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 September 30, 2000
Commission Registrant; State of Incorporation IRS Employer
File Number Address; and Telephone Number Identification No.
----------- ---------------------------------- ------------------
001-09057 WISCONSIN ENERGY CORPORATION 39-1391525
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2949
Milwaukee, WI 53201
(414) 221-2345
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 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 (October 31, 2000):
Common Stock, $.01 Par Value 120,995,273 shares outstanding.
WISCONSIN ENERGY CORPORATION
--------------------------------
FORM 10-Q REPORT FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
Item Page
- ---- ----
Introduction...............................................................
Part I - Financial Information
------------------------------
1. Financial Statements
Consolidated Condensed Income Statement..................................
Consolidated Condensed Balance Sheet.....................................
Consolidated Condensed Statement of Cash Flows...........................
Notes to Financial Statement.............................................
2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations...........................
3. Quantitative and Qualitative Disclosures About Market Risk.................
Part II - Other Information
---------------------------
1. Legal Proceedings..........................................................
5. Other Information..........................................................
6. Exhibits and Reports on Form 8-K...........................................
Signatures.................................................................
INTRODUCTION
Wisconsin Energy Corporation is a diversified holding company
with subsidiaries primarily in three segments described in
further detail below: a utility energy segment, a non-utility
energy segment and a manufacturing segment. 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.
UTILITY ENERGY SEGMENT: The utility energy segment consists of
Wisconsin Electric Power Company ("Wisconsin Electric"), an
electric, gas and steam utility; Wisconsin Gas Company
("Wisconsin Gas"), a gas and water utility; and Edison Sault
Electric Company ("Edison Sault"), an electric utility.
NON-UTILITY ENERGY SEGMENT: The non-utility energy segment
consists primarily of Wisvest Corporation ("Wisvest"), which
develops, owns and operates electric generating facilities and
invests in other energy-related entities; WICOR Energy Services
Company ("WICOR Energy"), which engages in natural gas purchasing
and marketing as well as energy and price risk management; and
FieldTech, Inc. ("FieldTech"), which provides meter reading and
technology services for gas, electric and water utilities.
MANUFACTURING SEGMENT: The manufacturing segment consists of
Sta-Rite Industries, Inc. ("Sta-Rite"), SHURflo Pump
Manufacturing Co. ("SHURflo") and Hypro Corporation ("Hypro"),
which are manufacturers of pumps as well as fluid processing and
filtration equipment.
OTHER: Other non-utility operating subsidiaries of Wisconsin
Energy include primarily Minergy Corp. ("Minergy"), which
develops and markets recycling technologies and Wispark LLC.
("Wispark"), formerly Wispark Corporation, which develops and
invests in real estate. Among other companies, "Other" also
includes Wisconsin Energy Corporation, the parent holding
company, as well as Wisconsin Energy Capital Corporation, which
engages in investing and financing activities.
Wisconsin Gas, WICOR Energy, FieldTech, Sta-Rite, SHURflo and
Hypro were acquired by Wisconsin Energy as a result of the
Company's acquisition of WICOR, Inc. ("WICOR"), on April 26,
2000. For additional information related to the acquisition of
WICOR, see Item 1. Financial Statements - "Notes To Financial
Statements" and 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.
The unaudited interim financial statements presented in this
Form 10-Q have been prepared by Wisconsin Energy pursuant to the
rules and regulations of the Securities and Exchange Commission.
Certain information and note 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. Wisconsin Energy's
financial statements should be read in conjunction with the
financial statements and notes thereto included in Wisconsin
Energy's 1999 Annual Report on Form 10-K as well as in WICOR's
1999 Annual Report on Form 10-K.
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED INCOME STATEMENT
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- --------------------------
2000 1999 2000 1999
----------- ---------- ----------- ----------
(Millions of Dollars, Except Per Share Amounts)
Operating Revenues
Utility energy $607.2 $522.4 $1,709.6 $1,537.0
Non-utility energy 98.2 60.8 248.7 130.6
Manufacturing 134.7 - 244.5 -
Other 10.7 8.1 31.0 19.4
------ ------ -------- --------
Total Operating Revenues 850.8 591.3 2,233.8 1,687.0
Operating Expenses
Fuel and purchased power 169.5 168.4 492.8 436.0
Cost of gas sold 105.9 22.5 260.8 119.1
Cost of goods sold 98.5 - 175.8 -
Other operation and maintenance 233.0 174.8 643.1 535.7
Depreciation, decommissioning
and amortization 88.0 64.1 243.4 185.6
Property and revenue taxes 21.2 19.0 61.9 55.9
------ ------- -------- --------
Total Operating Expenses 716.1 448.8 1,877.8 1,332.3
------ ------- -------- --------
Operating Income 134.7 142.5 356.0 354.7
Other Income and Deductions
Interest income 8.7 5.2 18.9 14.2
Allowance for other funds
used during construction 0.5 0.7 2.4 3.1
Other 6.4 (2.2) 9.5 0.1
------ ------- -------- --------
Total Other Income
and Deductions 15.6 3.7 30.8 17.4
Financing Costs
Interest expense 71.2 37.9 174.3 107.5
Allowance for borrowed funds
used during construction (3.8) (2.5) (10.2) (6.8)
Distributions on preferred
securities of subsidiary trust 3.5 3.5 10.3 7.1
Preferred dividend requirement
of subsidiary 0.3 0.3 0.9 0.9
------ ------- -------- --------
Total Financing Costs 71.2 39.2 175.3 108.7
------ ------- -------- --------
Income Before Income Taxes 79.1 107.0 211.5 263.4
Income Taxes 34.5 38.1 86.2 92.1
------ ------- -------- --------
Net Income $44.6 $68.9 $125.3 $171.3
====== ======= ======== ========
Earnings Per Share of Common Stock
Basic $0.37 $0.59 $1.04 $1.47
Diluted $0.36 $0.59 $1.03 $1.47
Dividends Per Share of Common Stock $0.39 $0.39 $1.17 $1.17
Average Outstanding Number of
Shares of Common Stock (Millions) 121.9 117.3 120.7 116.6
Diluted Shares (Millions) 122.8 117.3 121.3 116.6
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
September 30, 2000 December 31, 1999
------------------ -----------------
(Millions of Dollars)
Assets
------
Property, Plant and Equipment
Utility energy $6,766.7 $6,161.1
Non-utility energy 223.9 199.0
Manufacturing 113.0 -
Other 174.6 351.0
Accumulated provision for depreciation (3,432.5) (3,250.0)
-------- --------
3,845.7 3,461.1
Construction work in progress 269.2 174.8
Leased facilities - net 123.1 127.3
Nuclear fuel - net 87.9 83.4
-------- --------
Net Property, Plant and Equipment 4,325.9 3,846.6
Investments 838.3 950.3
Current Assets
Cash and cash equivalents 46.3 73.5
Accounts receivable 507.2 242.3
Accrued utility revenues 114.4 134.6
Materials, supplies and fossil fuel 425.9 231.6
Net assets held for sale 387.3 -
Prepayments and other assets 118.1 123.9
-------- --------
Total Current Assets 1,599.2 805.9
Deferred Charges and Other Assets
Goodwill 909.5 57.8
Accumulated deferred income taxes 226.4 198.0
Other 707.7 374.5
-------- --------
Total Deferred Charges and Other Assets 1,843.6 630.3
-------- --------
Total Assets $8,607.0 $6,233.1
======== ========
Capitalization and Liabilities
------------------------------
Capitalization
Common stock equity $2,076.6 $2,007.8
Preferred stock 30.4 30.4
Company-obligated, mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the Company 200.0 200.0
Long-term debt 2,290.6 2,134.6
-------- --------
Total Capitalization 4,597.6 4,372.8
Current Liabilities
Long-term debt due currently 64.6 69.1
Short-term debt 2,003.7 507.5
Accounts payable 292.7 174.0
Accrued liabilities 209.2 99.7
Other 114.5 48.3
-------- --------
Total Current Liabilities 2,684.7 898.6
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 753.1 624.9
Other 571.6 336.8
-------- --------
Total Deferred Credits and Other Liabilities 1,324.7 961.7
-------- --------
Total Capitalization and Liabilities $8,607.0 $6,233.1
======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30
------------------------------
2000 1999
--------- -----------
(Millions of Dollars)
Operating Activities
Net income $125.3 $171.3
Reconciliation to cash
Depreciation, decommissioning
and amortization 261.0 205.2
Nuclear fuel expense - amortization 22.5 20.3
Deferred income taxes - net (7.1) (8.6)
Investment tax credit - net (3.3) (3.4)
Allowance for other funds
used during construction (2.4) (3.1)
Change in - Accounts receivable (51.0) (21.9)
Inventories (68.4) (9.8)
Other current assets 85.0 49.4
Accounts payable 29.3 (31.9)
Other current liabilities 20.4 30.2
Other 11.9 4.0
-------- ------
Cash Provided by Operating Activities 423.2 401.7
Investing Activities
Capital expenditures (462.0) (382.4)
Acquisitions (1,233.3) (276.8)
Allowance for borrowed funds
used during construction (10.2) (6.8)
Nuclear fuel (31.4) (16.0)
Nuclear decommissioning trust (44.5) (30.7)
Other 31.6 (68.1)
-------- ------
Cash Used in Investing Activities (1,749.8) (780.8)
Financing Activities
Issuance of common stock 71.1 54.0
Issuance of long-term debt 63.3 274.5
Issuance of mandatorily redeemable
trust preferred securities - 193.7
Repurchase of common stock (21.1) -
Retirement of long-term debt (34.9) (79.1)
Change in short-term debt 1,362.1 97.2
Dividends paid on common stock (141.1) (136.3)
Other - (1.4)
-------- ------
Cash Provided by Financing Activities 1,299.4 402.6
-------- ------
Change in Cash and Cash Equivalents (27.2) 23.5
Cash and Cash Equivalents at
Beginning of Period 73.5 16.6
-------- ------
Cash and Cash Equivalents at
End of Period $46.3 $40.1
======== ======
Supplemental Information - Cash Paid For
Interest (net of amount capitalized) $149.7 $106.2
Income taxes 45.7 105.9
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
WISCONSIN ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
GENERAL INFORMATION
1. The accompanying unaudited consolidated financial statements
for Wisconsin Energy Corporation should be read in
conjunction with Item 8. Financial Statements and
Supplementary Data in Wisconsin Energy's 1999 Annual Report
on Form 10-K as well as in WICOR, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1999. In the
opinion of management, all adjustments, normal and recurring
in nature, necessary to a fair statement of the results of
operations, cash flows and financial position of Wisconsin
Energy, have been included in the accompanying income
statements, statements of cash flows and balance sheets. The
results of operations for the three and nine months ended
September 30, 2000 are not necessarily indicative, however,
of the results which may be expected for the entire year 2000
because of seasonal and other factors.
2. Due in part to its recent acquisition of WICOR (see Note 3),
Wisconsin Energy has modified certain income statement and
balance sheet presentations. Prior year financial statement
amounts have been reclassified to conform to their current
year presentation.
ACQUISITION OF WICOR, INC.
3. On April 26, 2000, the Company acquired all of the
outstanding common stock of WICOR, Inc., a diversified
utility holding company. The purchase price included the
payment of $1.2 billion of cash, the assumption of options
and restricted shares valued at $37.1 million and the payment
of $10.2 million in transaction costs. The Company also
assumed approximately $300 million of existing WICOR debt.
The cash purchase price of approximately $1.2 billion was
funded with commercial paper borrowings. The acquisition was
accounted for as a purchase under Accounting Principles Board
Opinion No. 16 ("APB 16") and accordingly, the operating
results have been included in the Company's consolidated
results of operations from the date of acquisition. In
accordance with APB 16, a portion of the purchase price has
been allocated to assets acquired and liabilities assumed
based upon an initial estimate of fair market value at the
date of acquisition while approximately $835 million,
including approximately $97 million of existing goodwill from
WICOR, was recorded as goodwill and is being amortized over
40 years. Portions of the purchase price were identified by
independent appraisers utilizing proven valuation procedures
and techniques and are subject to adjustment as these
estimates are refined and finalized.
The following unaudited pro forma data summarize the results
of operations for the periods indicated as if the WICOR
acquisition had been completed as of the beginning of the
periods presented. The pro forma amounts give effect to
actual operating results prior to the acquisition, adjusted
to include the pro forma effect of interest expense,
amortization of intangibles and income taxes. The pro forma
information does not necessarily reflect the actual results
that would have occurred nor is it necessarily indicative of
future results of operations of the combined companies.
