UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 19992000
Commission Registrant; State of Incorporation IRS Employer
File Number Address; and Telephone Number Identification No.
- ----------- ---------------------------------- ------------------
1-9057001-09057 WISCONSIN ENERGY CORPORATION 39-1391525
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2949
Milwaukee, WI 53201
(414) 221-2345
1-1245001-01245 WISCONSIN ELECTRIC POWER COMPANY 39-0476280
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2046
Milwaukee, WI 53201
(414) 221-2345
Indicate by check mark whether each Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that each Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest
practicable date ( May(May 5, 1999 ):2000):
Wisconsin Energy Corporation Common Stock, $.01 Par Value,
Corporation 116,466,262120,451,611 shares
outstanding.
Wisconsin Electric Power Company Common Stock, $10 Par Value,
Company
33,289,327 shares outstanding.
Wisconsin Energy Corporation
is the sole holder of
Wisconsin Electric Power
Company Common Stock
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
FORM 10-Q REPORT FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
Item Page
- ---- ----
Introduction
Part I - Financial Information
------------------------------
1. Financial Statements
Wisconsin Energy
Consolidated Condensed Income Statement
Consolidated Condensed Balance Sheet
Consolidated Statement of Cash Flows
Wisconsin Electric
Condensed Income Statement
Condensed Balance Sheet
Statement of Cash Flows
Notes to Financial Statements of
Wisconsin Energy and Wisconsin Electric
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for Wisconsin
Energy and Wisconsin Electric
3. Quantitative and Qualitative Disclosures
About Market Risk.
Part II - Other Information
---------------------------
1. Legal Proceedings
6. Exhibits and Reports on Form 8-K
SignaturesStock.
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
--------------------------------
FORM 10-Q REPORT FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
Item Page
- ---- ----
Introduction...............................................................
Part I - Financial Information
------------------------------
1. Financial Statements
Wisconsin Energy
Consolidated Condensed Income Statement................................
Consolidated Condensed Balance Sheet...................................
Consolidated Statement of Cash Flows...................................
Wisconsin Electric
Condensed Income Statement.............................................
Condensed Balance Sheet................................................
Statement of Cash Flows................................................
Notes to Financial Statement of
Wisconsin Energy and Wisconsin Electric................................
2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations for Wisconsin Energy and Wisconsin Electric................
3. Quantitative and Qualitative Disclosures About Market Risk.................
Part II - Other Information
---------------------------
1. Legal Proceedings..........................................................
6. Exhibits and Reports on Form 8-K...........................................
Signatures.................................................................
INTRODUCTION
Wisconsin Energy Corporation ("Wisconsin Energy" or the
"Company") is a holding company whose principal subsidiary as of
March 31, 2000 is Wisconsin Electric Power Company ("Wisconsin
Electric"), an electric, gas and steam utility. Unless qualified
by its context the termwhen used in this combined Form 10-Q, Wisconsin
Energy refers to the holding company and all of its subsidiaries when used in this combined Form 10-Q.subsidiaries.
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. TheThese 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, 1998.1999. This combined Form 10-Q is
separately filed by Wisconsin Energy and Wisconsin Electric.
Information contained herein relating to any individual
registrant is filed by such registrant on its own behalf.
PART I1 - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED INCOME STATEMENT
(Unaudited)
Three Months Ended March 31
---------------------------
2000 1999
1998
---- --------------- ---------
(Thousands of Dollars, Except Per Share Amounts)
Operating Revenues Electric $406,555 $383,640
Gas 121,983 119,411
Steam 8,182 7,630
-------- --------
Total Operating Revenues 536,720 510,681$627,750 $556,717
Operating Expenses
Fuel 94,553 70,735 73,901
Purchased power 34,985 36,59165,779 49,660
Cost of gas sold 69,292 68,860 72,301
Other operation expenses 125,217 110,038
Maintenance 44,095 40,818and maintenance 185,140 182,466
Depreciation 65,268 62,273
Taxes other than income taxes 23,244 20,716
Federal incomeand amortization 103,660 66,956
Property and revenue tax 26,127 19,893
State income tax 5,963 4,768
Deferred income taxes - net (2,793) 3,143
Investment tax credit - net (1,148) (1,172)20,727 17,724
-------- --------
Total Operating Expenses 460,553 443,270539,151 456,401
-------- --------
Pretax Operating Income 76,167 67,41188,599 100,316
Other Income and Deductions
Interest income 6,789 8,349 6,735
Allowance for other funds
used during construction 862 984
715
Miscellaneous - net 446 2,751
Income taxes (240) 627Other 29,741 4,446
-------- ---------------
Total Other Income and Deductions 9,539 10,828
Income Before37,392 13,779
Interest Charges 85,706 78,239
Interest Chargesand Other
Interest expense 42,543 33,566 30,888
Allowance for borrowed funds
used during construction (3,099) (1,900)
(1,998)Distributions on preferred
securities of subsidiary trust 3,425 228
Preferred dividend
requirement of subsidiary 301 301
-------- --------
Total Interest Charges 31,666 28,890
Distributions on Preferred Securities
of Subsidiary Trust 228 -
Preferred Dividend Requirement
of Subsidiary 301 301and Other 43,170 32,195
-------- --------
Income Before Income Taxes 82,821 81,900
Income Taxes 32,227 28,389
-------- --------
Net Income $ 53,511 $ 49,048$50,594 $53,511
======== ========
Average Number of Shares of Common
Stock Outstanding (Thousands) 119,512 115,926 112,866
======== ========
Earnings Per Share of Common
Stock (Basic and Diluted) $ 0.46 $ 0.43
======== ========$0.42 $0.46
Dividends Per Share of Common Stock $ 0.39 $ 0.385
======== ========$0.39 $0.39
The accompanying notes, as they relate to Wisconsin Energy Corporation, are an integral
part of these financial statementsstatements.
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
March 31, 2000 December 31, 1999
1998
-------- ------------------------- -----------------
(Thousands of Dollars)
Assets
------
UtilityProperty, Plant and Equipment
Electric $ 4,941,302 $ 4,900,836utility $5,203,975 $5,153,388
Gas 527,370 523,187utility 557,212 552,405
Steam 62,924 62,832utility 63,935 63,461
Common 425,383 420,750utility 392,920 391,793
Energy non-utility 207,316 198,954
Other property 368,042 351,057
Accumulated provision for depreciation (3,080,304) (3,007,735)
----------- -----------
2,876,675 2,899,870(3,335,613) (3,249,978)
---------- ----------
3,457,787 3,461,080
Construction work in progress 135,338 117,848223,168 174,778
Leased facilities - net 131,587 133,007125,907 127,327
Nuclear fuel - net 89,091 87,660
----------- -----------82,850 83,393
---------- ----------
Net UtilityProperty, Plant 3,232,691 3,238,385
Other Property and Equipment 3,889,712 3,846,578
Investments 1,109,736 1,056,471969,921 950,322
Current Assets
Cash and cash equivalents 118,882 16,60324,746 73,477
Accounts receivable 208,464 190,103271,529 242,348
Accrued utility revenues 96,255 130,51894,636 134,566
Materials, supplies and fossil fuel 172,405 199,052196,051 231,615
Prepayments and other assets 77,394 71,843
----------- -----------99,487 123,865
---------- ----------
Total Current Assets 673,400 608,119686,449 805,871
Deferred Charges and Other Assets
Accumulated deferred income taxes 202,594 199,372199,832 197,988
Other 276,017 259,410
----------- -----------452,102 432,361
---------- ----------
Total Deferred Charges and Other Assets 478,611 458,782
----------- -----------651,934 630,349
---------- ----------
Total Assets $ 5,494,438 $ 5,361,757
=========== ===========$6,198,016 $6,233,120
========== ==========
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $ 779,062 $ 760,351$862,627 $839,497
Retained earnings 1,152,434 1,144,0921,174,830 1,170,765
Unearned compensation - restricted stock award (1,195) (1,338)
----------- -----------(2,472) (2,518)
---------- ----------
Total Common Stock Equity 1,930,301 1,903,1052,034,985 2,007,744
Preferred stock 30,450 30,450
Company-obligated, mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the Company 200,000 -200,000
Long-term debt 1,766,379 1,749,024
----------- -----------2,135,505 2,134,636
---------- ----------
Total Capitalization 3,927,130 3,682,5794,400,940 4,372,830
Current Liabilities
Long-term debt due currently 122,576 119,14069,339 69,085
Short-term debt 166,940 286,859370,285 507,500
Accounts payable 139,896 187,452191,196 174,043
Accrued liabilities 120,852 88,510151,469 99,666
Other 79,160 53,219
----------- -----------48,921 48,273
---------- ----------
Total Current Liabilities 629,424 735,180831,210 898,567
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 575,889 570,750624,325 624,864
Other 361,995 373,248
----------- -----------341,541 336,859
---------- ----------
Total Deferred Credits and Other Liabilities 937,884 943,998
----------- -----------965,866 961,723
---------- ----------
Total Capitalization and Liabilities $ 5,494,438 $ 5,361,757
=========== ===========$6,198,016 $6,233,120
========== ==========
The accompanying notes, as they relate to Wisconsin Energy Corporation, are an integral
part of these financial statements.
