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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
Commission Registrant; State of Incorporation IRS Employer
File Number Address; and Telephone Number Identification No.
----------- ---------------------------------- ------------------
001-09057 WISCONSIN ENERGY CORPORATION 39-1391525
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2949
Milwaukee, WI 53201
(414) 221-2345
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of the Registrant's knowledge, in
the definitive Proxy Statement incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. ( )
The aggregate market value of the common stock of Wisconsin Energy
Corporation held by non-affiliates is approximately $2.6 billion
based upon the reported last sale price of such securities as of
February 28, 2001.
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Stock, $.01 New York Stock
Par Value Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest practicable
date (February 28, 2001):
Common Stock, $.01 Par Value, 118,036,434 shares outstanding
Documents Incorporated by Reference
-----------------------------------
Portions of Wisconsin Energy Corporation's definitive Proxy
Statement for its Annual Meeting of Stockholders, to be held on
May 2, 2001, are incorporated by reference into Part III hereof.
WISCONSIN ENERGY CORPORATION
--------------------------------
FORM 10-K REPORT FOR THE YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
Item Page
- ---- ----
Part I
------
1. Business...................................................................
Introduction.............................................................
Utility Energy Segment...................................................
Electric Utility Operations............................................
Electric Sales.......................................................
Competition..........................................................
Electric Supply......................................................
Coal-Fired Generation................................................
Nuclear Generation...................................................
Hydroelectric Generation.............................................
Natural Gas-Fired Generation.........................................
Oil-Fired Generation.................................................
Purchase Power Commitments...........................................
Electric Transmission................................................
Renewable Electric Energy............................................
Gas Utility Operations.................................................
Gas Deliveries.......................................................
Competition..........................................................
Gas Supply, Pipeline Capacity and Storage............................
Other Utility Operations...............................................
Utility Rate Matters...................................................
Non-Utility Energy Segment...............................................
Wisvest Corporation....................................................
Other Non-Utility Energy Operations....................................
Manufacturing Segment....................................................
U.S. Operations........................................................
International Operations...............................................
Raw Materials and Patents..............................................
Other Non-Utility Operations.............................................
Minergy Corp. .........................................................
Wispark LLC............................................................
Other Non-Utility Subsidiaries.........................................
Regulation...............................................................
Wisconsin Energy Corporation...........................................
Utility Energy Segment.................................................
Non-Utility Energy Segment.............................................
Environmental Compliance.................................................
Environmental Expenditures.............................................
Solid Waste Landfills..................................................
Coal-Ash Landfills.....................................................
Manufactured Gas Plant Sites...........................................
Air Quality............................................................
Other....................................................................
2. Properties.................................................................
Utility Energy Segment...................................................
Non-Utility Energy Segment...............................................
Manufacturing Segment....................................................
Other....................................................................
3. Legal Proceedings..........................................................
Environmental Matters....................................................
Utility Rate Matters.....................................................
Other Matters............................................................
4. Submission of Matters to a Vote of Security Holders........................
Executive Officers of the Registrant.......................................
Part II
-------
5. Market for Registrant's Common Equity and Related Stockholders Matters.....
Number of Common Stockholders............................................
Common Stock Listing and Trading.........................................
Dividends and Common Stock Prices........................................
6. Selected Financial Data....................................................
Consolidated Selected Financial and Statistical Data.....................
Consolidated Selected Quarterly Financial Data...........................
Consolidated Selected Utility Operating Data.............................
7. Management's Discussion & Analysis of Financial Condition &
Results of Operations....................................................
Results of Operations..................................................
Consolidated Earnings................................................
Utility Energy Segment Contribution To Earnings......................
Electric Utility Revenues, Gross Margins and Sales.................
Gas Utility Revenues, Gross Margins and Therm Deliveries...........
Pro Forma Gas Utility Revenues, Gross Margins and Therm Deliveries.
Other Utility Segment Items........................................
Non-Utility Energy Segment Contribution to Earnings..................
Manufacturing Segment Contribution To Earnings.......................
Pro Forma Manufacturing Segment Revenues and Gross Margins.........
Liquidity and Capital Resources........................................
Cash Flows...........................................................
Operating Activities...............................................
Investing Activities...............................................
Financing Activities...............................................
Capital resources and Requirements...................................
Capital Resources..................................................
Capital Requirements...............................................
Factors Affecting Results, Liquidity and Capital Resources.............
Outlook..............................................................
Forecasts..........................................................
Factors Affecting Forecasts........................................
Investments, Mergers, Divestitures and Asset Sales...................
Electric Generation................................................
Energy Distribution................................................
Rates and Regulatory Matters.........................................
Wisconsin Jurisdiction.............................................
Michigan Jurisdiction..............................................
Industry Restructuring and Competition...............................
Electric Utility Industry..........................................
Natural Gas Utility Industry.......................................
Electric System Reliability..........................................
Nuclear Operations...................................................
Legal Matters........................................................
Environmental Matters................................................
Market Risks.........................................................
Accounting Developments..............................................
Cautionary Factors...................................................
Operating, Financial & Industry Factors............................
Business Combination Factors.......................................
7A. Quantitative and Qualitative Disclosures About Market Risk.................
8. Financial Statements and Supplementary Data................................
Consolidated Income Statement............................................
Consolidated Statement of Cash Flows.....................................
Consolidated Balance Sheet...............................................
Consolidated Statement of Capitalization.................................
Consolidated Statement of Common Equity..................................
Notes to Consolidated Financial Statements...............................
Note A - Summary of Significant Accounting Policies....................
Note B - Mergers and Acquisitions......................................
Note C - Asset Sales and Divestitures..................................
Note D - Non-Recurring Charges.........................................
Note E - Income Taxes..................................................
Note F - Nuclear Operations............................................
Note G - Common Equity.................................................
Note H - Trust Preferred Securities....................................
Note I - Long-Term Debt................................................
Note J - Short-Term Debt...............................................
Note K - Fair Value of Financial Instruments...........................
Note L - Benefits......................................................
Note M - Segment Reporting.............................................
Note N - Commitments and Contingencies.................................
Report of Independent Accountants........................................
9. Changes in & Disagreements with Accountants
on Accounting and Financial Disclosure...................................
Part III
--------
10. Directors and Executive Officers of the Registrant.........................
11. Executive Compensation.....................................................
12. Security Ownership of Certain Beneficial Owners and Management.............
13. Certain Relationships and Related Transactions.............................
Part IV
-------
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...........
Schedule 1 - Condensed Parent Company Financial Statements.................
Consents of Independent Accountants........................................
Signatures.................................................................
Exhibit Index..............................................................
PART I
------
ITEM 1.BUSINESS
INTRODUCTION
Wisconsin Energy Corporation was incorporated in the state of
Wisconsin in 1981 and became a diversified holding company in
1986. It maintains its principal executive offices in Milwaukee,
Wisconsin. Unless qualified by their context when used in this
document, the terms "Wisconsin Energy" or the "Company" refer to
the holding company and all of its subsidiaries.
Wisconsin Energy conducts its operations primarily in three
operating segments: a utility energy segment, a non-utility
energy segment and a manufacturing segment. The Company's
primary subsidiaries are Wisconsin Electric Power Company
("Wisconsin Electric"), Wisconsin Gas Company ("Wisconsin Gas")
and WICOR Industries, Inc.
UTILITY ENERGY SEGMENT: The utility energy segment consists of:
Wisconsin Electric, which serves over 1,000,000 electric
customers in Wisconsin and the Upper Peninsula of Michigan,
400,000 gas customers in Wisconsin and about 450 steam customers
in metro Milwaukee; Wisconsin Gas, which serves about 550,000 gas
customers in Wisconsin and about 1,840 water customers in
suburban Milwaukee; and Edison Sault Electric Company ("Edison
Sault"), which serves approximately 22,000 electric customers in
the Upper Peninsula of Michigan.
NON-UTILITY ENERGY SEGMENT: The non-utility energy segment
consists primarily of: Wisvest Corporation ("Wisvest"), which
develops, owns and operates electric generating facilities and
invests in other energy-related entities; WICOR Energy Services
Company ("WICOR Energy"), which engages in natural gas purchasing
and marketing as well as energy and price risk management; and
FieldTech, Inc. ("FieldTech"), which provides meter reading and
technology services for gas, electric and water utilities. In
December 2000, Wisconsin Energy entered into an agreement to sell
Wisvest's two existing non-utility power plants, located in the
state of Connecticut, which will significantly reduce the size of
current non-utility energy segment operations. The sale of these
two plants, which were originally acquired in April 1999, is
expected to close in the second quarter of 2001.
MANUFACTURING SEGMENT: The manufacturing segment consists of
WICOR Industries, Inc., an intermediary holding company, and its
three primary subsidiaries: Sta-Rite Industries, Inc. ("Sta-
Rite"), SHURflo Pump Manufacturing Co. ("SHURflo") and Hypro
Corporation ("Hypro"), which are manufacturers of pumps, water
treatment products and fluid handling equipment with
manufacturing, sales and distribution facilities in 14 countries.
OTHER: Other non-utility operating subsidiaries of Wisconsin
Energy include primarily Minergy Corp. ("Minergy"), which
develops and markets recycling technologies, and Wispark LLC
("Wispark"), formerly Wispark Corporation, which develops and
invests in real estate. In May 2000, Wisconsin Energy announced
that it would sell approximately 80% of its portfolio of non-
utility real estate assets during the following two years, which
is expected to significantly reduce the size of existing non-
utility real estate operations.
Wisconsin Gas, WICOR Energy, FieldTech, WICOR Industries, Sta-
Rite, SHURflo and Hypro were acquired by Wisconsin Energy as a
result of the Company's acquisition of WICOR, Inc. ("WICOR") on
April 26, 2000. WICOR remains a subsidiary of Wisconsin Energy,
functioning as an intermediary holding company of the historical
WICOR companies. For additional information concerning Wisconsin
Energy's acquisition of WICOR, see "Factors Affecting Results,
Liquidity and Capital Resources" in Item 7 of this report.
For further financial information about Wisconsin Energy's
business segments, see "Results of Operations" in Item 7 and
"Note M - Segment Reporting" in the Notes to Financial Statements
in Item 8 of this report.
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 such 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 factors described
throughout this document and in "Factors Affecting Results,
Liquidity and Capital Resources" in Item 7 of this report.
UTILITY ENERGY SEGMENT
ELECTRIC UTILITY OPERATIONS
The Company's electric utility operations consist of the
electric operations of Wisconsin Electric as well as Edison
Sault. Wisconsin Electric, which is the largest electric utility
in the state of Wisconsin, generates, distributes and sells
electric energy in a territory of approximately 12,000 square
miles with a population estimated at 2,300,000 in southeastern
(including the metropolitan Milwaukee area), east central and
northern Wisconsin and in the Upper Peninsula of Michigan.
Edison Sault generates, distributes and sells electric energy in
a territory of approximately 2,000 square miles with a population
of approximately 55,000 in the eastern Upper Peninsula of
Michigan.
Electric Sales
See "Consolidated Selected Utility Operating Data" in Item 6 of
this report for certain electric utility operating information by
customer class during the period 1996 through 2000.
WISCONSIN ELECTRIC: Wisconsin Electric is authorized to provide
retail electric service in designated territories in the state of
Wisconsin, as established by indeterminate permits, certificates
of public convenience and necessity, or boundary agreements with
other utilities, and in certain territories in the state of
Michigan pursuant to franchises granted by municipalities.
Wisconsin Electric also sells wholesale electric power.
Electric energy sales by Wisconsin Electric to all classes of
customers totaled approximately 31.4 million megawatt hours
during 2000, a 2.5% increase over 1999. Approximately
0.2 million of megawatt-hour sales during 2000 were to Edison
Sault. There were approximately 1,027,000 electric customers at
December 31, 2000, an increase of 2.1% since December 31, 1999.
Electric energy sales are impacted by seasonal factors and
varying weather conditions from year-to-year. Wisconsin
Electric, a summer peaking utility as a result of cooling load,
reached its all-time electric peak demand obligation of
5,974 megawatts on July 29, 1999. During the years 2001 through
2005, Wisconsin Electric currently estimates that electric peak
demand obligation will grow at an annualized rate of 1.8% to
approximately 6,400 megawatts by the year 2005.
EDISON SAULT: Edison Sault is authorized to provide retail
electric service in certain territories in the state of Michigan
pursuant to franchises granted by municipalities. Edison Sault
also provides wholesale electric service under contract with one
rural cooperative.
Electric energy sales by Edison Sault to all classes of customers
totaled approximately 0.8 million megawatt hours during 2000 and
1999. There were approximately 22,000 electric customers at
December 31, 2000, an increase of 0.9% since December 31, 1999.
Edison Sault, a winter peaking utility as a result of heating
load, reached its all-time peak electric demand of 139 megawatts
on December 27, 2000.
SALES TO LARGE ELECTRIC RETAIL CUSTOMERS: Wisconsin Electric
provides electric utility service to a diversified base of
customers in such industries as mining, paper, foundry, food
products, machinery production as well as to large retail chains.
Edison Sault provides electric service to large industrial
accounts in the paper, crude oil pipeline and limestone quarry
industries as well as to several state and federal government
facilities.
Cleveland-Cliffs, Inc. manages the Company's two largest retail
electric customers, the Empire and Tilden iron ore mines located
in the Upper Peninsula of Michigan. Wisconsin Electric currently
has special negotiated power-sales contracts with the mines that
expire in 2007. The combined electric energy sales to the two
mines accounted for 7.7%, 7.0% and 8.0% of the Company's total
electric utility energy sales during 2000, 1999 and 1998,
respectively.
SALES TO WHOLESALE CUSTOMERS: During 2000, Wisconsin Electric
sold wholesale electric energy to five municipally owned systems,
two rural cooperatives and two municipal joint action agencies
located in the states of Wisconsin, Michigan and Illinois.
Wholesale electric energy sales by Wisconsin Electric were also
made to 43 other public utilities and power marketers throughout
the region under rates approved by the Federal Energy Regulatory
Commission. Edison Sault sold wholesale electric energy to one
rural cooperative during 2000. Wholesale sales accounted for
approximately 12.7% of the Company's total electric energy sales
and 7.2% of total electric operating revenues during 2000
compared with 12.7% of total electric energy sales and 6.8% of
total electric operating revenues during 1999.
ELECTRIC SYSTEM RELIABILITY MATTERS: In spite of continued
tight regional electric supply, especially during episodes of hot
and humid weather, the Company had adequate capacity to meet all
of its firm electric load obligations during 2000 and expects to
have adequate capacity to meet all of its firm obligations during
2001. However, the Company anticipates that the regional
electric energy supply will remain tight during 2001. For
additional information, see "Factors Affecting Results, Liquidity
and Capital Resources" in Item 7 of this report.
"POWER THE FUTURE" STRATEGY: Demand for electricity in
the state of Wisconsin is currently expected to outstrip supply
by 4,000 megawatts by 2010. Wisconsin Electric's electric load
is currently growing at approximately 100 to 150 megawatts per
year. In response, Wisconsin Energy announced an enhanced 10-
year, $7 billion strategy in February 2001 to improve the
supply and reliability of electricity in Wisconsin. For
additional information, see "Factors Affecting Results, Liquidity
and Capital Resources" in Item 7 of this report. As part of its
enhanced "Power the Future" strategy, Wisconsin Energy
expects to create a new non-utility energy subsidiary that would
construct and own 2,800 megawatts of new natural gas-fired and
coal-fired generating capacity in Wisconsin and that would be
leased back to Wisconsin Electric under 20- to 25-year contracts
approved by the Public Service Commission of Wisconsin ("PSCW").
Wisconsin Electric would operate and maintain the new plants and
would have the right to renegotiate the leases or acquire the
associated plants outright at market value at the end of the
lease contracts. Implementation of the "Power the Future"
strategy is subject to a number of state and federal regulatory
approvals as well as the amendment of several state laws in
Wisconsin.
Competition
Driven by a combination of market forces, regulatory and
legislative initiatives and technological changes, the nation's
electric utility industry continues a trend towards restructuring
and increased competition. However, given the current status of
restructuring initiatives in regulatory jurisdictions where the
Company primarily does business, Wisconsin Energy cannot predict
the ultimate timing or impact of a restructured electric industry
on its financial position or results of operations. For
additional information, see "Factors Affecting Results, Liquidity
and Capital Resources" in Item 7 of this report.
Electric Supply
The table below indicates the Company's sources of electric
energy supply, including net generation by fuel type, for the
following years ended December 31.
2001 (a) 2000 1999 1998 (b)
-------- ---- ---- --------
Coal 62.2% 62.9% 62.3% 62.6%
Nuclear 24.1 22.8 21.5 18.1
Hydroelectric 1.8 1.6 1.8 1.2
Natural Gas 0.7 1.0 1.3 1.8
Oil and Other(c) 0.1 0.2 0.2 0.2
----- ----- ----- -----
Net Generation 88.9 88.5 87.1 83.9
Power Purchases (d) 11.1 11.5 12.9 16.1
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
(a) Estimated assuming that there are no unforeseen contingencies such as
unscheduled maintenance or repairs of Wisconsin Energy's generating
facilities or of regional electric transmission facilities. See
"Factors Affecting Results, Liquidity and Capital Resources -
Cautionary Factors" in Item 7 of this report.
(b) Includes Edison Sault beginning in June 1998.
(c) Includes generation by alternative renewable sources.
(d) Excludes purchases by Edison Sault of power supplied by Wisconsin Electric.
Wisconsin Energy's net generation totaled 29.8 million megawatt-
hours during 2000 compared with 28.6 million megawatt hours
during 1999 and 26.4 million megawatt hours during 1998. Net
generation has increased in each of the past two years in large
part due to higher availability of Wisconsin Electric's Point
Beach Nuclear Plant.
Wisconsin Electric's average total fuel costs per million British
thermal units by fuel type for the years ended December 31 are
shown below. As described in further detail in "Factors
Affecting Results, Liquidity and Capital Resources" in Item 7 of
this report, the price of natural gas (as well as oil) increased
significantly during 2000 as fuel supplies failed to keep up with
growing demand.
2000 1999 1998
---- ---- ----
Coal $1.11 $1.10 $1.17
Nuclear 0.53 0.55 0.53
Natural Gas 5.08 2.82 2.74
Oil 5.27 3.57 3.70
Coal-Fired Generation
COAL SUPPLY: Wisconsin Electric diversifies the coal supply for
its power plants in the states of Wisconsin and Michigan by
purchasing from mines in northern and central Appalachia as well
as from various western mines. During 2001, 99% of Wisconsin
Electric's projected coal requirements of 12.2 million tons will
be under contract. Wisconsin Electric does not anticipate any
problem in procuring its remaining 2001 coal requirements through
short-term or spot purchases and inventory adjustments.
Following is a summary of the annual tonnage amounts for
Wisconsin Electric's principal long-term coal contracts by the
month and year in which the contracts expire.
Contract Expiration Date Annual Tonnage
------------------------ --------------
Dec. 2002 4,900,000
Dec. 2003 500,000
Dec. 2005 3,200,000
Dec. 2006 2,000,000
As of the beginning of 2001, Wisconsin Electric had approximately
a 107-day supply of coal in inventory at its coal-fired
facilities. The following summarizes the status of coal supply
for each of the coal-fired facilities that supply electricity to
Wisconsin Electric:
PLEASANT PRAIRIE POWER PLANT: All of the estimated 2001 coal
requirements for this plant are presently under contract.
OAK CREEK POWER PLANT: All of the estimated 2001 coal
requirements for this plant are presently under contract or
agreed upon in principle.
PRESQUE ISLE POWER PLANT: Approximately 99% of the estimated
2001 coal requirements for this plant are presently under
contract.
EDGEWATER 5 GENERATING UNIT: Coal for this unit, in which
Wisconsin Electric has a 25% interest, is purchased by the
majority owner of the facility, Wisconsin Power and Light
Company, a subsidiary of Alliant Energy Resources.
VALLEY AND PORT WASHINGTON POWER PLANTS: Coal requirements for
these plants will be supplied in 2001 under existing contracts or
contracts that have been agreed upon in principle.
MILWAUKEE COUNTY POWER PLANT: Coal for this facility is
purchased by Wisconsin Electric through annual spot purchases.
COAL DELIVERIES: Approximately 80% of Wisconsin Electric's 2001
coal requirements are expected to be delivered by Wisconsin
Electric-owned unit trains. The unit trains will transport coal
for the Oak Creek and Pleasant Prairie Power Plants from
Pennsylvania, New Mexico and Wyoming mines. Coal from
Pennsylvania and Colorado mines is also transported via rail to
Lake Erie or Lake Michigan transfer docks and delivered to the
Valley and Port Washington Power Plants by lake vessels. Coal
from central Appalachia is shipped via rail to Lake Erie transfer
docks and delivered to the Milwaukee County Power Plant by truck
once it arrives by lake vessel in Milwaukee. Montana and Wyoming
coal for Presque Isle Power Plant is transported via rail to
Superior, Wisconsin, placed in dock storage and reloaded into
lake vessels for plant delivery. Central Appalachian and
Colorado coal bound for Presque Isle Power Plant is shipped via
rail to Lake Erie and Lake Michigan (Chicago) coal transfer
docks, respectively, for lake vessel delivery to the plant.
ENVIRONMENTAL MATTERS: For information regarding emission
restrictions, especially as they relate to coal-fired generating
facilities, see "Environmental Compliance" below.
Nuclear Generation
POINT BEACH NUCLEAR PLANT: Wisconsin Electric owns two 510-
megawatt electric generating units at Point Beach Nuclear Plant
in Two Rivers, Wisconsin. The United States Nuclear Regulatory
Commission operating licenses for Point Beach expire in October
2010 for Unit 1 and in March 2013 for Unit 2. For additional
information concerning Point Beach, see "Factors Affecting
Results, Liquidity and Capital Resources" in Item 7 and "Note F -
Nuclear Operations" in Item 8 of this report.
NUCLEAR MANAGEMENT COMPANY: In August 2000, the Nuclear
Management Company, LLC assumed operating responsibility for
Point Beach with the transfer of operating authority under its
operating licenses. During 1999, the Company and the affiliates
of three other unaffiliated investor-owned utilities in the
region formed the Nuclear Management Company, which manages seven
nuclear generating units in the Midwest as of December 31, 2000.
Wisconsin Electric continues to own Point Beach and retains
exclusive rights to the energy generated by the plant as well as
financial responsibility for the safe operation, maintenance and
decommissioning of Point Beach. For further information, see
"Factors Affecting Results, Liquidity and Capital Resources" in
Item 7 of this report.
NUCLEAR FUEL SUPPLY: Wisconsin Electric purchases uranium
concentrates ("Yellowcake") and contracts for its conversion,
enrichment and fabrication. Wisconsin Electric maintains title
to the nuclear fuel until fabricated fuel assemblies are
delivered to Point Beach, whereupon it is sold to and leased back
from the Wisconsin Electric Fuel Trust. For further information
concerning this nuclear fuel lease, see "Note I - Long-Term Debt"
in Item 8 of this report.
URANIUM REQUIREMENTS: Wisconsin Electric requires approximately
400,000 pounds of Yellowcake to refuel a generating unit at Point
Beach. During 1998, Wisconsin Electric initiated staggered,
extended fuel cycles that are expected to average approximately
18 months in duration. The supply of Yellowcake for these
refuelings is currently provided through one long-term contract,
amended in 2000, which supplies 100% of annual requirements under
these staggered, extended fuel cycles through 2007.
