dividends, loans, or advances. In addition, Wisconsin law prohibits us from making loans to or guaranteeing obligations of WEC Energy Group or its subsidiaries. See Note 8, Common Equity, in our ~~2019~~2020 Annual Report on Form 10-K for additional information on these and other restrictions.

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

NOTE 6—7—SHORT-TERM DEBT AND LINES OF CREDIT

The following table shows our short-term borrowings and their corresponding weighted-average interest rates:


(in millions, except percentages)	(in millions, except percentages)	June 30, 2020			December 31, 2019			(in millions, except percentages)	June 30, 2021			December 31, 2020
Commercial paper	Commercial paper							Commercial paper
Amount outstanding	Amount outstanding	$	27.0		$	115.5		Amount outstanding	$	202.0		$	292.0
Weighted-average interest rate on amounts outstanding	Weighted-average interest rate on amounts outstanding	0.16		%	2.03		%	Weighted-average interest rate on amounts outstanding	0.16		%	0.21		%

Our average amount of commercial paper borrowings based on daily outstanding balances during the six months ended June 30, ~~2020~~2021 was ~~$82.8~~$254.1 million with a weighted-average interest rate during the period of ~~1.71%~~0.17%.

The information in the table below relates to our revolving credit facility used to support our commercial paper borrowing program, including available capacity under this facility:

(in millions)

Maturity

June 30, ~~2020~~2021

Revolving credit facility

October 2022

500.0

Less:

Letters of credit issued inside credit facility

1.0

Commercial paper outstanding

~~27.0~~202.0

Available capacity under existing credit facility

~~472.0~~297.0

NOTE ~~7—LEASES~~8—LONG-TERM DEBT

See Note 12, Leases, in our 2019 Annual Report on Form 10-K for information related to the power plants we lease from We Power. As new capital projects are completed at these plants, our lease payments to WeWisconsin Electric Power increase. In addition to increases in our lease payments to We Power, we also entered into lease agreements associated with our investment in Badger Hollow II in the second quarter of 2020, as discussed below.

We have partnered with an unaffiliated utility to construct the Badger Hollow II wind generation facility in Iowa County, Wisconsin. Once constructed, we will own 100 MW of the output of this facility. The PSCW approved the acquisition of Badger Hollow II in March 2020 and commercial operation is targeted for December 2022.

Related to our investment in Badger Hollow II, we, along with an unaffiliated utility partner, entered into several land leases in Iowa County, Wisconsin that commenced in the second quarter of 2020. The leases are for a total of approximately 1,500 acres of land. Each lease has an initial construction term that ends upon achieving commercial operation, then automatically extends for 25 years with an option for an additional 25-year extension. We expect the optional extension to be exercised, and, as a result, the land leases are being amortized over the extended term of the leases. The lease payments will be recovered through rates.

Our total obligation under the land related finance leases for Badger Hollow II was $22.8 million at June 30, 2020, and will decrease to 0 over the remaining lives of the leases. Long-term lease liabilities related to our finance leases for Badger Hollow II were included in finance lease obligations on the balance sheets. Our finance lease right of use asset related to Badger Hollow II was $22.8 million as of June 30, 2020, and was included in property, plant, and equipment on our balance sheets.Company

In ~~accordance with Accounting Standard Codification Subtopic 980-842, Regulated Operations – Leases (Subtopic 980-842),~~June 2021, we issued $300.0 million of 1.70% Debentures due June 15, 2028, and used the ~~expense recognition pattern associated with the Badger Hollow II leases resembles that~~net proceeds to redeem all $300.0 million outstanding of ~~an operating lease, as amortization of the~~our 2.95% Debentures due September 15, 2021 at par.


06/30/~~2020~~2021 Form 10-Q			11			Wisconsin Electric Power Company

Table of Contents

right of use assets has been modified from what would typically be recorded for a finance lease under Topic 842. The difference between the minimum lease payments and the sum of imputed interest and unadjusted amortization costs calculated under Topic 842 is deferred as a regulatory asset in accordance with Subtopic 980-842 on our balance sheet.WEPCo Environmental Trust Finance I, LLC

~~At June 30, 2020, our weighted-average discount rate for the Badger Hollow II finance leases was 3.44%. We~~In May 2021, WEPCo Environmental Trust, a special purpose entity we formed, issued $118.8 million of 1.578% ETBs due December 15, 2035, and used the ~~fully collateralized incremental borrowing rates based upon information available for similarly rated companies in determining the present value of lease payments.~~

~~Future minimum lease payments~~net proceeds to purchase environmental control property from us. Principal and interest will be paid semiannually, beginning December 15, 2021, and the ~~corresponding present value of our net minimum lease payments under the finance leases for Badger Hollow II as of June 30, 2020, were as follows:~~

(in millions)
Six months ended December 31, 2020 $ 0.2
2021 0.3
2022 0.3
2023 0.7
2024 0.7
2025 0.7
Thereafter 55.0
Total minimum lease payments 57.9
Less:Interest (35.1)
Present value of minimum lease payments 22.8
Less: Short-term lease liabilities —
Long-term lease liabilities $ 22.8
ETBs are expected to be fully repaid by December 15, 2033. For additional information, see Note 16, Variable Interest Entities – WEPCo Environmental Trust Finance I, LLC.

NOTE 8—9—MATERIALS, SUPPLIES, AND INVENTORIES

Our inventory consisted of:


(in millions)	(in millions)	June 30, 2020		December 31, 2019		(in millions)	June 30, 2021		December 31, 2020
Materials and supplies	Materials and supplies	$	152.3	$	148.3	Materials and supplies	$	135.8	$	136.5
Fossil fuel	Fossil fuel	49.6		51.1		Fossil fuel	45.8		57.1
Natural gas in storage	Natural gas in storage	18.1		30.4		Natural gas in storage	27.5		25.9
Total	Total	$	220.0	$	229.8	Total	$	209.1	$	219.5

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

NOTE 9—10—INCOME TAXES

The provision for income taxes differs from the amount of income tax determined by applying the applicable United States statutory federal income tax rate to income before income taxes as a result of the following:


		Three Months Ended June 30, 2020						Three Months Ended June 30, 2019							Three Months Ended June 30, 2021				Three Months Ended June 30, 2020
(in millions)	(in millions)	Amount		Effective Tax Rate		Amount		Effective Tax Rate		(in millions)	Amount		Effective Tax Rate		Amount		Effective Tax Rate
Statutory federal income tax	Statutory federal income tax	$	16.1	21.0	%	$	14.4	21.0	%	Statutory federal income tax	$	19.1	21.0	%	$	16.1	21.0	%
State income taxes net of federal tax benefit	State income taxes net of federal tax benefit	4.9		6.4	%	4.5		6.6	%	State income taxes net of federal tax benefit	5.9		6.4	%	4.9		6.4	%
Tax repairs		—		—	%	(30.5)		(44.3)	%
Federal excess deferred tax amortization – Wisconsin unprotected	Federal excess deferred tax amortization – Wisconsin unprotected	(9.4)		(12.2)	%	—		—	%	Federal excess deferred tax amortization – Wisconsin unprotected	(9.0)		(9.9)	%	(9.4)		(12.2)	%
Federal excess deferred tax amortization	Federal excess deferred tax amortization	(5.1)		(6.7)	%	(3.8)		(5.6)	%	Federal excess deferred tax amortization	(4.8)		(5.3)	%	(5.1)		(6.7)	%
Wind production tax credits		(2.4)		(3.1)	%	(2.2)		(3.2)	%
PTCs										PTCs	(1.4)		(1.4)	%	(2.4)		(3.1)	%
Domestic production activities deferral										Domestic production activities deferral	1.3		1.4	%	1.4		1.7	%

Other	Other	1.9		2.4	%	1.3		1.8	%	Other	1.1		1.2	%	0.5		0.7	%
Total income tax expense (benefit)		$	6.0	7.8	%	$	(16.3)	(23.7)	%
Total income tax expense										Total income tax expense	$	12.2	13.4	%	$	6.0	7.8	%


~~06/30/2020 Form 10-Q~~			12			~~Wisconsin Electric Power Company~~

~~Table of~~ ~~Contents~~


		Six Months Ended June 30, 2020						Six Months Ended June 30, 2019							Six Months Ended June 30, 2021				Six Months Ended June 30, 2020
(in millions)	(in millions)	Amount		Effective Tax Rate		Amount		Effective Tax Rate		(in millions)	Amount		Effective Tax Rate		Amount		Effective Tax Rate
Statutory federal income tax	Statutory federal income tax	$	44.1	21.0	%	$	37.1	21.0	%	Statutory federal income tax	$	49.9	21.0	%	$	44.1	21.0	%
State income taxes net of federal tax benefit	State income taxes net of federal tax benefit	13.5		6.4	%	11.6		6.6	%	State income taxes net of federal tax benefit	15.2		6.4	%	13.5		6.4	%
Tax repairs		1.3		0.6	%	(60.1)		(33.9)	%
Federal excess deferred tax amortization – Wisconsin unprotected	Federal excess deferred tax amortization – Wisconsin unprotected	(22.9)		(10.9)	%	—		—	%	Federal excess deferred tax amortization – Wisconsin unprotected	(23.3)		(9.8)	%	(22.9)		(10.9)	%
Federal excess deferred tax amortization	Federal excess deferred tax amortization	(12.4)		(5.9)	%	(10.0)		(5.7)	%	Federal excess deferred tax amortization	(12.6)		(5.3)	%	(12.4)		(5.9)	%
Wind production tax credits		(5.7)		(2.7)	%	(5.0)		(2.8)	%
PTCs										PTCs	(3.8)		(1.6)	%	(5.7)		(2.7)	%
Domestic production activities deferral										Domestic production activities deferral	3.4		1.4	%	3.4		1.6	%
Other	Other	2.8		1.3	%	3.6		1.9	%	Other	2.9		1.2	%	0.7		0.3	%
Total income tax expense (benefit)		$	20.7	9.8	%	$	(22.8)	(12.9)	%
Total income tax expense										Total income tax expense	$	31.7	13.3	%	$	20.7	9.8	%

The effective tax rates of ~~7.8%~~13.4% and ~~9.8%~~13.3% for the three and six months ended June 30, ~~2020,~~2021, respectively, differ from the United States statutory federal income tax rate of 21%, primarily due to the recognition of certain unprotected deferred tax benefits created as a result of the Tax Legislation. In accordance with the rate order received from the PSCW in December 2019, we are amortizing the unprotected deferred tax benefits over periods ranging from two years to four years, to reduce near-term rate impacts to our customers. In addition, the impact of the protected benefits associated with the Tax Legislation, as discussed in more detail below, and ~~wind production tax credits~~PTCs drove a decrease in the effective tax ~~rate, which was~~rate. These items were partially offset by state income taxes.


06/30/2021 Form 10-Q			12			Wisconsin Electric Power Company

Table of Contents

The effective tax rates of ~~(23.7)%~~7.8% and ~~(12.9)%~~9.8% for the three and six months ended June 30, ~~2019,~~2020, respectively, differ from the United States statutory federal income tax rate of 21%, primarily due to the ~~flow through~~recognition of certain unprotected deferred tax ~~repairs in connection with~~benefits created as a result of the ~~2017 Wisconsin rate settlement,~~Tax Legislation. In addition, the impact of the protected benefits associated with the Tax Legislation, as discussed in more detail below, and ~~wind production~~PTCs drove a decrease in the effective tax ~~credits,~~rate. These items were partially offset by state income taxes.

The Tax Legislation ~~signed into law in December 2017,~~ required us to remeasure the deferred income taxes at our utility segment and we began to amortize the resulting excess protected deferred income taxes beginning in 2018 in accordance with normalization requirements (see federal excess deferred tax amortization line above).

See Note ~~18,~~19, Regulatory Environment, for more ~~information.~~information on unprotected tax benefits.

NOTE ~~10—~~11—FAIR VALUE MEASUREMENTS

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

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

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

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

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

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


~~06/30/2020 Form 10-Q~~			13			~~Wisconsin Electric Power Company~~

~~Table of~~ ~~Contents~~

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

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


		June 30, 2020															June 30, 2021
(in millions)	(in millions)	Level 1		Level 2		Level 3		Total		(in millions)	Level 1		Level 2		Level 3		Total
Derivative assets	Derivative assets									Derivative assets
Natural gas contracts	Natural gas contracts	$	1.1	$	—	$	—	$	1.1	Natural gas contracts	$	23.2	$	1.2	$	0	$	24.4
FTRs	FTRs	—		—		2.8		2.8		FTRs	0		0		2.6		2.6

Coal contracts										Coal contracts	0		6.2		0		6.2
Total derivative assets	Total derivative assets	$	1.1	$	—	$	2.8	$	3.9	Total derivative assets	$	23.2	$	7.4	$	2.6	$	33.2

Derivative liabilities	Derivative liabilities									Derivative liabilities
Natural gas contracts	Natural gas contracts	$	2.8	$	—	$	—	$	2.8	Natural gas contracts	$	0	$	0.4	$	0	$	0.4
Coal contracts		—		0.1		—		0.1
Total derivative liabilities		$	2.8	$	0.1	$	—	$	2.9

December 31, 2019
(in millions) Level 1 Level 2 Level 3 Total
Derivative assets
Natural gas contracts $ 0.4 $ — $ — $ 0.4
FTRs — — 1.5 1.5
Coal contracts — 0.1 — 0.1
Total derivative assets $ 0.4 $ 0.1 $ 1.5 $ 2.0
Derivative liabilities
Natural gas contracts $ 5.2 $ — $ — $ 5.2
Coal contracts — 0.2 — 0.2
Total derivative liabilities $ 5.2 $ 0.2 $ — $ 5.4


06/30/2021 Form 10-Q			13			Wisconsin Electric Power Company

Table of Contents


	December 31, 2020
(in millions)	Level 1		Level 2		Level 3		Total
Derivative assets
Natural gas contracts	$	3.0	$	0.8	$	0	$	3.8
FTRs	0		0		1.1		1.1
Coal contracts	0		1.4		0		1.4
Total derivative assets	$	3.0	$	2.2	$	1.1	$	6.3

Derivative liabilities
Natural gas contracts	$	2.9	$	0.6	$	0	$	3.5
Coal contracts	0		0.6		0		0.6
Total derivative liabilities	$	2.9	$	1.2	$	0	$	4.1

The derivative assets and liabilities listed in the tables above include options, futures, physical commodity contracts, and other instruments used to manage market risks related to changes in commodity prices. They also include FTRs, which are used to manage electric transmission congestion costs in the MISO Energy and Operating Reserves Markets.

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


		Three Months Ended June 30						Six Months Ended June 30							Three Months Ended June 30				Six Months Ended June 30
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020		2021		2020
Balance at the beginning of the period	Balance at the beginning of the period	$	0.4	$	2.0	$	1.5	$	4.4	Balance at the beginning of the period	$	0.4	$	0.4	$	1.1	$	1.5
Purchases	Purchases	3.1		6.8		3.1		6.8		Purchases	3.0		3.1		3.0		3.1
Settlements	Settlements	(0.7)		(3.0)		(1.8)		(5.4)		Settlements	(0.8)		(0.7)		(1.5)		(1.8)
Balance at the end of the period	Balance at the end of the period	$	2.8	$	5.8	$	2.8	$	5.8	Balance at the end of the period	$	2.6	$	2.8	$	2.6	$	2.8


~~06/30/2020 Form 10-Q~~			14			~~Wisconsin Electric Power Company~~

~~Table of~~ ~~Contents~~

Fair Value of Financial Instruments

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


		June 30, 2020						December 31, 2019							June 30, 2021				December 31, 2020
(in millions)	(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Preferred stock	Preferred stock	$	30.4	$	29.1	$	30.4	$	29.5	Preferred stock	$	30.4	$	30.7	$	30.4	$	32.3
Long-term debt		2,760.0		3,382.2		2,759.2		3,209.5
Long-term debt, including current portion										Long-term debt, including current portion	2,875.1		3,464.4		2,761.2		3,451.8

The fair values of our long-term debt and preferred stock are categorized within Level 2 of the fair value hierarchy.

NOTE ~~11—~~12—DERIVATIVE INSTRUMENTS

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

We record derivative instruments on our balance sheets as an asset or liability measured at fair value unless they qualify for the normal purchases and sales exception and are so designated. We continually assess our contracts designated as normal and will discontinue the treatment of these contracts as normal if the required criteria are no longer met. Changes in the derivative's fair value are recognized currently in earnings unless specific hedge accounting criteria are met or we receive regulatory treatment for the derivative. For most energy-related physical and financial contracts in our regulated operations that qualify as derivatives, the PSCW allows the effects of fair value accounting to be offset to regulatory assets and liabilities.


06/30/2021 Form 10-Q			14			Wisconsin Electric Power Company

Table of Contents

The following table shows our derivative assets and derivative liabilities, along with their classification on our balance sheets. NaN of our derivatives are designated as hedging instruments.


		June 30, 2020						December 31, 2019							June 30, 2021				December 31, 2020
(in millions)	(in millions)	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities		(in millions)	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Other current	Other current									Other current
Natural gas contracts	Natural gas contracts	$	0.7	$	2.8	$	0.4	$	5.1	Natural gas contracts	$	22.4	$	0.4	$	3.7	$	3.2
FTRs	FTRs	2.8		—		1.5		—		FTRs	2.6		0		1.1		0
Coal contracts	Coal contracts	—		0.1		—		0.2		Coal contracts	5.7		0		1.4		0.5
Total other current ⁽¹⁾	Total other current ⁽¹⁾	3.5		2.9		1.9		5.3		Total other current (1)	30.7		0.4		6.2		3.7

Other long-term	Other long-term									Other long-term
Natural gas contracts	Natural gas contracts	0.4		—		—		0.1		Natural gas contracts	2.0		0		0.1		0.3
Coal contracts	Coal contracts	—		—		0.1		—		Coal contracts	0.5		0		0		0.1
Total other long-term ⁽¹⁾	Total other long-term ⁽¹⁾	0.4		—		0.1		0.1		Total other long-term (1)	2.5		0		0.1		0.4
Total	Total	$	3.9	$	2.9	$	2.0	$	5.4	Total	$	33.2	$	0.4	$	6.3	$	4.1

⁽¹⁾On our balance sheets, we classify derivative assets and liabilities as other current or other long-term based on the maturities of the underlying contracts.