Pro Forma
Nine Months Ended September 30
-------------------------------
Wisconsin Energy Corporation 2000 1999
- ---------------------------- ---------- ----------
(Millions of Dollars, Except Per Share Amounts)
Total Operating Revenues $2,669.1 $2,413.6
Net Income $126.8 $156.6
Earnings Per Share
Basic $1.05 $1.34
Diluted 1.04 1.32
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.
NET ASSETS HELD FOR SALE
4. During October 2000, the Company closed on the sale of its
interest in SkyGen Energy Holdings, LLC which resulted in
cash proceeds totaling approximately $332 million (including
the repayment of short-term notes receivable and interest)
and an estimated gain of $91 million ($54 million after tax
or approximately $0.45 per share). In addition, Wisconsin
Energy announced in May 2000 that it would sell approximately
$260 million of the assets of Wispark LLC. over the following
12 to 18 months. During October 2000, the Company closed on
the sale of approximately 20% of the Wispark portfolio that
is anticipated to be sold.
COMMON EQUITY
5. In September 2000, the board of directors approved a
modification to a common stock purchase plan originally
authorized in June 2000. Wisconsin Energy now expects to
purchase up to $400 million of its shares of common stock in
the open market over the following 24 months. Through
September 30, 2000 Wisconsin Energy purchased approximately
1.1 million shares of common stock for $21.1 million. During
October 2000, Wisconsin Energy purchased an additional
0.9 million shares of common stock for $18.0 million.
In addition, the board of directors authorized a reduction
of Wisconsin Energy's quarterly common stock dividend in
September 2000, effective December 1, 2000, from $0.39 per
share (or $1.56 on an annualized basis) to $0.20 per share
($0.80 on an annualized basis).
Comprehensive income includes all changes in equity during a
period except those resulting from investments by owners and
distributions to owners. Historically, Wisconsin Energy has
had no items of other comprehensive income to report.
However, as a result of its acquisition of WICOR, Wisconsin
Energy has the following total comprehensive income related
to its manufacturing segment for the nine months ended
September 30, 2000 and 1999:
Nine Months Ended September 30
Wisconsin Energy Corporation ------------------------------
Comprehensive Income 2000 1999
- ---------------------------- ---------- ----------
(Millions of Dollars)
Net Earnings $125.3 $171.3
Other Comprehensive Income
Currency Translation
Adjustments (1.2) -
------ ------
Total Comprehensive Income $124.1 $171.3
====== ======
ACCOUNTING PRONOUNCEMENTS
6. In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities
("FAS 133")," which has been amended by FAS 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FAS 133, an amendment of FAS 133,"
and by FAS 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of
FAS 133." FAS 133 requires that every derivative instrument
be recorded on the balance sheet as an asset or liability
measured at its fair value and that changes in the
derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met.
FAS 133, as amended, is effective for fiscal years beginning
after June 15, 2000 and must be applied to: (a) derivative
instruments; and (b) certain derivative instruments embedded
in hybrid contracts that were issued, acquired or
substantively modified after December 31, 1998. Wisconsin
Energy is in the process of identifying all derivative
instruments, determining fair market values of derivatives,
designating and documenting hedge relationships, and
evaluating the effectiveness of those hedge relationships.
Through this process, the Company has identified a limited
number of both financial and physical commodity contracts
that meet the definition of a derivative under FAS 133 in its
electric and natural gas utility operations as well as in its
non-regulated energy operations. These contracts are used to
manage Wisconsin Energy's exposure to commodity price and
interest rate volatility. While a number of derivatives have
been identified, the inventory process is not yet complete
and the fair market values of all derivatives identified have
not been determined. Consequently, Wisconsin Energy has not
completed an assessment of the implications of adopting
FAS 133 at this time. Wisconsin Energy expects to implement
FAS 133 on January 1, 2001.
SEGMENT INFORMATION
7. Wisconsin Energy Corporation is a diversified holding company
with subsidiaries in utility and non-utility businesses.
Wisconsin Energy's reportable operating segments include a
utility energy segment, a non-utility energy segment and a
manufacturing segment. Wisconsin Energy has organized its
reportable operating segments based in part upon the
regulatory environment in which its utility subsidiaries
operate. In addition, the segments are managed separately
because each business requires different technology and
marketing strategies. Intersegment sales and transfers are
not significant.
The utility energy segment primarily includes Wisconsin
Energy's electric and natural gas utility operations. The
electric utility operation engages in the generation,
transmission, distribution and sale of electric energy in
southeastern (including Metropolitan Milwaukee), east central
and northern Wisconsin and in the Upper Peninsula of
Michigan. The natural gas utility operation is responsible
for the purchase, distribution and sale of natural gas to
retail customers and the transportation of customer-owned
natural gas throughout Wisconsin. The non-utility energy
segment derives its revenues primarily from energy activities
including independent power production, energy marketing,
contract meter reading and related services. The
manufacturing segment is responsible for the manufacturing of
pumps and processing equipment used to pump, control,
transfer, hold and filter water and other fluids.
Summarized financial information concerning Wisconsin
Energy's reportable operating segments for the three and nine
month periods ended September 30, 2000 and 1999 is shown in
the following table. Current year information is not
comparable with the prior year due to the operating results
of the WICOR subsidiaries and the allocation of merger-
related costs (principally interest and goodwill amortization
expense) to the operating segments.
Reportable Operating Segments
--------------------------------------
Energy Other (a)
----------------------- Corporate &
Wisconsin Energy Reconciling Total
Corporation Utility Non-Utility Manufacturing Eliminations Consolidated
- ---------------- ---------- ----------- ------------- ------------ ------------
(Millions of Dollars)
Three Months Ended
------------------
September 30, 2000
Operating Revenues $607.2 $98.2 $134.7 $10.7 $850.8
Operating Income (Loss) 113.6 13.2 9.8 (1.9) 134.7
Net Earnings (Loss) 45.2 9.9 1.9 (12.4) 44.6
Capital Expenditures 95.8 38.7 7.4 17.1 159.0
September 30, 1999
Operating Revenues $522.4 $60.8 $ - $8.1 $591.3
Operating Income 125.7 15.5 - 1.3 142.5
Net Earnings (Loss) 63.2 6.8 - (1.1) 68.9
Capital Expenditures 83.0 19.9 - 39.2 142.1
Nine Months Ended
-----------------
September 30, 2000
Operating Revenues $1,709.6 $248.7 $244.5 $31.0 $2,233.8
Operating Income (Loss) 325.1 11.5 22.2 (2.8) 356.0
Net Earnings (Loss) 138.7 5.9 6.9 (26.2) 125.3
Capital Expenditures 282.7 108.5 9.9 60.9 462.0
Total Assets $6,395.9 $763.5 $823.4 $624.2 $8,607.0
September 30, 1999
Operating Revenues $1,537.0 $130.6 $ - $19.4 $1,687.0
Operating Income 334.3 19.8 - 0.6 354.7
Net Earnings (Loss) 168.9 6.2 - (3.8) 171.3
Capital Expenditures 271.3 25.8 - 85.3 382.4
Total Assets $4,879.5 $605.0 $ - $447.8 $5,932.3
<FN>
(a) Other includes all other non-utility activities, primarily non-utility real
estate investment and development and non-utility investment in recycling
technology as well as corporate interest.
</FN>
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wisconsin Energy Corporation is a diversified holding company
primarily with subsidiaries in a utility energy segment, a non-
utility energy segment and a manufacturing segment. 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.
See Note 3 above in Item 1. Financial Statements - "Notes to
Financial Statements" as well as "Factors Affecting Results of
Operations" and "Liquidity and Capital Resources" below in this
item for information concerning Wisconsin Energy's April 26, 2000
acquisition of WICOR, Inc. This business combination was
accounted for as a purchase, and, therefore, is reflected
prospectively in Wisconsin Energy's consolidated financial
statements from and after the date of the acquisition.
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."
RESULTS OF OPERATIONS - 2000 THIRD QUARTER
EARNINGS
Primarily due to costs related to the acquisition of WICOR,
Wisconsin Energy's consolidated net income and diluted earnings
per share of common stock decreased from $68.9 million and $0.59
per share, respectively, during the third quarter of 1999 to
$44.6 million and $0.36 per share, respectively, during the third
quarter of 2000. Between the comparative periods, net earnings
decreased as a result of changes in the following:
Three Months Ended September 30
------------------------------------------------------------------
Amount Diluted Earnings Per Share
------------------------------ ----------------------------------
Net Earnings Summary Excluding Merger Excluding Merger
Wisconsin Energy Corporation Merger Costs Costs (a) Total Merger Costs Costs (a) Total
---------------------------- ------------ --------- ----- ------------ --------- -----
(Millions of Dollars)
Total - 1999 Third Quarter $68.9 $ - $68.9 $0.59 $ - $0.59
Increase (Decrease) Due To
Change In
Utility Energy Segment
Earnings (12.7) (5.3) (18.0) (0.11) (0.04) (0.15)
Non-Utility Energy Segment
Earnings 3.1 - 3.1 0.03 - 0.03
Manufacturing Segment
Earnings 6.1 (4.2) 1.9 0.05 (0.04) 0.01
Other (b) (3.1) (8.2) (11.3) (0.03) (0.07) (0.10)
Shares Outstanding - - - (0.02) - (0.02)
----- ------ ----- ----- ------ -----
(6.6) (17.7) (24.3) (0.08) (0.15) (0.23)
----- ------ ----- ----- ------ -----
Total - 2000 Third Quarter $62.3 ($17.7) $44.6 $0.51 ($0.15) $0.36
===== ====== ===== ===== ====== =====
<FN>
(a) Total WICOR merger-related costs of $25.2 million ($17.7 million net of tax)
include $20.3 million ($12.8 million net of tax or $0.11 per share) of
interest expense and $4.9 million ($4.9 million net of tax or $0.04 per
share) of goodwill amortization expense.
(b) Excluding merger costs, the decline in "Other" net earnings can be
primarily attributed to losses during 2000 by Minergy Corp. and Wispark LLC.
</FN>
An analysis of contributions to earnings by segment follows.
UTILITY ENERGY SEGMENT CONTRIBUTION TO EARNINGS
Utility energy segment earnings decreased by $18.0 million
between the third quarter of 2000 and the third quarter of 1999,
$12.5 million of which is attributable to Wisconsin Gas Company,
acquired as part of the acquisition of WICOR. Due to the
seasonality of the gas heating business, Wisconsin Gas normally
incurs losses in the spring and summer months and records
earnings in the fall and winter months. Excluding interest and
goodwill amortization expenses related to the WICOR merger,
Wisconsin Gas posted a net loss of $7.2 million during the third
quarter of 2000 compared to a pro forma net loss of $6.0 million
during the third quarter of 1999. As described in further detail
below, earnings for Wisconsin Energy's other utility
subsidiaries, Wisconsin Electric Power Company and Edison Sault
Electric Company, declined $5.5 million between the comparative
periods primarily because higher depreciation, decommissioning
and amortization expenses offset a $7.1 million increase in
electric gross margin that was limited by cooler weather and by
higher fuel and purchased power expenses during the third quarter
of 2000.
The following table reconciles the change in the contribution to
earnings by Wisconsin Energy's utility energy segment between the
third quarter of 1999 and the third quarter of 2000.
Three Months Ended September 30
----------------------------------------------------------------
Increase (Decrease)
-----------------------------------
Wisconsin Energy Corporation Wisconsin
Utility Energy Segment 1999 Gas (a) Other (b) Total 2000
- ---------------------------- -------- ----------- ----------- --------- --------
(Millions of Dollars)
Operating Revenues
Electric Utility $477.3 $ - $12.6 $12.6 $489.9
Gas Utility 41.7 65.9 6.9 72.8 114.5
Other Utility 3.4 0.2 (0.8) (0.6) 2.8
------ ----- ----- ------ ------
Total Operating Revenues 522.4 66.1 18.7 84.8 607.2
Fuel and Purchased Power 136.7 - 5.3 5.3 142.0
Cost of Gas Sold 22.5 42.3 7.4 49.7 72.2
------ ----- ----- ------ ------
Gross Margin 363.2 23.8 6.0 29.8 393.0
Other Operating Expenses
Other Operation & Maintenance 160.2 21.6 (1.7) 19.9 180.1
Depreciation, Decommissioning
and Amortization 60.0 12.0 8.7 20.7 80.7
Property and Revenue Taxes 17.3 1.2 0.1 1.3 18.6
------ ----- ----- ------ ------
Operating Income 125.7 (11.0) (1.1) (12.1) 113.6
Other Income, Net 2.0 - 1.6 1.6 3.6
Financing Costs 29.0 7.6 1.4 9.0 38.0
------ ----- ----- ------ ------
Income Before Income Taxes 98.7 (18.6) (0.9) (19.5) 79.2
Income Taxes 35.5 (6.1) 4.6 (1.5) 34.0
------ ----- ----- ------ ------
Net Earnings $63.2 ($12.5) ($5.5) ($18.0) $45.2
====== ===== ===== ====== ======
<FN>
(a) The acquisition of WICOR was accounted for as a purchase. Wisconsin
Energy's financial statements reflect the operations of Wisconsin Gas,
a subsidiary of WICOR, subsequent to the merger on April 26, 2000.
