SECURITIES AND EXCHANGE COMMISSION
                     WASHINGTON, D. C.DC 20549

                         FORM 10-Q 

 [X]

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

          For the Quarterly Period Ended September 30, 1998

                                      OR

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

  For the transition period from _____________________ to ____________________March 31, 1999

                                                   
 
Commission   Registrant; State of Incorporation;Incorporation       IRS Employer
File Number    Address; and Telephone Number       Identification No.
- -----------  ---------------------------------------------------------------------    ------------------ 
  1-9057       WISCONSIN ENERGY CORPORATION           39-1391525
                      (A Wisconsin Corporation)    
                      231 West Michigan Street
                      P.O. Box 2949
                      Milwaukee, WI  53201
                      (414) 221-2345
                                                   
                                                   
  1-1245       WISCONSIN ELECTRIC POWER COMPANY       39-0476280
                      (A Wisconsin Corporation)    
                      231 West Michigan Street
                      P.O. Box 2046
                      Milwaukee, WI  53201
                      (414) 221-2345
                                                   

Indicate by check mark whether each of the registrantsRegistrant (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 registranteach Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes [X]    No [  ]

Indicate the number of shares outstanding of each of the
issuer'sRegistrant's classes of common stock, as of the latest
practicable date (November 1, 1998):( May 5, 1999 ):

     Wisconsin Energy            Corporation            Common stock,Stock, $.01 Par Value,
     115,276,119Corporation                 116,466,262 shares outstanding.
                                 
     Wisconsin Electric Power    Company        Common stock,Stock, $10 Par Value,
     Company                     33,289,327 shares outstanding.
                                 Wisconsin Energy Corporation is
                                 the sole holder of Wisconsin
                                 Electric Power Company common stock.

Common Stock



                WISCONSIN ENERGY CORPORATION
              WISCONSIN ELECTRIC POWER COMPANY              
     ----------------------------------------
           FORM 10-Q REPORT FOR THE QUARTER ENDED SEPTEMBER 30, 1998MARCH 31, 1999
  
                     TABLE OF CONTENTS                      
Item                                                        Page
- ----                                                        ----     
   Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . .     2Introduction                                             
                                                            
             Part I - Financial Information                      
             ------------------------------                 
1. Financial Statements:Statements                                     
       Wisconsin Energy Corporation                                     
           Consolidated Condensed Income Statement. . . . . . . . . . . . . .     3Statement          
           Consolidated Condensed Balance Sheet . . . . . . . . . . . . . . .     4             
           Consolidated Statement of Cash Flows             
       . . . . . . . . . . . . . . .     5
   Wisconsin Electric Power Company                                   
           Condensed Income Statement                       
           . . . . . . . . . . . . . . . . . . . .     6
      Condensed Balance Sheet. . . . . . . . . . . . . . . . . . . . . .     7Sheet                          
           Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . .     8Flows                          
       Notes to Financial Statements of                     
           Wisconsin Energy Corporation and Wisconsin Electric Power Company . . . . . . . . . . . . . . . . .     9          
2. Management's Discussion and Analysis of Financial        
       Condition and Results of Operations for Wisconsin
       Energy Corporation and Wisconsin Electric Power Company . . . . . . . . . . . . . . . . .    11
3. Quantitative and Qualitative Disclosures 
       About Market Risk. . . . . .    22
                                                            
              Part II - Other Information              
              ---------------------------                      
1. Legal Proceedings                                        
. . . . . . . . . . . . . . . . . . . . . . . . . .    22
5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . .    23
6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . .    29
   Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    308-K                         
   Signatures                                               
                                                            


                    INTRODUCTION

Wisconsin Energy Corporation ("Wisconsin Energy" or the
"Company") is a holding company whose principal subsidiary is
Wisconsin Electric Power Company ("Wisconsin Electric"), an
electric, gas and steam utility.  Unless qualified by its
context, the term Wisconsin Energy refers to the holding company
and all of its subsidiaries when used in this combined Form 10-Q.
The unaudited interim financial statements presented in this
combined Form 10-Q report include the consolidated statements of
Wisconsin Energy as well as separate statements for Wisconsin
Electric.  The unaudited statements have been prepared by
Wisconsin Energy and Wisconsin Electric pursuant to the rules and
regulations of the Securities and Exchange Commission.  Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations.  The Wisconsin Energy and
Wisconsin Electric financial statements should be read in
conjunction with the financial statements and notes thereto
included in the companies' combined Annual Report on Form 10-K
for the year ended December 31, 1997.1998.  This combined Form 10-Q is
separately filed by Wisconsin Energy and Wisconsin Electric.
Information contained herein relating to any individual
registrant is filed by such registrant on its own behalf.