Realized gains (losses) on derivatives are primarily recorded in cost of sales on the income statements. Our estimated notional sales volumes and realized gains (losses) were as follows:

Three Months Ended June 30, 2020 Three Months Ended June 30, 2019
(in millions) Volumes Gains (Losses) Volumes Gains (Losses)
Natural gas contracts 14.0 Dth $ (4.4) 13.6 Dth $ (1.1)
FTRs 5.1 MWh 0.5 5.6 MWh 0.5
Total $ (3.9) $ (0.6)


~~06/30/2020 Form 10-Q~~			15			~~Wisconsin Electric Power Company~~

~~Table of~~ ~~Contents~~

Six Months Ended June 30, 2020

Six Months Ended June 30, 2019

Three Months Ended June 30, 2021

Three Months Ended June 30, 2020

(in millions)

Volumes

Gains (Losses)

Volumes

Gains (Losses)

(in millions)

Volumes

Gains

Volumes

Gains (Losses)

Natural gas contracts

33.1 Dth

(11.3)

31.7 Dth

(2.5)

Natural gas contracts

16.5 Dth

1.1

14.0 Dth

(4.4)

FTRs

10.2 MWh

1.3

11.1 MWh

2.1

FTRs

5.5 MWh

5.4

5.1 MWh

0.5

Total

(10.0)

(0.4)

Total

6.5

(3.9)

Six Months Ended June 30, 2021

Six Months Ended June 30, 2020

(in millions)

Volumes

Gains (Losses)

Volumes

Gains (Losses)

Natural gas contracts

35.6 Dth

(1.6)

33.1 Dth

(11.3)

FTRs

11.1 MWh

6.5

10.2 MWh

1.3

Total

4.9

(10.0)

On our balance sheets, the amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral are not offset against the fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. At June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we had posted cash collateral of ~~$5.9~~$4.0 million and ~~$8.5~~$6.7 million, respectively, in our margin accounts. These amounts were recorded on our balance sheets in other current assets. At June 30, 2021, we had also received cash collateral of $16.7 million in our margin accounts. This amount was recorded on our balance sheet in other current liabilities.

The following table shows derivative assets and derivative liabilities if derivative instruments by counterparty were presented net on our balance sheets:


		June 30, 2020							December 31, 2019											June 30, 2021			December 31, 2020
(in millions)	(in millions)	Derivative Assets		Derivative Liabilities			Derivative Assets		Derivative Liabilities			(in millions)	Derivative Assets			Derivative Liabilities		Derivative Assets			Derivative Liabilities
Gross amount recognized on the balance sheet	Gross amount recognized on the balance sheet	$	3.9	$	2.9		$	2.0	$	5.4		Gross amount recognized on the balance sheet	$	33.2		$	0.4	$	6.3		$	4.1
Gross amount not offset on the balance sheet	Gross amount not offset on the balance sheet	(0.8)		(2.8)		⁽¹⁾	(0.4)		(5.2)		⁽²⁾	Gross amount not offset on the balance sheet	(16.7)		(1)	0		(2.9)			(2.9)
Net amount	Net amount	$	3.1	$	0.1		$	1.6	$	0.2		Net amount	$	16.5		$	0.4	$	3.4		$	1.2

⁽¹⁾Includes cash collateral ~~posted~~received of ~~$2.0~~$16.7 million.

⁽²⁾


06/30/2021 Form 10-Q			15			Wisconsin Electric Power Company

~~Includes cash collateral posted~~Table of ~~$4.8 million.~~Contents

NOTE ~~12—~~13—GUARANTEES

As of June 30, ~~2020,~~2021, we had $26.0 million of standby letters of credit issued by financial institutions for the benefit of third parties that extended credit to us which automatically renew each year unless proper termination notice is given. These amounts are not reflected on our balance sheets.

NOTE ~~13—~~14—EMPLOYEE BENEFITS

The following tables show the components of net periodic benefit cost (credit) for our benefit plans.


		Pension Benefits															Pension Benefits
		Three Months Ended June 30						Six Months Ended June 30							Three Months Ended June 30				Six Months Ended June 30
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020		2021		2020
Service cost	Service cost	$	2.9	$	2.5	$	6.2	$	6.3	Service cost	$	3.9	$	2.9	$	7.2	$	6.2
Interest cost	Interest cost	9.4		11.1		18.9		22.6		Interest cost	7.7		9.4		15.5		18.9
Expected return on plan assets	Expected return on plan assets	(17.3)		(18.0)		(34.7)		(36.2)		Expected return on plan assets	(17.4)		(17.3)		(35.1)		(34.7)
Amortization of prior service cost		—		0.1		—		0.2

Amortization of prior service credit										Amortization of prior service credit	(0.1)		0		(0.1)		0
Amortization of net actuarial loss	Amortization of net actuarial loss	9.8		6.8		18.9		14.0		Amortization of net actuarial loss	11.0		9.8		21.0		18.9
Net periodic benefit cost	Net periodic benefit cost	$	4.8	$	2.5	$	9.3	$	6.9	Net periodic benefit cost	$	5.1	$	4.8	$	8.5	$	9.3


		OPEB Benefits															OPEB Benefits
		Three Months Ended June 30						Six Months Ended June 30							Three Months Ended June 30				Six Months Ended June 30
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020		2021		2020
Service cost	Service cost	$	1.0	$	1.0	$	2.1	$	2.2	Service cost	$	0.9	$	1.0	$	2.1	$	2.1
Interest cost	Interest cost	1.7		2.4		3.4		4.8		Interest cost	1.4		1.7		2.7		3.4
Expected return on plan assets	Expected return on plan assets	(3.9)		(3.6)		(7.8)		(7.1)		Expected return on plan assets	(4.2)		(3.9)		(8.4)		(7.8)
Amortization of prior service credit	Amortization of prior service credit	(0.2)		(0.5)		(0.3)		(1.0)		Amortization of prior service credit	(0.3)		(0.2)		(0.6)		(0.3)
Amortization of net actuarial gain	Amortization of net actuarial gain	(2.9)		(0.7)		(5.3)		(1.1)		Amortization of net actuarial gain	(2.8)		(2.9)		(5.5)		(5.3)
Net periodic benefit credit	Net periodic benefit credit	$	(4.3)	$	(1.4)	$	(7.9)	$	(2.2)	Net periodic benefit credit	$	(5.0)	$	(4.3)	$	(9.7)	$	(7.9)


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~~Table of~~ ~~Contents~~

During the six months ended June 30, ~~2020,~~2021, we made contributions and payments of ~~$2.3~~$2.6 million related to our pension plans and an insignificant amount related to our OPEB plans. We expect to make contributions and payments of ~~$1.4~~$1.0 million related to our pension plans and $0.1 million related to our OPEB plans during the remainder of ~~2020,~~2021, dependent upon various factors affecting us, including our liquidity position and possible tax law changes.

NOTE ~~14—~~15—SEGMENT INFORMATION

We use ~~operating~~net income attributed to common shareholder to measure segment profitability and to allocate resources to our businesses. At June 30, ~~2020,~~2021, we reported 2 segments, which are described below.

Our utility segment includes our electric utility operations, including steam operations, and our natural gas utility operations.

•Our electric utility operations are engaged in the generation, distribution, and sale of electricity to customers in southeastern Wisconsin (including metropolitan Milwaukee), east central Wisconsin, and northern Wisconsin. In addition, our steam operations produce, distribute, and sell steam to customers in metropolitan Milwaukee. ~~Prior to April 1, 2019, we also provided electric service to Tilden, who owns an iron ore mine in the Upper Peninsula of Michigan. This customer was transferred to UMERC on April1, 2019.~~

•Our natural gas utility operations are engaged in the purchase, distribution, and sale of natural gas to retail customers ~~and~~as well as the transportation of customer-owned natural gas in southeastern, east central, and northern Wisconsin.

NaN significant items were reported in the other segment during the three and six months ended June 30, ~~2020~~2021 and ~~2019.~~2020.

NOTE ~~15—~~16—VARIABLE INTEREST ENTITIES

The primary beneficiary of a ~~variable interest entity~~VIE must consolidate the entity's assets and liabilities. In addition, certain disclosures are required for significant interest holders in ~~variable interest entities.~~VIEs.


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We assess our relationships with potential ~~variable interest entities,~~VIEs, such as our coal suppliers, natural gas suppliers, coal transporters, natural gas transporters, and other counterparties related to power purchase agreements and investments. In making this assessment, we consider, along with other factors, the potential that our contracts or other arrangements provide subordinated financial support, the obligation to absorb the entity's losses, the right to receive residual returns of the entity, and the power to direct the activities that most significantly impact the entity's economic performance.

WEPCo Environmental Trust Finance I, LLC

In November 2020, the PSCW issued a financing order approving the securitization of $100 million of undepreciated environmental control costs related to our retired Pleasant Prairie power plant, the carrying costs accrued on the $100 million during the securitization process, and the related financing fees. The financing order also authorized us to form WEPCo Environmental Trust, a bankruptcy-remote special purpose entity, for the sole purpose of issuing ETBs to recover the costs approved in the financing order. WEPCo Environmental Trust is our wholly-owned subsidiary.

In May 2021, WEPCo Environmental Trust issued ETBs and used the proceeds to acquire environmental control property from us. The environmental control property is recorded as a regulatory asset on our balance sheets and includes the right to impose, collect, and receive a non-bypassable environmental control charge from our retail electric distribution customers until the ETBs are paid in full and all financing costs have been recovered. The ETBs are secured by the environmental control property. Cash collections from the environmental control charge, and funds on deposit in trust accounts, are the sole source of funds to satisfy the debt obligation. The bondholders have no recourse to us or any of our affiliates. See Note 8, Long-Term Debt, for more information on the ETBs.

We act as the servicer of the environmental control property on behalf of WEPCo Environmental Trust and are responsible for metering, calculating, billing, and collecting the environmental control charge. As necessary, we are authorized to implement periodic adjustments of the environmental control charge designed to ensure the timely payment of principal, interest, and other ongoing financing costs. We remit all collections of the environmental control charge to an indenture trustee of WEPCo Environmental Trust.

WEPCo Environmental Trust is a VIE primarily because its equity capitalization is insufficient to support its operations. As described above, we have the power to direct the activities that most significantly impact WEPCo Environmental Trust's economic performance. Therefore, we are considered the primary beneficiary of WEPCo Environmental Trust, and consolidation is required.

The following table summarizes the impact of WEPCo Environmental Trust on our balance sheet.


(in millions)	June 30, 2021
Assets
Other current assets (restricted cash)	$	1.6
Regulatory assets	106.0
Other long-term assets (restricted cash)	0.6

Liabilities
Current portion of long-term debt	4.1
Other current liabilities (accrued interest)	0.3
Long-term debt	111.1

Power Purchase Agreement

We have a power purchase agreement that represents a variable interest. This agreement is for 236 MWs of firm capacity from a natural gas-fired cogeneration facility, and we account for it as a finance lease. The agreement includes 0 minimum energy requirements over the remaining term of approximately ~~two years.~~one year. We have examined the risks of the entity, including operations, maintenance, dispatch, financing, fuel costs, and other factors, and have determined that we are not the primary beneficiary of the entity. We do not hold an equity or debt interest in the entity, and there is 0 residual guarantee associated with the power purchase agreement.

We have ~~$18.0~~$8.9 million of required capacity payments over the remaining term of this agreement. We believe that the required capacity payments under this contract will continue to be recoverable in rates, and our maximum exposure to loss is limited to these capacity payments.


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NOTE ~~16—~~17—COMMITMENTS AND CONTINGENCIES

We have significant commitments and contingencies arising from our operations, including those related to unconditional purchase obligations, environmental matters, and enforcement and litigation matters.


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Unconditional Purchase Obligations

We have obligations to distribute and sell electricity and natural gas to our customers and expect to recover costs related to these obligations in future customer rates. In order to meet these obligations, we routinely enter into long-term purchase and sale commitments for various quantities and lengths of time. Our minimum future commitments related to these purchase obligations as of June 30, ~~2020,~~2021, were approximately ~~$9.3~~$9.0 billion.

Environmental Matters

Consistent with other companies in the energy industry, we face significant ongoing environmental compliance and remediation obligations related to current and past operations. Specific environmental issues affecting us include, but are not limited to, current and future regulation of air emissions such as sulfur dioxide, ~~nitrogen oxide,~~NOx, fine particulates, mercury, and GHGs; water intake and discharges; management of coal combustion products such as fly ash; and remediation of impacted properties, including former manufactured gas plant sites.

Air Quality

National Ambient Air Quality Standards

Ozone

After completing its review of the 2008 ozone standard, the EPA released a final rule in October 2015, ~~which lowered the limit for ground-level ozone,~~ creating a more stringent standard than the 2008 ~~National Ambient Air Quality Standards.~~ NAAQS. The 2015 ozone standard lowered the 8-hour limit for ground-level ozone. In December 2020, the EPA completed its 5-year review of the ozone standard and issued a final decision to retain, without any changes, the existing 2015 standard. Under Executive Order 13990, the Biden Administration ordered that all agencies review existing regulations, orders, guidance documents, policies, and similar actions promulgated, issued, or adopted between January 20, 2017 and January 20, 2021. Consequently, the December 2020 decision to retain the 2015 ozone standards with 0 changes is currently under review by the EPA.

The EPA issued final nonattainment area designations for the 2015 ozone standard in April 2018. The following counties within our service territory were designated as partial ~~nonattainment with the 2015 standard:~~nonattainment: Kenosha, Sheboygan, and Northern Milwaukee/Ozaukee. This re-designation was challenged in the D.C. Circuit Court of Appeals in Clean Wisconsin et al. v. U.S. Environmental Protection Agency. Petitioners in that case have argued that additional portions of Milwaukee, Waukesha, Ozaukee, and Washington Counties (among others) should be designated as nonattainment for ozone. In November 2019, the D.C. Circuit Court of Appeals heard oral arguments for that case. A decision was issued in July 2020 remanding the rule to the EPA for further evaluation. ~~We expect that any subsequent~~As a result of the July 2020 remand, in May 2021, the EPA ~~re-designation, if necessary, would take place~~announced it was taking final action to revise the boundaries for 6 nonattainment areas, including several in ~~2021.~~Wisconsin. Under the new designations, all of Milwaukee and Ozaukee counties will be listed as nonattainment and portions of Racine, Waukesha, and Washington counties will be added to the nonattainment area. As a result of these boundary changes, the Valley Power Plant is now in the nonattainment area. Additionally, the Chicago, Illinois, Indiana, and Wisconsin nonattainment area will now include an expanded portion of Kenosha county, and the partial nonattainment area of Sheboygan county is also being expanded.

In February 2021, the Wisconsin Department of Natural Resources proposed draft revisions to the Wisconsin Administrative Code to adopt the 2015 ozone standard and incorporate by reference the federal air pollution monitoring requirements related to the NAAQS. The Natural Resources Board adopted the rule as proposed during their June 2021 meeting. We believe that we are well positioned to meet the requirements associated with the 2015 ozone standard and do not expect to incur significant costs to ~~comply. The State of Wisconsin is currently working~~comply with ~~stakeholders, including us, in developing regulations for inclusion in the~~associated state ~~implementation plan required by the 2015 rule.~~or federal rules.

~~Mercury and Air Toxics Standards~~Particulate Matter

In ~~May~~addition to the 2015 ozone standard, in December 2020, the EPA finalized revisions to the Supplemental Cost Finding for the MATS rule as well as the CAA required RTR. The EPA was required by the United States Supreme Court to review both costs and benefits of complying with the MATS rule. Aftercompleted its 5-year review of ~~costs,~~ the EPA determined that it is not appropriate and necessary to regulate hazardous air pollutant emissions from power plants under Section 112 of the CAA. As a result, under the final rule, the emission standards and other requirements of the MATS rule first enacted in 2012 ~~remain in place.~~standard for particulate matter, including fine particulate matter. The EPA ~~did not remove coal- and oil-fired power plants from the list of sources that are regulated under Section 112. The EPA also~~ determined that 0 revisions were necessary to ~~MATS are warranted based on~~ the ~~results~~current standard. This determination was also subject to review under Executive Order 13990 and in June 2021, the EPA announced it would reconsider the


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December 2020 decision. Under the Biden Administration's policy review, the EPA concluded that the scientific evidence and information from the December 2020 determination supports revising the level of the ~~RTR. As~~annual standard for the particulate matter NAAQS to below the current level of 12 micrograms per cubic meter, while retaining the 24-hour standard. A proposed rule-making is expected in summer 2022, and a ~~result, we do not expect~~final rule is expected in spring 2023. All counties within our service territory are in attainment with the ~~rule to have a material impact on our financial condition or results of operations.~~current 2012 standards.

Climate Change

The ACE rule, ~~became~~ effective since September 2019, was vacated by the D.C. Circuit Court of Appeals in ~~September 2019. This~~January 2021. The ACE rule ~~provides~~replaced the Clean Power Plan and provided existing coal-fired generating units with standards for achieving GHG emission reductions. ~~The rule was finalized~~In a memorandum issued to the EPA regional administrators in ~~conjunction with two other separate and distinct rulemakings, (1)~~February 2021, the repeal of the Clean Power Plan, and (2) revised implementing regulations for ACE, ongoing emissions guidelines, and all future emission guidelines for existing sources issued under CAA section 111(d). Every state's plan to implement ACE is required to focus on reducing GHG emissions by improving the efficiency of fossil-fueled power plants. The rule is being litigated in challenges brought inEPA stated that the D.C. Circuit Court of Appeals by 22 states (including Wisconsin), local governments, and certain nongovernmental organizations. Final briefs in this litigation are scheduled to be filed in August 2020, with oral arguments expected to follow.decision meant that 0 existing rule regulates GHG emissions from electric generating units. The ~~Wisconsin Department of Natural Resources~~EPA is ~~working with state utilities~~currently reviewing its options for such regulations and has ~~begun~~signaled that a draft rule will not be ready until 2022 at the ~~process of developing the implementation plan with respect to the ACE rule.~~earliest.