CONVERSION: Wisconsin Electric has a long-term contract with a
provider of uranium conversion services to supply 75% of the
conversion requirements for the Point Beach reactors through
2004. Wisconsin Electric has an additional long-term conversion
contract with a second conversion supplier to supply the
remaining 25% of Wisconsin Electric's annual conversion
requirements through 2004.
ENRICHMENT: Wisconsin Electric effectively has one long-term
contract that provides for 100% of the required enrichment
services for the Point Beach reactors through the year 2006.
FABRICATION: Fabrication of fuel assemblies from enriched
uranium for Point Beach is covered under a contract with
Westinghouse Electric Corporation for the balance of the plant's
current operating licenses. During its fall 2000 refueling
outage, the first reload region of a new fuel design from
Westinghouse was loaded into Point Beach Unit 2. The first
reload of the new fuel design in Unit 1 is scheduled for the
spring of 2001. The new fuel design is expected to provide
additional safety margin and cost savings and to reduce the
number of discharged spent fuel assemblies over the remaining
operating license.
USED FUEL STORAGE & DISPOSAL: For information concerning used
fuel storage and disposal issues, see "Factors Affecting Results,
Liquidity and Capital Resources" in Item 7 of this report.
NUCLEAR DECOMMISSIONING: Wisconsin Electric provides for costs
associated with the eventual decommissioning of Point Beach
through the use of an external trust fund. Payments to this
fund, together with investment earnings, brought the balance in
the trust fund at December 31, 2000 to approximately $613 million
compared with an estimated cost to decommission Point Beach of
$586 million in current dollars. For additional information
regarding decommissioning, see "Note F - Nuclear Operations" in
Item 8 of this report.
NUCLEAR PLANT INSURANCE: For information regarding nuclear
plant insurance, see "Note F - Nuclear Operations" in Item 8 of
this report.
Hydroelectric Generation
WISCONSIN ELECTRIC: Wisconsin Electric's hydroelectric
generating system consists of fourteen operating plants with a
total installed capacity of approximately 89 megawatts and a
dependable capability of approximately 65 megawatts. Of these
fourteen plants, thirteen are licensed by the Federal Energy
Regulatory Commission. The fourteenth plant, with an installed
generating capacity of approximately 2 megawatts, does not
require a license. Of the thirteen licensed plants, twelve
plants, representing a total of 85 megawatts of installed
capacity, have long-term licenses from the Federal Energy
Regulatory Commission, and one plant, the Sturgeon project, will
not be relicensed and is intended to be removed. In December of
2000, Wisconsin Electric sold a fifteenth plant, with an
installed generating capacity of approximately 1 megawatt, to an
independent party.
EDISON SAULT: Edison Sault's primary source of generation is
its 30-megawatt hydroelectric generating plant located on the
St. Mary's River in Sault Ste. Marie, Michigan. The water for
this facility is leased under a contract with the United States
Corps of Engineers with tenure to December 31, 2050. However,
the Secretary of the Army has the right to terminate the contract
subsequent to December 2020. Edison Sault pays for all water
taken from the St. Mary's River at predetermined rates with a
minimum annual payment of $0.1 million. The total flow of water
taken out of Lake Superior, which in effect is the flow of water
in the St. Mary's River, is under the direction and control of
the International Joint Commission, created by the Boundary Water
Treaty of 1909 between the United States and Great Britain, now
represented by Canada.
Water elevation levels on Lake Superior have been below normal
levels since May 1998. As a result, the International Joint
Commission has placed limitations on the flow of water from Lake
Superior that limits Edison Sault's amount of hydroelectric
generation. During any limited flow months, it is necessary for
Edison Sault to purchase additional power from other sources or
increase the use of Edison Sault's diesel generation.
Hydroelectric generation is also purchased by Edison Sault under
contract from the United States Corps of Engineers' hydroelectric
generating plant located within the Soo Locks complex on the
St. Mary's River in Sault Ste. Marie, Michigan. This 17-megawatt
contract has a tenure to November 1, 2040 and cannot be
terminated by the United States government prior to November 1,
2030.
During 2000, hydroelectric energy provided 42% of Edison Sault's
total energy requirements of which 23% was generated by Edison
Sault's facility and 19% was purchased from the United States
Corps of Engineers.
Natural Gas-Fired Generation
The Concord and Paris Combustion Turbine Power Plants, Germantown
Unit 5 and the Oak Creek combustion turbine use natural gas as
their primary fuel, with fuel oil as backup. Natural gas is also
used for boiler ignition and flame stabilization purposes at the
Pleasant Prairie and Oak Creek Power Plants. Gas for these
plants is purchased on the spot market from gas marketers and/or
producers and delivered on the local distribution system of
Wisconsin Electric's gas operations.
Wisconsin Electric also has a power purchase agreement with
Mirant (formerly Southern Energy, Inc.) where Wisconsin Electric
delivers fuel to their Neenah Power Plant and receives the
electric power produced, as discussed in "Purchase Power
Commitments" below. This plant uses natural gas as its primary
fuel, with fuel oil as backup. Wisconsin Electric supplies fuel
to Mirant's Neenah Power Plant utilizing the same procedures and
agreements that are used for Wisconsin Electric's facilities.
An interruptible balancing and storage agreement with ANR
Pipeline is intended to facilitate the variable gas usage pattern
of the combustion turbine plants.
Natural gas for the gas-fired boiler at the Milwaukee County
Power Plant and for boiler ignition and flame stabilization at
the Valley Power Plant is purchased under an agency agreement
with a gas marketing company. The agent purchases natural gas
and arranges for interstate pipeline transportation to the local
gas distribution utility. The local gas distribution utility
then transports Wisconsin Electric's gas to each plant under
interruptible tariffs.
Wisconsin Electric is the gas distribution utility for Concord,
Paris, Pleasant Prairie and Oak Creek Power Plants. Wisconsin
Gas is the gas distribution utility for the Valley and Milwaukee
County Power Plants. Both the Germantown Power Plant and
Mirant's Neenah Power Plant are directly connected to ANR
Pipeline, with no gas distribution utility involvement.
Firm gas transportation has been contracted for during the peak
summer period between the Joliet gas trading hub south of
Chicago, Illinois and Wisconsin Electric's power plant
interconnects. A portion of Wisconsin Electric's gas
requirements will be purchased at the Joliet hub.
Oil-Fired Generation
Fuel oil is used for the combustion turbines at the Point Beach,
Germantown and Port Washington Power Plants. It is also used for
boiler ignition and flame stabilization at the Presque Isle Power
Plant, as backup for ignition at the Pleasant Prairie Power Plant
and as a backup fuel for the natural gas-fired gas turbines
discussed above. Fuel oil requirements are purchased under
partnering agreements with suppliers that assist Wisconsin
Electric with inventory tracking and oil market price trends.
Subject to various regulatory approvals, the four original
generating units at the Germantown Power Plant will be converted,
one unit per year from 2001 to 2004, to dual fuel (natural gas
and oil). A fifth dual fuel combustion turbine began commercial
operation at Germantown Power Plant in 2000.
Purchase Power Commitments
WISCONSIN ELECTRIC: To meet a portion of its anticipated
increase in future electric energy supply needs, Wisconsin
Electric had entered into separate long-term power purchase
contracts with subsidiaries of Cogentrix, Inc. and Southern
Energy, Inc., now Mirant. In addition, in December 2000,
Wisconsin Electric executed a power purchase agreement with a
subsidiary of the Calpine Corporation for new capacity beginning
in 2002.
The contract with LSP-Whitewater, LP, a subsidiary of Cogentrix,
Inc., for 236 megawatts of firm capacity from a gas-fired
cogeneration facility located in Whitewater, Wisconsin, does not
include any minimum energy requirements. Wisconsin Electric
treats this power purchase contract as a capital lease. For
additional information, see "Note I - Long-Term Debt" in Item 8
of this report.
Mirant's Neenah Power Plant began commercial operations in May
2000. The Neenah plant is a 300-megawatt gas turbine peaking
facility in the town of Neenah, Wisconsin. The purchase power
agreement is similar in structure to arrangements commonly
referred to in the electric industry as a "tolling arrangement."
That is, Wisconsin Electric delivers fuel to the facility and
receives electric power. Wisconsin Electric pays Mirant a "toll"
to convert Wisconsin Electric's fuel into the electric energy.
The output of the facility will be available for Wisconsin
Electric to dispatch during the eight-year term of the agreement
which ends in May 2006.
Wisconsin Electric's agreement with the Calpine Corporation calls
for new generating capacity to be constructed by a Calpine
subsidiary, with electric generating units in both northern
Illinois and in central Wisconsin, to supply power to Wisconsin
Electric. Two 150-megawatt natural gas-fired turbine peaking
units will be constructed, one each in 2002 and 2003, and one
225-megawatt natural gas-fired combined cycle facility is to be
constructed in 2004. The agreement remains contingent for both
parties upon certain site related issues that are anticipated to
be resolved in 2001. This power purchase agreement also is a
tolling agreement. The output of each unit will be committed to
Wisconsin Electric for ten years from its start of commercial
operation.
Wisconsin Electric currently expects to utilize a combination of
new generating capacity identified in its "Power the Future"
proposal and purchase power commitments similar to the agreements
with Mirant and Calpine to meet its electric demand load growth.
In the normal course of business, Wisconsin Electric utilizes
contracts of various duration for the forward purchase of
electricity to meet load requirements in an economic manner and
when the anticipated market price for electric energy is below
Wisconsin Electric's expected incremental cost of generation.
Contracts of this nature are one of the power supply resources
Wisconsin Electric uses to meet its reliability requirements.
EDISON SAULT: Edison Sault purchased 667.6 thousand megawatt
hours or 77% of its energy supply during 2000 to meet its energy
requirements, including 175.6 thousand megawatt hours from
Wisconsin Electric.
Effective January 1, 2001, Edison Sault began purchasing
additional capacity and energy from Wisconsin Electric under the
terms of a joint operating agreement. Under the agreement,
Edison Sault and Wisconsin Electric each retain the rights to any
generation and purchased power contracts that were in place on
July 1, 2000. Any additional capacity and energy needs of the
two companies would be obtained on a joint basis and the costs
shared. Purchases by Edison Sault under the joint operating
agreement are expected to replace some of the capacity and energy
previously purchased from an unaffiliated utility.
Electric Transmission
AMERICAN TRANSMISSION COMPANY: Effective January 1, 2001, the
Company transferred all of the electric utility transmission
assets of Wisconsin Electric and Edison Sault to the American
Transmission Company LLC in exchange for equity interests in this
new company. Joining the American Transmission Company is
consistent with the Federal Energy Regulatory Commission's Order
No. 2000, designed to foster competition, efficiency and
reliability in the electric industry.
The American Transmission Company is owned and governed by the
utilities that contributed facilities or capital in accordance
with 1999 Wisconsin Act 9. Governance of the company also
includes outside directors not associated with the energy
business. Stock of the corporate manager of the American
Transmission Company eventually may be offered for public
ownership.
The American Transmission Company's sole business is to provide
reliable, economic transmission service to all customers in a
fair and equitable manner. Specifically, the American
Transmission Company plans, constructs, operates, maintains and
expands transmission facilities it owns to provide for adequate
and reliable transmission of electric power. It is expected to
provide comparable service to all customers, including Wisconsin
Electric and Edison Sault, and to support effective competition
in energy markets without favoring any market participant. The
American Transmission Company is regulated by the Federal Energy
Regulatory Commission for all rate terms and conditions of
service and is a transmission-owning member of the Midwest ISO.
Wisconsin Electric has contracted to provide, at cost, services
required by the American Transmission Company and which the
American Transmission Company is not able to provide itself at
the time of start-up. Services include transmission line and
substation operation and maintenance, engineering, project, real
estate, environmental, supply chain, control center, accounting
and miscellaneous services. The annual cost of the services is
estimated to be about $67 million in the first year of operation
declining to less than $3 million after three years.
For further information, see "Factors Affecting Results,
Liquidity and Capital Resources" in Item 7 of this report.
Renewable Electric Energy
A renewable portfolio standard that will require retail energy
providers in the state of Wisconsin, like Wisconsin Electric, to
obtain an increasing percentage of their energy supply from
renewable resources is also included under the provisions of 1999
Wisconsin Act 9. Beginning in 2001, retail energy providers must
provide 0.5% of their Wisconsin retail electric sales from
renewable energy, with the percentage increasing to 2.2% by the
year 2011. The Company's "Power the Future" proposal includes a
commitment to significantly increase the amount of renewable
generation utilized by the Company beyond that required by
Wisconsin law.
In May 1999, the PSCW approved Wisconsin Electric's request to
expand its "energy for tomorrowT" renewable energy program to
allow participation of virtually all of its firm load customers
in Wisconsin. In November 1999, the Michigan Public Service
Commission approved Wisconsin Electric's request to offer the
"energy for tomorrowT" renewable energy program to all of its
firm load customers in the state of Michigan. The program
currently has over 11,000 participants.
GAS UTILITY OPERATIONS
The Company's gas utility operations consist of Wisconsin Gas
Company, which was acquired as part of the WICOR merger in April
2000, as well as the gas operations of Wisconsin Electric. Both
companies are authorized to provide retail gas distribution
service in designated territories in the state of Wisconsin, as
established by indeterminate permits, certificates of public
convenience and necessity, or boundary agreements with other
utilities. The two companies also transport customer-owned gas.
Wisconsin Gas, the largest natural gas distribution utility in
Wisconsin, operates throughout the state in a territory of
approximately 12,400 square miles with an estimated population of
approximately 2,000,000. Wisconsin Electric's gas utility
operates in four distinct service areas of about 3,800 square
miles in Wisconsin: west and south of the city of Milwaukee, the
Appleton area, the Prairie du Chien area and areas within Iron
and Vilas Counties with an estimated population of approximately
1,200,000.
COMBINATION OF GAS UTILITY OPERATIONS: On November 1, 2000,
Wisconsin Electric and Wisconsin Gas filed a joint application
with the PSCW for authority to transfer the physical gas utility
assets of Wisconsin Electric together with certain liabilities
associated with such assets, with a net book value of
approximately $365 million as of December 31, 2000, to Wisconsin
Gas in return for stock in Wisconsin Gas in a tax free
transaction. Wisconsin Energy expects that the combined gas
operation will result in improved customer service and greater
synergies as a result of the WICOR acquisition. The combined gas
operations would retain the name Wisconsin Gas Company and become
the 9th largest gas distribution company in the United States as
measured by delivery volumes. Assuming that the PSCW approves
the transaction described above, Wisconsin Electric and Wisconsin
Gas expect to make a second filing in 2001 seeking authorization
to combine tariffs and rates.
Gas Deliveries
The Company's gas utility business is highly seasonal,
particularly as to residential and commercial sales for space
heating purposes, with a substantial portion of its gas
deliveries occurring during the winter heating months. Sales of
gas are also impacted by varying weather conditions from year-to-
year.
See "Consolidated Selected Utility Operating Data" in Item 6 of
this report for selected gas utility operating information by
customer class during the period 1996 through 2000. See "Results
of Operations" in Item 7 of this report for selected pro forma
gas utility operating information by customer class prepared as
if Wisconsin Gas had been a part of Wisconsin Energy since
January 1, 1998.
WISCONSIN GAS: Following its acquisition by the Company at the
end of April 2000, Wisconsin Gas delivered approximately
676.6 million therms to customers during 2000, 44% of which was
customer-owned transported gas. Because of the timing of the
acquisition, Wisconsin Gas was not a part of Wisconsin Energy
during the winter of 1999-2000 heating months, limiting Wisconsin
Gas's contribution to the Company's total gas deliveries during
2000. During the entire twelve months of 2000, Wisconsin Gas
delivered a total of approximately 1,253.3 million therms,
including customer-owned transported gas, a 2.7% increase
compared with 1999. At December 31, 2000, Wisconsin Gas was
transporting gas for approximately 4,600 customers who choose to
purchase gas directly from other suppliers. Transported gas
accounted for approximately 40% of total therms delivered by
Wisconsin Gas during all of 2000 compared with 41% during 1999
and 40% during 1998. Wisconsin Gas had approximately 544,400
customers at December 31, 2000, an increase of approximately 1.2%
since December 31, 1999.
Wisconsin Gas's maximum daily send-out during 2000 was
811,635 dekatherms on January 20, 2000. A dekatherm is
equivalent to ten therms or one million British thermal units.
WISCONSIN ELECTRIC: Total gas therms delivered by Wisconsin
Electric, including customer-owned transported gas, were
approximately 944.9 million therms during 2000, a 0.1% increase
compared with 1999. At December 31, 2000, Wisconsin Electric was
transporting gas for approximately 445 customers who choose to
purchase gas directly from other suppliers. Transported gas
accounted for approximately 41% of total therms delivered by
Wisconsin Electric during 2000, 43% during 1999 and 46% during
1998. Wisconsin Electric had approximately 407,800 gas customers
at December 31, 2000, an increase of approximately 2.2% since
December 31, 1999.
Wisconsin Electric's maximum daily send-out during 2000 was
706,810 dekatherms on December 5, 2000.
SALES TO LARGE GAS CUSTOMERS: The Company provides gas utility
service to a diversified base of industrial customers who are
largely within its electric service territory. Major industries
served include the paper, food products and fabricated metal
products industries. The electric utility operations of
Wisconsin Electric is the Company's largest single gas customer.
Competition
Competition in varying degrees exists between natural gas and
other forms of energy available to consumers. Many of the
Company's large commercial and industrial customers are dual-fuel
customers that are equipped to switch between natural gas and
alternate fuels. The Company offers lower-priced interruptible
rates and transportation services for these customers to enable
them to reduce their energy costs and use gas rather than other
fuels. Under gas transportation agreements, customers purchase
gas directly from gas marketers and arrange with interstate
pipelines and the Company to have the gas transported to the
facilities where it is used. The Company earns substantially the
same margin (difference between revenue and cost of gas), whether
it sells and transports gas to customers or only transports their
gas.
The Company's future ability to maintain its present share of the
industrial dual-fuel market (the market that is equipped to use
gas or other fuels) depends on the success of the Company and
third-party gas marketers in obtaining long-term and short-term
supplies of natural gas at marketable prices and their success in
arranging or facilitating competitively-priced transportation
service for those customers that desire to buy their own gas
supplies.
Federal and state regulators continue to implement policies to
bring more competition to the gas industry. For information
concerning proceedings by the PSCW to consider how its regulation
of gas distribution utilities should change to reflect the
changing competitive environment in the gas industry, see
"Factors Affecting Results, Liquidity and Capital Resources" in
Item 7 of this report. While the gas utility distribution
function is expected to remain a heavily regulated, monopoly
function, the sales of the natural gas commodity and related
services are expected to become increasingly subject to
competition from third parties. However, it remains uncertain if
and when the current economic disincentives for small customers
to choose an alternative gas commodity supplier may be removed
such that the Company begins to face competition for the sale of
gas to its smaller firm customers.
Gas Supply, Pipeline Capacity and Storage
Both Wisconsin Gas and the gas operations of Wisconsin Electric
have been able to meet their contractual obligations with both
their suppliers and their customers despite periods of severe
cold and unseasonably warm weather.
PIPELINE CAPACITY AND STORAGE: Interstate pipelines serving
Wisconsin originate in three major gas producing areas of North
America: the Oklahoma and Texas basins, the Gulf of Mexico and
western Canada. The Company has contracted for long-term firm
capacity from each of these areas. This strategy reflects
management's belief that overall supply security is enhanced by
geographic diversification of the supply portfolios and that
Canada represents an important long-term source of reliable,
competitively-priced gas.
Because of the daily and seasonal variations in gas usage in
Wisconsin, the companies have also contracted for substantial
underground storage capacity, primarily in Michigan. Storage
enables the companies to manage significant changes in daily
demand and to optimize their overall gas supply and capacity
costs. In summer, gas in excess of market demand is transported
into the storage fields, and in winter, gas is withdrawn from
storage and combined with gas purchased in or near the production
areas ("flowing gas") to meet the increased winter market demand.
As a result, the companies can contract for less long-line
pipeline capacity than would otherwise be necessary, and can
purchase gas on a more uniform daily basis from suppliers year-
round. Each of these capabilities enables the companies to
reduce their overall costs.
The companies also maintain high deliverability storage in the
mid-continent and Southeast production areas, as well as in its
market area. This storage capacity is designed to deliver gas
when other supplies cannot be delivered during extremely cold
weather in the producing areas, which can reduce long-line
supply.
The companies hold firm daily transportation and storage capacity
entitlements from pipelines and other service providers under
long-term contracts.
TERM GAS SUPPLY: Wisconsin Gas and the gas operations of
Wisconsin Electric have contracts for firm supplies with terms in
excess of 30 days with more than 20 gas suppliers for gas
produced in each of the three producing areas discussed above.
The term contracts have varying durations so that only a portion
of the companies' respective firm gas supply expires in any year.
Management of each of the companies believes that the volume of
gas under contract is sufficient to meet its forecasted firm peak
day demand.
SECONDARY MARKET TRANSACTIONS: Capacity release is a mechanism
by which pipeline long-line and storage capacity and gas supplies
under contract can be resold in the secondary market. Local
distribution companies, such as Wisconsin Gas and the gas
operations of Wisconsin Electric, must contract for capacity and
supply sufficient to meet the firm peak day demand of their
customers. Peak or near peak demand days generally occur only a
few times each year. Capacity release facilitates higher
utilization of contracted capacity and supply during those times
when the full contracted capacity and supply are not needed by
the utility, helping to mitigate the fixed costs associated with
maintaining peak levels of capacity and gas supply. Through pre-
arranged agreements and day-to-day electronic bulletin board
postings, interested parties can purchase this excess capacity
and supply. The proceeds from these transactions are passed
through to ratepayers, subject to the Wisconsin Electric and
Wisconsin Gas incentive gas cost mechanisms pursuant to which the
companies have an opportunity to share in the cost savings. See
"Factors Affecting Results, Liquidity and Capital Resources -
Rates and Regulatory Matters" in Item 7 of this report for
information on the incentive gas cost recovery mechanism. During
2000, the companies continued their active participation in the
capacity release market.
SPOT MARKET GAS SUPPLY: Wisconsin Gas and the gas operations of
Wisconsin Electric expect to continue to make gas purchases in
the 30-day spot market as price and other circumstances dictate.
The Company has supply relationships with a number of sellers
from whom it purchases spot gas.
GUARDIAN PIPELINE: In March 1999, WICOR announced the formation
of a joint venture, Guardian Pipeline, L.L.C., to construct the
Guardian interstate natural gas pipeline from the Joliet,
Illinois market hub to southeastern Wisconsin ("Guardian
Pipeline"). CMS Energy, a Dearborn, Michigan-based international
energy company, and a subsidiary of Xcel Energy, a Minneapolis-
based diversified energy company, are cosponsors of the project
with WICOR. The three partners will have equal ownership
interests in the project. On March 14, 2001, the Federal Energy
Regulatory Commission issued a certificate of public convenience
and necessity authorizing construction and operation of the
Guardian Pipeline.
The Guardian Pipeline will consist of 141 miles of 36-inch pipe
and related compression equipment as well as an additional
8.5 mile, 16-inch lateral and will be designed to carry about
750,000 dekatherms per day of gas. The total cost of the project
is approximately $238 million. The joint venture intends to
finance this project using $70 million of capital contributions
from the three co-owners and issuing long-term debt for the
balance of the construction costs. Currently, Guardian Pipeline
has firm precedent agreements to transport 88% of its design
capacity. The pipeline is scheduled to be in service in November
2002.
