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 June 30, 2001
Commission Registrant; State of Incorporation IRS Employer
File Number Address; and Telephone Number Identification No.
----------- ---------------------------------- ------------------
001-01245 WISCONSIN ELECTRIC POWER COMPANY 39-0476280
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2046
Milwaukee, WI 53201
(414) 221-2345
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 (July 31, 2001):
Common Stock, $10 Par Value 33,289,327 shares outstanding.
Wisconsin Energy Corporation is the sole holder of Wisconsin
Electric Power Company Common Stock.
WISCONSIN ELECTRIC POWER COMPANY
--------------------------------
FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 2001
TABLE OF CONTENTS
Item Page
- ---- ----
Introduction..............................................................
Part I - Financial Information
------------------------------
1. Financial Statements
Condensed Income Statements.............................................
Condensed Balance Sheets................................................
Condensed Statements of Cash Flows......................................
Notes to Condensed Financial Statements.................................
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........................
3. Quantitative and Qualitative Disclosures About Market Risk................
Part II - Other Information
---------------------------
1. Legal Proceedings.........................................................
6. Exhibits and Reports on Form 8-K..........................................
Signatures................................................................
INTRODUCTION
Wisconsin Electric Power Company ("Wisconsin Electric" or "the
Company"), a wholly-owned subsidiary of Wisconsin Energy
Corporation ("Wisconsin Energy"), is an electric, gas and steam
utility with operations in Wisconsin and the Upper Peninsula of
Michigan. The unaudited interim financial statements presented
in this Form 10-Q have been prepared by Wisconsin Electric
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
Electric's financial statements should be read in conjunction
with the financial statements and notes thereto included in
Wisconsin Electric's 2000 Annual Report on Form 10-K.
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED INCOME STATEMENTS
(Unaudited)
Three Months Ended June 30 Six Months Ended June 30
-------------------------- --------------------------
2001 2000 2001 2000
----------- ---------- ----------- ----------
(Millions of Dollars)
Operating Revenues $517.5 $496.9 $1,224.1 $1,037.7
Operating Expenses
Fuel and purchased power 124.4 116.5 256.3 221.9
Cost of gas sold 47.4 39.5 237.1 108.6
Other operation and maintenance 187.5 165.6 365.4 326.6
Depreciation, decommissioning
and amortization 64.6 67.0 130.1 133.5
Property and revenue taxes 14.6 16.9 32.9 34.3
------ ------ -------- --------
Total Operating Expenses 438.5 405.5 1,021.8 824.9
------ ------ -------- --------
Operating Income 79.0 91.4 202.3 212.8
Other Income and Deductions
Interest income 0.9 1.0 1.5 3.9
Allowance for other funds
used during construction 0.4 1.0 0.7 1.9
Equity in unconsolidated subsidiary 3.4 - 11.8 -
Other (0.4) - (0.7) (0.3)
------ ------ -------- --------
Total Other Income and Deductions 4.3 2.0 13.3 5.5
Financing Costs
Interest expense 27.3 28.9 56.5 58.1
Allowance for borrowed funds
used during construction (0.2) (0.5) (0.3) (0.9)
------ ------ -------- --------
Total Financing Costs 27.1 28.4 56.2 57.2
------ ------ -------- --------
Income Before Income Taxes 56.2 65.0 159.4 161.1
Income Taxes 21.2 24.8 61.7 62.1
------ ------ -------- --------
Net Income 35.0 40.2 97.7 99.0
Preferred Stock Dividend Requirement 0.3 0.3 0.6 0.6
------ ------ -------- --------
Earnings Available for Common
Stockholder $34.7 $39.9 $97.1 $98.4
====== ====== ======== ========
<FN>
The accompanying Notes to Condensed Financial Statements are an integral part of these
financial statements.
</FN>
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
June 30, 2001 December 31, 2000
------------- -----------------
(Millions of Dollars)
Assets
------
Property, Plant and Equipment
Electric $4,972.1 $5,300.7
Gas 587.4 578.2
Steam 65.0 64.4
Common 381.2 372.9
Other 7.2 7.3
Accumulated depreciation (3,206.1) (3,339.2)
-------- --------
2,806.8 2,984.3
Construction work in progress 110.8 106.8
Leased facilities, net 118.8 121.7
Nuclear fuel, net 80.8 93.1
-------- --------
Net Property, Plant and Equipment 3,117.2 3,305.9
Investments 755.1 642.2
Current Assets
Cash and cash equivalents 22.5 10.6
Accounts receivable 231.0 232.7
Accrued revenues 86.5 163.0
Materials, supplies and inventories 178.8 197.4
Prepayments and other assets 109.2 105.2
-------- --------
Total Current Assets 628.0 708.9
Deferred Charges and Other Assets 392.1 368.1
-------- --------
Total Assets $4,892.4 $5,025.1
======== ========
Capitalization and Liabilities
------------------------------
Capitalization
Common equity $1,898.0 $1,864.8
Preferred stock 30.4 30.4
Long-term debt 1,681.1 1,679.6
-------- --------
Total Capitalization 3,609.5 3,574.8
Current Liabilities
Long-term debt due currently 35.4 28.1
Short-term debt 126.4 257.0
Accounts payable 176.8 213.5
Accrued liabilities 83.2 84.4
Other 68.6 84.2
-------- --------
Total Current Liabilities 490.4 667.2
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 463.6 466.1
Other 328.9 317.0
-------- --------
Total Deferred Credits and Other Liabilities 792.5 783.1
-------- --------
Total Capitalization and Liabilities $4,892.4 $5,025.1
======== ========
<FN>
The accompanying Notes to Condensed Financial Statements are an integral part of these
financial statements.