            PART I - FINANCIAL INFORMATION
            ------------------------------
ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ENERGY CORPORATION CONSOLIDATED CONDENSED INCOME STATEMENT (Unaudited)
Three Months Ended Nine Months Ended September 30 September 30 ------------------------- -------------------------March 31 --------------------------- 1999 1998 1997 1998 1997 ---------- ---------- ----------- --------------- ---- (Thousands of Dollars)Dollars, Except Per Share Amounts) Operating Revenues Electric $ 464,548 $ 359,522 $1,256,925 $1,045,843$406,555 $383,640 Gas 38,256 37,987 210,081 252,064121,983 119,411 Steam 3,526 3,105 14,973 16,304 ---------- ---------- ---------- ----------8,182 7,630 -------- -------- Total Operating Revenues 506,330 400,614 1,481,979 1,314,211536,720 510,681 Operating Expenses Fuel 87,017 86,804 241,125 240,26970,735 73,901 Purchased power 42,243 32,864 116,083 93,66134,985 36,591 Cost of gas sold 21,955 23,989 125,361 166,42468,860 72,301 Other operation expenses 118,846 89,659 353,144 298,763125,217 110,038 Maintenance 38,420 29,616 125,742 99,43044,095 40,818 Depreciation 60,472 61,160 179,960 175,89365,268 62,273 Taxes other than income taxes 20,529 18,443 60,541 56,66923,244 20,716 Federal income tax 29,874 7,563 61,040 23,90626,127 19,893 State income tax 7,023 2,019 14,572 6,1845,963 4,768 Deferred income taxes - net (2,726) 3,178 1,615 12,583(2,793) 3,143 Investment tax credit - net (1,190) (1,122) (3,540) (3,365) ---------- ---------- ---------- ----------(1,148) (1,172) -------- -------- Total Operating Expenses 422,463 354,173 1,275,643 1,170,417460,553 443,270 Operating Income 83,867 46,441 206,336 143,79476,167 67,411 Other Income and Deductions Interest income 6,971 6,249 20,038 17,9368,349 6,735 Allowance for other funds used during construction 585 625 2,177 2,982 Merger expenses (66) - (563) (30,684)984 715 Miscellaneous - net (3,101) (461) (4,247) (2,394)446 2,751 Income taxes 585 (54) 1,966 11,870 ---------- ---------- ---------- ----------(240) 627 -------- ------- Total Other Income and Deductions 4,974 6,359 19,371 (290)9,539 10,828 Income Before Interest Charges and Preferred Dividend 88,841 52,800 225,707 143,50485,706 78,239 Interest Charges Interest expense 32,539 30,153 94,857 89,41033,566 30,888 Allowance for borrowed funds used during construction (2,175) (1,629) (6,130) (5,220) ---------- ---------- ---------- ----------(1,900) (1,998) -------- -------- Total Interest Charges 30,364 28,524 88,727 84,19031,666 28,890 Distributions on Preferred Securities of Subsidiary Trust 228 - Preferred Dividend Requirement of Subsidiary 301 301 902 902 ---------- ---------- ---------- ------------------ -------- Net Income $ 58,17653,511 $ 23,975 $ 136,078 $ 58,412 ========== ========== ========== ==========49,048 ======== ======== Average Number of Shares of Common Stock Outstanding (Thousands) 115,276115,926 112,866 113,952 112,471 ========== ========== ========== ================== ======== Earnings Per Share of Common Stock (Basic and Diluted) $ 0.500.46 $ 0.21 $ 1.19 $ 0.52 ========== ========== ========== ==========0.43 ======== ======== Dividends Per Share of Common Stock $ 0.3900.39 $ 0.385 ======== ======== The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these financial statements
WISCONSIN ENERGY CORPORATION CONSOLIDATED CONDENSED BALANCE SHEET (Unaudited)
March 31 December 31 1999 1998 -------- ----------- (Thousands of Dollars) Assets ------ Utility Plant Electric $ 1.1654,941,302 $ 1.150 ========== ========== ========== ==========4,900,836 Gas 527,370 523,187 Steam 62,924 62,832 Common 425,383 420,750 Accumulated provision for depreciation (3,080,304) (3,007,735) ----------- ----------- 2,876,675 2,899,870 Construction work in progress 135,338 117,848 Leased facilities - net 131,587 133,007 Nuclear fuel - net 89,091 87,660 ----------- ----------- Net Utility Plant 3,232,691 3,238,385 Other Property and Investments 1,109,736 1,056,471 Current Assets Cash and cash equivalents 118,882 16,603 Accounts receivable 208,464 190,103 Accrued utility revenues 96,255 130,518 Materials, supplies and fossil fuel 172,405 199,052 Prepayments and other assets 77,394 71,843 ----------- ----------- Total Current Assets 673,400 608,119 Deferred Charges and Other Assets Accumulated deferred income taxes 202,594 199,372 Other 276,017 259,410 ----------- ----------- Total Deferred Charges and Other Assets 478,611 458,782 ----------- ----------- Total Assets $ 5,494,438 $ 5,361,757 =========== =========== Capitalization and Liabilities ------------------------------ Capitalization Common stock $ 779,062 $ 760,351 Retained earnings 1,152,434 1,144,092 Unearned compensation - restricted stock award (1,195) (1,338) ----------- ----------- Total Common Stock Equity 1,930,301 1,903,105 Preferred stock 30,450 30,450 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company 200,000 - Long-term debt 1,766,379 1,749,024 ----------- ----------- Total Capitalization 3,927,130 3,682,579 Current Liabilities Long-term debt due currently 122,576 119,140 Short-term debt 166,940 286,859 Accounts payable 139,896 187,452 Accrued liabilities 120,852 88,510 Other 79,160 53,219 ----------- ----------- Total Current Liabilities 629,424 735,180 Deferred Credits and Other Liabilities Accumulated deferred income taxes 575,889 570,750 Other 361,995 373,248 ----------- ----------- Total Deferred Credits and Other Liabilities 937,884 943,998 ----------- ----------- Total Capitalization and Liabilities $ 5,494,438 $ 5,361,757 =========== =========== The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETSTATEMENT OF CASH FLOWS (Unaudited)
September 30,Three Months Ended March 31 --------------------------- 1999 1998 December 31, 1997 ------------------ --------------------- ---- (Thousands of Dollars) Assets -------------- Utility Plant ElectricOperating Activities Net income $ 4,868,72453,511 $ 4,690,347 Gas 511,654 492,271 Steam 62,694 61,921 Common 408,343 330,761 Accumulated provision for depreciation (2,895,051) (2,700,839) ------------- ------------- 2,956,364 2,874,461 Construction work in progress 85,069 81,612 Leased facilities49,048 Reconciliation to cash Depreciation 65,268 62,273 Nuclear fuel expense - amortization 4,718 2,568 Conservation expense - amortization 5,625 5,625 Debt premium, discount & expense - amortization 762 1,127 Deferred income taxes - net 134,427 138,687(2,793) 3,143 Investment tax credit - net (1,148) (1,172) Allowance for other funds used during construction (984) (715) Change in - Accounts receivable (18,361) (20,937) Inventories 26,647 25,733 Accounts payable (47,556) 13,411 Other current assets 28,712 (8,796) Other current liabilities 58,283 28,195 Other (20,815) (418) -------- --------- Cash Provided by Operating Activities 151,869 159,085 Investing Activities Construction expenditures (105,967) (77,784) Allowance for borrowed funds used during construction (1,900) (1,998) Nuclear fuel (5,479) (662) Nuclear decommissioning trust (8,163) (11,820) Other (1,365) 6,366 -------- --------- Cash Used in Investing Activities (122,874) (85,898) Financing Activities Sale of - net 88,022 90,219 ------------- ------------- Net Utility Plant 3,263,882 3,184,979 Other Property and Investments 935,366 825,357 Current AssetsCommon stock 18,711 - Long-term debt 31,482 - Mandatorily redeemable trust preferred securities 200,000 - Retirement of long-term debt (11,821) (12,706) Change in short-term debt (119,919) (16,093) Dividends on stock - Common (45,169) (43,454) --------- --------- Cash Provided by (Used in) Financing Activities 73,284 (72,253) --------- --------- Change in Cash and cash equivalents 22,351 19,607 Accounts receivable 184,022 145,737 Accrued utility revenues 81,679 141,273 Materials, supplies and fossil fuel 194,891 197,204 Prepayments and other assets 61,660 69,496 ------------- ------------- Total Current Assets 544,603 573,317 Deferred Charges and Other Assets Accumulated deferred incomeCash Equivalents $ 102,279 $ 934 ========= ========= Supplemental Information - Cash Paid For Interest (net of amount capitalized) $ 25,383 $ 27,253 Income taxes 184,131 172,546 Other 253,031 281,485 ------------- ------------- Total Deferred Charges and Other Assets 437,162 454,031 ------------- ------------- Total Assets $ 5,181,013 $ 5,037,684 ============= ============= Capitalization and Liabilities ------------------------------ Capitalization Common stock $ 750,138 $ 730,783 Retained earnings 1,135,581 1,132,149 ------------- ------------- Total Common Stock Equity 1,885,719 1,862,932 Preferred stock 30,450 30,450 Long-term debt 1,695,446 1,532,405 ------------- ------------- Total Capitalization 3,611,615 3,425,787 Current Liabilities Long-term debt due currently 81,156 90,004 Short-term debt 242,778 319,953 Accounts payable 134,274 148,588 Accrued liabilities 111,035 87,221 Other 57,651 63,832 ------------- ------------- Total Current Liabilities 626,894 709,598 Deferred Credits and Other Liabilities Accumulated deferred income taxes 554,549 525,666 Other 387,955 376,633 ------------- ------------- Total Deferred Credits and Other Liabilities 942,504 902,299 ------------- ------------- Total Capitalization and Liabilities $ 5,181,013 $ 5,037,684 ============= =============14,649 11,062 The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended September 30 ------------------------------------- 1998 1997 ---------- ---------- (Thousands of Dollars) Operating Activities Net income $ 136,078 $ 58,412 Reconciliation to cash Depreciation 179,960 175,893 Nuclear fuel expense - amortization 13,634 2,562 Conservation expense - amortization 16,874 16,874 Debt premium, discount & expense - amortization 3,406 6,787 Deferred income taxes - net 1,615 12,583 Investment tax credit - net (3,540) (3,365) Allowance for other funds used during construction (2,177) (2,982) Write-off of merger costs 563 30,684 Change in - Accounts receivable (33,478) 29,053 Inventories 3,600 2,128 Accounts payable (17,177) (31,808) Other current assets 69,902 78,621 Other current liabilities 15,385 (7,140) Other 16,266 (39,668) ---------- ---------- Cash Provided by Operating Activities 400,911 328,634 Investing Activities Construction expenditures (280,275) (241,747) Allowance for borrowed funds used during construction (6,130) (5,220) Nuclear fuel (5,230) (5,837) Nuclear decommissioning trust (24,354) (20,117) Other 5,064 17,175 ---------- ---------- Cash Used in Investing Activities (310,925) (255,746) Financing Activities Sale of common stock 61 29,586 Sale of long-term debt 211,324 - Retirement of long-term debt (80,972) (41,919) Change in short-term debt (83,801) 93,741 Dividends on stock-common (132,429) (129,261) Other (1,425) - ---------- ---------- Cash Used in Financing Activities (87,242) (47,853) ---------- ---------- Change in Cash and Cash Equivalents $ 2,744 $ 25,035 ========== ========== Supplemental Information - Cash Paid For Interest (net of amount capitalized) $ 90,855 $ 72,469 Income taxes 68,562 49,816 The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY CONDENSED INCOME STATEMENT (Unaudited)
Three Months Ended Nine Months Ended September 30 September 30 ------------------------- -------------------------March 31 --------------------------- 1999 1998 1997 1998 1997 ---------- ---------- ----------- --------------- ---- (Thousands of Dollars) Operating Revenues Electric $ 454,821 $ 359,522 $1,244,001 $1,045,843$397,674 $383,640 Gas 38,256 37,987 210,081 252,064121,983 119,411 Steam 3,526 3,105 14,973 16,304 ---------- ---------- ---------- ----------8,182 7,630 -------- -------- Total Operating Revenues 496,603 400,614 1,469,055 1,314,211527,839 510,681 Operating Expenses Fuel 87,013 86,804 241,115 240,26970,735 73,901 Purchased power 37,054 32,864 109,444 93,66131,053 36,591 Cost of gas sold 21,955 23,989 125,361 166,42468,860 72,301 Other operation expenses 117,189 89,659 350,857 298,763123,807 110,038 Maintenance 37,949 29,616 125,077 99,43043,655 40,818 Depreciation 59,735 61,160 178,978 175,89364,450 62,273 Taxes other than income taxes 20,109 18,443 59,981 56,66922,821 20,716 Federal income tax 29,582 7,563 60,628 23,90625,669 19,893 State income tax 7,023 2,019 14,572 6,1845,963 4,768 Deferred income taxes - net (2,672) 3,178 1,687 12,583(2,801) 3,143 Investment tax credit - net (1,173) (1,122) (3,518) (3,365) ---------- ---------- ---------- ----------(1,132) (1,172) -------- -------- Total Operating Expenses 413,764 354,173 1,264,182 1,170,417453,080 443,270 Operating Income 82,839 46,441 204,873 143,79474,759 67,411 Other Income and Deductions Interest income 5,236 4,635 16,256 13,2105,672 5,458 Allowance for other funds used during construction 585 625 2,177 2,982 Merger expenses - - - (21,881)984 715 Miscellaneous - net (2,268) (27) 1,865 (1,553)5,524 5,378 Income taxes (245) (162) (2,226) 8,536 ---------- ---------- ---------- ----------(3,062) (929) -------- -------- Total Other Income and Deductions 3,308 5,071 18,072 1,2949,118 10,622 Income Before Interest Charges 86,147 51,512 222,945 145,08883,877 78,033 Interest Charges Interest expense 28,177 29,218 84,129 86,41228,397 28,112 Allowance for borrowed funds used during construction (287) (328) (1,108) (1,580) ---------- ---------- ---------- ----------(481) (375) -------- -------- Total Interest Charges 27,890 28,890 83,021 84,832 ---------- ---------- ---------- ----------27,916 27,737 -------- -------- Net Income 58,257 22,622 139,924 60,25655,961 50,296 Preferred Stock Dividend Requirement 301 301 902 902 ---------- ---------- ---------- ------------------ -------- Earnings Available for Common Stockholder $ 57,95655,660 $ 22,321 $ 139,022 $ 59,354 ========== ========== ========== ==========49,995 ======== ======== Note -Note: Earnings and dividends per share of common stock are not applicable because all of Wisconsin Electric Power Company's common stock is owned by Wisconsin Energy Corporation. The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY CONDENSED BALANCE SHEET (Unaudited)
September 30, 1998March 31, December 31, 1997 ------------------ -----------------1999 1998 --------- ------------ (Thousands of Dollars) Assets -------------- Assets ------ Utility Plant Electric $ 4,789,9884,860,704 $ 4,690,3474,820,239 Gas 511,654 492,271527,370 523,187 Steam 62,694 61,92162,924 62,832 Common 408,343 330,761425,383 420,750 Accumulated provision for depreciation (2,860,762) (2,700,839) ------------- ------------- 2,911,917 2,874,461(3,044,749) (2,973,007) ----------- ----------- 2,831,632 2,854,001 Construction work in progress 78,335 81,612126,010 109,412 Leased facilities - net 134,427 138,687131,587 133,007 Nuclear fuel - net 88,022 90,219 ------------- -------------89,091 87,660 ----------- ----------- Net Utility Plant 3,212,701 3,184,9793,178,320 3,184,080 Other Property and Investments 514,401 488,463608,545 578,628 Current Assets Cash and cash equivalents 18,239 10,1006,824 14,183 Accounts receivable 170,310 140,111189,404 166,648 Accrued utility revenues 80,693 141,27395,271 129,463 Materials, supplies and fossil fuel 193,657 197,204171,366 198,015 Prepayments and other assets 44,839 62,227 ------------- -------------61,912 59,813 ----------- ----------- Total Current Assets 507,738 550,915524,777 568,122 Deferred Charges and Other Assets Accumulated deferred income taxes 177,576 169,306193,312 190,114 Other 242,358 274,177 ------------- -------------257,607 247,998 ----------- ----------- Total Deferred Charges and Other Assets 419,934 443,483 ------------- -------------450,919 438,112 ----------- ----------- Total Assets $ 4,654,7744,762,561 $ 4,667,840 ============= =============4,768,942 =========== =========== Capitalization and Liabilities ------------------------------ Capitalization Common stock $ 713,582 $ 713,582 Retained earnings 985,840 980,926 ------------- -------------995,664 984,896 ----------- ----------- Total Common Stock Equity 1,699,422 1,694,5081,709,246 1,698,478 Preferred stock 30,450 30,450 Long-term debt 1,555,337 1,448,558 ------------- -------------1,529,492 1,512,531 ----------- ----------- Total Capitalization 3,285,209 3,173,5163,269,188 3,241,459 Current Liabilities Long-term debt due currently 76,000 81,389118,753 112,454 Short-term debt 114,359 242,633166,470 219,289 Accounts payable 125,515 142,797127,094 169,503 Accrued liabilities 104,964 83,879113,262 80,908 Other 51,879 57,871 ------------- -------------73,239 46,574 ----------- ----------- Total Current Liabilities 472,717 608,569598,818 628,728 Deferred Credits and Other Liabilities Accumulated deferred income taxes 543,795 521,429564,684 559,574 Other 353,053 364,326 ------------- -------------329,871 339,181 ----------- ----------- Total Deferred Credits and Other Liabilities 896,848 885,755 ------------- -------------894,555 898,755 ----------- ----------- Total Capitalization and Liabilities $ 4,654,7744,762,561 $ 4,667,840 ============= ============= The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these financial statements. /TABLE WISCONSIN ELECTRIC POWER COMPANY STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended September 30 ------------------------------------- 1998 1997 ---------- ---------- (Thousands of Dollars) Operating Activities Net income $ 139,924 $ 60,256 Reconciliation to cash Depreciation 178,978 175,893 Nuclear fuel expense - amortization 13,634 2,562 Conservation expense - amortization 16,874 16,874 Debt premium, discount & expense - amortization 3,103 6,516 Deferred income taxes - net 1,687 12,583 Investment tax credit - net (3,518) (3,365) Allowance for other funds used during construction (2,177) (2,982) Write-off of merger costs - 21,881 Change in - Accounts receivable (30,199) 25,676 Inventories 3,547 2,128 Accounts payable (17,282) (34,058) Other current assets 77,968 83,400 Other current liabilities 15,093 (5,263) Other 35,265 (43,059) ---------- ---------- Cash Provided by Operating Activities 432,897 319,042 Investing Activities Construction expenditures (230,048) (188,612) Allowance for borrowed funds used during construction (1,108) (1,580) Nuclear fuel (5,230) (5,837) Nuclear decommissioning trust (24,354) (20,117) Other 970 (649) ---------- ---------- Cash Used in Investing Activities (259,770) (216,795) Financing Activities Sale of long-term debt 169,657 - Retirement of long-term debt (71,361) (40,350) Change in short-term debt (128,274) 117,616 Dividends on - Common stock (134,108) (169,370) Preferred stock (902) (902) ---------- ---------- Cash Used in Financing Activities (164,988) (93,006) ---------- ---------- Change in Cash and Cash Equivalents $ 8,139 $ 9,241 ========== ========== Supplemental Information - Cash Paid For Interest (net of amount capitalized) $ 87,336 $ 73,908 Income taxes 66,807 47,3084,768,942 =========== =========== The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY NOTES TO FINANCIAL STATEMENTSSTATEMENT OF CASH FLOWS (Unaudited) 1.
