1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
- ----------- ----------------------------------- ------------------
1-9057 WISCONSIN ENERGY CORPORATION 39-1391525
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2949
Milwaukee, WI 53201
(414) 221-2345
1-1245 WISCONSIN ELECTRIC POWER COMPANY 39-0476280
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2046
Milwaukee, WI 53201
(414) 221-2345
Indicate by check mark whether each of the registrants (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (August 1, 1996):
Wisconsin Energy Corporation Common stock, $.01 Par Value,
110,819,337 shares outstanding.
Wisconsin Electric Power Company Common stock, $10 Par Value,
33,289,327 shares outstanding.
Wisconsin Energy Corporation is the
sole holder of Wisconsin Electric
Power Company common stock.
2
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 1996
TABLE OF CONTENTS
ITEM PAGE
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PART I - FINANCIAL INFORMATION
1. Financial Statements:
Wisconsin Energy Corporation
Consolidated Condensed Income Statement . . . . . . . . . . . 3
Consolidated Condensed Balance Sheet. . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows. . . . . . . . . . . . . 5
Wisconsin Electric Power Company
Condensed Income Statement. . . . . . . . . . . . . . . . . . 6
Condensed Balance Sheet . . . . . . . . . . . . . . . . . . . 7
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . 8
Notes to Financial Statements of
Wisconsin Energy Corporation and
Wisconsin Electric Power Company. . . . . . . . . . . . . . . 9
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for
Wisconsin Energy Corporation and
Wisconsin Electric Power Company. . . . . . . . . . . . . . . 11
PART II - OTHER INFORMATION
1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 19
4. Submission of Matters to a Vote of Security Holders. . . . . . . 21
5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . 22
6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 32
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
INTRODUCTION
Wisconsin Energy Corporation ("WEC") is a holding company whose principal
subsidiary is Wisconsin Electric Power Company ("WE"), an electric, gas and
steam utility. The unaudited interim financial statements presented in this
combined Form 10-Q report include the consolidated statements of WEC as well
as separate statements for WE. The unaudited statements have been prepared by
WEC and WE pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The WEC and WE financial statements should be read in
conjunction with the financial statements and notes thereto included in WEC's
and WE's respective Annual Reports on Form 10-K for the year ended
December 31, 1995. This combined Form 10-Q is separately filed by WEC and WE.
Information contained herein relating to any individual registrant is filed by
such registrant on its own behalf.
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED INCOME STATEMENT
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(Thousands of Dollars)
Operating Revenues
Electric $ 334,337 $ 347,277 $ 685,161 $ 691,196
Gas 64,880 55,175 202,896 176,275
Steam 2,469 2,641 9,086 8,744
---------- ---------- ---------- ----------
Total Operating Revenues 401,686 405,093 897,143 876,215
Operating Expenses
Fuel 71,265 71,611 147,058 139,430
Purchased power 6,381 8,130 12,145 27,206
Cost of gas sold 40,199 32,536 125,791 105,339
Other operation expenses 92,875 97,859 198,251 195,619
Maintenance 24,973 30,840 51,080 59,212
Depreciation 50,896 45,436 103,201 90,148
Taxes other than income taxes 19,249 17,158 40,096 36,537
Federal income tax 21,656 23,376 52,284 53,011
State income tax 5,117 5,528 12,275 12,628
Deferred income taxes - net 1,814 1,530 3,676 1,906
Investment tax credit - net (1,121) (1,759) (2,241) (2,241)
---------- ---------- ---------- ----------
Total Operating Expenses 333,304 332,245 743,616 718,795
Operating Income 68,382 72,848 153,527 157,420
Other Income and Deductions
Interest income 4,824 4,153 10,790 7,767
Allowance for other funds used
during construction 526 829 1,132 1,654
Miscellaneous - net (2,151) 1,513 (4,077) 2,863
Income taxes 452 2 899 307
---------- ---------- ---------- ----------
Total Other Income and Deductions 3,651 6,497 8,744 12,591
Income Before Interest Charges and
Preferred Dividend 72,033 79,345 162,271 170,011
Interest Charges
Interest expense 27,550 28,658 55,857 57,730
Allowance for borrowed funds used
during construction (1,371) (1,209) (2,545) (2,450)
---------- ---------- ---------- ----------
Total Interest Charges 26,179 27,449 53,312 55,280
Preferred Dividend Requirement of Subsidiary 300 301 601 602
---------- ---------- ---------- ----------
Net Income $ 45,554 $ 51,595 $ 108,358 $ 114,129
========== ========== ========== ==========
Average Common Shares Outstanding (Thousands) 110,819 109,569 110,819 109,352
Earnings Per Share of Common Stock $ 0.41 $ 0.47 $ 0.98 $ 1.04
Dividends Per Share of Common Stock $ 0.38 $ 0.3675 $ 0.7475 $ 0.72
<FN>
The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these
financial statements.
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
June 30, 1996 December 31, 1995
---------------- -----------------
(Thousands of Dollars)
Assets
--------------
Utility Plant
Electric $ 4,587,277 $ 4,531,404
Gas 488,932 489,739
Steam 40,371 40,078
Accumulated provision for depreciation (2,352,336) (2,288,080)
------------- -------------
2,764,244 2,773,141
Construction work in progress 90,433 78,153
Nuclear fuel - net 59,203 59,260
------------- -------------
Net Utility Plant 2,913,880 2,910,554
Other Property and Investments 654,226 637,958
Current Assets
Cash and cash equivalents 14,095 23,626
Accounts receivable 146,809 150,149
Accrued utility revenues 96,868 140,201
Materials, supplies and fossil fuel 151,438 153,713
Prepayments and other assets 78,162 63,830
------------- -------------
Total Current Assets 487,372 531,519
Deferred Charges and Other Assets
Accumulated deferred income taxes 145,842 140,844
Other 351,100 339,860
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Total Deferred Charges and Other Assets 496,942 480,704
------------- -------------
Total Assets $ 4,552,420 $ 4,560,735
============= =============
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $ 678,017 $ 678,017
Retained earnings 1,218,769 1,193,248
------------- -------------
Total Common Stock Equity 1,896,786 1,871,265
Preferred stock 30,450 30,451
Long-term debt 1,359,113 1,367,644
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Total Capitalization 3,286,349 3,269,360
Current Liabilities
Long-term debt due currently 32,527 51,854
Short-term debt 147,181 156,919
Accounts payable 83,894 108,508
Accrued liabilities 72,081 68,634
Other 45,903 50,191
------------- -------------
Total Current Liabilities 381,586 436,106
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 495,232 483,410
Other 389,253 371,859
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Total Deferred Credits and Other Liabilities 884,485 855,269
------------- -------------
Total Capitalization and Liabilities $ 4,552,420 $ 4,560,735
============= =============
<FN>
The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these
financial statements.
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended June 30
--------------------------------------
1996 1995
---------- ----------
(Thousands of Dollars)
Operating Activities
Net income $ 108,358 $ 114,129
Reconciliation to cash
Depreciation 103,201 90,148
Nuclear fuel expense - amortization 11,864 11,129
Conservation expense - amortization 11,249 10,554
Debt premium, discount & expense - amortization 5,619 6,029
Revitalization - net (1,479) (5,447)
Deferred income taxes - net 3,676 1,906
Investment tax credit - net (2,241) (2,241)
Allowance for other funds used during construction (1,132) (1,654)
Change in: Accounts receivable 3,340 (9,949)
Inventories 2,275 3,626
Accounts payable (24,614) (21,756)
Other current assets 29,001 7,869
Other current liabilities (841) 15,222
Other 11,533 5,235
---------- ----------
Cash Provided by Operating Activities 259,809 224,800
Investing Activities
Construction expenditures (129,055) (118,865)
Allowance for borrowed funds used during construction (2,545) (2,450)
Nuclear fuel (9,309) (12,627)
Nuclear decommissioning trust (15,231) (5,102)
Conservation investments - net 285 2,312
Other 7,604 (6,085)
---------- ----------
Cash Used in Investing Activities (148,251) (142,817)
Financing Activities
Sale of common stock - 24,215
Retirement of preferred stock (1) -
Sale of long-term debt 12,838 11,960
Retirement of long-term debt (41,351) (22,818)
Change in short-term debt (9,738) (11,234)
Dividends on stock - common (82,837) (78,658)
---------- ----------
Cash Used in Financing Activities (121,089) (76,535)
---------- ----------
Change in Cash and Cash Equivalents $ (9,531) $ 5,448
========== ==========
Supplemental Information Disclosures
Cash Paid for
Interest (net of amount capitalized) $ 48,325 $ 50,418
Income taxes 75,493 82,965
<FN>
The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these
financial statements.