In ~~December 2018,~~January 2021, the EPA ~~proposed~~finalized a rule to revise the New Source Performance Standards for GHG emissions from new, modified, and reconstructed fossil-fueled power plants. The rule became effective March 14, 2021; however, on March 17, 2021 the EPA ~~determined that~~asked the ~~BSER for new, modified,~~D.C. Circuit Court of Appeals to vacate and ~~reconstructed coal units is highly efficient generation that would be equivalent to supercritical steam conditions for larger units and subcritical steam conditions for~~


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~~smaller units. This proposed BSER would replace~~remand the ~~determination from the previous~~final rule, which ~~identified BSER as partial carbon capture and storage. The EPA has reviewed comments and intends to take final action~~was granted by the D.C. Circuit Court of Appeals on ~~the proposed rule later in 2020.~~

April 5, 2021. Despite this uncertainty, WEC Energy Group continues to ~~evaluate opportunities~~move forward on the ESG Progress Plan, which is heavily focused on reducing GHG emissions.

The ESG Progress Plan includes the retirement of older, fossil-fueled generation, to be replaced with zero-carbon-emitting renewables and ~~actions that preserve fuel diversity, lower costs for our customers, and contribute toward long-term GHG emissions reductions. In 2019,~~clean natural gas-fueled generation by 2025. By the end of 2020, WEC Energy Group ~~met and exceeded its 2030 goal of reducing CO~~₂ emissions by 40% below 2005 levels. WEC Energy Group has re-evaluated its carbon reduction goals for its electric generation in light of this progress. As strategies to reduce GHG emissions continue to evolve, WEC Energy Group's updated plan, which includes us, is to work with elected officials, regulatory agencies, customers, environmental groups, and other stakeholderswas able to reduce CO₂emissions from ~~electricity generation by 70% below 2005 levels by 2030. WEC Energy Group's long-term goal calls for~~ its electric generation fleet ~~to be net carbon neutral~~ by ~~2050.~~more than 50% below 2005 levels. As a result, WEC Energy Group announced new goals in May 2021. WEC Energy Group is committing to a 60% reduction in carbon emissions from its electric generation fleet by 2025 and an 80% reduction by the end of 2030, both from a 2005 baseline. WEC Energy Group expects to achieve these goals by the retirement of older, less efficient units, operating refinements, and the use of existing technology while executing its ESG Progress Plan. Over the longer term, the target for WEC Energy Group's generation ~~reshaping plan, we~~fleet is net-zero carbon emissions by 2050. We have already retired approximately 1,500 MW of ~~coal~~coal-fired generation since the beginning of ~~2018, including the 2018 retirement~~2018. As part of the ~~Pleasant Prairie power plant as well as the March 2019 retirement of the PIPP.~~ESG Progress Plan, WEC Energy Group ~~also has a goal~~expects to ~~decrease~~retire approximately 1,800 MW of additional fossil-fueled generation by 2025, which includes the ~~rate~~planned retirements in 2023-2024 of OCPP Units 5-8.

WEC Energy Group continues to reduce methane emissions ~~from the~~by improving its natural gas distribution ~~lines~~system. WEC Energy Group's initial 2030 goal called for a 30% reduction in ~~its network by 30% per mile by the year 2030~~methane emissions from a 2011 baseline. Given advancements with renewable natural gas, WEC Energy Group ~~was~~ ~~over half way toward meeting that goal at~~is setting a new target across its natural gas distribution operations to achieve net-zero methane emissions by the end of ~~2019.~~2030.

~~Stationary Combustion Turbine Standards (Combustion Turbine Rule)~~Cross-State Air Pollution Rule Update Rule Revision

~~Effective in March 2020,~~In 2015, the EPA ~~issued~~determined that several upwind states had failed to submit state implementation plans that addressed their "Good Neighbor" obligations (i.e., the states projected NOx emissions significantly contribute to a ~~final regulation for National Air Standards for Hazardous Air Pollutants for Stationary Combustion Turbines. The Combustion Turbine Rule~~continuing downwind nonattainment and/or maintenance problem); therefore, by statute, the EPA was ~~issued~~required to ~~complete~~issue a federal implementation plan. In March 2021, the ~~RTR required by~~EPA finalized a CSAPR update rule revision that keeps 9 of the ~~CAA every five years,~~21 CSAPR affected states (including Wisconsin) as a Group 2 NOx ozone season trading program source and ~~applies only~~found that the prior CSAPR update is sufficient to combustion turbines constructed or reconstructed after January 14, 2003. The Combustion Turbine Rule clarifies certain performance testing, semi-annual and excess emission reporting requirements, implements electronic reporting requirements, and changes certain requirements applicable during startup, shutdown, and malfunction.meet its "Good Neighbor" obligations. NaN further NOx reductions would be needed within these 9 states. This rule became effective June 29, 2021. We ~~have evaluated the rule and~~ do not expect that the final rule will have a material impact on our financial condition or results of operations.

Water Quality

Clean Water Act Cooling Water Intake Structure Rule

In August 2014, the EPA issued a final regulation under Section 316(b) of the Clean Water Act that requires the location, design, construction, and capacity of cooling water intake structures at existing power plants to reflect the BTA for minimizing adverse environmental impacts. The rule became effective in October 2014 and applies to all of our existing generating facilities with cooling water intake structures, except for the ERGS units, which were permitted under the rules governing new facilities.

We have received BTA determinations for OC 5 through OC 8 and Valley power plant. Although we currently believe that existing technology at the Port Washington Generating Station satisfies the BTA requirements, a final ~~determinations~~determination will not be made until


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the discharge permit is renewed for this facility, which is expected to be in 2021. We anticipate that the permit renewal will include a final BTA determination to address all of the Section 316(b) rule requirements.

As a result of past capital investments completed to address Section 316(b) compliance, we believe our fleet overall is well positioned to continue to meet ~~the~~this regulation and do not expect to incur significant additional ~~costs to comply with this regulation.~~compliance costs.

Steam Electric Effluent Limitation Guidelines

The EPA's final 2015 ELG rule took effect in January ~~2016.~~2016 and was modified in 2020 to revise the treatment technology requirements related to BATW and wet FGD wastewaters at existing facilities. This rule created new requirements for several types of power plant wastewaters. The ~~two~~2 new requirements that affect us relate to discharge limits for BATW and wet FGD wastewater. ~~As a result of past capital investments, we believe our fleet is well positioned to meet the existing ELG regulations.~~ Our power plant facilities already have advanced wastewater treatment technologies installed that meet many of the discharge limits established by this rule. There will, however, need to be facility modifications to meet water permit requirements for the BATW systems at OC 7 and OC 8. ~~Also, one wastewater~~Wastewater treatment system ~~modification may~~modifications also will be required for ~~the~~ wet FGD discharges and site wastewater from ~~the 6 units that make up~~ the OCPP and ~~ERGS.~~ERGS units. Based on ~~preliminary~~ engineering cost estimates, we ~~estimate~~expect that compliance with the ~~current~~ELG rule will require ~~$50~~approximately $100 million in capital ~~costs.~~investment.

~~The ELG requirements for BATW and wet FGD systems are currently being re-evaluated by the EPA.~~ In ~~September 2017,~~July 2021, the EPA ~~issued a final rule (Postponement Rule)~~announced that it intends to postpone the earliest compliance date to November 1, 2020 for the BATW and wet FGD wastewater requirements while it reconsiders the ELG rule. The Postponement Rule left unchanged the latest ELG rule compliance date of December 31, 2023. In November 2019, the EPA Administrator signed the proposed ELG Reconsideration Ruleinitiate rulemaking to revise the ~~treatment technology requirements related to BATW and wet FGD wastewaters at existing facilities.~~ELG Rule as modified in 2020. The EPA ~~also proposed a~~


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~~provision~~has stated that ~~exempts facility owners from~~ the ~~new BATW and wet FGD requirements for generating units that are retired by December 31, 2028. We expect the rule~~ELG Rule will continue to be ~~finalized~~implemented and enforced while the agency pursues this rulemaking process. The EPA plans to propose a revised rule in ~~late 2020. In~~ the ~~meantime, we are currently evaluating what impact, if any, the proposed rule would have on our estimated compliance cost.~~fall of 2022.

Land Quality

Manufactured Gas Plant Remediation

We have identified sites at which we or a predecessor company owned or operated a manufactured gas plant or stored manufactured gas. We have also identified other sites that may have been impacted by historical manufactured gas plant activities. We are responsible for the environmental remediation of these sites. We are also working with ~~various~~the state ~~jurisdictions~~of Wisconsin in our investigation and remediation planning. These sites are at various stages of investigation, monitoring, remediation, and closure.

The future costs for detailed site investigation, future remediation, and monitoring are dependent upon several variables including, among other things, the extent of remediation, changes in technology, and changes in regulation. Historically, our regulators have allowed us to recover incurred costs, net of insurance recoveries and recoveries from potentially responsible parties, associated with the remediation of manufactured gas plant sites. Accordingly, we have established regulatory assets for costs associated with these sites.

We have established the following regulatory assets and reserves for manufactured gas plant sites:


(in millions)	(in millions)	June 30, 2020		December 31, 2019		(in millions)	June 30, 2021		December 31, 2020
Regulatory assets	Regulatory assets	$	21.2	$	22.1	Regulatory assets	$	17.5	$	18.5
Reserves for future environmental remediation ⁽¹⁾	Reserves for future environmental remediation ⁽¹⁾	12.1		12.1		Reserves for future environmental remediation (1)	10.3		10.3

⁽¹⁾Recorded within other long-term liabilities on our balance sheets.

Enforcement and Litigation Matters

We are involved in legal and administrative proceedings before various courts and agencies with respect to matters arising in the ordinary course of business. Although we are unable to predict the outcome of these matters, management believes that appropriate reserves have been established and that final settlement of these actions will not have a material impact on our financial condition or results of operations.


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NOTE ~~17—~~18—SUPPLEMENTAL CASH FLOW INFORMATION


		Six Months Ended June 30							Six Months Ended June 30
(in millions)	(in millions)	2020		2019		(in millions)	2021		2020
Cash paid for interest, net of amount capitalized	Cash paid for interest, net of amount capitalized	$	233.8	$	239.1	Cash paid for interest, net of amount capitalized	$	234.0	$	233.8
Cash paid for income taxes, net	Cash paid for income taxes, net	—		10.6		Cash paid for income taxes, net	40.3		0
Significant non-cash investing and financing transactions:	Significant non-cash investing and financing transactions:					Significant non-cash investing and financing transactions:
Accounts payable related to construction costs	Accounts payable related to construction costs	27.8		6.6		Accounts payable related to construction costs	50.0		27.8

Receivable related to insurance proceeds for property damage (1)						Receivable related to insurance proceeds for property damage (1)	39.6		1.5

(1)See Note 5, Property, Plant, and Equipment, for information about a steam incident at our PSB.

The statements of cash flows include our activity related to cash, cash equivalents, and restricted cash. Our restricted cash primarily consists of cash on deposit in financial institutions that is restricted to satisfy the requirements of certain debt agreements at WEPCo Environmental Trust. See Note 16, Variable Interest Entities, for more information.

The following table reconciles the cash, cash equivalents, and restricted cash amounts reported within the balance sheets to the total of these amounts shown on the statements of cash flows:


(in millions)	June 30, 2021		December 31, 2020
Cash and cash equivalents	$	4.7	$	7.2
Restricted cash included in other current assets	1.6		0
Restricted cash included in other long term assets	0.6		0
Cash, cash equivalents, and restricted cash	$	6.9	$	7.2

NOTE ~~18—~~19—REGULATORY ENVIRONMENT

Recovery of Natural Gas Costs

Due to the cold temperatures, wind, snow, and ice throughout the central part of the country during February 2021, the cost of gas purchased for our natural gas utility customers was temporarily driven significantly higher than our normal winter weather expectations. We have a regulatory mechanism in place for recovering all prudently incurred gas costs.

On March 23, 2021, we requested approval from the PSCW to recover approximately $54 million of natural gas costs in excess of the benchmark set in our gas cost recovery mechanism. On March 30, 2021, the PSCW approved our request to recover the costs over a period of three months, beginning in April 2021.

Coronavirus Disease – 2019

The global outbreak of COVID-19 was declared a pandemic by the WHO and the CDC. COVID-19 has spread globally, including throughout the United States and, in turn, our service territory. In response to the COVID-19 pandemic, Wisconsin declared a public health emergency and issued a shelter-in-place order, which has since been lifted. OnIn March ~~24,~~ 2020, the PSCW issued 2 orders ~~regarding certain actions~~in response to ~~be taken for purposes of ensuring that essential utility services were, and continue to be, available to our customers.~~the COVID-19 pandemic. The first order required all public utilities in the state of Wisconsin, including us, to temporarily suspend disconnections, the assessment of late fees, and deposit requirements for all customer classes. In addition, it required utilities to reconnect customers that were previously disconnected, offer deferred payment arrangements to all customers, and streamline the application process for customers applying for utility service.


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In the second order issued onin March ~~24,~~ 2020, the PSCW authorized Wisconsin utilities to defer expenditures and certain foregone revenues resulting from compliance with the first order, and expenditures as otherwise incurred to ensure safe, reliable, and affordable access to utility services during the declared public health emergency. The PSCW ~~has~~ affirmed that this authorization for deferral includes the incremental increase in uncollectible expense above what is currently being recovered in rates. As we already have a cost recovery mechanism in place to recover uncollectible expense for residential customers, this new deferral ~~will~~ only ~~impact~~impacts the recovery of uncollectible expense for our commercial and industrial customers. See Note 3, Credit Losses, for information regarding changes to our allowance for credit losses. As of June 30, 2021, amounts deferred related to the COVID-19 pandemic were not significant. The PSCW will review the recoverability and examine the prudency of any deferred amounts in future rate proceedings. ~~As of June 30, 2020, our deferrals related to the COVID-19 pandemic were not significant.~~


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In June ~~26,~~ 2020, the PSCW issued a written order providing a timeline for the lifting of the temporary provisions required in the ~~initial~~first March ~~24,~~ 2020 order. Utilities were allowed to disconnect commercial and industrial customers and require deposits for new service as of July 25, 2020 and July 31, 2020, respectively. After August 15, 2020, utilities were no longer required to offer deferred payment arrangements to all customers. Additionally, utilities were authorized to reinstate late fees except for the period between the first order and this supplemental order. ~~Utilities can elect~~We resumed charging late payment fees in late August 2020. Late payment fees were not charged on outstanding balances that were billed between the first order and late August 2020.

Subsequent to ~~continue to waive all late fees until~~ the ~~end of~~June 2020 or until they are able to implement the changes necessary to prevent late fees from being assessed on past due balances resulting from services provided during the declared health emergency. We are still currently waiving late fees. Utilities will also not be required to offer deferred payment arrangements to all customers after August 15, 2020. On July 24, 2020,order, the PSCW extended the moratorium on disconnections of residential customers until ~~September~~November 1, 2020. In accordance with Wisconsin regulations, utilities are generally not allowed to disconnect residential customers for non-payment during the winter moratorium, which began on November 1, 2020 and ended on April 15, 2021. Utilities were allowed to continue assessing late payment fees during the winter moratorium. On April 5, 2021, the PSCW issued a written order indicating that it would not extend the moratorium on disconnections further; therefore, utilities could begin disconnecting residential customers for non-payment after April 15, 2021. Utilities are required to offer a deferred payment arrangement to low-income residential customers prior to disconnecting service. The order also allowed us to resume charging late payment fees on the full balance of all outstanding arrears, regardless of the associated dates the service was provided, after April 15, 2021.

2022 Rates

On March 30, 2021, we filed an application with the PSCW for the approval of certain accounting treatments which, if approved, would allow us to maintain our current electric, natural gas, and steam base rates through 2022 and forego filing a rate case for one year. In connection with the request, we also entered into an agreement, dated March 23, 2021, with various stakeholders. Pursuant to the terms of the agreement, the stakeholders fully support the application, and we expect to file our next rate case by no later than May 1, 2022.

The application filed with the PSCW includes the following key proposals:

•We would amortize, in 2022, certain previously deferred balances to offset approximately half of our forecasted revenue deficiency.

•We would be allowed to defer any increases in tax expense due to changes in tax law that occur in 2021 and/or 2022.

•We would maintain our earnings sharing mechanism for 2022, with modification. The earnings sharing mechanism would be modified to authorize us to retain 100% of the first 15 basis points of earnings above our currently authorized ROE. This modification would expire on December 31, 2022. The earnings sharing mechanism would otherwise remain as currently authorized.

We expect the PSCW to review and consider the application during the third quarter of 2021.

2020 and 2021 Rates

In March 2019, we filed an application with the PSCW to increase our retail electric, natural gas, and steam rates, effective January 1, 2020. In August 2019, we filed an application with the PSCW for approval of a settlement agreement entered into with certain intervenors to resolve several outstanding issues in our rate case. In December 2019, the PSCW issued a written order that approved the settlement agreement without material modification and addressed the remaining outstanding issues that were not included in the settlement agreement. The new rates became effective January 1, 2020.


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The final order reflects the following:


2020 Effective rate increase
Electric (1)	$	15.3	million	/	0.5%
Gas (2)	$	10.4	million	/	2.8%
Steam	$	1.9	million	/	8.6%

ROE	10.0%

Common equity component average on a financial basis	52.5%

⁽¹⁾Amount is net of certain deferred tax benefits from the Tax Legislation that were utilized to reduce near-term rate impacts to our customers. The rate order reflects the majority of the unprotected deferred tax benefits from the Tax Legislation being amortized evenly over two years, which results in approximately $65 million of tax benefits being amortized in each of 2020 and 2021. The unprotected deferred tax benefits related to the unrecovered balances of certain of our ~~recently~~ retired plants and our SSR regulatory asset were used to reduce the related regulatory asset. Unprotected deferred tax benefits by their nature are eligible to be returned to customers in a manner and timeline determined to be appropriate by the PSCW.

⁽²⁾Amount includes certain deferred tax expense from the Tax Legislation. The rate order reflects all of the unprotected deferred tax expense from the Tax Legislation being amortized evenly over four years, which results in approximately $5 million of previously deferred tax expense being amortized each year. Unprotected deferred tax expense by its nature is eligible to be recovered from customers in a manner and timeline determined to be appropriate by the PSCW.