Three Months Ended March 31 --------------------------- 1999 1998 ---- ---- (Thousands of Dollars) Operating Activities Net income $ 55,961 $ 50,296 Reconciliation to cash Depreciation 64,450 62,273 Nuclear fuel expense - amortization 4,718 2,568 Conservation expense - amortization 5,625 5,625 Debt premium, discount & expense - amortization 656 1,028 Deferred income taxes - net (2,801) 3,143 Investment tax credit - net (1,132) (1,172) Allowance for other funds used during construction (984) (715) Change in - Accounts receivable (22,756) (19,263) Inventories 26,649 25,733 Accounts payable (42,409) 11,224 Other current assets 32,093 (3,213) Other current liabilities 59,019 28,117 Other (10,794) 394 --------- --------- Cash Provided by Operating Activities 168,295 166,038 Investing Activities Construction expenditures (81,432) (66,894) Allowance for borrowed funds used during construction (481) (375) Nuclear fuel (5,479) (662) Nuclear decommissioning trust (8,163) (11,820) Other (4,283) (260) -------- -------- Cash Used in Investing Activities (99,838) (80,011) Financing Activities Sale of long-term debt 29,444 - Retirement of long-term debt (7,247) (4,611) Change in short-term debt (52,819) (33,355) Dividends on stock - Common (44,893) (44,322) Preferred (301) (301) -------- -------- Cash Used in Financing Activities (75,816) (82,589) -------- -------- Change in Cash and Cash Equivalents $ (7,359) $ 3,438 ======== ======== Supplemental Information - Cash Paid For Interest (net of amount capitalized) $ 26,027 $ 27,807 Income taxes 11,334 10,687 The accompanying unaudited consolidated financial statements for Wisconsin Energy Corporation and the unaudited financial statements fornotes as they relate to Wisconsin Electric Power Company should be read in conjunction with the companies' combined 1997 Annual Report on Form 10-K. In the opinionare an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY NOTES TO FINANCIAL STATEMENTS (Unaudited) 1.The accompanying unaudited consolidated financial statements for Wisconsin Energy Corporation and the unaudited financial statements for Wisconsin Electric Power Company should be read in conjunction with the companies' combined 1998 Annual Report on Form 10-K. In the opinion of management, all adjustments, normal and recurring in nature, necessary to a fair statement of the results of operations and financial position of Wisconsin Energy and Wisconsin Electric, have been included in the accompanying income statements and balance sheets. The results of operations for the three months ended March 31, 1999 are not, however, necessarily indicative of the results which may be expected for the year 1999 because of seasonal and other factors. 2.Effective May 31, 1998, Wisconsin Energy acquired ESELCO, Inc. ("ESELCO") in a tax-free reorganization accounted for as a pooling of interests. Due to the immaterial nature of the transaction, Wisconsin Energy has not restated any historical financial or statistical information. Instead, Wisconsin Energy combined ESELCO's May 31, 1998 balance sheet with Wisconsin Energy's. For additional information, see Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part I of this report. 3.In March 1999, WEC Capital Trust I, a Delaware business trust of which Wisconsin Energy owns all of the outstanding common securities, issued $200 million of 6.85% trust preferred securities to the public. The sole asset of WEC Capital Trust I is $206 million of 6.85% junior subordinated debentures due March 31, 2039, issued by Wisconsin Energy. The terms and interest payments on these debentures correspond to the terms and distributions on the trust preferred securities. WEC Capital Trust I has been consolidated into Wisconsin Energy's financial statements. The interest payments, which are tax deductible by Wisconsin Energy, are reflected as distributions on preferred securities of subsidiary trust in Wisconsin Energy's Consolidated Condensed Income Statement. Wisconsin Energy may elect to defer interest payments on the debentures for up to 20 consecutive quarters, causing corresponding distributions on the trust preferred securities to also be deferred. In case of a deferral, interest and distributions will continue to accrue, along with quarterly compounding interest on the deferred amounts. Wisconsin Energy may redeem all or a portion of the debentures after March 25, 2004, requiring an equal amount of trust preferred securities to be redeemed at face value plus accrued and unpaid distributions. Wisconsin Energy has entered into a limited guarantee of payment of distributions, redemption payments and payments in liquidation with respect to the trust preferred securities. This guarantee, when considered together with Wisconsin Energy's obligations under the related debentures and indenture and the applicable declaration of trust, provide a full and unconditional guarantee by Wisconsin Energy of amounts due on the outstanding trust preferred securities. 4.In April 1999, Wisvest Connecticut, LLC, a wholly-owned subsidiary of Wisvest Corporation which is in turn a wholly owned subsidiary of Wisconsin Energy, acquired two fossil-fueled power plants for $272 million from The United Illuminating Company, an unaffiliated investor-owned utility in New Haven, Connecticut. Pursuant to the agreement, Wisvest Connecticut, LLC purchased the Bridgeport Harbor Station, which has an active generating capacity of 590 megawatts, as well as the New Haven Harbor Station, which has a generating capacity of 466 megawatts. Wisvest Connecticut, LLC financed the acquisition through the issuance of $195 million of long-term, nonrecourse notes; an equity contribution of $105 million from Wisconsin Energy; $30 million of working capital arrangements and a $25 million letter of credit facility. 5.Wisconsin Energy, a holding company with subsidiaries in utility and non-utility businesses, has organized its operating segments according to how its principal subsidiary, Wisconsin Electric, is currently regulated. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly in deciding how to allocate resources or in assessing performance. Wisconsin Energy's and Wisconsin Electric's reportable operating segments include electric, gas and steam utility segments. The following table summarizes the reportable operating segments of Wisconsin Energy and of the results of operations and financial position of Wisconsin Energy and Wisconsin Electric, have been included in the accompanying income statements and balance sheets. The results of operations for the nine months ended September 30, 1998 are not, however, necessarily indicative of the results which may be expected for the year 1998 because of seasonal and other factors. 2. Effective May 31, 1998, Wisconsin Energy acquired ESELCO, Inc. ("ESELCO") in a tax-free reorganization accounted for as a pooling of interests. In connection with the acquisition, Wisconsin Energy issued 2,407,275 shares of common stock, with fractional interests paid in cash, based upon an exchange ratio of 1.5114 shares of Wisconsin Energy common stock for each outstanding share of ESELCO common stock. Due to the immaterial nature of the transaction, Wisconsin Energy has not restated any historical financial or statistical information. Instead, Wisconsin Energy combined ESELCO's May 31, 1998 balance sheet with Wisconsin Energy's, including a $1.2 million credit to retained earnings of which $0.9 million represents ESELCO's consolidated net income during the first five months of 1998. For additional information, see Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part I of this report. 3. In June 1998, Wisconsin Electric issued $150 million of 6-1/2% Debentures due 2028. Proceeds from the issue were added to Wisconsin Electric's general funds to reduce short-term borrowings and for other general corporate purposes. In April 1998, Wisconsin Michigan Investment Corporation, a non-utility subsidiary of Wisconsin Energy, issued $25 million of 6.48% medium-term notes due 2008. Proceeds from the issue were added to Wisconsin Michigan Investment Corporation's general funds and used to finance non-utility projects. During the first nine months of 1998, WISPARK Corporation, another non-utility subsidiary of Wisconsin Energy, secured $15 million of bank financing in the form of adjustable rate mortgage notes due 2000-2008 to finance the construction or purchase of various facilities. 4. Wisconsin Electric completed a scheduled refueling of Point Beach Nuclear Plant ("Point Beach") Unit 1 and returned the generating unit to service in late June 1998. Unit 2 is scheduled to begin a refueling and maintenance outage in early December 1998. During the third quarter of 1998, Wisconsin Electric resumed loading VSC-24 casks with spent fuel for temporary dry storage at Point Beach. For additional information regarding Point Beach, see Item 5. Other Information - "Nuclear Matters" in Part II of this report. 5. During the second quarter of 1998, WISVEST Corporation, a non-utility subsidiary of Wisconsin Energy, purchased the Kimberly Cogeneration Equipment from Wisconsin Electric and contributed the equipment to a joint independent power project, the Androscoggin Cogeneration Center. For additional information, see Item 5. Other Information - "Kimberly Cogeneration Equipment" in Part II of Wisconsin Energy's and Wisconsin Electric's combined Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. 6. Effective January 1, 1998, Wisconsin Energy and Wisconsin Electric adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("FAS 130"). FAS 130 establishes standards for reporting and display of comprehensive income and its components. Wisconsin Energy and Wisconsin Electric currently have no items of other comprehensive income. On June 15, 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("FAS 133"). FAS 133 is effective January 1, 2000 for Wisconsin Energy and for Wisconsin Electric. FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value
Reportable Operating Segments ----------------------------- Electric Gas Steam Total -------- --- ----- ----- (Thousands of derivatives are recorded each period in current earnings or in other comprehensive income depending upon how the derivative is designated. Based upon the current limited use of derivative instruments at Wisconsin Energy and at Wisconsin Electric, the adoption of FAS 133 would not have a significant effect on their results of operations or financial position. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Wisconsin Energy Corporation is a holding company whose principal subsidiary is Wisconsin Electric Power Company, an electric, gas and steam utility. Unless qualified by their context, the terms "Wisconsin Energy" or the "Company" refer to the holding company and all of its subsidiaries when used in this document. As of September 30, 1998, approximately 90% of Wisconsin Energy's consolidated total assets were attributable to Wisconsin Electric. The following discussion and analysis of financial condition and results of operations includes both Wisconsin Energy and Wisconsin Electric unless otherwise stated. Acquisition of ESELCO, Inc.: Effective May 31, 1998, Wisconsin Energy acquired ESELCO in a tax-free reorganization accounted for as a pooling of interests. In connection with the acquisition, Wisconsin Energy issued 2,407,275 shares of common stock, with fractional interests paid in cash, based upon an exchange ratio of 1.5114 shares of Wisconsin Energy common stock for each outstanding share of ESELCO common stock. Due to the immaterial nature of the transaction, Wisconsin Energy has not restated any historical financial or statistical information. Instead, Wisconsin Energy combined ESELCO's May 31, 1998 balance sheet with Wisconsin Energy's, including a $1.2 million credit to retained earnings of which $0.9 million represents ESELCO's consolidated net income during the first five months of 1998. ESELCO was the parent company of Edison Sault Electric Company ("Edison Sault"), an electric utility which serves approximately 21,000 residential, commercial and industrial customers in Michigan's eastern Upper Peninsula. Where appropriate, discussions as well as financial or statistical information of Wisconsin Energy include Edison Sault's operations since June 1, 1998. Wisconsin Energy is operating Wisconsin Electric and Edison Sault as separate utility subsidiaries within their existing historical service territories. Wisconsin Electric and Edison Sault continue to be separately regulated by their respective states. For additional information concerning ESELCO and Edison Sault, see ESELCO's Annual Report on Form 10-K for the year ended December 31, 1997 as well as ESELCO's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. Cautionary Factors: A number of forward-looking statements are included in this document. When used, the terms "anticipate", "believe", "estimate", "expect", "objective", "plan", "possible", "potential", "project" and similar expressions are intended to identify forward-looking statements. Forward- looking statements are subject to certain risks, uncertainties and assumptions which could cause actual results to differ materially from those that are described, including the factors that are described in Item 5. Other Information - "Cautionary Factors" in Part II of this report. RESULTS OF OPERATIONS 1998 THIRD QUARTER Earnings During the third quarter of 1998, Wisconsin Energy's consolidated net income and earnings per share of common stock were $58 million and $0.50, respectively, compared to $24 million and $0.21, respectively, during the third quarter of 1997. Between the comparative periods, Wisconsin Electric's earnings increased to $58 million during 1998 compared to $22 million during 1997. As described below, 1998 earnings increased primarily because increased revenues from Wisconsin retail rate increases at Wisconsin Electric during 1998 and from an increase in total 1998 electric kilowatt-hour sales more than offset the effects of increased operating expenses during the third quarter of 1998. Also contributing to increased comparative earnings were the relatively low earnings during the third quarter of 1997 reflecting replacement power costs beyond those included in electric rates during a dual unit outage at Point Beach. Electric Revenues, Gross Margins and Sales Wisconsin Energy: Primarily due to a Wisconsin retail electric rate increase during 1998 at Wisconsin Electric and to an increase in total 1998 electric kilowatt-hour sales, total electric operating revenues increased by $105 million or 29.2% during the third quarter of 1998 compared to the third quarter of 1997. Between the comparative periods, the gross margin on electric operating revenues (electric operating revenues less fuel and purchased power expenses) increased by $95 million or 39.8%. The following table summarizes Wisconsin Energy's total electric operating revenues, gross margin and electric kilowatt-hour sales during the third quarters of 1998 and 1997. ==============================================================================Dollars) WISCONSIN ENERGY: Three Months Ended September 30 ------------------------------------- Electric Gross Margin ($000) 1998 1997 % Change - ---------------------------- ---------- ---------- -------- ElectricMarch 31, 1999 Total Operating Revenues $ 464,548 $ 359,522 29.2% Fuel & Purchased Power 129,260 119,668 8.0% ---------- ---------- Gross Margin $ 335,288 $ 239,854 39.8% ========== ========== Total Electric Sales (Megawatt-hours) 8,515,696 7,046,623 20.8% ============================================================================== The discussion that follows reflects Wisconsin Electric's contribution to Wisconsin Energy's third quarter electric revenues, gross margin and sales. Wisconsin Electric: Wisconsin Electric's total electric operating revenues increased by $95 million or 26.5% during the third quarter of 1998 compared to the third quarter of 1997 and the gross margin on electric operating revenues increased by $91 million or 37.9%. Wisconsin Electric attributes these increases to a Wisconsin retail electric rate increase, effective May 1, 1998, of $160.2 million or 12.7% on an annualized basis and to an increase in total electric kilowatt-hour sales during the third quarter of 1998. ==============================================================================(a) $406,555 $121,983 $8,182 $536,720 Operating Income (b) 56,480 17,839 1,848 76,167 Three Months Ended September 30 ------------------------------------- Electric Gross Margin ($000)March 31, 1998 1997 % Change - ---------------------------- ---------- ---------- -------- ElectricTotal Operating Revenues $ 454,821 $ 359,522 26.5% Fuel & Purchased Power 124,067 119,668 3.7% ---------- ---------- Gross Margin $ 330,754 $ 239,854 37.9% ========== ========== ============================================================================== Due to the increased 1998 electric kilowatt-hour sales, fuel and purchased power expenses increased by $4 million or 3.7% during the three months ended September 30, 1998 compared to the same period in 1997. Availability of lower cost per kilowatt-hour generating capacity at Point Beach during the third quarter of 1998, however, allowed Wisconsin Electric to generate 27.1% more electricity during 1998 while increasing fuel costs by only 0.2%. While megawatt-hour power purchases decreased 27.4% between the comparative periods, purchased power costs increased 12.7%. During 1998, Wisconsin Electric arranged for the purchase of more reliable firm supplies of energy, resulting in higher fixed contract and power transportation costs compared to 1997. In addition, the per unit cost of wholesale energy has fluctuated more during 1998, increasing the cost of certain spot market purchases. ==============================================================================(a) $383,640 $119,411 $7,630 $510,681 Operating Income (b) 49,491 15,766 2,154 67,411 WISCONSIN ELECTRIC: Three Months Ended September 30 ------------------------------------- Electric Sales (Megawatt-hours) 1998 1997 % Change - ------------------------------- ---------- ---------- -------- Residential 1,976,613 1,702,707 16.1% Small Commercial/Industrial 2,115,095 1,942,548 8.9% Large Commercial/Industrial 3,043,758 2,820,472 7.9% Other-Retail/Municipal 328,239 326,254 0.6% Resale-Utilities 852,595 254,642 234.8% ---------- ----------March 31, 1999 Total Electric Sales 8,316,300 7,046,623 18.0% ========== ========== ============================================================================== Compared to the third quarter of 1997, increased use per customer by residential, small commercial/industrial and large commercial/industrial customers, combined with growth during the third quarter of 1998 in the number of residential and small commercial/industrial customers, contributed to an increase in total electric sales of 18.0%. Warmer weather during the third quarter of 1998 significantly increased 1998 sales, especially influencing the 16.1% and 8.9% increases in sales to residential and to small commercial/ industrial customers, respectively. As measured by cooling degree days, the third quarter of 1998 was 115.0% warmer than the same period during 1997 and 19.1% warmer than normal. Primarily due to a temporary shutdown of the Tilden mine during July and August 1997, electric energy sales to the Empire and Tilden ore mines, Wisconsin Electric's two largest electric retail customers, increased 28.1% during the third quarter of 1998 compared to the third quarter of 1997. Excluding the Empire and Tilden ore mines, total electric sales increased 17.3% and sales to the remaining large commercial/industrial customers increased 3.6%. Sales for resale to other utilities, the resale- utilities customer class, increased 234.8% in 1998 compared to 1997 primarily due to higher opportunity sales. GasOperating Revenues Gross Margins and Sales Compared to the third quarter of 1997, total gas operating revenues were flat during the third quarter of 1998. However, the gross margin on gas operating revenues (gas operating revenues less cost of