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FORM 10-Q
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED INCOME STATEMENT
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(Thousands of Dollars)
Operating Revenues
Electric $ 334,337 $ 347,277 $ 685,161 $ 691,196
Gas 64,880 55,175 202,896 176,275
Steam 2,469 2,641 9,086 8,744
---------- ---------- ---------- ----------
Total Operating Revenues 401,686 405,093 897,143 876,215
Operating Expenses
Fuel 71,265 71,611 147,058 139,430
Purchased power 6,381 8,130 12,145 27,206
Cost of gas sold 40,199 32,536 125,791 105,339
Other operation expenses 92,875 97,859 198,251 195,619
Maintenance 24,973 30,840 51,080 59,212
Depreciation 50,896 45,436 103,201 90,148
Taxes other than income taxes 19,249 17,158 40,096 36,537
Federal income tax 21,656 23,376 52,284 53,011
State income tax 5,117 5,528 12,275 12,628
Deferred income taxes - net 1,814 1,530 3,676 1,906
Investment tax credit - net (1,121) (1,759) (2,241) (2,241)
---------- ---------- ---------- ----------
Total Operating Expenses 333,304 332,245 743,616 718,795
Operating Income 68,382 72,848 153,527 157,420
Other Income and Deductions
Interest income 3,846 3,134 8,694 5,704
Allowance for other funds used
during construction 526 829 1,132 1,654
Miscellaneous - net (1,138) 2,798 (2,385) 5,480
Income taxes (204) (781) (447) (1,165)
---------- ---------- ---------- ----------
Total Other Income and Deductions 3,030 5,980 6,994 11,673
Income Before Interest Charges 71,412 78,828 160,521 169,093
Interest Charges
Interest expense 26,500 27,746 53,941 56,055
Allowance for borrowed funds used
during construction (294) (468) (630) (934)
---------- ---------- ---------- ----------
Total Interest Charges 26,206 27,278 53,311 55,121
---------- ---------- ---------- ----------
Net Income 45,206 51,550 107,210 113,972
Preferred Stock Dividend Requirement 300 301 601 602
---------- ---------- ---------- ----------
Earnings Available for Common Stockholder $ 44,906 $ 51,249 $ 106,609 $ 113,370
========== ========== ========== ==========
<FN>
Note - Earnings and dividends per share of common stock are not applicable because all of Wisconsin Electric
Power Company's common stock is owned by Wisconsin Energy Corporation.
The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these
financial statements.
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FORM 10-Q
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED BALANCE SHEET
(Unaudited)
June 30, 1996 December 31, 1995
----------------- -----------------
(Thousands of Dollars)
Assets
--------------
Utility Plant
Electric $ 4,587,277 $ 4,531,404
Gas 488,932 489,739
Steam 40,371 40,078
Accumulated provision for depreciation (2,352,336) (2,288,080)
------------- -------------
2,764,244 2,773,141
Construction work in progress 90,433 78,153
Nuclear fuel - net 59,203 59,260
------------- -------------
Net Utility Plant 2,913,880 2,910,554
Other Property and Investments 439,182 427,627
Current Assets
Cash and cash equivalents 11,207 19,550
Accounts receivable 142,126 144,476
Accrued utility revenues 96,868 140,201
Materials, supplies and fossil fuel 151,438 153,713
Prepayments and other assets 72,121 59,784
------------- -------------
Total Current Assets 473,760 517,724
Deferred Charges and Other Assets
Accumulated deferred income taxes 141,579 136,581
Other 330,981 326,438
------------- -------------
Total Deferred Charges and Other Assets 472,560 463,019
------------- -------------
Total Assets $ 4,299,382 $ 4,318,924
============= =============
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $ 613,582 $ 613,582
Retained earnings 1,106,659 1,082,983
------------- -------------
Total Common Stock Equity 1,720,241 1,696,565
Preferred stock 30,450 30,451
Long-term debt 1,317,113 1,325,169
------------- -------------
Total Capitalization 3,067,804 3,052,185
Current Liabilities
Long-term debt due currently 32,052 51,419
Short-term debt 130,297 150,694
Accounts payable 83,134 107,115
Accrued liabilities 70,231 66,694
Other 44,573 48,762
------------- -------------
Total Current Liabilities 360,287 424,684
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 491,650 479,828
Other 379,641 362,227
------------- -------------
Total Deferred Credits and Other Liabilities 871,291 842,055
------------- -------------
Total Capitalization and Liabilities $ 4,299,382 $ 4,318,924
============= =============
<FN>
The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these
financial statements.
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FORM 10-Q
WISCONSIN ELECTRIC POWER COMPANY
STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended June 30
--------------------------------------
1996 1995
---------- ----------
(Thousands of Dollars)
Operating Activities
Net income $ 107,210 $ 113,972
Reconciliation to cash
Depreciation 103,201 90,148
Nuclear fuel expense - amortization 11,864 11,129
Conservation expense - amortization 11,249 10,554
Debt premium, discount & expense - amortization 5,596 6,012
Revitalization - net (1,479) (5,447)
Deferred income taxes - net 3,676 1,906
Investment tax credit - net (2,241) (2,241)
Allowance for other funds used during construction (1,132) (1,654)
Change in: Accounts receivable 2,350 (10,027)
Inventories 2,275 3,626
Accounts payable (23,981) (20,954)
Other current assets 30,996 8,709
Other current liabilities (652) 18,351
Other 12,037 5,008
---------- ----------
Cash Provided by Operating Activities 260,969 229,092
Investing Activities
Construction expenditures (110,847) (112,830)
Allowance for borrowed funds used during construction (630) (934)
Nuclear fuel (9,309) (12,627)
Nuclear decommissioning trust (15,231) (5,102)
Conservation investments - net 285 2,312
Other (1,570) (4,429)
---------- ----------
Cash Used in Investing Activities (137,302) (133,610)
Financing Activities
Stockholder contribution - 30,000
Retirement of preferred stock (1) -
Sale of long-term debt 12,838 11,960
Retirement of long-term debt (40,916) (22,423)
Change in short-term debt (20,397) (30,319)
Dividends on stock - common (82,933) (78,664)
- preferred (601) (602)
---------- ----------
Cash Used in Financing Activities (132,010) (90,048)
---------- ----------
Change in Cash and Cash Equivalents $ (8,343) $ 5,434
========== ==========
Supplemental Information Disclosures
Cash Paid for
Interest (net of amount capitalized) $ 48,153 $ 50,421
Income taxes 75,196 82,454
<FN>
The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these
financial statements.
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited consolidated financial statements for Wisconsin
Energy Corporation ("WEC") and unaudited financial statements for
Wisconsin Electric Power Company ("WE") should be read in conjunction with
WEC's and WE's respective 1995 Annual Reports on Form 10-K. In the
opinion of management, all adjustments, normal and recurring in nature,
necessary to a fair statement of the results of operations and financial
position of WEC and WE have been included in the accompanying income
statements and balance sheets. The results of operations for the three
months and the six months ended June 30, 1996 are not, however,
necessarily indicative of the results which may be expected for the year
1996 because of seasonal and other factors.
2. On May 16, 1996, WE, the utility subsidiary of WEC, received a written
order from the Public Service Commission of Wisconsin ("PSCW") approving
replacement of the Unit 2 steam generators at Point Beach Nuclear Plant
("Point Beach") and reaffirming the PSCW's prior decision approving WE's
construction and operation of an Independent Spent Fuel Storage
Installation ("ISFSI") for dry cask storage of spent nuclear fuel at Point
Beach. The steam generators are scheduled to be replaced during the fall
refueling outage beginning in October 1996. WE resumed transfer of spent
fuel to the ISFSI upon receipt of the May 16, 1996 order. During welding
operations on the third cask, hydrogen gas was ignited within the cask.
Loading has been halted until actions are implemented to prevent
reoccurrence of such an event and until the Nuclear Regulatory Commission
("NRC") has reviewed and accepted such actions. The NRC has conducted an
investigation of the event and has identified certain deficiencies which
WE expects will result in enforcement action, including possible civil
penalties. WE plans to load at least one additional cask with spent fuel
before the end of 1996. In August 1996, intervenors in the proceeding
filed a petition for judicial review of the PSCW's May 16, 1996 order,
seeking reversal of the order. WE intends to fully participate in the
judicial review proceeding and to vigorously oppose the petition.