Wisconsin Gas has committed to purchase 650,000 dekatherms per
day of capacity on the pipeline and will construct a 35-mile
lateral at a cost of approximately $62 million to connect its
distribution system to the Guardian Pipeline. In November 1999,
Wisconsin Gas filed an application with the PSCW to construct and
operate the lateral. In October 2000, the PSCW affirmed the need
for the Wisconsin Gas lateral in a preliminary determination.
The preliminary determination covers all non-environmental
aspects of Wisconsin Gas's application, including need and
economic justification. Wisconsin Gas anticipates final approval
by the PSCW in the summer of 2001. Pending receipt of all
regulatory approvals, lateral construction is expected to begin
in the spring of 2002 with commercial operation beginning in the
fall of the same year. Wisconsin Gas expects to fund the lateral
project using long-term debt financing.
The Guardian Pipeline is expected to serve growing demand for
natural gas in Wisconsin and Northern Illinois.
OTHER UTILITY OPERATIONS
STEAM UTILITY OPERATIONS: Wisconsin Electric's steam utility
generates, distributes and sells steam supplied by its Valley and
Milwaukee County Power Plants. Wisconsin Electric operates a
district steam system in downtown Milwaukee and the near south
side of Milwaukee. Steam is supplied to this system from
Wisconsin Electric's Valley Power Plant, a coal-fired
cogeneration facility. Wisconsin Electric also operates the
steam production and distribution facilities of the Milwaukee
County Power Plant located on the Milwaukee County Grounds in
Wauwatosa, Wisconsin.
Annual sales of steam fluctuate from year to year based upon
system growth and variations in weather conditions. During 2000,
the steam utility had $21.9 million of operating revenues from
the sale of 3,085 million pounds of steam compared with
$21.3 million of operating revenues from the sale of
2,914 million pounds of steam during 1999. As of December 31,
2000, steam was used by 451 customers for processing, space
heating, domestic hot water and humidification compared with 450
customers at December 31, 1999.
WATER UTILITY OPERATIONS: To leverage off of operational
similarities with its natural gas business, Wisconsin Gas entered
the water utility business in November 1998. As of December 31,
2000, the water utility served about 1,840 water customers in the
suburban Milwaukee area compared with approximately 1,430
customers at December 31, 1999. The Company also provides
contract services to local municipalities and businesses within
its service territory for water system repair and maintenance.
During all of 2000, the water utility had $0.9 million of
operating revenues compared with $0.3 million of operating
revenues during 1999.
UTILITY RATE MATTERS
See "Factors Affecting Results, Liquidity and Capital Resources -
Rates and Regulatory Matters" in Item 7 of this report.
NON-UTILITY ENERGY SEGMENT
The non-utility energy segment is involved in a variety of
businesses including: development, ownership and operation of
independent electric generating facilities; natural gas
purchasing and marketing; energy and price risk management;
investment in other energy-related entities; meter reading and
technology services for gas, electric and water utilities; and
tree-trimming services to electric utilities.
During 2000, the Company performed a comprehensive review of its
existing portfolio of businesses and began implementing a
strategy of divesting many of its current non-utility energy
segment businesses. The Company expects to significantly reduce
the size of current non-utility energy segment operations during
2001. As noted in further detail below, Wisconsin Energy entered
into an agreement in December 2000 to sell its two existing non-
utility power plants, located in the state of Connecticut. The
sale of these two plants, which were originally acquired in April
1999, is expected to close in the second quarter of 2001.
Also during 2000, Wisconsin Energy announced that it planned to
create a separate non-utility energy subsidiary that would
construct and own 2,800 megawatts of new natural gas-fired and
coal-fired generating capacity in the state of Wisconsin which
would then be leased back to and operated by Wisconsin Electric.
For further information about Wisconsin Energy's "Power the
Future" strategy, see "Utility Energy Segment" above as
well as "Factors Affecting Results, Liquidity and Capital
Resources" in Item 7 of this report. Implementation of the
"Power the Future" strategy is subject to a number of
state and federal regulatory approvals as well as the amendment
of several state laws in Wisconsin.
Wisvest Corporation
The mission of Wisvest Corporation ("Wisvest") has been to
develop, own and operate electric generating facilities and to
invest in other energy-related entities. During the twelve
months ended December 31, 2000, Wisvest had $253.3 million of
consolidated operating revenues compared with $193.2 million of
consolidated operating revenues during 1999. During 2001, the
Company expects to divest of certain of Wisvest's assets. As of
December 31, 2000, Wisvest operations and investments included:
WISVEST-CONNECTICUT, LLC: Wisvest-Connecticut, LLC, a wholly-
owned subsidiary of Wisvest, owns and operates two fossil-fueled
power plants in the state of Connecticut. The plants include the
Bridgeport Harbor Station, which has an active generating
capacity of 590 megawatts, and the New Haven Harbor Station,
which has an active generating capacity of 466 megawatts. These
plants were originally acquired in April 1999. Wisconsin Energy
expects to close on the sale of its two Connecticut power plants
in the second quarter of 2001. For additional information
concerning the pending sale of these plants, see "Note C - Asset
Sales and Divestitures" in the Notes to Financial Statements in
Item 8 of this report.
GRIFFIN ENERGY MARKETING: Griffin Energy Marketing, L.L.C., a
division of Wisvest, markets energy-related services and trades
electricity.
CHILLED WATER PRODUCTION AND DISTRIBUTION FACILITIES: The
chilled water production and distribution facilities that are
part of the Milwaukee County Power Plant which provides services
to customers on the Milwaukee County Grounds in Wauwatosa,
Wisconsin.
CALUMET ENERGY TEAM, LLC: In November 1999, Calumet Energy
Team, LLC signed two agreements with the City of Chicago,
Illinois to support the construction of a 308-megawatt natural
gas-fired peaking power plant and to enter into a ten-year
capacity reservation agreement for 50 megawatts of plant
capacity. Wisvest has a 90% ownership interest in Calumet Energy
Team, LLC, the developer and intended operator of the project.
Construction is currently in progress. The facility is
anticipated to have a total project cost of approximately
$150 million with startup anticipated in the summer of 2001. The
project is being financed through utilization of Wisconsin Energy
corporate facilities.
OTHER: The Company has minority interests in other energy-
related entities such as a cogeneration facility in the state of
Maine, the Androscoggin Cogeneration Center, and Kaztex Energy
Management, Inc., a strategic energy management services company
with a focus on natural gas management. Kaztex is the oldest
energy marketer in the state of Wisconsin.
Other Non-Utility Energy Operations
WICOR ENERGY SERVICES COMPANY: WICOR Energy, which was acquired
as part of the WICOR merger in April 2000, engages in natural gas
purchasing and marketing as well as in energy and price risk
management. WICOR Energy sells gas on a for-profit basis and
supplies gas to many large interruptible customers that formerly
purchased gas from the Company. WICOR Energy is positioning
itself to supply smaller firm customers if and when regulation
changes to permit customer choice. During the twelve months
ended December 31, 2000, WICOR Energy had $134.0 million of
operating revenues compared with $48.6 million of operating
revenues during 1999. In February 2001, the Company announced
that it expects to merge WICOR Energy into Kaztex Energy
Management, Inc. in April 2001.
FIELDTECH, INC.: FieldTech, which was acquired as part of the
WICOR merger in April 2000, provides meter reading and technology
services for gas, electric and water utilities. FieldTech is
positioning itself to provide services to customers if and when
regulation changes to open those services to competition. During
the twelve months ended December 31, 2000, FieldTech had
$14.8 million of operating revenues compared with $11.9 million
of operating revenues during 1999.
NORTHERN TREE SERVICE, INC.: Northern Tree Service, Inc. is
engaged in tree trimming in the state of Michigan's eastern Upper
Peninsula. During the twelve months ended December 31, 2000,
Northern Tree had $0.5 million of revenues compared with
$0.6 million of revenues during 1999.
MANUFACTURING SEGMENT
Wisconsin Energy acquired its manufacturing segment as part of
the WICOR merger in April 2000. Prior to April 2000, Wisconsin
Energy did not have any manufacturing operations. The
manufacturing segment consists of WICOR Industries, Inc., an
intermediary holding company, and its three primary subsidiaries:
Sta-Rite, SHURflo and Hypro. During the twelve months ended
December 31, 2000, WICOR Industries, Inc. had $563.7 million of
consolidated operating revenues compared with $511.0 million of
consolidated operating revenues during 1999.
STA-RITE INDUSTRIES, INC.: Sta-Rite is incorporated under the
laws of the state of Wisconsin and maintains its principal office
and place of business in Delavan, Wisconsin. Sta-Rite is a
manufacturer and marketer of pumps, tanks, water treatment
products and fluid handling equipment for the water systems,
agricultural, pool/spa and water treatment markets world wide.
Sta-Rite's products are manufactured at 16 locations with
facilities in the United States, Australia, China, Germany,
India, Italy, Mexico and New Zealand and are sold through a world
wide network of distributors, retailers and original equipment
manufacturers.
SHURFLO PUMP MANUFACTURING CO.: SHURflo is incorporated under
the laws of California and maintains its principal office and
place of business in Santa Ana, California. SHURflo manufactures
high performance pumps and fluid handling equipment for the
beverage/food service, recreational vehicle, marine, industrial,
and water treatment markets. Its products are manufactured in
California and England. They are sold and distributed globally
through original equipment manufacturers and a network of
distributors.
HYPRO CORPORATION: Hypro is incorporated under the laws of the
state of Minnesota and maintains its principal office and place
of business in New Brighton, Minnesota. Hypro manufactures
pumps, accessories and pumping systems for agricultural, marine,
industrial and firefighting markets. Hypro's products are
manufactured in Minnesota, Oregon and England and are sold to
original equipment manufacturers, distributors and agricultural
retailers.
U.S. Operations
Water products include jet, centrifugal, sump, submersible and
submersible turbine water pumps, water storage and pressure
tanks, water filters, pool and spa filters, pool heaters and pump
and tank systems. These products pump, filter and store water
used for drinking, cooking, washing and livestock watering, and
are used in private and public swimming pools, spas, hot tubs,
jetted bathtubs, and fountains. The manufacturing businesses
also produce large higher capacity water pumps used in
agricultural and turf irrigation systems and in a wide variety of
commercial, industrial and municipal fluids-handling
applications.
High performance pumps, related fluids-handling products,
accessories and pumping systems have applications in a variety of
markets, including: (1) the food service industry, where gas-
operated pumps are used for pumping soft drinks made from syrups,
and electric motor driven pumps are used for water boost and
drink dispensing; (2) the recreational vehicle and marine
markets, where electric motor driven pumps are used for multiple
applications including pumping potable water in travel trailers,
motor homes, camping trailers and boats, and for other purposes
including marine engine cooling, marine washdown, bilge and
livewell pumping; (3) agricultural markets, for spraying
fertilizers and pesticides on crops; (4) industrial markets,
where applications include carpet cleaning machines for soil
extraction, firefighting and pressure cleaning applications and
general industrial uses requiring fluid handling; and (5) the
water purification industry, where electric motor driven pumps
are used to pressure reverse osmosis systems for water transfer.
Sales of pumps and water processing equipment are somewhat
related to the season of the year as well as the level of
activity in the housing construction industry and are sensitive
to weather, interest rates, discretionary income, and leisure and
recreation spending. The markets for most water and industrial
products are highly competitive, with price, service and product
performance all being important competitive factors. The Company
believes it is a leading producer of pumps for private water
systems and swimming pools and spas, and for the food service,
recreational vehicle, agricultural spraying, marine engine
cooling, and foam proportioning systems for the firefighting
markets. Management believes the Company also ranks among the
larger producers of pool and spa filters and submersible turbine
pumps. Trademarked brand names include "AquaTools," "Berkeley,"
"Edwards," "Fiberdyne," "Flotec," "FoamPro," "Hydro-Flow,"
"Hypro," "Lurmark," "Nocchi," "Omnifilter," "Onga," "Park,"
"Rivaflo," "Sherwood," "SHURflo," "Simer," "Sta-Rite" and "Tate-
Western."
Domestic pumps and water products are sold and serviced primarily
through a network of independent distributors, dealers, retailers
and manufacturers' representatives serving the well drilling,
hardware, plumbing, water treatment, pump installing, irrigation,
pool and spa, food service, recreational vehicle, marine,
industrial, commercial and do-it-yourself markets. Sales are also
made on a private label basis to large customers in various water
products markets and to original equipment manufacturers.
Backlog of orders for pumps and water products is not a
significant indicator of future sales.
International Operations
International operations are conducted primarily by international
subsidiaries and export operations from the United States.
Products are sold to markets in approximately 100 countries on
five continents. Foreign manufacturing is carried out by
Australian, Chinese, English, German, Indian, Italian, Mexican
and New Zealand operations. The products sold in international
markets in some cases are similar to those sold in the United
States, but in many instances have distinct features required for
those markets. Product distribution channels are similar to
those for domestic markets. During the twelve months ended
December 31, 2000, non-domestic operating revenues, including
exports, were 24% of 2000 manufacturing segment sales compared
with 27% during 1999.
Raw Materials and Patents
Raw materials essential to the manufacturing operations are
available from various established sources in the United States
and overseas. The principal raw materials needed for production
of the Company's primary lines of products include: cast iron,
aluminum and bronze castings for pumps; copper wire, steel and
aluminum for motors; stainless and carbon sheet steel, bar steel
and tubing; plastic resins for injection molded components; and
powdered metal components. The manufacturing units also purchase
from third-party suppliers completely assembled electric motors,
plastic molded parts, elastomers for valves and diaphragms,
components for electric motors, stamped and die-cast metal parts,
and hardware and electrical components. Although the
manufacturing subsidiaries own a number of patents and hold
licenses for manufacturing rights under other patents, no one
patent or group of patents is material to the success of the
manufacturing businesses as a whole.
OTHER NON-UTILITY OPERATIONS
Minergy Corp.
Minergy Corp. is engaged in the development and marketing of
proprietary technologies designed to convert high volume
industrial and municipal wastes into value-added products,
including renewable energy. During the twelve months ended
December 31, 2000, Minergy had $17.3 million of consolidated
operating revenues compared with $9.7 million of consolidated
operating revenues during 1999. Current Minergy operations and
investments include:
MINERGY NEENAH, LLC: In 1998, Minergy Neenah, LLC opened a
facility in Neenah, Wisconsin that recycles paper sludge from
area paper mills using the Company's patented Glass Aggregate
technology into three usable and salable products: Glass
Aggregate, steam and electricity. The plant also provides
substantial environmental and economic benefits to the area by
providing an alternative to landfilling paper sludge.
The Neenah facility has demonstrated the feasibility of the
technology and provided important data for the development of
future Minergy technologies. During 2000, Wisconsin Energy
engaged an outside consultant to evaluate the Neenah facility and
the long-term benefits of the Minergy technologies. The results
of the consultant's evaluation confirmed that the Minergy
technologies are viable, innovative and needed in the market. As
a result of this study, the Company intends to continue to pursue
development of the Minergy businesses.
GLASSPACK, LLC: Minergy has designed, permitted and constructed
the GlassPack demonstration facility in Winneconne, Wisconsin.
This facility is a scaled-down modular version of the Glass
Aggregate technology and is ideally suited for smaller wastewater
treatment plants. Minergy has successfully tested numerous
municipal and paper wastewater sludge at this plant. Minergy is
currently pursuing development of GlassPack installations with
several municipalities in the United States.
MINERGY DETROIT, LLC: In September 1999, the City Council of
Detroit, Michigan, awarded a 15-year contract to Minergy
Detroit, LLC, a wholly owned subsidiary of Minergy Corp., to
recycle 500 to 600 dry tons per day of the city's wastewater
solids into a Glass Aggregate product. The 15-year contract is
contingent upon obtaining proper performance bonding and
financing as well as upon reaching agreement with the City of
Detroit on the results of a series of post-startup tests.
Subject to the satisfactory resolution of the contingent items,
Minergy Detroit, LLC expects to begin construction of a proposed
$150 million recycling facility project in the Delray area of
Detroit in the fourth quarter of 2001 with startup anticipated in
2004.
Wispark LLC
Wispark LLC, formerly Wispark Corporation, develops and invests
in real estate. During the twelve months ended December 31,
2000, Wispark had $35.5 million of consolidated operating
revenues compared with $19.5 million of consolidated operating
revenues during 1999.
Wispark has developed several well known business parks primarily
in southeastern Wisconsin, and to a lesser extent in the
metropolitan Chicago and Minneapolis/St. Paul markets. Wispark's
flagship development, the 1600-acre LakeView Corporate Park
located near Kenosha, Wisconsin is home to more than 65 companies
located in more than 7 million square feet of buildings that have
been developed on property in excess of 750 acres. Many out-of-
state firms have located in this park, creating a significant
number of new jobs and increased demand for electricity and
natural gas.
In May 2000, Wisconsin Energy announced that Wispark would
substantially reduce its existing real estate portfolio and
concentrate its efforts in southeastern Wisconsin. During 2000,
two significant transactions with Interstate Partners, LLC and
CenterPoint Properties were completed selling over $107 million
of assets to those entities. Additional dispositions are
anticipated in 2001. Wispark has also forged a joint venture
with CenterPoint Properties to develop industrial buildings on
the remaining land in the three business parks in which Wispark
will continue to have considerable land holdings for the near
future: LakeView Corporate Park; GrandView Business Park (Racine
County, WI); and NorthWest Corporate Park (Elgin, IL).
During 2001, Wispark plans to revise its mission to place
emphasis upon smaller projects and those located within the
existing developed urban areas of the larger cities in
southeastern Wisconsin.
Other Non-Utility Subsidiaries
Other non-utility subsidiaries primarily include:
WISCONSIN ENERGY CAPITAL CORPORATION: Wisconsin Energy Capital
Corporation engages in investing and financing activities.
Activities include advances to affiliated companies, and
investments in financial instruments and in partnerships
developing low- and moderate-income housing projects. Other
investments may be made from time to time.
WEC NUCLEAR CORPORATION: WEC Nuclear Corporation has a 20%
ownership interest in Nuclear Management Company, LLC. Formed
during the first quarter of 1999, Nuclear Management Company, LLC
provides services to Wisconsin Electric in connection with Point
Beach Nuclear Plant as well as to other unaffiliated companies
with nuclear generating facilities. For additional information
about the Nuclear Management Company, see "Factors Affecting
Results, Liquidity and Capital Resources" in Item 7 of this
report.
WITECH CORPORATION: Witech Corporation is a venture capital
company operating in the state of Wisconsin. At December 31,
2000, Witech had investments in nine companies and one fund
totaling more than $51 million. Among others, the companies
include: a provider of partner relationship management and
business to business e-Commerce solutions for manufacturers in
selected industries with shared service networks and distribution
channels, and a manufacturer of electronic components. Wisconsin
Energy continues to evaluate the Witech portfolio in connection
with its announced strategy to focus on core investments.
WEC INTERNATIONAL INC.: WEC International, Inc. currently has
one investment in a joint venture in the Netherlands involving
waste treatment and by-product utilization activities. This
investment is insignificant to Wisconsin Energy. The joint
venture filed for bankruptcy in January of 2001.
BADGER SERVICE COMPANY: Badger Service Company holds coal
rights in Indiana. Estimates indicate that 40 million tons of
coal could be recovered from this property with conventional
mining techniques. However, there are no current plans to
develop the property. Badger Service Company may sell or develop
these rights in the future as conditions warrant.
REGULATION
Wisconsin Energy Corporation
Wisconsin Energy is an exempt holding company by order of the
United States Securities and Exchange Commission under
Section 3(a)(1) of the Public Utility Holding Company Act of 1935
and, accordingly, is exempt from the law's provisions other than
with respect to certain acquisitions of securities of a public
utility.
NON-UTILITY ASSET CAP: In October 1999, the Wisconsin State
Legislature passed amendments to the non-utility asset cap
provisions of Wisconsin's public utility holding company law as
part of the 1999-2001 biennial state budget, 1999 Wisconsin
Act 9. As a result, Wisconsin Energy remains subject to certain
restrictions which have the potential of limiting diversification
into non-utility activities. Under the amended public utility
holding company law, the sum of certain assets of all non-utility
affiliates in a holding company system may not exceed 25% of the
assets of all public utility affiliates. However, among other
items, the amended law exempts energy-related assets and assets
used for providing environmental engineering services and for
processing waste materials from being counted against the asset
cap provided that they are employed in qualifying businesses. In
addition, the amended law exempts the provision of metering
services and manufacturing, distributing or selling products for
filtration, pumping water or other fluids, processing or heating
water, handling fluids or other related activities.
For Wisconsin Energy to qualify for the amended non-utility asset
cap rules, all of its public utility affiliates were required to
irrevocably transfer their electric transmission facilities and
rights of way in the state of Wisconsin to the American
Transmission Company, LLC. As described in further detail under
"Utility Energy Segment" above and in "Factors Affecting Results,
Liquidity and Capital Resources" in Item 7 of this report,
Wisconsin Electric and Edison Sault transferred their electric
transmission system assets to the American Transmission Company
effective January 1, 2001.
Utility Energy Segment
Wisconsin Electric and Wisconsin Gas are subject to the
regulation of the PSCW as to retail electric, gas, steam and
water rates in the state of Wisconsin, standards of service,
issuance of securities, construction of new facilities,
transactions with affiliates, levels of short-term debt
obligations, billing practices and other various matters.
Wisconsin Electric and Edison Sault are both subject to the
regulation of the Michigan Public Service Commission as to the
various matters associated with retail electric service in the
state of Michigan as noted above except as to issuance of
securities, construction of certain new facilities, levels of
short-term debt obligations and advance approval of transactions
with affiliates. Wisconsin Electric's hydroelectric facilities
are regulated by the Federal Energy Regulatory Commission.
Wisconsin Electric and Edison Sault are subject to regulation of
the Federal Energy Regulatory Commission with respect to
wholesale power service, and accounting. Edison Sault is subject
to regulation of the Federal Energy Regulatory Commission with
respect to the issuance of certain securities.
The following table compares the source of the Company's utility
energy segment operating revenues by regulatory jurisdiction for
each of the three years in the period ended December 31, 2000.
2000 1999 1998
------------ ------------ ------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Millions of Dollars)
Public Service Commission
of Wisconsin
Electric Utility - Retail $1,517.7 59.3% $1,465.7 71.5% $1,434.3 72.5%
Gas Utility - Retail 736.3 28.8% 306.8 15.0% 295.9 14.9%
Other Utility - Retail 22.6 0.9% 21.3 1.0% 20.5 1.0%
-------- ------ -------- ------ -------- ------
Total 2,276.6 89.0% 1,793.8 87.5% 1,750.7 88.4%
Michigan Public Service Commission
Electric Utility - Retail 151.2 5.9% 139.7 6.8% 128.3 6.5%
Federal Energy regulatory Commission
Electric Utility - Wholesale 128.9 5.1% 116.7 5.7% 101.0 5.1%
-------- ------ -------- ------ -------- ------
Total Utility Operating Revenues $2,556.7 100.0% $2,050.2 100.0% $1,980.0 100.0%
======== ====== ======== ====== ======== ======
For information concerning the pending implementation of full
electric retail competition in the state of Michigan effective
January 1, 2002, see "Factors Affecting Results, Liquidity and
Capital Resources" in Item 7 of this report.