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31
---------------------------
2000 1999
1998
---- --------------- -----------
(Thousands of Dollars)
Operating Activities
Net income $ 53,511 $ 49,048$50,594 $53,511
Reconciliation to cash
Depreciation 65,268 62,273and amortization 103,660 66,956
Nuclear fuel expense - amortization 7,160 4,718 2,568
Conservation expense - amortization 5,6251,407 5,625
Debt premium, discount
&and expense - amortization 1,195 762 1,127
Deferred income taxes - net (2,793) 3,143(2,501) (2,786)
Investment tax credit - net (1,143) (1,148) (1,172)
Allowance for other funds
used during construction (862) (984) (715)
Change in - Accounts receivable (29,181) (18,361)
(20,937)
Inventories 35,564 26,647 25,733
Accounts payable (47,556) 13,411
Other current assets 64,308 28,712
(8,796)Accounts payable 17,153 (47,556)
Other current liabilities 52,451 58,283
28,195
Other (20,815) (418)(6,791) (21,683)
-------- -----------------
Cash Provided by Operating Activities 151,869 159,085293,014 152,696
Investing Activities
Construction expenditures (134,963) (105,967) (77,784)
Allowance for borrowed funds
used during construction (3,099) (1,900) (1,998)
Nuclear fuel (5,479) (662)(10,594) (6,306)
Nuclear decommissioning trust (36,013) (8,163)
(11,820)
Other 3,547 (1,365)
6,366
-------- -----------------
Cash Used in Investing Activities (122,874) (85,898)(181,122) (123,701)
Financing Activities
Sale of - Common stock 23,130 18,711 -
Long-term debt 15,539 31,482 -
Mandatorily redeemable trust
preferred securities - 200,000 -
Retirement of long-term debt (15,548) (11,821) (12,706)
Change in short-term debt (137,215) (119,919) (16,093)
Dividends on stock - Common (46,529) (45,169)
(43,454)
--------- ----------------- --------
Cash Provided by (Used in) Financing Activities (160,623) 73,284
(72,253)
--------- ----------------- --------
Change in Cash and Cash Equivalents $(48,731) 102,279
$ 934
========= =========Cash and Cash Equivalents at Beginning of Period 73,477 16,603
-------- --------
Cash and Cash Equivalents at End of Period $24,746 $118,882
======== ========
Supplemental Information -
Cash Paid (Received) For
Interest (net of amount capitalized) $ 25,383 $ 27,253$31,207 $25,425
Income taxes (25,855) 14,649 11,062
The accompanying notes, as they relate to Wisconsin Energy Corporation, are an integral
part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED INCOME STATEMENT
(Unaudited)
Three Months Ended March 31
------------------------------------------------------------
2000 1999
1998
---- --------------- -----------
(Thousands of Dollars)
Operating Revenues Electric $397,674 $383,640
Gas 121,983 119,411
Steam 8,182 7,630
-------- --------
Total Operating Revenues 527,839 510,681$540,778 $527,839
Operating Expenses
Fuel 75,272 70,735
73,901
PurchasedPurchase power 30,105 31,053 36,591
Cost of gas sold 69,292 68,860 72,301
Other operation expenses 123,807 110,038
Maintenance 43,655 40,818and maintenance 160,772 173,452
Depreciation and amortization 98,099 64,450
62,273
Taxes other than income taxes 22,821 20,716
Federal incomeProperty and revenue tax 25,669 19,893
State income tax 5,963 4,768
Deferred income taxes - net (2,801) 3,143
Investment tax credit - net (1,132) (1,172)17,445 16,831
-------- --------
Total Operating Expenses 453,080 443,270450,985 425,381
-------- --------
Pretax Operating Income 74,759 67,41189,793 102,458
Other Income and Deductions
Interest income 3,047 5,672 5,458
Allowance for other funds
used during construction 862 984
715
Miscellaneous - netOther 31,213 5,524 5,378
Income taxes (3,062) (929)
-------- --------
Total Other Income and Deductions 9,118 10,622
Income Before Interest Charges 83,877 78,03335,122 12,180
Interest Charges
Interest expense 29,248 28,397 28,112
Allowance for borrowed funds
used during construction (423) (481) (375)
-------- --------
Total Interest Charges 28,825 27,916
27,737-------- --------
Income Before Income Taxes 96,090 86,722
Income Taxes 37,251 30,761
-------- --------
Net Income 58,839 55,961 50,296
Preferred Stock Dividend Requirement 301 301
-------- --------
Earnings Available for Common
Stockholder $ 55,660 $ 49,995$58,538 $55,660
======== ========
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's common stock is owned by Wisconsin
Energy Corporation.
The accompanying notes as they relate to Wisconsin Electric Power Company, are an
integral part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED BALANCE SHEET
(Unaudited)
March 31, 2000 December 31, 1999
1998
--------- -------------------------- -----------------
(Thousands of Dollars)
Assets
------
UtilityProperty, Plant and Equipment
Electric $ 4,860,704 $ 4,820,239utility $5,120,834 $5,070,246
Gas 527,370 523,187utility 557,212 552,405
Steam 62,924 62,832utility 63,935 63,461
Common 425,383 420,750utility 392,920 391,793
Other property 7,778 7,581
Accumulated provision for depreciation (3,044,749) (2,973,007)
----------- -----------
2,831,632 2,854,001(3,270,544) (3,189,890)
---------- ----------
2,872,135 2,895,596
Construction work in progress 126,010 109,412122,876 99,002
Leased facilities - net 131,587 133,007125,907 127,327
Nuclear fuel - net 89,091 87,660
----------- -----------82,850 83,393
---------- ----------
Net UtilityProperty, Plant 3,178,320 3,184,080
Other Property and Equipment 3,203,768 3,205,318
Investments 608,545 578,628689,233 663,776
Current Assets
Cash and cash equivalents 6,824 14,1836,859 49,852
Accounts receivable 189,404 166,648180,467 166,651
Accrued utility revenues 95,271 129,46393,654 133,422
Materials, supplies and fossil fuel 171,366 198,015167,473 197,221
Prepayments and other assets 61,912 59,813
----------- -----------63,694 98,802
---------- ----------
Total Current Assets 524,777 568,122512,147 645,948
Deferred Charges and Other Assets
Accumulated deferred income taxes 193,312 190,114189,997 188,192
Other 257,607 247,998
----------- -----------363,561 349,369
---------- ----------
Total Deferred Charges and Other Assets 450,919 438,112
----------- -----------553,558 537,561
---------- ----------
Total Assets $ 4,762,561 $ 4,768,942
=========== ===========$4,958,706 $5,052,603
========== ==========
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $ 713,582 $ 713,582$863,582 $863,582
Retained earnings 995,664 984,896
----------- -----------1,030,916 1,017,271
---------- ----------
Total Common Stock Equity 1,709,246 1,698,4781,894,498 1,880,853
Preferred stock 30,450 30,450
Long-term debt 1,529,492 1,512,531
----------- -----------1,671,662 1,677,610
---------- ----------
Total Capitalization 3,269,188 3,241,4593,596,610 3,588,913
Current Liabilities
Long-term debt due currently 118,753 112,45430,297 30,822
Short-term debt 166,470 219,289117,088 264,664
Accounts payable 127,094 169,503123,068 127,108
Accrued liabilities 113,262 80,908134,502 86,089
Other 73,239 46,574
----------- -----------43,341 39,677
---------- ----------
Total Current Liabilities 598,818 628,728448,296 548,360
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 564,684 559,574609,505 610,040
Other 329,871 339,181
----------- -----------304,295 305,290
---------- ----------
Total Deferred Credits and Other Liabilities 894,555 898,755
----------- -----------913,800 915,330
---------- ----------
Total Capitalization and Liabilities $ 4,762,561 $ 4,768,942
=========== ===========
The accompanying notes as they relate to Wisconsin Electric Power Company are an
integral part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY
STATEMENT OF CASH FLOWS
(Unaudited)
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$4,958,706 $5,052,603
========== ==========
The accompanying notes, as they relate to Wisconsin Electric Power Company, are an
integral part of these financial statements.
WISCONSIN ELCETRIC POWER COMPANY
STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31
---------------------------
2000 1999
----------- -----------
(Thousands of Dollars)
Operating Activities
Net income $58,839 $55,961
Reconciliation to cash
Depreciation and amortization 98,099 64,450
Nuclear fuel expense - amortization 7,160 4,718
Conservation expense - amortization 1,407 5,625
Debt premium, discount
and expense - amortization 734 656
Deferred income taxes - net (2,509) (2,794)
Investment tax credit - net (1,127) (1,132)
Allowance for other funds used
during construction (862) (984)
Change in - Accounts receivable (13,816) (22,756)
Inventories 29,748 26,649
Other current assets 74,876 32,093
Accounts payable (4,040) (42,409)
Other current liabilities 52,077 59,019
Other (5,607) (9,974)
-------- --------
Cash Provided by Operating Activities 294,979 169,122
Investing Activities
Construction expenditures (86,980) (81,432)
Allowance for borrowed funds used
during construction (423) (481)
Nuclear fuel (10,594) (6,306)
Nuclear decommissioning trust (36,013) (8,163)
Other (3,644) (4,283)
-------- --------
Cash Used in Investing Activities (137,654) (100,665)
Financing Activities
Sale of long-term debt - 29,444
Retirement of long-term debt (7,548) (7,247)
Change in short-term debt (147,576) (52,819)
Dividends on stock - Common (44,893) (44,893)
Preferred (301) (301)
-------- --------
Cash Used in Financing Activities (200,318) (75,816)
-------- --------
Change in Cash and Cash Equivalents (42,993) (7,359)
Cash and Cash Equivalents at Beginning of Period 49,852 14,183
-------- --------
Cash and Cash Equivalents at End of Period $6,859 $6,824
======== ========
Supplemental Information -
Cash Paid (Received) For
Interest (net of amount capitalized) $25,412 $26,069
Income taxes (26,013) 11,334
The accompanying notes, as they relate to Wisconsin Electric Power Company, are an
integral part of these financial statements.
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1.The1. 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 19981999 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, 19992000 are not however,
necessarily
indicative, however, of the results which may be expected for the
year 19992000 because of seasonal and other factors.
2.Effective May 31, 1998,2. Due primarily to acquisitions during 1999 by Wisconsin Energy
that increased the size of Wisconsin Energy's non-utility
operations and assets, Wisconsin Energy and Wisconsin Electric
modified their income statement and balance sheet presentations
effective with the second quarter of 1999. Prior year financial
statements have been reclassified to reflect the new
presentation.