ITEM 5. OTHER INFORMATION - "POINT BEACH UNIT 2 STEAM GENERATORS & DRY
CASK STORAGE FACILITY" in Part II of this report contains further
information.
3. On April 28, 1995, WEC and Northern States Power Company, a Minnesota
corporation ("NSP"), entered into an Agreement and Plan of Merger, which
was amended and restated as of July 26, 1995 ("Merger Agreement"). The
Merger Agreement provides for a strategic business combination involving
WEC and NSP in a "merger-of-equals" transaction ("Transaction"). As a
result, WEC will become a registered utility holding company under the
Public Utility Holding Company Act of 1935, as amended, and will change
its name to Primergy Corporation ("Primergy"). Primergy will be the
parent of NSP and the current operating subsidiaries of WEC and NSP. The
Transaction is intended to be tax-free for income tax purposes and to be
accounted for as a "pooling of interests". On September 13, 1995, the
stockholders of WEC and NSP voted to approve the Transaction.
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
NOTES TO FINANCIAL STATEMENTS (Cont'd)
(Unaudited)
3. (Cont'd)
The Merger Agreement is subject to various conditions, including the
approval of various regulatory agencies. The goal of WEC and NSP is to
receive approvals from all regulatory authorities by the end of 1996.
However, unless WEC and NSP are able to settle pending issues with the
PSCW and the Minnesota Public Utilities Commission prior to the end of
current hearing schedules, all necessary regulatory approvals for the
Transaction may not be obtained until the first quarter of 1997, which may
delay consummation of the Transaction into the first quarter of 1997.
ITEM 5. OTHER INFORMATION - "MERGER AGREEMENT WITH NORTHERN STATES POWER
COMPANY" in Part II of this report contains further information concerning
the Transaction including selected unaudited pro forma combined condensed
financial information.
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wisconsin Energy Corporation ("WEC" or the "Company") is a holding company
whose principal subsidiary is Wisconsin Electric Power Company ("WE"), an
electric, gas and steam utility. As of June 30, 1996, approximately 95% of
WEC's consolidated total assets were attributable to WE. The following
discussion and analysis of financial condition and results of operations
includes both WEC and WE unless otherwise stated.
Merger - Northern States Power Company
On April 28, 1995, WEC and Northern States Power Company, a Minnesota
corporation ("NSP"), entered into an Agreement and Plan of Merger, which was
amended and restated as of July 26, 1995 ("Merger Agreement"). The Merger
Agreement provides for a strategic business combination involving WEC and NSP
in a "merger-of-equals" transaction ("Transaction"). ITEM 5. OTHER
INFORMATION - "MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY" in Part II
of this report contains further information concerning the Transaction
including selected unaudited pro forma combined condensed financial
information.
The future operations and financial position of WEC and WE will be
significantly affected by the proposed Transaction. The following discussion
and analysis of financial condition and results of operations does not reflect
the potential effects of the Transaction on WEC nor on WE.
Cautionary Factors
The following discussion and analysis contains forward-looking statements.
When used in this document, "anticipate", "believe", "estimate", "expect",
"objective" and similar expressions are intended to identify such statements.
Forward-looking statements are subject to certain risks, uncertainties and
assumptions which could cause actual results to differ materially from those
projected, including those that are described in ITEM 5. OTHER INFORMATION -
"CAUTIONARY FACTORS" in Part II of this report.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by WEC's consolidated operating activities totaled approximately
$260 million during the six months ended June 30, 1996. This compares to
approximately $225 million provided during the same period in 1995. WEC's
consolidated net investing activities totaled $148 million for the six months
ended June 30, 1996 compared to approximately $143 million during the same
period in 1995. Investments during the first half of 1996 included $129
million for the construction of new or improved facilities of which
approximately $111 million was for a number of projects related to utility
plant and $18 million was for non-utility projects. Additional investments
included $9 million for acquisition of nuclear fuel and $15 million for the
Nuclear Decommissioning Trust Fund ("Fund") for the eventual decommissioning
of WE's Point Beach Nuclear Plant. WEC's non-utility subsidiaries received
proceeds of $9 million on the disposition of various investments as part of
Other Investing activities.
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
LIQUIDITY AND CAPITAL RESOURCES (Cont'd)
During the first half of 1996, WEC used $121 million for financing activities
compared to approximately $77 million during the first half of 1995.
Financing activities during the first six months of 1996 included the
retirement of $30 million of 4-1/2% WE first mortgage bonds, financed through
the issuance of additional short-term borrowings.
During the six months ended June 30, 1996, there were no new issuances of WEC
common stock. Previously, WEC issued new shares which were purchased through
the Company's stock plans with cash investments and reinvested dividends. WEC
began purchasing shares required for these plans on the open market as of
January 1, 1996. However, WEC is reviewing resumption in September 1996 of
the issuance of new shares for purchase through the Company's stock plans.
Capital requirements for the remainder of 1996 are expected to be principally
for construction expenditures and payments to the Fund for the eventual
decommissioning of Point Beach. These cash requirements are expected to be
met through internal sources of funds from operations and short-term
borrowings. However, WE may issue up to $200 million of additional long-term
debt in a public offering in late 1996. The specific form, amount and timing
of debt securities which may be issued have not yet been determined and will
depend on market conditions and other factors.
RESULTS OF OPERATIONS
1996 SECOND QUARTER
Earnings
During the second quarter of 1996, WEC's consolidated net income and earnings
per share of common stock were $45.6 million and $0.41, respectively, compared
to $51.6 million and $0.47, respectively, during the second quarter of 1995.
As described below, earnings decreased primarily because revenue rate
decreases and increases in certain Operating Expenses more than offset the
favorable impact of increased 1996 electric kilowatt-hour sales and gas therm
deliveries as well as decreased Interest Expense.
Electric Revenues, Gross Margins and Sales
Primarily as a result of annualized electric retail rate decreases effective
January 1, 1996 of approximately $33.4 million or 2.75% in Wisconsin and $1.1
million or 3.3% in Michigan, total Electric Operating Revenues decreased by
3.7% or $12.9 million during the three months ended June 30, 1996 compared to
the three months ended June 30, 1995. Also contributing to the 1996 decrease
in Electric Operating Revenues were the effects of renegotiated contracts
effective in 1996 with various wholesale customers and with the Empire and
Tilden iron ore mines (the "Mines"), WE's two largest retail customers, and
the continued reduction in sales to WPPI, WE's largest municipal power
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
1996 SECOND QUARTER RESULTS OF OPERATIONS (Cont'd)
customer. The renegotiated contracts contain discounts from previous rates
charged to these customers in exchange for contract extensions. WPPI has been
reducing its purchases from WE subsequent to acquiring generating capacity in
1990, 1993 and 1996. A second quarter 1996 increase in total electric
kilowatt-hour sales of 1.3% was not sufficient to offset the impact on
Electric Operating Revenues of the rate decreases, the renegotiated contracts
and the reduced sales to WPPI.
==============================================================================
Three Months Ended June 30
---------------------------------------
Electric Gross Margin ($000) 1996 1995 % Change
- ---------------------------- ---------- ---------- --------
Electric Operating Revenues $ 334,337 $ 347,277 (3.7)
Fuel & Purchased Power 77,646 79,741 (2.6)
---------- ----------
Gross Margin $ 256,691 $ 267,536 (4.1)
==============================================================================
Between the comparative periods, the gross margin on Electric Operating
Revenues (Electric Operating Revenues less Fuel and Purchased Power expenses)
decreased by 4.1% or $10.8 million due to the fact that the lower 1996
Electric Operating Revenues more than offset the favorable effect of lower
1996 Fuel and Purchased Power expenses. Total Fuel expenses declined in 1996
primarily due to lower average coal costs. Between these same comparative
periods, Purchased Power expenses decreased as WE substituted lower cost
generation for power purchases.