In accordance with our rate order, we filed an application with the PSCW onin July ~~20,~~ 2020 requesting a financing order to securitize $100 million of Pleasant Prairie power plant's book value, plus the carrying costs accrued on the $100 million during the securitization process and related financing fees. In November 2020, the PSCW issued a written order approving the application. The ~~securitization will reduce the carrying costs~~financing order also authorized us to form a bankruptcy-remote special purpose entity, WEPCo Environmental Trust, for the ~~$100~~sole purpose of issuing ETBs to recover the approved costs. In May 2021, WEPCo Environmental Trust issued $118.8 million ~~benefiting customers.~~of 1.578% ETBs due December 15, 2035. See Note 8, Long-Term Debt, for more information on the issuance of the ETBs. See Note 16, Variable Interest Entities, for more information on WEPCo Environmental Trust.

We will continue having an earnings sharing mechanism through 2021. The earnings sharing mechanism was modified from its previous structure to one that is consistent with other Wisconsin investor-owned utilities. Under ~~the new~~this earnings sharing mechanism, if we earn above our authorized ROE: (i) we retain 100.0% of earnings for the first 25 basis points above the authorized ROE; (ii) 50.0% of the next 50 basis points is refunded to customers; and (iii) 100.0% of any remaining excess earnings is refunded to customers. In addition, the rate order also requires us to maintain residential and small commercial electric and natural gas


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~~Table of~~ ~~Contents~~

customer fixed charges at previously authorized rates and to maintain the status quo for our electric market-based rate programs for large industrial customers through 2021.

~~2018 and 2019 Rates~~

During April 2017, we, along with Wisconsin Public Service Corporation and WG, filed an application with the PSCW for approval of a settlement agreement we made with several of our commercial and industrial customers regarding 2018 and 2019 base rates. In September 2017, the PSCW issued an order that approved the settlement agreement, which froze base rates through 2019 for our electric, natural gas, and steam customers. Based on the PSCW order, our authorized ROE remained at 10.2% and our capital cost structure remained unchanged through 2019.

In addition to freezing base rates, the settlement agreement extended and expanded the electric real-time market pricing program options for large commercial and industrial customers and mitigated the continued growth of certain escrowed costs during the base rate freeze period by accelerating the recognition of certain tax benefits. We were flowing through the tax benefit of our repair-related deferred tax liabilities in 2018 and 2019, to maintain certain regulatory asset balances at their December31, 2017 levels. While we would typically follow the normalization accounting method and utilize the tax benefits of the deferred tax liabilities in rate making as an offset to rate base, benefiting customers over time, the federal tax code does allow for passing these tax repair-related benefits to ratepayers much sooner using the flow through accounting method. The flow through treatment of the repair-related deferred tax liabilities offset the negative income statement impact of holding the regulatory assets level, resulting in 0 change to net income.

Pursuant to the settlement agreement, we also agreed to keep our earnings sharing mechanism in place through 2019. Under this earnings sharing mechanism, if we earned above our authorized ROE, 50% of the first 50 basis points of additional utility earnings were required to be refunded to customers. All utility earnings above the first 50 basis points were also required to be refunded to customers.

~~Liquefied Natural Gas Facility~~

In November 2019, we filed an application with the PSCW requesting approval to construct a LNG facility. If approved, the facility would provide us with approximately 1 billion cubic feet of natural gas supply to meet anticipated peak demand without requiring the construction of additional interstate pipeline capacity. This facility is expected to reduce the likelihood of constraints on our natural gas system during the highest demand days of winter. The project is estimated to cost approximately $185 million. Commercial operation for the LNG facility is targeted for the end of 2023.

~~Solar Generation Project~~

In August 2019, we, along with an unaffiliated utility, filed an application with the PSCW for approval to acquire an ownership interest in a proposed solar project, Badger Hollow II, that will be located in Iowa County, Wisconsin. Once constructed, we will own 100 MW of the output of this project. Our share of the cost of this project is estimated to be $130 million. The PSCW issued a written order approving the acquisition of this project in March 2020. Commercial operation of Badger Hollow II is targeted for December 2022.

NOTE ~~19—~~20—NEW ACCOUNTING PRONOUNCEMENTS

~~Cloud Computing~~

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The standard allows entities who are customers in hosting arrangements that are service contracts to apply the existing internal-use software guidance to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The guidance specifies classification for capitalizing implementation costs and related amortization expense within the financial statements and requires additional disclosures. The adoption of ASU 2018-15, effective January 1, 2020, did not have a significant impact on our financial statements and related disclosures.


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~~Table of~~ ~~Contents~~

~~Disclosure Requirements for Defined Benefit Plans~~

In August 2018, the FASB issued ASU 2018-14, Disclosure Framework: Changes to the Disclosure Requirements for Defined Benefit Plans. The pronouncement modifies the disclosure requirements for defined benefit pension and OPEB plans. The guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. The modifications affect annual period disclosures and must be applied on a retrospective basis to all periods presented. The guidance will be effective for annual reporting periods ending after December 15, 2020, with early adoption permitted. We are currently evaluating the effects of this pronouncement on the notes to our financial statements.

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The new standard removes certain exceptions for performing intraperiod allocation and calculating income taxes in interim periods and also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The guidance ~~will be~~was effective for annual and interim periods beginning after December 15, 2020. ~~We plan to adopt the new standard~~The adoption of ASU 2019-12, effective January 1, 2021, ~~and do~~did not ~~expect the adoption to~~ have a ~~material~~significant impact on our financial statements and related disclosures.

Reference Rate Reform

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact this guidance may have on our financial statements and related disclosures.


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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CORPORATE DEVELOPMENTS

The following discussion should be read in conjunction with the accompanying financial statements and related notes and our ~~2019~~2020 Annual Report on Form 10-K.

Introduction

We are a wholly owned subsidiary of WEC Energy Group, and derive revenues ~~primarily~~ from the distribution and sale of electricity and natural gas to retail customers in Wisconsin. We also provide wholesale electric service to numerous utilities and cooperatives for resale. We conduct our business primarily through our utility reportable segment. See Note ~~14,~~15, Segment Information, for more information on our reportable business segments.

Corporate Strategy

Our goal is to continue to build and sustain long-term value for our customers and WEC Energy Group's shareholders by focusing on the fundamentals of our business: environmental stewardship; reliability; operating efficiency; financial discipline; exceptional customer care; and safety. WEC Energy Group's 2021-2025 capital investment plan for efficiency, sustainability and growth, referred to as its ESG Progress Plan, provides a roadmap to achieve this goal. It is an aggressive plan to cut emissions, maintain superior reliability, deliver significant savings for customers, and grow WEC Energy Group's and our investment in the future of energy.

~~Reshaping Our Generation Fleet~~Throughout its strategic planning process, WEC Energy Group takes into account important developments, risks and opportunities, including new technologies, customer preferences and commodity prices, energy resiliency efforts, and sustainability. WEC Energy Group published the results of a priority sustainability issue assessment in 2020, identifying the issues that are most important to the company and its stakeholders over the short and long terms. This risk and priority assessment has formed WEC Energy Group's direction as a company.

Creating a Sustainable Future

WEC Energy ~~Group has developed~~Group's ESG Progress Plan includes the retirement of older, fossil-fueled generation, to be replaced with zero-carbon-emitting renewables and ~~is executing a plan~~clean natural gas-fired generation by 2025 at its electric utilities including us. When taken together, the retirements and new investments should better balance supply with demand, while maintaining reliable, affordable energy for our customers. The retirements will contribute to ~~reshape its generation portfolio. This plan balances reliability~~meeting WEC Energy Group's and ~~customer cost with environmental stewardship.~~our goals to reduce carbon dioxide (CO2) emissions from electric generation.

By the end of 2020, WEC Energy Group continues to evaluate opportunities and actions that preserve fuel diversity, lower costs for our customers, and contribute toward long-term greenhouse gas (GHG) emissions reductions. In 2019, WEC Energy Group met and exceeded its 2030 goal of reducing CO₂ emissions by 40% below 2005 levels. WEC Energy Group has re-evaluated its carbon reduction goals for its electric generation in light of this progress. As strategies to reduce GHG emissions continue to evolve, WEC Energy Group's updated plan, which includes us, is to work with elected officials, regulatory agencies, customers, environmental groups, and other stakeholderswas able to reduce CO₂emissions from ~~electricity generation by 70% below 2005 levels by 2030. WEC Energy Group's long-term goal calls for~~ its electric generation fleet by more than 50% below 2005 levels. As a result, WEC Energy Group announced new goals in May 2021. WEC Energy Group is committing to ~~be net~~a 60% reduction in carbon ~~neutral~~emissions from its electric generation fleet by 2025 and an 80% reduction by the end of 2030, both from a 2005 baseline. WEC Energy Group expects to achieve these goals by making operating refinements, retiring less efficient generating units and executing its capital plan. Over the longer term, the target for its generation fleet is net-zero CO2 emissions by 2050.

WEC Energy Group has already retired more than 1,800 MWmegawatts (MW) of coal-fired generation since the beginning of 2018, ~~across its electric utilities, and expects to continue adding natural gas-fired generating units and renewable generation, including utility-scale solar projects. This plan~~which included the ~~March~~ 2019 retirement of the Presque Isle power plant as well as the 2018 retirement of the Pleasant Prairie power plant. As part of the ESG Progress Plan, WEC Energy Group expects to retire approximately 1,800 MW of additional fossil-fueled generation by 2025, which includes the planned retirement in 2023-2024 of Oak Creek Power Plant Units 5-8.

~~As part of~~In addition to retiring these older, fossil-fueled plants, WEC Energy Group expects to invest approximately $2 billion from 2021-2025 in renewable energy in Wisconsin. WEC Energy Group's ~~commitment~~plan is to replace a portion of the retired capacity by building and owning a combination of clean, natural gas-fired generation and zero-carbon-emitting renewable generation facilities that are anticipated to include the following new investments made by either us or Wisconsin Public Service Corporation based on specific customer needs:

•800 MW of utility-scale solar;

•600 MW of battery storage;

•100 MW of wind;

•100 MW of reciprocating internal combustion engine (RICE) natural gas-fueled generation; and

•the planned purchase of 200 MW of capacity in the West Riverside Energy Center — a new, combined-cycle natural gas plant recently completed by Alliant Energy in Wisconsin.


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For more details, see Liquidity and Capital Resources – Capital Resources and Requirements – Capital Requirements – Significant Capital Projects.

In addition, we previously received approval from the Public Service Commission of Wisconsin (PSCW) to invest in ~~zero-carbon generation, we~~100 MW of utility-scale solar. We have partnered with an unaffiliated utility to construct ~~a utility-scale solar project,~~ Badger Hollow Solar ~~Farm~~Park II ~~(Badger Hollow II),~~ that ~~will be located~~is expected to enter commercial operation in ~~Iowa County, Wisconsin.~~December 2022. Once constructed, we will own 100 MW of the ~~output of the~~ project. The Public Service Commission of Wisconsin (PSCW) issued a written order approving the acquisition of this project in March 2020. Commercial operation of Badger Hollow II is targeted for December 2022.

In December 2018, we received approval from the PSCW for two renewable energy pilot programs. The Solar Now pilot is expected to add 35 MW of solar generation to our portfolio, allowing non-profit and ~~governmental~~government entities, as well as commercial and industrial customers to site utility owned solar arrays on their property. Under this program, ~~in 2019,~~ we ~~constructed 5 MW of solar generation~~have energized 18 Solar Now projects and ~~expect to construct~~currently have another four under construction, together totaling more than ~~that in 2020.~~24 MW. The second program, the Dedicated Renewable Energy Resource pilot, would allow large commercial and industrial customers to access renewable resources that we would operate, adding up to 150 MW of renewables to our portfolio, and allowing these larger customers to meet their sustainability and renewable energy goals.

As the cost of renewable energy generation continues to decline, these pilot programs and the utility-scale solar project have become cost effective opportunities for us and our customers to participate in renewable energy.

WEC Energy Group also ~~has a goal~~continues to ~~decrease the rate of~~reduce methane emissions ~~from the~~by improving its natural gas distribution ~~lines~~system. WEC Energy Group's initial 2030 goal called for a 30% reduction in ~~its network by 30% per mile by the year 2030~~methane emissions from a 2011 baseline. Given advancements with renewable natural gas, WEC Energy Group ~~was over half way toward meeting that goal at~~is setting a new target across its natural gas distribution operations to achieve net-zero methane emissions by the end of 2019. In April 2019, WEC Energy Group issued a climate report, which analyzes its GHG reduction goals with respect to international efforts to limit future global temperature increases to less than two degrees Celsius. WEC Energy Group will evaluate potential GHG reduction pathways as climate change policies and relevant technologies evolve over time.2030.


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Reliability

We have made significant reliability-related investments in recent years, and ~~plan~~in accordance with the ESG Progress Plan, expect to continue strengthening and modernizing our generation fleet and distribution networks to further improve reliability. Our investments, coupled with our commitment to operating efficiency and customer care, resulted in We Energies being recognized in 2019 by PA Consulting Group, an independent consulting firm, as the most reliable utility in the Midwest for the ninth year in a row. We Energies is the trade name under which we and Wisconsin Gas LLC, another wholly owned subsidiary of WEC Energy Group, operate.

Below are a few examples of reliability projects that are ~~proposed.~~proposed or currently underway.

•We ~~plan to install~~are constructing approximately 46 miles of natural gas transmission main ~~in southeastern Wisconsin. This project, which was approved in a written order by the PSCW in June 2020, has been designated as the "Lakeshore Lateral Project." The primary purpose of this project is~~ to increase the quantity and reliability of natural gas service ~~both on a peak day and annually,~~ in southeastern Wisconsin. ~~Construction for~~This project, called the ~~project is tentatively scheduled to begin during the fourth quarter of 2020, and the project~~Lakeshore Lateral Project, is expected to be completed by the end of 2021.

•We plan to construct a liquefied natural gas (LNG) ~~facility.~~facility to meet anticipated peak demand. Subject to PSCW approval, the facility would provide us with approximately one billion cubic feet of natural gas supply to meet anticipated peak demand without requiring the construction of additional interstate pipeline capacity. This facility is expected to reduce the likelihood of constraints on our natural gas system during the highest demand days of winter. Commercialcommercial operation for the LNG facility is targeted for the end of 2023.

For more details, see Liquidity and Capital Resources – Capital Resources and Requirements – Capital Requirements – Significant Capital Projects.

Operating Efficiency

We continually look for ways to optimize the operating efficiency of our ~~company.~~company and will continue to do so under the ESG Progress Plan. For example, we are making progress on our Advanced Metering Infrastructure program, replacing aging meter-reading equipment on both our network and customer property. An integrated system of smart meters, communication networks, and data management programs enables two-way communication between us and our customers. This program reduces the manual effort for disconnects and reconnects and enhances outage management capabilities.

WEC Energy Group continues to focus on integrating the resources of its businesses and finding the best and most efficient processes while meeting all applicable legal and regulatory requirements. We also strive to provide the best value to our customers and WEC Energy Group's shareholders by embracing constructive change, leveraging capabilities and expertise, and using creative solutions to meet or exceed our customers' expectations.

Financial Discipline

A strong adherence to financial discipline is essential to ~~earning~~meeting our ~~authorized ROE~~earnings projections and maintaining a strong balance sheet, stable cash flows, and quality credit ratings.


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We follow an asset management strategy that focuses on investing in and acquiring assets consistent with our strategic plans, as well as disposing of assets, including property, plants, and equipment, that are no longer strategic to operations, are not performing as intended, or have an unacceptable risk profile.

Exceptional Customer Care

Our approach is driven by an intense focus on delivering exceptional customer care every day. We strive to provide the best value for our customers by demonstrating personal responsibility for results, leveraging our capabilities and expertise, and using creative solutions to meet or exceed our customers’ expectations.

A multiyear effort is driving a standardized, seamless approach to digital customer service across all of the WEC Energy Group companies. It has moved all utilities, including us, to a common platform for all customer-facing self-service options. Using common systems and processes reduces costs, provides greater flexibility and enhances the consistent delivery of exceptional service to customers.

Safety

Safety is one of our core values and a critical component of our culture. We ~~have~~are committed to keeping our employees and the public safe through a ~~long-standing commitment to both workplace~~comprehensive corporate safety program that focuses on employee engagement and ~~public safety, and under~~elimination of at-risk behaviors.

Under our "Target Zero" mission, we have an ultimate goal of zero incidents, accidents, and injuries. Management and union leadership work together to reinforce the Target Zero culture. We ~~also~~ set annual goals ~~around injury-prevention activities that~~for safety results as well as measurable leading indicators, in order to raise awareness of at-risk behaviors and ~~facilitate conversations about employee safety.~~ situations and guide injury-prevention activities. All employees are encouraged to report unsafe conditions or incidents that could have led to an injury. Injuries and tasks with high levels of risk are assessed, and findings and best practices are shared across the WEC Energy Group companies.

Our corporate safety program provides a forum for addressing employee concerns, training employees and contractors on current safety standards, and recognizing those who demonstrate a safety focus.


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RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, ~~2020~~2021

Earnings

~~The following table compares our results~~Our earnings for the second quarter of ~~2020 with the second quarter of 2019, including favorable or better, "B", and unfavorable or worse, "W", variances:~~

Three Months Ended June 30
(in millions) 2020 2019 B (W) Change Related to 2019 Tax Repairs Remaining Change
B (W)
Operating revenues $ 769.5 $ 791.7 $ (22.2) $ 25.5 $ (47.7)
Cost of sales 235.6 253.5 17.9 — 17.9
Other operation and maintenance 214.3 234.3 20.0 16.5 3.5
Depreciation and amortization 106.2 95.2 (11.0) — (11.0)
Property and revenue taxes 24.8 26.1 1.3 — 1.3
Operating income 188.6 182.6 6.0 42.0 (36.0)
Other income, net 4.9 5.9 (1.0) — (1.0)
Interest expense 116.6 119.6 3.0 — 3.0
Income before income taxes 76.9 68.9 8.0 42.0 (34.0)
Income tax expense (benefit) 6.0 (16.3) (22.3) (42.0) 19.7
Preferred stock dividend requirements 0.3 0.3 — — —
Net income attributed to common shareholder $ 70.6 $ 84.9 $ (14.3) $ — $ (14.3)

~~Our earnings decreased $14.3~~2021 were $78.8 million, ~~during the second quarter of 2020,~~ compared ~~with~~to $70.6 million for the same quarter in 2019. The table above shows the income statement impacts due to the flow through of tax repairs during the second quarter of 2019. We were flowing through the tax benefit of our repair related deferred tax liabilities in 2018 and 2019, to maintain certain regulatory asset balances at their December 31, 2017 levels. As shown in the table above, the changes related to the flow through of tax repairs had no impact on net income attributed to common shareholder. See Note 18, Regulatory Environment, for more information on the flow through of tax repairs.2020. See below for additional information on the ~~$14.3~~$8.2 million ~~decrease~~increase in ~~our~~ earnings.