3. On April 26, 2000, Wisconsin Energy acquired ESELCO,WICOR, Inc.
("ESELCO"(with its subsidiaries, "WICOR") through the merger of an
acquisition subsidiary of Wisconsin Energy into WICOR in which
each outstanding share of WICOR common stock (except shares of
restricted stock) was converted into the right to receive $31.50
in cash. WICOR is a tax-free reorganizationdiversified holding company with two
principal business groups: energy services and pump
manufacturing. The business combination was effected through the
payment of approximately $1.2 billion in cash, including related
fees and expenses. Approximately $300 million of WICOR debt
remained outstanding following the acquisition. In addition,
WICOR's unexercised equity-based compensation awards outstanding
at the effective time of the merger were converted into 57,745
shares of restricted Wisconsin Energy common stock, into options
for up to 4,619,969 shares of Wisconsin Energy common stock with
a weighted average exercise price of $13.691 per share, and into
deferred stock units payable in 105,520 shares of Wisconsin
Energy common stock. The acquisition was funded through the
issuance of commercial paper in the institutional private
placement market and will be accounted for as a pooling of interests. Duepurchase.
Accordingly, the purchase price will be allocated to the immaterial natureacquired
assets and assumed liabilities based upon their fair value, and
the estimated total cost in excess of net assets will be
reflected as goodwill and amortized over 40 years. The
consolidated financial statements of the transaction, Wisconsin Energy has not restated any historicalCompany will reflect
the business combination and WICOR's financial or statistical information. Instead, Wisconsin Energy
combined ESELCO's May 31, 1998 balance sheet with Wisconsin
Energy's.results from and
after the date of acquisition.
For additional information related to the acquisition of
WICOR, see Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Factors
Affecting Results of Operations" and "Liquidity and Capital
Resources" in Part I of this report.
3.In March 1999, WEC Capital Trust I, a Delaware business trust4. During the first three months 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,2000, Wispark Corporation, 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 $195secured
$15.5 million of long-term, nonrecourse notes; an
equity contributionbank financing in the form of $105 million fromadjustable rate
mortgage notes due 2000-2003 to finance the construction or
purchase of various facilities.
5. WISCONSIN ENERGY: 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 two
reportable operating segments: a utility energy and a non-utility
energy segment.
The reportable utility energy segment includes Wisconsin
Energy's two utility subsidiaries, Wisconsin Electric Power
Company and Edison Sault Electric Company. This segment
derives its revenues from electric, gas and steam operations.
Electric operations engage in the generation, transmission,
distribution and sale of electric energy in southeastern
(including Metropolitan Milwaukee), east central and northern
Wisconsin and in the Upper Peninsula of Michigan. Gas
operations engage in the purchase, distribution and sale of
natural gas to retail customers and the transportation of
customer-owned gas in four service areas in southeastern,
east central, western and northern Wisconsin. Steam
operations engage in the production, distribution and sale of
steam to space heating and processing customers in the
Milwaukee, Wisconsin area.
The reportable non-utility energy segment derives its
revenues primarily from energy activities including
independent power production and energy marketing, services
and trading.
The following table summarizes the reportable operating
segments of Wisconsin Energy for the three month periods
ended March 31.
Energy
---------------------------------------
Wisconsin Energy
Corporation Utility Non-Utility Subtotal Other (a) Total
- ---------------- ----------- ----------- ---------- ----------- ----------
(Thousands of Dollars)
March 31, 2000
--------------
Three Months Ended
Operating Revenues $549,722 $69,073 $618,795 $8,955 $627,750
Pretax Operating
Income (Loss) (b) 91,400 (1,898) 89,502 (903) 88,599
March 31, 1999
--------------
Three Months Ended
Operating Revenues $536,720 $14,039 $550,759 $5,958 $556,717
Pretax Operating
Income (Loss) (b) 104,316 (3,981) 100,335 (19) 100,316
(a) Other includes non-utility real estate investment and development and non-utility
investments in recycling technology.
(b) Interest income and interest expense are not included in segment pretax operating
income.
WISCONSIN ELECTRIC: Wisconsin Electric, Wisconsin Energy's
principal subsidiary, has organized its operating segments
according to how its principal subsidiary, Wisconsin
Electric,it is currently regulated. Operating segments are defined
as components of an enterprise about which separate financial
information is available that is evaluated regularly in deciding
how to allocate resources or in assessing performance. Wisconsin
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 Wisconsin Electric.Electric for the three month periods ended March 31.
Reportable Operating Segments
-----------------------------Wisconsin Electric
Power Company Electric Gas Steam Total
-------- --- ----- ------ ------------------ --------- --------- --------- ---------
(Thousands of Dollars)
WISCONSIN ENERGY:March 31, 2000
--------------
Three Months Ended
Operating Revenues (a) $414,890 $118,457 $7,431 $540,778
Pretax Operating
Income (b) 65,766 21,826 2,201 89,793
March 31, 1999
Total Operating Revenues (a) $406,555 $121,983 $8,182 $536,720
Operating Income (b) 56,480 17,839 1,848 76,167--------------
Three Months Ended March 31, 1998
Total Operating Revenues (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 March 31, 1999
Total
Operating Revenues (a) $397,674 $121,983 $8,182 $527,839
Pretax Operating
Income (b) 55,072 17,839 1,848 74,759
Three Months Ended March 31, 1998
Total Operating Revenues72,520 27,270 2,668 102,458
(a) $383,640 $119,411 $7,630 $510,681
Operating Income (b) 49,491 15,766 2,154 67,411
(a)Wisconsin Electric accounts for intersegment revenues at tariff rates
established by the Public Service Commission of Wisconsin. Intersegment
revenues are not material.
(b)Interest income and interest expense are not allocated to the segments to
determineincluded in segment pretax
operating income.
6. In July 1999, a jury decided against Wisconsin Electric and
awarded the plaintiffs $4.5 million as actual damages and
$100 million in punitive damages in a lawsuit alleging that
Wisconsin Electric had placed contaminated wastes at two sites in
the City of West Allis, Wisconsin. Wisconsin Electric is
preparing to file an appeal of the case. In December 1999, in
order to stop the post-judgment accrual of interest at 12% per
annum during the pendency of the appeal, Wisconsin Electric
tendered a contested liability payment of $110 million, which is
part of "Deferred Charges and Other Assets - Other" on the
condensed balance sheets, to the Clerk of Circuit Court for
Milwaukee County representing the amount of the verdict and
accrued interest. Under Wisconsin law, the plaintiffs are liable
to Wisconsin Electric upon reversal or reduction of the judgment
for the applicable amount of the funds tendered with interest.
In further post-trial proceedings, the plaintiffs filed with
the Milwaukee County Circuit Court a motion for sanctions
based upon representations made by Wisconsin Electric during
trial that Wisconsin Electric had no insurance coverage for
the punitive damage award. On April 27, 2000, the Circuit
Court Judge issued a ruling on the matter, imposing the
following sanctions against Wisconsin Electric: (i) "judgment
in the alternative" as a sanction, thereby finding an
alternative basis upon which to sustain the $104.5 million
verdict returned by the jury; (ii) a bar against Wisconsin
Electric pursuing insurance coverage for the punitive damage
portion of the verdict; and (iii) a requirement that
Wisconsin Electric pay the plaintiffs' costs relating to the
sanctions matter. In addition to its appeal of the judgment
entered on the jury's verdict, Wisconsin Electric will also
appeal the Judge's ruling on the sanctions matter.
In the opinion of management, based in part on the advice of
legal counsel, the jury verdict was not supported by the
evidence or the law and the unprecedented award of punitive
damages of this magnitude was unwarranted and should
therefore be reversed or substantially reduced on appeal.
Management also believes that the sanctions imposed by the
Judge were not supported by the evidence or the law. As
such, Wisconsin Electric has not established a reserve for
potential damages from this suit. For further information,
see Item 1. Legal Proceedings - "Environmental Matters" in
Part II of this report.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wisconsin Energy Corporation is a holding company whose principal
subsidiary as of March 31, 2000 is Wisconsin Electric Power
Company, an electric, gas and steam utility. Unless qualified by
their context when used in this document, the terms "Wisconsin
Energy" or the "Company" refer to the holding company and all of
its subsidiaries when used in this document.subsidiaries. During the first three months of 2000,
approximately 86% of Wisconsin Energy's consolidated operating
revenues and 101% of Wisconsin Energy's consolidated pretax
operating income were attributable to Wisconsin Electric. As of
March 31, 1999,2000, approximately 87%80% of Wisconsin Energy's
consolidated total assets were attributable to Wisconsin
Electric. The following discussion and analysis of financial
condition and results of operations includes both Wisconsin
Energy and Wisconsin Electric unless otherwise stated.
ACQUISITION OF ESELCO, INC.: Effective May 31, 1998, Wisconsin
Energy acquired ESELCOSee Note 2 above in a tax-free reorganization accountedItem 1. Financial Statements - "Notes to
Financial Statements" for as a poolinginformation concerning the
reclassification of interests. Duecertain prior year amounts in the condensed
financial statements. See Note 3 above in Item 1. Financial
Statements - "Notes 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 DiscussionFinancial Statements" and Analysis of
Financial Condition and Results of Operations - "Factors
Affecting Results of Operations" in Part II ofbelow for information concerning
Wisconsin Energy's April 26, 2000 acquisition of WICOR, Inc.
Because this business combination will be accounted for as a
purchase and, therefore, reflected prospectively in Wisconsin
Electric's combined Annual Report on Form 10-K forEnergy's consolidated financial statements from and after the
year ended December 31, 1998.
ESELCO wasdate of the parent companyacquisition, the analysis 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"Results of Wisconsin Energy include Edison Sault'sOperations"
below does not consider the historical operations since June 1,
1998.of WICOR.
CAUTIONARY FACTORS: A number of forward-looking statements are
included in this document. When used, the terms "anticipate,"
"believe," "estimate," "expect," "objective," "plan," "possible,"
"potential," "project" and similar expressions are intended to
identify forward-looking statements. Forward-looking statements
are subject to certain risks, uncertainties and assumptions which
could cause actual results to differ materially from those that
are described, including the factors that are noted in "Factors
Affecting Results of Operations" and "Cautionary Factors" below.