(b) Other includes Wisconsin Electric, Edison Sault and consolidating
adjustments and eliminations between the utilities.
</FN>
OPERATING REVENUES AND GROSS MARGINS: For further information
concerning electric utility operations, see "Electric Utility
Revenues, Gross Margins and Sales" below. For further
information concerning gas utility operations, see "Gas Utility
Revenues, Gross Margins and Therm Deliveries" below.
OTHER OPERATION AND MAINTENANCE EXPENSES: Excluding Wisconsin
Gas, other operation and maintenance expenses decreased by
$1.7 million during the third quarter of 2000 compared to the
third quarter of 1999. The most significant changes in other
operation and maintenance expenses include $2.6 million of higher
non-fuel fossil generation expenses and $3.0 million of
higher electric distribution expenses offset by a $3.4 million
decline in customer service expenses and $3.1 million of lower
administrative and general expenses.
Non-fuel fossil generation expenses increased during 2000
primarily due to differences in the scope and timing of scheduled
maintenance outages for various generating facilities at
Wisconsin Electric. Electric distribution expenses were higher
due to increased forestry and maintenance activity. Between the
comparative periods, customer service expenses were lower
primarily due to a change in the period over which conservation
expenses are being amortized. Administrative and general
expenses decreased primarily due to a decline in costs associated
with contract labor, which was used during 1999 to prepare the
Company for the Year 2000 and for other technology matters.
DEPRECIATION, DECOMMISSIONING AND AMORTIZATION EXPENSES:
Excluding Wisconsin Gas, depreciation, decommissioning and
amortization expenses were $8.7 million higher during the third
quarter of 2000 compared with the third quarter of 1999.
Pursuant to a 1998 rate order for the 1998/1999 test year,
Wisconsin Electric was amortizing pre-1991 contributions in aid
of construction at a rate which reduced annual depreciation
expense by $22.8 million. This amortization, which was completed
as of December 31, 1999, had the effect of reducing depreciation
expense by $5.7 million during the third quarter of 1999. Higher
average depreciable plant during the third quarter of 2000 also
contributed to an increase in depreciation expense.
INCOME TAXES: The effective income tax rate increased in the
third quarter of 2000 as compared with the prior year primarily
due to the end of amortization of pre-1991 contributions in aid
of construction as described above.
Electric Utility Revenues, Gross Margins and Sales
During the third quarter of 2000, Wisconsin Energy's total
electric utility operating revenues increased by $12.6 million or
2.6% compared to the third quarter of 1999. Gross margin on
electric utility operating revenues (electric utility operating
revenues less fuel and purchased power expenses) increased by
$7.2 million or 2.1%. Wisconsin Energy attributes this growth in
part to interim and final electric retail rate increases that
became effective in early April 2000 and on August 31, 2000,
respectively. For additional information concerning these rate
increases, see Item 1. Legal Proceedings - "Utility Rates and
Regulatory Matters" in Part II of this report. The third quarter
of 2000 was 30% cooler than the third quarter of 1999 which
significantly reduced higher margin residential electric sales
during the third quarter of 2000.
The change in gross margin between the comparative periods also
reflects higher fuel and purchased power costs. Wisconsin Energy
was able to limit its increase in fuel costs to $0.6 million or
0.7% by changing its mix of generation from high cost natural gas-
fired generation to lower cost coal-fired generation during the
third quarter of 2000. However, purchased power expenses grew by
$4.8 million or 9.6% due to higher fixed costs during the third
quarter of 2000 associated with long-term purchased power
contracts.
The following table compares Wisconsin Energy's electric utility
operating revenues, gross margins and electric utility energy
sales during the third quarter of 2000 with similar information
for the third quarter of 1999.
Gross Margin Megawatt-Hour Sales
Three Months Ended September 30 Three Months Ended September 30
Wisconsin Energy Corporation -------------------------------- --------------------------------
Electric Utility Operations 2000 1999 % Change 2000 1999 % Change
- ---------------------------- ------ ------ -------- ------ ------ --------
(Millions of Dollars) (Thousands, Except
Degree Days)
Operating Revenues
Residential $155.7 $157.4 (1.1%) 1,962.8 2,051.3 (4.3%)
Small Commercial/Industrial 147.7 141.1 4.7% 2,307.4 2,245.3 2.8%
Large Commercial/Industrial 125.5 117.8 6.5% 3,149.0 2,924.6 7.7%
Other-Retail/Municipal 18.4 16.6 10.8% 448.4 429.0 4.5%
Resale-Utilities 35.1 38.5 (8.8%) 810.8 973.6 (16.7%)
Other-Operating Revenues 7.5 5.9 27.1% - - -
------ ------ ------- -------
Total Operating Revenues 489.9 477.3 2.6% 8,678.4 8,623.8 0.6%
Fuel and Purchased Power ======= =======
Fuel 86.4 85.7 0.8%
Purchased Power 54.8 50.0 9.6%
------ ------
Total Fuel and Purchased Power 141.2 135.7 4.1%
------ ------
Gross Margin $348.7 $341.6 2.1%
====== ======
Weather - Degree Days (a)
Heating (153 Normal) 184 122 50.8%
Cooling (509 Normal) 395 570 (30.7%)
<FN>
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
</FN>
During the third quarter of 2000, total electric energy sales
increased by 0.6% compared with the third quarter of 1999 due to
a 77.2% increase in sales to the Empire and Tilden iron ore
mines, Wisconsin Electric's two largest retail customers.
Excluding the Empire and Tilden mines, sales to the remaining
large commercial/industrial customers decreased by 2.4% and total
electric sales decreased by 2.8%. Growth in the average number
of residential, small commercial/industrial and other
retail/municipal customers between the comparative periods offset
some of the effects on total electric energy sales and operating
revenues of significantly cooler weather during the third quarter
of 2000. As measured by cooling degree days, the third quarter
of 2000 was 30.7% cooler than the third quarter of 1999 and 22.4%
cooler than normal.
Gas Utility Revenues, Gross Margins and Therm Deliveries
During the third quarter of 2000, Wisconsin Energy's total gas
utility operating revenues increased by $72.8 million or 174.6%
compared to the third quarter of 1999. Gross margin on gas
utility operating revenues (gas operating revenues less cost of
gas sold) increased by $23.1 million or 120.3%. Of these
changes, $65.9 million of the increase in total gas utility
operating revenues and $23.6 million of the increase in gross
margin were attributable to Wisconsin Gas.
Excluding Wisconsin Gas, Wisconsin Energy's total gas utility
operating revenues increased by $6.9 million while gross margin
on gas utility operating revenues decreased by $0.5 million.
Significantly higher per unit gas costs during the third quarter
of 2000 as well as interim and final retail gas rate increases
that became effective in early April 2000 and on August 31, 2000,
respectively, contributed to the increase in operating revenues.
However, gross margin declined primarily due to a decrease in
interdepartmental therm deliveries to Wisconsin Electric's
natural gas-fired electric generating facilities during the third
quarter of 2000. For additional information concerning the rate
increases, see Item 1. Legal Proceedings - "Utility Rates and
Regulatory Matters" in Part II of this report.
Comparative gas utility operating revenues, gross margins and gas
utility therm deliveries during the reporting periods are
summarized below. Gross margin is a better performance indicator
than revenues because changes in the cost of gas sold are flowed
through to revenue under a purchased gas adjustment mechanism
that does not impact gross margin.
Gross Margin Therm Deliveries
Three Months Ended September 30 Three Months Ended September 30
Wisconsin Energy Corporation -------------------------------- --------------------------------
Gas Utility Operations 2000 (a) 1999 % Change 2000 (a) 1999 % Change
- ---------------------------- -------- ------ -------- -------- ------ --------
(Millions of Dollars) (Millions, Except
Degree Days)
Operating Revenues
Residential $47.9 $16.7 186.8% 56.1 24.4 129.9%
Commercial/Industrial 22.8 7.4 208.1% 34.4 14.7 134.0%
Interruptible 3.1 0.8 287.5% 5.1 2.0 155.0%
----- ----- ----- -----
Total Retail Gas Sales 73.8 24.9 196.4% 95.6 41.1 132.6%
Transported Customer-Owned Gas 7.4 3.4 117.6% 161.5 73.6 119.4%
Transported-Interdepartmental 0.4 0.8 (50.0%) 10.3 26.0 (60.4%)
Other-Operating Revenues 32.9 12.6 161.1% - - -
----- ----- ----- -----
Total Operating Revenues 114.5 41.7 174.6% 267.4 140.7 90.0%
Cost of Gas Sold 72.2 22.5 220.9% ===== =====
----- -----
Gross Margin $42.3 $19.2 120.3%
===== =====
Weather - Degree Days (b)
Heating (153 Normal) 184 122 50.8%
<FN>
(a) Wisconsin Energy's gas utility information reflects the operations of
Wisconsin Gas subsequent to the merger on April 26, 2000. For further
information concerning gas utility operations during the comparative
periods, see "Pro Forma Gas Utility Revenues, Gross Margins and Therm
Deliveries" below.
(b) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
</FN>
Pro Forma Gas Utility Revenues, Gross Margins and Therm Deliveries
The following table compares pro forma gas utility operating
revenues, gross margins and therm deliveries during the third
quarters of 2000 and 1999 as if Wisconsin Gas had been part of
Wisconsin Energy since January 1, 1999.
Pro Forma
------------------------------------------------------------------
Gross Margin Therm Deliveries
Three Months Ended September 30 Three Months Ended September 30
Wisconsin Energy Corporation -------------------------------- --------------------------------
Gas Utility Operations 2000 1999 % Change 2000 1999 % Change
- ---------------------------- ------ ------ -------- ------ ------ --------
(Millions of Dollars) (Millions)
Operating Revenues
Residential $47.9 $38.0 26.1% 56.1 55.6 0.9%
Commercial/Industrial 22.8 16.1 41.6% 34.4 34.7 (0.9%)
Interruptible 3.1 3.0 3.3% 5.1 7.0 (27.1%)
----- ----- ----- -----
Total Retail Gas Sales 73.8 57.1 29.2% 95.6 97.3 (1.7%)
Transported Customer-Owned Gas 7.4 7.5 (1.3%) 161.5 170.4 (5.2%)
Transported-Interdepartmental 0.4 0.7 (42.9%) 10.3 26.0 (60.4%)
Other-Operating Revenues 32.9 33.0 (0.3%) - - -
----- ----- ----- -----
Total Operating Revenues 114.5 98.3 16.5% 267.4 293.7 (9.0%)
Cost of Gas Sold 72.2 55.8 29.4% ===== =====
----- -----
Gross Margin $42.3 $42.5 (0.5%)
===== =====
NON-UTILITY ENERGY SEGMENT CONTRIBUTION TO EARNINGS
Non-utility energy segment earnings increased by $3.1 million
($3.0 million excluding the WICOR non-utility energy companies)
during the third quarter of 2000 due to a nonrecurring
$8.0 million pre-tax gain associated with the termination of a
long-term power sales contract held by Wisvest-Connecticut, LLC.
The following table reconciles the change in the contribution to
earnings by Wisconsin Energy's non-utility energy segment between
the third quarter of 1999 and the third quarter of 2000. In
addition, the table compares electric megawatt-hour sales from
independent power production activities as well as electric
megawatt-hour sales and natural gas therm sales as a result of
non-utility energy marketing, trading and services activities.
