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 EndedSeptember 30, 2010
Commission | Registrant; State of Incorporation | IRS Employer | |
File Number | Address; and Telephone Number | Identification No. | |
001-09057 | WISCONSIN ENERGY CORPORATION | 39-1391525 | |
(A Wisconsin Corporation) | |||
231 West Michigan Street | |||
P.O. Box 1331 | |||
Milwaukee, WI 53201 | |||
(414) 221-2345 | |||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes[X] No[ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X] Accelerated filer [ ]
Non-accelerated filer [ ] (Do not Smaller reporting company [ ]
check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (September 30, 2010):
Common Stock, $.01 Par Value, | 116,896,897 shares outstanding. |
WISCONSIN ENERGY CORPORATION | ||||||
| ||||||
FORM 10-Q REPORT FOR THE QUARTER ENDED SEPTEMBER 30, 2010 | ||||||
TABLE OF CONTENTS | ||||||
Item | Page | |||||
Introduction | 7 | |||||
Part I -- Financial Information | ||||||
1. | Financial Statements | |||||
Consolidated Condensed Income Statements | 8 | |||||
Consolidated Condensed Balance Sheets | 9 | |||||
Consolidated Condensed Statements of Cash Flows | 10 | |||||
Notes to Consolidated Condensed Financial Statements | 11 | |||||
2. | Management's Discussion and Analysis of | |||||
Financial Condition and Results of Operations | 23 | |||||
3. | Quantitative and Qualitative Disclosures About Market Risk | 39 | ||||
4. | Controls and Procedures | 39 | ||||
Part II -- Other Information | ||||||
1. | Legal Proceedings | 39 | ||||
1A. | Risk Factors | 40 | ||||
2. | Unregistered Sales of Equity Securities and Use of Proceeds | 40 | ||||
6. | Exhibits | 41 | ||||
Signatures | 42 | |||||
2
DEFINITION OF ABBREVIATIONS AND INDUSTRY TERMS | ||
The abbreviations and terms set forth below are used throughout this report and have the meanings assigned to them below: | ||
Wisconsin Energy Subsidiaries and Affiliates | ||
Primary Subsidiaries | ||
We Power | W.E. Power, LLC | |
Wisconsin Electric | Wisconsin Electric Power Company | |
Wisconsin Gas | Wisconsin Gas LLC | |
Significant Assets | ||
OC 1 | Oak Creek expansion Unit 1 | |
OC 2 | Oak Creek expansion Unit 2 | |
PWGS | Port Washington Generating Station | |
PWGS 1 | Port Washington Generating Station Unit 1 | |
PWGS 2 | Port Washington Generating Station Unit 2 | |
Other Subsidiaries and Affiliates | ||
ERGSS | Elm Road Generating Station Supercritical, LLC | |
Federal and State Regulatory Agencies | ||
DOE | United States Department of Energy | |
EPA | United States Environmental Protection Agency | |
FERC | Federal Energy Regulatory Commission | |
MPSC | Michigan Public Service Commission | |
PSCW | Public Service Commission of Wisconsin | |
SEC | Securities and Exchange Commission | |
Environmental Terms | ||
CAIR | Clean Air Interstate Rule | |
NOx | Nitrogen Oxide | |
SO2 | Sulfur Dioxide | |
Other Terms and Abbreviations | ||
ARRs | Auction Revenue Rights | |
Compensation Committee | Compensation Committee of the Board of Directors | |
CPCN | Certificate of Public Convenience and Necessity | |
Edison Sault | Edison Sault Electric Company | |
ERISA | Employee Retirement Income Security Act of 1974 | |
Exchange Act | Securities Exchange Act of 1934, as amended | |
Fitch | Fitch Ratings | |
FTRs | Financial Transmission Rights | |
Junior Notes | Wisconsin Energy's 2007 Series A Junior Subordinated Notes due 2067 issued in May 2007 | |
LMP | Locational Marginal Price | |
MISO | Midwest Independent Transmission System Operator, Inc. | |
OTC | Over-the-Counter | |
Plan | The Wisconsin Energy Corporation Retirement Account Plan | |
Point Beach | Point Beach Nuclear Power Plant | |
PTF | Power the Future | |
S&P | Standard & Poor's Ratings Services | |
DEFINITION OF ABBREVIATIONS AND INDUSTRY TERMS | ||
The abbreviations and terms set forth below are used throughout this report and have the meanings assigned to them below: | ||
Measurements | ||
Btu | British Thermal Unit(s) | |
Dth | Dekatherm(s) (One Dth equals one million Btu) | |
MW | Megawatt(s) (One MW equals one million Watts) | |
MWh | Megawatt-hour(s) | |
Watt | A measure of power production or usage | |
Accounting Terms | ||
AFUDC | Allowance for Funds Used During Construction | |
GAAP | Generally Accepted Accounting Principles | |