RESULTS OF OPERATIONS 1999- 2000 FIRST QUARTER
EarningsEARNINGS
During the first quarter of 1999,2000, Wisconsin Energy's consolidated
net income and earnings per share of common stock were
approximately $54decreased to
$50.6 million and $0.42 per share, respectively, compared with
$53.5 million and $0.46 respectively, compared to
$49 million and $0.43,per share, respectively, during the first
quarter of 1998.1999. For the same periods, Wisconsin Electric's
earnings increased to approximately $56$58.5 million during 2000 compared with
$55.7 million during 1999.
Between the comparative periods, a modest increase in earnings
from Wisconsin Energy's utility operations, including Wisconsin
Electric, was insufficient to offset higher net losses by
Wisconsin Energy's non-utility operations, resulting in the
decline in Wisconsin Energy's consolidated earnings. A decrease
in gas utility gross margin due to unusually warm winter weather
during the first quarter of 2000 limited the growth in earnings
from utility operations. Scheduled outages at two fossil-fueled
non-utility power plants in the state of Connecticut limited
their contribution to non-utility earnings during the first
quarter of 2000. As a result, net losses from non-utility
operations increased during the first quarter of 2000 due to
higher costs associated with financing acquisition of these two
non-utility power plants in mid-April 1999 and, to a lesser
extent, associated with the financing of other non-utility
acquisitions made within the past year.
The following table summarizes contributions to Wisconsin
Energy's consolidated earnings per share (basic and diluted) by
business segment during the comparative periods.
Three Months Ended March 31
---------------------------------------
Earnings Per Share (basic & diluted)-
Wisconsin Energy 2000 1999 % Change
- ------------------------------------- -------- -------- --------
Utility Operations $0.50 $0.49 2.0%
Non-Utility Operations
Energy (0.04) (0.03) (33.3%)
Other (0.04) 0.00 -
----- -----
Total $0.42 $0.46 (8.7%)
===== =====
An analysis of the Company's utility and non-utility pretax
operating income as well as an analysis of other income and
expense items follows.
UTILITY PRETAX OPERATING INCOME
During the first quarter of 2000, Wisconsin Energy's utility
pretax operating income decreased by $12.9 million or 12.4% and
Wisconsin Electric's pretax operating income decreased by
$12.7 million or 12.4% when compared to $50 million during 1998. As described in further detail below,
1999the first quarter earningsof
1999. For both Wisconsin Energy and Wisconsin Electric, the
positive effects of higher electric utility gross margins due to
increased compared to 1998electric energy sales and of lower other operation and
maintenance expenses during the first quarter of 2000 were more
than offset by the effects of a weather-related decrease in gas
utility gross margin and significantly higher depreciation and
amortization expenses.
The increase in depreciation and amortization expenses during the
first quarter of 2000 was 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, 1998nuclear
decommissioning expenses at Wisconsin Electric. The increasedNuclear
decommissioning expenses consist of payments to and earnings of
the nuclear decommissioning trust fund. While payments to the
nuclear decommissioning trust fund were partially offset by increases in other operationsunchanged between the
comparative periods, earnings from nuclear decommissioning trust
fund investments, consisting of interest and maintenance, depreciation, taxes other than income tax, and
interest expensesdividends from as
well as gains on the investments, increased by an increase$27.9 million.
Because earnings from nuclear trust fund investments are also
recognized in "Other Income and Deductions" on the condensed
income statements, they are earnings neutral to Wisconsin
Electric and to Wisconsin Energy. Excluding the effect of
Wisconsin Electric's nuclear decommissioning trust fund earnings
on depreciation and amortization expenses, at
Wisvest Corporation.Wisconsin Energy's
utility pretax operating income grew by $15.0 million and
Wisconsin Electric's pretax operating income grew by
$15.2 million between the comparative periods.
Electric Utility Revenues, Gross Margins and Sales
WISCONSIN ENERGY: Primarily due to an increase inhigher total 1999
electric
kilowatt-hourutility energy sales and, to a lesser extent, aduring the first quarter of 2000, Wisconsin
Electric retail electric increase effective May 1, 1998 in the
Wisconsin jurisdiction,Energy's total electric operating revenues increased by
$23$17.3 million or 6.0% during the first quarter of 19994.3% compared to the first quarter of 1998. The1999 and
gross margin on electric operating revenues (electric operating
revenues less fuel and purchased power expenses) increased by
approximately $28$13.3 million or 10.1%4.4%.
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 Utility Operations - ---------------------------------------
Wisconsin Energy 2000 1999 1998 % Change
- -------------------------------------- ---- ---------------------------------- --------- -------- --------
Electric Gross Margin ($000)
Electric Operating Revenues $ 406,555 $ 383,640 6.0%$423,834 $406,555 4.3%
Fuel & Purchased Power 109,687 105,720 110,492 (4.3%)
--------- ---------3.8%
-------- --------
Gross Margin $ 300,835 $ 273,148 10.1%
========= =========$314,147 $300,835 4.4%
======== ========
Total Electric Sales
(Megawatt-hours) 7,789,891 7,393,205 6,957,434 6.3%5.4%
The discussion that follows reflectsFurther detail about Wisconsin Electric's contributioncontributions to
Wisconsin Energy's electric utility revenues, gross margins and
energy sales follows.
WISCONSIN ELECTRIC: During the first quarter electric
revenues, gross margin and sales.
WISCONSIN ELECTRIC:of 2000, Wisconsin
Electric's total electric operating revenues increased by
$14$17.2 million or 3.7% during the
first quarter of 19994.3% compared to the first quarter of 1998,1999 and
the
gross margin on electric operating revenues increased by
$23$13.6 million or 8.3%4.6%. Wisconsin Electric attributes these
increasesthis growth
in large part to higher total electric energy sales during 2000.
Gross margin on electric operating revenues also increased due to
a 3.9% increase in totallower cost mix of fuel and purchased power used to meet
electric kilowatt-hour
salesdemand 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, 1998.2000.
Three Months Ended March 31
------------------------------
Electric Utility Operations - ---------------------------------------
Wisconsin Electric 2000 1999 1998 % Change
- ---------------------------------------- ---- ---------------------------------- -------- -------- --------
Electric Gross Margin ($000)
Electric Operating Revenues $ 397,674 $ 383,640 3.7%$414,890 $397,674 4.3%
Fuel & Purchased Power 105,377 101,788 110,492 (7.9%)
--------- ---------3.5%
-------- --------
Gross Margin $ 295,886 $ 273,148 8.3%
========= =========$309,513 $295,886 4.6%
======== ========
Despite increasedAs a result of the higher total electric energy sales during the
three months ended
March 31, 1999,first quarter of 2000 noted above, Wisconsin Electric's total
fuel and purchased power expenses decreasedincreased by $9$3.6 million or
7.9% compared3.5% between the comparative periods. However, due to the same period in 1998. While
megawatt-hourshigher
availability of netlow cost generation increased by approximately 12%from Point Beach Nuclear
Plant during the first quarter of 1999,2000, the rate of increase in
total fuel expense decreased 4.3%
primarily due to lower per unit costsand purchased power expenses was less than the rate 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%increase in total electric energy sales as well as purchased power
expense by 15.1%in total
electric operating revenues, contributing to the growth in gross
margin on electric operating revenues. During the first quarter
of 2000, Wisconsin Electric obtained 25% of its electric energy
supply from nuclear generation compared to 17% during the first
quarter of 1999.
The following table summarizes Wisconsin Electric's total electric energy sales grew by 5.5%
between the comparative electric sales during the three months ended March 31, 1999 and
1998.periods.
Three Months Ended March 31
------------------------------
Electric Utility Operations - ---------------------------------------
Wisconsin Electric 2000 1999 1998 % Change
---- ----- ------------------------------ --------- --------- --------
Electric Sales (Megawatt-hours)
Residential 1,850,412 1,792,252 1,808,720 (0.9%)3.2%
Small Commercial/Industrial 1,986,716 1,948,435 1,845,369 5.6%2.0%
Large Commercial/Industrial 2,813,349 2,760,640 2,689,491 2.6%1.9%
Other-Retail/Municipal 363,924 309,240 326,722 (5.4%)17.7%
Resale-Utilities 606,810 415,499 287,132 44.7%46.0%
--------- ---------
Total Electric Sales 7,621,211 7,226,066 6,957,434 3.9%5.5%
========= =========
ElectricCompared to the first quarter of 1999, electric energy sales at
Wisconsin Electric increased during the first quarter of 2000
primarily due to higher use per customer unrelated to weather.
Growth in the average number of customers between the comparative
periods in the residential, small commercial/industrial and other
retail/municipal customer classes also contributed to the
increase in electric energy sales. Sales to the Empire and
Tilden iron ore mines, Wisconsin Electric's two largest electric
retail customers, increased 7.8%decreased 2.5% during the first quarter of
1999 compared to the
first quarter of 1998.2000. Excluding the Empire and Tilden iron ore mines, total
electric energy sales increased 3.5%between the comparative periods grew by
6.2% and sales to the remaining large commercial/industrial
customers increased 1.3%grew by 3.2%. Sales for resale to other utilities
the resale-utilities
customer class, increased 44.7% in 1999 compared to 1998by 46.0% primarily 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%sales
during the first quarter of 1999 compared2000.
Gas Utility Revenues, Gross Margins and Therm Deliveries
Primarily due to a weather-related decrease in higher margin
residential and commercial/industrial retail gas sales during the
first quarter of 1998, and the2000, Wisconsin Electric's gross margin on gas
operating revenues (gas operating revenues less cost of gas sold)
increaseddeclined by $6$4.0 million or 12.8%. Wisconsin Electric attributes these
increases primarily7.5% compared to a 9.7% increase in total natural gas therm
deliveries during the first quarter of
1999.