gas sold) increased by $2 million or 16.5%. ==============================================================================(a) $397,674 $121,983 $8,182 $527,839 Operating Income (b) 55,072 17,839 1,848 74,759 Three Months Ended September 30 ------------------------------------- Gas Gross Margin ($000)March 31, 1998 1997 % Change - ----------------------- ---------- ---------- -------- GasTotal Operating Revenues $ 38,256 $ 37,987 0.7% Cost of Gas Sold 21,955 23,989 (8.5%) ---------- ---------- Gross Margin $ 16,301 $ 13,998 16.5% ========== ========== ============================================================================== Between the comparative periods, the positive effects on gas operating revenues of a retail gas rate increase, effective May 1, 1998, of $18.5 million or 5.4% on an annualized basis were offset by a decrease in the cost of gas sold. The cost of gas sold decreased by $2 million or 8.5% during the third quarter of 1998 due to a decrease in the cost per unit of purchased gas. However, because changes in the cost of natural gas purchased at market prices are included in customer rates through the purchased gas adjustment mechanism, gas operating revenues change at the same rate as the cost of gas sold and gross margin is unaffected. During 1998, the gross margin on gas operating revenues increased due to the May 1998 rate increase, partially offset by lower residential gas sales which contribute higher margins to earnings than therm deliveries to other customer classes. ============================================================================== Three Months Ended September 30 ------------------------------------- Therms Delivered - Thousands 1998 1997 % Change - ---------------------------- ---------- ---------- -------- Residential 19,107 21,013 (9.1%) Commercial/Industrial 13,536 12,659 6.9% Interruptible 3,818 1,914 99.5% Interdepartmental 21 223 (90.6%) ---------- ---------- Total Gas Sales 36,482 35,809 1.9% Transported Customer Owned Gas 78,399 63,734 23.0% Transported - Interdepartmental 37,018 24,284 52.4% ---------- ---------- Total Gas Delivered 151,899 123,827 22.7% ========== ========== ============================================================================== Between the comparative periods, therm deliveries to residential customers decreased 9.1% due to decreased therm use per residential customer. During the third quarter of 1998, therm deliveries to the Whitewater Cogeneration Facility, owned by LSP-Whitewater Limited Partnership, an unaffiliated independent power producer, primarily contributed to a 23.0% increase in transported customer owned gas deliveries. The Whitewater Cogeneration Facility, a gas-fired electric cogeneration plant, went into commercial operation in September 1997. (a) $383,640 $119,411 $7,630 $510,681 Operating Income (b) 49,491 15,766 2,154 67,411 (a)Wisconsin Electric purchases the majority of the electricity generated by the Whitewater Cogeneration Facility under a long- term power purchase contract. Interdepartmental therm sales and transportation deliveries to facilities owned by Wisconsin Electric, the interdepartmental customer classes, increased 51.1% between the comparative periods. Excluding deliveries to Wisconsin Electric facilities, total therm deliveries increased 15.7%. Operating Expenses During the third quarter of 1998, Wisconsin Energy's other operation and maintenance expenses increased by $38 million or 31.9% compared to the same period during 1997, including a $22 million increase in Wisconsin Electric's nuclear non-fuel expenses and a $12 million increase in Wisconsin Electric's administrative and general expenses. Nuclear non-fuel expenses increased during 1998 primarily due to efforts by Wisconsin Electric to continue to improve overall performanceaccounts for intersegment revenues at Point Beach. Also influencing the 1998 increase in nuclear non-fuel expenses, Wisconsin Electric deferred $20 million of nuclear non-fuel operation and maintenance costs during 1997, $18 million of which are currently being amortized to expense on a five year straight line basis. Administrative and general expenses increased primarily due to efforts to resolve Year 2000 technology issues. For additional information concerning the Year 2000, see "Factors Affecting Results of Operations - Year 2000 Technology Issues" below. Total operating income taxes at both Wisconsin Energy and Wisconsin Electric increased by $21 million during the third quarter of 1998 as a result of higher taxable income. 1998 YEAR-TO-DATE Earnings During the first nine months of 1998, Wisconsin Energy's consolidated net income and earnings per share of common stock were $136 million and $1.19, respectively, compared to $58 million and $0.52, respectively, during the first nine months of 1997. Between the comparative periods, Wisconsin Electric's earnings increased to $139 million during 1998 compared to $59 million during 1997. As described below, 1998 earnings increased primarily because increased revenues from interim and final 1998 Wisconsin retail rate increases at Wisconsin Electric and from an increase in total 1998 electric kilowatt-hour sales more than offset the effects of a reduction in natural gas therm deliveries as well as the effects of increased operating expenses during the first nine months of 1998. Also contributing to increased comparative earnings during 1998, earnings during the first nine months of 1997 were negatively impacted by (1) a one-time charge of $31 million at Wisconsin Energy in the second quarter of 1997 (of which $22 million was attributable to Wisconsin Electric) for the write-off of deferred costs related to Wisconsin Energy's terminated merger agreement with Northern States Power Company, and (2) increased costs beyond those included in electrictariff rates associated with buying replacement power for both generating units at Point Beach, which were out of service during most of the first nine months of 1997. Electric Revenues, Gross Margins and Sales Wisconsin Energy: Primarily due to the Wisconsin retail electric rate increases during 1998 at Wisconsin Electric and to an increase in total 1998 electric kilowatt-hour sales, total electric operating revenues increased by $211 million or 20.2% during the first nine months of 1998 compared to the first nine months of 1997. Between the comparative periods, the gross margin on electric operating revenues increased by $188 million or 26.4%. The following table summarizes Wisconsin Energy's total electric operating revenues, gross margin and electric kilowatt-hour sales during the first nine months of 1998 and 1997. ============================================================================== Nine Months Ended September 30 ------------------------------------- Electric Gross Margin ($000) 1998 1997 % Change - ---------------------------- ---------- ---------- -------- Electric Operating Revenues $1,256,925 $1,045,843 20.2% Fuel & Purchased Power 357,208 333,930 7.0% ---------- ---------- Gross Margin $ 899,717 $ 711,913 26.4% ========== ========== Total Electric Sales(Megawatt-hours) 22,686,148 20,722,437 9.5% ============================================================================== The discussion that follows reflects Wisconsin Electric's contribution to Wisconsin Energy's year-to-date electric revenues, gross margin and sales. Wisconsin Electric: Wisconsin Electric's total electric operating revenues increased by $198 million or 18.9% during the first nine months of 1998 compared to the first nine months of 1997 and the gross margin on electric operating revenues increased by $182 million or 25.5%. Wisconsin Electric attributes these increases to an interim Wisconsin retail electric rate increase, effective from January 1, 1998 through April 30, 1998, of $134.9 million on an annualized basis, to a final Wisconsin retail electric rate increase, effective May 1, 1998, of $160.2 million or 12.7% on an annualized basis, and to increased total electric kilowatt-hour sales during 1998. ============================================================================== Nine Months Ended September 30 ------------------------------------- Electric Gross Margin ($000) 1998 1997 % Change - ---------------------------- ---------- ---------- -------- Electric Operating Revenues $1,244,001 $1,045,843 18.9% Fuel & Purchased Power 350,559 333,930 5.0% ---------- ---------- Gross Margin $ 893,442 $ 711,913 25.5% ========== ========== ============================================================================== Due to the increased 1998 electric kilowatt-hour sales, fuel and purchased power expenses increased by $17 million or 5.0% during the nine months ended September 30, 1998 compared to the same period in 1997. Availability of lower cost per kilowatt-hour generating capacity at Point Beach during the first nine months of 1998, however, allowed Wisconsin Electric to generate 13.4% more electricity during 1998 while increasing fuel costs by only 0.4%. While megawatt-hour power purchases decreased 16.6% between the comparative periods, purchased power costs increased 16.9%. During 1998, Wisconsin Electric arranged for the purchase of more reliable firm supplies of energy, resulting in higher fixed contract and power transportation costs compared to 1997. In addition, the per unit cost of wholesale energy has fluctuated more during 1998, increasing the cost of certain spot market purchases. ============================================================================== Nine Months Ended September 30 ------------------------------------- Electric Sales (Megawatt-hours) 1998 1997 % Change - ------------------------------- ---------- ---------- -------- Residential 5,451,892 5,116,164 6.6% Small Commercial/Industrial 5,859,232 5,578,497 5.0% Large Commercial/Industrial 8,559,153 8,239,765 3.9% Other-Retail/Municipal 979,351 1,051,350 (6.9%) Resale-Utilities 1,571,729 736,661 113.4% ---------- ---------- Total Electric Sales 22,421,357 20,722,437 8.2% ========== ========== ============================================================================== Compared to the first nine months of 1997, increased use per customer by residential, small commercial/industrial and large commercial/industrial customers, combined with growth during the first nine months of 1998 in the number of residential and small commercial/industrial customers, contributed to an increase in total electric sales of 8.2%. Warmer weather during the second and the third quarters of 1998 significantly increased 1998 sales, especially influencing the 6.6% and 5.0% increases in sales to residential and to small commercial/industrial customers, respectively. Electric energy sales to the Empire and Tilden ore mines increased 8.8% between the comparative periods primarily due to a temporary shutdown of the Tilden mine during July and August 1997. Excluding the Empire and Tilden ore mines, total electric sales increased 8.1% and sales to the remaining large commercial/industrial customers increased 2.6%. During the nine months ended September 30, 1998, sales in the other-retail/municipal customer class decreased 6.9% primarily due to reduced contractual requirements nominations by Wisconsin Public Power Inc. effective May 1997. Sales for resale to other utilities, the resale- utilities customer class, increased 113.4% in 1998 compared to 1997 primarily due to higher opportunity sales. Gas Revenues, Gross Margins and Sales Despite an interim retail gas rate increase, effective from January 1, 1998 through April 30, 1998, of $18.5 million on an annualized basis and a final retail gas rate increase, effective May 1, 1998, of $18.5 million or 5.4% on an annualized basis, total gas operating revenues decreased by $42 million or 16.7% and the gross margin on gas operating revenues decreased by $1 million or 1.1% during the first nine months of 1998 compared to the first nine months of 1997. ============================================================================== Nine Months Ended September 30 ------------------------------------- Gas Gross Margin ($000) 1998 1997 % Change - ----------------------- ---------- ---------- -------- Gas Operating Revenues $ 210,081 $ 252,064 (16.7%) Cost of Gas Sold 125,361 166,424 (24.7%) ---------- ---------- Gross Margin $ 84,720 $ 85,640 (1.1%) ========== ========== ============================================================================== Between the comparative periods, the cost of gas sold decreased by $41 million or 24.7% due to decreased gas sales and to a lower cost per unit of purchased gas. Changes in the cost of natural gas purchased at market prices are included in customer rates through the purchased gas adjustment mechanism, reducing 1998 operating revenues but not gross margin. Total gas operating revenues and gross margin both declined in the first nine months of 1998 due to a decrease in therm deliveries, especially to residential and commercial/industrial customers who contribute higher margins to earnings than other customers. ============================================================================== Nine Months Ended September 30 ------------------------------------- Therms Delivered - Thousands 1998 1997 % Change - ---------------------------- ---------- ---------- -------- Residential 191,267 232,231 (17.6%) Commercial/Industrial 125,985 146,599 (14.1%) Interruptible 16,327 16,755 (2.6%) Interdepartmental 335 9,535 (96.5%) ---------- ---------- Total Gas Sales 333,914 405,120 (17.6%) Transported Customer Owned Gas 260,586 223,035 16.8% Transported - Interdepartmental 71,858 69,670 (3.1%) ---------- ---------- Total Gas Delivered 666,358 697,825 (4.5%) ========== ========== ============================================================================== Compared to the same period in 1997, total natural gas therm deliveries decreased 4.5% during the first nine months of 1998 primarily due to significantly lower therm use per residential and commercial/industrial customer. While the number of residential and commercial/industrial customers increased between the comparative periods, residential and commercial/industrial therm deliveries decreased 17.6% and 14.1%, respectively, mostly due to warmer weather during the heating months of 1998. During the first nine months of 1998, therm deliveries to the Whitewater Cogeneration Facility contributed to a 16.8% increase in transported customer owned gas. During the same period in 1998, natural gas therm deliveries to the interdepartmental customer classes decreased 8.9% primarily due to increased availability of Wisconsin Electric's Point Beach, allowing Wisconsin Electric to reduce generation at its Concord and Paris Generating Stations, natural gas-fired peaking plants. Therm deliveries to these Wisconsin Electric facilities are at rates approvedestablished by the Public Service Commission of Wisconsin. Intersegment revenues are not material. (b)Interest income and expense are not allocated to the segments to determine segment operating income.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Wisconsin Energy Corporation is a holding company whose principal subsidiary is Wisconsin Electric Power Company, an electric, gas and steam utility. Unless qualified by their context, the terms "Wisconsin Energy" or the "Company" refer to the holding company and all of its subsidiaries when used in this document. As of March 31, 1999, approximately 87% of Wisconsin Energy's consolidated total assets were attributable to Wisconsin Electric. The following discussion and analysis of financial condition and results of operations includes both Wisconsin Energy and Wisconsin Electric unless otherwise stated. ACQUISITION OF ESELCO, INC.: Effective May 31, 1998, Wisconsin Energy acquired ESELCO in a tax-free reorganization accounted for as a pooling of interests. Due to the immaterial nature of the transaction, Wisconsin Energy has not restated any historical financial or statistical information. For additional information, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations" in Part II of Wisconsin Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 1998. ESELCO was the parent company of Edison Sault Electric Company ("Edison Sault"), an electric utility which serves approximately 21,000 residential, commercial and industrial customers in Michigan's eastern Upper Peninsula. Where appropriate, discussions as well as financial or statistical information of Wisconsin Energy include Edison Sault's operations since June 1, 1998. CAUTIONARY FACTORS: A number of forward-looking statements are included in this document. When used, the terms "anticipate," "believe," "estimate," "expect," "objective," "plan," "possible," "potential," "project" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to certain risks, uncertainties and assumptions which could cause actual results to differ materially from those that are described, including the factors that are noted in "Cautionary Factors" below. RESULTS OF OPERATIONS 1999 FIRST QUARTER Earnings During the first quarter of 1999, Wisconsin Energy's consolidated net income and earnings per share of common stock were approximately $54 million and $0.46, respectively, compared to $49 million and $0.43, respectively, during the first quarter of 1998. For the same periods, Wisconsin Electric's earnings increased to approximately $56 million during 1999 compared to $50 million during 1998. As described in further detail below, 1999 first quarter earnings increased compared to 1998 primarily due to (1) an increase in total 1999 electric kilowatt-hour sales, (2) an increase in total 1999 natural gas therm deliveries, (3) higher gross margins on 1999 electric and gas operating revenues, and (4) a retail electric rate increase effective May 1, 1998 at Wisconsin Electric. The increased earnings were partially offset by increases in other operations and maintenance, depreciation, taxes other than income tax, and interest expenses as well as by an increase in expenses at Wisvest Corporation. Electric Revenues, Gross Margins and Sales WISCONSIN ENERGY: Primarily due to an increase in total 1999 electric kilowatt-hour sales and, to a lesser extent, a Wisconsin Electric retail electric increase effective May 1, 1998 in the Wisconsin jurisdiction, total electric operating revenues increased by $23 million or 6.0% during the first quarter of 1999 compared to the first quarter of 1998. The gross margin on electric operating revenues (electric operating revenues less fuel and purchased power expenses) increased by approximately $28 million or 10.1%. The following table summarizes Wisconsin Energy's total electric operating revenues, gross margin and electric kilowatt-hour sales during the first quarters of 1999 and 1998.
Three Months Ended March 31 ------------------------------- Electric Operations - Wisconsin ("PSCW"Energy 1999 1998 % Change - -------------------------------------- ---- ---- -------- Electric Gross Margin ($000) Electric Operating Revenues $ 406,555 $ 383,640 6.0% Fuel & Purchased Power 105,720 110,492 (4.3%). Excluding deliveries to facilities owned --------- --------- Gross Margin $ 300,835 $ 273,148 10.1% ========= ========= Total Electric Sales (Megawatt-hours) 7,393,205 6,957,434 6.3%