Operation and construction relating to Wisconsin Electric's Point
Beach Nuclear Plant facilities are subject to regulation by the
United States Nuclear Regulatory Commission. Total flow of water
to Edison Sault's hydroelectric generating plant is under the
control of the International Joint Commission, created by the
Boundary Water Treaty of 1909 between the United States and Great
Britain, now represented by Canada. Wisconsin Electric's,
Wisconsin Gas's and Edison Sault's operations are also subject to
regulations, where applicable, of the United States Environmental
Protection Agency, the Wisconsin Department of Natural Resources,
the Michigan Department of Natural Resources and the Michigan
Department of Environmental Quality.
ELECTRIC RELIABILITY LEGISLATION: In 1998, the Wisconsin State
Legislature passed and the Governor of Wisconsin signed into law
1997 Wisconsin Act 204, intended to address concerns with
electric reliability in the state of Wisconsin. The 1997
Wisconsin Act 204 included new requirements concerning market
power which utilities and their affiliates must meet in order to
construct generating facilities. The requirements apply to
utility facilities in excess of 100 megawatts. The PSCW is
currently engaged in a rule making proceeding involving the
applicability of Act 204 to utility affiliates seeking to
construct facilities in the state of Wisconsin.
PUBLIC BENEFITS: Public benefits legislation was also included
in 1999 Wisconsin Act 9. The law created new funding of
$44 million to be collected by utilities and remitted to the
Wisconsin Department of Administration. The law also required
utilities to continue to collect the funds at existing levels for
low-income, conservation and environmental research and
development programs and to begin transferring the funds for
these programs to the Department of Administration. The Company
implemented this change in October 2000. The utilities'
traditional role of providing these programs is being shifted to
the Department of Administration, which will administer the funds
for a statewide public benefits program. The new law also
requires utilities to provide a specified proportion of its
retail energy sales in programs such as Wisconsin Electric's
"energy for tomorrow" renewable energy program.
AFFILIATE INTEREST POLICIES DOCKET: From late 1998 through
early 2000, the PSCW reviewed the policies on standards of
conduct governing diversification of activities that can be
performed within the utility and utility affiliates. During
these proceedings, Wisconsin Electric took the position that
state policy should protect competition, not individual
competitors, and that customers should have the choice to use
either Wisconsin Electric or another vendor for these products
and services. In April 2000, the PSCW issued an order which
allows utilities to continue to provide and sell products and
services other than core utility products as long as the related
costs are fully allocated and not subsidized by ratepayers.
Non-Utility Energy Segment
Wisvest-Connecticut, LLC is an exempt wholesale generator
pursuant to Section 32 of the Public Utility Holding Company Act
of 1935. Wisvest-Connecticut, LLC's operations are subject to
regulation of the Federal Energy Regulatory Commission with
respect to wholesale power service and to regulations, where
applicable, of the United States Environmental Protection Agency
("EPA") and the Connecticut Department of Environmental
Protection.
ENVIRONMENTAL COMPLIANCE
Environmental Expenditures
Expenditures for environmental compliance and remediation issues
are included in anticipated capital expenditures described in
"Liquidity and Capital Resources" in Item 7 of this report. For
discussion of additional environmental issues, see "Environmental
Matters" in Item 3 of this report. For further information
concerning air quality standards and rulemaking initiated by the
EPA, including estimated costs of compliance, see "Factors
Affecting Results, Liquidity and Capital Resources" in Item 7 of
this report.
UTILITY ENERGY SEGMENT: Compliance with federal, state and
local environmental protection requirements resulted in capital
expenditures by Wisconsin Electric of approximately $37 million
in 2000 compared with $44 million in 1999. Expenditures incurred
during 2000 primarily included costs associated with the
installation of pollution abatement facilities at Wisconsin
Electric's power plants. Such expenditures at Wisconsin Electric
are budgeted at approximately $59 million during 2001, reflecting
nitrogen oxide ("NOx") control equipment needed to comply with
ozone non-attainment rules promulgated by the Environmental
Protection Agency.
Operation, maintenance and depreciation expenses for Wisconsin
Electric's fly ash removal equipment and other environmental
protection systems are estimated to have been approximately
$41 million during 2000 and $37 million during 1999 and 1998.
NON-UTILITY ENERGY SEGMENT: Wisvest-Connecticut, LLC and its
two power plants are subject to various rules and regulations
promulgated by the EPA, including ozone non-attainment rules
applicable to a 19-state region east of the Mississippi River.
The state of Connecticut has adopted the EPA's requirements,
which will require affected plants, including those owned by
Wisvest-Connecticut, LLC, to reduce emissions of NOx. The state
of Connecticut adopted additional regulations in December 2000 to
further reduce the emissions of NOx and sulfur dioxide ("SO2").
The ultimate method and cost of compliance will be the
responsibility of the anticipated acquirer of the two power
plants, which are expected to be sold during 2001.
Sub-surface, non-aqueous petroleum liquids have been identified
at both power plant sites that were acquired by Wisvest-
Connecticut, LLC. The Company is currently completing studies
and plans to bring the two sites into compliance with applicable
standards in the state of Connecticut. The ultimate methods and
costs of compliance will be the responsibility of the anticipated
acquirer of the two power plants, which are expected to be sold
during 2001.
Solid Waste Landfills
The Company provides for the disposal of non-ash related solid
wastes and hazardous wastes through licensed independent
contractors, but federal statutory provisions impose joint and
several liability on the generators of waste for certain cleanup
costs. Remediation-related activity pertaining to specific sites
is discussed below.
GIDDINGS AND LEWIS, INC./CITY OF WEST ALLIS LAWSUIT: In July
1999, a jury decided against Wisconsin Electric and awarded the
plaintiffs $4.5 million as actual damages and $100 million in
punitive damages in a lawsuit alleging that Wisconsin Electric
had placed contaminated wastes at two sites in the City of West
Allis, Wisconsin. Wisconsin Electric is appealing the case. For
additional information, see "Environmental Matters" in Item 3 and
"Note N - Commitments and Contingencies" in the Notes to
Financial Statements in Item 8 of this report.
MUSKEGO LANDFILL: On January 2, 2001, three individuals filed
an action in the circuit court of Milwaukee County against Waste
Management of Wisconsin, Inc., Wisconsin Electric and others
alleging environmental contamination emanating from the Muskego
landfill in Muskego, Wisconsin. The Muskego landfill was
operated by Waste Management and was classified as an EPA
Superfund Site. The plaintiffs, who are adjacent landowners to
the site, are alleging that the defendants are liable on various
theories for groundwater contamination. Plaintiffs are
requesting, inter alia, further remediation, damages for personal
injury, loss of property value and punitive damages. Wisconsin
Electric is investigating the matter but believes that in 1996 it
entered into a buyout agreement as a De Minimis party with Waste
Management and nine other potentially responsible parties
("PRP's") concerning groundwater contamination on this site and
that the PRP's must therefore indemnify and defend Wisconsin
Electric in this action.
WEST AVENUE LANDFILL: During 1996, Wisconsin Electric was
informed by the City of Waukesha that it has been identified as a
"responsible party" at a former Waukesha landfill which the city
will be remediating under Wisconsin state law. The City of
Waukesha invoked a new statutory negotiation procedure to attempt
to obtain consensual agreement regarding responsible parties and
remediation cost sharing and hired a private environmental
allocation consultant to apportion cost shares in an attempt to
promote voluntary settlement. The consultant issued a non-
binding final allocation report assigning a zero share of
responsibility to Wisconsin Electric. Wisconsin Electric was
offered and accepted a De Minimis Party Settlement Agreement
releasing and indemnifying Wisconsin Electric from claims for
site liabilities in exchange for a settlement payment of $3,500.
Coal-Ash Landfills
Some early designed and constructed coal-ash landfills may allow
the release of low levels of constituents resulting in the need
for various levels of remediation. Where Wisconsin Electric has
become aware of these conditions, efforts have been expended to
define the nature and extent of any release, and work has been
performed to address these conditions. For additional
information, see "Note N - Commitments and Contingencies" in the
Notes to Financial Statements in Item 8 of this report. Sites
currently undergoing remediation include:
HIGHWAY 59 LANDFILL: In 1989, a sulfate plume was detected in
the groundwater beneath a Wisconsin Electric-owned former ash
landfill located in the Town of Waukesha, Wisconsin. After
notifying the Wisconsin Department of Natural Resources,
Wisconsin Electric initiated a five-year expanded monitoring
program. In July 1995, Wisconsin Electric prepared an
environmental contamination assessment of the landfill and
submitted the report to the Wisconsin Department of Natural
Resources. Wisconsin Electric has petitioned the City of
Waukesha to extend city water service to residents of the Town of
Waukesha affected by contamination from the site. The City
Council has agreed to extend service at Wisconsin Electric's
cost. In addition to providing City water to affected residents,
Wisconsin Electric has completed excavation of saturated ash and
placement of a cap on the landfill, and will complete final
landscaping of the site in early 2001. Total remediation of this
site is estimated to be $6 million.
KANSAS AVE. LANDFILL: The Kansas Ave. site, located in the City
of St. Francis, Wisconsin, was a small landfill area used to
support the operations of Wisconsin Electric's former Lakeside
Power Plant. Wisconsin Electric has entered into an agreement
with the Wisconsin Department of Natural Resources to place a
cover over the former ash landfill site. Expenses associated
with a cover installation are expected to be minimal. No
groundwater treatment is planned at this time.
OAK CREEK NORTH LANDFILL: Groundwater impacts at this landfill,
located in the City of Oak Creek, Wisconsin, prompted Wisconsin
Electric to investigate, during 1998, the condition of the
existing cover and other conditions at the site. Surface water
drainage improvements were implemented at this site during 1999
and 2000, which are expected to eliminate ash contact with water
and remove unwanted ponding of water near monitoring systems.
Future financial impacts to Wisconsin Electric are projected to
be minimal.
LAKESIDE LANDFILL: During 2001, Wisconsin Electric expects to
begin investigation of property that was used primarily for coal
storage, fuel oil transport and coal ash disposal in support of
the former Lakeside Power Plant in St. Francis, Wisconsin. Until
the investigation work has been completed and a remedial plan
developed, Wisconsin Electric cannot estimate any related
remediation costs.
Manufactured Gas Plant Sites
The Company is reviewing and addressing environmental conditions
at a number of former manufactured gas plant sites. See
"Note N - Commitments and Contingencies" in the Notes to
Financial Statements in Item 8 of this report.
Air Quality
The 1990 amendments to the Federal Clean Air Act mandate
significant nationwide reductions in air emissions. The most
significant sections of this law applicable to the country's
electric utilities are the acid rain and nonattainment
provisions. The acid rain provisions limit SO2 and NOx emissions
in phases. Phase I became effective in 1995 and Phase II became
effective during the year 2000. The Company has met the
requirements of Phase I. The Phase II requirements of the 1990
amendments to the Federal Clean Air Act are expected to have
minimal future impacts on the Company's utilities because of
existing cost effective compliance strategies and previous
actions taken. Ozone nonattainment rules implemented by the
state of Wisconsin and ozone transport rules implemented by the
state of Michigan, both under authority of the Federal Clean Air
Act, will limit NOx emissions in phases over the next seven
years.
See "Factors Affecting Results, Liquidity and Capital Resources"
in Item 7 of this report for information concerning National
Ambient Air Quality Standards established during 1997 by the EPA
and ozone non-attainment rulemaking promulgated by the EPA during
1998.
OTHER
RESEARCH AND DEVELOPMENT: Research and development expenditures
by Wisconsin Electric amounted to $6.8 million during 2000,
$8.0 million during 1999 and $7.5 million during 1998. Such
expenditures were primarily for improvement of service and
abatement of air and water pollution by the electric utility
operations. During all of 2000, the manufacturing segment
incurred research and development expenditures of approximately
$12 million for the development of new or improved products.
Research and development activities include work done by
employees, consultants and contractors, plus sponsorship of
research by industry associations.
EMPLOYEES: The Company added 4,581 employees during 2000
including approximately 4,500 new employees due to the WICOR
merger on April 26, 2000.
At December 31, 2000, the following number of individuals were
employed by Wisconsin Energy and its subsidiaries:
Full Time Part Time Total
--------- --------- -----
Utility Energy Segment
Wisconsin Electric 5,402 168 5,570
Wisconsin Gas 951 83 1,034
Edison Sault 70 - 70
------ --- ------
Total 6,423 251 6,674
Non-Utility Energy Segment 736 16 752
Manufacturing Segment 2,936 - 2,936
Other 96 - 96
------ --- ------
Total Employees 10,191 267 10,458
====== === ======
Of these employees, the following number of individuals were
represented under labor agreements as of December 31, 2000.
Number of Employees
-------------------
Utility Energy Segment
Wisconsin Electric 3,733
Wisconsin Gas 633
Edison Sault 49
-----
Total 4,415
Non-Utility Energy Segment
Wisvest-Connecticut, LLC 116
-----
Total Employees 4,531
=====
ITEM 2.PROPERTIES
The principal properties of Wisconsin Energy and its subsidiaries
are owned in fee except that the major portion of electric
utility distribution lines, steam utility distribution mains and
gas utility distribution mains and services are located, for the
most part, on or in streets and highways and on land owned by
others. Substantially all of Wisconsin Electric's utility plant
is subject to a first mortgage lien.
UTILITY ENERGY SEGMENT
Effective January 1, 2001, Wisconsin Electric and Edison Sault
exited the electric transmission business by contributing all of
their transmission assets to the American Transmission Company
LLC in exchange for equity interests in this new company. For
further information, see "Factors Affecting Results, Liquidity
and Capital Resources" in Item 7 of this report.
WISCONSIN ELECTRIC: Wisconsin Electric owns the following
generating stations with dependable capabilities as indicated.
Dependable Capability
In Megawatts (a)
No. of ---------------------
Generating August December
Name Fuel Units 2000 2000
---- ---- ----- ---- ----
Steam Plants
Point Beach Nuclear 2 1,012 1,022
Oak Creek Coal 4 1,135 1,139
Presque Isle Coal 9 617 617
Pleasant Prairie Coal 2 1,200 1,210
Port Washington Coal 4 320 320
Valley Coal 2 267 227
Edgewater 5 (b) Coal 1 102 102
Milwaukee County Coal 3 11 11
-- ----- -----
Total Steam Plants 27 4,664 4,648
Hydro Plants (14 in number) 37 63 67
Germantown Combustion Turbines (c) Gas/Oil 5 345 345
Concord Combustion Turbines Gas/Oil 4 376 376
Paris Combustion Turbines Gas/Oil 4 388 388
Other Combustion Turbines & Diesel Gas/Oil 6 55 62
-- ----- -----
Total System 83 5,891 5,886
== ===== =====
(a) Dependable capability is the net power output under average operating
conditions with equipment in an average state of repair as of a given month
in a given year. Changing seasonal conditions are responsible for the
different capabilities reported for the winter and summer periods in the
above table. The values were established by test and may change slightly
from year to year.
(b) Wisconsin Electric has a 25% interest in Edgewater 5 Generating Unit, which
is operated by Wisconsin Power and Light Company, an unaffiliated utility.
(c) During 2000, a fifth generating unit was added and inlet air coolers were
installed on existing generating units at Germantown Power Plant,
increasing the capacity of the plant and improving dependable capability
during hot summer months.
At December 31, 2000, Wisconsin Electric was operating
approximately 21,900 pole-miles of overhead distribution lines
and 17,800 miles of underground distribution cable as well as
approximately 350 distribution substations and 243,900 line
transformers.
As of December 31, 2000, Wisconsin Electric's gas distribution
system included approximately 8,200 miles of mains connected at
22 gate stations to the pipeline transmission systems of ANR
Pipeline Company, Natural Gas Pipeline Company of America,
Northern Natural Pipeline Company and Great Lakes Transmission
Company. Wisconsin Electric has a liquefied natural gas storage
plant which converts and stores in liquefied form natural gas
received during periods of low consumption. The liquefied
natural gas storage plant has a send-out capability of 70,000
dekatherms per day. Wisconsin Electric also has propane air
systems for peaking purposes. These propane air systems will
provide approximately 7,000 dekatherms per day of supply to the
system.
At December 31, 2000, the combined steam systems supplied by the
Valley and Milwaukee County Power Plants consisted of
approximately 43 miles of both high pressure and low pressure
steam piping, 8.8 miles of walkable tunnels and other pressure
regulating equipment.
Wisconsin Electric owns various office buildings and service
centers throughout its service area.
WISCONSIN GAS: Wisconsin Gas owns a distribution system which,
on December 31, 2000, included approximately 9,600 miles of
distribution and transmission mains, 455,000 service laterals and
535,000 active meters. Wisconsin Gas' distribution system
consists almost entirely of plastic and coated steel pipe.
Wisconsin Gas owns its main office building in Milwaukee, office
buildings in certain other communities in which it serves, gas
regulating and metering stations, peaking facilities and its
major service centers, including garage and warehouse facilities.
In December 2000, the Company announced that it expects to sell
the main office building of Wisconsin Gas during the second
quarter of 2001.
EDISON SAULT: Edison Sault's major source of electric energy is
its 29.8 megawatt hydroelectric generating plant on the St.
Mary's River in Sault Ste. Marie, Michigan. In addition, Edison
Sault owns and operates a 4.8 megawatt diesel-fired peaking power
plant.
Edison Sault owned two 138 kilovolt submarine transmission cable
circuits which interconnect with Consumers Energy Company in the
Lower Peninsula of Michigan, as well as two 138 kilovolt
substations which interconnect with a 46 mile, 138 kilovolt
transmission line owned and operated by Cloverland Electric
Cooperative. In total, Edison Sault had 306 miles of
transmission line in service as of December 31, 2000, all of
which were transferred to the American Transmission Company, LLC
on January 1, 2001. Edison Sault maintains approximately
800 miles of primary distribution lines and renders service to
its customers through approximately 9,100 line transformers.
NON-UTILITY ENERGY SEGMENT
WISVEST CORPORATION: Wisvest owns a chilled water production
and distribution facility located in Milwaukee County, Wisconsin.
Wisvest-Connecticut, LLC, owns two fossil-fueled power plants in
the state of Connecticut: the Bridgeport Harbor Station with an
active generating capacity of 590 megawatts, and the New Haven
Harbor Station with an active generating capacity of
466 megawatts. The Company expects to close on the sale of
Wivest-Connecticut, LLC's two plants during the second quarter
of 2001.
MANUFACTURING SEGMENT
The manufacturing segment has manufacturing or assembly
facilities located in California (4), Indiana, Minnesota (2),
Nebraska, New Hampshire, Oregon, Wisconsin, Australia, China,
England, Germany, India, Italy (3), Mexico (2) and New Zealand.
These plants contain more than 1,400,000 square feet of floor
space. In addition, through its manufacturing business, the
Company owns or leases eight sales/distribution facilities in the
United States, six in Australia, two each in Mexico, Italy and
New Zealand and one each in Canada, China, France, Germany,
India, Italy, Kazakhstan, Russia and the United Kingdom.
OTHER
WISPARK LLC: In May 2000, the Company announced that it would
sell approximately 80% of the assets of Wispark over the
following 12 to 18 months. During the fourth quarter of 2000,
the Company completed the sale of approximately 44% of the
Wispark portfolio that is expected to be sold. As of
December 31, 2000, remaining Wispark properties included the
following commercial and industrial parks in the state of
Wisconsin: LakeView, located near Kenosha; GrandView in Racine
County; Westridge in New Berlin; Mitchell International in
Milwaukee County; and Cottonwood Commerce in Hartland. Wispark
also owns Gaslight Pointe, a residential and commercial complex
located in Racine, the Radisson Hotel and Conference Center in
Kenosha, plus other properties located in Wisconsin Electric's
service territories that are held for future development.
Wispark is also developing other real estate property located in
the states of Illinois and Minnesota.
MINERGY CORP.: Minergy owns a Glass Aggregate facility located
in Neenah, Wisconsin and a GlassPack facility in Winneconne,
Wisconsin.
OTHER: Badger Service Company holds rights to coal in an area
of 8,568 acres in Knox County, Indiana.
ITEM 3.LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
Wisconsin Energy is subject to federal, state and certain local
laws and regulations governing the environmental aspects of its
operations. The Company believes that, perhaps with immaterial
exceptions, its existing facilities are in compliance with
applicable environmental requirements.
See "Environmental Compliance" in Item 1 of this report, which is
incorporated by reference herein, for a discussion of matters
related to certain solid waste and coal-ash landfills,
manufactured gas plant sites and air quality.
GIDDINGS & LEWIS, INC./CITY OF WEST ALLIS LAWSUIT: See
"Note N - Commitments and Contingencies" in the Notes to
Financial Statements in Item 8 of this report for matters related
to a July 1999 jury verdict against Wisconsin Electric in a
lawsuit alleging that Wisconsin Electric had placed contaminated
wastes at two sites in the City of West Allis, Wisconsin.
Two shareholders have brought separate derivative proceedings in
Milwaukee County Circuit Court for alleged damages resulting from
the Giddings & Lewis/City of West Allis Lawsuit. All of the
directors of Wisconsin Energy and Wisconsin Electric are named as
defendants in one of the derivative actions and a number of
individual employees, as well as the Chief Executive Officer of
Wisconsin Energy and Wisconsin Electric, are named as defendants
in the other. In accordance with Wisconsin law, a special
committee of independent directors of Wisconsin Energy, based
upon an investigation of the allegations contained in both
lawsuits, concluded that the maintenance of these actions is not
in the best interests of the Company. Accordingly Wisconsin
Energy has moved to dismiss the actions. The matter is pending.
UTILITY RATE MATTERS
See "Factors Affecting Results, Liquidity and Capital Resources"
in Item 7 of this report for information concerning rate matters
in the jurisdictions where Wisconsin Electric, Wisconsin Gas and
Edison Sault do business.
OTHER MATTERS
USED NUCLEAR FUEL STORAGE & REMOVAL: See "Factors Affecting
Results, Liquidity and Capital Resources" in Item 7 of this
report for information concerning the United States Department of
Energy's breach of a contract with Wisconsin Electric that
required the United States Department of Energy to begin
permanently removing spent nuclear fuel from Point Beach Nuclear
Plant by January 31, 1998.
MACKINAC ISLAND LAWSUIT: On September 1, 2000, two plaintiffs
individually and on behalf of a class of plaintiff's yet to be
certified, filed a lawsuit against Edison Sault in the state
court in St. Ignace, Mackinac County, Michigan for an unknown
amount of damages which allegedly arose from an outage which
occurred on Mackinac Island in July 2000. The matter is pending.
The Company intends to vigorously defend itself against this
lawsuit.
STRAY VOLTAGE: On July 11, 1996, the PSCW issued its final
order regarding the stray voltage policies of Wisconsin's
investor-owned utilities. The order clarified the definition of
stray voltage, affirmed the level at which utility action is
required, and appropriately placed some of the responsibility for
this issue in the hands of the customer. Additionally, the order
established a uniform stray voltage tariff which delineates
utility responsibility and provides for the recovery of costs
associated with unnecessary customer demanded services. While
this action has been beneficial in Wisconsin Electric's efforts
to manage this controversial issue, it has not had a significant
impact on Wisconsin Electric's financial position or results of
operations.
In recent years, several actions by dairy farmers have been
commenced or claims made against Wisconsin Electric for loss of
milk production and other damages allegedly caused by stray
voltage resulting from the operation of its electrical system.