Three Months Ended September 30
----------------------------------------------------------------
Increase (Decrease)
Wisconsin Energy Corporation -----------------------------------
Non-Utility Energy Segment 1999 WICOR (a) Other (b) Total 2000
- ---------------------------- -------- ----------- ----------- --------- --------
(Millions of Dollars, Except Statistics)
Operating Revenues
Independent Power Production $41.4 $ - ($4.0) ($4.0) $37.4
Energy Marketing, Trading &
Services 9.9 38.2 6.3 44.5 54.4
Other 9.5 - (3.1) (3.1) 6.4
----- ----- ----- ----- -----
Total Operating Revenues 60.8 38.2 (0.8) 37.4 98.2
Fuel and Purchased Power 31.7 - (4.2) (4.2) 27.5
Cost of Gas Sold - 33.7 - 33.7 33.7
Cost of Goods Sold - 3.0 - 3.0 3.0
----- ----- ----- ----- -----
Gross Margin 29.1 1.5 3.4 4.9 34.0
Other Operating Expenses 13.6 1.1 6.1 7.2 20.8
----- ----- ----- ----- -----
Operating Income 15.5 0.4 (2.7) (2.3) 13.2
Other Income, Net 2.3 - 8.7 8.7 11.0
Financing Costs 6.8 0.1 1.7 1.8 8.6
----- ----- ----- ----- -----
Income Before Income Taxes 11.0 0.3 4.3 4.6 15.6
Income Taxes 4.2 0.2 1.3 1.5 5.7
----- ----- ----- ----- -----
Net Earnings $6.8 $0.1 $3.0 $3.1 $9.9
===== ===== ===== ===== =====
Statistics
Independent Power Production
Electric Megawatt-Hour
Sales (Thousands) 882.9 - (137.1) (137.1) 745.8
Energy Marketing, Trading &
Services
Electric Megawatt-Hour
Sales (Thousands) 267.2 - 405.2 405.2 672.4
Gas Therm Sales (Millions) - 61.9 - 61.9 61.9
<FN>
(a) Wisconsin Energy's financial statements and statistics reflect the
operations of WICOR Energy Services and FieldTech, subsidiaries of WICOR,
subsequent to the merger on April 26, 2000.
(b) Other consists primarily of Wisvest Corporation.
</FN>
MANUFACTURING SEGMENT CONTRIBUTION TO EARNINGS
The manufacturing segment contributed $1.9 million to net
earnings during the third quarter of 2000. Prior to the WICOR
acquisition, Wisconsin Energy did not have a manufacturing
segment. The following table summarizes the manufacturing
segment's contribution to Wisconsin Energy's net earnings during
the third quarter of 2000.
Wisconsin Energy Corporation Three Months Ended
Manufacturing Segment (a) September 30, 2000
------------------------------------- ------------------
(Millions of Dollars)
Operating Revenues (b)
Domestic $103.5
International 31.2
-----
Total Operating Revenues 134.7
Cost of Goods Sold 95.0
-----
Gross Margin 39.7
Other Operating Expenses 29.9
-----
Operating Income 9.8
Other Income, Net (0.7)
Financing Costs 4.8
-----
Income Before Income Taxes 4.3
Income Taxes 2.4
-----
Net Earnings $1.9
=====
<FN>
(a) Wisconsin Energy's financial statements reflect operations of the
manufacturing segment subsequent to the merger on April 26, 2000.
(b) For further pro forma information concerning manufacturing segment
revenues and gross margin during the comparative periods, see
"Pro Forma Manufacturing Segment Revenues and Gross Margin" below.
</FN>
Excluding interest and goodwill amortization expenses related to
the WICOR merger, the manufacturing segment posted net earnings
of $6.1 million during the third quarter of 2000 compared with
pro forma net earnings of $7.2 million during the third quarter
of 1999. The manufacturing segment's results for the three
months ended September 30, 2000 were impacted by a series of
nonrecurring expenses associated with defenses of intellectual
property rights, development of a new beverage dispensing
technology and the integration of an acquisition. Management
believes that these expenses are substantially past.
Pro Forma Manufacturing Segment Revenues and Gross Margin
The following table reconciles the change in pro forma revenues
and gross margin by the manufacturing segment between the third
quarter of 1999 and the third quarter of 2000 as if the
manufacturing segment had been part of Wisconsin Energy since
January 1, 1999.
Pro Forma
Three Months Ended September 30
------------------------------------------------
Wisconsin Energy Corporation Increase
Manufacturing Gross Margin 1999 (Decrease) 2000
- ---------------------------- -------- -------------- --------
(Millions of Dollars)
Operating Revenues
Domestic $95.1 $8.4 $103.5
International 32.7 (1.5) 31.2
------ ---- ------
Total Operating Revenues 127.8 6.9 134.7
Cost of Goods Sold 89.7 5.3 95.0
------ ---- ------
Gross Margin $38.1 $1.6 $39.7
====== ==== ======
RESULTS OF OPERATIONS - 2000 YEAR-TO-DATE
EARNINGS
Primarily due to costs related to the acquisition of WICOR,
Wisconsin Energy's consolidated net income and diluted earnings
per share of common stock decreased from $171.3 million and $1.47
per share, respectively, during the first nine months of 1999 to
$125.3 million and $1.03 per share, respectively, during the
first nine months of 2000. Between the comparative periods, net
earnings decreased as a result of changes in the following:
Nine Months Ended September 30
----------------------------------------------------------------------
Amount Diluted Earnings Per Share
------------------------------ ----------------------------------
Net Earnings Summary Excluding Merger Excluding Merger
Wisconsin Energy Corporation Merger Costs Costs (a) Total Merger Costs Costs (a) Total
---------------------------- ------------ --------- ----- ------------ --------- -----
(Millions of Dollars)
Total - 1999 Year-To-Date $171.3 $ - $171.3 $1.47 $ - $1.47
Increase (Decrease) Due To
Change In
Utility Energy Segment
Earnings (21.4) (8.8) (30.2) (0.18) (0.08) (0.26)
Non-Utility Energy Segment
Earnings (0.3) - (0.3) - - -
Manufacturing Segment
Earnings 14.0 (7.1) 6.9 0.12 (0.06) 0.06
Other (b) (8.2) (14.2) (22.4) (0.08) (0.12) (0.20)
Shares Outstanding - - - (0.05) 0.01 (0.04)
------ ------ ------ ----- ------ -----
(15.9) (30.1) (46.0) (0.19) (0.25) (0.44)
------ ------ ------ ----- ------ -----
Total - 2000 Year-To-Date $155.4 ($30.1) $125.3 $1.28 ($0.25) $1.03
====== ====== ====== ===== ====== =====
<FN>
(a) Total WICOR merger-related costs of $42.9 million ($30.1 million net of tax)
include $34.8 million ($22.0 million net of tax or $0.18 per share) of
interest expense and $8.1 million ($8.1 million net of tax or $0.07 per
share) of goodwill amortization expense.
(b) Excluding merger costs, the decline in "Other" net earnings can be
primarily attributed to losses during 2000 by Minergy Corp. and Wispark LLC.
and tho an increase in corporate financing costs.
</FN>
An analysis of contributions to earnings by segment follows.
UTILITY ENERGY SEGMENT CONTRIBUTION TO EARNINGS
Utility energy segment earnings decreased by $30.2 million during
the first nine months of 2000 when compared with the first nine
months of 1999, $19.0 million of which is attributable to
Wisconsin Gas Company as a result of the seasonality of the gas
heating business and the timing of the acquisition of Wisconsin
Gas in April 26, 2000. Excluding interest and goodwill
amortization expenses related to the WICOR merger, Wisconsin Gas
posted a net loss of $10.2 million during the months of May
through September 2000. As described in further detail below,
earnings for Wisconsin Energy's other utility subsidiaries,
Wisconsin Electric Power Company and Edison Sault Electric
Company, declined $11.2 million between the comparative periods
primarily because higher depreciation, decommissioning and
amortization expenses and a weather-related decrease in gas gross
margin during the winter months of 2000 offset a $24.0 million
increase in electric gross margin that was limited by cooler
weather during the third quarter of 2000 and by higher fuel and
purchased power expenses.
The following table reconciles the change in the contribution to
earnings by Wisconsin Energy's utility energy segment between the
first nine months of 1999 and the first nine months of 2000.
Nine Months Ended September 30
----------------------------------------------------------------
Increase (Decrease)
-----------------------------------
Wisconsin Energy Corporation Wisconsin
Utility Energy Segment 1999 Gas (a) Other (b) Total 2000
- ---------------------------- -------- ----------- ----------- --------- --------
(Millions of Dollars)
Operating Revenues
Electric Utility $1,308.2 $ - $40.9 $40.9 $1,349.1
Gas Utility 213.1 113.4 18.4 131.8 344.9
Other Utility 15.7 0.3 (0.4) (0.1) 15.6
-------- ------ ------ ------ --------
Total Operating Revenues 1,537.0 113.7 58.9 172.6 1,709.6
Fuel and Purchased Power 354.9 - 16.6 16.6 371.5
Cost of Gas Sold 119.1 71.4 19.5 90.9 210.0
-------- ------ ------ ------ --------
Gross Margin 1,063.0 42.3 22.8 65.1 1,128.1
Other Operating Expenses
Other Operation & Maintenance 500.6 35.7 (11.8) 23.9 524.5
Depreciation, Decommissioning
and Amortization 176.4 20.1 27.5 47.6 224.0
Property and Revenue Taxes 51.7 2.0 0.8 2.8 54.5
-------- ------ ------ ------ --------
Operating Income 334.3 (15.5) 6.3 (9.2) 325.1
Other Income, Net 13.5 (0.2) (6.0) (6.2) 7.3
Financing Costs 86.0 12.2 3.1 15.3 101.3
-------- ------ ------ ------ --------
Income Before Income Taxes 261.8 (27.9) (2.8) (30.7) 231.1
Income Taxes 92.9 (8.9) 8.4 (0.5) 92.4
-------- ------ ------ ------ --------
Net Earnings $168.9 ($19.0) ($11.2) ($30.2) $138.7
======== ====== ====== ====== ========
<FN>
(a) The acquisition of WICOR was accounted for as a purchase. Wisconsin
Energy's financial statements reflect the operations of Wisconsin Gas,
a subsidiary of WICOR, subsequent to the merger on April 26, 2000.
(b) Other includes Wisconsin Electric, Edison Sault and consolidating
adjustments and eliminations between the utilities.
</FN>
OPERATING REVENUES AND GROSS MARGINS: For further information
concerning electric utility operations, see "Electric Utility
Revenues, Gross Margins and Sales" below. For further
information concerning gas utility operations, see "Gas Utility
Revenues, Gross Margins and Therm Deliveries" below.
OTHER OPERATION AND MAINTENANCE EXPENSES: Excluding Wisconsin
Gas, other operation and maintenance expenses decreased by
$11.8 million during the first nine months of 2000 compared with
the first nine months of 1999. The most significant changes in
other operation and maintenance expenses between the comparative
periods include a $12.2 million decline in nuclear non-fuel
expenses, a $10.5 million decline in customer service expenses
and a $2.9 million decline in administrative and general expenses
offset in part by $8.2 million of higher non-fuel fossil
generation expenses and $6.2 million of higher electric
distribution expenses.
Nuclear non-fuel expenses were lower during the first nine months
of 2000 as a result of continued progress on various performance
improvement initiatives. Between the same periods, customer
service expenses were lower primarily due to a change in the
period over which conservation expenses are being amortized.
Administrative and general expenses decreased primarily due to a
decline in costs associated with contract labor, which was used
during 1999 to prepare the Company for the Year 2000 and for
other technology matters. Non-fuel fossil generation
expenses increased during the first nine months of 2000 primarily
due to differences in the scope and timing of scheduled
maintenance outages for various generating facilities at
Wisconsin Electric. Electric distribution expenses were higher
due to increased forestry and maintenance activity.
DEPRECIATION, DECOMMISSIONING AND AMORTIZATION EXPENSES:
Excluding Wisconsin Gas, depreciation, decommissioning and
amortization expenses were $27.5 million higher during the first
nine months of 2000 compared with the first nine months of 1999.
Pursuant to a 1998 rate order for the 1998/1999 test year,
Wisconsin Electric was amortizing pre-1991 contributions in aid
of construction, which reduced annual depreciation expense by
$22.8 million. This amortization, which was completed as of
December 31, 1999, had the effect of reducing depreciation
expense by $17.1 million during the first nine months of 1999.
Higher average depreciable plant during the first nine months of
2000 also contributed to an increase in depreciation expense.
OTHER INCOME, NET: Net other income was $6.0 million lower
between the comparative periods primarily due to a nonrecurring
gain on the sale of certain properties at Wisconsin Electric
during the first nine months of 1999.
INCOME TAXES: The effective income tax rate increased in the
first nine months of 2000 as compared with the prior year
primarily due to the end of amortization of pre-1991
contributions in aid of construction as described above.
Electric Utility Revenues, Gross Margins and Sales
During the first nine months of 2000, Wisconsin Energy's total
electric utility operating revenues increased by $40.9 million or
3.1% compared to the same period during 1999. Gross margin on
electric utility operating revenues increased by $23.9 million or
2.5%. Wisconsin Energy attributes this growth in part to higher
total electric energy sales during 2000 and to interim and final
electric retail rate increases that became effective in early
April 2000 and on August 31, 2000, respectively. For additional
information concerning these rate increases, see Item 1. Legal
Proceedings - "Utility Rates and Regulatory Matters" in Part II
of this report. The third quarter of 2000 was 30% cooler than
the third quarter of 1999 which constrained higher-margin
residential electric sales during the first nine months of 2000.