The discussion that follows reflects Wisconsin Electric's contribution to Wisconsin Energy's first quarter electric revenues, gross margin and sales. WISCONSIN ELECTRIC: Wisconsin Electric's total electric operating revenues increased by $14 million or 3.7% during the first quarter of 1999 compared to the first quarter of 1998, and the gross margin on electric operating revenues increased by $23 million or 8.3%. Wisconsin Electric attributes these increases to a 3.9% increase in total electric kilowatt-hour sales during the first quarter of 1999 and, to a lesser extent, a retail electric rate increase, effective May 1, 1998 in the Wisconsin jurisdiction, of 12.7% or $160 million on an annualized basis. In an interim action effective January 1, 1998 through April 30, 1998, the Public Service Commission of Wisconsin ("PSCW") had authorized Wisconsin Electric to increase retail electric rates by 10.7% or $135 million on an annualized basis, an increase that was less than rates included in the final rate order that became effective May 1, 1998.
Three Months Ended March 31 ------------------------------ Electric Operations - Wisconsin Electric total therm deliveries during the nine months ended September 30,1999 1998 decreased 4.0% compared to the same period in 1997.% Change - ---------------------------------------- ---- ---- -------- Electric Gross Margin ($000) Electric Operating Expenses During the first nine months of 1998, Wisconsin Energy's other operation and maintenance expenses increased by $81 million or 20.3% compared to the same period during 1997, including a $56 million increase in Wisconsin Electric's nuclear non-fuel expenses, a $7 million increase in Wisconsin Electric's non- nuclear, non-fuel power generation expenses and a $14 million increase in Wisconsin Electric's administrative and general expenses. As noted above, nuclear non-fuel expenses increased during 1998 primarily due to effortsRevenues $ 397,674 $ 383,640 3.7% Fuel & Purchased Power 101,788 110,492 (7.9%) --------- --------- Gross Margin $ 295,886 $ 273,148 8.3% ========= =========
Despite increased electric sales during the three months ended March 31, 1999, total fuel and purchased power expenses decreased by $9 million or 7.9% compared to the same period in 1998. While megawatt-hours of net generation increased by approximately 12% during the first quarter of 1999, fuel expense decreased 4.3% primarily due to lower per unit costs of coal burned. In addition, increased availability of low cost generating capacity at Point Beach Nuclear Plant allowed Wisconsin Electric to reduce higher cost power purchases by 24% as well as purchased power expense by 15.1% during the first quarter of 1999. The following table summarizes Wisconsin Electric's comparative electric sales during the three months ended March 31, 1999 and 1998.
Three Months Ended March 31 ------------------------------ Electric Operations - Wisconsin Electric to continue to improve overall performance at Point Beach. Also influencing the1999 1998 increase in nuclear non-fuel expenses, Wisconsin% Change ---- ---- -------- Electric deferred $20 million of nuclear non-fuel operation and maintenance costs during 1997, $18 million of which are currently being amortized to expense on a five year straight line basis. Non-nuclear, non-fuel power generation expenses increased primarily due to a scheduled maintenance outage at Wisconsin Electric's Oak Creek Power Plant during the second quarter of 1998 and to other reliability improvement efforts. Administrative and general expenses increased primarily due to efforts to resolve Year 2000 technology issues. For additional information concerning the Year 2000, see "Factors Affecting Results of Operations - Year 2000 Technology Issues" below. Wisconsin Energy's depreciation expense increased by $4 million or 2.3%Sales (Megawatt-hours) Residential 1,792,252 1,808,720 (0.9%) Small Commercial/Industrial 1,948,435 1,845,369 5.6% Large Commercial/Industrial 2,760,640 2,689,491 2.6% Other-Retail/Municipal 309,240 326,722 (5.4%) Resale-Utilities 415,499 287,132 44.7% --------- --------- Total Electric Sales 7,226,066 6,957,434 3.9% ========= =========
Electric energy sales to the Empire and Tilden ore mines, Wisconsin Electric's two largest electric retail customers, increased 7.8% during the first quarter of 1999 compared to the first quarter of 1998. Excluding the Empire and Tilden ore mines, total electric sales increased 3.5% and sales to the remaining large commercial/industrial customers increased 1.3%. Sales for resale to other utilities, the resale-utilities customer class, increased 44.7% in 1999 compared to 1998 due in part to a new three-year contract with Wisconsin Public Power Inc. that became effective May 1, 1998 and to higher opportunity sales. Gas Revenues, Gross Margins and Sales Total gas operating revenues increased by approximately $3 million or 2.2% during the first quarter of 1999 compared to the first quarter of 1998, and the gross margin on gas operating revenues (gas operating revenues less cost of gas sold) increased by $6 million or 12.8%. Wisconsin Electric attributes these increases primarily to a 9.7% increase in total natural gas therm deliveries during the first nine months of 1998 compared to the first nine months of 1997 primarily due to increased nuclear decommissioning expenses at Wisconsin Electric. Total operating income taxes at both Wisconsin Energy and at Wisconsin Electric increased by $34 million during the first nine months of 1998 as a result of higher taxable income. Other Items During the second quarter of 1997, Wisconsin Energy recorded a charge of $31 million ($19 million net of tax) to write off deferred merger costs related to the terminated merger agreement with Northern States Power Company, of which $22 million was attributable to Wisconsin Electric. The write-off of these merger expenses appears in other income and deductions on Wisconsin Energy's and Wisconsin Electric's income statements. FACTORS AFFECTING RESULTS OF OPERATIONS YEAR 2000 TECHNOLOGY ISSUES The Company is working to resolve the potential impact of the Year 2000 on its ability to operate critical systems and to accurately process information that may be date sensitive. Wisconsin Energy, including Wisconsin Electric, Edison Sault and the non-utility subsidiaries, utilizes business application software as well as infrastructure and process control systems across its operations. Related computer programs and hardware may use two-character digits such as '00' to define the applicable year rather than four-character digits such as '2000'. When these systems or applications encounter the Year 2000, they could potentially read the year as '1900' and either process data incorrectly or shut down altogether. If not addressed in a timely manner, this Year 2000 problem could have a materially adverse impact on the operations or financial condition of the Company. Year 2000 Project: During 1997, the Company created Year 2000 program teams, overseen by executives of the Company, to address its Year 2000 issues. The teams, comprised of representatives with subject matter expertise, are evaluating: * Business applications that provide function and process to the business units; * Infrastructure including information technology voice, video, data systems and related structure; * Process control systems including the impact of embedded systems across all operations; * Supplier compliance dealing with critical direct suppliers of services and materials; and * Significant customers and their ability to avoid major Year 2000-related business interruptions. The Year 2000 teams are following a structured process of inventorying and assessing potential Year 2000 problems, of remediating, testing, and certifying Year 2000 readiness and of developing and implementing Year 2000 risk management contingency plans. Although additional systems or processes may be identified as the program moves forward, the Company has substantially completed an initial inventory of potential Year 2000 problems across all operating areas and expects to have substantially completed its assessment phase in the fourth quarter of 1998. The remediation and testing phases are currently in progress and extensive contact with critical third party suppliers is ongoing. Based upon an initial assessment of critical supplier Year 2000 readiness that was completed in the third quarter of 1998, the Company is currently initiating additional supplier risk mitigation actions. Wisconsin Energy expects to evaluate its significant customers during 1999. The Company has structured its Year 2000 program to identify, prioritize and address critical business functions within the Company including: * Providing Energy Supply, which includes the safe operation and maintenance of all nuclear, fossil and hydro generating facilities; * Providing a Reliable Energy Pathway, which includes the safe operation and maintenance of the Company's electric transmission and electric, gas and steam distribution systems; * Providing Customer Service, which includes the ability to respond to customer emergencies both from a customer contact point of view and from a restoration perspective as well as the ability to handle customer calls, to bill customers and to process payments; * Supporting the Business, which includes the critical human resource, supply chain, finance and information resource activities that support operation of the business; and * Critical Facilities operations. With the exception of those projects that are dependent upon other activities such as power plant unit outages scheduled to occur later in the third or fourth quarter of 1999, the Company currently expects to certify its core, critical business functions as "Year 2000 Ready" in July 1999. However, additional refinements and testing may continue through the end of 1999. Based upon the Nuclear Energy Institute's standard definition, which has been accepted by the Nuclear Regulatory Commission and has been adopted by Wisconsin Energy, "Year 2000 Ready" systems or applications will be suitable for continued use into the Year 2000 even though the system or application may not be fully "Year 2000 Compliant". Potential Risks and Contingency Planning: The Company is continuing an ongoing process of assessing potential Year 2000 risks and uncertainties. However, Wisconsin Energy believes that it is currently premature to define most reasonably likely worst case scenarios related to the Year 2000 issue. The Company's structured Year 2000 program is designed to address its critical business functions, and the Company currently expects to successfully mitigate its controllable internal Year 2000 problems. For its core operations, Wisconsin Energy also relies upon third parties such as (1) other power providers to and operators of the integrated electric transmission and distribution grid, (2) fuel suppliers, (3) producers of natural gas and suppliers of interstate natural gas transportation services, and (4) providers of external infrastructure such as telecommunications, municipal sewer and water as well as emergency services. Failure of these critical third parties to identify and remediate their Year 2000 problems could have a material impact on the Company's operations and financial condition. While the Company's Year 2000 program is structured to identify, assess and mitigate these third party risks where possible, the potential impact and related costs of third party failures have not yet been identified. As part of its normal business practice, the Company maintains and periodically initiates various contingency plans to maintain and restore its energy services during emergency circumstances, some of which could arise from Year 2000 related problems. During 1999, Wisconsin Energy intends to leverage this experience in the development and implementation of Year 2000-related contingency and business continuity plans. As part of this effort, the Company is coordinating its Year 2000 readiness program with various trade associations and industry groups and is working with the Mid America Interconnection Network, the North American Electric Reliability Council and the Wisconsin Reliability Assessment Organization to develop and implement regional electric reliability contingency plans. Financial Implications: Wisconsin Energy currently estimates that it will incur approximately $42 million of expenses, including direct costs for internal employees, during 1998 through 2000 for its Year 2000 program of which $9 million has been incurred as of September 30, 1998. In addition, the Company expects to capitalize costs of approximately $19 million to replace certain existing infrastructure and process control systems of which $4 million has been capitalized as of September 30, 1998. In its May 1998 rate order from the PSCW, Wisconsin Electric received approval for recovery in rates of approximately $13 million per year of Year 2000-related expenses in the Wisconsin jurisdiction during the 1998-1999 biennial period. In addition, the 1998 PSCW rate order included the associated capital expenditures related to Wisconsin Electric's Year 2000 program. The discussion above includes many forward looking statements concerning potential schedules, plans, costs, risks and uncertainties facing Wisconsin Energy as a result of the Year 2000 problem. Based upon its activities to date, the Company expects to successfully implement the changes necessary to become "Year 2000 Ready" by the end of 1999. However, the Year 2000 problem has many elements and potential consequences, some of which may not be reasonably foreseeable, and there can be no assurances that every Year 2000 problem will be identified and addressed or that unforeseen consequences will not arise. Unanticipated factors while implementing the changes necessary to mitigate Year 2000 problems, including the ongoing availability and costs of trained personnel, the ability to locate and correct all relevant codes in computer and embedded systems, or the failure of critical third parties to communicate about and to mitigate their Year 2000 problems could result in unanticipated interruptions in certain core business activities or operations of Wisconsin Energy. LIQUIDITY AND CAPITAL RESOURCES Cash provided by Wisconsin Energy's consolidated operating activities totaled $401 million during the nine months ended September 30, 1998 compared to $329 million provided during the same period in 1997. Between the comparative periods, cash provided by Wisconsin Electric's operating activities totaled $433 million during 1998 compared to $319 million provided during 1997. Cash provided by Wisconsin Electric's operating activities reflect the sale of the Kimberly Cogeneration Equipment in April 1998 to WISVEST Corporation. The sale of this equipment was eliminated in Wisconsin Energy's consolidated statement of cash flows. For additional information concerning the Kimberly Cogeneration Equipment, see "Note M - Commitments and Contingencies" in the Notes to Financial Statements in Wisconsin Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 1997 and in Item 5. Other Information in Part II of Wisconsin Energy's and Wisconsin Electric's combined Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. Wisconsin Energy's consolidated net investing activities totaled $311 million for the nine months ended September 30, 1998 compared to $256 million during the same period in 1997. Investments during the first nine months of 1998 included $280 million for the construction of new or improved facilities of which $230 million was for investments in utility plant at Wisconsin Electric. During the first nine months of 1998, Wisconsin Electric recorded $24 million of payments to and earnings of the Nuclear Decommissioning Trust Fund for the eventual decommissioning of Point Beach and $5 million for the acquisition of nuclear fuel. In June 1998, Wisconsin Electric issued $150 million of 6-1/2% debentures due 2028. Proceeds from the issue were used to reduce short-term borrowings and are being used for other general corporate purposes. In April 1998, Wisconsin Michigan Investment Corporation issued $25 million of 6.48% medium-term notes due in 2008. Proceeds from the issue were added to Wisconsin Michigan Investment Corporation's general funds and used to finance non-utility projects. During the first nine months of 1998, WISPARK Corporation secured $15 million of bank financing in the form of adjustable rate mortgage notes due 2000-2008 to finance the construction or purchase of various facilities. During 1998, Wisconsin Electric decreased its short-term debt by $128 million while Wisconsin Energy's consolidated short-term debt decreased by $84 million. Financing activities during the first nine months of 1998 included a $7 million payment of principal on the maturity of 5.80% Wisconsin Michigan Investment Corporation medium-term notes due 1998 and a $60 million payment of principal on the maturity of 5-1/8% Wisconsin Electric First Mortgage Bonds due 1998. Capital requirements for the remainder of 1998 are expected to be principally for construction expenditures and for payments to the Nuclear Decommissioning Trust Fund for the eventual decommissioning of Point Beach. These cash requirements are expected to be met primarily through internal sources of funds from operations and short-term borrowings. In August 1998, Wisconsin Energy entered into a $100 million 364-day revolving credit agreement and a $150 million five-year revolving credit agreement to provide backup credit support of a commercial paper program. In August 1998, Wisconsin Energy began issuing commercial paper under this program. Proceeds from the sale of the Wisconsin Energy commercial paper are being added to working capital and applied to reduce certain existing non-utility borrowings as well as for non-utility investments. On November 1, 1998, Wisconsin Energy resumed issuing new shares of common stock through the Company's stock plans. Since July 1, 1997, Wisconsin Energy had been purchasing shares for its stock plans on the open market. In October 1998, WISVEST Corporation entered into an agreement to purchase two fossil-fueled power plants for $272 million from The United Illuminating Company, an unaffiliated investor owned utility in New Haven, Connecticut. The sale is expected to close in the second quarter of 1999. WISVEST Corporation anticipates financing the acquisition through long-term project or other financing arrangements. For additional information concerning the purchase of these two power plants, see Item 5. Other Information - "Non- utility Activities" in Part II of this report. Wisconsin Energy is reviewing additional non-utility growth opportunities on an ongoing basis and may make further investments and/or acquisitions from time to time. The specific form, amount and timing of securities which may be issued to support these opportunities have not yet been determined and will depend, to a large extent, on market conditions and other factors. For additional information, see Item 5. Other Information - "Non-utility Activities" in Part II of this report. For certain other information which may impact Wisconsin Energy's or Wisconsin Electric's future financial condition or results of operations, see Item 1. Financial Statements - "Notes to Financial Statements" in Part I of this report as well as Item 1. Legal Proceedings and Item 5. Other Information in Part II of this report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For information concerning Wisconsin Energy's and Wisconsin Electric's market risk exposures, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Three Months Ended March 31 ----------------------------- Gas Operations - "Factors Affecting ResultsWisconsin Electric 1999 1998 % Change - ----------------------------------- ---- ---- -------- Gas Gross Margin ($000) Gas Operating Revenues $ 121,983 $ 119,411 2.2% Cost of Gas Sold 68,860 72,301 (4.8%) --------- --------- Gross Margin $ 53,123 $ 47,110 12.8% ========= =========