At the present time, four such actions are pending and one case
is on appeal. Wisconsin Electric does not believe that these or
any other claims thus far made or threatened against Wisconsin
Electric by reason of stray voltage will result in any
substantial liability on its part. Currently, there are no cases
pending or threatened against Edison Sault.
ELECTROMAGNETIC FIELDS: Claims have been made or threatened
against electric utilities across the country for bodily injury,
disease or other damages allegedly caused or aggravated by
exposure to electromagnetic fields associated with electric
transmission and distribution lines. Results of scientific
studies conducted to date have not established the existence of a
causal connection between electromagnetic fields and any adverse
health affects. Wisconsin Electric and Edison Sault believe that
their facilities are constructed and operated in accordance with
all applicable legal requirements and standards. Currently,
there are no cases pending or threatened against Wisconsin
Electric nor against Edison Sault.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Wisconsin Energy's
security holders during the fourth quarter of 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages at December 31, 2000 and positions of the
executive officers of Wisconsin Energy are listed below along
with their business experience during the past five years. All
officers are appointed until they resign, die or are removed
pursuant to the Bylaws. There are no family relationships among
these officers, nor is there any agreement or understanding
between any officer and any other person pursuant to which the
officer was selected.
Richard A. Abdoo (56): Chairman of the Board, President and
Chief Executive Officer of Wisconsin
Energy since 1991. Chairman of the Board
and Chief Executive Officer of Wisconsin
Electric since 1990. Chairman of the
Board and Director of WICOR and Wisconsin
Gas since April 2000. Director of
Wisconsin Energy since 1988. Director of
Wisconsin Electric since 1989.
Charles R. Cole (54): Senior Vice President of Wisconsin
Electric since January 1, 2001. Vice
President - Distribution Operations of
Wisconsin Electric from August 1999 to
December 2000. Vice President - Customer
Services of Kansas City Power & Light
from 1995 to 1999.
Stephen P. Dickson
(40): Controller of Wisconsin Energy and
Wisconsin Electric since April 2000.
Controller of Wisconsin Gas since June
1998. Director of Business Risk
Consulting Services of Arthur
Andersen LLP from 1997 to 1998. Senior
Manager of Arthur Andersen LLP from 1995
to 1997.
James C. Donnelly (55): Vice President of WICOR since 1992.
President and Chief Executive Officer of
WICOR Industries, Inc. since June 2000.
President and Chief Executive Officer of
Sta-Rite Industries, Inc. since 1994.
Paul Donovan (53): Senior Vice President and Chief Financial
Officer of Wisconsin Energy since August
1999, and of Wisconsin Electric and
Wisconsin Gas since July 2000. Executive
Vice President and Chief Financial
Officer of Sundstrand Corporation from
1990 and 1998, respectively, to 1999.
Richard R. Grigg (52): Senior Vice President of Wisconsin Energy
and WICOR since July 2000 and President
and Chief Operating Officer of Wisconsin
Electric since 1995. Vice President of
Wisconsin Energy from 1995 to June 2000.
Chief Nuclear Officer of Wisconsin
Electric from December 1996 to March
1998. Director of Wisconsin Energy since
1995. Director of Wisconsin Electric
since 1994.
Larry Salustro (53): Senior Vice President and General Counsel
of Wisconsin Energy, WICOR, Wisconsin
Electric and Wisconsin Gas since July
2000. Vice President of Wisconsin
Electric from 1997 through June 2000.
Regional Vice President - Law and
Governmental Affairs with AT&T from 1995
to 1997.
Thomas F. Schrader
(51): President of Wisconsin Gas since October
2000. Senior Vice President - Strategic
Process Integration of Wisconsin Electric
since April 2000. Senior Vice President
of WICOR since August 2000 and Director
of WICOR since 1988. Vice President of
WICOR from 1988 to 1997. President and
Chief Operating Officer of WICOR and Vice
Chairman of its subsidiaries from 1997 to
2000. President and Chief Executive
Officer of Wisconsin Gas from 1988 to
1997.
Georger E. Wardeberg
(65): Vice Chairman of the Board of Wisconsin
Energy, WICOR, Wisconsin Electric and
Wisconsin Gas and Director of Wisconsin
Energy and Wisconsin Electric since April
2000. Director of WICOR and Wisconsin
Gas since 1992. Chairman of the Board
and Chief Executive Officer of WICOR from
1997 to April 2000.
Certain executive officers also hold offices in Wisconsin
Energy's non-utility subsidiaries.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
NUMBER OF COMMON STOCKHOLDERS
As of year-end 2000, based upon the number of Wisconsin Energy
Corporation stockholder accounts (including accounts in Wisconsin
Energy's dividend reinvestment and stock purchase plan), there
were 77,051 registered stockholders.
COMMON STOCK LISTING AND TRADING
Wisconsin Energy Corporation common stock is listed on the New
York Stock Exchange. The ticker symbol is WEC. Daily trading
prices and volume can be found in the "NYSE Composite" section of
most major newspapers, usually abbreviated as WI Engy.
DIVIDENDS AND COMMON STOCK PRICES
COMMON STOCK DIVIDENDS OF WISCONSIN ENERGY: Cash dividends on
Wisconsin Energy's common stock, as declared by the board of
directors, are normally paid on or about the first day of March,
June, September and December. Wisconsin Energy reviews its
dividend policy on a regular basis. Subject to any regulatory
restrictions or other limitations on the payment of dividends,
future dividends will be at the discretion of the board of
directors and will depend upon, among other factors, earnings,
financial condition and other requirements.
In September 2000, the board of directors authorized a quarterly
cash dividend on its common stock, payable December 1, 2000, of
$0.20 per share ($0.80 on an annualized basis), which was reduced
from prior quarterly dividends paid during 2000 of $0.39 per
share (or $1.56 on an annualized basis).
RANGE OF WISCONSIN ENERGY COMMON STOCK PRICES AND DIVIDENDS:
2000 1999
---------------------------------------- ----------------------------------------
Quarter High Low Dividend High Low Dividend
- ------- ---- --- -------- ---- --- --------
First $21.19 $16.81 $0.39 $31.56 $25.06 $0.39
Second 22.94 19.81 0.39 28.13 25.06 0.39
Third 23.56 18.94 0.39 26.00 22.44 0.39
Fourth 23.00 17.88 0.20 24.19 19.06 0.39
----- -----
Year $23.56 $16.81 $1.37 $31.56 $19.06 $1.56
===== =====
ITEM 6. SELECTED FINANCIAL DATA
WISCONSIN ENERGY CORPORATION
CONSOLIDATED SELECTED FINANCIAL AND STATISTICAL DATA
Financial 2000 (a) 1999 1998 1997 1996
--------- -------- ---- ---- ---- ----
Year Ended December 31
Net income (Millions) $154.2 (b) $209.0 (c) $188.1 $60.7 (d) $218.1
Earnings per share of
common stock
Basic $1.28 (b) $1.79 (c) $1.65 $0.54 (d) $1.97
Diluted $1.27 (b) $1.79 (c) $1.65 $0.54 (d) $1.97
Dividends per share of
common stock $1.37 $1.56 $1.555 $1.535 $1.5075
Operating revenues (Millions)
Utility energy $2,556.7 $2,050.2 $1,980.0 $1,789.6 $1,773.8
Non-utility energy 372.8 193.2 34.1 7.0 -
Manufacturing 374.2 - - - -
Other 51.0 29.2 25.3 10.3 13.7
-------- -------- -------- -------- --------
Total operating revenues $3,354.7 $2,272.6 $2,039.4 $1,806.9 $1,787.5
======== ======== ======== ======== ========
At December 31 (Millions)
Total assets $8,406.1 $6,061.8 $5,185.6 $4,881.6 $4,652.8
Long-term debt and mandatorily
redeemable trust preferred
securities $2,932.7 $2,334.6 $1,749.0 $1,532.4 $1,416.1
Utility Energy Statistics
-------------------------
Electric
Megawatt-hours sold (Thousands) 32,042.4 31,257.1 29,940.4 27,671.8 27,560.4
Customers (End of year) 1,048,711 1,027,785 1,010,318 978,835 968,735
Gas
Therms delivered (Millions) 1,621.5 944.1 922.8 980.7 936.9
Customers (End of year) 952,177 398,508 388,478 376,732 367,275
Steam
Pounds sold (Millions) 3,085.2 2,913.9 2,773.1 3,160.6 2,704.6
Customers (End of year) 451 450 454 474 465
Non-Utility Energy Statistics
- -----------------------------
Independent Power Production
Electric megawatt-hour
sales (Thousands) 3,213.2 2,417.2 - - -
Energy Marketing, Trading &
Services
Electric megawatt-hour
sales (Thousands) 2,091.2 1,598.1 723.7 - -
Gas therm sales (Millions) 187.6 - - - -
CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
(Millions of Dollars Except Per Share Amounts) (e)
---------------------------------------------------
March June
------------------- -------------------
Three Months Ended 2000 1999 2000 (a) 1999
- ------------------ ---- ---- -------- ----
Total operating revenues $628.0 $556.7 $755.0 $539.0
Operating income 119.2 104.1 102.1 108.1
Net income 50.6 53.5 30.1 48.9
Earnings per share of common stock
Basic $0.42 $0.46 $0.25 $0.42
Diluted $0.42 $0.46 $0.25 $0.42
September December
------------------- -------------------
Three Months Ended 2000 (a) 1999 2000 (a) 1999
- ------------------ -------- ---- -------- ----
Total operating revenues $850.8 $591.3 $1,120.9 $585.6
Operating income 134.7 142.5 88.9 121.4
Net income 44.6 68.9 28.9 (b) 37.7 (c)
Earnings per share of common stock
Basic $0.37 $0.59 $0.24 (b) $0.32 (c)
Diluted $0.36 $0.59 $0.24 (b) $0.32 (c)
(a) Includes WICOR, Inc. and its subsidiaries subsequent to their acquisition
on April 26, 2000.
(b) Includes net non-recurring costs, after tax, of $28.7 million or $0.24 per
diluted share ($0.45 per share non-recurring gain offset by $0.69 per share
of non-recurring charges relating primarily to the WICOR merger and the
divestiture of non-core businesses).
(c) Includes non-recurring charges, after tax, of $10.8 million or $0.09 per
diluted share for the settlement of litigation.
(d) Includes non-recurring charges, after tax, of $36.8 million or $0.33 per
diluted share ($0.17 per share related to the terminated merger agreement
with Northern States Power Company and $0.16 per share related to the
write-down of equipment).
(e) Quarterly results of operations are not directly comparable because of
seasonal and other factors. See Management's Discussion and Analysis of
Financial Condition and Results of Operations.
WISCONSIN ENERGY CORPORATION
CONSOLIDATED SELECTED UTILITY OPERATING DATA
Year Ended December 31 2000 (a) 1999 1998 1997 1996
-------- ---- ---- ---- ----
Electric Utility
----------------
Operating Revenues (Millions)
Residential $606.7 $584.3 $576.2 $487.2 $494.1
Small Commercial/Industrial 550.0 524.9 496.2 430.2 421.5
Large Commercial/Industrial 472.8 459.4 455.3 402.7 383.1
Other Retail/Municipal 64.7 56.7 54.7 55.2 56.3
Resale- Utilities 79.1 74.7 60.9 24.6 26.4
Other Operating Revenues 24.5 22.1 20.3 12.2 11.9
-------- -------- -------- -------- --------
Total Operating Revenues $1,797.8 $1,722.1 $1,663.6 $1,412.1 $1,393.3
======== ======== ======== ======== ========
Megawatt-hour Sales (Thousands)
Residential 7,633.2 7,503.1 7,405.0 6,863.6 6,998.8
Small Commercial/Industrial 8,524.7 8,257.7 7,746.2 7,433.1 7,204.7
Large Commercial/Industrial 11,824.0 11,542.8 11,523.3 11,021.5 10,785.5
Other Retail/Municipal 1,755.8 1,531.4 1,409.3 1,412.6 1,477.0
Resale- Utilities 2,304.7 2,422.1 1,856.6 941.0 1,094.4
-------- -------- -------- -------- --------
Total Sales 32,042.4 31,257.1 29,940.4 27,671.8 27,560.4
======== ======== ======== ======== ========
Number of Customers (Average)
Residential 934,494 915,713 904,703 876,776 867,917
Small Commercial/Industrial 101,665 99,209 97,858 93,259 91,565
Large Commercial/Industrial 716 720 724 714 706
Other 2,327 1,978 1,899 1,844 1,832
--------- --------- --------- --------- ---------
Total Customers 1,039,202 1,017,620 1,005,184 972,593 962,020
========= ========= ========= ========= =========
Gas Utility
-----------
Operating Revenues (Millions)
Residential $450.2 $193.8 $176.5 $222.0 $218.8
Commercial/Industrial 225.2 95.1 87.9 113.6 108.1
Interruptible 13.7 5.3 7.1 9.0 11.5
------ ------ ------ ------ ------
Total Retail Gas Sales 689.1 294.2 271.5 344.6 338.4
Transported Customer-Owned Gas 31.3 14.6 12.0 13.4 11.7
Transported - Interdepartmental 1.5 1.8 2.5 3.1 3.1
Other Operating Revenues 14.4 (3.8) 9.9 (5.9) 11.7
------ ------ ------ ------ ------
Total Operating Revenues $736.3 $306.8 $295.9 $355.2 $364.9
====== ====== ====== ====== ======
Therms Delivered (Millions)
Residential 569.0 329.0 289.5 347.9 372.0
Commercial/Industrial 336.5 195.3 182.0 211.5 225.2
Interruptible 24.9 16.3 23.3 24.5 35.9
------ ------ ------ ------ ------
Total Retail Gas Sales 930.4 540.6 494.8 583.9 633.1
Transported Customer-Owned Gas 650.1 347.9 349.4 387.2 292.6
Transported - Interdepartmental 41.0 55.6 78.6 9.6 11.2
------- ----- ----- ----- -----
Total Therms Delivered 1,621.5 944.1 922.8 980.7 936.9
======= ===== ===== ===== =====
Number of Customers (Average)
Residential 697,570 360,084 347,747 339,002 330,153
Commercial/Industrial 62,626 32,594 31,586 30,594 29,936
Interruptible 72 89 146 170 190
Transported Customer-Owned Gas 3,247 328 271 254 230
Transported - Interdepartmental 6 6 6 7 8
------- ------- ------- ------- -------
Total Customers 763,521 393,101 379,756 370,027 360,517
======= ======= ======= ======= =======
Degree Days (b)
-----------------------
Heating (6,887 Normal) 6,716 6,318 5,848 7,101 7,469
Cooling (681 Normal) 566 753 800 407 608
(a) Includes Wisconsin Gas Company subsequent to the acquisition of WICOR, Inc.
on April 26, 2000. Average gas customers are weighted for the eight months
when Wisconsin Gas was a part of Wisconsin Energy.
(b) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wisconsin Energy Corporation is a diversified holding company
with subsidiaries primarily in a utility energy segment, a non-
utility energy segment and a manufacturing segment. Unless
qualified by their context, when used in this document the terms
"Wisconsin Energy" or the "Company" refer to the holding company
and all of its subsidiaries.
The utility energy segment is engaged primarily in the business
of generating electricity and distributing electricity and
natural gas. Currently, the non-utility energy segment is
principally engaged in independent electric power production as
well as in energy marketing, trading and services activities.
The manufacturing segment consists of companies which manufacture
pumps as well as fluid processing and pump filtration equipment.
In addition, Wisconsin Energy has several other subsidiaries, the
primary two of which are engaged in the development and marketing
of recycling technologies and in the development and investment
in real estate.
The Company seeks to grow shareholder value by leveraging on the
core competencies of its business segments. To accomplish this
goal, Wisconsin Energy performed a comprehensive review of its
portfolio of businesses during 2000 and began implementing the
following general strategies for the next decade:
* ELECTRIC GENERATION: Improve the supply of reasonably
priced electric power in Wisconsin through the "Power
the Future" strategy.
* ENERGY DISTRIBUTION: Upgrade the Company's electric and
gas utility distribution systems to increase reliability and
enable economic expansion in Wisconsin through the "Power the
Future" strategy and combine the gas operations and the customer
service functions of its gas utilities to realize synergy savings
and increase customer satisfaction.
* MANUFACTURING: Globalize the pump manufacturing business,
improve margins, grow market share and make value-adding
acquisitions.
This comprehensive portfolio review also led to a decision to
divest of businesses that the Company determined to not involve
core competencies. In December 2000, Wisconsin Energy entered
into an agreement to sell its two existing non-utility power
plants, located in the state of Connecticut, which will
significantly reduce the size of current non-utility energy
segment operations. The sale of these two plants, which were
originally acquired in April 1999, is expected to close in the
second quarter of 2001. In May 2000, the Company announced that
it would sell approximately 80% of its portfolio of non-utility
real estate assets during the next two years, which is expected
to significantly reduce the size of its non-utility real estate
operations.
For information concerning the "Power the Future" strategy, see
"Factors Affecting Results, Liquidity and Capital Resources"
below.
ACQUISITION OF WICOR, INC.: On April 26, 2000, Wisconsin Energy
acquired WICOR, Inc. ("WICOR"). WICOR is the parent of Wisconsin
Gas Company ("Wisconsin Gas"), the largest natural gas
distribution utility in Wisconsin, and of WICOR Industries, Inc.,
an intermediate holding company which holds the stock of several
manufacturers of pumps as well as fluid processing and filtration
equipment. This business combination was accounted for as a
purchase, and, therefore, is reflected prospectively in Wisconsin
Energy's consolidated financial statements from and after the
date of the acquisition.
CAUTIONARY FACTORS: A number of forward-looking statements are
included in this document. When used, the terms "anticipate,"
"believe," "estimate," "expect," "objective," "plan," "possible,"
"potential," "project" and similar expressions are intended to
identify forward-looking statements. Forward-looking statements
are subject to certain risks, uncertainties and assumptions which
could cause actual results to differ materially from those that
are described, including the factors mentioned throughout this
document and below in "Cautionary Factors."
RESULTS OF OPERATIONS
CONSOLIDATED EARNINGS
The Company's earnings for the year ended December 31, 2000 were
negatively impacted by the timing of the WICOR acquisition, by
non-recurring charges related to the WICOR acquisition and the
announced divestiture of certain non-core businesses.
Following their acquisition, the WICOR companies contributed
$0.26 per share to Wisconsin Energy's earnings during 2000.
However, WICOR merger-related costs of $0.41 per share,
consisting primarily of goodwill and interest charges, exceeded
WICOR's earnings before such costs by $0.15 per share. WICOR's
post-merger earnings during 2000 did not include the first
quarter heating season of Wisconsin Gas, which historically is
its highest quarter of earnings. For the year ending 2001,
management expects the WICOR acquisition to be accretive to the
Company.
In December 2000, the Company recorded non-recurring charges
totaling $0.69 per share, including $0.33 per share related to
severance, merger-related and other items, $0.26 per share
related to the write-down of certain non-core investments and a
one-time contribution of $0.10 per share to the Wisconsin Energy
Foundation to assist it in becoming self-funded. Of the
$0.69 per share of non-recurring charges during 2000, $0.38 was
attributable to the utility energy segment and $0.31 was
associated with the divestiture of non-core businesses or the
write-down of certain non-utility investments. In October 2000,
the Company completed the sale of its investment in SkyGen Energy
Holdings, LLC, which resulted in a gain of $0.45 per share.
During 2000, Wisconsin Energy's earnings before non-recurring
items were $1.51 per share compared with $1.88 per share during
1999. In addition to the impact of the WICOR acquisition, 2000
earnings were also negatively impacted by increased fuel and
purchased power expenses and by cool summer weather during 2000.
During 1999, the Company had recorded a one time charge of
$0.09 per share related to the settlement of litigation. With no
non-recurring items during the year, Wisconsin Energy posted
earnings of $1.65 per share during 1998.
The following table compares Wisconsin Energy's diluted earnings
per share by business segment for each of the comparative
periods.
2000
----------------------------------
Excluding Merger
Diluted Earnings Per Share Merger Costs (a) Total 1999 1998
-------------------------- --------- --------- ----- ---- ----
Utility Energy Segment $1.82 ($0.12) $1.70 $1.94 $1.62
Non-Utility Energy Segment 0.01 - 0.01 0.02 (0.02)
Manufacturing Segment 0.18 (0.12) 0.06 - -
Other (0.09) (0.17) (0.26) (0.08) 0.05
----- ------- ----- ----- -----
Earnings Before Non-
Recurring Items 1.92 (0.41) 1.51 1.88 1.65
Non-Recurring Items (b) (0.24) - (0.24) (0.09) -
----- ------- ----- ----- -----
Net Earnings $1.68 ($0.41) $1.27 $1.79 $1.65
===== ======= ===== ===== =====
(a) Includes $0.10 per share of goodwill amortization expense and $0.26 per
share of interest expense net of tax related to the WICOR merger.
(b) During 2000, non-recurring items consists of $0.69 per share of
non-recurring charges partially offset by a $0.45 per share gain on the
sale of the Company's interest in SkyGen. During 1999, non-recurring
items consists of a $0.09 per share charge for settlement of
litigation.
An analysis of contributions to earnings by segment follows.
UTILITY ENERGY SEGMENT CONTRIBUTION TO EARNINGS
Utility net earnings during 2000, which include non-recurring
charges and merger costs associated with Wisconsin Gas, declined
by $56.0 million when compared to 1999. The primary causes for
this decline were $43.9 million of non-recurring charges, net of
tax, at Wisconsin Electric primarily associated with the WICOR
merger, increased fuel and purchased power costs at Wisconsin
Electric and cooler than normal summer weather. In addition,
Wisconsin Gas contributed earnings of $9.9 million before non-
recurring charges of $2.0 million and merger-related costs of
$14.3 million.
During 1999, utility energy segment earnings increased by
$31.3 million when compared with 1998 due in large part to
increases in electric and gas utility gross margins offset in
part by a one time charge during 1999 related to the settlement
of litigation.
The following table summarizes the utility energy segment's
earnings during 2000, 1999 and 1998.
2000
-------------------------------
Wisconsin
Utility Energy Segment Gas (a) Other (b) Total 1999 1998
- ---------------------------------- --------- --------- ----- ---- ----
(Millions of Dollars)
Operating Revenues
Electric Utility $ - $1,797.8 $1,797.8 $1,722.1 $1,663.6
Gas Utility 336.7 399.6 736.3 306.8 295.9
Other Utility 0.6 22.0 22.6 21.3 20.5
------ -------- -------- -------- --------
Total Operating Revenues 337.3 2,219.4 2,556.7 2,050.2 1,980.0
Fuel and Purchased Power - 513.5 513.5 458.9 461.4
Cost of Gas Sold 228.0 258.7 486.7 174.0 175.5
------ -------- -------- -------- --------
Gross Margin 109.3 1,447.2 1,556.5 1,417.3 1,343.1
Other Operating Expenses
Other Operation and Maintenance 55.0 702.9 757.9 656.6 666.7
Depreciation, Decommissioning
and Amortization 32.3 276.2 308.5 237.2 227.3
Property and Revenue Taxes 3.2 67.8 71.0 68.3 61.7
------ -------- -------- -------- --------
Operating Income 18.8 400.3 419.1 455.2 387.4
Other Income (Deductions) (3.8) (9.8) (13.6) (5.5) 8.0
Financing Costs 20.9 119.6 140.5 115.5 113.2
------ -------- -------- -------- --------
Income Before Income Taxes (5.9) 270.9 265.0 334.2 282.2
Income Taxes 0.5 104.5 105.0 118.2 97.5
------ -------- -------- -------- --------
Net Earnings (Loss) ($6.4) $166.4 $160.0 $216.0 $184.7
====== ======== ======== ======== ========
(a) Wisconsin Energy's financial statements reflect the operations of Wisconsin
Gas subsequent to the WICOR merger on April 26, 2000.