The change in gross margin between the comparative periods also
reflects a $17.0 million or 4.9% increase in total fuel and
purchased power expenses during the first nine months of 2000.
Fuel costs increased by 2.4% due in large part to higher
generation required to supply the growth in total electric energy
sales during 2000. However, Wisconsin Energy was able to limit
its increase in fuel costs by changing the mix of generation from
high cost natural gas-fired generation to lower cost nuclear and
coal-fired generation during the first nine months of 2000.
Purchased power expenses grew by 9.4% due to higher fixed costs
during 2000 associated with long-term purchased power contracts.
The following table compares Wisconsin Energy's electric utility
operating revenues, gross margins and electric utility energy
sales during the first nine months of 2000 with similar
information for the first nine months of 1999.
Gross Margin Megawatt-Hour Sales
Nine Months Ended September 30 Nine Months Ended September 30
Wisconsin Energy Corporation -------------------------------- --------------------------------
Electric Utility Operations 2000 1999 % Change 2000 1999 % Change
- ---------------------------- ------ ------ -------- ------ ------ --------
(Millions of Dollars) (Thousands, Except
Degree Days)
Operating Revenues
Residential $443.2 $438.2 1.1% 5,611.4 5,645.4 (0.6%)
Small Commercial/Industrial 412.2 396.8 3.9% 6,426.5 6,259.6 2.7%
Large Commercial/Industrial 359.5 347.6 3.4% 9,018.6 8,731.9 3.3%
Other-Retail/Municipal 48.3 43.5 11.0% 1,292.3 1,160.1 11.4%
Resale-Utilities 64.7 65.4 (1.1%) 1,877.0 2,006.7 (6.5%)
Other-Operating Revenues 21.2 16.7 26.9% - - -
------- ------- -------- --------
Total Operating Revenues 1,349.1 1,308.2 3.1% 24,225.8 23,803.7 1.8%
Fuel and Purchased Power ======== ========
Fuel 235.6 230.2 2.3%
Purchased Power 133.6 122.1 9.4%
------- -------
Total Fuel and Purchased Power 369.2 352.3 4.8%
------- -------
Gross Margin $979.9 $955.9 2.5%
======= =======
Weather - Degree Days (a)
Heating (4,485 Normal) 4,067 4,232 (3.9%)
Cooling (676 Normal) 556 752 (26.1%)
<FN>
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
</FN>
During the first nine months of 2000, total electric energy sales
increased by 1.8% compared to the first nine months of 1999 due
in large part to a 16.2% increase in sales to the Empire and
Tilden iron ore mines, Wisconsin Electric's two largest retail
customers and, to a lesser extent, to growth in the average
number of residential, small commercial/industrial and other
retail/municipal customers . Excluding the Empire and Tilden
mines, sales to the remaining large commercial/industrial
customers increased by 1.0% and total electric sales increased by
0.7% between the comparative periods. Growth in the average
number of customers noted above partially offset the effects on
total electric energy sales and operating revenues of cooler
weather during the 2000 cooling season. As measured by cooling
degree days, the first nine months of 2000 were 26.1% cooler than
the first nine months of 1999 and 17.8% cooler than normal.
Gas Utility Revenues, Gross Margins and Therm Deliveries
During the first nine months of 2000, Wisconsin Energy's total
gas utility operating revenues increased by $131.8 million or
61.8% compared with the same period during 1999. Gross margin on
gas utility operating revenues increased by $40.9 million or
43.5%. Of these changes, $113.4 million of the increase in total
gas utility operating revenues and $42.0 million of the increase
in gross margin were attributable to Wisconsin Gas.
Excluding Wisconsin Gas, Wisconsin Energy's total gas utility
operating revenues increased by $18.4 million while gross margin
on gas utility operating revenues decreased by $1.1 million.
Significantly higher per unit gas costs during the first nine
months of 2000 as well as interim and final retail gas rate
increases that became effective in early April 2000 and on
August 31, 2000, respectively, primarily drove the increase in
operating revenues. For additional information concerning these
rate increases, see Item 1. Legal Proceedings - "Utility Rates
and Regulatory Matters" in Part II of this report. A weather-
related decrease in higher margin residential and
commercial/industrial retail gas sales during the winter months
of 2000 offset the impact of the rate increases on operating
revenues and gross margin. A decrease in interdepartmental therm
deliveries to Wisconsin Electric's natural gas-fired electric
generating facilities during the third quarter of 2000 also
offset the impact of the rate increases on gross margin.
Gas utility operating revenues, gross margins and gas utility
therm deliveries during the comparative periods are summarized
below. Gross margin is a better performance indicator than
revenues because changes in the cost of gas sold are flowed
through to revenue under a purchased gas adjustments mechanism
that does not impact gross margin.
Gross Margin Therm Deliveries
Nine Months Ended September 30 Nine Months Ended September 30
Wisconsin Energy Corporation -------------------------------- --------------------------------
Gas Utility Operations 2000 (a) 1999 % Change 2000 (a) 1999 % Change
- ---------------------------- -------- ------ -------- -------- ------ --------
(Millions of Dollars) (Millions, Except
Degree Days)
Operating Revenues
Residential $179.6 $130.9 37.2% 268.2 219.8 22.0%
Commercial/Industrial 91.2 64.6 41.2% 166.1 135.5 22.6%
Interruptible 7.1 4.2 69.0% 14.6 12.8 14.1%
------ ------ ----- -----
Total Retail Gas Sales 277.9 199.7 39.2% 448.9 368.1 22.0%
Transported Customer-Owned Gas 19.5 9.9 97.0% 413.8 257.4 60.8%
Transported-Interdepartmental 1.4 1.5 (6.7%) 33.0 47.7 (30.8%)
Other-Operating Revenues 46.1 2.0 2,205.0% - - -
------ ------ ----- -----
Total Operating Revenues 344.9 213.1 61.8% 895.7 673.2 33.1%
Cost of Gas Sold 210.0 119.1 76.3% ===== =====
------ ------
Gross Margin $134.9 $94.0 43.5%
====== ======
Weather - Degree Days (b)
Heating (4,485 Normal) 4,067 4,232 (3.9%)
<FN>
(a) Wisconsin Energy's gas utility information reflects the operations of
Wisconsin Gas subsequent to the merger on April 26, 2000. For further
information concerning gas utility operations during the comparative
periods, see "Pro Forma Gas Utility Revenues, Gross Margins and Therms
Deliveries" below.
(b) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
</FN>
Pro Forma Gas Utility Revenues, Gross Margins and Therm Deliveries
The following table compares pro forma gas utility operating
revenues, gross margins and therm deliveries during the first
nine months of 2000 and 1999 as if Wisconsin Gas had been part of
Wisconsin Energy since January 1, 1999.
Pro Forma
----------------------------------------------------------
Gross Margin Therm Deliveries
Nine Months Ended September 30 Nine Months Ended September 30
Wisconsin Energy Corporation ------------------------------ ------------------------------
Gas Utility Operations 2000 1999 % Change 2000 1999 % Change
- ---------------------------- ------ ------ -------- ------ ------ --------
(Millions of Dollars) (Millions)
Operating Revenues
Residential $335.7 $321.2 4.5% 503.0 520.3 (3.3%)
Commercial/Industrial 158.7 147.8 7.4% 291.7 310.0 (5.9%)
Interruptible 11.5 12.1 (5.0%) 24.9 33.4 (25.4%)
------ ------ ------- -------
Total Retail Gas Sales 505.9 481.1 5.2% 819.6 863.7 (5.1%)
Transported Customer-Owned Gas 29.6 26.6 11.3% 619.8 620.9 (0.2%)
Transported-Interdepartmental 1.4 1.4 - 33.0 47.7 (30.8%)
Other-Operating Revenues 24.0 6.3 281.0% - - -
------ ------ ------- -------
Total Operating Revenues 560.9 515.4 8.8% 1,472.4 1,532.3 (3.9%)
Cost of Gas Sold 337.0 288.6 16.8% ======= =======
------ ------
Gross Margin $223.9 $226.8 (1.3%)
====== ======
NON-UTILITY ENERGY SEGMENT CONTRIBUTION TO EARNINGS
Non-utility energy segment earnings decreased $0.3 million
between the first nine months of 2000 and the first nine months
of 1999. Excluding the WICOR non-utility energy companies, non-
utility energy earnings declined $0.5 million between the
comparative periods primarily due to an extended scheduled outage
from March through early May 2000 at one of Wisvest-Connecticut,
LLC's power plants, which increased purchased power as well as
maintenance expenses. A nonrecurring $5.5 million pre-tax gain
during the second quarter of 2000 on the sale of certain
contractual rights to combustion turbines and a nonrecurring
$8.0 million pre-tax gain during the third quarter of 2000
associated with the termination of a long-term power sales
contract held by Wisvest-Connecticut, LLC offset much of the
decline in non-utility energy segment earnings.
The following table reconciles the change in the contribution to
earnings by Wisconsin Energy's non-utility energy segment between
the first nine months of 1999 and the first nine months of 2000.
In addition, the table compares electric megawatt-hour sales from
independent power production activities as well as electric
megawatt-hour sales and natural gas therm sales as a result of
non-utility energy marketing, trading and services activities.
Nine Months Ended September 30
----------------------------------------------------------------
Increase (Decrease)
Wisconsin Energy Corporation -----------------------------------
Non-Utility Energy Segment 1999 WICOR (a) Other (b) Total 2000
- ---------------------------- -------- ----------- ----------- --------- --------
(Millions of Dollars, Except Statistics)
Operating Revenues
Independent Power Production $77.5 $ - $26.0 $26.0 $103.5
Energy Marketing, Trading &
Services 40.7 58.0 20.7 78.7 119.4
Other 12.4 0.1 13.3 13.4 25.8
----- ----- ----- ----- -----
Total Operating Revenues 130.6 58.1 60.0 118.1 248.7
Fuel and Purchased Power 81.1 - 40.2 40.2 121.3
Cost of Gas Sold - 50.8 - 50.8 50.8
Cost of Goods Sold - 4.8 - 4.8 4.8
----- ----- ----- ----- -----
Gross Margin 49.5 2.5 19.8 22.3 71.8
Other Operating Expenses 29.7 1.9 28.7 30.6 60.3
----- ----- ----- ----- -----
Operating Income (Loss) 19.8 0.6 (8.9) (8.3) 11.5
Other Income, Net 4.8 - 17.7 17.7 22.5
Financing Costs 14.2 0.2 10.0 10.2 24.4
----- ----- ----- ----- -----
Income Before Income Taxes 10.4 0.4 (1.2) (0.8) 9.6
Income Taxes 4.2 0.2 (0.7) (0.5) 3.7
----- ----- ----- ----- -----
Net Earnings (Loss) $6.2 $0.2 ($0.5) ($0.3) $5.9
===== ===== ===== ===== =====
Statistics
Independent Power Production
Electric Megawatt-Hour
Sales (Thousands) 1,823.1 - 622.0 622.0 2,445.1
Energy Marketing, Trading &
Services
Electric Megawatt-Hour
Sales (Thousands) 1,269.5 - 134.0 134.0 1,403.5
Gas Therm Sales (Millions) - 96.5 - 96.5 96.5
<FN>
(a) Wisconsin Energy's financial statements and statistics reflect the
operations of WICOR Energy Services and FieldTech, subsidiaries of WICOR,
subsequent to the merger on April 26, 2000.
(b) Other consists primarily of Wisvest Corporation.
</FN>
MANUFACTURING SEGMENT CONTRIBUTION TO EARNINGS
The manufacturing segment, which was acquired as part of WICOR,
contributed $6.9 million to net earnings during the first nine
months of 2000. Prior to the WICOR acquisition, Wisconsin Energy
did not have a manufacturing segment. The following table
summarizes the manufacturing segment's contribution to Wisconsin
Energy's net earnings during the first nine months of 2000.
Wisconsin Energy Corporation Nine Months Ended
Manufacturing Segment (a) September 30, 2000
------------------------------------- ------------------
(Millions of Dollars)
Operating Revenues (b)
Domestic $187.4
International 57.1
-----
Total Operating Revenues 244.5
Cost of Goods Sold 171.0
-----
Gross Margin 73.5
Other Operating Expenses 51.3
-----
Operating Income 22.2
Other Income, Net (0.6)
Financing Costs 8.4
-----
Income Before Income Taxes 13.2
Income Taxes 6.3
-----
Net Earnings $6.9
=====
<FN>
(a) Wisconsin Energy's financial statements reflect operations of the
manufacturing segment subsequent to the merger on April 26, 2000.
(b) For further pro forma information concerning manufacturing segment
revenues and gross margin during the comparative periods, see
"Pro Forma Manufacturing Segment Revenues and Gross Margin" below.