==============================================================================
Three Months Ended June 30
---------------------------------------
Electric Sales (Megawatt-hours) 1996 1995 % Change
- ------------------------------- ---------- ---------- --------
Residential 1,656,649 1,609,772 2.9
Small Commercial/Industrial 1,737,394 1,702,127 2.1
Large Commercial/Industrial 2,662,097 2,644,998 0.6
Other 349,725 376,125 (7.0)
---------- ----------
Total Retail and Municipal 6,405,865 6,333,022 1.2
Resale-Utilities 250,692 240,058 4.4
---------- ----------
Total Sales 6,656,557 6,573,080 1.3
==============================================================================
The increase in total electric sales during the second quarter of 1996
compared to the same period in 1995 was due in part to moderate economic
growth in WE's electric service territory somewhat offset by cooler summer
weather in 1996. As measured by cooling degree days, the second quarter of
- 13 -
14
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
1996 SECOND QUARTER RESULTS OF OPERATIONS (Cont'd)
1996 was 39.9% cooler than the same period during 1995 and 8.6% cooler than
normal. Electric energy sales to the Mines increased 5.6% or 32,000 megawatt-
hours during the three months ended June 30, 1996 compared to the three months
ended June 30, 1995. Excluding the Mines, total electric sales increased 0.9%
and sales to the remaining Large Commercial/Industrial customers decreased
0.7%.
Gas Revenues, Gross Margins and Sales
Despite an annualized $8.3 million or 2.6% Wisconsin retail gas rate decrease
effective January 1, 1996, total Gas Operating Revenues increased by 17.6% or
$9.7 million during the second quarter of 1996 compared to the second quarter
of 1995. Between the comparative periods, the gross margin on Gas Operating
Revenues (Gas Operating Revenues less Cost of Gas Sold) increased by 9.0% or
$2.0 million. A 14.0% increase in total therm deliveries during the second
three months of 1996 more than offset the impact of the rate decrease on Gas
Operating Revenues and on gross margin.
==============================================================================
Three Months Ended June 30
---------------------------------------
Gas Gross Margin ($000) 1996 1995 % Change
- ----------------------- ---------- ---------- --------
Gas Operating Revenues $ 64,880 $ 55,175 17.6
Cost of Gas Sold 40,199 32,536 23.6
---------- ----------
Gross Margin $ 24,681 $ 22,639 9.0
==============================================================================
The gross margin on Gas Operating Revenues grew primarily because the
increased therm deliveries were to Residential and Commercial customers who
are more sensitive to weather variations and who contribute higher margins to
earnings than other customer classes.
==============================================================================
Three Months Ended June 30
---------------------------------------
Therms Delivered - Thousands 1996 1995 % Change
- ---------------------------- ---------- ---------- --------
Residential 59,101 49,845 18.6
Commercial/Industrial 37,228 30,652 21.5
Interruptible 6,257 5,387 16.1
---------- ----------
Total Sales 102,586 85,884 19.4
Transported Customer Owned Gas 61,953 58,475 5.9
Other - Interdepartmental 9,177 8,005 14.6
---------- ----------
Total Gas Delivered 173,716 152,364 14.0
==============================================================================
- 14 -
15
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
1996 SECOND QUARTER RESULTS OF OPERATIONS (Cont'd)
Natural gas therm deliveries during the second quarter of 1996 compared to the
same period in 1995 increased primarily due to colder weather in the second
quarter of 1996 and to a lesser extent due to moderate economic growth in WE's
gas service territory. As measured by heating degree days, the second quarter
of 1996 was 33.8% colder than the same period during 1995 and 24.5% colder
than normal. Other - Interdepartmental therm deliveries are to WE facilities,
primarily the gas fired peaking generating units at the Paris and Concord
Generating Stations, at rates approved by the PSCW.
Operating Expenses
Other Operation Expenses decreased 5.1% or by approximately $5.0 million in
the second quarter of 1996 compared to the second quarter of 1995, primarily
due to a change in accounting for capitalized conservation expenses in 1996,
lower pension and benefit expenses and the timing of certain miscellaneous
operating expenses. Maintenance expense decreased 19.0% or by approximately
$5.9 million in the second three months of 1996 compared to 1995 in part due
to the costs of an unscheduled generating unit outage at Pleasant Prairie
Power Plant in 1995. Depreciation expense increased 12.0% or by approximately
$5.5 million between the same comparative periods due in part to higher
depreciable plant balances and to increased decommissioning expenses during
the second three months of 1996. During the second quarter of 1996, Operating
Taxes Other Than Income Taxes increased 12.2% or by approximately $2.1 million
compared to 1995 primarily due to tax adjustments related to prior periods.
Other Items
During the second quarter of 1996, Miscellaneous - Net Other Income and
Deductions decreased by approximately $3.7 million compared to the second
quarter of 1995 primarily as a result of the change in accounting for
capitalized conservation investments in 1996 noted above. Between the
comparative periods, Interest Expense decreased 3.9% or by $1.1 million,
reflecting lower average short-term debt balances in 1996.
1996 YEAR-TO-DATE
Earnings
During the first six months of 1996, WEC's consolidated net income and
earnings per share of common stock were $108.4 million and $0.98,
respectively, compared to $114.1 million and $1.04, respectively, during the
first six months of 1995. As described below, earnings decreased primarily
because revenue rate decreases and increases in certain Operating Expenses
offset the favorable impact of increased 1996 year-to-date electric kilowatt-
hour sales and gas therm deliveries, increased Other Interest Income as well
as decreased Interest Expense.
- 15 -
16
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
1996 YEAR-TO-DATE RESULTS OF OPERATIONS (Cont'd)
Electric Revenues, Gross Margins and Sales
Primarily as a result of the electric retail rate decreases effective
January 1, 1996 noted above, total Electric Operating Revenues decreased by
0.9% or $6.0 million during the first half of 1996 compared to the first half
of 1995. Also contributing to the 1996 decrease in Electric Operating
Revenues were the effects of the renegotiated contracts and the reduction in
sales to WPPI noted above. A 1996 year-to-date increase in total electric
kilowatt-hour sales of 3.3% was not sufficient to offset the impact on
Electric Operating Revenues of the rate decreases, the renegotiated contracts
and the reduced sales to WPPI.
==============================================================================
Six Months Ended June 30
---------------------------------------
Electric Gross Margin ($000) 1996 1995 % Change
- ---------------------------- ---------- ---------- --------
Electric Operating Revenues $ 685,161 $ 691,196 (0.9)
Fuel & Purchased Power 159,203 166,636 (4.5)
---------- ----------
Gross Margin $ 525,958 $ 524,560 2.7
==============================================================================
Between the comparative periods, the gross margin on Electric Operating
Revenues (Electric Operating Revenues less Fuel and Purchased Power expenses)
increased by 2.7% or approximately $1.4 million due to the fact that lower
1996 Fuel and Purchased Power expenses more than compensated for the decrease
in Electric Operating Revenues. Fuel and Purchased Power expenses declined in
1996 primarily due to lower average coal costs and to unscheduled outages
during the first quarter of 1995 at two of WE's most efficient power plants,
the coal fired Pleasant Prairie Power Plant and the Point Beach Nuclear Plant,
resulting in a higher volume of costlier power purchases in 1995. Also, the
addition of the Paris Generating Station in mid-1995 has allowed WE to reduce
in 1996 its firm power purchases with their related demand charges.
==============================================================================
Six Months Ended June 30
---------------------------------------
Electric Sales (Megawatt-hours) 1996 1995 % Change
- ------------------------------- ---------- ---------- --------
Residential 3,474,742 3,299,128 5.3
Small Commercial/Industrial 3,534,580 3,416,854 3.4
Large Commercial/Industrial 5,235,899 5,187,352 0.9
Other 740,883 757,035 (2.1)
---------- ----------
Total Retail and Municipal 12,986,104 12,660,369 2.6
Resale-Utilities 547,659 442,190 23.9
---------- ----------
Total Sales 13,533,763 13,102,559 3.3
==============================================================================
- 16 -
17
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
1996 YEAR-TO-DATE RESULTS OF OPERATIONS (Cont'd)
Total electric sales during the first half of 1996 were positively impacted
primarily by substantially colder weather conditions compared to the same
period in 1995 and to a lesser extent by moderate economic growth in WE's
electric service territory. As measured by heating degree days, the first six
months of 1996 were 20.0% colder than the same period during 1995 and 9.0%
colder than normal. Electric energy sales to the Mines increased 5.2% or
57,000 megawatt-hours during the six months ended June 30, 1996 compared to
the six months ended June 30, 1995. Excluding the Mines, total electric sales
increased 3.1% and sales to the remaining Large Commercial/Industrial
customers decreased 0.2%.
Gas Revenues, Gross Margins and Sales
Despite the retail gas rate decrease effective January 1, 1996 noted above,
total Gas Operating Revenues increased by 15.1% or $26.6 million during the
first half of 1996 compared to the first half of 1995. Between the
comparative periods, the gross margin on Gas Operating Revenues (Gas Operating
Revenues less Cost of Gas Sold) increased by 8.7% or approximately
$6.2 million. A 12.1% increase in total therm deliveries during the first six
months of 1996 more than offset the impact of the rate decrease on Gas
Operating Revenues and on gross margin.