</FN>
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30
-------------------------------
2001 2000
----------- -----------
(Millions of Dollars)
Operating Activities
Net income $97.7 $99.0
Reconciliation to cash
Depreciation, decommissioning
and amortization 137.5 140.9
Nuclear fuel expense amortization 15.3 14.7
Deferred income taxes, net (3.1) (6.3)
Investment tax credit, net (2.3) (2.3)
Allowance for other funds
used during construction (0.7) (1.9)
Change in - Accounts receivable and
accrued revenues 78.2 38.3
Inventories 18.6 6.2
Other current assets (4.0) 33.5
Accounts payable (36.7) 16.4
Other current liabilities (16.8) 15.4
Other (17.5) (3.5)
------ ------
Cash Provided by Operating Activities 266.2 350.4
Investing Activities
Capital expenditures (150.6) (174.6)
Cash distributions received from ATC 105.4 -
Allowance for borrowed funds
used during construction (0.3) (0.9)
Nuclear fuel (3.3) (21.7)
Nuclear decommissioning funding (8.8) (8.8)
Other (7.1) (5.0)
------ ------
Cash Used in Investing Activities (64.7) (211.0)
Financing Activities
Issuance of long-term debt 22.0 -
Retirement of long-term debt (15.4) (14.8)
Change in short-term debt (130.6) (76.1)
Dividends paid on common stock (65.0) (89.8)
Dividends paid on preferred stock (0.6) (0.6)
------ ------
Cash Used in Financing Activities (189.6) (181.3)
------ ------
Change in Cash and Cash Equivalents 11.9 (41.9)
Cash and Cash Equivalents at
Beginning of Period 10.6 49.9
------ ------
Cash and Cash Equivalents at
End of Period $22.5 $8.0
====== ======
Supplemental Information - Cash Paid For
Interest (net of amount capitalized) $67.8 $68.2
Income taxes 74.2 26.4
<FN>
The accompanying Notes to Condensed Financial Statements are an integral part of these
financial statements.
</FN>
WISCONSIN ELECTRIC POWER COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
GENERAL INFORMATION
1.The accompanying unaudited financial statements for Wisconsin
Electric Power Company should be read in conjunction with
Item 8, Financial Statements and Supplementary Data, in
Wisconsin Electric's 2000 Annual Report on Form 10-K for the
year ended December 31, 2000. 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 Electric, have been included
in the accompanying income statements, statements of cash
flows and balance sheets. The results of operations for the
three and six months ended June 30, 2001 are not necessarily
indicative, however, of the results which may be expected for
the entire year 2001 because of seasonal and other factors.
2.Certain prior year financial statement amounts have been
reclassified to conform to their current year presentation.
These reclassifications had no effect on net income.
3.On April 26, 2000, Wisconsin Energy Corporation, the parent
company of Wisconsin Electric, acquired WICOR, Inc. ("WICOR")
in a business combination that was accounted for as a
purchase. WICOR was a diversified utility holding company
with utility and non-utility energy subsidiaries as well as
pump manufacturing subsidiaries. Following the merger, WICOR
and its subsidiaries, including Wisconsin Gas Company
("Wisconsin Gas"), the largest natural gas distribution
public utility in Wisconsin, became subsidiaries of Wisconsin
Energy. Wisconsin Energy has integrated the gas operations
of Wisconsin Electric and Wisconsin Gas as well as many
corporate support areas.
On November 1, 2000, Wisconsin Electric and Wisconsin Gas
filed an application with the Public Service Commission of
Wisconsin ("PSCW") for authority to transfer Wisconsin
Electric's gas utility assets together with certain
identified liabilities associated with such assets (with a
net book value of approximately $365 million as of
December 31, 2000) to Wisconsin Gas in a tax free exchange
for shares of Wisconsin Gas which have a fair value equal to
the fair value of the assets transferred and represent at
least 80% of the total combined voting power of all classes
of stock that is entitled to vote. The asset transfer matter
is pending.
NEW ACCOUNTING PRONOUNCEMENTS
4.ASSET RETIREMENT OBLIGATIONS: In June 2001, the Financial
Accounting Standards Board authorized issuance of Statement
of Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations ("FAS 143"). FAS 143, which is
effective for fiscal years beginning after June 15, 2002,
requires entities to record the fair value of a legal
liability for an asset retirement obligation in the period in
which it is incurred. When the liability is recorded, the
entity capitalizes the costs of the liability by increasing
the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each
period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement.
The Company expects to adopt FAS 143 effective
January 1, 2003.
The scope of FAS 143 includes decommissioning costs for Point
Beach Nuclear Plant ("Point Beach") and may also apply to
other facilities of the Company. The Company has not yet
performed a detailed assessment of the specific applicability
and implications of FAS 143. Currently, nuclear
decommissioning liabilities are accrued as depreciation
expense under an external sinking fund method as these costs
are recovered through rates over the expected service lives
of the two generating units at Point Beach. FAS 143 will
require the Company to record the full decommissioning
liability and a corresponding asset, which will then be
depreciated over the remaining expected service lives of the
plant's generating units. Any changes in depreciation
expense due to differing assumptions between FAS 143 and
those currently required by the PSCW are not expected to be
material and would most likely be recoverable in rates.
AMERICAN TRANSMISSION COMPANY
5.Effective January 1, 2001 Wisconsin Electric transferred
electric utility transmission system assets with a net book
value of $224.4 million to American Transmission Company LLC
("ATC") in exchange for an equity interest in this new
company. During the first half of 2001, ATC issued debt and
distributed $105.4 million of cash back to Wisconsin Electric
as a partial return of the original equity contribution.
The Company anticipates that the transfer of its electric
transmission assets to ATC will be earnings neutral.
However, the asset transfer has changed where transmission-
related activities are reflected on the income statement.
Prior to the asset transfer, transmission-related costs were
recorded in Other Operation and Maintenance expense,
Depreciation expense and Interest expense. Following
transfer of the transmission assets, the Company reports fees
paid to ATC for electric transmission service in Other
Operation and Maintenance and recognizes an equity interest
in ATC's reported earnings in Other Income and Deductions.