</FN>
Assuming that WICOR had been a part of Wisconsin Energy since
January 1, 1999 and excluding the effect of interest and goodwill
amortization expenses related to the WICOR merger, the
manufacturing segment would have posted pro forma net earnings of
$20.8 million during the first nine months of 2000 compared with
pro forma net earnings of $22.3 million during the first nine
months of 1999. The manufacturing segment's results for the nine
months ended September 30, 2000 were impacted by a series of
nonrecurring expenses associated with defenses of intellectual
property rights, development of a new beverage dispensing
technology and the integration of an acquisition. Management
believes that these expenses are substantially past.
Pro Forma Manufacturing Segment Revenues and Gross Margin
The following table reconciles the change in pro forma revenues
and gross margin by the manufacturing segment between the first
nine months of 1999 and the first nine months of 2000 as if the
manufacturing segment had been part of Wisconsin Energy since
January 1, 1999.
Pro Forma
Nine Months Ended September 30
------------------------------------------------
Wisconsin Energy Corporation Increase
Manufacturing Gross Margin 1999 (Decrease) 2000
- ---------------------------- -------- -------------- --------
(Millions of Dollars)
Operating Revenues
Domestic $279.8 $48.4 $328.2
International 103.0 2.8 105.8
------ ----- ------
Total Operating Revenues 382.8 51.2 434.0
Cost of Goods Sold 268.5 37.5 306.0
------ ----- ------
Gross Margin $114.3 $13.7 $128.0
====== ===== ======
FACTORS AFFECTING RESULTS OF OPERATIONS
"POWER THE FUTURE" GROWTH STRATEGY
On September 11, 2000, Wisconsin Energy announced a 10-year,
$6 billion growth strategy to improve the supply and reliability
of electricity in Wisconsin. Demand for electricity in the state
of Wisconsin is currently growing at approximately a 3% annual
rate and is expected to outstrip supply by 4,000 megawatts by
2010. Wisconsin Energy anticipates that the announced growth
strategy will help address Wisconsin's growing electric energy
supply needs and improve the Company's financial results. Key
components of the "Power The Future" growth strategy include:
* Construction of at least three new generating units at a cost
of approximately $2 billion over the next 10 years with total new
generating capacity of 1,700 megawatts:
* Construction of one 500 megawatt combined cycle natural gas-
fired unit would begin in 2003 and would be completed in 2005;
* Construction of two 600 megawatt coal fired units would begin
in 2004 to be operational in 2007 and 2009, respectively; and
* Construction of additional generating units after 2010 would
be contemplated.
* Investment of $1.3 billion over the next 10 years in existing
electric generating assets.
* Investment of $2.7 billion over the next 10 years in new and
existing electric utility distribution system assets.
* Restructuring of Wisconsin Energy's current utility business
by creating a new non-utility subsidiary that would own and
operate the new generating capacity noted above as well as
existing non-nuclear electric generating capacity currently owned
by Wisconsin Electric Power Company. Electricity generated by
the new subsidiary would be offered to Wisconsin Electric and to
other Wisconsin utilities through long-term purchase power
agreements approved by the Public Service Commission of
Wisconsin.
* Increasing available capital of the Company for investment in
core competencies of electric generation, utility distribution
and pump manufacturing through a board approved reduction in the
quarterly common stock dividend, effective December 1, 2000, from
$0.39 per share (or $1.56 on an annualized basis) to $0.20 per
share (or $0.80 on an annualized basis).
* Increasing from $200 million to $400 million a board approved
open market common stock purchase plan during the next 24 months.
A number of state and federal regulatory approvals will be
required for Wisconsin Energy to execute the investment and
restructuring components of the "Power The Future" growth plan.
Several laws will also require amendment by the state legislature
including Wisconsin's Public Utility Holding Company Act and
Wisconsin's 1997 electric reliability Act 204. Wisconsin Energy
expects to file an application with the Public Service Commission
of Wisconsin during the fourth quarter of 2000 on the threshold
question of whether the new non-utility subsidiary may own and
operate electric generation facilities called non-utility
merchant power plants and will seek a response from the Public
Service Commission of Wisconsin in early 2001. Depending upon
the response of the Public Service Commission of Wisconsin, the
Company anticipates filing detailed plans later in 2001.
Wisconsin Energy will also need to obtain the capital from
outside sources necessary to finance and execute the growth
strategy.
ACQUISITION OF WICOR, INC.
On April 26, 2000, Wisconsin Energy acquired all of the
outstanding common shares of WICOR, Inc., for approximately
$1.2 billion in cash including related fees and expenses.
Approximately $300 million of WICOR debt remained outstanding
following the acquisition. The business combination, which was
funded through the issuance of commercial paper, was accounted
for as a purchase, and the excess of the purchase price over the
fair value of net assets and liabilities assumed was recorded as
approximately $835 million of goodwill.
WICOR was a diversified holding company with two principal
business groups: energy services and pump manufacturing. The
Company 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 other Wisconsin Energy
operations. Wisconsin Energy is undertaking a thorough review of
WICOR's operations and studying the manner in which the
operations of the two companies can best be optimized. Wisconsin
Energy anticipates recording a restructuring charge related to
the WICOR merger during the fourth quarter of 2000. The Company
expects to take such actions as a result of this review as may be
deemed appropriate under the circumstances including the
combination of the gas utility operations of Wisconsin Electric
with WICOR's wholly-owned natural gas distribution subsidiary,
Wisconsin Gas Company.
Gas Utility Operations Combination
On November 1, 2000, Wisconsin Electric and Wisconsin Gas Company
filed a joint application with the Public Service Commission of
Wisconsin to transfer the physical gas utility assets of
Wisconsin Electric together with certain liabilities associated
with such assets, with a net book value of approximately
$319 million at December 31, 1999, to Wisconsin Gas in return for
stock in Wisconsin Gas in a tax free transaction. Wisconsin
Energy expects that the combined gas operation will result in
improved customer service and greater synergy savings as a result
of the WICOR acquisition. The combined gas operations would
retain the name Wisconsin Gas Company and become the 11th largest
gas distribution company in the United States. Assuming that the
Public Service Commission of Wisconsin approves the transaction
described above, Wisconsin Electric and Wisconsin Gas expect to
make a second filing in 2001 seeking authorization to combine
tariffs and rates.
For additional information related to the acquisition of WICOR,
see "Liquidity and Capital Resources" below in this item as well
as Item 1. Financial Statements - "Notes to Financial Statements"
in Part I of this report.
INDUSTRY RESTRUCTURING AND COMPETITION
ELECTRIC UTILITY INDUSTRY RESTRUCTURING IN MICHIGAN: On June 3,
2000, the Governor of the state of Michigan signed the "Customer
Choice and Electric Reliability Act" into law empowering the
Michigan Public Service Commission to enforce implementation of
prior electric retail access plans. In effect, the new law
provides that all Michigan retail customers of investor-owned
utilities will have the ability to choose their electric power
producer as of January 1, 2002. As directed by the Michigan
Public Service Commission, Wisconsin Electric and Edison Sault
jointly submitted a customer choice implementation plan on
October 2, 2000. Such plan envisions certain additional filings
in June 2001 including proposed unbundled rates. Revenue in the
state of Michigan during 1999 from electric retail customers of
Wisconsin Energy were approximately $140 million, representing
6.8% of total utility operating revenues and 8.1% of total
electric utility operating revenues. Wisconsin Electric and
Edison Sault believe that their power supply costs are and will
be competitive when the customer choice program commences in
January of 2002. In addition, other suppliers will use the
companies' unbundled electric distribution systems under
effective rates.
NUCLEAR MATTERS
NUCLEAR MANAGEMENT COMPANY: As previously reported, all
participants in the Nuclear Management Company, including
Wisconsin Electric, filed applications with the Nuclear
Regulatory Commission to transfer applicable nuclear generating
unit operating authority under their operating licenses to the
Nuclear Management Company. This application was approved on
May 15, 2000. The Nuclear Management Company assumed operating
responsibility for Point Beach Nuclear Plant with the transfer of
operating authority under the operating licenses on August 7,
2000. Wisconsin Electric continues to own Point Beach and
retains exclusive rights to the energy generated as well as
financial responsibility for the plant's safe operation,
maintenance and decommissioning. On September 7, 2000, the
Nuclear Management Company announced the combination of the
operation of Point Beach and Kewaunee Nuclear Power Plant, owned
by another participant in the Nuclear Management Company, into a
"virtual 3-unit site." Kewaunee Nuclear Power Plant is located
about five miles from Point Beach. Management of support
functions including training, engineering, assessment, business
and site services have also been combined under this new
management structure.
UTILITY RATES AND REGULATORY MATTERS
See Item 1. Legal Proceedings - "Utility Rates and Regulatory
Matters" in Part II of this report for information concerning
utility rate-related activities in the Wisconsin and Michigan
retail jurisdictions.
2000 OUTLOOK
EARNINGS: Previously, Wisconsin Energy had projected that its
2000 earnings would be in the range of $1.50 to $1.70 per share.
Based upon the results of operations through September 2000, and
assuming normal weather during the remainder of the year,
Wisconsin Energy now projects that its 2000 earnings will be in
the lower end of this forecasted range. The Company's earnings
projection for 2000 does not reflect a potential restructuring
charge during the fourth quarter of 2000 nor the impact of the
sale of non-utility assets during the fourth quarter of 2000,
including sale of Wisvest's investment in SkyGen Energy Holdings
LLC.
The earnings projections for 2000 include or assume, among other
factors, the effects of: unusually warm weather during the first
quarter of 2000 and unusually cool weather during the summer of
2000 as well as goodwill amortization and interest charges
associated with the WICOR merger; absence of WICOR's results from
January through April 26, 2000; increased purchased power costs;
increased interest costs due to higher than projected interest
rates; normal operations of Wisconsin Energy and all of its
subsidiaries, including WICOR and its subsidiaries, during the
remainder of 2000; and a stock buy-back program described below
in "Liquidity and Capital Resources" in this item.
Subject to the many variables which can affect such a projection,
including abnormal weather and other factors listed below,
earnings in 2001 are expected to be in the range of $2.00 to
$2.25, reflecting a full year of earnings contributions from
WICOR and merger-related savings.
These earnings projections are forward-looking statements subject
to certain risks, uncertainties and assumptions. Actual results
may vary materially. Factors that could cause actual results to
differ materially include, but are not limited to: general
economic conditions; business and competitive conditions in the
deregulating and consolidating energy industry, in general, and
in the Company's utility service territories; availability of the
Company's generating facilities; changes in purchased power costs
and supply availability; changes in natural gas prices and supply
availability; unusual weather; risks associated with non-utility
diversification; the timing and extent of 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 in this item.
MARKET RISKS
INTEREST RATE RISK: As previously reported, Wisconsin Energy
financed the acquisition of WICOR through $1.2 billion of short-
term debt in the form of commercial paper issued in the
institutional private placement market. Based upon an actual
weighted average interest rate of 6.55% as of October 31, 2000,
Wisconsin Energy would incur an annual incremental interest
expense of $78.6 million on the $1.2 billion of short-term debt
issued to acquire WICOR. A 1/8 percent change in the interest
rate would increase or decrease annual interest expense by
approximately $1.5 million.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES: Cash provided by operating activities
increased to $423.2 million during the first nine months of 2000
compared with $401.7 million during the same period in 1999,
reflecting increased non-cash charges for depreciation and
amortizations as well as reduced tax payments during 2000.
INVESTING ACTIVITIES: Net cash used in investing activities
totaled $1.7 billion at Wisconsin Energy during the first nine
months of 2000 compared with $780.8 million during the same
period in 1999.
Wisconsin Energy's consolidated investing activities during the
first nine months of 2000 included the $1.2 billion acquisition
of WICOR as well as $462.0 million for the acquisition or
construction of new or improved facilities of which
$282.7 million was for a number of projects related to utility
plant, $108.5 million was for non-utility energy projects,
$9.9 million was for manufacturing activities and $59.2 million
was for non-utility real estate development activities by
Wispark. During 2000, Wisconsin Electric recorded $31.4 million
for the acquisition of nuclear fuel and $44.5 million of payments
to and reinvested earnings of the Nuclear Decommissioning Trust
Fund for the eventual decommissioning of Point Beach Nuclear
Plant. Wisconsin Energy received net proceeds of $31.6 million
during the first nine months of 2000 on the disposition of
various other investments including $15.0 million at Wisvest for
the sale of certain generating turbine investments and
$23.0 million at Wispark for the sale of various real estate
investments.