==============================================================================
Six Months Ended June 30
---------------------------------------
Gas Gross Margin ($000) 1996 1995 % Change
- ----------------------- ---------- ---------- --------
Gas Operating Revenues $ 202,896 $ 176,275 15.1
Cost of Gas Sold 125,791 105,339 19.4
---------- ----------
Gross Margin $ 77,105 $ 70,936 8.7
==============================================================================
The gross margin grew because the increased therm deliveries were primarily to
Residential and Commercial customers who are more sensitive to weather
variations and who contribute higher margins to earnings than other customer
classes.
- 17 -
18
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
1996 YEAR-TO-DATE RESULTS OF OPERATIONS (Cont'd)
==============================================================================
Six Months Ended June 30
---------------------------------------
Therms Delivered - Thousands 1996 1995 % Change
- ---------------------------- ---------- ---------- --------
Residential 228,103 195,048 16.9
Commercial/Industrial 141,978 120,978 17.4
Interruptible 21,082 16,206 30.1
---------- ----------
Total Sales 391,163 332,232 17.7
Transported Customer Owned Gas 137,430 138,558 (0.8)
Other - Interdepartmental 13,665 13,069 4.6
---------- ----------
Total Gas Delivered 542,258 483,859 12.1
==============================================================================
Natural gas therm deliveries during the first half of 1996 increased primarily
due to the colder weather in 1996 noted above compared to the same period in
1995 and to a lesser extent due to moderate economic growth in WE's gas
service territory.
Operating Expenses
Other Operation Expenses increased 1.3% or by $2.6 million in the first half
of 1996 compared to the first half of 1995, primarily due to increased
uncollectible expenses in 1996 and to the timing of certain miscellaneous
operating expenses. The increase in Other Operation Expenses was partially
offset by lower capitalized conservation expenses in 1996 due to the change in
accounting noted above and lower 1996 pension and benefit expenses.
Maintenance expense decreased 13.7% or by $8.1 million in the first six months
of 1996 compared to 1995 in part due to the costs of the unscheduled
generating unit outages during 1995 noted above. Depreciation expense
increased 14.5% or by approximately $13.1 million between the same comparative
periods primarily due to higher depreciable plant balances and increased
decommissioning expenses in 1996. During the first half of 1996, Operating
Taxes Other Than Income Taxes increased 9.7% or by approximately $3.6 million
compared to 1995 primarily due to tax adjustments related to prior periods.
Other Items
Other Interest Income increased 38.9% or by $3.0 million in the first six
months of 1996 compared to the first six months of 1995, primarily due to the
increased investment income of the Nuclear Decommissioning Trust Fund.
Miscellaneous - Net Other Income and Deductions decreased by approximately
$6.9 million between the comparative periods as a result of the change in
accounting for capitalized conservation investments in 1996 noted above.
During the first half of 1996, Interest Expense decreased 3.2% or by
approximately $1.9 million compared to the first half of 1995, reflecting
lower average short-term debt balances in 1996.
- 18 -
19
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
1996 YEAR-TO-DATE RESULTS OF OPERATIONS (Cont'd)
For certain other information which may impact WEC and WE's future financial
condition or results of operations, see ITEM 1. LEGAL PROCEEDINGS and ITEM 5.
OTHER INFORMATION in Part II of this report.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following should be read in conjunction with ITEM 1. BUSINESS -
"ENVIRONMENTAL COMPLIANCE" and ITEM 3. LEGAL PROCEEDINGS in Part I of WEC's
and WE's respective Annual Reports on Form 10-K for the year ended
December 31, 1995 and with ITEM 1. LEGAL PROCEEDINGS in PART II of WEC's and
WE's combined Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.
RATE MATTERS
Wisconsin Retail Jurisdiction
1997 Test Year: On January 16, 1996, WE filed specific financial data with
the PSCW related to the 1997 test year showing an $82.2 million revenue
deficiency for its utility operations based upon a regulatory return on equity
of 12.5%. The PSCW had determined that it required a special full review of
WE's rates for the 1997 test year in connection with consideration of the
application for approval of the proposed merger of WEC and NSP. The dollar
impacts and percentage increases requested for Wisconsin retail electric, gas
and steam customers are $77.0 million or 6.2%, $4.3 million or 1.4% and
$0.9 million or 6.4%, respectively, on an annualized basis. On March 15,
1996, WE filed testimony and exhibits with the PSCW related to the 1997 test
year. The PSCW staff has reviewed WE's 1997 test year financial data and
testimony and has developed a preliminary recommendation for an electric rate
decrease of $31.1 million or 2.4%, a gas rate decrease of $9.2 million or 2.9%
and a steam rate decrease of $0.3 million or 1.3% based upon a regulatory
return on equity of 11.1%. This matter is currently before the PSCW. Any
changes in rates would likely not take effect until after January 1, 1997.
STRAY VOLTAGE
On July 11, 1996, the PSCW issued its final order regarding stray voltage
policies. Previously, a utility was required to reduce its contribution to
stray voltage from its distribution system if stray voltage was measured above
certain minimum levels. A neutral isolation device could have been
temporarily used for this purpose. Under the new policy, customers will have
the option of requesting installation of isolation equipment at their own
- 19 -
20
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
STRAY VOLTAGE (Cont'd)
expense, regardless of the level of stray voltage present. These new stray
voltage policies are likely to increase the number of investigations performed
by WE, but WE does not anticipate that this will have a significant impact on
its financial position or results of operations.
ENVIRONMENTAL COMPLIANCE
Solid Waste Landfills
Marina Cliffs Barrel Dump Site: As previously reported, WE is a member of a
potentially responsible party group which has agreed to comply with an
Environmental Protection Agency ("EPA") Section 106(a) CERCLA administrative
order for removal activities and additional investigation at this site. WE
has been classified as a de minimis party at the site by the EPA. Removal
activities have begun.
ETSM Property & City of West Allis: As previously reported, iron cyanide
bearing wastes were found on property owned by WE (ETSM facility), located in
the City of West Allis, Wisconsin, and an adjacent property owned by Giddings
& Lewis and/or Kearney & Trecker. The wastes were removed and properly
disposed of, with WE's share of the cleanup at about $0.1 million. WE has
received a notice sent by one of the adjacent property owners of its intent to
sue WE under the Resource Conservation and Recovery Act of 1976.
Also as previously reported, the City of West Allis, Wisconsin, discovered
iron cyanide bearing wastes on a separate parcel of property owned by the city
at 113th St. and Greenfield Avenue. The source of the waste is believed to be
process waste from a former manufactured gas plant. The City of West Allis
alleges that WE was the source of this material.
On July 25, 1996, Giddings & Lewis, Kearney & Trecker and the City of West
Allis filed an action for damages in the Milwaukee County Circuit Court
against WEC, WE and Wisconsin Natural Gas Company ("WN"), a former wholly
owned gas utility subsidiary of WEC which was merged into WE effective
January 1, 1996, alleging they are responsible for the deposition of the
material and liable to the plaintiffs for trespass, breach of contract,
nuisance and other theories of liability as a result of the placement and
presence of such material on the properties. WEC and WE have not yet answered
the lawsuit.
OTHER LITIGATION
Condemnation Suit: On July 31, 1996, David and Anne Geenen filed an action
against WE and another party in the Outagamie County Circuit Court for damages
arising out of WE's acquisition activities in connection with the purchase of
property for the subsequently abandoned Kimberly cogeneration project. The
action alleges that WE intentionally misrepresented itself as having the
authority to condemn when it did not; that it was deficient in maintaining
- 20 -
21
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
OTHER LITIGATION (Cont'd)
properties it acquired and thereby created a nuisance; that it exercised
condemnation when it did not have authority to do so; that it breached a duty
it had to the Geenens to inform them it did not have condemnation power; and
that it engaged in racketeering activities. The matter is pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Wisconsin Energy Corporation
At WEC's 1996 Annual Meeting of Stockholders held on May 22, 1996, the board
of directors' nominees named below were elected as directors of the class
whose term expires in 1999 by the indicated votes and percentages cast for and
withheld with respect to each nominee. There was no solicitation in
opposition to the nominees proposed in the proxy statement and there were no
abstentions or broker non-votes with respect to the election of directors.