Non-GAAP Financial Measures

The discussion below addresses the ~~operating income~~ contribution of our utility segment ~~and~~to net income attributed to common shareholder. The discussion includes financial information prepared in accordance with GAAP, as well as electric margins and natural gas margins, which are not measures of financial performance under GAAP. Electric ~~margin~~margins (electric revenues less fuel and purchased power costs) and natural gas ~~margin~~margins (natural gas revenues less cost of natural gas sold) are non-GAAP financial measures because they exclude other operation and maintenance expense, depreciation and amortization, and property and revenue taxes.

We believe that electric and natural gas margins provide a useful basis for evaluating utility operations since the majority of prudently incurred fuel and purchased power costs, as well as prudently incurred natural gas costs, are passed through to customers in current rates. As a result, management uses electric and natural gas margins internally when assessing the operating performance of our utility segment as these measures exclude the majority of revenue fluctuations caused by changes in these expenses. Similarly, the presentation of electric and natural gas margins herein is intended to provide supplemental information for investors regarding our operating performance.


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of operating performance. Our utility segment operating income for the three months ended June 30, 2021 and 2020 was $200.0 million and $188.6 million, respectively. The discussion below includes a table that provides the calculation of electric margins and natural gas margins, along with a reconciliation to the most directly comparable GAAP measure, operating income.

Utility Segment Contribution to Net Income Attributed to Common Shareholder

The following table compares our utility segment's contribution to net income during the second quarter of 2021, compared with the same quarter in 2020, including favorable or better, "B", and unfavorable or worse, "W", variances.


	Three Months Ended June 30
(in millions)	2021		2020		B (W)
Electric revenues	$	764.7	$	707.7	$	57.0
Fuel and purchased power	243.3		206.6		(36.7)
Total electric margins	521.4		501.1		20.3

Natural gas revenues	62.8		61.8		1.0
Cost of natural gas sold	33.1		29.0		(4.1)
Total natural gas margins	29.7		32.8		(3.1)

Total electric and natural gas margins	551.1		533.9		17.2

Other operation and maintenance	213.1		214.3		1.2
Depreciation and amortization	113.3		106.2		(7.1)
Property and revenue taxes	24.7		24.8		0.1
Operating income	200.0		188.6		11.4

Other income, net	7.3		4.9		2.4
Interest expense	116.0		116.6		0.6
Income before income taxes	91.3		76.9		14.4

Income tax expense	12.2		6.0		(6.2)
Preferred stock dividends of subsidiary	0.3		0.3		—
Net income attributed to common shareholder	$	78.8	$	70.6	$	8.2

The following table shows a breakdown of other operation and maintenance:


	Three Months Ended June 30
(in millions)	2021		2020		B (W)
Operation and maintenance not included in line items below	$	84.5	$	82.1	$	(2.4)
Transmission (1)	84.5		84.5		—
We Power (2)	29.4		29.9		0.5
Regulatory amortizations and other pass through expenses (3)	14.7		17.8		3.1

Total other operation and maintenance	$	213.1	$	214.3	$	1.2

(1)Represents transmission expense that we are authorized to collect in rates. The PSCW has approved escrow accounting for ATC and MISO network transmission expenses. As a result, we defer as a regulatory asset or liability, the difference between actual transmission costs and those included in rates until recovery or refund is authorized in a future rate proceeding. During the three months ended June 30, 2021 and 2020, $82.3 million and $74.3 million, respectively, of costs were billed to us by transmission providers.

(2)Represents costs associated with the We Power generation units, including operating and maintenance costs we recognized. During the three months ended June 30, 2021 and 2020, $25.7 million and $25.5 million, respectively, of costs were billed to or incurred by us related to the We Power generation units, with the difference in costs billed or incurred and expenses recognized, either deferred or deducted from the regulatory asset.

(3)Regulatory amortizations and other pass through expenses are substantially offset in margins and therefore do not have a significant impact on net income.


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The following tables provide information on delivered sales volumes by customer class and weather statistics:


	Three Months Ended June 30
	MWh (in thousands)
Electric Sales Volumes	2021	2020	B (W)
Customer Class
Residential	1,903.9	1,981.0	(77.1)
Small commercial and industrial	2,068.7	1,861.3	207.4
Large commercial and industrial	1,691.3	1,463.6	227.7
Other	23.9	30.3	(6.4)
Total retail	5,687.8	5,336.2	351.6
Wholesale	275.5	225.5	50.0
Resale	1,301.7	1,147.2	154.5
Total sales in MWh	7,265.0	6,708.9	556.1


	Three Months Ended June 30
	Therms (in millions)
Natural Gas Sales Volumes	2021	2020	B (W)
Customer Class
Residential	45.7	59.9	(14.2)
Commercial and industrial	23.6	29.4	(5.8)
Total retail	69.3	89.3	(20.0)
Transportation	66.0	65.0	1.0
Total sales in therms	135.3	154.3	(19.0)


	Three Months Ended June 30
	Degree Days
Weather (1)	2021	2020	B (W)
Heating (928 Normal)	738	995	(25.8)	%
Cooling (164 Normal)	303	223	35.9	%

(1)Normal degree days are based on a 20-year moving average of monthly temperatures from Mitchell International Airport in Milwaukee, Wisconsin.

Electric Utility Margins

Electric utility margins increased $20.3 million during the second quarter of 2021, compared with the same quarter in 2020. The significant factors impacting the higher electric utility margins were:

•A $9.8 million increase in margins related to higher retail sales volumes, including the impact of weather. As measured by cooling degree days, the second quarter of 2021 was 35.9% warmer than the same quarter in 2020. Commercial and industrial retail sales volumes also improved during the second quarter of 2021, compared with the same quarter in 2020, due to the continued economic recovery in Wisconsin from the COVID-19 pandemic.

•A $4.6 million increase in margins from other revenues, primarily related to higher late payment charges driven by an increase in past due accounts receivable balances during the second quarter of 2021. Late payment charges were suspended by the PSCW for a period of time beginning March 24, 2020 as a result of the COVID-19 pandemic. See Note 19, Regulatory Environment, for more information.

•A $3.6 million net increase in margins related to the impact of our rate order approved by the PSCW, effective January 1, 2020. This increase in margins includes a $3.5 million positive impact related to unprotected excess deferred taxes, which we agreed to return to customers over two years and is offset in income taxes. See Note 19, Regulatory Environment, for more information.


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Natural Gas Utility Margins

Natural gas utility margins decreased $3.1 million during the second quarter of 2021, compared with the same quarter in 2020. The most significant factor impacting the lower natural gas utility margins was lower retail sales volumes, driven by warmer spring weather during the second quarter of 2021. As measured by heating degree days, the second quarter of 2021 was 25.8% warmer than the same quarter in 2020.

Other Operating Expenses (includes other operation and maintenance, depreciation and amortization, and property and revenue taxes)

Other operating expenses at the utility segment increased $5.8 million during the second quarter of 2021, compared with the same quarter in 2020. The significant factors impacting the increase in operating expenses were:

•A $7.1 million increase in depreciation and amortization, driven by assets being placed into service as we continue to execute on our capital plan as well as an increase related to the We Power leases.

•A $1.6 million increase in customer service expenses, primarily related to additional costs from an information technology project created to improve the billing, call center, and credit collection functions, as well as higher call volumes and metering costs.

•A $1.4 million increase in other operation and maintenance expense at our plants, driven by the timing of planned outages.

These increases in operating expenses were partially offset by:

•A $3.4 million decrease in benefit costs, primarily due to lower deferred compensation costs and pension costs, partially offset by higher medical costs.

•A $3.1 million decrease in regulatory amortizations and other pass through expenses, as discussed in the notes under the other operation and maintenance table above.

•Costs incurred of $2.5 million during the second quarter of 2020, related to facility damage resulting from a significant rain event in May 2020. See Note 5, Property, Plant, and Equipment, for more information.

Other Income, Net

Other income, net increased $2.4 million during the second quarter of 2021, compared with the same quarter in 2020, driven by higher net credits from the non-service components of our net periodic pension and OPEB costs. See Note 14, Employee Benefits, for more information on our benefit costs. Higher AFUDC–Equity due to continued capital investment also contributed to the increase in other income, net.

Income Tax Expense

Income tax expense increased $6.2 million during the second quarter of 2021, compared with the same quarter in 2020. The increase was primarily due to an increase in pretax income and a decrease in PTCs. See Note 10, Income Taxes, for more information.


06/30/2021 Form 10-Q			29			Wisconsin Electric Power Company

Table of Contents

SIX MONTHS ENDED JUNE 30, 2021

Earnings

Our earnings for the six months ended June 30, 2021 were $205.8 million, compared to $189.3 million for the same period in 2020. See below for additional information on the $16.5 million increase in earnings.

Expected 2021 Annual Effective Tax Rate

We expect our 2021 annual effective tax rate to be between 12.5% and 13.5%, which includes an estimated 10.5% effective tax rate benefit due to the amortization of unprotected excess deferred taxes in connection with our 2019 Wisconsin rate order. Excluding this estimated effective tax rate benefit, the expected 2021 range would be between 23% and 24%.

Non-GAAP Financial Measures

The discussion below addresses the contribution of our utility segment to net income attributed to common shareholder. The discussion includes financial information prepared in accordance with GAAP, as well as electric margins and natural gas margins, which are not measures of financial performance under GAAP. Electric margins (electric revenues less fuel and purchased power costs) and natural gas margins (natural gas revenues less cost of natural gas sold) are non-GAAP financial measures because they exclude other operation and maintenance expense, depreciation and amortization, and property and revenue taxes.

Our electric margins and natural gas margins may not be comparable to similar measures presented by other companies. Furthermore, these measures are not intended to replace operating income as determined in accordance with GAAP as an indicator of ~~our utility segment~~ operating performance. Our utility segment operating income for the ~~three~~six months ended June 30, 2021 and 2020 ~~and 2019~~ was ~~$188.6~~$455.6 million and ~~$182.6~~$435.6 million, respectively. The ~~operating income~~ discussion below includes a table that provides the calculation of electric margins and natural gas margins, along with a reconciliation to ~~utility segment~~the most directly comparable GAAP measure, operating income.


06/30/~~2020~~2021 Form 10-Q			2630			Wisconsin Electric Power Company

Table of Contents

Utility Segment Contribution to ~~Operating~~Net Income Attributed to Common Shareholder


		Three Months Ended June 30											Six Months Ended June 30
(in millions)	(in millions)	2020		2019		B (W)		(in millions)	2021		2020		B (W)
Electric revenues	Electric revenues	$	707.7	$	726.6	$	(18.9)	Electric revenues	$	1,553.5	$	1,439.3	$	114.2
Fuel and purchased power	Fuel and purchased power	206.6		218.1		11.5		Fuel and purchased power	499.0		421.0		(78.0)
Total electric margins	Total electric margins	501.1		508.5		(7.4)		Total electric margins	1,054.5		1,018.3		36.2

Natural gas revenues	Natural gas revenues	61.8		65.1		(3.3)		Natural gas revenues	279.2		201.2		78.0
Cost of natural gas sold	Cost of natural gas sold	29.0		35.4		6.4		Cost of natural gas sold	181.6		103.8		(77.8)
Total natural gas margins	Total natural gas margins	32.8		29.7		3.1		Total natural gas margins	97.6		97.4		0.2

Total electric and natural gas margins	Total electric and natural gas margins	533.9		538.2		(4.3)		Total electric and natural gas margins	1,152.1		1,115.7		36.4

Other operation and maintenance	Other operation and maintenance	214.3		234.3		20.0		Other operation and maintenance	422.4		418.9		(3.5)
Depreciation and amortization	Depreciation and amortization	106.2		95.2		(11.0)		Depreciation and amortization	224.0		210.7		(13.3)
Property and revenue taxes	Property and revenue taxes	24.8		26.1		1.3		Property and revenue taxes	50.1		50.5		0.4
Operating income	Operating income	$	188.6	$	182.6	$	6.0	Operating income	455.6		435.6		20.0

Other income, net								Other income, net	14.7		10.2		4.5
Interest expense								Interest expense	232.2		235.2		3.0
Income before income taxes								Income before income taxes	238.1		210.6		27.5

Income tax expense								Income tax expense	31.7		20.7		(11.0)
Preferred stock dividends of subsidiary								Preferred stock dividends of subsidiary	0.6		0.6		—
Net income attributed to common shareholder								Net income attributed to common shareholder	$	205.8	$	189.3	$	16.5

The following table shows a breakdown of other operation and maintenance:


		Three Months Ended June 30											Six Months Ended June 30
(in millions)	(in millions)	2020		2019		B (W)		(in millions)	2021		2020		B (W)
Operation and maintenance not included in line items below	Operation and maintenance not included in line items below	$	82.1	$	79.8	$	(2.3)	Operation and maintenance not included in line items below	$	161.6	$	155.9	$	(5.7)
Transmission ⁽¹⁾	Transmission ⁽¹⁾	84.5		62.6		(21.9)		Transmission (1)	168.9		168.9		—
We Power ⁽²⁾	We Power ⁽²⁾	29.9		34.2		4.3		We Power (2)	58.8		60.2		1.4
Regulatory amortizations and other pass through expenses ⁽³⁾	Regulatory amortizations and other pass through expenses ⁽³⁾	17.8		23.7		5.9		Regulatory amortizations and other pass through expenses (3)	33.1		33.9		0.8
Transmission expense related to the flow through of tax repairs ⁽⁴⁾		—		16.5		16.5
Transmission expense related to Tax Legislation ⁽⁵⁾		—		17.5		17.5

Total other operation and maintenance	Total other operation and maintenance	$	214.3	$	234.3	$	20.0	Total other operation and maintenance	$	422.4	$	418.9	$	(3.5)

⁽¹⁾Represents transmission expense that we are authorized to collect in rates, in accordance with the PSCW's approval of escrow accounting for ATC and MISO network transmission expenses. As a result, we defer as a regulatory asset or liability, the difference between actual transmission costs and those included in rates until recovery or refund is authorized in a future rate proceeding. During the three months ended June 30, 2020~~and 2019, $74.3 million and $80.5 million, respectively, of costs were billed to us by transmission providers.~~

⁽²⁾Represents costs associated with the We Power generation units, including operating and maintenance costs we recognized. During the three months ended June 30, 2020 and 2019, $25.5 million and $45.6 million, respectively, of operating and maintenance costs were billed to or incurred by us related to the We Power generation units, with the difference in costs billed or incurred and expenses recognized, either deferred or deducted from the regulatory asset.

⁽³⁾~~Regulatory amortizations and other pass through expenses are substantially offset in margins and therefore do not have a significant impact on operating income.~~

⁽⁴⁾Represents additional transmission expense recorded in 2019 associated with the flow through of tax benefits of our repair-related deferred tax liabilities starting in 2018 in accordance with a settlement agreement with therates. The PSCW to maintain certain regulatory asset balances at their December 31, 2017 levels. This decrease in expenses was offset in income taxes. Since our transmission regulatory asset was eliminated at December 31, 2019, there were no tax benefits used in 2020.

⁽⁵⁾Represents additional transmission expense recorded in 2019 associated with the May 2018 PSCW order requiring us to use 80% of our current 2018 tax benefit, including the amortization associated with the revaluation of deferred taxes, to reduce our transmission regulatory asset balance. Since our transmission regulatory asset was eliminated at December 31, 2019, there were no tax benefits used in 2020.


~~06/30/2020 Form 10-Q~~			27			~~Wisconsin Electric Power Company~~

~~Table of~~ ~~Contents~~

~~The following tables provide information on delivered sales volumes by customer class and weather statistics:~~

Three Months Ended June 30
MWh (in thousands)
Electric Sales Volumes 2020 2019 B (W)
Customer Class
Residential 1,981.0 1,682.0 299.0
Small commercial and industrial 1,861.3 2,048.4 (187.1)
Large commercial and industrial 1,463.6 1,693.2 (229.6)
Other 30.3 33.1 (2.8)
Total retail 5,336.2 5,456.7 (120.5)
Wholesale 225.5 296.6 (71.1)
Resale 1,147.2 1,604.5 (457.3)
Total sales in MWh 6,708.9 7,357.8 (648.9)

Three Months Ended June 30
Therms (in millions)
Natural Gas Sales Volumes 2020 2019 B (W)
Customer Class
Residential 59.9 55.9 4.0
Commercial and industrial 29.4 31.3 (1.9)
Total retail 89.3 87.2 2.1
Transport 65.0 79.3 (14.3)
Total sales in therms 154.3 166.5 (12.2)

Three Months Ended June 30
Degree Days
Weather ⁽¹⁾
2020 2019 B (W)
Heating (926 Normal) 995 973 2.3 %
Cooling (161 Normal) 223 76 193.4 %

⁽¹⁾~~Normal degree days are based on a 20-year moving average of monthly temperatures from Mitchell International Airport in Milwaukee, Wisconsin.~~

~~Electric Utility Margins~~

~~Electric utility margins decreased $7.4 million during the second quarter of 2020, compared with the same quarter in 2019. The significant factors impacting the lower electric utility margins were:~~

•~~A $30.1 million net decrease in margins related to the impact of our rate order~~has approved by the PSCW, effective January 1, 2020. This decrease in margins includes savings from the Tax Legislation, including unprotected tax benefits, which we agreed to return to customers and is offset in income taxes.