RESERVE FOR NON-RECURRING CHARGES
6.In connection with the WICOR merger, Wisconsin Electric
recorded certain reserves in the fourth quarter of 2000 for
approximately 170 employees who were to receive benefits
under severance agreements and enhanced retirement
initiatives. As of June 30, 2001, approximately $4.5 million
of severance benefits related to 129 employees remained as an
outstanding liability on the balance sheet.
COMMON EQUITY
7.Comprehensive Income includes all changes in equity during a
period except those resulting from investments by and
distributions to owners. Prior to January 2001, Wisconsin
Electric had no items of Other Comprehensive Income to
report. However, as a result of the adoption of Statement of
Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("FAS 133") in
January 2001 (see Note 8), Wisconsin Electric had the
following total Comprehensive Income during the six months
ended June 30, 2001 and 2000:
Six Months Ended June 30
---------------------------------
Comprehensive Income 2001 2000
- ---------------------------- ---------- ----------
(Millions of Dollars)
Net Income $97.7 $99.0
Other Comprehensive Income (Loss)
Unrealized Gains (Losses) During the Period
on Derivatives Qualified as Hedges
Unrealized losses due to cumulative
effect of change in accounting principle (5.1) -
Other unrealized gains (losses) 5.3 -
Less: Reclassification for gains
(losses) included in net income (0.8) -
----- -----
Net Unrealized Gains (Losses) 1.0 -
----- -----
Total Other Comprehensive Income (Loss) 1.0 -
----- -----
Total Comprehensive Income $98.7 $99.0
===== =====
DERIVATIVE INSTRUMENTS
8.In June 1998, the Financial Accounting Standards Board issued
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.
As of the date of initial adoption, FAS 133 requires that the
difference between the fair value of derivative instruments
recorded on the balance sheet and the previous carrying
amount of those derivatives be reported in Net Income or
Accumulated Other Comprehensive Income, as appropriate, as a
cumulative effect of a change in accounting principle.
Wisconsin Electric has a limited number of physical commodity
contracts that are defined as derivatives under FAS 133 and
that qualify for cash flow hedge accounting. These cash flow
hedging instruments are electric forward contracts which are
used to manage the supply of and demand for electricity.
With the adoption of FAS 133 on January 1, 2001, the fair
market values of these derivative instruments have been
recorded as assets and liabilities on the balance sheet and
as a cumulative effect of a change in accounting principle in
Accumulated Other Comprehensive Income in accordance with the
transition provisions of FAS 133. The impact of this
transition as of January 1, 2001 was a $5.1 million reduction
in Accumulated Other Comprehensive Income.
During the first six months of 2001, $0.8 million of net
losses included in the cumulative effect of a change in
accounting principle component of Accumulated Other
Comprehensive Income were reclassified into earnings
resulting in a remaining balance of ($4.3 million) as of
June 30, 2001. Wisconsin Electric estimates that this
remaining balance will be reclassified into earnings between
July 1, 2001 and December 31, 2001.
Future changes in the fair market values of these cash flow
hedging instruments, to the extent that the hedges are
effective at mitigating the underlying commodity risk, will
be recorded in Accumulated Other Comprehensive Income. At
the date the underlying transaction occurs, the amounts in
Accumulated Other Comprehensive Income will be reported in
earnings. The ineffective portion of the derivative's change
in fair value will be recognized in earnings immediately.
For the six month period ended June 30, 2001, the amount of
hedge ineffectiveness was immaterial. Wisconsin Electric did
not exclude any components of derivative gains or losses from
the assessment of hedge effectiveness. A loss of
$0.4 million was reclassified into earnings as a result of
the discontinuance of hedges. As of June 30, 2001, the
maximum length of time over which Wisconsin Electric is
hedging its exposure to the variability in future cash flows
forecasted transactions is nine months, and Wisconsin
Electric estimates that gains of $5.3 million will be
reclassified from Accumulated Other Comprehensive Income into
earnings within the twelve months between July 1, 2001 and
June 30, 2002 as the hedged transactions affect earnings.
Previously, the Company had concluded that its electric
capacity purchase contracts qualified for and were designated
as normal under the normal purchase and sale exception of
FAS 133. The Financial Accounting Standards Board has
determined that electric capacity option contracts qualify
for the normal purchase and sale exception, confirming the
Company's prior conclusion.
SEGMENT INFORMATION
9.Summarized financial information concerning Wisconsin
Electric's reportable operating segments for the three and
six month periods ended June 30, 2001 and 2000 is shown in
the following table.
Reportable Operating Segments
Wisconsin Electric -------------------------------------------------
Power Company Electric Gas Steam Total
- ------------------ ---------- ------- --------- --------
(Millions of Dollars)
Three Months Ended
------------------
June 30, 2001
Operating Revenues (a) $443.0 $70.8 $3.7 $517.5
Operating Income (Loss) 84.3 (4.1) (1.2) 79.0
June 30, 2000
Operating Revenues (a) $427.2 $64.4 $5.3 $496.9
Operating Income (Loss) 93.3 (2.5) 0.6 91.4
Six Months Ended
----------------
June 30, 2001
Operating Revenues (a) $891.8 $319.5 $12.8 $1,224.1
Operating Income 173.8 26.0 2.5 202.3
June 30, 2000
Operating Revenues (a) $842.1 $182.9 $12.7 $1,037.7
Operating Income 190.7 19.3 2.8 212.8
(a) Wisconsin Electric accounts for intersegment revenues at
tariff rates established by the Public Service Commission
of Wisconsin. Intersegment revenues are not material.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wisconsin Electric Power Company, a wholly-owned subsidiary of
Wisconsin Energy Corporation, is an energy utility with electric,
natural gas and steam utility operations.
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."