Three Months Ended March 31
-----------------------------
Gas Utility Operations - ---------------------------------------
Wisconsin Electric 2000 1999 1998 % Change
- ----------------------------------- ---- ----------------------------- -------- -------- --------
Gas Gross Margin ($000)
Gas Operating Revenues $ 121,983 $ 119,411 2.2%$118,457 $121,983 (2.9%)
Cost of Gas Sold 69,292 68,860 72,301 (4.8%)
--------- ---------0.6%
-------- --------
Gross Margin $ 53,123 $ 47,110 12.8%
========= =========$49,165 $53,123 (7.5%)
======== ========
Despite an increase inBetween the comparative periods, Wisconsin Electric's total
natural gas therm deliveries fell by 5.1% and total retail gas
sales fell by 9.2% due in large part to an 8.0% decrease in
retail gas sales to residential customers and a 9.3% decrease in
retail gas sales to commercial/industrial customers. Weather
sensitive residential and commercial/industrial retail sales
declined due to significantly warmer weather during the costfirst
three months of gas sold
decreased2000. As measured by $3 million or 4.8% duringheating degree days, the
first quarter of 2000 was 9.4% warmer than 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 1998.13.1% warmer than normal.
Three Months Ended March 31
----------------------------
Gas Utility Operations - ---------------------------------------
Wisconsin Electric 2000 1999 1998 % Change
- ----------------------------------- ---- ----------------------------- -------- -------- --------
Gas Deliveries (000's of Therms)
Residential 139,558 151,734 133,829 13.4%(8.0%)
Commercial/Industrial 85,437 94,233 83,815 12.4%(9.3%)
Interruptible 4,187 6,613 7,711 (14.2%(36.7%)
Interdepartmental 246 192 28.1%
------- -------
Total Retail Gas Sales 252,580 225,355 12.1%229,428 252,772 (9.2%)
Transported Customer - Owned Gas 109,136 108,200 99,196 9.1%
Other0.9%
Transported - Interdepartmental 4,486 8,492 (47.2%)8,090 4,294 88.4%
------- -------
Total Gas Deliveries 346,654 365,266 333,043 9.7%(5.1%)
======= =======
Utility Operating Expenses
OTHER OPERATION AND MAINTENANCE: Compared to the same periodfirst quarter
of 1999, other operation and maintenance expenses in 1998, total natural gas therm
deliveries increasedWisconsin
Energy's utility business segment decreased by $12.8 million or
7.2% during the first quarter of 19992000, with most of the decrease
attributable to Wisconsin Electric.
At Wisconsin Electric, the most significant changes in other
operation and maintenance expenses between the comparative
periods include a $12.0 million decline in nuclear non-fuel
expenses, a $4.0 million decline in customer account expenses and
a $3.8 million decline in customer service expenses, offset in
part by a $2.5 million increase in steam power generation
expenses, a $2.5 million increase in administrative and general
expenses and a $1.3 million increase in electric transmission
expenses.
Nuclear non-fuel expenses declined during 2000 as a result of
continued progress on various performance improvement
initiatives. During the same period, customer account expenses
declined primarily due to colder winter weather. As measured by heating degree
days,lower bad debt expenses and customer
service expenses declined primarily due to a change in the first three months of 1999 were 10.8% colder thanperiod
over which conservation investments are being amortized.
Between the same period in 1998. However, the first three months of 1999
were still 4.1% warmer than normal. Increased therm deliveriescomparative periods, steam power generation expenses
increased primarily due to a scheduled four week outage at
Wisconsin Electric's Pleasant Prairie Power Plant during the
first quarter of 2000. During the same periods, administrative
and general expenses grew in large part due to higher salary and
benefit costs incurred, and electric transmission expenses grew
primarily due to higher transmission line and transmission right
of way maintenance activities during the first quarter of 2000.
DEPRECIATION AND AMORTIZATION: During the first quarter of
2000, Wisconsin Energy's total utility depreciation and
amortization expense increased by $33.7 million compared to the
first quarter of 1999, werewhile Wisconsin Electric's total
depreciation and amortization expense increased by $33.6 million.
Between the comparative periods, total utility depreciation and
amortization grew at both companies primarily due to residentialthe higher
nuclear decommissioning expenses at Wisconsin Electric noted
above. Also contributing to the growth in total depreciation and
commercial customers, who are more sensitiveamortization expenses, at the end of 1999 Wisconsin Electric
completed amortizing a credit to weather
variations and who contribute higher margins to earnings than
other customer classes.depreciation for pre-1991
contributions in aid of construction. During the first quarter
of 1999, therm
deliveriesdepreciation expense was reduced by $5.7 million as a
result of this credit.
NON-UTILITY PRETAX OPERATING INCOME
Due to the Whitewater Cogeneration Facility, owned by an
unaffiliated independent power producer, contributed to about
halfoperation 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 purchasesBridgeport Harbor Station ("Bridgeport")
and 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 mixNew Haven Harbor Station ("New Haven") during the first
quarter of 2000, which were acquired by Wisvest-Connecticut, LLC
in mid-April 1999, awayWisconsin Energy's non-utility pretax
operating loss decreased by $1.2 million or 30.0% during the
first quarter of 2000 compared to the first quarter of 1999. In
anticipation of the 2000 summer cooling season, however, the
Bridgeport and New Haven power plants, located in the State of
Connecticut, underwent scheduled outages during the first quarter
of 2000, limiting their contribution to pretax operating income.
Bridgeport has returned to service, but the outage for New Haven
is not expected to be completed until mid-May 2000, which will
also limit its contribution to pretax operating income during the
second quarter of 2000. Wisvest-Connecticut, LLC is a wholly-
owned non-utility energy subsidiary of Wisvest Corporation, which
is in turn a wholly-owned subsidiary of Wisconsin Energy.
The following table includes a summary of Wisconsin Energy's non-
utility pretax operating losses during the comparative periods.
Three Months Ended March 31
---------------------------------------
Non-Utility Operations ($000) 2000 1999 % Change
- ----------------------------- -------- -------- --------
Operating Revenues
Independent Power Production $31,784 $ - -
Energy Marketing, Trading
& Services 31,408 14,005 124.3%
Other 14,836 5,992 147.6%
------- -------
Total Operating Revenues 78,028 19,997 290.2%
Operating Expenses
Fuel and Purchased Power 50,645 14,675 245.1%
Other 30,184 9,322 223.8%
------- -------
Total Operating Expenses 80,829 23,997 236.8%
------- -------
Pretax Operating Loss ($2,801) ($4,000) 30.0%
======= =======
NON-UTILITY OPERATING REVENUES: As a result of the power plant
acquisitions noted above, non-utility energy operations realized
$31.8 million of operating revenues during the first quarter of
2000 through the sale of 838,870 megawatt-hours of electric
energy by Wisvest-Connecticut, LLC. In addition, non-utility
energy operations increased its operating revenues by
$17.4 million or 124.3% between the first quarter of 2000 and the
first quarter of 1999 as a result of a growth in energy
marketing, trading and services activities. Between the
comparative periods, other non-utility operating revenues
increased by $8.8 million or 147.6%, including $5.8 million of
additional ancillary revenues from energy activities,
$1.9 million of additional rental income from real estate
activities and $1.1 million of additional operating revenues from
recycling activities.
NON-UTILITY OPERATING EXPENSES: During the first quarter of
2000, non-utility fuel and purchased power expenses increased by
$36.0 million or 245.1% when compared to the first quarter of
1999 due to independent power production activities that began in
mid-April 1999 by Wisvest-Connecticut, LLC and to a growth in
energy marketing, trading and services activities. Other
operating expenses grew by $20.9 million or 223.8% between the
comparative periods primarily due to operation of the Bridgeport
and New Haven Harbor Stations since mid-April 1999, and, to a
lesser extent, due to additional recycling activities.
OTHER ITEMS
OTHER INCOME AND DEDUCTIONS: Compared to the three months ended
March 31, 1999, Other Income and Deductions - Other increased by
$25.3 million at Wisconsin Energy and by $25.7 million at
Wisconsin Electric primarily due to higher cost, company-owned, gas-fired generating facilities. Excluding
the other-interdepartmental customer class, total therm
deliveries increased 11.2%gains on nuclear
decommissioning trust fund investments during the three months
ended March 31, 2000. As noted above, however, gains on nuclear
decommissioning trust fund investments are also recognized as a
corresponding charge to depreciation expense on the condensed
income statements and are earnings neutral.
INTEREST CHARGES AND OTHER: Wisconsin Energy's total interest
expense grew by $9.0 million between the comparative periods of
which $8.2 million was attributable to non-utility operations.
Non-utility distributions on trust preferred securities also
increased by $3.2 million during the first quarter of 2000.
These higher costs are associated primarily with financing
Wisvest-Connecticut, LLC's acquisition of the Bridgeport Harbor
Station and the New Haven Harbor Station in mid-April 1999 comparedand,
to a lesser extent, with additional outside financing required
for increased non-utility real estate activities during the same period in 1998.
Operating Expenses
OTHER OPERATIONS AND MAINTENANCE: Duringpast
year.
INCOME TAXES: Compared to 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$3.8 million or 12.2% primarilyand
Wisconsin Electric's income taxes increased by $6.5 million due
to higher gross receipts and
payroll taxesincreased taxable income at Wisconsin Electric during the
first quarter of 1999.
Other Items
MISCELLANEOUS NET OTHER INCOME AND DEDUCTIONS: Primarily due to
additional2000.
FACTORS AFFECTING RESULTS OF OPERATIONS
ACQUISITION OF WICOR, INC.
On April 26, 2000, Wisconsin Energy acquired WICOR, Inc. through
a subsidiary merger involving the payment of approximately
$1.2 billion in cash, including related fees and expenses, at Wisvest Corporationfor
all outstanding shares of WICOR common stock (except for shares
of restricted stock). Approximately $300 million of WICOR debt
remained outstanding following the acquisition. The business
combination, which was funded through the issuance of commercial
paper, will be accounted for as a purchase prospectively from the
date of acquisition. As a result, Wisconsin Energy anticipates
that it will incur significant increases in anticipationinterest expense and
goodwill amortization expense in its results of operations during
the remainder of 2000.
WICOR is a diversified holding company with two principal
business groups: energy services and pump manufacturing.
Wisconsin Energy is undertaking a thorough review of WICOR's
operations and studying the manner in which the operations of the
April 1999two companies can best be optimized and intends to take such
actions as a result of this review as may be deemed appropriate
under the circumstances. Wisconsin Energy currently intends to
continue the primary business operations of WICOR and to continue
to use the physical assets of such primary business operations
for that purpose, while integrating such operations with its own.