•A $6.8 million quarter-over-quarter negative impact from collections of fuel and purchased power costs compared with costs approved in rates. Under the Wisconsin fuel rules, our margins are impacted by under- or over-collections of certain fuel and purchased power costs that are less than a 2% price variance from the costs included in rates, and the remaining variance that exceeds the 2% variance is deferred.

~~These decreases in margins were partially offset by:~~

•A $25.5 million increase in margins associated with the negative impact of the flow through of tax benefits of our repair-related deferred tax liabilities during the second quarter of 2019, in accordance with a settlement agreement with the PSCW to maintain certain regulatory assets at their December 31, 2017 levels. These tax benefits were no longer in effect for 2020. This increase in margins was offset in income taxes.


~~06/30/2020 Form 10-Q~~			28			~~Wisconsin Electric Power Company~~

~~Table of~~ ~~Contents~~

•A $4.5 million increase in margins related to higher residential sales volumes, driven by favorable weather during the second quarter of 2020, compared with the same quarter in 2019, as well as a shelter-in-place order issued by the state of Wisconsin related to the COVID-19 pandemic. As measured by cooling degree days, the second quarter of 2020 was 193.4% warmer than the same quarter in 2019. As measured by heating degree days, the second quarter of 2020 was 2.3% colder than the same quarter in 2019. This increase in margins was partially offset by a reduction driven by lower sales volumes for our commercial and industrial customers, primarily related to business interruptions and closings during the COVID-19 pandemic.

~~Natural Gas Utility Margins~~

Natural gas utility margins increased $3.1 million during the second quarter of 2020, compared with the same quarter in 2019. The most significant factor impacting the higher natural gas utility margins was an increase related to the impact of our rate order approved by the PSCW, effective January 1, 2020. This increase in margins is net of the negative impact on margins related to savings from the Tax Legislation, including unprotected tax benefits, which we agreed to return to customers and is offset in income taxes.

~~Operating Income~~

Operating income at the utility segment increased $6.0 million during the second quarter of 2020, compared with the same quarter in 2019. This increase was driven by $10.3 million of lower operating expenses (which include other operation and maintenance, depreciation and amortization, and property and revenue taxes), partially offset by the $4.3 million net decrease in margins discussed above.

~~The significant factors impacting the decrease in operating expenses during the second quarter of 2020, compared with the same quarter in 2019, were:~~

•A $17.5 million decrease in transmission expense associated with the May 2018 order from the PSCW related to our required treatment of the benefits associated with the Tax Legislation, as discussed in the notes under the other operation and maintenance table above. This decrease in transmission expense was offset by a corresponding decrease in margins.

•A $16.5 million decrease in transmission expense related to the flow through of tax repairs during the second quarter of 2019, as discussed in the notes under the other operation and maintenance table above.~~This decrease in transmission expense was offset in income taxes.~~

•~~A $5.9 million decrease in regulatory amortizations and other pass through expenses, as discussed in the notes under the other operation and maintenance table above.~~

•~~A $4.3 million decrease in other operation and maintenance expense related to the We Power leases as discussed in the notes under the other operation and maintenance table above.~~

~~These decreases in operating expenses were partially offset by:~~

•A $21.9 million increase in transmission expense, primarily driven by an increase in amortization related to escrow accounting as approved in the PSCW's 2019 rate order, which was effective January 1, 2020. See the notes under the other operation and maintenance table above for more information on escrow accounting.

•An $11.0 million increase in depreciation and amortization, driven by assets being placed into service as we continue to execute on our capital plan as well as an increase related to the We Power leases.

~~Other Income, Net~~

Three Months Ended June 30
(in millions) 2020 2019 B (W)
Non-service components of net periodic benefit costs $ 3.7 $ 2.6 $ 1.1
AFUDC – Equity 1.3 0.8 0.5
Other, net (0.1) 2.5 (2.6)
Other income, net $ 4.9 $ 5.9 $ (1.0)


~~06/30/2020 Form 10-Q~~			29			~~Wisconsin Electric Power Company~~

~~Table of~~ ~~Contents~~

Other income, net decreased $1.0 million during the second quarter of 2020, compared with the same quarter in 2019. The decrease was primarily driven by the 2019 deferral of costs that were offset in other income statement line items and had no impact on net income. Partially offsetting this decrease was higher net credits from the non-service components of our net periodic pension and OPEB costs. See Note 13, Employee Benefits, for more information on our benefit costs.

~~Interest Expense~~

Three Months Ended June 30
(in millions) 2020 2019 B (W)
Interest expense $ 116.6 $ 119.6 $ 3.0

Interest expense decreased $3.0 million during the second quarter of 2020, compared with the same quarter in 2019, primarily due to the lower interest rate on the long-term debt issued in December 2019, which was used to repay maturing long-term debt that had a higher interest rate.

~~Income Tax Expense (Benefit)~~

Three Months Ended June 30
2020 2019 B (W)
Effective tax rate 7.8 % (23.7) % (31.5) %

Our effective tax rate increased by 31.5% during the second quarter of 2020, compared with the same quarter in 2019. The increase was primarily due to the benefit from the flow through of tax repairs during the second quarter of 2019, in connection with the 2017 Wisconsin rate settlement. This increase in our effective tax rate was partially offset by the 2020 amortization of the unprotected excess deferred tax benefits from the Tax Legislation in connection with the Wisconsin rate orders approved by the PSCW, effective January 1, 2020. These items did not impact earnings as they were offset in operating income. See Note 9, Income Taxes, and Note 18, Regulatory Environment, for more information.

~~SIX MONTHS ENDED JUNE 30, 2020~~

~~Earnings~~

~~The following table compares our results for the six months ended June 30, 2020 with the six months ended June 30, 2019, including favorable or better, "B", and unfavorable or worse, "W", variances:~~

Six Months Ended June 30
(in millions) 2020 2019 B (W) Change Related to 2019 Tax Repairs Remaining Change
B (W)
Operating revenues $ 1,640.5 $ 1,752.5 $ (112.0) $ 50.9 $ (162.9)
Cost of sales 524.8 610.7 85.9 — 85.9
Other operation and maintenance 418.9 493.2 74.3 31.8 42.5
Depreciation and amortization 210.7 191.2 (19.5) — (19.5)
Property and revenue taxes 50.5 51.9 1.4 — 1.4
Operating income 435.6 405.5 30.1 82.7 (52.6)
Other income, net 10.2 11.4 (1.2) — (1.2)
Interest expense 235.2 239.5 4.3 — 4.3
Income before income taxes 210.6 177.4 33.2 82.7 (49.5)
Income tax expense (benefit) 20.7 (22.8) (43.5) (82.7) 39.2
Preferred stock dividend requirements 0.6 0.6 — — —
Net income attributed to common shareholder $ 189.3 $ 199.6 $ (10.3) $ — $ (10.3)


~~06/30/2020 Form 10-Q~~			30			~~Wisconsin Electric Power Company~~

~~Table of~~ ~~Contents~~

Our earnings decreased $10.3 million during the six months ended June 30, 2020, compared with the same period in 2019. The table above shows the income statement impacts due to the flow through of tax repairs during the six months ended June 30, 2019. We were flowing through the tax benefit of our repair related deferred tax liabilities in 2018 and 2019, to maintain certain regulatory asset balances at their December 31, 2017 levels. As shown in the table above, the changes related to the flow through of tax repairs had no impact on net income attributed to common shareholder. See below for additional information on the $10.3 million decrease in earnings.

~~Non-GAAP Financial Measures~~

The discussion below addresses the operating income contribution of our utility segment and includes financial information prepared in accordance with GAAP, as well as electric margins and natural gas margins, which are not measures of financial performance under GAAP. Electric margin (electric revenues less fuel and purchased power costs) and natural gas margin (natural gas revenues less cost of natural gas sold) are non-GAAP financial measures because they exclude other operation and maintenance expense, depreciation and amortization, and property and revenue taxes.

Our electric margins and natural gas margins may not be comparable to similar measures presented by other companies. Furthermore, these measures are not intended to replace operating income as determined in accordance with GAAP as an indicator of our utility segment operating performance. Our utility segment operating income for the six months ended June 30, 2020 and 2019 was $435.6 million and $405.5 million, respectively. The operating income discussion below includes a table that provides the calculation of electric margins and natural gas margins, along with a reconciliation to utility segment operating income.

~~Utility Segment Contribution to Operating Income~~

Six Months Ended June 30
(in millions) 2020 2019 B (W)
Electric revenues $ 1,439.3 $ 1,509.1 $ (69.8)
Fuel and purchased power 421.0 457.4 36.4
Total electric margins 1,018.3 1,051.7 (33.4)
Natural gas revenues 201.2 243.4 (42.2)
Cost of natural gas sold 103.8 153.3 49.5
Total natural gas margins 97.4 90.1 7.3
Total electric and natural gas margins 1,115.7 1,141.8 (26.1)
Other operation and maintenance 418.9 493.2 74.3
Depreciation and amortization 210.7 191.2 (19.5)
Property and revenue taxes 50.5 51.9 1.4
Operating income $ 435.6 $ 405.5 $ 30.1


~~06/30/2020 Form 10-Q~~			31			~~Wisconsin Electric Power Company~~

~~Table of~~ ~~Contents~~

~~The following table shows a breakdown of other operation and maintenance:~~

Six Months Ended June 30
(in millions) 2020 2019 B (W)
Operation and maintenance not included in line items below $ 155.9 $ 180.8 $ 24.9
Transmission ⁽¹⁾
168.9 129.3 (39.6)
We Power ⁽²⁾
60.2 70.1 9.9
Regulatory amortizations and other pass through expenses ⁽³⁾
33.9 48.5 14.6
Transmission expense related to the flow through of tax repairs ⁽⁴⁾
— 31.8 31.8
Transmission expense related to Tax Legislation ⁽⁵⁾
— 32.7 32.7
Total other operation and maintenance $ 418.9 $ 493.2 $ 74.3

⁽¹⁾~~Represents transmission expense that we are authorized to collect in rates, in accordance with the PSCW's approval of~~ escrow accounting for ATC and MISO network transmission expenses. As a result, we defer as a regulatory asset or liability, the difference between actual transmission costs and those included in rates until recovery or refund is authorized in a future rate proceeding. During the six months ended June 30, 2021 and 2020, ~~and 2019, $152.9~~$169.2 million and ~~$161.3~~$152.9 million, respectively, of costs were billed to us by transmission providers.

⁽²⁾Represents costs associated with the We Power generation units, including operating and maintenance costs we recognized. During the six months ended June 30, 2021 and 2020, $51.6 million and ~~2019,~~ $60.6 million, ~~and $76.4 million,~~ respectively, of ~~operating and maintenance~~ costs were billed to or incurred by us related to the We Power generation units, with the difference in costs billed or incurred and expenses recognized, either deferred or deducted from the regulatory asset.

⁽³⁾Regulatory amortizations and other pass through expenses are substantially offset in margins and therefore do not have a significant impact on ~~operating~~net income.

⁽⁴⁾Represents additional transmission expense recorded in 2019 associated with the flow through of tax benefits of our repair-related deferred tax liabilities starting in 2018 in accordance with a settlement agreement with the PSCW, to maintain certain regulatory asset balances at their December 31, 2017 levels. This decrease in expenses was offset in income taxes. Since our transmission regulatory asset was eliminated at December 31, 2019, there were no tax benefits used in 2020.

~~The following tables provide information on delivered sales volumes by customer class and weather statistics:~~

Six Months Ended June 30
MWh (in thousands)
Electric Sales Volumes 2020 2019 B (W)
Customer Class
Residential 3,867.2 3,671.5 195.7
Small commercial and industrial 3,953.0 4,211.7 (258.7)
Large commercial and industrial 3,095.1 3,713.0 (617.9)
Other 64.4 69.5 (5.1)
Total retail 10,979.7 11,665.7 (686.0)
Wholesale 490.8 743.2 (252.4)
Resale 2,944.5 2,698.8 245.7
Total sales in MWh 14,415.0 15,107.7 (692.7)


06/30/~~2020~~2021 Form 10-Q			3231			Wisconsin Electric Power Company

Table of Contents

Six Months Ended June 30
Therms (in millions)
Natural Gas Sales Volumes 2020 2019 B (W)
Customer Class
Residential 226.7 252.6 (25.9)
Commercial and industrial 120.3 135.9 (15.6)
Total retail 347.0 388.5 (41.5)
Transport 169.7 181.0 (11.3)
Total sales in therms 516.7 569.5 (52.8)
The following tables provide information on delivered sales volumes by customer class and weather statistics:


	Six Months Ended June 30
	MWh (in thousands)
Electric Sales Volumes	2021	2020	B (W)
Customer Class
Residential	3,887.8	3,867.2	20.6
Small commercial and industrial	4,146.2	3,953.0	193.2
Large commercial and industrial	3,266.4	3,095.1	171.3
Other	59.5	64.4	(4.9)
Total retail	11,359.9	10,979.7	380.2
Wholesale	592.6	490.8	101.8
Resale	3,149.1	2,944.5	204.6
Total sales in MWh	15,101.6	14,415.0	686.6

Six Months Ended June 30
Degree Days
Weather ⁽¹⁾
2020 2019 B (W)
Heating (4,245 Normal) 3,920 4,456 (12.0) %
Cooling (161 Normal) 223 76 193.4 %


	Six Months Ended June 30
	Therms (in millions)
Natural Gas Sales Volumes	2021	2020	B (W)
Customer Class
Residential	223.0	226.7	(3.7)
Commercial and industrial	119.0	120.3	(1.3)
Total retail	342.0	347.0	(5.0)
Transportation	161.9	169.7	(7.8)
Total sales in therms	503.9	516.7	(12.8)

^{Six Months Ended June 30
Degree Days
Weather (1) 2021 2020 B (W)
Heating (4,209 Normal) 3,858 3,920 (1.6) %
Cooling (164 Normal) 303 223 35.9 %}

(1)Normal degree days are based on a 20-year moving average of monthly temperatures from Mitchell International Airport in Milwaukee, Wisconsin.

Electric Utility Margins

Electric utility margins ~~decreased $33.4~~increased $36.2 million during the six months ended June 30, ~~2020,~~2021, compared with the same period in ~~2019.~~2020. The significant factors impacting the ~~lower~~higher electric utility margins were:

•A ~~$59.2~~$26.0 million net ~~decrease~~increase in margins related to higher sales volumes, including the impact of ~~our rate order approved~~weather. As measured by cooling degree days, the ~~PSCW, effective January 1,~~six months ended June 30, 2021 were 35.9% warmer than the same period in 2020. ~~This decrease~~Commercial and industrial retail sales volumes also improved during the six months ended June 30, 2021, compared with the same period in ~~margins includes savings~~2020, due to the continued economic recovery in Wisconsin from the ~~Tax Legislation, including unprotected tax benefits, which we agreed to return to customers and is offset in income taxes.~~COVID-19 pandemic.

•A $19.0 million net decrease in margins related to lower retail sales volumes, including the impact of weather. We recognized a $30.3 million net reduction in margins related to lower retail sales volumes driven by the COVID-19 pandemic. Sales volumes for our commercial and industrial customers decreased, primarily related to business interruptions and closings, while residential sales volumes increased. These changes in volumes were both driven by a shelter-in-place order issued by the state of Wisconsin during the COVID-19 pandemic. This net decrease from sales volumes was partially offset by an $11.3$4.7 million increase in margins from other revenues, primarily related to ~~favorable weather~~higher late payment charges driven by an increase in past due accounts receivable balances during the six months ended June 30, 2021. Late payment charges were suspended by the PSCW for a period of time beginning March 24, 2020 ~~compared with~~as a result of the ~~same period in 2019.~~

•A $7.6 million decrease in margins driven by lower wholesale sales volumes, driven by lower sales to UMERC. UMERC's new natural gas-fired generating units in the Upper Peninsula of Michigan began commercial operation on March 31, 2019, at which time we stopped providing wholesale services to UMERC.

•~~A $5.7 million decrease in margins related to lower pole attachment revenues, driven by new Federal Communications Commission regulations.~~COVID-19 pandemic. See Note 19, Regulatory Environment, for more information.

•A $4.4 million decrease in margins related to Tilden, who owns an iron ore mine in the Upper Peninsula of Michigan. Tilden was our customer but became a customer of UMERC after UMERC's new natural gas-fired generating units began commercial operation on March 31, 2019.

~~These decreases in margins were partially offset by:~~

•~~A $50.9 million~~ increase in margins ~~associated with the negative impact~~driven by lower purchased capacity costs as a result of ~~the flow through~~an expiration of ~~tax benefits of our repair-related deferred tax liabilities during the six months ended June 30, 2019,~~a contract in accordance with a settlement agreement with the PSCW to maintain certain regulatory assets at their December 31, 2017 levels. These tax benefits were no longer in effect for 2020. This increase in margins was offset in income taxes.2020, as well as lower ash handling costs.


06/30/~~2020~~2021 Form 10-Q			3332			Wisconsin Electric Power Company

Table of Contents

•An $11.7 million increase in margins related to non-monitored fuel costs driven by a change in the PSCW's 2019 rate order, which includes fixed gas costs as part of monitored fuel and purchased power costs effective January 1, 2020.

~~Natural Gas Utility Margins~~

Natural gas utility margins increased $7.3 million during the six months ended June 30, 2020, compared with the same period in 2019. The most significant factor impacting the higher natural gas utility margins was a $12.9 million increase related to the impact of our rate order approved by the PSCW, effective January 1, 2020. This increase in margins is net of the negative impact on margins related to savings from the Tax Legislation, including unprotected tax benefits, which we agreed to return to customers and is offset in income taxes. This increase was partially offset by a $6.8 million decrease in margins from lower retail sales volumes, driven by warmer winter weather during 2020. As measured by heating degree days, the six months ended June 30, 2020 was 12.0% warmer than the same period in 2019.