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2001
EARNINGS
Earnings decreased from $39.9 million during the second quarter
of 2000 to $34.7 million during the second quarter of 2001. The
decrease in earnings for the three month period resulted
primarily from an increase in other operation and maintenance
expenses due to a scheduled refueling at Point Beach Nuclear
Plant during the second quarter of 2001. The outage was
completed on time and all scheduled work was done. During 2000,
Wisconsin Electric did not perform a refueling outage at Point
Beach until the fourth quarter.
Electric Utility Revenues, Gross Margins and Sales
The following table compares Wisconsin Electric's total electric
operating revenues and gross margin during the second quarter of
2001 with similar information for the second quarter of 2000.
Three Months Ended June 30
-------------------------------------
Electric Utility Operations 2001 2000 % Change
- ----------------------------- ---- ---- --------
(Millions of Dollars)
Electric Operating Revenues $443.0 $427.2 3.7%
Fuel and Purchased Power
Fuel 73.6 74.3 (0.9%)
Purchased Power 49.6 41.1 20.7%
------ ------
Total Fuel and Purchased Power 123.2 115.4 6.8%
------ ------
Gross Margin $319.8 $311.8 2.6%
====== ======
During the second quarter of 2001, total electric operating
revenues increased by $15.8 million or 3.7% when compared with
the second quarter of 2000. Wisconsin Electric attributes all of
this growth to electric retail rate increases in Wisconsin that
became effective in August 2000 and on January 1, 2001 and to an
interim rate increase that became effective in February 2001
under Wisconsin's fuel cost adjustment procedure. In May 2001,
the interim fuel rates were increased again by a final order.
For additional information, see Item 1, Legal Proceedings -
"Utility Rates and Regulatory Matters," in Part II of this
report. A 4.8% decrease in electric megawatt-hour sales during
the second quarter of 2001 offset much of the revenue growth
caused by the rate increases.
Between the comparative periods, total fuel and purchased power
expenses increased by $7.8 million or 6.8% primarily due to the
scheduled Point Beach outage noted above. Point Beach underwent
a successful refueling outage in the second quarter of 2001.
However, the outage required Wisconsin Electric to acquire more
expensive purchased power. No additional planned outages are
scheduled at Point Beach during the remainder of 2001. In
addition, Pleasant Prairie Power Plant, the Company's largest
coal-fired plant, experienced an unplanned outage during 2001.
As a result of these outages, and, to a lesser extent, due to
higher natural gas commodity prices and to higher fixed demand
charges associated with long-term power purchase contracts in
effect during 2001, purchased power expenses increased by
$8.5 million or 20.7% during the second quarter of 2001. The
higher fuel and purchased power expenses offset much of the
impact on electric revenues of the electric rate increases noted
above such that total gross margin on electric operating revenues
increased by $8.0 million or 2.6% during the second quarter
of 2001.
The following table compares Wisconsin Electric's electric
operating revenues and electric megawatt-hour sales by customer
class during the second quarter of 2001 with similar information
for the second quarter of 2000.
Operating Revenues Megawatt-Hour Sales
Three Months Ended June 30 Three Months Ended June 30
------------------------------- -------------------------------
Electric Utility Operations 2001 2000 % Change 2001 2000 % Change
- ----------------------------- ---- ---- -------- ---- ---- --------
(Millions of Dollars) (Thousands)
Customer Class
Residential $150.1 $137.6 9.1% 1,743.9 1,713.4 1.8%
Small Commercial/Industrial 141.8 132.2 7.3% 2,010.2 2,019.5 (0.5%)
Large Commercial/Industrial 117.5 118.6 (0.9%) 2,672.3 2,959.0 (9.7%)
Other-Retail/Municipal 15.6 13.8 13.0% 395.1 367.1 7.6%
Resale-Utilities 14.6 17.4 (16.1%) 417.5 546.7 (23.6%)
Other-Operating Revenues 3.4 7.6 (55.3%) - - -
------ ------ ------- -------
Total $443.0 $427.2 3.7% 7,239.0 7,605.7 (4.8%)
====== ====== ======= =======
Weather - Degree Days (a)
Heating (959 Normal) 847 952 (11.0%)
Cooling (170 Normal) 168 160 5.0%
(a) As measured at Mitchell International Airport in Milwaukee,
Wisconsin. Normal degree days are based upon a twenty-year
moving average.
As noted above, total electric megawatt-hour sales fell by 4.8%
during the second quarter of 2001 reflecting a softening economy
that is primarily affecting large commercial/industrial customers
such as Wisconsin Electric's largest retail customers, two iron
ore mines to whom sales decreased by 260.0 thousand megawatt-
hours or 38.5% between the comparative periods. Excluding these
two mines, Wisconsin Electric's total electric energy sales
volumes fell by 1.5% and sales volumes to the remaining large
commercial/industrial customers fell by 1.2% between the
comparative periods.
Gas Utility Revenues, Gross Margins and Therm Deliveries
A comparison of Wisconsin Electric's gas operating revenues,
gross margins and gas deliveries follows. Gross margin (gas
operating revenues less cost of gas sold) is a better performance
indicator than revenues because changes in the cost of gas sold
flow through to revenue under gas cost recovery mechanisms that
do not impact gross margin. As can be seen below, gas operating
revenues grew by $6.4 million or 9.9% between the second quarter
of 2001 and the second quarter of 2000 offset by a $7.9 million
increase in purchased gas costs.