OPEB | Other Post-Retirement Employee Benefits | |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this report are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based upon management's current expectations and are subject to risks and uncertainties that could cause our actual results to differ materially from those contemplated in the statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements include, among other things, statements concerning management's expectations and projections regarding earnings, completion of construction projects, regulatory matters, on-going legal proceedings, fuel costs, sources of electric energy supply, coal and gas deliveries, remediation costs, environmental and other capital expenditures, liquidity and capital resources and other matters. In some cases, forward-looking statements may be identified by reference to a future period or periods or by t he use of forward-looking terminology such as "anticipates," "believes," "estimates," "expects," "forecasts," "guidance," "intends," "may," "objectives," "plans," "possible," "potential," "projects," "should" or similar terms or variations of these terms.
Actual results may differ materially from those set forth in forward-looking statements. In addition to the assumptions and other factors referred to specifically in connection with these statements, factors that could cause our actual results to differ materially from those contemplated in any forward-looking statements or otherwise affect our future results of operations and financial condition include, among others, the following:
- Factors affecting utility operations such as unusual weather conditions; catastrophic weather-related or terrorism-related damage; availability of electric generating facilities; unscheduled generation outages, or unplanned maintenance or repairs; unanticipated events causing scheduled generation outages to last longer than expected; unanticipated changes in fossil fuel, purchased power, coal supply, 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; environmental incidents; electric transmission or gas pipeline system constraints; unanticipated organizational structure or key personnel changes; collective bargaining agreements with union employees or work stoppages; or inflation rates.
- Factors affecting the economic climate in our service territories such as customer growth; customer business conditions, including demand for their products and services; and changes in market demand and demographic patterns.
- Timing, resolution and impact of pending and future rate cases and negotiations, including recovery for new investments as part of ourPower the Future (PTF) strategy, environmental compliance, transmission service, fuel costs and costs associated with the Midwest Independent Transmission System Operator, Inc. (MISO) Energy and Operating Reserve Markets.
- Regulatory factors such as changes in rate-setting policies or procedures; changes in regulatory accounting policies and practices; industry restructuring initiatives; transmission or distribution system operation and/or administration initiatives; required changes in facilities or operations to reduce the risks or impacts of potential terrorist activities; required approvals for new construction; and the siting approval process for new generation and transmission facilities and new pipeline construction.
- Increased competition in our electric and gas markets and continued industry consolidation.
- Factors which impede or delay execution of our PTF strategy, including the adverse interpretation or enforcement of permit conditions by the permitting agencies; construction delays; and obtaining the investment capital from outside sources necessary to implement the strategy.
- The impact of recent and future federal, state and local legislative and regulatory changes, including electric and gas industry restructuring initiatives; changes to the Federal Power Act and related regulations under the Energy Policy Act of 2005 and enforcement thereof by the Federal Energy Regulatory Commission (FERC) and other regulatory agencies; changes in allocation of energy assistance, including state public benefits funds; changes in environmental, tax and other laws and regulations to which we are subject; changes in the application of existing laws and regulations; and changes in the interpretation or enforcement of permit conditions by the permitting agencies.
- Restrictions imposed by various financing arrangements and regulatory requirements on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans or advances.
- Current and future litigation, regulatory investigations, proceedings or inquiries, including the pending lawsuit against the Wisconsin Energy Corporation Retirement Account Plan (Plan), FERC matters, and Internal Revenue Service audits and other tax matters.