Wisconsin Energy's consolidated investing activities during the
first nine months of 1999 included a $276.8 million acquisition
of two fossil-fueled power plants in the state of Connecticut by
a subsidiary of Wisvest and $68.1 million of other investments
primarily attributable to Wisvest.
FINANCING ACTIVITIES: During the first nine months of 2000,
Wisconsin Energy received $1.3 billion of net cash from financing
activities compared with a net of $402.6 million during the first
nine months of 1999.
During the first nine months of 2000, Wisconsin Energy issued
approximately 3.7 million new shares of common stock which were
primarily purchased by participants in the Company's stock plans
with cash investments and reinvested dividends aggregating
approximately $71.1 million. The Company also purchased
1.1 million outstanding shares of common stock for $21.1 million
under a board approved purchase program that was initiated on
September 15, 2000.
During the first nine months of 2000, Wisconsin Energy issued
$63.3 million of long-term debt including $32.1 million which was
attributable to manufacturing, $13.0 million which was obtained
by Wisvest under an unsecured working capital loan and
$15.4 million of bank financing in the form of adjustable rate
mortgage notes due 2000-2003 which was secured by Wispark to
finance the construction or purchase of various facilities. Also
during the nine months ended September 30, 2000, Wisconsin Energy
increased its short-term debt by approximately $1.5 billion,
principally reflecting the issuance of commercial paper to
finance the acquisition of WICOR, and also paid $141.1 million of
dividends on its common stock.
Wisconsin Energy funded the April 26, 2000 acquisition of WICOR,
Inc., through issuance in the institutional private placement
market of $1.2 billion of commercial paper with a weighted
average effective interest rate of 6.09%. As a result of
refinancing some short-term debt which has matured since the
merger, the weighted average interest rate for this commercial
paper was 6.55% as of October 31, 2000. Wisconsin Energy
arranged for two new bank back-up credit facilities to provide
credit support for the issuance of Wisconsin Energy's commercial
paper: a $1.0 billion 364-day bank back-up credit facility and a
$500 million three-year bank back-up credit facility. In
addition, approximately $300 million of WICOR debt remained
outstanding following the merger. For additional information
related to the acquisition of WICOR, see "Factors Affecting
Results of Operations" above in this item as well as Item 1.
Financial Statements - "Notes to Financial Statements" in Part I
of this report.
CAPITAL REQUIREMENTS AND RESOURCES: Capital requirements during
the remainder of 2000 are expected to be principally for
construction expenditures and for other investments, for long and
short-term debt maturity and sinking fund requirements, for
payments to the Nuclear Decommissioning Trust Fund for the
eventual decommissioning of Point Beach Nuclear Plant and for the
purchase of a portion of the outstanding shares of Wisconsin
Energy common stock. Wisconsin Energy's total consolidated
construction and other investment budget for the remainder of
2000 is approximately $250 million.
These cash requirements are expected to be met through a
combination of the following possible resources: internal sources
of funds from operations, short-term borrowings, the issuance of
intermediate or long-term debt, proceeds from the sale of new-
issue common stock under certain of Wisconsin Energy's stock
plans and proceeds from the sale of certain non-utility assets
and investments. The amount and timing of any capital market
financing has not been determined and will depend on market
conditions and other factors.
The following table shows Wisconsin Energy's consolidated
capitalization structure at September 30, 2000.
September 30, 2000
--------------------------
(Millions of Dollars)
Common Equity $2,076.6 31.2%
Preferred Stock 30.4 0.5%
Trust Preferred Securities 200.0 3.0%
Long-Term Debt (including
current maturities) 2,355.2 35.3%
Short-Term Debt 2,003.7 30.0%
-------- ------
$6,665.9 100.0%
======== ======
As part of its recently announced growth strategy, the Company is
evaluating all of its non-utility energy businesses and real
estate investments to determine how to maximize the value of
these investments. To that end, Wisvest sold its interest in
SkyGen Energy Holdings LLC to Calpine Corporation in October
2000. The Company received approximately $332 million from
SkyGen in exchange for $111 million of outstanding convertible
loans plus associated interest receivable as well for
approximately $110 million of secured and unsecured short-term
loans plus associated interest receivable, recognizing a pre-tax
gain of $91 million ($54 million after tax or approximately
$0.45 per share) as a result of this sale.
In addition, Wisconsin Energy had previously announced that it
would sell approximately $260 million of the assets of its non-
utility real estate development company, Wispark LLC., over a
period of 12 to 18 months. During October 2000, the Company
closed on the sale of approximately 20% of the Wispark portfolio
that is anticipated to be sold.
As previously reported, Wisconsin Electric and Edison Sault have
agreed to join the American Transmission Company LLC by
contributing electric utility transmission assets in exchange for
equity interests in the new company. Transfer of these electric
transmission system assets, with a net book value of
approximately $252 million, is expected to occur by January 1,
2001. Shortly following transfer of the assets, the American
Transmission Company LLC is expected to issue debt and distribute
cash back to Wisconsin Electric and Edison Sault in an amount
equal to approximately 50% of the net book value of the assets
transferred.
In September 2000, the board of directors authorized a reduction
of Wisconsin Energy's quarterly common stock dividend, effective
December 1, 2000, from $0.39 per share (or $1.56 on an annualized
basis) to $0.20 per share (or $0.80 on an annualized basis).
Also in September 2000, the Company announced that its board of
directors had authorized the purchase of up to $400 million of
its shares of common stock in the open market over the 24 months
ended September 2002. Through October 31, 2000, Wisconsin Energy
has purchased 2.0 million shares of common stock for
$39.1 million. Proceeds from asset sales, funds from internal
working capital and funds raised through the issuance of
commercial paper are expected to be the primary sources used to
fund this common stock purchase program.
As previously reported in Wisconsin Energy's 1999 Annual Report
on Form 10-K, the Company has a subsidiary, Minergy Corp., which
is engaged in the development and marketing of proprietary
technologies designed to convert high volume industrial and
municipal wastes into value-added products, including
electricity. In 1998, Minergy opened a facility in Neenah,
Wisconsin that recycles paper sludge from area paper mills. This
initial facility has incurred operating losses since inception as
a result of substantial continuing research and development
activities associated with the facility and its operations.
However, the Neenah facility has provided important data for the
development of future Minergy technologies. Recently, Wisconsin
Energy engaged an outside consultant to evaluate the Neenah
facility and the long-term benefits of the Minergy technologies.
The results of the consultant's evaluation confirmed that the
Minergy technologies are innovative and needed in the market. In
addition, the report identified capital investments that were
required at the Neenah facility to improve its operating
performance. As a result of this study, the Company intends to
continue to pursue development of the Minergy businesses.
In September 2000, following Wisconsin Energy's announcement of
the "Power The Future" growth strategy plan, Standard & Poors
Corporation ("S&P") and Fitch Investors Service ("Fitch")
reaffirmed their ratings of Wisconsin Energy's securities, S&P
reaffirmed its ratings of the securities of the Company's
subsidiaries, and Fitch reaffirmed its ratings of the securities
of Wisconsin Energy Capital Corporation.
The following table summarizes the current ratings of securities
of Wisconsin Energy and its subsidiaries by Standard & Poors
Corporation ("S&P"), Moody's Investors Service ("Moody's") and
Fitch Investors Service ("Fitch"). Commercial paper of WICOR
Industries, Inc., a wholly-owned subsidiary of Wisconsin Energy,
is unrated.
S&P Moody's Fitch
--------- --------- ---------
Wisconsin Energy Corporation
Commercial Paper A-1 P-1 F1
Wisconsin Electric Power Company
Commercial Paper A-1+ P-1 F1+
Senior Secured Debt AA- Aa2 AA
Unsecured Debt A+ Aa3 AA-
Preferred Stock A aa3 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+
WEC Capital Trust I
Trust Preferred Securities A- a1 A
At September 30, 2000, Wisconsin Energy had $2.0 billion of
available unused lines of bank credit on a consolidated basis,
$1.5 billion of which were obtained in conjunction with the WICOR
acquisition. Wisconsin Energy has historically used these lines
primarily to support its outstanding commercial paper and other
short-term borrowings.
*****
For certain other information which may impact Wisconsin Energy'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. Such statements are based upon management's
current expectations and are subject to risks and uncertainties
that could cause Wisconsin Energy's actual results to differ
materially from those contemplated in the statements. Readers
are cautioned not to place undue reliance on the forward-looking
statements. When used in written documents or oral
presentations, the terms "anticipate," "believe," "estimate,"
"expect," "objective," "plan," "possible," "potential," "project"
and similar expressions are intended to identify forward-looking
statements. In addition to the assumptions and other factors
referred to specifically in connection with such statements,
factors that could cause Wisconsin Energy's actual results to
differ materially from those contemplated in any forward-looking
statements include, among others, the following.
OPERATING, FINANCIAL AND INDUSTRY FACTORS
* Factors affecting utility operations such as unusual weather
conditions; catastrophic weather-related damage; availability of
electric 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 used nuclear fuel storage and disposal
issues; electric transmission or gas pipeline system constraints;
unanticipated organizational structure or key personnel changes;
collective bargaining agreements with union employees or work
stoppages; inflation rates; or demographic and economic factors
affecting utility service territories or operating environment.
* Regulatory factors such as unanticipated changes in rate-
setting policies or procedures; unanticipated changes in
regulatory accounting policies and practices; industry
restructuring initiatives; transmission system operation and/or
administration initiatives; recovery of costs of previous
investments made under traditional regulation; required approvals
for new construction; changes in the United States Nuclear
Regulatory Commission's regulations related to Point Beach
Nuclear Plant; changes in the United States Environmental
Protection Agency's regulations as well as regulations from the
Wisconsin or Michigan Departments of Natural Resources or the
state of Connecticut related to emissions from fossil fuel power
plants; or the siting approval process for new generation and
transmission facilities.
* The rapidly changing and increasingly competitive electric and
gas utility environment as market-based forces replace strict
industry regulation and other competitors enter the electric and
gas markets resulting in increased wholesale and retail
competition.
* Consolidation of the industry as a result of the combination
and acquisition of utilities in the midwest, nationally and
globally.
* Restrictions imposed by various financing arrangements and
regulatory requirements on the ability of its subsidiaries to
transfer funds to Wisconsin Energy in the form of cash dividends,
loans or advances.
* Changes in social attitudes regarding the utility and power
industries.
* Customer business conditions including demand for their
products or services and supply of labor and material used in
creating their products and services.
* The cost and other effects of legal and administrative
proceedings, settlements, investigations and claims, and changes
in those matters including the final outcome of the Giddings &
Lewis, Inc./City of West Allis lawsuit against Wisconsin
Electric.
* Factors affecting the availability or cost of capital such as
changes in interest rates; the Company's capitalization
structure; market perceptions of the utility industry, the
Company or any of its subsidiaries; or security ratings.
* Federal, state or local legislative factors such as changes in
tax laws or rates; changes in trade, monetary and fiscal
policies, laws and regulations; electric and gas industry
restructuring initiatives; or changes in environmental laws and
regulations.
* Authoritative generally accepted accounting principle or
policy changes from such standard setting bodies as the Financial
Accounting Standards Board and the Securities and Exchange
Commission.
* Unanticipated technological developments that result in
competitive disadvantages and create the potential for impairment
of existing assets.
* Possible risks associated with non-utility diversification
such as competition; operating risks; dependence upon certain
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;
risks associated with minority investments, where there is a
limited ability to control the development, management or
operation of the project; and the risk of higher interest costs
associated with potentially reduced securities ratings by
independent rating agencies as a result of these and other
factors.
* Legislative or regulatory restrictions or caps on non-utility
acquisitions, investments or projects, including the state of
Wisconsin's amended public utility holding company law.
* Factors affecting foreign non-utility operations and
investments including foreign governmental actions; foreign
economic and currency risks; political instability; and
unanticipated changes in foreign environmental or energy
regulations.
* Factors which impede execution of Wisconsin Energy's "Power
The Future" growth strategy announced in September 2000,
including receipt of necessary state and federal regulatory
approvals and amendment of applicable laws in the state of
Wisconsin, and obtaining the investment capital from outside
sources necessary to implement the growth strategy.
* Other business or investment considerations that may be
disclosed from time to time in Wisconsin Energy's Securities and
Exchange Commission filings or in other publicly disseminated
written documents.
BUSINESS COMBINATION FACTORS
* 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 undertakes 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 additional interest rate risk at
Wisconsin Energy Corporation as a result of its acquisition of
WICOR, see Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Factors
Affecting Results of Operations" in Part I of this report. For
information concerning other 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 1999 Annual
Report on Form 10-K as well as Item 7A. Quantitative and
Qualitative Disclosures About Market Risk in Part II of WICOR's
1999 Annual Report on Form 10-K.
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
The following should be read in conjunction with Item 3. Legal
Proceedings in Part I of Wisconsin Energy's 1999 Annual Report on
Form 10-K and Item 1. Legal Proceedings in Part II of Wisconsin
Energy's Quarterly Report on Form 10-Q for the periods ended
March 31, 2000 and June 30, 2000. The following should also be
read in conjunction with Item 3. Legal Proceedings in Part I of
WICOR's 1999 Annual Report on Form 10-K.