(b) Other includes Wisconsin Electric, Edison Sault and consolidating
adjustments and eliminations between the utilities.
Electric Utility Revenues, Gross Margins and Sales
The following table compares Wisconsin Energy's electric utility
operating revenues and its gross margin (total electric utility
operating revenues less fuel and purchased power expenses) during
2000 with similar information for 1999 and 1998.
Electric Utility Operations 2000 1999 1998
- --------------------------- -------- -------- --------
(Millions of Dollars)
Electric Operating Revenues $1,797.8 $1,722.1 $1,663.6
Fuel and Purchased Power
Fuel 325.3 299.1 303.0
Purchased Power 182.0 153.7 153.0
-------- -------- --------
Total Fuel and Purchased Power 507.3 452.8 456.0
-------- -------- --------
Gross Margin $1,290.5 $1,269.3 $1,207.6
======== ======== ========
During 2000, Wisconsin Energy's total electric utility operating
revenues increased by $75.7 million or 4.4% compared with 1999.
Wisconsin Energy attributes this growth mostly to higher electric
energy sales and rate increases during 2000. Interim and final
electric rate increases at Wisconsin Electric, that became
effective in early April 2000 and on August 30, 2000,
respectively, contributed approximately $22.1 million to the
increase in electric operating revenues. For additional
information concerning these rate increases, see "Factors
Affecting Results, Liquidity and Capital Resources" below. Fuel
and purchased power expenses increased by $54.5 million or 12.0%
during 2000, reflecting increased generation and significantly
higher natural gas prices. Purchased power expenses also grew
due to higher fixed costs during 2000 associated with long-term
purchased power contracts. To a certain extent, Wisconsin Energy
was able to limit the increase in fuel and purchased power costs
during 2000 by changing its electric supply mix away from higher
cost natural gas-fired generation and power purchases to lower
cost nuclear and coal-fired generation.
Primarily due to an increase in total electric energy sales
during 1999, Wisconsin Energy's total electric utility operating
revenues increased by $58.5 million or 3.5% when compared
with 1998.
Operating Revenues Megawatt-Hour Sales
------------------------------- -------------------------------
Electric Utility Operations 2000 1999 1998 2000 1999 1998
- ------------------------------- ------ ---- ---- ------ ---- ----
(Millions of Dollars) (Thousands)
Customer Class
Residential $606.7 $584.3 $576.2 7,633.2 7,503.1 7,405.0
Small Commercial/Industrial 550.0 524.9 496.2 8,524.7 8,257.7 7,746.2
Large Commercial/Industrial 472.8 459.4 455.3 11,824.0 11,542.8 11,523.3
Other-Retail/Municipal 64.7 56.7 54.7 1,755.8 1,531.4 1,409.3
Resale-Utilities 79.1 74.7 60.9 2,304.7 2,422.1 1,856.6
Other Operating Revenues 24.5 22.1 20.3 - - -
-------- -------- -------- -------- -------- --------
Total $1,797.8 $1,722.1 $1,663.6 32,042.4 31,257.1 29,940.4
======== ======== ======== ======== ======== ========
Weather - Degree Days (a)
Heating (6,887 Normal) 6,716 6,318 5,848
Cooling (681 Normal) 566 753 800
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
During 2000, total electric energy sales increased by
785.3 thousand megawatt-hours or 2.5% compared with 1999, mostly
reflecting growth in the average number of residential, small
commercial/industrial and other retail/municipal customers and a
13.1% increase in sales to the Empire and Tilden iron ore mines,
Wisconsin Electric's two largest retail customers. Excluding the
Empire and Tilden mines, total electric sales increased by 1.7%
and sales to the remaining large commercial/industrial customers
were unchanged between the comparative periods. Growth in the
average number of customers partially offset the effects of
cooler weather during the 2000 cooling season on total electric
energy sales and operating revenues. As measured by cooling
degree days, 2000 was 24.8% cooler than 1999 and 16.9% cooler
than normal.
From August through mid-October 1999, the Empire and Tilden iron
ore mines were temporarily shut down. As a result, electric
energy sales to the mines decreased 9.8% during 1999 compared to
1998. Excluding the Empire and Tilden iron ore mines, total
electric energy sales increased by 5.6% during 1999 and sales to
the remaining large commercial/industrial customers increased by
2.8% when compared with 1998. Sales for resale to other
utilities increased by 30.5% during 1999 primarily due to higher
opportunity sales. When comparing 1999 electric sales with 1998,
summer cooling load due to weather was not a significant factor.
As measured by cooling degree days, 1999 was 5.9% cooler than
1998. However, 1999 and 1998 were 10.6% and 17.5% warmer than
normal, respectively.
Gas Utility Revenues, Gross Margins and Therm Deliveries
The following table compares Wisconsin Energy's gas utility
operating revenues and its gross margin (total gas utility
operating revenues less cost of gas sold) during 2000 with
similar information for 1999 and 1998. 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.
Gas Utility Operations 2000 (a) 1999 1998
- --------------------------- -------- -------- --------
(Millions of Dollars)
Gas Operating Revenues $736.3 $306.8 $295.9
Cost of Gas Sold 486.7 174.0 175.5
------ ------ ------
Gross Margin $249.6 $132.8 $120.4
====== ====== ======
(a) Wisconsin Energy's gas utility information reflects the operations of
Wisconsin Gas subsequent to the WICOR merger on April 26, 2000. For
further information concerning gas utility operations during the
comparative periods, see "Pro Forma Gas Utility Revenues, Gross Margins
and Therm Deliveries" below.
During 2000, Wisconsin Energy's total gas utility operating
revenues increased by $429.5 million or 140.0% compared with the
same period during 1999. Gross margin on gas utility operating
revenues increased by $116.8 million or 88.0%. Of these changes,
$336.7 million of the increase in total gas utility operating
revenues and $109.3 million of the increase in gross margin were
attributable to Wisconsin Gas.
Excluding Wisconsin Gas, Wisconsin Energy's total gas utility
operating revenues increased by $92.8 million or 30.2% during
2000 while gross margin on increased by $8.1 million or 6.1%
when compared with 1999. Significantly higher natural gas prices
mostly contributed to the increase in total gas utility operating
revenues. Because changes in the cost of natural gas purchased
at market prices were included in customer rates through the gas
cost recovery mechanism, gas operating revenues changed by
approximately the same amount as the cost of gas sold and gross
margin was unaffected by such changes. Interim and final retail
gas rate increases at Wisconsin Electric, that became effective
in early April 2000 and on August 30, 2000, respectively, along
with a weather-related increase in higher margin residential and
commercial/industrial retail gas sales during the fourth quarter
of 2000, contributed to the increase in operating revenues and
gross margin during 2000. For additional information concerning
the rate increases, see "Factors Affecting Results, Liquidity and
Capital Resources" below. A decrease in revenues from
interdepartmental therm deliveries to Wisconsin Electric's
natural gas-fired electric generating facilities during 2000
partially offset the increases in gas utility operating revenues
and gross margin noted above.
Due in large part to increased retail gas sales during 1999,
especially to higher margin residential and commercial/industrial
customers, Wisconsin Electric's gross margin on gas utility
operating revenues increased by $12.4 million or 10.3% compared
with 1998. In spite of the increase in retail gas sales,
however, the cost of gas sold decreased by 0.9% during 1999 due
to a decrease in the price of purchased gas.
Operating Revenues Therm Deliveries
------------------------------- -------------------------------
Gas Utility Operations 2000 (a) 1999 1998 2000 (a) 1999 1998
- ------------------------------- ------- ---- ---- -------- ---- ----
(Millions of Dollars) (Millions)
Customer Class
Residential $450.2 $193.8 $176.5 569.0 329.0 289.5
Commercial/Industrial 225.2 95.1 87.9 336.5 195.3 182.0
Interruptible 13.7 5.3 7.1 24.9 16.3 23.3
------ ------ ------ ------- ----- -----
Total Retail Gas Sales 689.1 294.2 271.5 930.4 540.6 494.8
Transported Customer-Owned Gas 31.3 14.6 12.0 650.1 347.9 349.4
Transported-Interdepartmental 1.5 1.8 2.5 41.0 55.6 78.6
Other Operating Revenues 14.4 (3.8) 9.9 - - -
------ ------ ------ ------- ----- -----
Total $736.3 $306.8 $295.9 1,621.5 944.1 922.8
====== ====== ====== ======= ===== =====
Weather - Degree Days (b)
Heating (6,887 Normal) 6,716 6,318 5,848
(a) Wisconsin Energy's gas utility information reflects the operations of
Wisconsin Gas subsequent to the WICOR merger on April 26, 2000. For
further information concerning gas utility operations during the
comparative periods, see "Pro Forma Gas Utility Revenues, Gross Margins
and Therm Deliveries" below.
(b) As measured at Mitchell International Airport in Milwaukee, Wisconsin,
normal degree days are based upon a twenty-year moving average.
Pro Forma Gas Utility Revenues, Gross Margins
and Therm Deliveries
The following table compares pro forma gas utility operating
revenues, gross margins and therm deliveries during 2000, 1999
and 1998 as if Wisconsin Gas had been part of Wisconsin Energy
since January 1, 1998.
Gross Margin Therm Deliveries
Pro Forma ---------------------------- ------------------------------
Gas Utility Operations 2000 1999 1998 2000 1999 1998
- ------------------------------- ---- ---- ---- ---- ---- ----
(Millions of Dollars) (Millions)
Operating Revenues
Residential $606.3 $473.1 $433.7 803.8 769.4 698.1
Commercial/Industrial 292.7 216.3 205.4 462.1 445.8 422.6
Interruptible 18.1 16.7 20.8 35.2 45.3 59.9
------ ------ ------ ------- ------- -------
Total Retail Gas Sales 917.1 706.1 659.9 1,301.1 1,260.5 1,180.6
Transported Customer-Owned Gas 41.4 38.1 34.5 856.1 848.1 809.5
Transported-Interdepartmental 1.5 1.8 2.5 41.0 55.6 78.6
Other Operating Revenues (7.8) - 27.5 - - -
------ ------ ------ ------- ------- -------
Total Operating Revenues 952.2 746.0 724.4 2,198.2 2,164.2 2,068.7
Cost of Gas Sold 613.7 424.2 427.7 ======= ======= =======
------ ------ ------
Gross Margin $338.5 $321.8 $296.7
====== ====== ======
As noted above, significantly higher natural gas prices during
2000, which are passed through to customers under gas cost
recovery mechanisms at Wisconsin Electric and Wisconsin Gas,
primarily contributed to the increase in total pro forma gas
utility operating revenues but did not significantly affect gross
margin.
Other Utility Segment Items
OTHER OPERATION AND MAINTENANCE EXPENSES: Other operation and
maintenance expenses increased by $46.3 million during 2000 when
compared with 1999 excluding Wisconsin Gas, which had
$55.0 million of expenses subsequent to the WICOR merger. The
most significant change in other operation and maintenance
expenses between the comparative periods resulted from
$52.7 million of non-recurring charges at Wisconsin Electric
associated with the WICOR merger including severance, benefits
and other matters. Increased other operation and maintenance
expenses during 2000, excluding Wisconsin Gas, were also
attributable to $14.8 million of higher non-fuel fossil
generation expenses and $9.0 million of higher electric
distribution expenses offset in part by an $8.8 million decline
in nuclear non-fuel expenses and a $9.9 million decline in
customer service expenses.
Non-fuel fossil generation expenses increased during 2000
primarily due to differences in the scope and timing of scheduled
maintenance outages for various generating facilities at
Wisconsin Electric. Electric distribution expenses were higher
due in large part to increased forestry and maintenance activity.
During 2000, nuclear non-fuel expenses were lower as a result of
continued progress on various performance improvement
initiatives. Between the comparative periods, customer service
expenses were lower primarily due to a change in the period over
which conservation expenses are being amortized.
During 1999, other operation and maintenance expenses for the
utility energy segment decreased by $10.1 million when compared
with 1998. The most significant changes in other operation and
maintenance expenses between the comparative periods include a
$28.0 million decrease in nuclear non-fuel expenses partially
offset by a $4.9 million increase in administrative and general
expenses, a $2.9 million increase in electric transmission
expenses, a $2.2 million increase in payroll taxes and a
$2.1 million increase in non-fuel fossil generation expenses.
Nuclear non-fuel expenses decreased as a result of progress on
various performance improvement initiatives, while administrative
and general expenses increased mostly due to higher employee
benefits paid and to increased staffing, which also increased
payroll taxes. Electric transmission expenses increased
primarily due to higher purchased power transmission fees during
1999, and non-fuel fossil generation expenses increased as a
result of an increase in the number of maintenance outages early
in 1999 at Wisconsin Electric's fossil-fuel power plants in
anticipation of higher electric demand during the summer of 1999.
DEPRECIATION, DECOMMISSIONING AND AMORTIZATION EXPENSES:
Excluding Wisconsin Gas, depreciation, decommissioning and
amortization expenses were $39.0 million higher during 2000
compared with 1999. Pursuant to a 1998 rate order for the
1998/1999 test year, Wisconsin Electric was amortizing pre-1991
contributions in aid of construction. This amortization, which
was completed as of December 31, 1999, had the effect of reducing
depreciation expense by $22.8 million during 1999. Higher
average depreciable property during 2000 also contributed to an
increase in depreciation expense.
Primarily due to an increase in average depreciable property,
Wisconsin Energy's utility energy segment depreciation,
decommissioning and amortization expenses increased by
$9.9 million during 1999 when compared with 1998.
OTHER INCOME AND DEDUCTIONS: Other income and deductions was
$8.1 million lower when comparing 2000 with 1999 and
$13.5 million lower when comparing 1999 with 1998. These changes
primarily reflect increased contributions by Wisconsin Electric
and Wisconsin Gas to the Wisconsin Energy Foundation during the
fourth quarter of 2000. In 1999, Wisconsin Electric made a one-
time $18.0 million litigation settlement payment that was offset
in part by a $6.1 million gain on the sale of certain properties.
INCOME TAXES: The effective income tax rate increased during
2000 due in large part to the end of amortization of pre-1991
contributions in aid of construction as described above and to
the amortization of non-deductible goodwill beginning during
2000.
NON-UTILITY ENERGY SEGMENT CONTRIBUTION TO EARNINGS
In December 2000, the Company announced that it expects to sell
its two non-utility power plants in the state of Connecticut
during the second quarter of 2001, which will substantially
reduce its non-utility energy operations.
Excluding the WICOR non-utility energy companies, non-utility
energy segment earnings increased by $37.4 million during 2000.
Wisconsin Energy attributes this increase mostly to a one-time,
$54.6 million after-tax gain in October 2000 on the sale of its
interest in SkyGen Energy Holdings LLC, offset in part by
$16.0 million of after-tax non-recurring charges during the
fourth quarter of 2000 relating to severance costs associated
with the divestiture of non-core businesses and for write-downs
associated with certain investments.
During 1999, non-utility energy segment earnings increased by
$4.8 million when compared with 1998 primarily because of the
April 1999 acquisition of the two Connecticut power plants and,
to a lesser extent, as a result of increased energy marketing,
trading and services activities.
The following table summarizes the non-utility energy segment's
earnings during 2000, 1999 and 1998. In addition, the table
summarizes electric megawatt-hour sales from independent power
production activities during the comparative periods as well as
electric megawatt-hour sales and natural gas therm sales as a
result of non-utility energy marketing, trading and services
activities.
2000
-------------------------------
Non-Utility Energy Segment WICOR (a) Other (b) Total 1999 1998
- ---------------------------------- --------- --------- ----- ---- ----
(Millions of Dollars, Except Statistics)
Operating Revenues
Independent Power Production $ - $149.5 $149.5 $101.1 $ -
Energy Marketing, Trading & Services 118.7 75.5 194.2 74.5 25.1
Other 0.2 28.9 29.1 17.6 9.0
------ ------ ------ ------ ------
Total Operating Revenues 118.9 253.9 372.8 193.2 34.1
Fuel and Purchased Power - 168.6 168.6 129.2 24.8
Cost of Gas Sold 108.0 - 108.0 - -
Cost of Goods Sold 8.2 - 8.2 - -
------ ------ ------ ------ ------
Gross Margin 2.7 85.3 88.0 64.0 9.3
Other Operating Expenses 3.5 82.7 86.2 44.3 10.2
------ ------ ------ ------ ------
Operating Income (Loss) (0.8) 2.6 1.8 19.7 (0.9)
Other Income 0.1 99.0 99.1 6.8 2.0
Financing Costs 0.4 29.4 29.8 21.8 4.0
------ ------ ------ ------ ------
Income Before Income Taxes (1.1) 72.2 71.1 4.7 (2.9)
Income Taxes (0.4) 32.1 31.7 2.0 (0.8)
------ ------ ------ ------ ------
Net Earnings (Loss) ($0.7) $40.1 $39.4 $2.7 ($2.1)
====== ====== ====== ====== ======
Statistics
Independent Power Production
Electric Megawatt-Hour
Sales (Thousands) - 3,213.2 3,213.2 2,417.2 -
Energy Marketing, Trading & Services
Electric Megawatt-Hour
Sales (Thousands) - 2,091.2 2,091.2 1,598.1 723.7
Gas Therm Sales (Millions) 187.6 - 187.6 - -
(a) Wisconsin Energy's financial statements and statisticsreflect the
operations of WICOR Energy Services and FieldTech, subsidiaries of
WICOR, subsequent to the merger on April 26, 2000.
(b) Other consists primarily of Wisvest Corporation, a wholly-owned non-utility
energy subsidiary of Wisconsin Energy ("Wisvest").
MANUFACTURING SEGMENT CONTRIBUTION TO EARNINGS
Excluding costs related to the WICOR merger, the manufacturing
segment contributed $21.5 million to net earnings during 2000.
Prior to the WICOR acquisition, Wisconsin Energy did not have a
manufacturing segment. The following table summarizes the
manufacturing segment's earnings during 2000 following the WICOR
merger, including related merger costs of $14.0 million.
Manufacturing Segment 2000 (a)
--------------------- --------
(Millions of Dollars)
Operating Revenues
Domestic $286.1
International 88.1
------
Total Operating Revenues 374.2
Cost of Goods Sold 262.8
------
Gross Margin 111.4
Other Operating Expenses 78.9
------
Operating Income 32.5
Other Deductions (3.7)
Financing Costs 14.1
------
Income Before Income Taxes 14.7
Income Taxes 7.2
------
Net Earnings $7.5
======
(a) Wisconsin Energy's financial statements reflect operations of
the manufacturing segment subsequent to the WICOR merger on
April 26, 2000.
Assuming that WICOR had been a part of Wisconsin Energy since
January 1, 1998 and excluding costs related to the WICOR merger,
the manufacturing segment would have posted pro forma net
earnings of approximately $29.0 million during the twelve months
of 2000 compared with pro forma net earnings of $29.6 million
during 1999 and $23.8 million during 1998. The manufacturing
segment's results for 2000 were impacted by a series of expenses
associated with defenses of intellectual property rights,
development of a new beverage dispensing technology and the
integration of an acquisition. Management believes that these
expenses are substantially past. For further pro forma
information concerning manufacturing segment revenues and gross
margin during the comparative periods, see "Pro Forma
Manufacturing Segment Revenues and Gross Margin" below.
Pro Forma Manufacturing Segment Revenues and Gross Margins
The following table summarizes pro forma revenues and gross
margins for the manufacturing segment during the comparative
periods as if the manufacturing segment had been part of
Wisconsin Energy since January 1, 1998.
Pro Forma
Manufacturing Gross Margin 2000 1999 1998
- ------------------------------ -------- -------- --------
(Millions of Dollars)
Operating Revenues
Domestic $426.9 $372.6 $323.2
International 136.8 138.4 139.4
------ ------ ------
Total Operating Revenues 563.7 511.0 462.6
Cost of Goods Sold 397.4 357.7 329.2
------ ------ ------
Gross Margin $166.3 $153.3 $133.4
====== ====== ======
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
The following table summarizes Wisconsin Energy's cash flows
during 2000, 1999 and 1998:
Wisconsin Energy Corporation 2000 1999 1998
- ---------------------------- -------- -------- --------
(Millions of Dollars)
Cash Provided by (Used in):
Operating Activities $461.0 $306.9 $451.4
Investing Activities (1,520.5) (888.8) (469.4)
Financing Activities 1,026.5 638.8 15.0
Operating Activities
During 2000, cash provided by operating activities increased by
$154.1 million compared with 1999, reflecting a $110 million
contested liability payment made during the fourth quarter of
1999 in the Giddings & Lewis Inc./City of West Allis lawsuit and
increased non-cash charges for depreciation and amortization and
reduced tax payments during 2000.
Cash provided by operating activities decreased by $144.5 million
during 1999 compared with 1998, reflecting the $110 million
contested liability payment in the Giddings & Lewis Inc./City of
West Allis lawsuit noted above and changes in working capital
requirements, offset in part by increased non-cash charges for
depreciation and amortization and for net deferred income taxes.
During 2000, cash from operations provided for approximately 75%
and 48% of the Company's capital expenditure requirements before
and after the payment of common dividends, respectively, compared
with 59% and 24%, respectively, during 1999 and 113% and 69%,
respectively, during 1998. During each of these years, Wisconsin
Energy used net borrowings to supplement the funding of its
capital requirements.
Investing Activities
For the year ended December 31, 2000, Wisconsin Energy spent
$1.5 billion in investing activities. The largest investment was
the $1.2 billion acquisition of WICOR, Inc. in April 2000. In
addition, the Company invested $400.0 million in utility plant,
$107.7 million in non-utility energy projects, $20.3 million in
manufacturing and $83.0 million in other non-utility activities.
In addition to investments in its core businesses, Wisconsin
Energy began a program of divesting of non-core businesses and
assets. During 2000, the Company received proceeds of
approximately $408.4 million from the sale of assets including
$219.5 million for its interest in SkyGen Energy Holdings, LLC,
$57.2 million for other non-utility energy segment assets and
$128.3 million for the sale of non-utility real estate assets
held by Wispark.
Financing Activities
During 2000, the Company financed the WICOR acquisition, paid
down debt through sales of non-core businesses, implemented a
share repurchase program and reduced its dividend.
Wisconsin Energy funded the April 2000 acquisition of WICOR, Inc.
through issuance in the institutional private placement market of
$1.2 billion of commercial paper with a weighted average
effective interest rate of 6.09%. As a result of refinancing
some short-term debt which has matured since the merger, the
weighted average interest rate for this commercial paper was
6.59% as of December 31, 2000. Wisconsin Energy arranged for two
new bank back-up credit facilities to provide credit support for
the issuance of Wisconsin Energy's commercial paper: a
$1.0 billion 364-day bank back-up credit facility and a
$500 million three-year bank back-up credit facility. In
addition, approximately $267 million of WICOR debt remained
outstanding following the merger. The Company intends to extend
a portion of the $1.0 billion bank back-up credit facility that
expires in April 2001. In anticipation of reducing this
facility, the Company plans to refinance a portion of the
commercial paper with longer term unsecured debt.