Other Operating ~~Income~~

Operating income at the utility segment increased $30.1 million during the six months ended June 30, 2020, compared with the same period in 2019. The increase was driven by $56.2 million of lower operating expenses (which includeExpenses (includes other operation and maintenance, depreciation and amortization, and property and revenue taxes)~~, partially offset by the $26.1 million net decrease in margins discussed above.~~

~~The significant factors impacting~~Other operating expenses at the ~~decrease in operating expenses~~utility segment increased $16.4 million during the six months ended June 30, ~~2020,~~2021, compared with the same period in ~~2019,~~2020. The significant factors impacting the increase in operating expenses were:

•A $32.7 million decrease in transmission expense associated with the May 2018 order from the PSCW related to our required treatment of the benefits associated with the Tax Legislation, as discussed in the notes under the other operation and maintenance table above. This decrease in transmission expense was offset by a corresponding decrease in margins.

•A $31.8 million decrease in transmission expense related to the flow through of tax repairs during the second quarter of 2019, as discussed in the notes under the other operation and maintenance table above.~~This decrease in transmission expense was offset in income taxes.~~

•~~A $14.6 million decrease in regulatory amortizations and other pass through expenses, as discussed in the notes under the other operation and maintenance table above.~~

•~~A $13.4 million net decrease in benefit costs, primarily due to lower deferred compensation costs in 2020.~~

•~~A $9.9 million decrease in other operation and maintenance expense related to the We Power leases as discussed in the notes under the other operation and maintenance table above.~~

•~~An $8.2 million decrease in electric and natural gas distribution expenses, partially driven by lower maintenance and storm restoration expense.~~

•~~A $3.2 million decrease in other operation and maintenance expense, driven by the retirement of PIPP in March 2019 and reduced operation of the OCPP.~~

~~These decreases in operating expenses were partially offset by:~~

•A $39.6 million increase in transmission expense, primarily driven by an increase in amortization related to escrow accounting as approved in the PSCW's 2019 rate order, which was effective January 1, 2020. See the notes under the other operation and maintenance table above for more information on escrow accounting.

•~~A $19.5~~$13.3 million increase in depreciation and amortization, driven by assets being placed into service as we continue to execute on our capital plan as well as an increase related to the We Power leases.

•A $3.1 million increase in customer service expenses, primarily related to additional costs from an information technology project created to improve the billing, call center, and credit collection functions, as well as higher call volumes and metering costs.


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•A $1.7 million increase in property and liability insurance premiums.

~~Table~~

These increases in operating expenses were partially offset by:

•Costs incurred of ~~Contents~~$2.5 million during the second quarter of 2020, related to facility damage resulting from a significant rain event in May 2020. See Note 5, Property, Plant, and Equipment, for more information.

•A $1.7 million decrease in benefit costs, primarily due to lower stock-based compensation and pension costs, partially offset by higher deferred compensation costs.

Other Income, Net

Six Months Ended June 30
(in millions) 2020 2019 B (W)
Non-service components of net periodic benefit costs $ 7.6 $ 4.3 $ 3.3
AFUDC – Equity 2.8 1.4 1.4
Other (0.2) 5.7 (5.9)
Other income, net $ 10.2 $ 11.4 $ (1.2)

Other income, net ~~decreased $1.2~~increased $4.5 million during the six months ended June 30, ~~2020,~~2021, compared with the same period in ~~2019. The decrease was primarily~~2020, driven by ~~the 2019 deferral of costs that were offset in other income statement line items and had no impact on net income. Partially offsetting this decrease was~~ higher net credits from the non-service components of our net periodic pension and OPEB costs.

Interest Expense

Six Months Ended June 30
(in millions) 2020 2019 B (W)
Interest expense $ 235.2 $ 239.5 $ 4.3

Interest expense decreased ~~$4.3~~$3.0 million during the six months ended June 30, ~~2020,~~2021, compared with the same period in ~~2019,~~2020, primarily due to ~~the~~ lower interest ~~rate~~expense on ~~the long-term debt issued in December 2019, which was used to repay maturing long-term debt that had a higher interest rate.~~finance lease liabilities.

Income Tax Expense ~~(Benefit)~~

Six Months Ended June 30
2020 2019 B (W)
Effective tax rate 9.8 % (12.9) % (22.7) %

~~Our effective~~Income tax ~~rate~~expense increased ~~by 22.7%~~$11.0 million during the six months ended June 30, ~~2020,~~2021, compared with the same period in ~~2019.~~2020. The increase was primarily due to ~~the benefit from the flow through of tax repairs during the six months ended June 30, 2019, in connection with the 2017 Wisconsin rate settlement. This~~an increase in ~~our effective tax rate was partially offset by the 2020 amortization of the unprotected excess deferred tax benefits from the Tax Legislation~~pretax income and a decrease in ~~connection with the Wisconsin rate orders approved by the PSCW, effective January 1, 2020. These items did not impact earnings as they were offset in operating income.~~

We expect our 2020 annual effective tax rate to be between 11% and 12%, which includes an estimated 11% effective tax rate benefit due to the amortization of unprotected excess deferred taxes in connection with the Wisconsin rate orders approved by the PSCW, effective January 1, 2020. Excluding this estimated effective tax rate benefit, the expected 2020 range would be between 22% and 23%.PTCs.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The following table summarizes our cash flows during the six months ended June 30:


(in millions)	(in millions)	2020		2019		Change in 2020 Over 2019		(in millions)	2021		2020		Change in 2021 Over 2020
Cash provided by (used in):	Cash provided by (used in):							Cash provided by (used in):
Operating activities	Operating activities	$	461.1	$	435.4	$	25.7	Operating activities	$	473.7	$	461.1	$	12.6
Investing activities	Investing activities	(305.7)		(225.3)		(80.4)		Investing activities	(373.5)		(305.7)		(67.8)
Financing activities	Financing activities	(172.5)		(225.7)		53.2		Financing activities	(100.5)		(172.5)		72.0


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Operating Activities

Net cash provided by operating activities increased ~~$25.7~~$12.6 million during the six months ended June 30, ~~2020,~~2021, compared with the same period in ~~2019,~~2020, driven by:

•A ~~$46.3~~$47.2 million increase in cash related to ~~lower payments for fuel and purchased power at our plants~~higher overall collections from customers related to an increase in sales volumes during the six months ended June 30, ~~2020,~~2021, compared with the same period in ~~2019. Our payments for fuel and purchased power decreased due to the retirement of PIPP in March 2019 and lower sales volumes. The lower sales volumes were~~2020. This increase was driven by ~~both~~ warmer ~~winter~~spring weather ~~during 2020 as well as business interruptions~~ and ~~closings~~the continued economic recovery in Wisconsin from the COVID-19 pandemic. In addition, during the ~~COVID-19 pandemic.~~second quarter of 2021, we began recovering natural gas costs in excess of the benchmark set in our gas cost recovery mechanism as approved by the PSCW. See Note 19, Regulatory Environment, for more information.

•A ~~$38.5~~$36.5 million increase in cash due to lower collateral requirements, driven by an increase in the fair value of our natural gas derivative assets during the six months ended June 30, 2021, compared with the same period in 2020.

•A $29.0 million increase in cash from lower payments for other operation and maintenance expenses. During the six months ended June 30, ~~2020,~~2021, our payments were lower for costs associated with the We Power generation units, as well as timing of payments for accounts payable.

These increases in net cash provided by operating activities were partially offset by:

•A $64.6 million decrease in cash related to higher payments for natural gas during the six months ended June 30, 2021, compared with the same period in ~~2019, our payments were lower for benefits, electric and~~2020. Natural gas costs increased significantly throughout the central part of the country in February 2021 related to extreme weather conditions. This increase in natural gas ~~distribution expenses, operating and maintenance~~costs drove higher payments for fuel used at our ~~plants, and transmission.~~plants. See ~~Results of Operations – Utility Segment Contribution to Operating Income for the six months ended June 30, 2020~~Note 19, Regulatory Environment, for more ~~information.~~information on the recovery of these natural gas costs.

•A ~~$10.6~~$40.3 million ~~increase~~decrease in cash related to the payment of income taxes during the six months ended June 30, ~~2019.~~2021. There were no payments of ~~income~~incomes taxes during the ~~six months ended June 30,~~same period in 2020 as a result of the extension of the estimated payment due date to July 15, 2020 due to the COVID-19 pandemic.

~~These increases in net cash provided by operating activities were partially offset by a~~ $71.2 million decrease in cash related to lower overall collections from customers. This decrease was partially driven by the impact of our rate order approved by the PSCW, effective January 1, 2020, including savings from the Tax Legislation, which we agreed to return to customers. Lower sales volumes driven by both warmer winter weather during 2020 and business interruptions and closings during the COVID-19 pandemic, as well as the transfer of Tilden as a customer to UMERC, also contributed to this decrease. Tilden, the owner of an iron ore mine in the Upper Peninsula of Michigan, was our customer but became a customer of UMERC after UMERC's new natural gas-fired generating units began commercial operation on March 31, 2019.

Investing Activities

Net cash used in investing activities increased ~~$80.4~~$67.8 million during the six months ended June 30, ~~2020,~~2021, compared with the same period in ~~2019,~~2020, driven by ana $76.5 million increase in cash paid for capital expenditures, which is discussed in more detail below. This increase in net cash used in investing activities was partially offset by $10.4 million of proceeds received from affiliates during the six months ended June 30, 2021 related to transfers of a customer billing system.

Capital Expenditures

Capital expenditures for the six months ended June 30 were as follows:


(in millions)	(in millions)	2020		2019		Change in 2020 Over 2019		(in millions)	2021		2020		Change in 2021 Over 2020
Capital expenditures	Capital expenditures	$	311.1	$	230.4	$	80.7	Capital expenditures	$	387.6	$	311.1	$	76.5

The increase in cash paid for capital expenditures during the six months ended June 30, ~~2020,~~2021, compared with the same period in ~~2019,~~2020, was primarily driven by an increase in capital expenditures related to upgrades to our natural gas distribution system, partially offset by a decrease in capital expenditures related to upgrades to our electric distribution system and ~~natural gas distribution systems as well as capital expenditures related~~an information technology project created to improve our ~~Badger Hollow II project.~~billing, call center, and credit collection functions during the six months ended June 30, 2021.

See Capital Resources and Requirements – Capital Requirements – Significant Capital Projects ~~below~~ for more information.

~~Financing Activities~~

~~Net cash used in financing activities decreased $53.2 million during the six months ended June 30, 2020, compared with the same period in 2019, driven by:~~

•~~A $90.0 million increase in cash due to lower dividends paid to our parent during the six months ended June 30, 2020, compared with the same period in 2019, to balance our capital structure.~~

•~~A $6.9 million increase in cash related to lower net repayments of commercial paper during the six months ended June 30, 2020, compared with the same period in 2019.~~


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Financing Activities

~~These increases~~Net cash used in financing activities decreased $72.0 million during the six months ended June 30, 2021, compared with the same period in 2020, driven by a $418.8 million increase in cash due to the issuance of long-term debt during the six months ended June 30, 2021. A portion of these proceeds were ~~partially offset by:~~used to redeem $300.0 million of long-term debt with higher interest rates. There were no issuances or repayments of long-term debt during the six months ended June 30, 2020.

•~~A $40.0~~This decrease in net cash used in financing activities was partially offset by a $35.0 million decrease in equity contributions received from our parent during the six months ended June 30, ~~2020,~~2021, compared with the same period in ~~2019,~~2020, to balance our capital structure.

•~~A $3.8 million increase in our principal payments for finance lease obligations during the six months ended June 30, 2020, compared with the same period in 2019.~~

Significant Financing Activities

For more information on our ~~short-term~~ financing activities, see Note 6,7, Short-Term Debt and Lines of ~~Credit.~~Credit and Note 8, Long-Term Debt.

Capital Resources and Requirements

Capital Resources

Liquidity

We anticipate meeting our capital requirements for our existing operations through internally generated funds and short-term borrowings, supplemented by the issuance of intermediate or long-term debt securities, depending on market conditions and other factors, and equity contributions from our parent.

We currently have access to the capital markets and have been able to generate funds internally and externally to meet our capital requirements. Our ability to attract the necessary financial capital at reasonable terms is critical to our overall strategic plan. We currently believe that we have adequate capacity to fund our operations for the foreseeable future through our existing borrowing arrangements, access to capital markets, and internally generated cash. See Factors Affecting Results, Liquidity, and Capital Resources – Coronavirus Disease – 2019, for additional information on the impacts of the COVID-19 pandemic.

We maintain a bank back-up credit facility, which provides liquidity support for our obligations with respect to commercial paper and for general corporate purposes. We review our bank back-up credit facility needs on an ongoing basis and expect to be able to maintain adequate credit facilities to support our operations. See Note 6,7, Short-Term Debt and Lines of Credit, for more information on our credit facility.

Working Capital

Although not the case as of June 30, ~~2020,~~2021, our current liabilities sometimes ~~exceed~~exceeded our current assets. If this were to occur, we would not expect this to have any impact on our liquidity since we believe we have adequate back-up lines of credit in place for our ongoing operations. We also believe that we can access the capital markets to finance our construction programs and to refinance current maturities of long-term debt, if necessary.

Credit Rating Risk

We do not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. However, we have certain agreements in the form of commodity contracts and employee benefit plans that could require collateral or a termination payment in the event of a credit rating change to below BBB- at S&P Global Ratings, a division of S&P Global Inc., and/or Baa3 at Moody's Investors Service, Inc. We also have other commodity contracts that, in the event of a credit rating downgrade, could result in a reduction of our unsecured credit granted by counterparties.

In addition, access to capital markets at a reasonable cost is determined in large part by credit quality. Any credit ratings downgrade could impact our ability to access capital markets.

Subject to other factors affecting the credit markets as a whole, we believe our current ratings should provide a significant degree of flexibility in obtaining funds on competitive terms. However, these security ratings reflect the views of the rating agency only. An


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explanation of the significance of these ratings may be obtained from the rating agency. Such ratings are not a recommendation to buy, sell, or hold securities. Any rating can be revised upward or downward or withdrawn at any time by a rating agency.


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~~Table of~~ ~~Contents~~

If we are unable to successfully take actions to manage any additional impacts from the COVID-19 pandemic, ~~and/or any additional adverse impacts of~~ the ~~Tax Legislation as a result of additional interpretations, regulations, amendments or technical corrections, these potential impacts could result in~~ credit rating agencies ~~placing~~could place our credit ratings on negative outlook or ~~downgrading~~downgrade our credit ratings. Any such actions by credit rating agencies may make it more difficult and costly for us to issue future debt securities and certain other types of financing and could increase borrowing costs under our credit facility.

~~See Factors Affecting Results, Liquidity, and Capital Resources – Coronavirus Disease – 2019, for additional information.~~

Capital Requirements

Significant Capital Projects

We have several capital projects that will require significant capital expenditures over the next three years and beyond. All projected capital requirements are subject to periodic review and may vary significantly from estimates, depending on a number of factors. These factors include environmental requirements, regulatory restraints and requirements, ~~impacts from the Tax Legislation, additional~~ changes in tax laws and regulations, acquisition and development opportunities, market volatility, economic trends, and the COVID-19 pandemic. Our estimated capital expenditures for the next three years are as follows:


(in millions)	(in millions)			(in millions)
2020		$	701.9
2021	2021	1,189.5		2021	$	933.5
2022	2022	926.7		2022	1,032.0
2023				2023	1,375.3
Total	Total	$	2,818.1	Total	$	3,340.8

~~The majority of spending consists of upgrading~~We continue to upgrade our electric and natural gas distribution systems to enhance reliability. These upgrades include the AMI program. AMI is an integrated system of smart meters, communication networks, and data management systems that enable two-way communication between utilities and customers.

~~Additionally, as part~~WEC Energy Group is committed to investing in solar, wind, battery storage, and clean natural gas-fired generation. Below are examples of ~~our commitment to invest in zero-carbon generation, we~~projects that are proposed or currently underway.

•We have partnered with an unaffiliated utility to construct a utility-scale solar project, Badger Hollow II, that will be located in Iowa County, Wisconsin. Once constructed, we will own 100 MW of the ~~output of the~~ project. ~~The PSCW issued a written order approving the acquisition of this project in March 2020.~~ Our share of the cost of this project is estimated to be approximately $130 million. Commercial operation of Badger Hollow II is targeted for December 2022. ~~Solar generation technology has greatly improved, has become more cost-effective, and it complements our summer demand curve.~~

•In February 2021, we, along with WPS and an unaffiliated utility, filed an application with the PSCW for approval to acquire and construct the Paris Solar-Battery Park, a utility-scale solar-powered electric generating facility with a battery energy storage system. The project will be located in Kenosha County, Wisconsin and once constructed, we will own 150 MW of solar generation and 82 MW of battery storage of this project. If approved, our share of the cost of this project is estimated to be approximately $320 million, with construction expected to begin in 2022 and completed by the end of 2023.

•In February 2021, we, along with WPS, filed an application with the PSCW for approval to accelerate capital investments in two wind parks. If appoved, our share of the investment is expected to be approximately $85 million to repower major components of Blue Sky Green Field Wind Park, which is expected to be completed by the end of 2022.

•In March 2021, we, along with WPS and an unaffiliated utility, filed an application with the PSCW for approval to acquire and construct the Darien Solar-Battery Park, a utility-scale solar-powered electric generating facility with a battery energy storage system. The project will be located in Kenosha County, Wisconsin and once constructed, we will own 188 MW of solar generation and 56 MW of battery storage of this project. If approved, our share of the cost of this project is estimated to be approximately $335 million, with construction expected to begin in late 2021 and completed by the end of 2023.

•In April 2021, we, along with WPS and an unaffiliated utility, filed an application with the PSCW for approval to acquire the Koshkonong Solar-Battery Park, a utility-scale solar-powered electric generating facility with a battery energy storage system. The project will be located in Dane County, Wisconsin and once constructed, we will own 225 MW of solar generation and 124 MW of battery storage of this project. If approved, our share of the cost of this project is estimated to be approximately $488 million, with construction expected to begin in late 2022 and completed by the second quarter of 2024.


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•In April 2021, we, along with WPS, filed an application with the PSCW for approval to construct a natural gas-fired generation facility at WPS's existing Weston Power Plant site in northern Wisconsin. The new facility will consist of seven reciprocating internal combustion engines. Once constructed, we will own 64 MW of this project. If approved, our share of the cost of this project is estimated to be approximately $86 million, with construction expected to begin in 2022 and completed in 2023.