==============================================================================
Name of Nominee For Withheld
--------------------- --------------------- --------------------
Richard A. Abdoo 93,638,459 (97.21%) 2,684,081 (2.79%)
John F. Ahearne 93,677,269 (97.25%) 2,645,271 (2.75%)
==============================================================================
The appointment of Price Waterhouse LLP as independent public accountant for
1996 was approved by the stockholders by a vote of 94,964,730 votes for
(99.27% of votes cast) and 698,125 votes against (0.73% of votes cast) such
approval. There were 659,685 abstentions and no broker non-votes with respect
to such approval.
Of 110,819,337 shares of common stock outstanding and entitled to vote on the
record date of March 21, 1996, 86.92% of the shares were represented at the
meeting.
Further information concerning these matters, including the name of each other
director whose term of office as a director continued after the meeting and
will expire in 1997 or 1998, is contained in WEC's Proxy Statement dated
April 3, 1996 with respect to the 1996 Annual Meeting of Stockholders.
Wisconsin Electric Power Company
At WE's 1996 Annual Meeting of Stockholders held on May 21, 1996, for which WE
did not solicit proxies, the board of directors as listed in WE's Information
Statement dated April 26, 1996 ("Information Statement") was re-elected in its
entirety. With respect to each nominee, 33,289,327 votes were cast for
election (100% of votes cast) and no votes were withheld. There was no
solicitation in opposition to the nominees proposed in the Information
Statement and there were no abstentions or broker non-votes with respect to
the election of directors.
- 21 -
22
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(Cont'd)
In addition, an amendment to the Restated Articles of Incorporation of WE to
change the name of WE to Wisconsin Energy Company effective with the
consummation of the Transaction with NSP was approved with 33,289,327 votes
cast for approval (over 99% of eligible voting shares) and no votes withheld.
There were no abstentions and no broker non-votes with respect to such
approval. ITEM 5. OTHER INFORMATION - "MERGER AGREEMENT WITH NORTHERN STATES
POWER COMPANY" in Part II of this report contains further information
concerning the Transaction.
Further information concerning these matters is contained in the Information
Statement.
ITEM 5. OTHER INFORMATION
POINT BEACH UNIT 2 STEAM GENERATORS & DRY CASK STORAGE PROJECT
Information concerning the PSCW's initial approval of WE's application to
utilize dry cask storage for spent nuclear fuel generated at Point Beach
Nuclear Plant ("Point Beach") and pending legal proceedings with respect to
the PSCW's decision, and information with respect to WE's application to the
PSCW for the replacement of the Unit 2 steam generators at Point Beach, is
contained in ITEM 1. BUSINESS - "SOURCES OF GENERATION - Nuclear" of WEC's
and WE's respective annual reports on Form 10-K for the year ended
December 31, 1995 and in ITEM 5. OTHER INFORMATION - "POINT BEACH UNIT 2
STEAM GENERATORS & DRY CASK STORAGE PROJECT" in Part II of WEC's and WE's
combined Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
On May 16, 1996, WE received a written order from the PSCW approving
replacement of the Unit 2 steam generators and reaffirming its prior decision
approving WE's construction and operation of an Independent Spent Fuel Storage
Installation ("ISFSI") for dry cask storage of spent nuclear fuel at Point
Beach. On July 11, 1996, the PSCW denied a petition for rehearing filed by
the intervenors in the proceeding. On August 8, 1996, the intervenors filed a
petition for judicial review of the PSCW's May 16, 1996 order in Dane County
Circuit Court. The petition seeks reversal of the order and a remand to the
PSCW directing it to deny WE's request for authorization to replace the steam
generators and to construct the ISFSI, or in the alternative, to correct the
alleged errors in the PSCW's order. WE intends to fully participate in the
judicial review proceeding and to vigorously oppose the petition.
Failure by the PSCW to approve the steam generator replacement and reaffirm
authorization for the ISFSI would have jeopardized the continued operation of
Point Beach. The Unit 2 replacement steam generators are necessary due to the
degradation of tubes within the steam generators and will permit operation of
- 22 -
23
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
POINT BEACH UNIT 2 STEAM GENERATORS & DRY CASK STORAGE PROJECT
(Cont'd)
Unit 2 at least until its current operating license expires in 2013. The
steam generators are scheduled to be replaced during the fall refueling outage
beginning in October 1996. The ISFSI will provide interim dry cask storage of
spent fuel from Point Beach until the United States Department of Energy
("DOE") takes ownership of and removes the spent fuel under an existing
contract mandated by the Nuclear Waste Policy Act ("Act"). (On July 23, 1996,
the United States Court of Appeals for the District of Columbia Circuit ruled
that the DOE has an unconditional obligation under the Act to begin disposal
of spent fuel from nuclear plants by 1998.) The ISFSI is necessary because
the spent fuel pool inside the plant is nearly full. Construction of the
ISFSI was completed during 1995 and one cask was loaded with spent fuel in
December 1995 after which the transfer of spent fuel to the ISFSI was
temporarily suspended by WE pending further action by the PSCW.
WE resumed transferring spent fuel to the ISFSI upon receipt of the May 16,
1996 order and completed the loading of a second cask on May 26, 1996. During
welding operations on the third cask on May 28, 1996, hydrogen gas was ignited
within the cask. Loading has been halted until actions are implemented to
prevent reoccurrence of such an event and until the Nuclear Regulatory
Commission ("NRC") has reviewed and accepted such actions. The NRC has
conducted an investigation of the event and has identified certain
deficiencies which WE expects will result in enforcement action, including
possible civil penalties. These deficiencies and other potential violations
of NRC requirements which the NRC has found in various plant activities will
be discussed with the NRC at a predecisional enforcement conference in
September 1996. WE plans to load at least one additional cask with spent fuel
before the end of 1996.
DEVELOPMENT OF ISO FOR WISCONSIN'S TRANSMISSION SYSTEM
The PSCW is conducting a generic investigation into the electric utility
industry in Wisconsin. As part of that investigation, it has stated that it
intends to develop an Independent System Operator ("ISO") for the statewide
transmission system. It has further indicated that in the event an ISO cannot
be developed that effectively separates control and operation of the
transmission system from the ownership of generation, it intends to proceed to
develop a Transco, which would own, operate and control transmission
facilities in the State of Wisconsin.
At the request of the PSCW, WE along with Dairyland Power Cooperative,
Northern States Power Company, a Minnesota Corporation ("NSP"), Northern
States Power Company, a Wisconsin Corporation ("NSP-WI"), Wisconsin Power and
Light Company and Wisconsin Public Service Corporation ("WPS") submitted a
joint proposal on May 22, 1996 for an ISO that would have responsibility for
ensuring that transmission service in the state will be conducted fairly and
equitably for all eligible parties. Three other proposals by other parties
- 23 -
24
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
DEVELOPMENT OF ISO FOR WISCONSIN'S TRANSMISSION SYSTEM (Cont'd)
were also filed. On July 17, 1996, a question and answer session was held to
allow the PSCW to weigh the various proposals. WE expects the PSCW to select
a proposal in late August 1996.
FERC OPEN ACCESS TRANSMISSION RULING
On July 9, 1996, WE submitted to the Federal Energy Regulatory Commission
("FERC") a transmission tariff in connection with FERC's Open Access Final
Rule ("Order No. 888"), which was issued on April 24, 1996. Order No. 888
requires public utilities owning, controlling or operating transmission lines
to file non-discriminatory open access tariffs that offer others the same
transmission services available to themselves and requires the use of the
tariff for their own wholesale energy sales. WE's filing includes terms and
conditions of network transmission service and point-to-point transmission
service, including ancillary services. The rate related aspects of the tariff
were accepted by the FERC in a June 1996 settlement agreement regarding WE's
preexisting transmission service tariffs. All other aspects of the tariff
followed the FERC pro-forma tariff and were accepted by the FERC.
NEW GAS SERVICE PROPOSAL
On July 16, 1996, WE filed plans with the PSCW to expand natural gas service
to more than 6,000 customers in northeastern Wisconsin. The project will
involve the installation of more than 400 miles of new gas main and is one of
the largest proposed new franchise territory expansion efforts in recent
Wisconsin history. A number of approvals must be granted before the project
can continue, including receiving permission from the PSCW. Once all
necessary approvals are received, WE expects to begin contacting potential
customers as early as January 1997 and begin construction in the spring of
1997. WPS, an unaffiliated investor-owned utility in Green Bay, Wisconsin,
has also announced its intention to compete for service to these same
customers in this part of the state.