ENVIRONMENTAL MATTERS
GIDDINGS & LEWIS, INC./CITY OF WEST ALLIS LAWSUIT: In July
1996, Giddings & Lewis, Inc., Kearney & Trecker Corporation, now
a part of Giddings & Lewis, Inc., and the City of West Allis
brought an action in the Milwaukee County Circuit Court alleging
that in 1959 Wisconsin Electric had deposited cyanide
contaminated wood chips at two sites in West Allis, Wisconsin,
owned by the plaintiffs. Environmental remediation at both sites
was completed several years ago, with the current owners paying
for disposal of materials found on their respective portions of
the sites. Internal investigations led Wisconsin Electric to
believe that it was not the source of this waste.
In July 1999, a jury issued a verdict against Wisconsin Electric
awarding the plaintiffs $4.5 million in compensatory damages for
clean-up costs and loss of property value and $100 million in
punitive damages. In October 1999, the Circuit Court denied
Wisconsin Electric's post trial motions and directed that
judgment on the verdict be entered. Wisconsin Electric has filed
a notice of appeal of the judgment to the Wisconsin Court of
Appeals.
In December 1999, in order to stop the post-judgment accrual of
interest at 12% per annum during the pendency of the appeal,
Wisconsin Electric tendered a contested liability payment of
$110 million, which is part of "Deferred Charges and Other
Assets - Other" on the condensed balance sheet, to the Clerk of
Circuit Court for Milwaukee County representing the amount of the
verdict and accrued interest. Under Wisconsin law, the
plaintiffs are liable to Wisconsin Electric upon reversal or
reduction of the judgment for the applicable amount of the funds
tendered with interest.
In further post-trial proceedings, the plaintiffs filed with the
Circuit Court a motion for sanctions based upon representations
made by Wisconsin Electric during trial that it had no insurance
coverage for the punitive damage award. The Circuit Court held
hearings on the sanctions issue in February 2000. On April 27,
2000, the Circuit Court Judge issued a ruling on the sanctions
matter, imposing the following sanctions against Wisconsin
Electric: (i) "judgment in the alternative" as a sanction,
thereby finding an alternative basis upon which to sustain the
$104.5 million verdict returned by the jury; (ii) a bar against
Wisconsin Electric pursuing insurance coverage for the punitive
damage portion of the verdict; and (iii) a requirement that
Wisconsin Electric pay the plaintiffs' costs relating to the
sanctions matter. In addition to its appeal of the judgment
entered on the jury's verdict, Wisconsin Electric is appealing
the Judge's ruling on the sanctions matter.
In the opinion of management, based in part on the advice of
legal counsel, the jury verdict was not supported by the evidence
or the law and the unprecedented award of punitive damages of
this magnitude was unwarranted and should therefore be reversed
or substantially reduced on appeal. Management also believes
that the sanctions imposed by the Judge were not supported by the
evidence or the law. As such, Wisconsin Electric has not
established a reserve for potential damages from this suit.
As a further development, Wisconsin Energy Corporation, in May
and June 2000, respectively, received letters from two separate
shareholders demanding that the Company bring a derivative suit
for alleged injuries to shareholders resulting from the Giddings
& Lewis/City of West Allis litigation. In accordance with
Wisconsin law, the board of directors of Wisconsin Energy has
created a special committee of independent directors, which has
retained independent counsel to assist it, to investigate the
allegations raised in the shareholder letters and determine
whether a derivative action should be brought.
On August 21, 2000, the shareholder who had served the first
demand upon the Company requesting that the Company bring a
derivative suit, filed a lawsuit individually and on behalf of
the Company in Milwaukee County Circuit Court. On September 29,
2000, the shareholder who served the second demand on the Company
to bring a derivative suit also filed a lawsuit in Milwaukee
County Circuit Court. The first lawsuit has been stayed until
December 1, 2000 pending the results of the investigation being
conducted by the special committee of independent directors of
Wisconsin Energy Corporation. Wisconsin Energy's response to
both lawsuits will depend upon the conclusions reached by the
special committee of independent directors.
UTILITY RATES AND REGULATORY MATTERS
Wisconsin Retail Jurisdiction
2000/2001 TEST YEARS: In September 1999, Wisconsin Electric
submitted an application with the Public Service Commission of
Wisconsin requesting incremental price relief for specific
capital investments for electric and gas system reliability and
safety and for a one-time accounting adjustment. The application
further recommended the adoption of performance-based measures
and incentives. In its application, Wisconsin Electric proposed
a two-step price increase. The first requested increase, to be
effective January 1, 2000, totaled $46 million (3.1%) for
electric operations and $8 million (2.3%) for gas operations.
The second requested price increase, to be effective January 1,
2001, totaled $29 million (2.0%) for electric operations.
On December 23, 1999, Wisconsin Electric requested that interim
price relief be granted, subject to refund, as soon as possible
because it anticipated that a final order on its price request
would not be issued until the summer of 2000. Wisconsin Electric
withdrew its request to implement performance-based prices
because some elements of the proposed performance-based price
plan were not compatible with the Public Service Commission of
Wisconsin's approval of the Company's merger with WICOR. The
Public Service Commission of Wisconsin proceeded to review
Wisconsin Electric's 2000/2001 test year data as a traditional
cost of service rate request.
On March 23, 2000, the Public Service Commission of Wisconsin
approved Wisconsin Electric's request for interim price
increases, authorizing a $25.2 million (1.7%) increase for
electric operations and an $11.6 million (3.1%) increase for gas
operations. The interim increase, which was subject to potential
refund, became effective April 11, 2000. Rates in the interim
order were based upon a 12.2% return on common equity.
On August 30, 2000, the Public Service Commission of Wisconsin
issued its final order in the 2000/2001 pricing proposal. The
final order authorized a $36.5 million (2.5%) increase for
electric operations (or $11.3 million higher than authorized in
the interim order) as well as an $8 million (2.1%) increase for
gas operations (or $3.6 million lower than authorized in the
interim order). Wisconsin Electric is in the process of
refunding to gas customers overcollection of revenues as a result
of the difference in gas rates between the interim and final
orders. In its August 30, 2000 final order, the Public Service
Commission of Wisconsin authorized a second $27.5 million (1.8%)
increase for electric operations effective January 1, 2001.
Rates in the final order were based upon a 12.2% return on common
equity.
Wisconsin Electric filed a petition for a rehearing of the final
order with the Public Service Commission of Wisconsin to
reconsider their revenue increase for gas operations. On
November 9, 2000, the Public Service Commission of Wisconsin
denied Wisconsin Electric's petition. Wisconsin Electric intends
to seek judicial review.
As a condition of its approval of Wisconsin Energy's merger with
WICOR, the Public Service Commission of Wisconsin ordered a
qualified five-year rate freeze that becomes effective on
January 1, 2001 concurrent with the second step rate changes
included in the final order.
Michigan Electric Retail Jurisdiction
2001 TEST YEAR: In mid-November 2000, Wisconsin Electric
expects to submit an application with the Michigan Public Service
Commission requesting an electric retail rate increase of
$3.7 million (9.4%) on an annualized basis. Hearings on this
rate relief request are expected during the first quarter of 2001
with a final order anticipated to become effective during the
second quarter of 2001.
FUEL COST ADJUSTMENT PROCEDURE: On September 29, 2000,
Wisconsin Electric submitted applications with the Michigan
Public Service Commission requesting reinstatement of its Power
Supply Cost Recovery mechanism (a type of fuel cost adjustment
procedure) on January 1, 2001. If approved as filed, Wisconsin
Electric would expect to recover approximately $1 million in
higher projected fuel costs during 2001 in the Michigan
jurisdiction.
ITEM 5. OTHER INFORMATION
2001 ANNUAL MEETING DATE; DEADLINES FOR SHAREHOLDER PROPOSALS
Wisconsin Energy Corporation's 2001 Annual Meeting of
Stockholders will be held on May 2, 2001.
* Pursuant to Rule 14a-8 under the Securities Exchange Act of
1934, the deadline for submitting shareholder proposals for
inclusion in Wisconsin Energy's proxy statement and form of proxy
for the 2001 Annual Meeting is December 30, 2000.
* The date after which notice of a shareholder proposal
submitted outside of the processes of Rule 14a-8 is considered
untimely is February 21, 2001. Under Wisconsin Energy's advance
notice bylaw, such a proposal must be received no earlier than
January 22, 2001 (100 days before the May 2, 2001 scheduled date
of the Annual Meeting) and no later than February 21, 2001 (70
days before such scheduled date).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following Exhibits are filed with or incorporated by
reference in this Form 10-Q report:
Exhibit No.
-----------
2.1 Agreement and Plan of Merger, dated as of June 27, 1999, as
amended as of September 9, 1999, by and among Wisconsin Energy
Corporation, WICOR, Inc. and CEW Acquisition, Inc.(incorporated
herein by reference to Appendix A to the joint proxy
statement/prospectus dated September 10, 1999, included in
Wisconsin Energy's Registration on Form S-4 filed on September 9,
1999 (File No. 333-86827) (the "Form S-4")).
2.2 Amendment to Agreement and Plan of Merger dated as of
September 9, 1999 (incorporated herein by reference to Exhibit
2.2 to the Form S-4).
2.3 Second Amendment to Agreement and Plan of Merger dated as of
April 26, 2000 (incorporated herein by reference to Exhibit 2.3
to Wisconsin Energy's Current Report on Form 8-K dated as of
April 26, 2000).
10.1 Amendment to employment arrangement with Paul Donovan as
Senior Vice President and Chief Financial Officer of Wisconsin
Energy Corporation, effective November 8, 2000.
27.1 Wisconsin Energy Corporation Financial Data Schedule
for the nine months ended September 30, 2000.
27.2 Wisconsin Energy Corporation Reclassified Financial
Data Schedule for the nine months ended September 30,
1999, which reflects the reclassification of certain
amounts to conform to Wisconsin Energy's current
financial statement presentation.
(b) REPORTS ON FORM 8-K
On July 10, 2000, Wisconsin Energy filed Amendment No. 1 to
its Current Report on Form 8-K dated April 26, 2000 to file
pro forma financial information in conjunction with the
acquisition of WICOR, Inc. and to file unaudited interim
consolidated financial statements of WICOR, Inc. for the
three months ended March 31, 2000 and March 31, 1999.
On September 13, 2000, Wisconsin Energy filed a Current
Report on Form 8-K dated as of September 10, 2000 disclosing
the Company's new 10-Year, $6 billion "Power The Future"
growth strategy plan.
No other reports on Form 8-K were filed by Wisconsin Energy
during the quarter ended September 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
WISCONSIN ENERGY CORPORATION
----------------------------
(Registrant)
/s/ Paul Donovan
------------------------------------
Date: November 14, 2000 Paul Donovan, Senior Vice President,
Chief Financial Officer and duly
authorized officer
WISCONSIN ENERGY CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000
EXHIBIT INDEX
The following exhibits are filed with or incorporated by reference in
this report:
Exhibit No.
-----------
2.1 Agreement and Plan of Merger, dated as of June 27, 1999,
as amended as of September 9, 1999, by and among Wisconsin Energy
Corporation, WICOR, Inc. and CEW Acquisition, Inc.(incorporated
herein by reference to Appendix A to the joint proxy
statement/prospectus dated September 10, 1999, included in
Wisconsin Energy's Registration on Form S-4 filed on September 9,
1999 (File No. 333-86827) (the "Form S-4")).
2.2 Amendment to Agreement and Plan of Merger dated as of
September 9, 1999 (incorporated herein by reference to Exhibit
2.2 to the Form S-4).
2.3 Second Amendment to Agreement and Plan of Merger dated as of
April 26, 2000 (incorporated herein by reference to Exhibit 2.3
to Wisconsin Energy's Current Report on Form 8-K dated as of
April 26, 2000).
10.1 Amendment to employment arrangement with Paul Donovan as
Senior Vice President and Chief Financial Officer of Wisconsin
Energy Corporation, effective November 8, 2000.
27.1 Wisconsin Energy Corporation Financial Data Schedule
for the nine months ended September 30, 2000.
27.2 Wisconsin Energy Corporation Reclassified Financial
Data Schedule for the nine months ended September 30,
1999, which reflects the reclassification of certain
amounts to conform to Wisconsin Energy's current
financial statement presentation.