Three Months Ended June 30
-------------------------------------
Gas Utility Operations 2001 2000 % Change
- ----------------------------- ---- ---- --------
(Millions of Dollars)
Gas Operating Revenues $70.8 $64.4 9.9%
Cost of Gas Sold 47.4 39.5 20.0%
----- -----
Gross Margin $23.4 $24.9 (6.0%)
===== =====
Higher prices for natural gas drove much of the 9.9% increase in
operating revenues and the 20.0% increase in the cost of gas sold
during the second quarter of 2001. As noted above, such gas cost
increases do not affect the margin earned on each therm of gas
delivered as a result of the Company's gas cost recovery
mechanism. However, higher gas prices can adversely affect the
Company's therm deliveries to the extent that customers reduce
consumption through lower thermostat settings or through fuel
switching. As of August 2001, commodity gas prices have dropped
from the historically high prices experienced during the first
six months of 2001 and are comparable to the prices in effect in
August 2000. It is not clear how volume trends experienced to
date in 2001 will change in response to the lower commodity
prices for the remainder of the year. Gas margins were down 6.0%
reflecting a 20.0% volume reduction in therm deliveries, but were
partially offset by an increase in the average number of
customers which favorably impacted the fixed component of
operating revenues that is not affected by decreased volumes.
Retail gas rate increases that became effective in August 2000
also contributed to the increase in gas operating revenues and
helped mitigate the decline in gross margin between the
comparative periods.
The following table compares Wisconsin Electric's gas operating
revenues and natural gas therm deliveries by customer class
during the second quarter of 2001 with similar information for
the second quarter of 2000.
Operating Revenues Therm Deliveries
Three Months Ended June 30 Three Months Ended June 30
------------------------------- -------------------------------
Gas Utility Operations 2001 2000 % Change 2001 2000 % Change
- ---------------------------- ---- ---- -------- ---- ---- --------
(Millions of Dollars) (Millions)
Customer Class
Residential $35.2 $32.1 9.7% 36.5 43.2 (15.5%)
Commercial/Industrial 24.5 18.3 33.9% 30.1 30.5 (1.3%)
Interruptible 1.0 1.0 - 1.7 2.4 (29.2%)
----- ----- ----- -----
Total Retail Gas Sales 60.7 51.4 18.1% 68.3 76.1 (10.2%)
Transported Customer-Owned Gas 3.0 4.0 (25.0%) 61.7 77.2 (20.1%)
Transported-Interdepartmental 0.3 0.6 (50.0%) 4.4 14.6 (69.9%)
Other-Operating Revenues 6.8 8.4 (19.0%) - - -
----- ----- ----- -----
Total Operating Revenues $70.8 $64.4 9.9% 134.4 167.9 (20.0%)
===== ===== ===== =====
Weather - Degree Days (a)
Heating (959 Normal) 847 952 (11.0%)
(a) As measured at Mitchell International Airport in Milwaukee,
Wisconsin. Normal degree days are based upon a twenty-year
moving average.
Total therm deliveries of natural gas decreased by 20.0% during
the second quarter of 2001. The reduction was largely due to
warmer weather in 2001 compared with 2000, which affected volumes
in the residential and small commercial customer classes. Large
commercial/industrial and transportation volumes declined
primarily due to fuel switching resulting from the high commodity
cost of natural gas and, to a lesser extent, by the softening
economy.
Other Items
OTHER OPERATION AND MAINTENANCE EXPENSES: Other operation and
maintenance expenses increased by $21.9 million or 13.2% during
the second quarter of 2001 when compared with the second quarter
of 2000, $10.0 million of which was attributable to the scheduled
refueling outage at Point Beach during the second quarter of 2001
noted above. Electric transmission expenses were $12.1 million
higher during 2001 primarily caused by a change in how these
costs are recorded. On January 1, 2001, Wisconsin Electric
transferred all of its electric utility transmission assets to
ATC in exchange for an equity interest in this new company. The
increase in other operation and maintenance expenses associated
with electric transmission operations was offset by reduced
depreciation expense, reduced interest expense and earnings from
Wisconsin Electric's equity investment in ATC. The net effect of
these changes resulted in a non-material change to pre-tax income
between the comparative periods as a result of transmission-
related activities.
OTHER INCOME AND DEDUCTIONS: Other Income and Deductions
increased $2.3 million during the second quarter of 2001 due to
recognition of equity in the earnings of ATC in 2001.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2001
EARNINGS
Earnings decreased from $98.4 million during the first half of
2000 to $97.1 million during the first half of 2001. Between the
comparative periods, higher electric and gas utility gross
margins were offset by higher other operation and maintenance
expenses.
Electric Utility Revenues, Gross Margins and Sales
The following table compares Wisconsin Electric's total electric
operating revenues and gross margin during the first half of 2001
with similar information for the first half of 2000.
Six Months Ended June 30
-------------------------------------
Electric Utility Operations 2001 2000 % Change
- ----------------------------- ---- ---- --------
(Millions of Dollars)
Electric Operating Revenues $891.8 $842.1 5.9%
Fuel and Purchased Power
Fuel 153.1 147.7 3.7%
Purchased Power 100.1 71.2 40.6%
------ ------
Total Fuel and Purchased Power 253.2 218.9 15.7%
------ ------
Gross Margin $638.6 $623.2 2.5%
====== ======
During the first six months of 2001, total electric utility
operating revenues increased by $49.7 million or 5.9% when
compared with the first six months of 2000. Wisconsin Electric
attributes this growth to electric retail rate increases in
Wisconsin that became effective in April 2000, in August 2000 and
on January 1, 2001 and to an interim rate increase that became
effective in February 2001 under Wisconsin's fuel cost adjustment
procedure. In May 2001, the interim fuel rates were increased
again by a final order. A 1.9% decrease in electric megawatt-
hour sales during the first half of 2001 offset much of the
revenue growth caused by the rate increases.
Between the comparative periods, total fuel and purchased power
expenses increased by $34.3 million or 15.7% primarily due to
significantly higher natural gas prices, the scheduled Point
Beach outage during the second quarter of 2001 noted earlier and,
to a lesser extent, to higher fixed demand charges associated
with long-term power purchase contracts in effect during 2001.
The higher fuel and purchased power expenses offset much of the
impact on electric revenues of the electric rate increases noted
above such that total gross margin on electric operating revenues
increased by $15.4 million or 2.5% during the first half of 2001.