MINERGY GLASS AGGREGATE PLANT
Minergy Corp. ("Minergy"), a non-regulated WEC subsidiary, plans to complete
construction in late 1997 of a $45 million facility in Neenah, Wisconsin that
would recycle paper sludge from area paper mills into two usable products:
glass aggregate and steam. The glass aggregate will be sold into existing
construction and aggregate markets and the steam will be sold to a local paper
mill. Construction of the plant began July 22, 1996.
MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY
On April 28, 1995, WEC and NSP entered into an Agreement and Plan of Merger,
which was amended and restated as of July 26, 1995 ("Merger Agreement"). The
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY (Cont'd)
Merger Agreement provides for a strategic business combination involving WEC
and NSP in a "merger-of-equals" transaction ("Transaction"). As a result, WEC
will become a registered public utility holding company under the Public
Utility Holding Company Act of 1935, as amended ("PUHCA"), and will change its
name to Primergy Corporation ("Primergy"). Primergy will be the parent
company of WE (which will be renamed Wisconsin Energy Company), of NSP (which,
for regulatory reasons, will reincorporate in Wisconsin ("New NSP")), and of
the other subsidiaries of WEC and NSP. In connection with the Transaction,
NSP-WI, currently a utility subsidiary of NSP, will be merged into Wisconsin
Energy Company. Prior to the merger of NSP-WI into Wisconsin Energy Company,
New NSP will acquire from NSP-WI certain gas utility assets in LaCrosse and
Hudson, Wisconsin with a net historical cost at June 30, 1996 of $17.9
million. The Transaction is intended to be tax-free for income tax purposes
and to be accounted for as a "pooling of interests". On September 13, 1995,
the stockholders of WEC and NSP voted to approve the proposed Transaction.
The Merger Agreement is subject to various conditions, including the approval
of various regulatory agencies. On April 5, 1996, WEC and NSP submitted the
initial filing to the Securities and Exchange Commission ("SEC") to facilitate
registration of Primergy under PUHCA. On April 10, 1996, the Michigan Public
Service Commission approved the merger application through a settlement
agreement containing terms consistent with the merger application. On
June 26, 1996, the North Dakota Public Service Commission also approved the
merger application. These are the first and second of four states to act
where approval of the Transaction is required.
On July 24, 1996, the PSCW held a prehearing conference on the merger
proceeding. At the prehearing conference the parties agreed upon an extensive
issues list and a schedule for the hearing. The schedule required staff and
intervenor case filings on September 9, 1996, applicant's rebuttal filing on
September 20, 1996, and three weeks of hearings commencing on September 24,
1996. At its open meeting on August 8, 1996, the PSCW decided to delay this
schedule by one month. The resulting schedule should lead to a PSCW decision
on the merger in late 1996 or early 1997 with a written order in the first
quarter of 1997.
In June 1996, the Minnesota Public Utilities Commission ("MPUC") issued an
order which established the procedural framework for the MPUC's consideration
of the merger. The issues of merger-related savings, electric rate freeze
characteristics, NSP's pre-merger revenue requirements, Primergy's ability to
control the transmission interface between the Mid-Continent Area Power Pool
and the Wisconsin and upper Michigan area, and the impact of this interface on
Minnesota utilities were set for contested case hearings. On August 5, 1996,
an administrative law judge issued a Pre-Hearing Order which set the
evidentiary hearing dates from November 18 through December 6, 1996. If the
MPUC approval process proceeds without early settlement of the contested
issues, the MPUC decision on the merger application may not be obtained until
the first quarter of 1997.
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY (Cont'd)
In July 1995, WEC and NSP filed an application and supporting testimony with
the FERC seeking approval of the Merger Agreement. The FERC has put the
merger application on an accelerated schedule, ordering the administrative law
judge's initial decision by August 30, 1996 and briefs opposing exceptions to
the initial decision by September 30, 1996. On May 28, 1996, WEC and NSP
filed additional evidence with the FERC, providing a detailed analysis of
generation "market power" and more specific information about the ISO proposal
included in earlier filings. This additional information was provided to the
FERC in response to concerns raised by intervenors in the merger proceeding
and by the FERC staff. The FERC asked for an analysis of "market power" or
Primergy's potential ability to manipulate its generation or transmission
systems to raise prices or cause transmission constraints. WEC and NSP have
continued to work with the FERC staff and other parties on the ISO proposal
and anticipate that the FERC will act on the merger application in the fourth
quarter of 1996.
Later in 1996, WEC and NSP will file required notifications with the Federal
Trade Commission and the Department of Justice under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
The goal of WEC and NSP is to receive approvals from all regulatory
authorities by the end of 1996. However, unless WEC and NSP are able to
settle the pending issues with the PSCW and the MPUC prior to the end of the
current hearing schedules noted above, all necessary regulatory approvals for
the merger may not be obtained until the first quarter of 1997, which may
delay consummation of the Transaction into the first quarter of 1997.
Filings with regulatory agencies in the states where WEC and NSP provide
utility services and in which such filings are required include a request for
deferred accounting treatment and rate recovery of costs incurred associated
with the Transaction. As of June 30, 1996, WEC has deferred $9.8 million of
costs associated with the Transaction as a component of Deferred Charges and
Other Assets-Other.
Detailed information with respect to the Merger Agreement and the proposed
Transaction, including pro forma combined condensed financial information, is
contained in WEC's and WE's combined Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, in WEC's and WE's respective 1995 Annual Reports
on Form 10-K and in the Joint Proxy Statement/Prospectus dated August 7, 1995
(contained in WEC's Registration Statement on Form S-4, Registration
No. 33-61619) relating to the meetings of the stockholders of WEC and NSP to
vote on the Merger Agreement and related matters.
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following summarized unaudited pro forma financial information combines
historical balance sheet and income statement information of WEC and NSP and
of WE and NSP-WI to give effect to the Transaction to form Primergy and
Wisconsin Energy Company. This information should be read in conjunction with
the historical financial statements and related notes thereto of WEC, NSP, WE
and NSP-WI.
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WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Cont'd)
The allocation between WEC and NSP and their customers of the estimated cost
savings resulting from the Transaction, net of costs incurred to achieve such
estimated cost savings, will be subject to regulatory review and approval.
Cost savings resulting from the Transaction are estimated to be approximately
$2 billion over a 10-year period, net of transaction costs (including fees for
financial advisors, attorneys, accountants, consultants, filings and printing)
and costs to achieve the savings of approximately $30 million and $122
million, respectively. None of the estimated cost savings, the costs to
achieve such savings, nor transaction costs are reflected in the unaudited pro
forma income statement information. With the exception of certain non-current
deferred tax balance sheet reclassifications described below, all other
financial statement presentation and accounting policy differences are
immaterial and have not been adjusted in the unaudited pro forma financial
information.
The unaudited pro forma balance sheet information gives effect to the
Transaction as if it had occurred at June 30, 1996. The unaudited pro forma
income statement information gives effect to the Transaction as if it had
occurred at January 1, 1996. The following information is not necessarily
indicative of the financial position or operating results that would have
occurred had the Transaction been consummated on the date or at the beginning
of the period for which the Transaction is being given effect nor is it
necessarily indicative of future operating results or financial position.
Primergy Corporation Information
The following summarized Primergy unaudited pro forma financial information
reflects the combination of the historical financial statements of WEC and NSP
after giving effect to the Transaction to form Primergy. A $146 million pro
forma adjustment has been made to conform the presentation of noncurrent
deferred income taxes in the summarized unaudited pro forma combined balance
sheet information as a net liability. The unaudited pro forma combined
earnings per common share reflect pro forma adjustments to average NSP common
shares outstanding in accordance with the provisions of the Merger Agreement,
whereby each outstanding share of NSP common stock will be converted into
1.626 shares of Primergy common stock. In the Transaction, each outstanding
share of WEC common stock will remain outstanding as a share of Primergy
common stock.