- Events in the global credit markets that may affect the availability and cost of capital.
- Other factors affecting our ability to access the capital markets, including general capital market conditions; our capitalization structure; market perceptions of the utility industry, us or any of our subsidiaries; and our credit ratings.
- The investment performance of our pension and other post-retirement benefit trusts.
- The impact of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.
- The effect of accounting pronouncements issued periodically by standard setting bodies, including any requirement for U.S. registrants to follow International Financial Reporting Standards instead of Generally Accepted Accounting Principles (GAAP).
- Unanticipated technological developments that result in competitive disadvantages and create the potential for impairment of existing assets.
- Changes in the creditworthiness of the counterparties with whom we have contractual arrangements, including participants in the energy trading markets and fuel suppliers and transporters.
- The cyclical nature of property values that could affect our real estate investments.
- Changes to the legislative or regulatory restrictions or caps on non-utility acquisitions, investments or projects, including the State of Wisconsin's public utility holding company law.
- Other business or investment considerations that may be disclosed from time to time in our Securities and Exchange Commission (SEC) filings or in other publicly disseminated written documents, including the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2009.
We expressly disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Wisconsin Energy Corporation is a diversified holding company which conducts its operations primarily in two operating segments: a utility energy segment and a non-utility energy segment. Unless qualified by their context when used in this document, the terms Wisconsin Energy, the Company, our, us or we refer to the holding company and all of its subsidiaries. Our primary subsidiaries are Wisconsin Electric Power Company (Wisconsin Electric), Wisconsin Gas LLC (Wisconsin Gas) and W.E. Power, LLC (We Power).
Utility Energy Segment: Our utility energy segment consists of: Wisconsin Electric, which serves electric customers in Wisconsin and the Upper Peninsula of Michigan, gas customers in Wisconsin and steam customers in metropolitan Milwaukee, Wisconsin; and Wisconsin Gas, which serves gas customers in Wisconsin. Wisconsin Electric and Wisconsin Gas operate under the trade name of "We Energies."
Non-Utility Energy Segment: Our non-utility energy segment consists primarily of We Power. We Power was formed in 2001 to design, construct, own and lease to Wisconsin Electric the new generating capacity included in our PTF strategy. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2009 Annual Report on Form 10-K for more information on PTF.
We have prepared the unaudited interim financial statements presented in this Form 10-Q pursuant to the rules and regulations of the SEC. We have condensed or omitted some information and note disclosures normally included in financial statements prepared in accordance with GAAP pursuant to these rules and regulations. This Form 10-Q, including the financial statements contained herein, should be read in conjunction with our 2009 Annual Report on Form 10-K, including the financial statements and notes therein.
PART I -- FINANCIAL INFORMATION | |||||||||||||
ITEM 1. FINANCIAL STATEMENTS | |||||||||||||
WISCONSIN ENERGY CORPORATION | |||||||||||||