Despite an increase in total gas sales, the cost of gas sold decreased by $3 million or 4.8% during the first quarter of 1999 due to a decrease in the per unit cost of purchased gas. Because changes in the cost of natural gas purchased at market prices are included in customer rates through the purchased gas adjustment mechanism, gas operating revenues change at the same rate as the cost of gas sold and gross margin is unaffected by such changes. The following table summarizes Wisconsin Electric's comparative gas therm deliveries during the three months ended March 31, 1999 and 1998.
Three Months Ended March 31 ---------------------------- Gas Operations - Market Risks" in Part II of Wisconsin Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 1997. Griffin Energy Marketing LLC ("Griffin"), a subsidiary of WISVEST Corporation, began marketing energy related services and limited trading of electricity in January 1998. Griffin's activities during the first nine months of 1998 were financially insignificant. WISVEST Corporation is a non- utility subsidiary of Wisconsin Energy. PART II - OTHER INFORMATION --------------------------- ITEM 1. LEGAL PROCEEDINGS The following should be read in conjunction with Item 1. Business and Item 3. Legal Proceedings in Part I and with Item 8. Financial Statements and Supplementary Date in Part II of Wisconsin Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 1997 as well as with Item 1. Legal Proceedings in Part II of Wisconsin Energy's and Wisconsin Electric's combined Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998. RATE MATTERS MICHIGAN RETAIL JURISDICTION 1998 Test Year: In November 1998, Wisconsin Electric filed testimony and exhibits with the Michigan Public Service Commission showing a $3.8 million annual revenue deficiency for its electric utility operations in the State1999 1998 % Change - ----------------------------------- ---- ---- -------- Gas Deliveries (000's of Michigan. Wisconsin Electric is proposing a two stage rate increase in the filing. The first stage would increase rates 9.4% on an annualized basis effective with issuance of an order in the case. The second stage, proposed to be effective July 1, 1999, would increase the stage one rates by another 4.8% on an annualized basis. The primary factors influencing the requested rate increases include: (1) increased costs related to the construction, operation and maintenance of electric generation, transmission and distribution facilities to assure the reliability of electric service, (2) increased costs associated with the need to resolve Year 2000 technology issues and to implement technological solutions to meet customer expectations, (3) increased personnel, (4) increased fuel and purchased power costs, and (5) increased cost of capital. To lessen the impact of these increased costs, Wisconsin Electric is proposing to accelerate the amortization of contributions previously received for customer facilities, similar to what Wisconsin Electric did in its 1998 Test Year proceedings in the Wisconsin retail jurisdiction. ENVIRONMENTAL COMPLIANCE ASH LANDFILLS Highway 59 Landfill: Wisconsin Electric has petitioned the City of Waukesha to extend city water service to residents of the Town of Waukesha affected by contamination from Wisconsin Electric's Highway 59 ash landfill, located in Waukesha County, Wisconsin. The City Council has agreed to extend service at Wisconsin Electric's cost. In addition to providing city water to the ten affected residents, Wisconsin Electric anticipates excavating saturated ash from and capping the landfill.Therms) Residential 151,734 133,829 13.4% Commercial/Industrial 94,233 83,815 12.4% Interruptible 6,613 7,711 (14.2%) ------- ------- Total remediation cost at the site is anticipated to be $7 million. MANUFACTURED GAS PLANT SITES Wisconsin Electric has begun remediation activities at former manufactured gas plant sites in the Cities of Kenosha and Burlington, Wisconsin. Wisconsin Electric also anticipates beginning remediation at the Fort Atkinson, Wisconsin, manufactured gas plant site in 1999. Wisconsin Electric's remediation of these sites is anticipated to be accomplished at an aggregate cost of between $6 million and $11 million. OTHER MATTERS Uranium Enrichment Charges: On October 11, 1996, Wisconsin Electric and six other utilities filed an action in the U.S. Court of Federal Claims appealing a final October 1995 decision by the United States Department of Energy's contracting officer, which denied claims of the utilities for damages by reason of overcharges for uranium enrichment services provided under Utility Services Contracts between October 1, 1992 and June 30, 1993. The damages sought by Wisconsin Electric total $1.3 million. On December 1, 1997, the government filed a motion for judgment on the pleadings based upon a prior decision of the U.S. Court of Appeals for the Federal Circuit in a related matter. On August 12, 1998, the U.S. Court of Federal Claims granted the government's motion for summary judgment, dismissing the utilities' complaint. On October 9, 1998, Wisconsin Electric and the other utilities filed an appeal with the U.S. Court of Appeals for the Federal Circuit. The matter is pending. Personal Injury Suit: On October 1, 1994, a jury returned a $2.85 million verdict against Wisconsin Natural Gas Company ("Wisconsin Natural"Sales 252,580 225,355 12.1% Transported Customer Owned Gas 108,200 99,196 9.1% Other - Interdepartmental 4,486 8,492 (47.2%) in a case in the Circuit Court for Milwaukee County involving a gas pipe fire which injured the plaintiff. (Wisconsin Energy merged Wisconsin Natural, its wholly owned natural gas utility subsidiary, into Wisconsin Electric in January 1996.) On December 23, 1994, Wisconsin Natural resolved the litigation between itself and the plaintiff with a payment of $2.55 million to the plaintiff, of which $550,000 was covered by Wisconsin Natural's general liability insurer. The contract with the construction company that installed the gas pipe provides for indemnification of Wisconsin Natural. On September 5, 1995, Wisconsin Natural commenced an action for such indemnification in the Circuit Court for Milwaukee County against the construction company and its insurers. On October 7, 1996, the Circuit Court granted Wisconsin Natural's motion for summary judgment requiring such indemnification in the amount of $2.55 million plus costs. The defendants appealed this decision to the Wisconsin Court of Appeals. On May 5, 1998, the Wisconsin Court of Appeals reversed the Circuit Court's 1996 decision and granted summary judgment to the construction company and its insurers which denies Wisconsin Natural's right to indemnification. On July 24, 1998, the Wisconsin Supreme Court denied a petition filed by Wisconsin Electric, as successor to Wisconsin Natural, seeking a review of this decision. ITEM 5. OTHER INFORMATION NUCLEAR MATTERS Previous information concerning the status of Point Beach Nuclear Plant is contained in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations - Nuclear Matters" in Wisconsin Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 1997 as well as in Item 5. Other Information - "Nuclear Matters" in Part II of Wisconsin Energy's and Wisconsin Electric's combined Quarterly Reports on Form 10-Q for the quarters------- ------- Total Gas Deliveries 365,266 333,043 9.7% ======= =======
Compared to the same period in 1998, total natural gas therm deliveries increased during the first quarter of 1999 primarily due to colder winter weather. As measured by heating degree days, the first three months of 1999 were 10.8% colder than the same period in 1998. However, the first three months of 1999 were still 4.1% warmer than normal. Increased therm deliveries during the first quarter of 1999 were primarily to residential and commercial customers, who are more sensitive to weather variations and who contribute higher margins to earnings than other customer classes. During the first quarter of 1999, therm deliveries to the Whitewater Cogeneration Facility, owned by an unaffiliated independent power producer, contributed to about half of the 9.1% increase in transported customer owned gas deliveries. The Whitewater Cogeneration Facility, a gas-fired electric cogeneration plant, went into commercial operation in September 1997. Wisconsin Electric purchases the majority of the electricity generated by the Whitewater Cogeneration Facility under a long-term power purchase contract. During the first three months of 1999, natural gas therm deliveries to the other- interdepartmental customer class decreased 47.2% primarily due to increased availability of Wisconsin Electric's Point Beach Nuclear Plant, allowing Wisconsin Electric to change its generation mix during the first quarter of 1999 away from higher cost, company-owned, gas-fired generating facilities. Excluding the other-interdepartmental customer class, total therm deliveries increased 11.2% during the three months ended March 31, 1999 compared to the same period in 1998. Operating Expenses OTHER OPERATIONS AND MAINTENANCE: During the first quarter of 1999, Wisconsin Energy's other operation and maintenance expenses increased by $18 million or 12% compared to the same period during 1998, including approximately a $10 million increase in Wisconsin Electric's administrative and general expenses and a $4 million increase in Wisconsin Electric's nuclear non-fuel expenses. Administrative and general expenses increased during 1999 primarily due to (1) efforts to prepare for Year 2000 technology issues, (2) various other corporate technology improvement efforts, and (3) increased staffing and higher employee pension and benefit expenses. For further information, see "Year 2000 Technology Issues" below in "Factors Affecting Results of Operations." Nuclear non-fuel expenses increased during 1999 primarily due to continuing efforts by Wisconsin Electric to improve the overall performance at Point Beach. Also influencing the 1999 increase in nuclear non-fuel expenses, Wisconsin Electric deferred $18 million of nuclear non-fuel operation and maintenance costs during 1997 and began amortizing these costs to expense in the second quarter of 1998 on a five- year straight line basis. DEPRECIATION: Depreciation expense increased by $3 million or 4.8% during the first three months of 1999 compared to the first three months of 1998 primarily due to the net of increased depreciable plant at Wisconsin Electric during 1999, increased amortizable software during 1999 at Wisconsin Electric, partially offset by a decrease in decommissioning expenses at Wisconsin Electric as a result of lower decommissioning trust fund earnings during 1999. TAXES OTHER THAN INCOME TAXES: Between the comparative periods, taxes other than income taxes increased by approximately $3 million or 12.2% primarily due to higher gross receipts and payroll taxes during the first quarter of 1999. Other Items MISCELLANEOUS NET OTHER INCOME AND DEDUCTIONS: Primarily due to additional expenses at Wisvest Corporation in anticipation of the April 1999 acquisition of two fossil-fueled power plants and for the evaluation of additional potential investments, miscellaneous net other income and deductions decreased by $2 million during the first quarter of 1999 compared to the first quarter of 1998. INTEREST EXPENSE: Wisconsin Energy's interest expense increased by approximately $3 million between the comparative periods primarily due to higher long-term debt balances outstanding during the first quarter of 1999. FACTORS AFFECTING RESULTS OF OPERATIONS NUCLEAR MATTERS POINT BEACH NUCLEAR PLANT: On April 28, 1999, the United States Nuclear Regulatory Commission issued a Notice of Violation related to the status of certain safety related equipment at Point Beach Nuclear Plant in late December 1998 and early January 1999. While the violation constituted an escalated enforcement action, the Nuclear Regulatory Commission elected not to levy a civil penalty, acknowledging the corrective actions implemented and the management attention given to the matter by Wisconsin Electric following identification of the problem. ELECTRIC SYSTEM RELIABILITY MATTERS WISCONSIN INTERFACE RELIABILITY ENHANCEMENT STUDY: The Wisconsin Reliability Assessment Organization was formed in early 1998 to coordinate activities relating to generation and transmission reliability issues in the State of Wisconsin. Wisconsin Electric is an active participant in the Wisconsin Reliability Assessment Organization, whose members include all of the state's other investor owned utilities, staff from the PSCW, several municipal utilities and cooperatives, and utilities from surrounding states. Under direction of the Wisconsin Reliability Assessment Organization, the Wisconsin Interface Reliability Study group is conducting an ongoing study which examines numerous options for improving the reliability of the state's electric system by strengthening its connections with the interstate transmission grid. An assessment of the strengths and weaknesses of various reliability improvement options was completed in April 1999. The Wisconsin Reliability Assessment Organization will combine this information with the results of an environmental screening process and other relevant information to recommend a preferred expansion plan to the PSCW by June 1999. In a related matter, Minnesota Power and Light Company and Wisconsin Public Service Corporation, two unaffiliated investor owned utilities, announced in April 1999 their intent to build, subject to requisite regulatory approvals, a new 345 kilovolt transmission line from Duluth, Minnesota to the middle of the State of Wisconsin, with an expected service date in the year 2003. MIDWEST ISO: Wisconsin Electric is currently participating in the formation of a regional independent electric transmission system operator to promote reliability in the Midwest (the "Midwest ISO"). In June 1998, the PSCW completed a review of independent electric transmission system operators and issued an order that laid out new independent system operator guidelines. In its order, the PSCW stated that the Midwest ISO did not entirely meet the guidelines of its June 1998 order. As a result of changes implemented at the request of the Federal Energy Regulatory Commission since September 1998, Wisconsin Electric believes that the Midwest ISO now complies with the PSCW's June 1998 guidelines. In April 1999, Wisconsin Electric applied to the PSCW for authority to transfer control of its electric transmission system to the Midwest ISO. The matter is pending. YEAR 2000 TECHNOLOGY ISSUES The Company is working to resolve the potential impact of the Year 2000 on its ability to operate critical systems and to accurately process information that may be date sensitive. YEAR 2000 PROJECT: During 1997, the Company created Year 2000 program teams, overseen by executives of the Company, to address its Year 2000 issues. The teams, comprised of representatives with subject matter expertise, are addressing business applications, voice and data infrastructure, process control and embedded systems, and supplier readiness. The Year 2000 teams are following a structured process of inventorying and assessing potential Year 2000 problems, of remediating, testing, and certifying Year 2000 readiness and of developing and implementing Year 2000 risk management contingency plans. Although additional systems or processes may be identified as the program moves forward, the Company has substantially completed an initial inventory of potential Year 2000 problems across all operating areas and completed its assessment of critical areas in the fourth quarter of 1998. The remediation and testing phases are currently in progress and contacts with critical third party suppliers are ongoing. Based upon an initial assessment of critical supplier Year 2000 readiness that was completed in the third quarter of 1998, the Company is currently initiating additional supplier risk mitigation actions. Wisconsin Energy expects to evaluate its significant customers during the remainder of 1999. The Company has structured its Year 2000 program to identify, prioritize and address critical business functions within the Company. With the exception of those projects that are dependent upon activities such as vendor delivery of upgrades or scheduled power plant maintenance outages later in 1999, the Company currently expects its core, critical business functions to be "Year 2000 Ready" by June 30, 1999. However, additional refinements and testing may continue through the end of 1999. Based upon the Nuclear Energy Institute's standard definition, which has been adopted by Wisconsin Energy, "Year 2000 Ready" systems or applications will be suitable for continued use into the Year 2000 even though the system or application may not be fully "Year 2000 Compliant." Wisconsin Electric participates in monthly surveys conducted by the North American Electric Reliability Council ("NERC"). As of April 30, 1999, Wisconsin Electric reported to NERC a readiness of 94% of those critical systems needed to support the generation, transmission and distribution of electricity. POTENTIAL RISKS AND CONTINGENCY PLANNING: The Company is continuing an ongoing process of assessing potential Year 2000 risks and uncertainties. Internal and external risks are included in the Company's assessment and identification of mitigation strategies. Wisconsin Energy expects to successfully mitigate its controllable internal Year 2000 problems. For its core operation, Wisconsin Energy also relies upon third parties such as (1) other power providers to and operators of the integrated electric transmission and distribution grid, (2) fuel suppliers, (3) producers of natural gas and suppliers of interstate natural gas transportation services, and (4) providers of external infrastructure such as telecommunications, municipal sewer and water as well as emergency services. Failure of these critical third parties to identify and remediate their Year 2000 problems could have a material impact on the Company's operation and financial condition. The Company's Year 2000 program is structured to identify, assess and mitigate these third party risks where possible. At this time, Wisconsin Energy believes that mitigation efforts will be successful. As part of its normal business practice, the Company maintains and periodically initiates various contingency plans to maintain and restore its energy services during emergency circumstances, some of which could arise from Year 2000 related problems. During 1999, Wisconsin Energy intends to leverage this experience in the development and implementation of Year 2000 related contingency and business continuity plans. As part of this effort, the Company is coordinating its Year 2000 readiness program with various trade associations and industry groups and is working with the Mid-America Interconnected Network, Inc., ("MAIN"), NERC and the Wisconsin Reliability Assessment Organization to develop and implement regional electric reliability contingency plans. Wisconsin Electric is participating with other utilities in MAIN to develop reasonably likely worst case scenarios for the region. Scenarios that have been