As provided by the merger agreement, effective with the merger,
George E. Wardeberg, the Chairman and Chief Executive Officer of
WICOR, was elected as a director and appointed as Vice Chairman
of the Board of Directors of Wisconsin Energy. Willie D. Davis,
an outside director of WICOR, was also elected to the Wisconsin
Energy Board of Directors.
For additional information related to the acquisition of WICOR,
see "Liquidity and Capital Resources" below as well as Item 1.
Financial Statements - "Notes to Financial Statements" in Part I
of this report.
NUCLEAR MATTERS
SPENT FUEL STORAGE AND DISPOSAL: As a result of implementation
of extended fuel cycles, three remaining casks originally
authorized for temporary dry storage of spent fuel by the Public
Service Commission of Wisconsin and remaining space in the spent
fuel pool, Wisconsin Electric currently estimates that it has
sufficient temporary spent fuel storage capacity to continue
operating Point Beach Nuclear Plant until the spring of 2005. On
May 2, 2000, Wisconsin Electric applied to the Public Service
Commission of Wisconsin for authority to obtain and load enough
additional casks to hold all spent fuel from Point Beach during
the remainder of the plant's current licensed life. The current
United States Nuclear Regulatory Commission operating licenses
for Point Beach expire in October 2010 for Unit 1 and in March
2013 for Unit 2.
LEGAL MATTERS
GIDDINGS & LEWIS INC. / CITY OF WEST ALLIS LAWSUIT: See Item 1.
Legal Proceedings - "Environmental Matters" in Part II of this
report for information concerning a July 1999 jury verdict
against Wisconsin Electric awarding the plaintiffs $4.5 million
of actual damages and $100 million in punitive damages in a
lawsuit alleging that Wisconsin Electric had placed contaminated
wastes at two fossil-fueledsites in the City of West Allis, Wisconsin.
ELECTRIC SYSTEM RELIABILITY MATTERS
300-MEGAWATT CONTRACT WITH SOUTHERN ENERGY: As previously
reported, Wisconsin Electric signed an eight year agreement in
August 1998 with Atlanta-based Southern Energy, Inc. to purchase
all of the electric output from Southern Energy's 300-megawatt
natural gas-fired peaking power plantsplant in Neenah, Wisconsin. This
new facility began commercial operations on May 8, 2000.
INDUSTRY RESTRUCTURING AND COMPETITION
ELECTRIC UTILITY INDUSTRY RESTRUCTURING IN MICHIGAN: As
previously reported, the Michigan Legislature continues to
consider bills addressing retail access for customers of electric
service providers, and mitigation of market power, among other
subjects. To date, no bill has been passed by either legislative
chamber, and the prospects for passage of any bill during the
remainder of 2000 are uncertain.
RATES AND REGULATORY MATTERS
2000/2001 TEST YEARS: See Item 1. Legal Proceedings - "Rates
and Regulatory Matters" in Part II of this report for information
concerning an application that Wisconsin Electric filed with the
Public Service Commission of Wisconsin in September 1999
requesting incremental price relief for specific capital
investments and for a one-time accounting adjustment as well as a
related interim order received from the evaluationPublic Service Commission
of additional potential investments, miscellaneous
netWisconsin in April 2000.
ENVIRONMENTAL MATTERS
NON-UTILITY AIR QUALITY MATTERS: As previously reported, the
Connecticut legislature was considering legislation that would
have imposed air quality restrictions on Wisvest-Connecticut,
LLC's Bridgeport Harbor Station and New Haven Harbor Station in
addition to those air quality restrictions required by current
federal and state law. On May 3, 2000, the Connecticut
legislature adjourned without enacting any legislation on this
subject, and is not expected to reconvene until 2001.
2000 OUTLOOK
EARNINGS: Wisconsin Energy currently projects that its 2000
earnings will be in the range of $1.65 to $1.85 per share. This
earnings projection includes or assumes, among other income and deductions decreased by $2 millionfactors, the
effects of: unusually warm weather during the first quarter of
1999 compared to the first quarter of 1998.
INTEREST EXPENSE: Wisconsin Energy's2000; goodwill amortization and 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 connectionscharges associated 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 EnergyWICOR acquisition; modest synergy savings as a result of the
Year 2000 problem. Based upon its activities to date,WICOR merger; the Company expects to successfully implement the changes necessary
to become "Year 2000 Ready" by the endabsence of 1999. However, the
Year 2000 problem has many elementsWICOR's results from January through
April 26, 2000; and potential consequences,
some of which may not be reasonably foreseeable,normal weather 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: ResultsEnergy and all of its subsidiaries, including WICOR and its
subsidiaries, during the first quarterremainder of 1999 indicate
that2000. Subject to the Company is on course to meet currently anticipatedmany
variables which can affect such a projection, earnings in the range2001
are expected to increase from these levels reflecting a full year
of $1.85 to $2.05 per share during 1999.
This earnings forecast iscontributions from WICOR and attainment of a higher
level of merger-related savings.
These earnings projections are forward-looking statementstatements subject
to certain risks, uncertainties and assumptions. Actual results
may materially vary.vary materially. Factors that could cause actual results to
differ materially include, but are not limited to: general
economic conditions; business and competitive conditions in the
deregulating and consolidating energy industry, in general, and
in the Company's utility service territories; availability of the
Company's generating facilities; changes in purchased power costs;costs
and the economy, weather, the restructuring of the
electricsupply availability; changes in natural gas prices and gas utility industries, and unforeseen problemssupply
availability; unusual weather; risks associated with non-utility
diversification efforts.diversification; timely realization of anticipated net cost
savings from the WICOR merger; regulatory decisions; disposition
of legal proceedings; and foreign governmental, economic,
political and currency risk. See "Cautionary Factors" below.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES: Cash provided by operating activities
totaled $152$293.0 million at Wisconsin Energy and $168$295.0 million at
Wisconsin Electric during the first three months of 1999.2000. This
compares to $159$152.7 million at Wisconsin Energy and $166$169.1 million
at Wisconsin Electric during the same period in 1998.1999.
INVESTING ACTIVITIES: Net cash used in investing activities
totaled $123$181.1 million at Wisconsin Energy and $100$137.7 million at
Wisconsin Electric during the first quarterthree months of 19992000 compared
to $86$123.7 million at Wisconsin Energy and $80$100.7 million at
Wisconsin Electric during the same period in 1998. Investments1999.
Wisconsin Energy's consolidated investing activities during the
first quarterthree months of 19992000 included $106$135.0 million for the
acquisition or construction of new or improved facilities of
which $81$87.0 million was for a number of projects related to
utility plant at Wisconsin Electric.Electric, $26.3 million was for non-
utility real estate development activities by Wispark Corporation
and $17.7 million was for non-utility energy projects at Wisvest
Corporation. During the first three months of 1999,2000, Wisconsin Electric recorded
$8$36.0 million of payments to and earnings of the Nuclear
Decommissioning Trust Fund for the eventual decommissioning of
Point Beach Nuclear Plant and $5$10.6 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 quarterthree months of 1999,2000,
Wisconsin Energy received aused $160.6 million of net of $73 million throughcash for financing
activities compared to usingreceiving a net of $72$73.3 million during
the first three months of 1999. Wisconsin Electric used a net of
$200.3 million for financing activities during the first quarter
of 1998.
On March 25, 1999, WEC Capital Trust I,2000 compared to using a Delaware business trustnet of which Wisconsin Energy owns all of$75.8 million during 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 acquisitionsame
period in April 1999 of the two
fossil-fueled power plants from The United Illuminating Company
and for repayment of short-term borrowings.1999.
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, 1999,2000, Wisconsin Energy issued
714,9671,252,854 new shares of common stock which were purchased by
participants in the Company's stock plans with cash investments
and reinvested dividends aggregating approximately $19$23.1 million.
Also during the three months ended March 31, 2000, Wispark
Corporation secured $15.5 million of bank financing in the form
of adjustable rate mortgage notes due 2000-2003 to finance the
construction or purchase of various facilities. During the three
months ended March 31, 2000, Wisconsin Energy decreased its short-
term debt in the form of commercial paper by $137.2 million, the
net of a $10.4 million increase by Wisconsin Energy's non-utility
operations and a $147.6 million decrease attributable to
Wisconsin Electric. Also during the first quarter of 2000,
Wisconsin Energy paid $46.5 million of dividends on its common
stock compared to $44.9 million paid by Wisconsin Electric.
CAPITAL REQUIREMENTS AND RESOURCES: CapitalExcluding the cash paid for
the WICOR acquisition, capital requirements forduring the remainder
of 19992000 are expected to be principally for construction
expenditures and for other investments, 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.Beach Nuclear Plant. Including WICOR
and its subsidiaries, Wisconsin Energy's total consolidated
construction and other investment budget for the remainder of
2000 is approximately $580 million, including $325 million at
Wisconsin Electric. These cash requirements are expected to be
met through a combination of several of the following possible 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 issuenew-issue common stock under Wisconsin Energy's stock plans.
The amount and timing of any capital market financing has not
been determined and will depend on market conditions and other
factors.
Wisconsin Electric plansEnergy funded the April 26, 2000 acquisition of WICOR,
Inc. through issuance in the institutional private placement
market of $1.2 billion of commercial paper with a weighted
average effective interest rate of 6.09%. Wisconsin Energy has
arranged for two new bank back-up credit facilities to issue up to $150provide
credit support for the issuance of Wisconsin Energy's commercial
paper: a $1.0 billion 364-day bank back-up credit facility and a
$500 million three-year bank back-up credit facility. In
addition, approximately $300 million of debentures duringWICOR debt remains
outstanding. The following table shows Wisconsin Energy's
consolidated capitalization structure at March 31, 2000, as
reported, and pro formed to give effect to the remainderacquisition of
1999.WICOR as if the merger had occurred as of that date.