During 2000, the Company purchased approximately 5.0 million
shares of common stock for $100.8 million under a $400 million
board-approved repurchase program that was initiated in June 2000
and modified in September 2000. Also in September 2000, the
board of directors authorized a quarterly cash dividend on its
common stock, payable December 1, 2000, of $0.20 per share ($0.80
on an annualized basis), which was reduced from prior quarterly
dividends paid during 2000 of $0.39 per common share (or $1.56 on
an annualized basis). Through a reduced dividend, the Company
expects to be able to reinvest in core business areas, reduce
debt and lower borrowing costs, and thereby to increase its
overall financial strength.
CAPITAL RESOURCES AND REQUIREMENTS
As Wisconsin Energy continues to implement its strategy of
leveraging on the core competencies of its business segments and
building financial strength, Wisconsin Energy expects to continue
to divest of non-core assets, invest in core assets, buy back
common stock and pay down debt.
Capital Resources
Wisconsin Energy currently expects cash from operations to
provide about 72% of the Company's capital expenditure
requirements during 2001 before the payment of common dividends
and receipt of proceeds from asset sales.
Wisconsin Energy anticipates receiving approximately $120 million
of cash distributions from the American Transmission Company LLC
during the first half of 2001. In addition, the Company
currently expects to receive approximately $500 million of net
proceeds during 2001 as a result of asset sales.
The Company plans to issue up to $1 billion of intermediate-term
unsecured debt in the capital markets during the first quarter of
2001 dependent upon market conditions and other factors.
Proceeds from issuance of any debt securities will be used to
repay short-term borrowings and for other corporate purposes.
Beyond 2001, Wisconsin Energy anticipates meeting its capital
requirements through internally generated funds supplemented,
when required, through the issuance of capital market securities.
The Company has access to outside capital markets and has been
able to generate funds internally and externally to meet its
capital requirements. Wisconsin Energy's ability to attract the
necessary financial capital at reasonable terms is critical to
the Company's overall strategic plan. Wisconsin Energy believes
that it has adequate capacity to fund its operations for the
foreseeable future through its borrowing arrangements and
internally generated cash.
On December 31, 2000, Wisconsin Energy had $2.0 billion of
available unused lines of bank credit on a consolidated basis,
$1.5 billion of which were obtained in conjunction with the WICOR
acquisition. Wisconsin Energy has historically used these lines
primarily to support its outstanding commercial paper and other
short-term borrowings.
The following table shows Wisconsin Energy's consolidated
capitalization structure at December 31:
Capitalization Structure 2000 1999
- ------------------------ ---------------------- -----------------------
(Millions of Dollars)
Common Equity $2,016.8 31.4% $2,007.8 40.6%
Preferred Stock 30.4 0.5% 30.4 0.6%
Trust Preferred Securities 200.0 3.1% 200.0 4.0%
Long-Term Debt (including
current maturities) 2,788.1 43.4% 2,203.7 44.5%
Short-Term Debt 1,386.1 21.6% 507.5 10.3%
-------- ------ -------- ------
Total $6,421.4 100.0% $4,949.4 100.0%
======== ====== ======== ======
As described in "Note A - Summary of Significant Accounting
Policies" in the Notes to Financial Statements, certain
restrictions exist on the ability of Wisconsin Energy's
subsidiaries to transfer funds to Wisconsin Energy. The Company
does not expect these restrictions to have any material effect on
its operations or ability to meet its cash obligations.
Access to capital markets at a reasonable cost is determined in
large part by credit quality. In March 2001, in conjunction with
Wisconsin Energy's pending issuance of $1 billion of unsecured
senior notes, Standard & Poors Corporation ("S&P") assigned an A+
rating to the Company's $1 billion shelf registration and
maintained the negative outlook for Wisconsin Energy and its
subsidiaries. Fitch also assigned an A+ rating to the $1 billion
shelf registration but revised its rating outlook for Wisconsin
Energy Corporation and Wisconsin Energy Capital Corporation from
stable to negative. In addition, Fitch reaffirmed its ratings of
the securities of the Company's utility subsidiaries, Wisconsin
Electric Power Company and Wisconsin Gas Company. Moody's
Investors Service ("Moody's") assigned a rating of A2 to the
$1 billion of senior unsecured notes that Wisconsin Energy plans
to issue in the first quarter of 2001 and lowered Wisconsin Energy's
issuer rating from A1 to A2, Wisconsin Energy Capital
Corporation's unsecured debt rating from A1 to A2 and WEC
Capital Trust I's Trust Preferred Securities rating from A1 to
A2. In addition, Moody's reaffirmed its ratings of the
securities of the Company's utility subsidiaries, Wisconsin
Electric and Wisconsin Gas. Moody's outlook remains stable for
all companies.
The following table summarizes the current ratings of securities
of Wisconsin Energy and its subsidiaries by S&P, Moody's and
Fitch. Commercial paper of WICOR Industries, Inc. is unrated.
S & P Moody's Fitch
--------- --------- ---------
Wisconsin Energy Corporation
Commercial Paper A-1 P-1 F1
Senior Unsecured Debt A+ A2 A+
Wisconsin Electric Power Company
Commercial Paper A-1+ P-1 F1+
Senior Secured Debt AA- Aa2 AA
Unsecured Debt A+ Aa3 AA-
Preferred Stock A aa3 AA-
Wisconsin Gas Company
Commercial Paper A-1+ P-1 F1+
Senior Unsecured Debt AA- Aa2 AA-
Wisconsin Energy Capital Corporation
Unsecured Debt A+ A2 A+
WEC Capital Trust I
Trust Preferred Securities A- a2 A
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.
Capital Requirements
Total capital expenditures, excluding the purchase of nuclear
fuel, are currently estimated to be $715.0 million during 2001
attributable to the following operating segments:
Estimated Actual
Capital Expenditures 2001 2000
- -------------------- --------- ------
(Millions of Dollars)
Utility Energy Segment $480.0 $400.0
Non-Utility Energy Segment 90.0 107.7
Manufacturing Segment 35.0 20.3
Other
Minergy 55.0 2.3
Other 55.0 80.7
------ ------
Total $715.0 $611.0
====== ======
Due to changing environmental and other regulations such as air
quality standards or electric reliability initiatives that
especially impact the Company's utility energy segments, future
long-term capital requirements may vary from recent capital
requirements. The utility energy segment currently expects
capital expenditures, excluding the purchase of nuclear fuel and
expenditures for new generating capacity contained in the "Power
the Future" strategy described below, to be between approximately
$380 million and $480 million per year during the next five
years.
FACTORS AFFECTING RESULTS, LIQUIDITY AND CAPITAL RESOURCES
OUTLOOK
The following forecasts are forward-looking statements subject to
certain risks, uncertainties and assumptions. Actual results may
vary materially. Factors that could cause actual results to
differ materially include, but are not limited to: general
economic conditions; business, competitive and regulatory
conditions in the deregulating and consolidating energy industry,
in general, and in the Company's utility service territories;
availability of the Company's generating facilities; changes in
purchased power costs and supply availability; changes in coal or
natural gas prices and supply availability; unusual weather;
risks associated with non-utility diversification; regulatory
decisions; obtaining the necessary regulatory approvals and
investment capital to implement the "Power the Future" strategy;
the timing and extent of realization of anticipated synergy
benefits from the WICOR merger; disposition of legal proceedings;
and foreign governmental, economic, political and currency risk;
and other factors referred to under "Market Risks" and
"Cautionary Factors" below.
Forecasts
EARNINGS: Subject to the many variables which can affect such a
projection, including weather and other factors listed above,
diluted earnings per share of common stock are expected to be in
the range of $2.00 to $2.25 per share during 2001, reflecting a
full year of earnings contributions from WICOR and merger-related
synergies.
ELECTRIC SALES: Assuming moderate growth in the economy of its
electric utility service territories and normal weather, the
Company presently anticipates total retail and municipal electric
kilowatt-hour sales of the utility energy segment to grow at a
compound annual rate of 2.5% over the five-year period ending
December 31, 2005.
GAS DELIVERIES: Assuming moderate growth in the economy of its
gas utility service territories and normal weather, the Company
currently forecasts total therm deliveries of natural gas to grow
at a compound annual rate of approximately 1.7% for the combined
gas operations of Wisconsin Electric and Wisconsin Gas over the
five-year period ending December 31, 2005.
Factors Affecting Forecasts
GAS COSTS: The cost of natural gas rose approximately 325%
during 2000, affecting Wisconsin Energy's electric and gas
utility operations. Based upon December closing prices for
natural gas futures on the New York Mercantile Exchange, the cost
of gas increased from $2.344 per decatherm in January 2000 to
$9.978 per decatherm in January 2001. Based upon February
closing prices, the cost of gas increased from $2.603 per
decatherm in March 2000 to $4.998 per decatherm in March 2001, an
increase of approximately 90%.
Gas costs have increased significantly because the supply of gas
in recent years has not kept pace with the demand for natural
gas, which has grown throughout the United States as a result of
increased reliance on natural gas-fired electric generating
facilities and colder winter weather in late 2000. Wisconsin
Energy expects that demand for natural gas will remain high into
the foreseeable future and that significant price relief will not
occur until additional natural gas is added to the nation's
energy supply mix over a period of several years.
Higher gas costs increase the working capital requirements of the
Company, result in higher gross receipts taxes in the state of
Wisconsin and expose the Company to greater risks of accounts
receivable write-offs.
As a result of gas cost recovery mechanisms, the gas distribution
subsidiaries of Wisconsin Energy receive dollar for dollar pass
through on most of the cost of natural gas. However, increased
natural gas costs increase the risk that customers will switch to
alternative fuel sources, which could reduce future gas margins.
The electric operations of Wisconsin Electric burns natural gas
in several of its peaker power plants or as a supplemental fuel
at several coal-fired plants, and the cost of purchased power is
tied to the cost of natural gas in many instances. As described
below, Wisconsin Electric bears significant regulatory risk for
the recovery of fuel costs related to electric generation and
purchased power that are higher that the base rate established in
its rate structure.
RECOVERY OF FUEL AND PURCHASED POWER COSTS: The electric
operations of Wisconsin Electric operates under a fuel cost
adjustment clause for its fuel and purchased power costs
associated with the generation and delivery of electricity. This
clause establishes a base rate for fuel and purchased power, and
Wisconsin Electric assumes the risks and benefits of fuel cost
variances that are within 3% of the base rate. For 2000 and
1998, actual Wisconsin Electric fuel and purchased power costs
exceeded base costs by $25.9 million and $11.3 million,
respectively. For 1999, actual Wisconsin Electric fuel and
purchased power costs were $1.5 million less than base costs.
For 2001, the 3% range is plus or minus approximately
$14 million. If actual fuel and purchased power costs exceed the
3% window, Wisconsin Electric has the opportunity to make a
filing with the Public Service Commission of Wisconsin ("PSCW")
to establish new base fuel costs prospectively and adjust rates
accordingly. This procedure is subject to normal PSCW hearings
and the regulatory process but is limited to only fuel costs. If
costs are less than the 3% window, the rate is reduced
immediately. The base fuel rates include, among other things,
assumptions regarding the availability of the Company's
generating assets, including Point Beach Nuclear Plant, and the
cost of natural gas and purchased power. As described in further
detail below in "Rates and Regulatory Matters," Wisconsin
Electric implemented an interim fuel adjustment surcharge in
February 2001 under this procedure.
In December 2000, the PSCW initiated a review of fuel rules and
solicited comments from Wisconsin utilities. The Company has
submitted comments to the PSCW which seek to minimize or
eliminate risks associated with fuel costs. It is expected that
the PSCW will modify existing fuel rules during the latter part
of 2001. Any permanent changes to the fuel rules will require
Wisconsin legislative approval.
WEATHER: The rates of Wisconsin Electric and Wisconsin Gas are
set by the PSCW based upon weather which approximates 20-year
averages. Wisconsin Electric's electric revenues are sensitive
to the summer cooling season, and to some extent, to the winter
heating season. The gas revenues of Wisconsin Electric and
Wisconsin Gas are sensitive to the winter heating season. A
summary of actual weather information for 2000, 1999 and 1998 as
measured by degree-days may be found above in "Results of
Operations."
INTEREST RATES: The Company has approximately $1,386.1 million
of variable rate short-term debt and $913.5 million of variable
rate long-term debt outstanding as of December 31, 2000. Changes
in future interest rates will have an impact on future interest
expense.
INFLATION: The Company continues to monitor the impact of
inflation in order to minimize its effects in future years
through pricing strategies, productivity improvements and cost
reductions. With expectations of low-to-moderate inflation,
Wisconsin Energy does not believe the impact of inflation will
have a material effect on its future results of operations.
INVESTMENTS, MERGERS, DIVESTITURES AND ASSET SALES
Electric Generation
"POWER THE FUTURE" STRATEGY: In late February 2001, Wisconsin
Energy announced enhancements to a 10-year, $7 billion strategy,
originally proposed in September 2000, that would improve the
supply and reliability of electricity in Wisconsin and that is
expected to improve the Company's financial results. The "Power
the Future" strategy is needed to meet growing load and ensure a
diverse fuel mix while keeping electricity prices reasonable.
Demand for electricity in the state of Wisconsin is currently
expected to outstrip supply by 4,000 megawatts by 2010.
Wisconsin Electric's load is growing at approximately 100-
150 megawatts per year. "Power the Future" adds new coal
capacity to the power portfolio and allows Wisconsin Electric to
maintain roughly the same fuel mix as today. A mix of coal and
gas capacity is expected to save customers over $1.6 billion
(over the life of the plants and estimating future natural gas
costs) compared to the alternative all-gas scenario.
As part of its "Power the Future" strategy, Wisconsin Energy
would invest in the following over the next ten years:
* Approximately $3 billion in at least 2,800 megawatts of new
natural gas-fired and coal-fired generating capacity;
* Approximately $1.3 billion in existing electric generating
assets; and
* Approximately $2.7 billion in new and existing electric
utility distribution system assets and other capital projects.
Wisconsin Energy anticipates creating a new non-utility energy
subsidiary that would construct and own the new generating
capacity noted above. Under the enhanced "Power the Future"
strategy, Wisconsin Electric would sign 20 to 25-year leases for
each facility, approved by the PSCW, and would operate and
maintain the new plants as part of the lease agreements. At the
end of the original contracts, Wisconsin Electric would have the
right to renegotiate and continue the leases, or acquire the
associated plants outright, at market value. Smaller investor-
owned or municipal utilities, cooperatives and power marketing
associations would have some opportunity to expand or extend
wholesale power purchases from Wisconsin Electric as a result of
the additional electric generating capacity included in the
proposal.
Implementation of the "Power the Future" strategy is subject to a
number of state and federal regulatory approvals as well as the
amendment of several state laws in Wisconsin. In late February
2001, Wisconsin Energy filed its enhanced "Power the Future"
proposal with the PSCW. The enhanced "Power the Future" proposal
has benefited from a broad coalition of support including
customer groups, public power, municipal and cooperative
utilities and smaller investor-owned utilities in Wisconsin.
Depending upon the response of the PSCW to this preliminary
filing, the Company anticipates filing detailed plans later in
2001. Wisconsin Energy anticipates obtaining the capital
necessary to finance and execute this strategy from internal and
external sources.
WISVEST CORPORATION: In April 1999, Wisvest-Connecticut, LLC, a
wholly-owned subsidiary of Wisvest, acquired two fossil-fueled
power plants in the state of Connecticut for $277 million.
Wisconsin Energy accounted for the transaction under the purchase
method of accounting and included the results of operations from
the two plants in its consolidated financial statements as of the
acquisition date. In December 2000, Wisvest-Connecticut, LLC
signed a definitive purchase and sale agreement for the sale of
the plants and associated assets. The Company anticipates
receiving estimated proceeds of $350 million, including amounts
for inventory, with a projected closing by the end of the second
quarter of 2001, subject to various regulatory approvals and
certain other closing conditions.
Energy Distribution
ACQUISITION OF WICOR, INC: On April 26, 2000, Wisconsin Energy
acquired all of the outstanding common shares of WICOR, Inc. for
approximately $1.2 billion in cash plus related fees and
expenses. Approximately $267 million of WICOR debt remained
outstanding following the acquisition. The business combination,
which was funded through the issuance of commercial paper, was
accounted for as a purchase, and the excess of the purchase price
over the fair value of net assets and liabilities assumed was
recorded as approximately $818 million of goodwill.
WICOR was a diversified utility holding company with consolidated
total assets of approximately $1.1 billion at December 31, 1999
in utility and non-utility energy subsidiaries as well as in pump
manufacturing subsidiaries. Following the merger, WICOR and its
subsidiaries, including Wisconsin Gas Company, the largest
natural gas distribution public utility in Wisconsin, became
subsidiaries of Wisconsin Energy. The Company intends to
continue the primary business operations of WICOR. The Company
has integrated the gas operations of Wisconsin Electric and
Wisconsin Gas as well as many corporate support areas and expects
to integrate customer billing systems in the third quarter
of 2001.
On November 1, 2000, Wisconsin Electric and Wisconsin Gas filed
an application with the PSCW for authority to transfer Wisconsin
Electric's gas utility assets, together with certain associated
liabilities, to Wisconsin Gas. The matter is pending.
Assuming timely realization of estimated synergies from the
merger, Wisconsin Energy expects the merger to begin contributing
approximately $35 million to annual pre-tax earnings during 2001.
Synergies are expected from lower expenses for the cost of gas,
materials and services through enhanced purchasing power, through
elimination of duplication through attrition, and through sharing
of resources. Additional synergies are anticipated from the
logical consolidation of common functions over time as well as
from such areas as insurance and regulatory costs and legal,
audit and consulting fees.
The PSCW approved the WICOR merger in March 2000. As described
in further detail below in "Rates and Regulatory Matters," the
PSCW's order provided for a qualified five-year rate freeze for
Wisconsin Electric's and Wisconsin Gas' natural gas, electric and
steam utility services beginning January 1, 2001. In its order,
the commission found that it was reasonable to allow the
utilities to retain synergy savings associated with the merger
during the 5-year rate restriction period.
AMERICAN TRANSMISSION COMPANY LLC: During 2000, Wisconsin
Electric and Edison Sault agreed to join the American
Transmission Company LLC by transferring all of their electric
utility transmission assets in exchange for equity interests in
the new company. Transfer of these electric transmission assets,
with a net book value of approximately $252 million, became
effective on January 1, 2001. During the first half of 2001, the
American Transmission Company is expected to issue debt and to
distribute cash to Wisconsin Electric and Edison Sault in an
amount equal to approximately 50% of the net book value of the
assets originally transferred. Joining the American Transmission
Company is consistent with the Federal Energy Regulatory
Commission's Order No. 2000, designed to foster competition,
efficiency and reliability in the electric industry.
Wisconsin Electric and Edison Sault expect to receive earnings
contributions from the American Transmission Company in
proportion to their ownership share. The Company anticipates
that transfer of its electric transmission assets to the American
Transmission Company will be earnings neutral subject to future
rate recovery of any related deferred charges.
RATES AND REGULATORY MATTERS
The Public Service Commission of Wisconsin regulates retail
electric, natural gas, steam and water rates in the state of
Wisconsin, while the Federal Energy Regulatory Commission
regulates wholesale power, electric transmission and interstate
gas transportation service rates. The Michigan Public Service
Commission regulates retail electric rates in the state of
Michigan.
Wisconsin Jurisdiction
WICOR MERGER ORDER: As a condition of its March 2000 approval
of the WICOR acquisition, the PSCW ordered a qualified five-year
freezing of rates for Wisconsin Electric's electric, natural gas
and steam utility services and for natural gas rates at Wisconsin
Gas that were in effect on January 1, 2001. The Company may seek
biennial rate reviews during the five-year rate restriction
period limited to changes in revenue requirements as a result of:
* Governmental mandates;
* Abnormal levels of capital additions required to maintain or
improve reliable electric service; or
* Major gas lateral projects associated with approved natural
gas pipeline construction projects.
To the extent that natural gas rates and rules need to be
modified during the integration of the gas operations of
Wisconsin Electric and Wisconsin Gas, the Company's total gas
revenue requirements are to remain revenue neutral under the
merger order. In its order, the PSCW found that electric fuel
cost adjustment procedures as well as gas cost recovery
mechanisms would not be subject to the five-year rate restriction
period and that it was reasonable to allow the Company to retain
synergy savings associated with the merger. A full rate review
will be required by the PSCW at the end of the five-year rate
restriction period.
WISCONSIN ELECTRIC POWER COMPANY: The table below summarizes
the anticipated annualized revenue impact of recent rate changes,
primarily in the Wisconsin jurisdiction, authorized by regulatory
commissions for Wisconsin Electric's electric, natural gas and
steam utilities.
Annualized Authorized
Revenue Percent Return on
Increase Change Common Effective
Service - Wisconsin Electric (Decrease) in Rates Equity Date
- ---------------------------- ---------- -------- ---------- ---------
(Millions) (%) (%)
Fuel electric, WI (a) $37.8 2.5% - 2/09/01
Fuel electric, MI 1.0 2.4% - 1/01/01
Retail electric, WI 27.5 1.8% 12.2% 1/01/01
Retail electric, WI (b) 36.5 2.5% 12.2% 8/30/00
Retail gas (b) 8.0 2.1% 12.2% 8/30/00
Retail electric, WI (b) 25.2 1.7% 12.2% 4/11/00
Retail gas (b) 11.6 3.3% 12.2% 4/11/00
Fuel electric, WI (7.8) (0.5%) - 5/01/99
Retail electric, MI 2.1 6.0% 11.0% 4/13/99
Retail electric, WI (c) 160.2 12.7% 12.2% 5/01/98
Retail gas (c) 18.5 5.4% 12.2% 5/01/98
Steam heating (c) 1.2 9.3% 12.2% 5/01/98
Retail electric, WI (c) 134.9 10.7% 12.2% 1/01/98
Retail gas (c) 18.5 5.5% 12.2% 1/01/98
Steam heating (c) 0.8 6.3% 12.2% 1/01/98
Fuel electric, WI (d) 11.9 1.0% - 1/01/98
(a) The February 9, 2001 order is an interim order subject to refund pending
the outcome of a full review of fuel costs by the PSCW. A final order is
expected in May 2001.
(b) The April 11, 2000 order was an interim order that was effective until the
August 30, 2000 final order was received from the PSCW. The final
August 30, 2000 order superseded the April 11, 2000 interim order.
(c) The January 1, 1998 order was an interim order that was effective until the
May 1, 1998 final order was received from the PSCW. The final May 1, 1998
order superseded the January 1, 1998 interim order.
(d) A final order from the PSCW, dated December 23, 1997, authorized a total
increase in fuel revenue of $27.2 million less $15.3 million previously
collected through an interim order during 1997.
On March 23, 2000, the PSCW approved Wisconsin Electric's request
for interim price increases related to the 2000/2001 biennial
period, authorizing a $25.2 million (1.7%) increase for electric
operations and an $11.6 million (3.3%) increase for gas
operations. The interim increase, which was subject to potential
refund, became effective April 11, 2000. Rates in the interim
order were based upon a 12.2% return on common equity.
On August 30, 2000, the PSCW issued its final order in the
2000/2001 pricing proposal. The final order authorized a
$36.5 million (2.5%) increase for electric operations (or
$11.3 million higher than authorized in the interim order) as
well as an $8 million (2.1%) increase for gas operations (or
$3.6 million lower than authorized in the interim order).