CONSOLIDATED CONDENSED INCOME STATEMENTS | |||||||||||||
(Unaudited) | |||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||
(Millions of Dollars, Except Per Share Amounts) | |||||||||||||
Operating Revenues | $973.2 | $815.5 | $3,112.7 | $3,039.6 | |||||||||
Operating Expenses | |||||||||||||
Fuel and purchased power | 335.6 | 292.1 | 871.4 | 809.5 | |||||||||
Cost of gas sold | 67.4 | 63.2 | 519.0 | 667.9 | |||||||||
Other operation and maintenance | 318.1 | 299.7 | 971.0 | 935.1 | |||||||||
Depreciation and amortization | 77.4 | 86.5 | 228.6 | 257.1 | |||||||||
Property and revenue taxes | 26.9 | 27.5 | 79.8 | 82.9 | |||||||||
Total Operating Expenses | 825.4 | 769.0 | 2,669.8 | 2,752.5 | |||||||||
Amortization of Gain | 55.2 | 57.9 | 151.8 | 177.2 | |||||||||
Operating Income | 203.0 | 104.4 | 594.7 | 464.3 | |||||||||
Equity in Earnings of Transmission Affiliate | 15.2 | 14.9 | 45.5 | 43.6 | |||||||||
Other Income, net | 9.6 | 10.2 | 25.5 | 24.0 | |||||||||
Interest Expense, net | 52.5 | 38.4 | 154.9 | 119.0 | |||||||||
Income from Continuing | |||||||||||||
Operations Before Income Taxes | 175.3 | 91.1 | 510.8 | 412.9 | |||||||||
Income Taxes | 63.0 | 32.9 | 182.0 | 150.3 | |||||||||
Income from Continuing Operations | 112.3 | 58.2 | 328.8 | 262.6 | |||||||||
Income (Loss) from Discontinued | |||||||||||||
Operations, Net of Tax | (0.1) | 0.3 | 1.8 | 1.1 | |||||||||
Net Income | $112.2 | $58.5 | $330.6 | $263.7 | |||||||||
Earnings Per Share (Basic) | |||||||||||||
Continuing operations | $0.96 | $0.50 | $2.81 | $2.25 | |||||||||
Discontinued operations | - | - | 0.02 | 0.01 | |||||||||
Total Earnings Per Share (Basic) | $0.96 | $0.50 | $2.83 | $2.26 | |||||||||
Earnings Per Share (Diluted) | |||||||||||||
Continuing operations | $0.95 | $0.49 | $2.78 | $2.23 | |||||||||
Discontinued operations | - | 0.01 | 0.01 | 0.01 | |||||||||
Total Earnings Per Share (Diluted) | $0.95 | $0.50 | $2.79 | $2.24 | |||||||||
Weighted Average Common | |||||||||||||
Shares Outstanding (Millions) | |||||||||||||
Basic | 116.9 | 116.9 | 116.9 | 116.9 | |||||||||
Diluted | 118.4 | 118.0 | 118.4 | 117.9 | |||||||||
Dividends Per Share of Common Stock | $0.40 | $0.3375 | $1.20 | $1.0125 | |||||||||
The accompanying Notes to Consolidated Condensed Financial Statements are an integral part of these financial statements. | |||||||||||||
WISCONSIN ENERGY CORPORATION | |||||||
CONSOLIDATED CONDENSED BALANCE SHEETS | |||||||
(Unaudited) | |||||||
September 30, 2010 | December 31, 2009 | ||||||
(Millions of Dollars) | |||||||
Assets | |||||||
Property, Plant and Equipment | |||||||
In service | $ 11,500.9 | $ 10,192.1 | |||||
Accumulated depreciation | (3,581.5) | (3,431.9) | |||||
7,919.4 | 6,760.2 | ||||||
Construction work in progress | 1,414.2 | 2,185.1 | |||||
Leased facilities, net | 66.3 | 70.5 | |||||
Net Property, Plant and Equipment | 9,399.9 | 9,015.8 | |||||
Investments | |||||||
Equity investment in transmission affiliate | 327.0 | 314.6 | |||||
Other | 38.2 | 44.1 | |||||
Total Investments | 365.2 | 358.7 | |||||
Current Assets | |||||||
Cash and cash equivalents | 11.2 | 20.2 | |||||
Restricted cash | 62.7 | 194.5 | |||||
Accounts receivable | 300.3 | 298.7 | |||||
Accrued revenues | 157.8 | 288.7 | |||||
Materials, supplies and inventories | 422.3 | 378.1 | |||||
Regulatory assets | 54.4 | 58.9 | |||||
Prepayments and other | 179.9 | 290.2 | |||||
Total Current Assets | 1,188.6 | 1,529.3 | |||||
Deferred Charges and Other Assets | |||||||
Regulatory assets | 1,139.4 | 1,180.5 | |||||
Goodwill | 441.9 | 441.9 | |||||
Other | 183.5 | 171.7 | |||||