The following table compares Wisconsin Electric's electric
operating revenues and electric megawatt-hour sales by customer
class during the first six months of 2001 with similar
information for the first six months of 2000.
Operating Revenues Megawatt-Hour Sales
Six Months Ended June 30 Six Months Ended June 30
------------------------------- -------------------------------
Electric Utility Operations 2001 2000 % Change 2001 2000 % Change
- ----------------------------- ---- ---- -------- ---- ---- --------
(Millions of Dollars) (Thousands)
Customer Class
Residential $306.8 $282.4 8.6% 3,626.6 3,563.8 1.8%
Small Commercial/Industrial 281.4 257.2 9.4% 4,105.6 4,006.2 2.5%
Large Commercial/Industrial 232.7 230.1 1.1% 5,457.6 5,772.3 (5.5%)
Other-Retail/Municipal 30.6 26.9 13.8% 796.3 731.1 8.9%
Resale-Utilities 33.2 31.9 4.1% 944.8 1,153.5 (18.1%)
Other-Operating Revenues 7.1 13.6 (47.8%) - - -
------ ------ -------- --------
Total $891.8 $842.1 5.9% 14,930.9 15,226.9 (1.9%)
====== ====== ======== ========
Weather - Degree Days (a)
Heating (4,265 Normal) 4,242 3,883 9.2%
Cooling (170 Normal) 168 161 4.3%
(a) As measured at Mitchell International Airport in Milwaukee,
Wisconsin. Normal degree days are based upon a twenty-year
moving average.
As noted above, total electric megawatt-hour sales fell by 1.9%
during the first six months of 2001 reflecting a softening
economy that is primarily affecting large commercial/industrial
customers such as Wisconsin Electric's largest retail customers,
two iron ore mines to whom sales decreased by 228 thousand
megawatt-hours or 18.1% between the comparative periods.
Excluding these two mines, Wisconsin Electric's total electric
energy sales volumes fell by 0.5% and sales volumes to the
remaining large commercial/industrial customers fell by 1.9%
between the comparative periods.
Gas Utility Revenues, Gross Margins and Therm Deliveries
A comparison of Wisconsin Electric's gas operating revenues,
gross margin and gas deliveries follows. Gross margin is a
better performance indicator than revenues because changes in the
cost of gas sold flow through to revenue under gas cost recovery
mechanisms that do not impact gross margin. As can be seen
below, gas operating revenues grew by $136.6 million or 74.7%
between the first six months of 2001 and the first six months of
2000 offset by a $128.5 million increase in purchased gas costs.
Six Months Ended June 30
-------------------------------------
Gas Utility Operations 2001 2000 % Change
- ----------------------------- ---- ---- --------
(Millions of Dollars)
Gas Operating Revenues $319.5 $182.9 74.7%
Cost of Gas Sold 237.1 108.6 118.3%
------ ------
Gross Margin $82.4 $74.3 10.9%
====== ======
Higher prices for natural gas drove much of the 74.7% increase in
operating revenues and the 118.3% increase in the cost of gas
sold during the first half of 2001. As noted above, such gas
cost increases do not affect the margin earned on each therm of
gas delivered as a result of the Company's gas cost recovery
mechanisms. However, higher gas prices can adversely affect the
Company's therm deliveries to the extent that customers reduce
consumption through lower thermostat settings or through fuel
switching. Total gas margin was up 10.9%, reflecting an increase
in retail gas sales to weather sensitive customers as a result of
cooler weather during the first part of 2001, and, to a lesser
extent, to retail gas rate increases that became effective in
August 2000.
The following table compares Wisconsin Electric's gas utility
operating revenues and natural gas therm deliveries by customer
class during the first six months of 2001 with similar
information for the first six months of 2000.
Operating Revenues Therm Deliveries
Six Months Ended June 30 Six Months Ended June 30
------------------------------- -------------------------------
Gas Utility Operations 2001 2000 % Change 2001 2000 % Change
- ---------------------------- ---- ---- -------- ---- ---- --------
(Millions of Dollars) (Millions)
Customer Class
Residential $199.4 $110.3 80.8% 202.2 182.8 10.6%
Commercial/Industrial 110.6 60.0 84.3% 121.8 116.0 5.0%
Interruptible 3.9 2.4 62.5% 5.5 6.7 (17.9%)
------ ------ ----- -----
Total Retail Gas Sales 313.9 172.7 81.8% 329.5 305.5 7.9%
Transported Customer-Owned Gas 7.9 9.3 (15.1%) 154.7 186.4 (17.0%)
Transported-Interdepartmental 0.6 1.0 (40.0%) 7.6 22.7 (66.5%)
Other-Operating Revenues (2.9) (0.1) (2,800.0%) - - -
------ ------ ----- -----
Total Operating Revenues $319.5 $182.9 74.7% 491.8 514.6 (4.4%)
====== ====== ===== =====
Weather - Degree Days (a)
Heating (4,265 Normal) 4,242 3,883 9.2%
(a) As measured at Mitchell International Airport in Milwaukee,
Wisconsin. Normal degree days are based upon a twenty-year
moving average.
Total therm deliveries of natural gas decreased by 4.4% during
the first half of 2001, but varied within customer classes.
Volume deliveries for the residential and commercial customer
classes increased by 10.6% and 5.0%, respectively, reflecting
colder weather experienced during the winter heating season,
which was 9.2% colder as measured by heating degree days.
Residential and commercial customers are more weather sensitive
and contribute higher margins per therm than other customers.
The increase caused by the colder weather was partially offset by
customer conservation due to the higher cost of gas and to the
weaker economy, which primarily affected commercial/industrial
gas consumption. Transportation volumes were 17.0% lower than
the prior year reflecting fuel switching to lower cost fuel
options and, to a lesser extent, the softening economy.