March 31, 2000
Capitalization Structure - ------------------------------------------------------
Wisconsin Energy As Reported As Adjusted
- -------------------------- ------------------------- --------------------------
(Thousands of Dollars)
Common Equity $2,034,985 42.0% $2,062,182 32.5%
Preferred Stock 30,450 0.6% 30,450 0.5%
Trust Preferred Securities 200,000 4.1% 200,000 3.1%
Long-Term Debt (Including
current maturities 2,204,844 45.6% 2,426,544 38.2%
Short-Term Debt 370,285 7.7% 1,635,137 25.7%
---------- ------ ---------- ------
$4,840,564 100.0% $6,354,313 100.0%
========== ====== ========== ======
For additional information related to the acquisition of WICOR,
see "Factors Affecting Results of Operations" above as well as
Item 1. Financial Statements - "Notes to Financial Statements" in
Part I of this report.
Currently, Wisconsin Energy is reviewing additionalconducting a strategic assessment
of its portfolio of 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.assets. The Company may make
further investments and/or acquisitions from time to time.time in
projects or entities that are expected to provide a satisfactory
return on the investment. Wisconsin Energy may sell all or a
portion of Witech Corporation and a portion of its ownership
interest in certain Wisvest Corporation investments. As a
result, the Company expects that its future long-term capital
requirements as well as its capital resources may continue to
vary from historical levels.
On May 11, 2000, Wisconsin Energy announced that certain assets
of its non-utility real estate development company, Wispark
Corporation, would be sold over the next 12 to 18 months.
Wispark Corporation's assets are currently valued at
approximately $300 million, and Wisconsin Energy expects to sell
approximately 80% of these assets. Proceeds from the sale will
be used to pay down the Company's corporate debt.
In April 2000, in conjunction with consummation of Wisconsin
Energy's acquisition of WICOR, Moody's Investors Service
("Moody's") assigned a general corporate rating of A1 to
Wisconsin Energy and maintained its ratings of the debt
securities of Wisconsin Energy and Wisconsin Electric. Duff &
Phelps Inc. ("D&P") reaffirmed its long-term credit ratings of
Wisconsin Energy and Wisconsin Energy Capital Corporation as well
as its short-term rating of Wisconsin Electric, but downgraded
its long-term credit ratings of Wisconsin Electric. Fitch
Investors Service ("Fitch") assigned initial credit ratings for
Wisconsin Energy, Wisconsin Energy Capital Corporation, WEC
Capital Trust I trust preferred securities and Wisconsin Electric
commercial paper and reaffirmed its long-term ratings of
Wisconsin Electric. Also in April 2000, Standard & Poors
Corporation ("S&P") lowered its ratings on Wisconsin Energy and
Wisconsin Energy's subsidiaries except for the short-term ratings
of Wisconsin Electric, which were reaffirmed. In conjunction
with its debt rating adjustments at the end of April 2000, S&P
removed all long-term ratings on Wisconsin Energy and its
subsidiaries from credit watch with negative implications,
assigning a negative outlook.
In June 1999, S&P and Moody's confirmed the ratings of securities
of Wisconsin Gas Company, WICOR's natural gas distribution
utility subsidiary ("Wisconsin Gas"). These rating actions
followed the June 28, 1999 announcement that Wisconsin Energy
would acquire WICOR. In April 2000, S&P revised the outlook on
Wisconsin Gas from stable to negative and Fitch assigned initial
credit ratings for Wisconsin Gas.
The following table summarizes various current ratings of
Wisconsin Energy's and Wisconsin Electric's securities by S&P,
Moody's, D&P and Fitch as well as securities of Wisconsin Gas by
S&P and Moody's. WICOR's holding company has no debt outstanding
and the commercial paper of WICOR Industries, Inc., a wholly-
owned subsidiary of WICOR, is unrated.
S & P Moody's D & P Fitch
--------- --------- --------- ---------
Wisconsin Energy Corporation
Commercial Paper A-1 P-1 D-1 F1
Wisconsin Electric Power Company
Commercial Paper A-1+ P-1 D-1+ F1+
Senior Secured Debt AA- Aa2 AA AA
Unsecured Debt A+ Aa3 AA- AA-
Preferred Stock A aa3 AA- AA-
Wisconsin Gas Company
Commercial Paper A-1+ P-1 - F1+
Senior Unsecured Debt AA- Aa2 - AA-
Wisconsin Energy Capital Corporation
Unsecured Debt A+ A1 A+ A+
WEC Capital Trust I
Trust Preferred Securities A- a1 A A
At March 31, 2000, Wisconsin Energy had $398 million of unused
lines of bank credit on a consolidated basis of which
$128 million was attributable to Wisconsin Electric. As noted
above, Wisconsin Energy obtained an additional $1.5 billion of
bank lines in April 2000 in conjunction with its acquisition of
WICOR. At March 31, 2000, WICOR had approximately $130 million
of unused bank lines on a consolidated basis of which $77 million
was attributable to Wisconsin Gas.
*****
For certain other information which may impact Wisconsin Energy's
and Wisconsin Electric's future financial condition or results of
operations, see Item 1. Financial Statements - "Notes to
Financial Statements" in Part I of this report as well as Item 1.
Legal Proceedings in Part II of this report.
CAUTIONARY FACTORS
This report and other documents or oral presentations contain or
may contain forward-looking statements made by or on behalf of
Wisconsin Energy, Wisconsin Electric or Wisconsin Electric.Gas. Such
statements are based upon management's current expectations and
are subject to risks and uncertainties that could cause Wisconsin
Energy's, Wisconsin Electric's or Wisconsin Electric'sGas' actual results
to differ materially from those contemplated in the statements.
Readers are cautioned not to place undue reliance on the forward-lookingforward-
looking statements. When used in written documents or oral
presentations, the terms "anticipate," "believe," "estimate,"
"expect," "objective," "plan," "possible," "potential," "project"
and similar expressions are intended to identify forward-looking
statements. In addition to the assumptions and other factors
referred to specifically in connection with such statements,
factors that could cause Wisconsin Energy's, Wisconsin Electric's
or Wisconsin Electric'sGas' actual results to differ materially from those
contemplated in any forward-looking statements include, among
others, the following:following.
OPERATING, FINANCIAL AND INDUSTRY FACTORS
* Factors affecting utility operations such as unusual weather
conditions; catastrophic weather-related damage; availability of
Wisconsin Electric's, Edison Sault'sSault Electric Company's or Wisvest
Connecticut,
LLC'sCorporation's generating facilities; unscheduled generation
outages, or unplanned maintenance or repairs; unanticipated
changes in fossil fuel, nuclear fuel, purchased power, gas supply
or water supply costs or availability due to higher demand,
shortages, transportation problems or other developments;
nonperformance by electric energy or natural gas suppliers under
existing power purchase or gas supply contracts; nuclear or
environmental incidents; resolution of 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 regulations as well as regulations from the
Wisconsin or Michigan DepartmentDepartments of Natural Resources' regulationsResources or the
state of Connecticut related to emissions from fossil-fuel-firedfossil fuel power
plants; or the siting approval process for new generation and
transmission facilities.
* The rapidly changing and increasingly competitive electric and
gas utility environment as market-based forces replace strict
industry regulation and other competitors enter the electric and
gas markets resulting in increased wholesale and retail
competition.
* Consolidation of the industry as a result of the combination
and acquisition of utilities in the Midwest,midwest, nationally and
globally.
* Certain restrictionsRestrictions imposed by various financing arrangements and
regulatory requirements on the ability of Wisconsin Electric,
Wisconsin Gas or other subsidiaries to transfer funds to
Wisconsin Energy in the form of cash dividends, loans or
advances.
* Changes in social attitudes regarding the utility and power
industries.
* Customer business conditions including demand for their
products or services and supply of labor and material used in
creating their products and services.
* The cost and other effects of legal and administrative
proceedings, settlements, investigations and investigations, claims, and changes
in those matters.matters including the final outcome of the Giddings &
Lewis, Inc. / City of West Allis lawsuit against Wisconsin
Electric.
* Factors affecting the availability or cost of capital such as
changes in interest rates; the Company's capitalization
structure; market perceptions of the utility industry, the
Company or any of its subsidiaries; or security atings.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
regulation.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.project; and the risk of higher interest costs
associated with potentially reduced securities ratings by
independent rating agencies as a result of these and other
factors.
* Legislative or regulatory restrictions or caps on non-utility
acquisitions, investments or projects, including the Statestate 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.amended public utility holding company law.
* Factors affecting foreign non-utility operations and
investments 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, Wisconsin
Electric's or Wisconsin Electric'sGas' Securities and Exchange Commission
filings or in other publicly disseminated written documents.
BUSINESS COMBINATION FACTORS
* Consummation of the merger with WICOR, which will have a
significant effect on the future operations and financial
position of Wisconsin Energy. Specific factors include:
* Unanticipated costs or difficulties related to the integration
of the businesses of Wisconsin Energy and WICOR.
* Unanticipated financing or other consequences resulting from
the additional short-term debt issued to fund the acquisition of
WICOR.
* Unexpected difficulties or delays in realizing anticipated net
cost savings or unanticipated effects of the qualified five-year
electric and gas rate freeze ordered by the Public Service
Commission of Wisconsin as a condition of approval of the merger.
Wisconsin Energy, Wisconsin Electric and Wisconsin Gas 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, 1998.1999.
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.
RATE1999.
ENVIRONMENTAL MATTERS
WISCONSIN RETAIL JURISDICTION
FUEL COST ADJUSTMENT PROCEDURE: AsGIDDINGS & LEWIS, INC. / CITY OF WEST ALLIS LAWSUIT: In July
1996, Giddings & Lewis, Inc., Kearney & Trecker Corporation, now
a part of Giddings & Lewis, Inc., and the PSCW's 1998 Rate
Order, Wisconsin Electric was required to file by October 1, 1998
its forecastCity 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 issuedWest Allis
brought 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 industryaction 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 andin 1959 Wisconsin Electric were parties to a
joint venture to develop, build, operate and maintain an electric
generating planthad deposited cyanide
contaminated wood chips at Subic Baytwo sites in West Allis, Wisconsin,
owned by the Philippines involving
certain equipment originally purchased byplaintiffs. Environmental remediation at both sites
was completed several years ago, with the current owners paying
for disposal of materials found on their respective portions of
the sites. Internal investigations led Wisconsin Electric forto
believe that it was not the source of this waste.