jointly identified and assessed are: * Loss or unavailability of some generation. * Partial loss of system monitoring and control functions, including data communication. * Partial loss of voice communications. * Loss of transmission facilities. * Loss of load and/or uncharacteristic loads. Wisconsin Electric agrees with MAIN's assessment that the probability of these scenarios occurring due to Year 2000 is not significantly in excess of normal expectations. The Company's current operating and contingency plans are expected to adequately handle the above scenarios. The Company is reviewing its operating and contingency plans to identify further enhancements or updates specifically addressing Year 2000 issues. FINANCIAL IMPLICATIONS: Wisconsin Energy currently estimates that it will incur $43 million of expenses during 1998 through 2000 for its Year 2000 program. Approximately $21 million has been incurred as of March 31, 1999. In addition, the Company expects to capitalize costs of approximately $20 million to replace certain existing infrastructure and process control systems of which approximately $13 million has been capitalized as of March 31, 1999. For additional information concerning Year 2000 Technology Issues, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations" in Part II of Wisconsin Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 1998. The discussion above includes many forward looking statements concerning potential schedules, plans, costs, risks and uncertainties facing Wisconsin Energy as a result of the Year 2000 problem. Based upon its activities to date, the Company expects to successfully implement the changes necessary to become "Year 2000 Ready" by the end of 1999. However, the Year 2000 problem has many elements and potential consequences, some of which may not be reasonably foreseeable, and there can be no assurances that every Year 2000 problem will be identified and addressed or that unforeseen consequences will not arise. Unanticipated factors while implementing the changes necessary to mitigate Year 2000 problems, including the ongoing availability and costs of trained personnel, the ability to locate and correct all relevant codes in computer and embedded systems, or the failure of critical third parties to communicate about and to mitigate their Year 2000 problems could result in unanticipated interruptions in certain core business activities or operations of Wisconsin Energy. OUTLOOK EARNINGS: Results during the first quarter of 1999 indicate that the Company is on course to meet currently anticipated earnings in the range of $1.85 to $2.05 per share during 1999. This earnings forecast is a forward-looking statement subject to certain risks, uncertainties and assumptions. Actual results may materially vary. Factors that could cause actual results to differ materially include, but are not limited to: business and competitive conditions in the energy industry, in general, and in the Company's utility service territories; availability of the Company's generating facilities; changes in purchased power costs; and the economy, weather, the restructuring of the electric and gas utility industries, and unforeseen problems with non-utility diversification efforts. See "Cautionary Factors" below. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES: Cash provided by operating activities totaled $152 million at Wisconsin Energy and $168 million at Wisconsin Electric during the first three months of 1999. This compares to $159 million at Wisconsin Energy and $166 million at Wisconsin Electric during the same period in 1998. INVESTING ACTIVITIES: Net investing activities totaled $123 million at Wisconsin Energy and $100 million at Wisconsin Electric during the first quarter of 1999 compared to $86 million at Wisconsin Energy and $80 million at Wisconsin Electric during the same period in 1998. Investments during the first quarter of 1999 included $106 million for the acquisition or construction of new or improved facilities of which $81 million was for a number of projects related to utility plant at Wisconsin Electric. During the first three months of 1999, Wisconsin Electric recorded $8 million of payments to and earnings of the Nuclear Decommissioning Trust Fund for the eventual decommissioning of Point Beach Nuclear Plant and $5 million for the acquisition of nuclear fuel. In April 1999, Wisvest Connecticut, LLC completed the acquisition of two fossil-fueled power plants for $272 million from The United Illuminating Company. For additional information, see the "Notes To Financial Statements" above in Part I of this report. FINANCING ACTIVITIES: During the first quarter of 1999, Wisconsin Energy received a net of $73 million through financing activities compared to using a net of $72 million for financing activities during the first quarter of 1998. On March 25, 1999, WEC Capital Trust I, a Delaware business trust of which Wisconsin Energy owns all of the outstanding common securities, issued $200 million of 6.85% Trust Preferred Securities due March 31, 2039. WEC Capital Trust I used the proceeds from the sale of the trust preferred securities to purchase corresponding junior subordinated debentures due March 31, 2039 from Wisconsin Energy. Wisconsin Energy used the proceeds from the sale of its junior subordinated debentures to fund a capital contribution of approximately $105 million to Wisvest Connecticut, LLC for acquisition in April 1999 of the two fossil-fueled power plants from The United Illuminating Company and for repayment of short-term borrowings. During the first quarter of 1999, Wisconsin Energy reduced its short-term debt by $120 million. For additional information concerning the acquisition of the The United Illuminating Company's electric generating plants, see the "Notes To Financial Statements" above in Part I of this report. During the three months ended March 31, 1999, Wisconsin Energy issued 714,967 new shares of common stock which were purchased by participants in the Company's stock plans with cash investments and reinvested dividends aggregating approximately $19 million. CAPITAL REQUIREMENTS AND RESOURCES: Capital requirements for the remainder of 1999 are expected to be principally for construction expenditures, for long-term debt maturity and sinking fund requirements and for payments to the Nuclear Decommissioning Trust Fund for the eventual decommissioning of Point Beach. These cash requirements are expected to be met through a combination of several of the following resources: internal sources of funds from operations, short-term borrowings, the issuance of intermediate or long-term debt, the issuance of additional trust preferred securities, and proceeds from the sale of new issue common stock under Wisconsin Energy's stock plans. Wisconsin Electric plans to issue up to $150 million of debentures during the remainder of 1999. Wisconsin Energy is reviewing additional non-utility growth opportunities on an ongoing basis, primarily in the areas of power generation development and acquisitions, waste to energy recycling technologies and real estate investments. The Company may make further investments and/or acquisitions from time to time. For certain other information which may impact Wisconsin Energy's and Wisconsin Electric's future financial condition or results of operations, see Item 1. Financial Statements - "Notes to Financial Statements" in Part I of this report as well as Item 1. Legal Proceedings in Part II of this report. CAUTIONARY FACTORS This report and other documents or oral presentations contain or may contain forward-looking statements made by or on behalf of Wisconsin Energy or Wisconsin Electric. Such statements are based upon management's current expectations and are subject to risks and uncertainties that could cause Wisconsin Energy's or Wisconsin Electric's actual results to differ materially from those contemplated in the statements. Readers are cautioned not to place undue reliance on the forward-looking statements. When used in written documents or oral presentations, the terms "anticipate," "believe," "estimate," "expect," "objective," "plan," "possible," "potential," "project" and similar expressions are intended to identify forward-looking statements. In addition to the assumptions and other factors referred to specifically in connection with such statements, factors that could cause Wisconsin Energy's or Wisconsin Electric's actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: * Factors affecting utility operations such as unusual weather conditions; catastrophic weather-related damage; availability of Wisconsin Electric's, Edison Sault's or Wisvest Connecticut, LLC's generating facilities; unscheduled generation outages, maintenance or repairs; unanticipated changes in fossil fuel, nuclear fuel, purchased power, gas supply or water supply costs or availability due to higher demand, shortages, transportation problems or other developments; nonperformance by electric energy or natural gas suppliers under existing power purchase or gas supply contracts; nuclear or environmental incidents; resolution of spent nuclear fuel storage and disposal issues; electric transmission or gas pipeline system constraints; unanticipated organizational structure or key personnel changes; collective bargaining agreements with union employees or work stoppages; inflation rates; or demographic and economic factors affecting utility service territories or operating environment. * Regulatory factors such as unanticipated changes in rate- setting policies or procedures; unanticipated changes in regulatory accounting policies and practices; industry restructuring initiatives; transmission system operation and/or administration initiatives; recovery of costs of previous investments made under traditional regulation; required approvals for new construction; changes in the United States Nuclear Regulatory Commission's regulations related to Point Beach Nuclear Plant; changes in the United States Environmental Protection Agency's as well as the Wisconsin or Michigan Department of Natural Resources' regulations related to emissions from fossil-fuel-fired power plants; or the siting approval process for new generation and transmission facilities. * The rapidly changing and increasingly competitive electric and gas utility environment as market-based forces replace strict industry regulation and other competitors enter the electric and gas markets resulting in increased wholesale and retail competition. * Consolidation of the industry as a result of the combination and acquisition of utilities in the Midwest, nationally and globally. * Certain restrictions imposed by various financing arrangements and regulatory requirements on the ability of Wisconsin Electric or other subsidiaries to transfer funds to Wisconsin Energy in the form of cash dividends, loans or advances. * Changes in social attitudes regarding the utility and power industries. * Customer business conditions including demand for their products or services and supply of labor and material used in creating their products and services. * The cost and other effects of legal and administrative proceedings, settlements, and investigations, claims and changes in those matters. * Factors affecting the availability or cost of capital such as changes in interest rates; market perceptions of the utility industry, the Company or any of its subsidiaries; or security atings. * Federal, state or local legislative factors such as changes in tax laws or rates; changes in trade, monetary and fiscal policies, laws and regulations; electric and gas industry restructuring initiatives; or changes in environmental laws and regulation. * Authoritative generally accepted accounting principle or policy changes from such standard setting bodies as the Financial Accounting Standards Board and the Securities and Exchange Commission. * Unanticipated technological developments that result in competitive disadvantages and create the potential for impairment of existing assets. * Unanticipated developments while implementing the modifications necessary to mitigate Year 2000 compliance problems, including the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes in computer and embedded systems, the indirect impacts of third parties with whom the Company does business and who do not mitigate their Year 2000 compliance problems, and similar uncertainties. * Possible risks associated with non-utility diversification such as competition; operating risks; dependence upon certain suppliers and customers; the cyclical nature of property values that could affect real estate investments; unanticipated changes in environmental or energy regulations; timely regulatory approval without onerous conditions of potential acquisitions; and risks associated with minority investments, where there is a limited ability to control the development, management or operation of the project. * Legislative or regulatory restrictions or caps on non-utility acquisitions, investments or projects, including the State of Wisconsin's Public Utility Holding Company Law, which could limit the Company's diversification and growth opportunities or require the Company to divest of certain existing non-utility assets. * Factors affecting foreign non-utility operations including foreign governmental actions; foreign economic and currency risks; political instability; and unanticipated changes in foreign environmental or energy regulations. * Other business or investment considerations that may be disclosed from time to time in Wisconsin Energy's or Wisconsin Electric's Securities and Exchange Commission filings or in other publicly disseminated written documents. Wisconsin Energy and Wisconsin Electric undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For information concerning Wisconsin Energy's and Wisconsin Electric's market risk exposures, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations - Market Risks" in Part II of Wisconsin Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 1998. PART II - OTHER INFORMATION --------------------------- ITEM 1. LEGAL PROCEEDINGS The following should be read in conjunction with Item 3. Legal Proceedings in Part I of Wisconsin Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 1998. RATE MATTERS WISCONSIN RETAIL JURISDICTION FUEL COST ADJUSTMENT PROCEDURE: As part of the PSCW's 1998 Rate Order, Wisconsin Electric was required to file by October 1, 1998 its forecast of electric fuel costs for the 1999 calendar year. Wisconsin Electric filed the forecast with the PSCW indicating no change in fuel costs compared to 1998. Following subsequent discussions, the PSCW issued an order effective May 1, 1999 authorizing Wisconsin Electric to implement a retail revenue fuel credit of $.00033 per kilowatt-hour or approximately $7.8 million on an annualized basis. PURCHASED GAS ADJUSTMENT MECHANISM: Purchased gas adjustment mechanisms have been evaluated as part of the PSCW's ongoing generic investigation of the natural gas industry in the State of Wisconsin. On July 1, 1997, Wisconsin Electric filed a modified dollar for dollar gas cost recovery mechanism in accordance with a November 1996 order from the PSCW. This filing was updated on June 30, 1998 and was approved on March 23, 1999 for implementation July 1, 1999. The new gas cost recovery mechanism will include after the fact prudence reviews by the PSCW. Wisconsin Electric does not expect that the major portion of gas costs that are currently passed through to customers will be subject to price risk under the new gas cost recovery mechanism. MICHIGAN RETAIL JURISDICTION 1998 TEST YEAR: In November 1998, Wisconsin Electric filed testimony and exhibits with the Michigan Public Service Commission showing a $3.8 million annual revenue deficiency for its electric utility operations in the State of Michigan. On April 12, 1999, the Michigan Public Service Commission issued an order authorizing Wisconsin Electric to implement retail electric rate increases effective April 13, 1999 in the amount of $2.1 million on an annualized basis. The increase was based upon an authorized regulatory return on common equity of 11.0%. OTHER MATTERS WISCONSIN INTERNATIONAL ELECTRIC POWER LITIGATION: On March 25, 1998, Wisconsin International Electric Power, Ltd. ("WIEP") filed an action against Wisconsin Electric in Milwaukee County Circuit Court alleging that WIEP and Wisconsin Electric were parties to a joint venture to develop, build, operate and maintain an electric generating plant at Subic Bay in the Philippines involving certain equipment originally purchased by Wisconsin Electric for a proposed cogeneration facility in Kimberly, Wisconsin. The complaint in the action alleges that Wisconsin Electric breached contractual duties allegedly owed to WIEP, causing damages to WEIP in an amount claimed to be at least $100 million. On April 15, 1998, Wisconsin Electric filed an answer to the complaint denying liability. On March 1, 1999, Wisconsin Electric filed a motion for summary judgment and supporting papers on all but one count of the complaint. On April 19, 1999, the court granted summary judgment dismissing one count which alleged unjust enrichment. On April 30, 1999, Wisconsin Electric received a copy of WIEP's amended complaint seeking additional relief in the form of punitive damages in an amount to be determined at trial. On May 3, 1999, the court issued a decision and order granting summary judgment dismissing two counts of the complaint which alleged that Wisconsin Electric breached a joint venture agreement and a fiduciary duty arising out of such relationship. The case is scheduled for trial in mid-May 1999 on the remaining four counts of the complaint. MINERGY GLASS AGGREGATE PLANT SUIT: In 1996, three individuals and two environmental organizations filed an action in Circuit Court for Winnebago County against Minergy Corp., a non-utility subsidiary of Wisconsin Energy; against the City of Neenah, Wisconsin; and against a paper company, challenging the legality of the City's lease of certain land to Minergy for construction and operations of a facility that recyles paper sludge from area paper mills into glass aggregate and steam. The plantiffs alleged that the lease violated the public trust doctrine under Wisconsin law and requested that the court declare the lease a public nuisance and grant a permanent injunction against construction of the facility. The court dismissed the plaintiffs' complaint and Minergy completed construction of the facility, placing it into commercial operation in April 1998. The plaintiffs appealed the circuit court decision to the Wisconsin Court of Appeals which certified the case to the Wisconsin Supreme Court. On July 2, 1998, the Supreme Court reversed the decision of the circuit court, holding that the plantiffs may bring suit under a Wisconsin statute to abate a public nuisance. The case was remanded to the circuit court which, on February 23, 1999, issued a decision dimissing all claims against Minergy and the other defendants. On May 5, 1999, the plantiffs again appealed the circuit court decision to the Court of Appeals. The matter is pending. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS. The following Exhibits are filed with the applicable Form 10-Q report: Exhibit No. ----------- WISCONSIN ENERGY CORPORATION EXHIBITS (21)-1 Subsidiaries of Wisconsin Energy Corporation. (27)-1 Wisconsin Energy Corporation Financial Data Schedule for the three months ended March 31, 1999. WISCONSIN ELECTRIC POWER COMPANY EXHIBITS (12)-1 Wisconsin Electric Power Company Statement of Computation of Ratios of Earnings to Fixed Charges for the twelve months ended March 31, 1999. (27)-2 Wisconsin Electric Power Company Financial Data Schedule for the three months ended March 31, 1999. (b) REPORTS ON FORM 8-K. A Current Report on Form 8-K dated as of March 16, 1999 was filed by Wisconsin Energy on March 24, 1999 to file the opinion of Quarles & Brady LLP as to certain tax matters in connection with Trust Preferred Securities sold pursuant to Registration Statement No. 333-73137. A Current Report on Form 8-K dated as of March 25, 1999 was filed by Wisconsin Energy on April 9, 1999 to file certain exhibits in connection with Trust Preferred Securities issued on March 25, 1999 pursuant to Registration Statement No. 333- 73137. No other reports on Form 8-K were filed by Wisconsin Energy or by Wisconsin Electric during the quarter ended March 31, 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WISCONSIN ENERGY CORPORATION ---------------------------- (Registrant) /s/ Calvin H. Baker --------------------------------------- Date: May 14, 1999 Calvin H. Baker, Treasurer, Chief Financial Officer and duly authorized officer WISCONSIN ELECTRIC POWER COMPANY -------------------------------- (Registrant) /s/ Calvin H. Baker --------------------------------------- Date: May 14, 1999 Calvin H. Baker, Vice President-Finance, Chief Financial Officer and duly authorized officer WISCONSIN ENERGY CORPORATION ---------------------------- FORM 10-Q REPORT FOR THE QUARTER ENDED MARCH 31, 1999 EXHIBIT INDEX The following exhibits are filed with this report: Exhibit No. - ----------- (21)-1 Subsidiaries of Wisconsin Energy Corporation (27)-1 Wisconsin Energy Corporation Financial Data Schedule for the three months ended March 31, 1998 and June 30, 1998. Point Beach Nuclear Plant: Wisconsin Electric currently expects to begin a scheduled refueling and maintenance outage of Point Beach Unit 2 in early December 1998 and to return the unit to service in February 1999. During this outage, Wisconsin Electric plans to replace the unit's low pressure turbine rotors, which is expected to increase the dependable generating capability of Unit 2 from 500 to approximately 512 megawatts. Wisconsin Electric also intends to initiate an extended fuel cycle following this outage, which should allow for the operation of Unit 2 until its next scheduled outage in the fall of 2000. The next refueling and maintenance outage for Point Beach Unit 1 is scheduled to begin during the fall of 1999. In August 1998, Wisconsin Electric announced that it was participating in cooperative alliances with three other unaffiliated investor owned utilities in the region to take advantage of the combined skills of their employees and share resources in an effort to improve plant performance and reliability, strengthen operational efficiency and maintain high safety levels. Working teams are currently being organized to implement cooperative alliances in several areas including fuel management, Year 2000 initiatives, inventory management, information exchange and self-assessment programs. The companies participating in the cooperative alliances own and operate a total of five nuclear plants in the States of Iowa, Minnesota and Wisconsin with total generation exceeding 3,600 megawatts. Wisconsin Electric continues to examine other potential joint operation approaches that could benefit the safe, reliable and cost effective operation of Point Beach. Spent Fuel Storage and Disposal: Wisconsin Electric completed construction of an Independent Spent Fuel Storage Installation ("ISFSI") in 1995 for the temporary dry storage of spent nuclear fuel at Point Beach. The PSCW has authorized Wisconsin Electric to load up to twelve casks containing a total of 288 fuel assemblies with spent fuel and transfer the casks to the ISFSI. To date, four VSC-24 casks, designed by Sierra Nuclear Corporation and containing a total of 96 spent fuel assemblies, have been loaded and moved to the ISFSI. Wisconsin Electric is currently loading one additional VSC-24 cask with spent fuel and plans to load four additional casks during 1999 and the remaining three authorized casks in 2000. To increase its options associated with the continued temporary dry storage of spent fuel at Point Beach, Wisconsin Electric has initiated the process of obtaining three alternative model TN-32 casks from Transnuclear Corp.. The TN-32 dry storage casks have been previously approved by the United States Nuclear Regulatory Commission ("NRC") for specific use at other nuclear generating facilities in the United States. Wisconsin Electric currently plans to obtain the three TN-32 casks by the spring of 2000. In August 1998, the PSCW issued an order approving the substitution of up to six TN-32 casks for VSC-24 casks at Point Beach in the event that this becomes necessary. Wisconsin Electric believes that the NRC will authorize general use of TN-32 casks by early in the year 2000. Wisconsin Electric estimates that, with implementation of the extended fuel cycles, with the remaining authorized casks and with the remaining space in the spent fuel pool in its current configuration, it has sufficient temporary spent fuel storage capacity to continue operating Point Beach until 2004. Wisconsin Electric currently plans to apply with the PSCW in the spring of 1999 for authority to load additional casks beyond the twelve that are currently authorized. In its application with the PSCW, Wisconsin Electric anticipates seeking authority to begin loading these additional casks by no later than 2002 so that it can preserve its current ability to unload a full core into the spent fuel pool thereby maintaining operational flexibility at Point Beach. ELECTRIC SYSTEM RELIABILITY INITIATIVES & COMPETITION For information concerning electric system reliability, structure and competition matters, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations - Electric System Reliability Matters" and "Industry Restructuring and Competition" in Part II of Wisconsin Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 1997 as well as Item 5. Other Information in Part II of Wisconsin Energy's and Wisconsin Electric's combined Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998. ADDITIONAL GENERATING CAPACITY 300-Megawatt Facility: In August 1998, Wisconsin Electric and Atlanta-based Southern Energy, Inc., a subsidiary of Southern Company, signed a formal power purchase agreement wherein Southern Energy, Inc. will license, construct, own and operate a 300-megawatt natural gas-fired peaking power plant and sell its electric output to Wisconsin Electric for eight years. The agreement satisfies Wisconsin Electric's responsibility under directives from the PSCW and under the new reliability legislation, 1997 Wisconsin Act 204, signed into law in April 1998 by Wisconsin's Governor. The primary site for the facility is in Neenah, Wisconsin. Southern Energy filed a certificate of public convenience and necessity ("CPCN") application for the facility, and the PSCW has accepted the application as complete. A CPCN from the PSCW is expected by early February 1999. The facility is scheduled for commercial operation by June 2000. PSCW RULEMAKING PROCEEDINGS Electric Transmission Report: As required in 1997 Wisconsin Act 204, the PSCW published its "Report to the Wisconsin Legislature on the Regional Electric Transmission System" on September 1, 1998. The report identifies transmission constraints on the regional bulk power transmission system and identifies a short list of twelve representative new transmission line options. The report emphasizes the need to approximately double the State of Wisconsin's power import capability to 3,000 megawatts to maintain reliability. Detailed studies are underway to select the best options. The licensing process for one or more new high voltage transmission lines will begin in 1999. MIDWEST ISO By order dated September 16, 1998, the Federal Energy Regulatory Commission ("FERC") conditionally approved the Midwest Independent Transmission System Operator ("ISO"). The Midwest ISO applicants have requested rehearing of certain portions of that order and FERC action by December 31, 1998. MPSC ELECTRIC UTILITY INDUSTRY CHOICE SCHEDULE In the State of Michigan, restructuring proposals are being considered by policy makers on several fronts. The Michigan Public Service Commission ("MPSC") has issued several orders that phase in competition through the year 2002. The Michigan Legislature is also working on a plan to restructure the electric industry. In June 1997, the MPSC issued an order that initiated the framework for electric industry restructuring and would phase in competition for all Michigan retail electric customers by the year 2002. The MPSC issued additional orders in October 1997 and January 1998 that continued the process of establishing the framework to introduce competition into the Michigan electric market. The October 1997 orders dealt with determination of the rates and conditions of service for those customers choosing direct access and suspended the direct access bidding schedule included in the June 1997 order. In the January 1998 orders, the MPSC concluded that statewide uniform timing was not necessary for direct access and established a schedule for customers of Consumers Energy and Detroit Edison, the two major investor owned utilities with service territories in Michigan's Lower Peninsula. Several parties, including Consumers Energy and Detroit Edison, have petitioned for rehearing of the MPSC's orders. During 1998, the utilities in the Upper Peninsula of Michigan proposed a plan to implement full customer choice on the latter of January 1, 2002 or the date of implementation for Consumers Energy and Detroit Edison. The MPSC staff has supported the proposal and a settlement agreement is being developed. NON-UTILITY ACTIVITIES In October 1998, WISVEST Corporation entered into an agreement to purchase two fossil-fueled power plants for $272 million from The United Illuminating Company, an unaffiliated investor owned utility in New Haven, Connecticut. Pursuant to the agreement, WISVEST Corporation is purchasing the Bridgeport Harbor Station, which has an active generating capacity of 590 megawatts and a total generating capacity of 667 megawatts, as well as the 466-megawatt New Haven Harbor Station. The Bridgeport Harbor Station, located in Bridgeport Connecticut, is comprised of two oil-fired units, one oil and coal-fired unit and one jet-fueled unit. The New Haven Harbor Station, located in New Haven, Connecticut, has one oil and gas-fired generating unit. The sale, expected to close in the second quarter of 1999, is contingent upon approval from the Connecticut Department of Public Utility Control, the FERC and other federal and State of Connecticut agencies. Wisconsin Energy is reviewing additional non-utility growth opportunities on an ongoing basis, primarily in the areas of power generation development and acquisitions, waste to energy recycling technologies and real estate investments. The Company may make further investments and/or acquisitions from time to time. WISCONSIN ENERGY BOARD OF DIRECTORS In October 1998, Wisconsin Energy's Board of Directors elected two new board members effective November 1, 1998, increasing Wisconsin Energy's board to ten directors. Barbara L. Bowles is president and founder of The Kenwood Group, Inc., a Chicago-based investment advisory firm that manages pension funds for corporations, public institutions and endowments. Ms. Bowles, whose term expires at the Wisconsin Energy annual meeting in 2000, was formerly corporate vice president and director of investor relations at Kraft, Inc. Judi North is president and CEO of VSI Enterprises, Inc., an Atlanta-based company with five subsidiaries that design, manufacture, market and support videoconferencing and integrated telecommunications software and services. Ms. North, whose term expires at the Wisconsin Energy annual meeting in 1999, was formerly president of consumer services at BellSouth Telecommunications. CAUTIONARY FACTORS This report and other documents or oral presentations contain or may contain forward-looking statements made by or on behalf of Wisconsin Energy or Wisconsin Electric. Such statements are based upon management's current expectations and are subject to risks and uncertainties that could cause Wisconsin Energy's or Wisconsin Electric's actual results to differ materially from those contemplated in the statements. Readers are cautioned not to place undue reliance on these forward-looking statements. When used in written documents or oral presentations, the terms "anticipate", "believe", "estimate", "expect", "objective", "plan", "possible", "potential", "project" and similar expressions are intended to identify forward-looking statements. In addition to the assumptions and other factors referred to specifically in connection with such statements, factors that could cause Wisconsin Energy's or Wisconsin Electric's actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: * Factors affecting utility operations such as unusual weather conditions; catastrophic weather-related damage; availability of Wisconsin Electric's or Edison Sault's generating facilities including Point Beach Nuclear Plant; unscheduled generation outages, maintenance or repairs; unanticipated changes in fossil fuel, nuclear fuel, purchased power, gas supply or water supply costs or availability due to higher demand, shortages, transportation problems or other developments; nonperformance by electric energy or natural gas suppliers under existing power purchase or gas supply contracts; nuclear or environmental incidents; resolution of spent nuclear fuel storage and disposal issues; electric transmission or gas pipeline system constraints; unanticipated organizational structure or key personnel changes; collective bargaining agreements with union employees or work stoppages; inflation rates; or demographic and economic factors affecting utility service territories or operating environment. * Regulatory factors such as unanticipated changes in rate-setting policies or procedures; unanticipated changes in regulatory accounting policies and practices; industry restructuring initiatives; transmission system operation and/or administration initiatives; recovery of costs of previous investments made under traditional regulation; required approvals for new construction; changes in the United States Nuclear Regulatory Commission's regulations related to Point Beach Nuclear Plant; changes in the United States Environmental Protection Agency's as well as the Wisconsin or Michigan Department of Natural Resources' regulations related to emissions from fossil-fuel-fired power plants; or the siting approval process for new generation and transmission facilities. * The rapidly changing and increasingly competitive electric and gas utility environment as market-based forces replace strict industry regulation and other competitors enter the electric and gas markets resulting in increased wholesale and retail competition. * Consolidation of the industry as a result of the combination and acquisition of utilities in the midwest, nationally and globally. * Certain restrictions imposed by various financing arrangements and regulatory requirements on the ability of Wisconsin Electric to transfer funds to Wisconsin Energy in the form of cash dividends, loans or advances. * Changes in social attitudes regarding the utility and power industries. * Customer business conditions including demand for their products or services and supply of labor and materials used in creating their products and services. * The cost and other effects of legal and administrative proceedings, settlements, and investigations, claims and changes in those matters. * Factors affecting the availability or cost of capital such as changes in interest rates; market perceptions of the utility industry, the Company or any of its subsidiaries; or security ratings. * Federal, state or local legislative factors such as changes in tax laws or rates; changes in trade, monetary and fiscal policies, laws and regulations; electric and gas industry restructuring initiatives; or changes in environmental laws and regulations. * Authoritative generally accepted accounting principle or policy changes from such standard setting bodies as the Financial Accounting Standards Board and the Securities and Exchange Commission. * Unanticipated technological developments that result in competitive disadvantages and create the potential for impairment of existing assets. * Unanticipated developments while implementing the modifications necessary to mitigate Year 2000 compliance problems, including the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes in computer and embedded systems, the indirect impacts of third parties with whom the Company does business and who do not mitigate their Year 2000 compliance problems, and similar uncertainties. * Possible risks associated with non-utility diversification such as competition; operating risks; dependence upon certain suppliers and customers; the cyclical nature of property values that could affect real estate investments; unanticipated changes in environmental or energy regulations; timely regulatory approval without onerous conditions of potential acquisitions; and risks associated with minority investments, where there is a limited ability to control the development, management or operation of the project. * Legislative or regulatory restrictions or caps on non-utility acquisitions, investments or projects. * Factors affecting foreign non-utility operations including foreign governmental actions; foreign economic and currency risks; political instability; and unanticipated changes in foreign environmental or energy regulations. * Other business or investment considerations that may be disclosed from time to time in Wisconsin Energy's or Wisconsin Electric's Securities and Exchange Commission filings or in other publicly disseminated written documents. Wisconsin Energy and Wisconsin Electric undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following Exhibits are filed with the applicable Form 10-Q report: Exhibit No. Wisconsin Energy Exhibits (27)-1 Wisconsin Energy Corporation Financial Data Schedule for the nine months ended September 30, 1998. Wisconsin Electric Exhibits (27)-2 Wisconsin Electric Power Company Financial Data Schedule for the nine months ended September 30, 1998. (b) Reports on Form 8-K. Neither Wisconsin Energy nor Wisconsin Electric filed any Form 8-K reports during the quarter ended September 30, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WISCONSIN ENERGY CORPORATION (Registrant) /s/ Calvin H. Baker ---------------------------- Date: November 13, 1998 Calvin H. Baker, Treasurer, Chief Financial Officer and duly authorized officer WISCONSIN ELECTRIC POWER COMPANY -------------------------------- (Registrant) /s/ Calvin H. Baker ---------------------------- Date: November 13, 1998 Calvin H. Baker, Vice President Finance, Chief Financial Officer and duly authorized officer WISCONSIN ENERGY CORPORATION ---------------------------------------- FORM 10-Q REPORT FOR THE QUARTER ENDED SEPTEMBER 30, 1998 EXHIBIT INDEX Exhibit No. - ----------- The following Exhibit is filed with this report: (27)-1 Wisconsin Energy Corporation Financial Data Schedule for the nine months ended September 30, 1998.