Total Deferred Charges and Other Assets | 1,764.8 | 1,794.1 | |||||
Total Assets | $ 12,718.5 | $ 12,697.9 | |||||
Capitalization and Liabilities | |||||||
Capitalization | |||||||
Common equity | $ 3,727.7 | $ 3,566.9 | |||||
Preferred stock of subsidiary | 30.4 | 30.4 | |||||
Long-term debt | 3,935.7 | 3,875.8 | |||||
Total Capitalization | 7,693.8 | 7,473.1 | |||||
Current Liabilities | |||||||
Long-term debt due currently | 472.7 | 295.7 | |||||
Short-term debt | 518.6 | 825.1 | |||||
Accounts payable | 254.3 | 290.6 | |||||
Regulatory liabilities | 66.2 | 222.8 | |||||
Other | 297.6 | 259.9 | |||||
Total Current Liabilities | 1,609.4 | 1,894.1 | |||||
Deferred Credits and Other Liabilities | |||||||
Regulatory liabilities | 880.1 | 876.0 | |||||
Deferred income taxes - long-term | 1,047.6 | 1,017.9 | |||||
Deferred revenue, net | 791.8 | 739.1 | |||||
Pension and other benefit obligations | 335.3 | 318.7 | |||||
Other | 360.5 | 379.0 | |||||
Total Deferred Credits and Other Liabilities | 3,415.3 | 3,330.7 | |||||
Total Capitalization and Liabilities | $ 12,718.5 | $ 12,697.9 | |||||
The accompanying Notes to Consolidated Condensed Financial Statements are an integral part | |||||||
of these financial statements. | |||||||
WISCONSIN ENERGY CORPORATION | ||||||||
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS | ||||||||
(Unaudited) | ||||||||
Nine Months Ended September 30 | ||||||||
2010 | 2009 | |||||||
(Millions of Dollars) | ||||||||
Operating Activities | ||||||||
Net income | $ 330.6 | $ 263.7 | ||||||
Reconciliation to cash | ||||||||
Depreciation and amortization | 237.6 | 267.8 | ||||||
Amortization of gain | (151.8) | (177.2) | ||||||
Equity in earnings of transmission affiliate | (45.5) | (43.6) | ||||||
Distributions from transmission affiliate | 37.0 | 34.5 | ||||||
Deferred income taxes and investment tax credits, net | (1.0) | 121.9 | ||||||
Deferred revenue | 78.0 | 148.4 | ||||||
Contributions to benefit plans | - | (289.3) | ||||||
Change in - | Accounts receivable and accrued revenues | 111.4 | 237.1 | |||||
Inventories | (44.2) | (44.3) | ||||||
Other current assets | 37.8 | 61.8 | ||||||
Accounts payable | (39.8) | (188.6) | ||||||
Accrued income taxes, net | 2.3 | 22.2 | ||||||
Deferred costs, net | 19.5 | 34.6 | ||||||
Other current liabilities | 51.0 | 11.7 | ||||||
Other, net | 30.8 | (27.0) | ||||||
Cash Provided by Operating Activities | 653.7 | 433.7 | ||||||
Investing Activities | ||||||||
Capital expenditures | (545.6) | (553.1) | ||||||
Investment in transmission affiliate | (3.9) | (18.1) | ||||||
Proceeds from asset sales, net | 63.8 | 15.7 | ||||||
Change in restricted cash | 131.8 | 149.5 | ||||||
Other, net | (56.1) | (70.0) | ||||||
Cash Used in Investing Activities | (410.0) | (476.0) | ||||||
Financing Activities | ||||||||
Exercise of stock options | 76.0 | 12.5 | ||||||
Purchase of common stock | (128.5) | (21.0) | ||||||
Dividends paid on common stock | (140.3) | (118.4) | ||||||
Issuance of long-term debt | 530.0 | 11.5 | ||||||
Retirement and repurchase of long-term debt | (289.9) | (202.0) | ||||||
Change in short-term debt | (306.5) | 335.7 | ||||||
Other, net | 6.5 | 2.0 | ||||||
Cash (Used in) Provided by Financing Activities | (252.7) | 20.3 | ||||||
Change in Cash and Cash Equivalents | (9.0) | (22.0) | ||||||
Cash and Cash Equivalents at Beginning of Period | 20.2 | 31.7 | ||||||
Cash and Cash Equivalents at End of Period | $ 11.2 | $ 9.7 | ||||||
The accompanying Notes to Consolidated Condensed Financial Statements are an integral part of these | ||||||||
financial statements. | ||||||||