In July 1999, a proposed cogeneration facility in Kimberly, Wisconsin. The
complaint in the action alleges thatjury issued a verdict against Wisconsin Electric
breached
contractual duties allegedly owed to WIEP, causingawarding the plaintiffs $4.5 million in compensatory damages to
WEIPfor
clean-up costs and loss of property value and $100 million in
an amount claimed topunitive damages. In October 1999, the Circuit Court denied
Wisconsin Electric's post trial motions and directed that
judgment on the verdict be at least $100 million. On
April 15, 1998,entered. Wisconsin Electric filed an answer to the
complaint denying liability. On March 1, 1999, Wisconsin
Electrichas filed
a motion for summary judgment and supporting
papers on all but one countnotice of appeal 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
AppealsAppeals.
In December 1999, in order to stop the post-judgment accrual of
interest at 12% per annum during the pendency of the appeal,
Wisconsin Electric tendered a contested liability payment of
$110 million, which certifiedis part of "Deferred Charges and Other
Assets - Other" on the casecondensed balance sheets, to the Wisconsin Supreme Court.
On July 2, 1998,Clerk of
Circuit Court for Milwaukee County representing the Supreme Court reversed the decisionamount of the
circuit
court, holdingverdict and accrued interest. Under Wisconsin law, the
plaintiffs are liable to Wisconsin Electric upon reversal or
reduction of the judgment for the applicable amount of the funds
tendered with interest.
In further post-trial proceedings, the plaintiffs filed with the
Circuit Court a motion for sanctions based upon representations
made by Wisconsin Electric during trial that it had no insurance
coverage for the punitive damage award. The Circuit Court held
hearings on the sanctions issue in February 2000. On April 27,
2000, the Circuit Court Judge issued a ruling on the sanctions
matter, imposing the following sanctions against Wisconsin
Electric: (i) "judgment in the alternative" as a sanction,
thereby finding an alternative basis upon which to sustain the
$104.5 million verdict returned by the jury; (ii) a bar against
Wisconsin Electric pursuing insurance coverage for the punitive
damage portion of the verdict; and (iii) a requirement that
Wisconsin Electric pay the plaintiffs' costs relating to the
sanctions matter. In addition to its appeal of the judgment
entered on the jury's verdict, Wisconsin Electric will also
appeal the Judge's ruling on the sanctions matter.
In the opinion of management, based in part on the advice of
legal counsel, the jury verdict was not supported by the evidence
or the law and the unprecedented award of punitive damages of
this magnitude was unwarranted and should therefore be reversed
or substantially reduced on appeal. Management also believes
that the plantiffs may bring suit undersanctions imposed by the Judge were not supported by the
evidence or the law. As such, Wisconsin Electric has not
established a reserve for potential damages from this suit.
RATES AND REGULATORY MATTERS
2000/2001 TEST YEARS: In September 1999, Wisconsin statuteElectric
submitted an application with the Public Service Commission of
Wisconsin requesting incremental price relief for specific
capital investments for electric and gas system reliability and
safety and for a one-time accounting adjustment. The application
further recommended the adoption of performance-based measures
and incentives. In its application, Wisconsin Electric proposed
a two-step price increase. The first requested increase, to abate a public nuisance.be
effective January 1, 2000, totaled $46 million (3.1%) for
electric operations and $8 million (2.3%) for gas operations.
The case was remandedsecond requested price increase, to the
circuit court which, on Februarybe effective January 1,
2001, totaled $29 million (2.0%) for electric operations.
On December 23, 1999, Wisconsin Electric requested that interim
price relief be granted by the Public Service Commission of
Wisconsin, subject to refund, as soon as possible because it
anticipated that a final order on its price request would not be
issued until the summer of 2000. Wisconsin Electric withdrew its
request to implement performance-based prices because some
elements of the proposed performance-based price plan were not
compatible with the Public Service Commission of Wisconsin's
approval of the Company's merger with WICOR. On March 23, 2000,
the Public Service Commission of Wisconsin approved Wisconsin
Electric's request for interim price increases, authorizing a
decision dimissing
all claims against Minergy$25.2 million (1.7%) increase for electric operations and an
$11.6 million (3.1%) increase for gas operations. The interim
increase, which is subject to potential refund, became effective
April 11, 2000. Rates in the interim order are based on a 12.2%
return on common equity and will be in effect until superceded by
a final order establishing new rates.
The Public Service Commission of Wisconsin finished hearing
testimony on Wisconsin Electric's original September 1999
application on April 26, 2000. Subject to unexpected delays or
other defendants. On May 5,matters that might arise in the interim, Wisconsin Electric
expects a final order on its September 1999 incremental price
relief application to be issued by the plantiffs again appealedPublic Service Commission
of Wisconsin in the circuit court decision tosummer of 2000.
As a condition of its approval of Wisconsin Energy's merger with
WICOR, the CourtPublic Service Commission of Appeals. The matter is pending.Wisconsin ordered a
qualified five-year rate freeze that becomes effective on
January 1, 2001 concurrent with any second step rate changes
included in the final order on the 2000/2001 test years.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.EXHIBITS
The following Exhibits are filed with or incorporated by
reference in the applicable Form 10-Q report:
Exhibit No.
- -----------
WISCONSIN ENERGY CORPORATION
EXHIBITS
(21)-1 Subsidiaries2.1 Agreement and Plan of Merger, dated as of June 27, 1999,
as amended as of September 9, 1999, by and among Wisconsin Energy
Corporation, WICOR, Inc. and CEW Acquisition, Inc.(incorporated
herein by reference to Appendix A to the joint proxy
statement/prospectus dated September 10, 1999, included in
Wisconsin Energy's Registration on Form S-4 filed on September 9,
1999 (File No. 333-86827) (the "Form S-4")).
2.2 Amendment to Agreement and Plan of Merger dated as of
September 9, 1999 (incorporated herein by reference to Exhibit
2.2 to the Form S-4).
2.3 Second Amendment to Agreement and Plan of Merger dated as
of April 26, 2000 (incorporated herein by reference to Exhibit
2.3 to Wisconsin Energy's Current Report on Form 8-K dated as of
April 26, 2000).
3.1 Bylaws of Wisconsin Energy, Corporation.
(27)-1as amended to May 1, 2000.
10.1(a) Updated form of Incentive Stock Option Agreement under
1993 Omnibus Stock Incentive Plan, as amended.
10.1(b) Updated form of Non-Qualified Stock Option Agreement
under 1993 Omnibus Stock Incentive Plan, as amended.
10.2(a) Employment Agreement with George E. Wardeberg as Vice
Chairman of the Board of Directors of Wisconsin Energy
Corporation, effective April 26, 2000.
10.2(b) Non-Qualified Stock Option Agreement with George E.
Wardeberg, dated April 26, 2000, granted pursuant to
the Employment Agreement.
10.3 Amended and Restated Wisconsin Energy Corporation
Special Executive Severance Policy, effective as of
April 26, 2000.
10.4 Amended and Restated Wisconsin Energy Corporation
Executive Severance Policy, effective as of April 26,
2000.
27.1 Wisconsin Energy Corporation Financial Data Schedule
for the three months ended March 31, 1999.2000.
27.2 Wisconsin Energy Corporation Restated Financial Data
Schedule for the three months ended March 31, 1999,
which reflects the reclassification of certain amounts
to conform to Wisconsin Energy's current financial
statement presentation.
WISCONSIN ELECTRIC POWER COMPANY
EXHIBITS
(12)-13.2 Bylaws of Wisconsin Electric Power Company Statement of
Computation of Ratios of Earningsas amended
to Fixed Charges
for the twelve months ended March 31, 1999.
(27)-2May 1, 2000.
27.3 Wisconsin Electric Power Company Financial Data
Schedule for the three months ended March 31, 1999.2000.
27.4 Wisconsin Electric Power Company Restated Financial
Data Schedule for the three months ended March 31,
1999, which reflects the reclassification of certain
amounts to conform to Wisconsin Electric's current
financial statement presentation.
(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, 1999.2000.
A Current Report on Form 8-K dated as of April, 26, 2000 was
filed by Wisconsin Energy disclosing the consummation of
Wisconsin Energy's acquisition of WICOR, Inc., an update on
securities ratings, and the Circuit Court Judge's ruling on
the sanctions matter relating to the Giddings & Lewis / City
of West Allis lawsuit, and incorporating and filing as an
exhibit WICOR's historical financial statements.
A Current Report on Form 8-K dated as of April 27, 2000 was
filed by Wisconsin Electric disclosing an update on
securities ratings and the Circuit Court Judge's ruling on
the sanctions matter relating to the Giddings & Lewis / City
of West Allis lawsuit.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, 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
---------------------------------------Paul Donovan
Date: May 14, 1999 Calvin H. Baker, Treasurer,12, 2000 -----------------------------------
Paul Donovan, Senior Vice President,
Chief Financial Officer and duly
authorized officer
WISCONSIN ELECTRIC POWER COMPANY
--------------------------------
(Registrant)
/s/ Calvin H. Baker
---------------------------------------
Date: May 14, 199912, 2000 -----------------------------------------
Calvin H. Baker, Vice President-Finance,President -
Finance, Chief Financial Officer and duly
authorized officer
WISCONSIN ELECTRIC POWER COMPANY
--------------------------------
FORM 10-Q REPORT FOR THE QUARTER ENDED MARCH 31, 19992000
EXHIBIT INDEX
The following exhibits are filed within this report:
Exhibit No.
- -----------
(12)-1-------------
3.2 Bylaws of Wisconsin Electric Power Company Statement of Computation
of Ratio of Earningsas amended
to Fixed Charges for the twelve
months ended March 31, 1999.
(27)-2May 1, 2000.
27.3 Wisconsin Electric Power Company Financial Data
Schedule for the three months ended March 31, 1999.2000.
27.4 Wisconsin Electric Power Company Restated Financial
Data Schedule for the three months ended March 31,
1999, which reflects the reclassification of certain
amounts to conform to Wisconsin Electric's current
financial statement presentation.