We ~~plan to install~~are constructing approximately 46 miles of natural gas transmission main to increase the quantity and reliability of natural gas service in southeastern Wisconsin. This project, which was approved ~~in a written order~~ by the PSCW in June 2020, has been designated as the ~~"Lakeshore~~Lakeshore Lateral Project.~~" The primary purpose of this project is to increase the quantity and reliability of natural gas service, both on a peak day and annually, in southeastern Wisconsin.~~ The cost of the project is estimated to be between $174 and $180 million. Construction for the project ~~is tentatively scheduled to begin during the fourth quarter of~~began in December 2020, and the project is expected to be completed by the end of 2021.

We plan to construct a LNG facility. Subject to PSCW approval, the facility ~~will~~would provide us with approximately one billion cubic ~~feet~~foot of natural gas supply to meet anticipated peak demand without requiring the construction of additional interstate pipeline capacity. The facility is expected to reduce the likelihood of constraints on our natural gas system during the highest demand days of winter. The project is estimated to cost approximately $185 million. Commercial operation for the LNG facility is targeted for the end of 2023.

~~See Factors Affecting Results, Liquidity, and Capital Resources – Coronavirus Disease – 2019, for information on the impacts to our capital projects as a result of the COVID-19 pandemic.~~


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~~Table of~~ ~~Contents~~

Off-Balance Sheet Arrangements

We are a party to various financial instruments with off-balance sheet risk as a part of our normal course of business, including letters of credit that primarily support our commodity contracts. We believe that these agreements do not have, and are not reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. For additional information, see Note 6,7, Short-Term Debt and Lines of Credit, Note ~~12,~~13, Guarantees, and Note ~~15,~~16, Variable Interest Entities.

Contractual Obligations

For information about our commitments, see Contractual Obligations in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources and Requirements in our ~~2019~~2020 Annual Report on Form 10-K. There were no material changes to our commitments outside the ordinary course of business during the six months ended June 30, ~~2020.~~2021.

FACTORS AFFECTING RESULTS, LIQUIDITY, AND CAPITAL RESOURCES

The following is a discussion of certain factors that may affect our results of operations, liquidity, and capital resources. ~~The following~~This discussion should be read together with the information in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Factors Affecting Results, Liquidity, and Capital Resources in our ~~2019~~2020 Annual Report on Form 10-K, which provides a more complete discussion of factors affecting us, including market risks and other significant risks, competitive markets, environmental matters, critical accounting policies and estimates, and other matters.

Coronavirus Disease – 2019

The global outbreak of COVID-19 was declared a pandemic by the WHO and the CDC and has spread globally, including throughout the United States. There isare still ~~considerable uncertainty~~questions regarding ~~the extent to which COVID-19 will spread and~~ the extent and duration of the COVID-19 pandemic itself, as well as the measures currently in place to try to contain the ~~virus, such as travel bans~~virus. Shelter-in-place and ~~restrictions, quarantines, and limitations on business operations. Although~~other orders limiting the ~~shelter-in-place order~~capacity of various businesses that ~~was~~were in effect for ~~Wisconsin has expired, similar~~our service territory have now expired. Similar orders could be adopted in the future depending on how the virus continues to mutate and spread. ~~Such measures have~~The effects of the COVID-19 pandemic and related government responses significantly disrupted economic activity in our service territory in 2020 and ~~have caused disruptions and volatility~~continues to impact our results in ~~the capital markets. See Item 1A. Risk Factors for more information on our risks related to COVID-19.~~2021.

Liquidity and Financial Markets

~~Volatility and uncertainty in the financial markets and global economy have impacted us in a number of ways.~~ Upon the initial enactment of certain COVID-19 related shelter-in-place orders in early to mid-March 2020, commercial paper markets became more expensive and related terms became less flexible. In response to these signs of market instability, the Federal Reserve implemented certain measures, including a reduction in its benchmark Federal Funds rate and the establishment of various programs to restore liquidity and stability into the short-term funding markets. These measures continue to have ~~had~~ a mitigating effect on commercial paper rates and availability. In addition, the initial disruption in the long-term debt markets as a result of the COVID-19 pandemic has subsided.

~~Our overall liquidity position remains strong. As of June 30, 2020, we had $472.0 million available under our credit facility, providing sufficient backing for our commercial paper program.~~

~~Pensions and Other Benefits~~

Our pension and OPEB plans were 97.6% funded at December 31, 2019, with total plan assets of $1,323.1 million and total benefit obligations of $1,355.6 million. There has been significant volatility in global capital markets during the COVID-19 pandemic, although the market losses recorded during the early stages of the pandemic in the first quarter of 2020 were substantially reversed in the second quarter in response to government stimulus and relief efforts and the gradual reopening of businesses. During the six months ended June 30, 2020, we recognized a $3 million decrease in the value of long-term investments held in our pension and OPEB plan trusts as second quarter gains nearly offset first quarter losses.

We could still see earnings volatility associated with certain other benefit plans maintained by our parent, WEC Energy Group, primarily related to performance units granted to certain of our employees, and deferred compensation plans. Certain of the liabilities associated with the deferred compensation plans are indexed to mutual funds and WEC Energy Group common stock, and


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the liabilities associated with outstanding performance units are indexed to WEC Energy Group common stock. These liabilities are marked to fair value through earnings each period, with earnings increasing as market prices decrease.

Allowance for Credit Losses

We evaluate the collectability of our accounts receivable and unbilled revenue balances considering a combination of factors. Risks identified that we do not believe are reflected in historical reserve percentages are assessed on a quarterly basis to determine whether further adjustments are required. Economic disruptions caused by the COVID-19 pandemic, including ~~rising~~higher unemployment rates and the inability of some businesses to recover from the pandemic, ~~could cause~~have caused a higher percentage of accounts receivable to become uncollectible. ~~An increase in credit losses could negatively impact~~Although impacts on our results of operations related to uncollectible receivable balances are mitigated by a regulatory mechanism and ~~could result~~certain COVID-19 specific regulatory orders we have received, the increase in past due receivables we have experienced has resulted in higher working capital requirements. However, with normal collection practices underway, our working capital position has improved in the second quarter of 2021 from where we were at the end of the first quarter of 2021, and we expect working capital to continue to improve throughout the remainder of the year.

Our exposure to credit losses for certain regulated utility customers is mitigated by a regulatory mechanism we have in place. Specifically, our residential tariffs include a mechanism for cost recovery or refund of uncollectible expense based on the difference between actual uncollectible write-offs and the amounts recovered in rates. In addition, ~~in its March 24, 2020 order, the PSCW authorized~~we have received specific orders related to the deferral of certain costs (including credit ~~losses for our commercial~~losses) and ~~industrial customers,~~foregone revenues related to the ~~extent~~COVID-19 pandemic. The additional protections provided by these ~~losses exceed the amount included in rates, as a result of the~~ COVID-19 ~~pandemic~~specific regulatory orders are still being assessed and ~~the related actions we have been required~~will be subject to ~~take to ensure essential utility services are available to customers during this public health emergency.~~prudency reviews. See Note ~~18,~~19, Regulatory Environment, for more information.

Loss of Business

We ~~have seen~~saw a decrease in the consumption of electricity and natural gas by some of our commercial and industrial customers as ~~they are experiencing lower demand for their products and services, or were prohibited from operating during much of the second quarter, as~~ a result of the COVID-19 pandemic. ~~Many businesses in our service territory still are not operating at full capacity.The~~Although many of these customers have started to recover, the extent to which this ~~decrease in~~decreased consumption ~~will~~continues to impact our results of operations and liquidity is dependent upon the duration of the COVID-19 pandemic and the ability of our customers to resume and continue normal operations.

Supply Chain and Capital Projects

We have not yet experienced a significant disruption in our supply chain as a result of the COVID-19 pandemic. However, if the pandemic ~~continues for an extended period of time and~~ significantly impacts our key suppliers’ ability to manufacture or deliver critical equipment and supplies or provide services, we could experience delays in our ability to perform certain maintenance and capital project activities.

We are not currently aware of any major delays or changes related to our capital plan as a result of the COVID-19 pandemic, although we are continuing to monitor potential impacts on an ongoing basis.

Employee Safety

The health and safety of our employees during the COVID-19 pandemic is paramount and enables us to continue to provide critical services to our customers.

We are following CDC guidelines and have taken ~~enhanced~~ precautions with regard to employee hygiene and facility cleanliness, imposed travel limitations on our employees, provided additional employee benefits, and implemented ~~remote work~~remote-work policies where appropriate. We have ~~activated~~ an incident management team and updated our pandemic continuity plan, which includes identifying critical work groups and ensuring ~~safe harbor~~safe-harbor plans are in place. We have minimized the unnecessary risk of exposure to COVID-19 by implementing self-quarantine measures and have adopted additional precautionary measures for our critical work groups.

Additional protocols have been implemented for our field employees who travel to customer premises in order to protect them, our customers, and the public. We have modified our work protocols to ensure compliance with social distancing and face covering recommendations.

We continue to provide educational information to employees to encourage them to obtain the COVID-19 vaccine. We are developing return-to-the workplace strategies for those employees currently working remotely, taking into consideration factors such as any updated CDC guidelines, the delta variant, any increases in COVID-19 cases in our service territories, and the overall level of risk to our employees and customers.


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All of these safety measures have caused us to incur additional costs ~~and~~that, depending upon the duration of the COVID-19 pandemic, could have a material impact on our results of operations and liquidity.


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~~Table of~~ ~~Contents~~

Regulatory Environment

~~The PSCW has issued written orders regarding certain~~We took actions to ~~be taken for purposes of ensuring~~ensure that essential utility services ~~are~~were available to our customers during the COVID-19 pandemic. In addition, the PSCW issued written orders requiring certain actions by all public utilities in the state of Wisconsin. See Note ~~18,~~19, Regulatory Environment, for more information on these orders and the potential recovery of expenditures incurred as a result of the measures ~~being~~ taken.

Market Risks and Other Significant Risks

We are exposed to market and other significant risks as a result of the nature of our business and the environment in which we operate. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Factors Affecting Results, Liquidity, and Capital Resources – Market Risks and Other Significant Risks in our ~~2019~~2020 Annual Report on Form 10-K for a discussion of significant risks applicable to us.

Environmental Matters

See Note ~~16,~~17, Commitments and Contingencies, for a discussion of certain environmental matters affecting us, including rules and regulations relating to air quality, water quality, land quality, and climate change.

~~Other Matters~~

~~Tax Cuts and Jobs Act of 2017~~

In December 2017, the Tax Legislation was signed into law. In May 2018, the PSCW issued a written order regarding how to refund certain tax savings from the Tax Legislation to our ratepayers in Wisconsin. The various remaining impacts of the Tax Legislation on our Wisconsin operations were addressed in the rate order issued by the PSCW in December 2019. See Note 18, Regulatory Environment, for more information on our December 2019 rate order. The Michigan Public Service Commission also approved a settlement in May 2018 with Tilden that addressed all base rate impacts of the Tax Legislation. Tilden owns the iron ore mine located in the Upper Peninsula of Michigan that we provided retail electric service to prior to April 1, 2019. We are also working with the FERC to modify our formula rate tariff for the impacts of the Tax Legislation, and we expect to receive FERC approval for the modified tariff later in 2020.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes related to market risk from the disclosures presented in our ~~2019~~2020 Annual Report on Form 10-K. In addition to the Form 10-K disclosures, see Management's Discussion and Analysis of Financial Condition and Results of Operations – Factors Affecting Results, Liquidity, and Capital Resources – Coronavirus Disease – 2019 and Market Risks and Other Significant Risks in Item 2 of Part I of this report, as well as Note ~~10,~~11, Fair Value Measurements, Note ~~11,~~12, Derivative Instruments, and Note ~~12,~~13, Guarantees, in this report for information concerning our market risk exposures.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective: (i) in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act; and (ii) to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.


~~06/30/2020 Form 10-Q~~			41			~~Wisconsin Electric Power Company~~

~~Table of~~ ~~Contents~~

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the second quarter of ~~2020~~2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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Table of Contents

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The following should be read in conjunction with Item 3. Legal Proceedings in Part I of our ~~2019~~2020 Annual Report on Form 10-K. See Note ~~16,~~17, Commitments and Contingencies, and Note ~~18,~~19, Regulatory Environment, in this report for additional information on material legal proceedings and matters related to us.

In addition to those legal proceedings discussed in Note ~~16,~~17, Commitments and Contingencies, and Note ~~18,~~19, Regulatory Environment, we are currently, and from time to time, subject to claims and suits arising in the ordinary course of business. Although the results of these additional legal proceedings cannot be predicted with certainty, management believes, after consultation with legal counsel, that the ultimate resolution of these proceedings will not have a material effect on our financial statements.

ITEM 1A. RISK FACTORS

~~The following risk factor updates and supplements those~~There were no material changes from the risk factors disclosed in Item 1A. Risk Factors in Part I of our ~~2019~~2020 Annual Report on Form ~~10-K and Part II of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.~~10-K.

~~The ongoing COVID-19 pandemic could adversely affect our business functions, financial condition, liquidity, and results of operations.~~

The global outbreak of COVID-19 was declared a pandemic by the WHO and the CDC and has spread globally, including throughout the United States. There is still considerable uncertainty regarding the extent to which COVID-19 will spread and the extent and duration of measures currently in place to try to contain the virus, such as travel bans and restrictions, quarantines and limitations on business operations. Although the shelter-in-place order that was in effect in Wisconsin has expired, similar orders could be adopted in the future depending on how the virus continues to spread.

Such measures have significantly disrupted economic activity in our service territory and have caused disruptions and volatility in the capital markets. In addition, we are continuing to temporarily suspend disconnections for non-payment by certain customer classes. The effects of the continued outbreak of COVID-19 and related government responses have included, and may continue to include, extended disruptions to supply chains and capital markets, reduced labor availability and productivity, and a prolonged reduction in economic activity. These effects could continue to have a variety of adverse impacts on us, including continued reductions in demand for energy, particularly from commercial and industrial customers; impairment of goodwill or long-lived assets; continued decreases in revenue due to the inability to collect late fees; increased bad debt expense; impairment of our ability to develop, construct, and operate facilities; and impaired ability to successfully access funds from credit and capital markets.

Any additional effects of COVID-19 on the U.S. capital markets may significantly impact us. For example, the costs related to our pension and other post-retirement benefit plans are based in part on the value of the plans’ assets. Adverse investment performance for these assets or the failure to maintain sustained growth in pension investments over time could increase our plan costs and funding requirements. Similarly, we rely on access to the capital markets to fund some of our operations and capital requirements. To the extent that access to the capital markets is adversely affected by COVID-19, we may need to consider alternative sources of funding for our operations and for working capital, which may increase our cost of, as well as adversely impact our access to, capital.

We have taken precautions with regard to employee and facility hygiene, imposed travel limitations on our employees, and implemented remote work policies where appropriate. Additional protocols have been implemented for work in the field and within customer premises to protect our employees, customers, and the public.

Despite our efforts to manage the impacts of the COVID-19 pandemic, the extent to which COVID-19 may continue to affect us depends on factors beyond our knowledge or control. Therefore, we are currently unable to determine what additional impact the COVID-19 pandemic may have on our business plans and operations, liquidity, financial condition, and results of operations, but will continue to monitor COVID-19 developments and modify our plans as conditions change.


06/30/~~2020~~2021 Form 10-Q			4340			Wisconsin Electric Power Company

Table of Contents

~~ITEM 6. EXHIBITS~~

ITEM 6. EXHIBITS

The following exhibits are filed or furnished with or incorporated by reference in the report with respect to Wisconsin Electric Power Company (File No. 001-01245). An asterisk (*) indicates that the exhibit has previously been filed with the SEC and is incorporated herein by reference. Each management contract and compensatory plan or arrangement required to be filed as an exhibit to this report is identified below by two asterisks (**) following the description of the exhibit.

Number

Exhibit

Instruments Defining the Rights of Security Holders, Including Indentures

4.1*

Securities Resolution No. 19 of WE, effective as of June 8, 2021, under the Indenture for Debt Securities, dated as of December 1, 1995, between WE and U.S. Bank National Association (as successor to Firstar Trust Company), as Trustee. (Exhibit 4.1 to WE's Form 8-K filed June 15, 2021.)

Material Contracts

10.1*

WEC Energy Group Omnibus Stock Incentive Plan, amended and restated effective as of May 6, 2021. (Exhibit 10.1 to WEC Energy Group's Form 8-K filed May 11, 2021.)**

10.2

Non-Qualified Stock Option Award Terms and Conditions under the WEC Energy Group Omnibus Stock Incentive Plan.**

10.3

Restricted Stock Award Terms and Conditions under the WEC Energy Group Omnibus Stock Incentive Plan.**

10.4

Restricted Stock Award Terms and Conditions under the WEC Energy Group Omnibus Stock Incentive Plan (1 Year Vesting).**

Rule 13a-14(a) / 15d-14(a) Certifications

31.1

Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Section 1350 Certifications

32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

Interactive Data Files

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

Inline XBRL Taxonomy Extension Schema

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


06/30/~~2020~~2021 Form 10-Q			4441			Wisconsin Electric Power Company

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		WISCONSIN ELECTRIC POWER COMPANY
		(Registrant)

		/s/ WILLIAM J. GUC
Date:	August ~~6, 2020~~5, 2021	William J. Guc
		Vice President, Controller, and Assistant Corporate Secretary

		(Duly Authorized Officer and Chief Accounting Officer)


06/30/~~2020~~2021 Form 10-Q			4542			Wisconsin Electric Power Company


(in millions)
Six months ended December 31, 2020	$	0.2
2021	0.3
2022	0.3
2023	0.7
2024	0.7
2025	0.7
Thereafter	55.0
Total minimum lease payments	57.9
Less:Interest	(35.1)
Present value of minimum lease payments	22.8
Less: Short-term lease liabilities	—
Long-term lease liabilities	$	22.8


	Three Months Ended June 30
	Degree Days
Weather ⁽¹⁾	2020	2019	B (W)
Heating (926 Normal)	995	973	2.3	%
Cooling (161 Normal)	223	76	193.4	%