Other Items
OTHER OPERATION AND MAINTENANCE EXPENSES: Other operation and
maintenance expenses increased by $38.8 million or 11.9% during
the first six months of 2001 when compared with the first six
months of 2000. The most significant changes in other operation
and maintenance expenses include $17.2 million of higher non-fuel
nuclear expenses, $10.0 million of which was attributable to the
scheduled refueling outage at Point Beach Nuclear Plant during
the second quarter of 2001, and approximately $23.1 million of
higher electric transmission expenses primarily caused by a
change in how electric transmission costs are recorded and
reported as a result of the transfer of electric transmission
assets to ATC on January 1, 2001.
OTHER INCOME AND DEDUCTIONS: Other Income and Deductions
increased $7.8 million during the first six months of 2001 due to
recognition of equity in the earnings of ATC in 2001.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
The following summarizes Wisconsin Electric's cash flows during
the first six months of 2001 and 2000:
Six Months Ended June 30
--------------------------
Wisconsin Electric Power Company 2001 2000
- -------------------------------- ---- ----
(Millions of Dollars)
Cash Provided by (Used in)
Operating Activities $266.2 $350.4
Investing Activities (64.7) (211.0)
Financing Activities (189.6) (181.3)
Operating Activities
Cash provided by operating activities decreased to $266.2 million
during the first six months of 2001 compared with $350.4 million
during the same period in 2000, primarily reflecting (1) an
increase in working capital requirements, (2) a $35 million tax
refund received in the first quarter of 2000 related to
litigation, and (3) a $16 million contribution to the Wisconsin
Energy Foundation in the first quarter of 2001.
Investing Activities
During the first six months of 2001, Wisconsin Electric spent a
net total of $64.7 million on investing activities, including
capital expenditures of $150.6 million partially offset by
$105.4 million of cash distributions received from ATC. Due to
different refueling outage schedules at Point Beach Nuclear Plant
between the comparative periods, the Company spent $18.4 million
less during the first half of 2001 on the acquisition of nuclear
fuel when compared with the first half of 2000.
Financing Activities
During the first six months of 2001, Wisconsin Electric used
$189.6 million of net cash for financing activities including
approximately $130.6 million to reduce short- and long-term debt
and $65.0 million for the payment of dividends to Wisconsin
Energy.
CAPITAL RESOURCES AND REQUIREMENTS
Capital Resources
Cash requirements during the remaining six months of 2001 are
expected to be met through a combination of internal sources of
funds from operations and short-term borrowings.
The Company has access to outside capital markets and has been
able to generate funds internally and externally to meet its
capital requirements. Wisconsin Electric's ability to attract
the necessary financial capital at reasonable terms is critical
to the Company's overall strategic plan. Wisconsin Electric
believes that it has adequate capacity to fund its operations for
the foreseeable future through its borrowing arrangements and
internally generated cash.
On June 30, 2001, Wisconsin Electric had $276 million of total
available unused short-term credit. On that date, Wisconsin
Electric had $250 million of available unused lines of bank
credit to support its outstanding commercial paper and other
short-term borrowings.
The following table shows Wisconsin Electric's capitalization
structure at June 30, 2001 and at December 31, 2000:
Capitalization Structure June 30, 2001 December 31, 2000
- ------------------------ ------------- -----------------
(Millions of Dollars)
Common Equity $1,898.0 50.3% $1,864.8 48.3%
Preferred Stock 30.4 0.8% 30.4 0.8%
Long-Term Debt (including
current maturities) 1,716.5 45.5% 1,707.7 44.2%
Short-Term Debt 126.4 3.4% 257.0 6.7%
-------- ------ -------- ------
Total $3,771.3 100.0% $3,859.9 100.0%
======== ====== ======== ======
Access to capital markets at a reasonable cost is determined in
large part by credit quality. The following table summarizes the
current ratings of the debt securities of Wisconsin Electric by
Standard & Poors Corporation ("S&P"), Moody's Investors Service
("Moody's") and Fitch.
S&P Moody's Fitch
--------- --------- ---------
Wisconsin Electric Power Company
- ------------------------------------
Commercial Paper A-1+ P-1 F1+
Secured Senior Debt AA- Aa2 AA
Unsecured Debt A+ Aa3 AA-
Preferred Stock A A2 AA-
On July 27, 2001, Moody's assigned a new rating of `A2' for
Wisconsin Electric's Preferred Stock as part of its global
recalibration of all issuer preferred stock to promote cross-
sector comparability.
S&P's current outlook for Wisconsin Energy and its subsidiaries
is negative. Currently, Fitch's outlook for Wisconsin Electric
is stable, and Moody's outlook for Wisconsin Energy and its
subsidiaries is stable.
These ratings provide a significant degree of flexibility in
obtaining funds on competitive terms and reflect the views of the
rating agencies. An explanation of the significance of these
ratings may be obtained from each rating agency. Such ratings
are not a recommendation to buy, sell or hold securities, but
rather an indication of creditworthiness. Any rating can be
revised upward or downward or withdrawn at any time by a rating
agency if it decides that the circumstances warrant the change.
Each rating should be evaluated independently of any other
rating.
Capital Requirements
Capital requirements during the remainder of 2001 are expected to
be principally for capital expenditures, for payments to the
Nuclear Decommissioning Trust Fund for the eventual
decommissioning of Point Beach Nuclear Plant and for the purchase
of nuclear fuel. Wisconsin Electric's total capital expenditure
budget for the remainder of 2001 is approximately $246 million.
FACTORS AFFECTING RESULTS OF OPERATIONS
UTILITY RATES AND REGULATORY MATTERS
See Item 1. Legal Proceedings - "Utility Rates and Regulatory
Matters" in Part II of this report for information related to the
Company's fuel cost adjustment procedure.