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Cont'd)
==============================================================================
Primergy Corporation: Unaudited
WEC NSP Pro Forma
(As Reported) (As Reported) Combined
------------- ------------- -------------
(Millions, except per share amounts)
As of June 30, 1996:
Utility plant-net $ 2,914 $ 4,324 $ 7,238
Current assets 487 801 1,288
Other assets * 1,151 1,276 2,281
----------- ----------- -----------
Total Assets $ 4,552 $ 6,401 $ 10,807
=========== =========== ===========
Common stockholders' equity $ 1,897 $ 2,074 $ 3,971
Preferred stock and premium 30 240 270
Long-term debt 1,359 1,666 3,025
----------- ----------- -----------
Total Capitalization 3,286 3,980 7,266
Current liabilities 382 1,014 1,396
Other liabilities * 884 1,407 2,145
----------- ----------- -----------
Total Equity & Liabilities $ 4,552 $ 6,401 $ 10,807
=========== =========== ===========
For the Six Months Ended
June 30, 1996:
Utility Operating Revenues $ 897 $ 1,311 $ 2,208
Utility Operating Income $ 154 $ 160 $ 314
Net Income, after Preferred
Dividend Requirements $ 108 $ 104 $ 212
Earnings per Common Share:
As Reported $ 0.98 $ 1.53 -
Primergy Shares - - $ 0.96
==============================================================================
* Includes a $146 million pro forma adjustment to conform the presentation of
noncurrent deferred taxes as a net liability.
Wisconsin Energy Company Information
The following summarized Wisconsin Energy Company unaudited pro forma
financial information combines historical balance sheet and income statement
information of WE and NSP-WI to give effect to the Transaction, including the
transfer of certain gas assets from NSP-WI to New NSP. The unaudited pro
forma income statement information does not reflect adjustments for 1996 year
to date revenues of $21.6 million and related expenses associated with the
transfer of certain gas assets from NSP-WI to New NSP. A $142 million pro
forma adjustment has been made to conform the presentation of noncurrent
deferred income taxes in the summarized unaudited pro forma combined balance
sheet information as a net liability. A net $17.9 million pro forma
adjustment has also been made in the summarized unaudited pro forma combined
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Cont'd)
balance sheet information to reflect the transfer of certain gas assets from
NSP-WI to New NSP. Earnings per share of common stock are not applicable
because all of the Wisconsin Energy Company common stock will be owned by
Primergy.
==============================================================================
Wisconsin Energy Company: ** Unaudited
WE NSP-WI Pro Forma
(As Reported) (As Reported) Combined***
------------- ------------- -------------
(Millions of Dollars)
As of June 30, 1996:
Utility plant-net $ 2,914 $ 659 $ 3,553
Current assets 474 73 563
Other assets 911 50 819
----------- ----------- -----------
Total Assets $ 4,299 $ 782 $ 4,935
=========== =========== ===========
Common stockholder's equity $ 1,720 $ 324 $ 2,044
Preferred stock and premium 30 - 30
Long-term debt 1,318 212 1,530
----------- ----------- -----------
Total Capitalization 3,068 536 3,604
Current liabilities 360 92 452
Other liabilities 871 154 879
----------- ----------- -----------
Total Equity & Liabilities $ 4,299 $ 782 $ 4,935
=========== =========== ===========
For the Six Months Ended
June 30, 1996:
Utility Operating Revenues $ 897 $ 240 $ 1,137
Utility Operating Income $ 154 $ 27 $ 181
Net Income, after Preferred
Dividend Requirements $ 107 $ 18 $ 125
==============================================================================
** In connection with the Merger Agreement, WE will be renamed Wisconsin
Energy Company.
*** Includes a $142 million pro forma adjustment to conform the presentation
of noncurrent deferred taxes as a net liability and a net $17.9 million
pro forma adjustment for the transfer of selected gas assets from NSP-WI
to New NSP.
CAUTIONARY FACTORS
This report and other documents or oral presentations contain or may contain
forward-looking statements made by or on behalf of WEC or WE. Such statements
are based upon management's current expectations and are subject to risks and
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
CAUTIONARY FACTORS (Cont'd)
uncertainties that could cause actual results to differ materially from those
projected in the statements. When used in written documents or oral
presentations, the words "anticipate", "believe", "estimate", "expect",
"objective" 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
WEC's or WE'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; unscheduled generation outages,
maintenance or repairs; unanticipated changes in fossil fuel, nuclear fuel
or gas supply costs or availability due to higher demand, shortages,
transportation problems or other developments; nuclear or environmental
incidents; resolution of spent nuclear fuel storage and disposal and steam
generator replacement 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.
* 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.
* Customer business conditions including demand for their products or
services and supply of labor and materials used in creating their products
and services.
* 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; Nuclear Regulatory Commission operating regulation changes
related to Point Beach Nuclear Plant; or the siting approval process for
new generating and transmission facilities.
* The cost and other effects of legal and administrative proceedings,
settlements, and investigations, claims and changes in those matters.
* Factors affecting the availability or cost of capital such as changes in
interest rates; market perceptions of the utility industry, the Company or
any of its subsidiaries; or security ratings.
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WISCONSIN ENERGY CORPORATION
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PART II - OTHER INFORMATION (Cont'd)
CAUTIONARY FACTORS (Cont'd)
* 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.
* Certain restrictions imposed by various financing arrangements and
regulatory requirements on the ability of WE to transfer funds to WEC in
the form of cash dividends, loans or advances.
* 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 ("SEC").
* Unanticipated technological developments that result in competitive
disadvantages and create the potential for impairment of existing assets.
* Changes in social attitudes regarding the utility and power industries.
* Possible risks associated with nonutility diversification such as
competition; operating risks; dependence upon certain suppliers and
customers; or environmental and energy regulations.
* Other business or investment considerations that may be disclosed from time
to time in WEC's or WE's SEC filings or in other publicly disseminated
written documents.
Business Combination Factors
* Consummation of the Transaction with NSP to form Primergy and Wisconsin
Energy Company, which will have a significant effect on the future
operations and financial position of WEC and WE, respectively. Specific
factors include:
* The ability to consummate the Transaction on substantially the basis
contemplated.
* The ability to obtain the requisite approvals by all applicable
regulatory authorities.
* The ability to generate the cost savings to Primergy that WEC and NSP
believe will be generated by the synergies resulting from the
Transaction. This depends upon the degree to which the assumptions upon
which the analyses employed to develop estimates of potential cost
savings as a result of the Transaction will approximate actual
experience. Such assumptions involve judgements with respect to, among
other things, future national and regional economic conditions, national
and regional competitive conditions, inflation rates, regulatory
treatment, weather conditions, financial market conditions, business
decisions and other uncertainties. All of these factors are difficult
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
CAUTIONARY FACTORS (Cont'd)
to predict and many are beyond the control of WEC and NSP. While it is
believed that such assumptions are reasonable, there can be no assurance
that they will approximate actual experience or that the estimated cost
savings will be realized.
* The allocation of the benefits of cost savings between shareholders and
customers, which will depend, among other things, upon the results of
regulatory proceedings in various jurisdictions.
* The rate structure of Primergy's utility subsidiaries.
* Additional regulation to which Primergy will be subject as a registered
public utility holding company under PUHCA, in contrast to the more limited
impact of PUHCA upon WEC and NSP as exempt holding companies, and other
different or additional federal and state regulatory requirements or
restrictions to which Primergy and its subsidiaries may be subject as a
result of the Transaction (including conditions which may be imposed in
connection with obtaining the regulatory approvals necessary to consummate
the Transaction such as the possible requirement to divest gas utility
properties and possibly certain nonutility ventures).
* Factors affecting the dividend policy of Primergy including results of
operations and financial condition of Primergy and its subsidiaries and
such other business considerations as the Primergy Board of Directors
considers relevant.
WEC and WE undertake no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following Exhibits are filed with the applicable Form 10-Q report:
Exhibit No.
WEC Exhibits
(27)-1 Wisconsin Energy Corporation ("WEC") Financial Data Schedule
for the six months ended June 30, 1996.
WE Exhibits
(27)-2 Wisconsin Electric Power Company ("WE") Financial Data Schedule
for the six months ended June 30, 1996.
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (Cont'd)
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by WEC during the quarter ended
June 30, 1996.
No reports on Form 8-K were filed by WE during the quarter ended
June 30, 1996.
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WISCONSIN ENERGY CORPORATION
--------------------------------------
(Registrant)
/s/ C. H. Baker
--------------------------------------
Date: August 14, 1996 C. H. Baker, Treasurer, Chief Financial
Officer and duly authorized officer
WISCONSIN ELECTRIC POWER COMPANY
--------------------------------------
(Registrant)
/s/ C. H. Baker
--------------------------------------
Date: August 14, 1996 C. H. Baker, Vice President - Finance,
Chief Financial Officer and duly
authorized officer
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
----------------------------------------
FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 1996
EXHIBIT INDEX
Exhibit No.
- -----------
The following Exhibits are filed with this report:
(27)-1 Wisconsin Energy Corporation Financial Data Schedule for the
six months ended June 30, 1996.
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