ENVIRONMENTAL MATTERS
Air Quality
MERCURY EMISSION CONTROL RULEMAKING: As required by the 1990
amendments to the Federal Clean Air Act, the United States
Environmental Protection Agency ("EPA") issued a regulatory
determination in December 2000 that utility mercury emissions
should be regulated. The EPA will develop draft rules within the
next three years. In a separate action in June 2001, the
Wisconsin Department of Natural Resources ("WDNR") developed
draft mercury emission control rules that would affect electric
utilities in Wisconsin. The draft rules call for 30%, 50% and
90% reductions in mercury air emissions over 5, 10 and 15 years,
respectively. The draft rules also require offsets for new
mercury-emitting generating facilities. Wisconsin's draft rules
are not expected to be finalized before the end of 2001 and will
likely be revised before being finalized. The Company is
currently unable to predict the ultimate rules that will be
developed and adopted by the EPA or the WDNR, nor is it able to
predict the impacts, if any, that the EPA's and WDNR's mercury
emission control rulemakings might have on the operations of its
existing or potential coal-fired generating facilities.
MARKET RISKS
COMMODITY PRICE RISK: On July 12, 2001, the PSCW approved a
commodity risk management program for the gas utility operations
of Wisconsin Electric matching an established program at
Wisconsin Gas. This program allows Wisconsin Electric to utilize
call and put option contracts to reduce market risk associated
with fluctuations in the price of natural gas purchases and gas
in storage. Under the program, Wisconsin Electric has the
ability to hedge up to 50% of its planned flowing gas and storage
inventory volumes. The cost of applicable call and put option
contracts, as well as gains or losses realized under the
contracts, do not affect net income as they are fully recovered
under the purchase gas adjustment clause of Wisconsin Electric's
gas cost recovery mechanism. In addition, under a Gas Cost
Incentive Mechanism, Wisconsin Electric uses derivative financial
instruments to manage the cost of gas. The cost of these
financial instruments, as well as any gains or losses on the
contracts, are subject to sharing under the incentive mechanism.
CAUTIONARY FACTORS
This report and other documents or oral presentations contain or
may contain forward-looking statements made by or on behalf of
Wisconsin Electric. Such statements are based upon management's
current expectations and are subject to risks and uncertainties
that could cause Wisconsin Electric's actual results to differ
materially from those contemplated in the statements. Readers
are cautioned not to place undue reliance on the forward-looking
statements. When used in written documents or oral
presentations, the terms "anticipate," "believe," "estimate,"
"expect," "objective," "plan," "possible," "potential," "project"
and similar expressions are intended to identify forward-looking
statements. In addition to the assumptions and other factors
referred to specifically in connection with such statements,
factors that could cause Wisconsin Electric'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 related to
emissions from fossil-fueled power plants such as carbon dioxide,
sulfur dioxide, nitrogen oxide, small particulates or mercury; 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.
* 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 or the
Company; 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, such as issuance of FAS 143 during the summer of
2001, 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.
* Factors which impede execution of Wisconsin Energy's "Power
the Future" strategy announced in September 2000 and revised in
February 2001, 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 strategy.
* Other business or investment considerations that may be
disclosed from time to time in Wisconsin Electric's or
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.
* 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 ("PSCW") as a condition of approval of
the merger.
Wisconsin Electric undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
*****
For certain other information which may impact Wisconsin
Electric's future financial condition or results of operations,
see Item 1, Financial Statements - "Notes to Financial
Statements," in Part I of this report as well as Item 1, Legal
Proceedings, in Part II of this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
For information concerning commodity price risks at Wisconsin
Electric, 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 Electric's 2000 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 Electric's 2000 Annual Report
on Form 10-K and Item 1, Legal Proceedings, in Part II of
Wisconsin Electric's Quarterly Report on Form 10-Q for the period
ended March 31, 2001.
UTILITY RATES AND REGULATORY MATTERS
Wisconsin Retail Jurisdiction
FUEL COST ADJUSTMENT PROCEDURE: On June 4, 2001, the Wisconsin
Industrial Energy Group and the Citizens Utility Board petitioned
the Dane County Circuit Court for review of previously disclosed
decisions of the PSCW authorizing Wisconsin Electric to add a
surcharge to its electric rates to recover its expected 2001 fuel
costs. The first decision was issued on February 8, 2001 and
authorized an interim surcharge of $37.8 million on an annual
basis subject to refund pending issuance of a final order. On
May 3, 2001, the PSCW replaced the interim surcharge with a
final, authorized fuel surcharge of $58.7 million on an
annualized basis subject to refund if the revenues collected are
in excess of the fuel costs actually incurred or if they generate
excess earnings.
The petitioners allege that the PSCW made various material errors
of law and procedure as a result of which the Court should set
aside both the interim and final orders and remand the case to
the PSCW. The matter is pending. Wisconsin Electric intends to
vigorously defend the PSCW's orders and believes the Court will
affirm the PSCW's actions.
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.
-----------
None
(b) REPORTS ON FORM 8-K
On April 5, 2001, Wisconsin Electric filed Amendment No. 1 on
Form 8-K/A, dated as of March 30, 2001, to its Current Report
on Form 8-K dated as of March 8, 2001 (filed on March 15,
2001) reporting a change in accountants.
A Current Report on Form 8-K dated as of June 4, 2001 was
filed by Wisconsin Electric on June 7, 2001 to report a
lawsuit filed against the PSCW challenging the PSCW's
decisions regarding interim and final rate increases
authorizing Wisconsin Electric to recover its expected 2001
fuel costs.
No other reports on Form 8-K were filed by Wisconsin Electric
during the quarter ended June 30, 2001.
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 ELECTRIC POWER COMPANY
--------------------------------
(Registrant)
/s/ STEPHEN P. DICKSON
-------------------------------------
Date: August 13, 2001 Stephen P. Dickson, Controller, Chief
Accounting Officer and duly authorized
officer