Wisconsin Electric has refunded to gas customers revenues that
resulted from the difference in gas rates between the interim and
final orders. In its August 30, 2000 final order, the PSCW
authorized a second $27.5 million (1.8%) increase for electric
operations effective January 1, 2001. Rates in the final order
were based upon a 12.2% return on common equity.
Wisconsin Electric filed a petition for a rehearing of the final
order with the PSCW to reconsider the revenue increase for gas
operations. On November 9, 2000, the PSCW denied Wisconsin
Electric's petition. On November 14, 2000, Wisconsin Electric
filed a petition for judicial review with the Milwaukee County
Circuit Court seeking its review of the PSCW's decision. The
court has set a briefing schedule with final briefs due on
May 5, 2001.
In its final order related to the 2000/2001 biennial period, the
PSCW authorized recovery of revenue requirements for, among other
things, electric reliability and safety construction expenditures
as well as for nitrogen oxide ("NOx") remediation expenditures.
Revenue requirements for electric reliability and safety
construction expenditures are subject to refund at the end of
2001 to the extent that actual expenditures are less than
forecasted expenditures included in the final order. In March
2000, the PSCW had previously authorized all Wisconsin utilities
to depreciate NOx emission reduction costs over an accelerated
10-year recovery period. Due to the uncertainty regarding the
level and timing of these expenditures, the PSCW, in its final
order, required Wisconsin Electric to establish escrow accounting
for revenue requirement components associated with NOx
expenditures. Depending upon Wisconsin Electric's actual NOx
remediation expenditures during the 2000/2001 biennial period,
any over or under-spent balances at the end of 2001 in the NOx
escrow account will need to be addressed in future rate making
activities.
WISCONSIN GAS COMPANY: Wisconsin Gas Company rates are set
within the framework of the Productivity-based Alternative
Ratemaking Mechanism, which was established in 1994 and has been
extended through October 31, 2001. Under this mechanism,
Wisconsin Gas has the ability to raise or lower margin rates
within a specified range on a quarterly basis. Currently,
Wisconsin Gas's rates recover $1.5 million per year less than the
maximum amount allowed by the PSCW's rate order. The
Productivity-based Alternative Ratemaking Mechanism has certain
criteria that allow it to be reopened at any time for significant
deterioration in safety, failures to meet conservation goals,
significant changes in interest rates and "extraordinary items."
To date, none of the criteria has been triggered. In its
approval of the WICOR acquisition, the PSCW ordered that
Wisconsin Gas Company's natural gas rates remain under the
Productivity-based Alternative Ratemaking Mechanism for the
program's duration and remain revenue neutral during the
remainder of the five-year rate restriction period noted above.
FUEL COST ADJUSTMENT PROCEDURE: As noted above, Wisconsin
Electric operates under a fuel cost adjustment clause for its
fuel and purchased power costs associated with the generation and
delivery of electricity. On December 8, 2000, Wisconsin Electric
submitted an application with the PSCW seeking a $51.4 million
increase in rates in it's Wisconsin jurisdiction to recover
increased cost of fuel and purchased power in 2001 on an
expedited basis to be effective February 1, 2001. Wisconsin
Electric revised it's projected fuel cost shortfall on
January 10, 2001 to reflect updated natural gas cost projections
for 2001. This update resulted in a request for an additional
$11.1 million in 2001, bringing the total requested increase to
$62.5 million. Hearings on this matter were held on January 17,
2001. On February 9, 2001, the PSCW issued an interim order
authorizing a $37.8 million increase in rates for 2001 fuel costs
subject to refund pending the outcome of a full review of fuel
costs. Hearings on the final phase of the case have been
scheduled for March 23 and April 2, 2001. A final order in this
case is expected in early spring 2001.
GAS COST RECOVERY MECHANISM: As a result of the acquisition of
WICOR by Wisconsin Energy, the PSCW required similar gas cost
recovery mechanisms ("GCRM") for the gas operations of Wisconsin
Electric and for Wisconsin Gas. In recent years, Wisconsin
Electric has operated under a modified dollar for dollar GCRM,
which includes after the fact prudence reviews by the PSCW, while
the Wisconsin Gas GCRM includes an incentive mechanism that
provides an opportunity for Wisconsin Gas to increase or decrease
earnings within certain limited ranges as a result of gas
acquisition activities and transportation costs. For both
companies, the majority of gas costs are passed through to
customers under their existing gas cost recovery mechanisms.
In February 2001, the PSCW issued separate orders to Wisconsin
Electric and to Wisconsin Gas authorizing a similar GCRM for each
company. These new GCRMs, which are effective April 1, 2001, are
similar to the existing GCRM at Wisconsin Gas. Under the new
GCRMs, gas costs will be passed directly to customers through a
purchased gas adjustment clause. However, both companies will
have the opportunity to increase or decrease earnings by up to
approximately 2.5% of their total annual gas costs based upon how
closely actual gas commodity and capacity costs compare to
benchmarks established by the PSCW.
Michigan Jurisdiction
WISCONSIN ELECTRIC POWER COMPANY: In mid-November 2000,
Wisconsin Electric submitted an application with the Michigan
Public Service Commission requesting an electric retail rate
increase of $3.7 million (9.4%) on an annualized basis. Hearings
on this rate relief request are scheduled for April of 2001 with
a final order anticipated to be issued in August of 2001.
EDISON SAULT ELECTRIC COMPANY: In September 1995, the Michigan
Public Service Commission approved Edison Sault's application to
implement price cap regulation for its electric customers in the
state of Michigan, capping base rates at existing levels, rolling
its existing fuel cost adjustment procedure or Power Supply Cost
Recovery ("PSCR") factor into base rates and suspending its
existing PSCR clause. Edison Sault is required to give thirty
days notice for rate decreases. The order authorizing Edison
Sault's price cap represents a temporary experimental regulatory
mechanism and allows Edison Sault to file an application seeking
an increase in rates under extraordinary circumstances. On
October 2, 2000, Edison Sault filed a report with the Michigan
Public Service Commission addressing its experience under the
price-cap mechanism. On January 2, 2001, Edison Sault submitted
a compliance filing to the Michigan Public Service Commission
which recommended that no changes be made to its price-cap
mechanism. The matter is pending.
FUEL COST ADJUSTMENT PROCEDURE: In September 2000, Wisconsin
Electric submitted applications with the Michigan Public Service
Commission requesting reinstatement on January 1, 2001 of its
PSCR mechanism. On January 1, 2001, Wisconsin Electric self-
implemented a PSCR factor of 1.41 mills per kilowatt-hour and
expects to collect approximately $1 million of PSCR revenue
during 2001. Hearings on Wisconsin Electric's application are
anticipated in the second quarter of 2001. PSCR revenues
collected during 2001 are subject to a true-up hearing procedure
in 2002.
INDUSTRY RESTRUCTURING AND COMPETITION
Electric Utility Industry
Driven by a combination of market forces, regulatory and
legislative initiatives and technological changes, the nation's
electric industry continues a trend towards restructuring and
increased competition. In the region, the state of Illinois has
passed legislation that introduced retail electric choice for
large customers in 1999 and introduces choice for all retail
customers by May 2002. As described in further detail below,
full retail electric choice is scheduled to be introduced in the
state of Michigan in January 2002. Congress continues to
evaluate restructuring proposals at the federal level. However,
recent severe electric supply constraints and a resulting rise in
the cost of electricity in California has revitalized public
debate in Wisconsin concerning deregulation. Given the current
status of restructuring initiatives in regulatory jurisdictions
where the Company primarily does business, Wisconsin Energy
cannot predict the ultimate timing or impact of a restructured
electric industry on its financial position or results of
operations.
RESTRUCTURING IN WISCONSIN: Due to many factors, including
relatively competitive electric rates charged by the state's
electric utilities, Wisconsin is proceeding with restructuring of
the electric utility industry at a much slower pace than many
other states in the United States. Instead, the PSCW has been
focussed in recent years on electric reliability infrastructure
issues for the state of Wisconsin such as:
* Improvements to existing and addition of new electric
transmission lines in the state;
* Addition of new generating capacity in the state;
* Modifications to the regulatory process to facilitate
development of merchant generating plants;
* Development of a regional independent electric transmission
system operator; and
* The previously described formation of a statewide
transmission company, the American Transmission Company LLC,
which became operational January 1, 2001.
The PSCW continues to maintain the position that the question of
whether to implement electric retail competition in Wisconsin
should ultimately be decided by the Wisconsin legislature. No
such legislation has been introduced in Wisconsin to date.
RESTRUCTURING IN MICHIGAN: In June 2000, the Governor of the
state of Michigan signed the "Customer Choice and Electric
Reliability Act" into law empowering the Michigan Public Service
Commission to enforce implementation of prior electric retail
access plans. In effect, the new law provides that all Michigan
retail customers of investor-owned utilities will have the
ability to choose their electric power producer as of
January 1, 2002.
As directed by the Michigan Public Service Commission, Wisconsin
Electric and Edison Sault jointly submitted a customer choice
implementation plan in October 2000 and an updated filing in
February 2001. Such plan envisions certain additional filings in
June 2001 including proposed unbundled rates. During 2000,
revenues in the state of Michigan from Wisconsin Energy's
electric retail customers were approximately $151 million,
representing 5.9% of total utility operating revenues and 8.4% of
total electric utility operating revenues. The Empire and Tilden
iron ore mines, Wisconsin Electric's two largest retail
customers, are located in the Upper Peninsula of Michigan. These
mines, from which Wisconsin Electric received approximately
$74 million of electric utility operating revenues during 2000,
will not be subject to Michigan's customer choice plan until
special negotiated power sales contracts between Wisconsin
Electric and the mines expire in 2007. Wisconsin Electric and
Edison Sault believe that their power supply costs are and will
be competitive when the customer choice program commences in
January of 2002. In addition, alternative electric suppliers
will use the companies' electric distribution systems under
unbundled effective rates.
Natural Gas Utility Industry
RESTRUCTURING IN WISCONSIN: The PSCW has instituted generic
proceedings to consider how its regulation of gas distribution
utilities should change to reflect the changing competitive
environment in the natural gas industry. To date, the commission
has made a policy decision to deregulate the sale of natural gas
in customer segments with workably competitive market choices and
has adopted standards for transactions between a utility and its
gas marketing affiliates. However, work on deregulation of the
gas distribution industry by the PSCW is presently on hold.
Currently, Wisconsin Electric and Wisconsin Gas are unable to
predict the impact of potential future deregulation on the
Company's results of operations or financial position.
ELECTRIC SYSTEM RELIABILITY
Wisconsin Electric had adequate capacity to meet all of its firm
electric load obligations during 2000. Public appeals for
conservation were not required, nor was there the need to
interrupt or curtail service to non-firm customers who
participate in load management programs in exchange for
discounted rates. All of Wisconsin Electric's generating plants
performed well during the hottest periods of the summer and all
power purchase commitments under firm contract were received.
Wisconsin Electric expects to have adequate capacity to meet all
of its firm load obligations during 2001. However, the Company
anticipates that the regional electric energy supply will remain
tight into the foreseeable future. As a result of this, or of
extremely hot weather along with unexpected equipment
unavailability, Wisconsin Electric could be required to call upon
load management procedures during 2001 as it has in past years.
Wisconsin Electric is proceeding with several long-term measures
to enhance the reliability of its own system, including the
"Power the Future" strategy discussed above.
NUCLEAR OPERATIONS
POINT BEACH NUCLEAR PLANT: Wisconsin Electric owns two 510-
megawatt electric generating units at Point Beach Nuclear Plant
in Two Rivers, Wisconsin. During 2000, 1999, and 1998, Point
Beach provided 23%, 22% and 18% of Wisconsin Electric's net
electric energy supply, respectively. The United States Nuclear
Regulatory Commission operating licenses for Point Beach expire
in October 2010 for Unit 1 and in March 2013 for Unit 2.
As a result of various performance improvement initiatives,
Wisconsin Electric's total nuclear operation and maintenance
expenses, excluding fuel and benefit overheads, decreased from
$156 million during 1998 to $128 million during 1999 and
$119 million during 2000. Unplanned shutdowns or power
reductions of Point Beach Units 1 or 2 may occur from time to
time as Wisconsin Electric continues to perform reviews of
facility design and to implement further improvement initiatives.
In July 2000, Wisconsin Electric's senior management authorized
the commencement of initial design work for the power uprate of
both units at Point Beach. Subject to approval by the PSCW, the
project is scheduled to be completed by May 2004 and is expected
to add approximately 76 megawatts of electrical output to Point
Beach.
Wisconsin Electric has formed an operating license renewal team
which is expected to complete a technical and economic evaluation
of license renewal by mid-2002. Based upon the results of this
evaluation and subject to approval by executive management and by
the boards of directors of Wisconsin Electric and Wisconsin
Energy in the second half of 2002, Wisconsin Electric will
determine whether to seek appropriate regulatory approvals,
including submittal of an application to the Nuclear Regulatory
Commission, in late 2002 for an extension of the operating
licenses for Point Beach Nuclear Plant for a period of up to
20 years.
NUCLEAR MANAGEMENT COMPANY: During 1999, WEC Nuclear
Corporation, a subsidiary of Wisconsin Energy, Northern States
Power Company (now Xcel Energy), WPS Nuclear Corporation (a
subsidiary of WPS Resources Corporation) and an affiliate of
Alliant Energy Resources announced the formation of the Nuclear
Management Company, LLC ("NMC"). In November 2000, Consumers
Energy signed an agreement to become a full partner in the NMC.
Assuming that Consumers Energy receives requisite regulatory
approvals to transfer its operating licenses to the NMC during
2001, the NMC will operate a total of eight nuclear generating
units at six sites in the states of Wisconsin, Minnesota,
Michigan and Iowa with a total combined generating capacity of
about 4,500 megawatts.
During 2000, the four original participants in the NMC received
all necessary regulatory approvals, and the NMC assumed operating
responsibility in August 2000 for Point Beach Nuclear Plant with
the transfer of operating authority under its operating licenses.
Each NMC participant continues to own its respective nuclear
generating units and retains exclusive rights to the energy
generated as well as financial responsibility for the safe
operation, maintenance and decommissioning of its respective
plants.
On September 7, 2000, the NMC announced the combination of the
operations of Point Beach with Kewaunee Nuclear Power Plant into
a "virtual 3-unit site." Kewaunee Nuclear Power Plant, owned by
two other participants in the NMC, is located about five miles
from Point Beach. Support functions including training,
engineering, assessment, business and site services have been
combined under this new management structure.
USED NUCLEAR FUEL STORAGE AND DISPOSAL: During 1995, Wisconsin
Electric completed construction of a facility at Point Beach for
the temporary dry storage of up to 48 canisters containing used
nuclear fuel. During 2000, Wisconsin Electric finished loading
the last of twelve canisters originally authorized by the PSCW.
On March 13, 2001, the PSCW approved a May 2000 application for
authority to load additional temporary used fuel dry storage
containers beyond the twelve that were originally authorized.
The application requested authorization for sufficient additional
containers, at a cost of up to approximately $46 million, to
operate Point Beach Units 1 and 2 to the end of their current
operating licenses, but not to exceed the original 48-canister
capacity of the facility. The PSCW's decision is expected to be
finalized in an order to be issued in the second quarter of 2001.
Temporary storage alternatives at Point Beach are necessary until
the United States Department of Energy takes ownership of and
permanently removes the used fuel as mandated by the Nuclear
Waste Policy Act of 1982, as amended in 1987 (the "Waste Act").
Effective January 31, 1998, the Department of Energy failed to
meet its contractual obligation to begin removing used fuel from
Point Beach, a responsibility for which Wisconsin Electric has
paid a total of $170.8 million as of December 31, 2000. The
Department of Energy has indicated that it does not expect a
permanent used fuel repository to be available any earlier than
2010. It is not possible, at this time, to predict with
certainty when the Department of Energy will actually begin
accepting used nuclear fuel.
On August 13, 2000, the United States Court of Appeals for the
Federal Circuit ruled in a lawsuit brought by Maine Yankee and
Northern States Power Company that the Department of Energy's
failure to begin performance by January 31, 1998 constituted a
breach in the Standard Contract, providing clear grounds for
filing complaints in the Court of Federal Claims. Consequently,
Wisconsin Electric filed a complaint on November 16, 2000 against
the Department of Energy in the Court of Federal Claims. The
matter is pending. As of August 2000, Wisconsin Electric has
incurred damages in excess of $35 million, which it seeks to
recover from the Department of Energy. Damages will continue to
accrue, and, accordingly, Wisconsin Electric expects to seek to
recover all of its damages in this lawsuit.
During 2000, President Clinton vetoed legislation that would have
required the Department of Energy to establish a temporary used
fuel repository in the state of Nevada until a permanent
repository is available and to begin taking ownership from
utilities and removing used fuel as required by the Waste Act.
The Senate and the House failed to override the President's veto.
Wisconsin Electric is unable to predict whether similar
legislation might be reintroduced and passed during 2001 or
whether the new administration might support and sign such
legislation.
LEGAL MATTERS
GIDDINGS & LEWIS INC./CITY OF WEST ALLIS LAWSUIT: In July 1999,
a jury issued a verdict against Wisconsin Electric awarding the
plaintiffs $4.5 million in compensatory damages and $100 million
in punitive damages in an action alleging that Wisconsin Electric
had deposited contaminated wastes at two sites in West Allis,
Wisconsin owned by the plaintiffs. Internal investigations lead
Wisconsin Electric to believe that it was not the source of this
waste. In December 1999, in order to stop the post-judgment
accrual of interest at 12% during the pendency of an appeal,
Wisconsin Electric tendered a contested liability payment of
$110 million, which is part of Deferred Charges and Other Assets
- - Other on the Consolidated Balance Sheet, to the Milwaukee
County Clerk of Circuit Court representing the amount of the
verdict and accrued interest. In further post-trial proceedings,
the Circuit Court Judge issued a ruling during 2000 related to
representations made by Wisconsin Electric during trial, imposing
sanctions against Wisconsin Electric. Wisconsin Electric is
appealing the judgment entered on the jury's verdict as well as
the Judge's ruling on the sanctions matter.
As further developments, two shareholders filed separate
shareholder derivative proceedings in Milwaukee County Circuit
Court during 2000 for alleged injuries to shareholders resulting
from this litigation. The two lawsuits have been consolidated
for pre-trial purposes. The matter is pending.
In the opinion of management, based in part on the advice of
legal counsel, the jury verdict was not supported by the evidence
or the law and the unprecedented award of punitive damages of
this magnitude was unwarranted and should therefore be reversed
or substantially reduced on appeal. Management also believes
that the sanctions imposed by the Judge were not supported by the
evidence or the law. As such, Wisconsin Electric has not
established a reserve for potential damages from this suit. For
further information, see "Note N - Commitments and Contingencies"
in the Notes to Financial Statements.
WISCONSIN INTERNATIONAL ELECTRIC POWER LITIGATION: During 1999,
Wisconsin Electric and Wisconsin International Electric
Power, Ltd. reached settlement of litigation brought by Wisconsin
International Electric Power against Wisconsin Electric claiming
that Wisconsin Electric had breached contractual duties allegedly
owed to the plaintiff relating to development of an electric
generating plant at Subic Bay in the Philippines. While
Wisconsin Electric does not believe that it breached any
contractual duties allegedly owed to the plaintiff, Wisconsin
Electric paid Wisconsin International Electric Power, Ltd.
$18.0 million ($10.8 million, or $0.09 per share for Wisconsin
Energy, after tax) in November 1999 to settle the case, and the
plaintiff's claims were dismissed with prejudice.
ENVIRONMENTAL MATTERS
Consistent with other companies in the energy industry, Wisconsin
Energy faces potentially significant ongoing environmental
compliance and remediation challenges related to current and past
operations. Specific environmental issues affecting the
Company's utility and non-utility energy segments include but are
not limited to (1) air emissions such as carbon dioxide ("CO2"),
sulfur dioxide ("SO2"), nitrogen oxide ("NOx"), small
particulates and mercury, (2) disposal of combustion by-products
such as fly ash, (3) remediation of former manufactured gas plant
sites, (4) disposal of used nuclear fuel, and (5) the eventual
decommissioning of nuclear power plants. Wisconsin Energy is
currently pursuing a proactive strategy to manage its
environmental issues including (1) substitution of new and
cleaner generating facilities for older facilities as part of the
"Power the Future" strategy, (2) development of additional
sources of renewable electric energy supply, (3) participation in
regional initiatives to reduce the emissions of NOx from the
Company's fossil fuel-fired generating facilities,
(4) participation in voluntary programs with the Wisconsin
Department of Natural Resources and the United States
Environmental Protection Agency to reduce overall emissions,
including mercury, from Wisconsin Electric's coal-fired power
plants, (5) recycling of ash from coal-fired generating units and
(6) the voluntary clean-up of former manufactured gas plant
sites. For further information concerning disposal of used
nuclear fuel and nuclear power plant decommissioning, see
"Nuclear Operations" above and "Note F - Nuclear Operations" in
the Notes to Financial Statements, respectively.
NATIONAL AMBIENT AIR QUALITY STANDARDS: In July 1997, the
United States Environmental Protection Agency revised the
National Ambient Air Quality Standards for ozone and particulate
matter. Although specific emission control requirements are not
yet defined and despite legal challenges to these standards that
will impact compliance requirements and timing, Wisconsin
Electric believes that the revised standards will likely require
significant reductions in SO2 and NOx emissions from coal-fired
generating facilities. If these new standards withstand ongoing
legal challenges, Wisconsin Electric expects that reductions
needed to achieve compliance with the ozone attainment standards
will be implemented in stages from 2004 through 2012, beginning
with the ozone transport reductions described below. Reductions
associated with the new particulate matter standards will likely
be implemented in stages after the year 2010 and extending to the
year 2017. Beyond the cost estimates identified below, Wisconsin
Electric is currently unable to estimate the impact of the
revised air quality standards on its future liquidity, financial
condition or results of operation.
OZONE NON-ATTAINMENT RULEMAKING: In October 1998, the
Environmental Protection Agency promulgated ozone transport rules
to address transport of NOx and ozone into ozone non-attainment
areas in the eastern half of the United States. The rules would
have required electric utilities in 22 eastern states and the
District of Columbia, including the state of Wisconsin, to
significantly reduce NOx emissions by May 1, 2003. A court
decision on these challenges was issued in March 2000 excluding
the state of Wisconsin but continuing to include southern
Michigan as one of 19 states in a region east of the Mississippi
River that would remain subject to the October 1998 rules.
Further appeals are ongoing.
Independent of any court decisions, Wisconsin and some other
states in the Lake Michigan region have concluded rulemakings
that require utilities, including Wisconsin Electric, to reduce
NOx emissions as part of separate, existing 1-hour ozone
attainment demonstration rules required by the Environmental
Protection Agency for the Lake Michigan region's severe non-
attainment areas.
Wisconsin Electric is working with a variety of stakeholders to
provide input to the plan under development by the state of
Michigan. Wisconsin's rule is already in effect. Wisconsin
Electric is evaluating various NOx control techniques under
various regulatory scenarios to develop a least cost compliance
plan and currently expects to incur total capital costs of
$150 million to $200 million and annual operation and maintenance
costs of $2 million to $4 million during the period 2001 through
2004 to comply with such a plan. Wisconsin Electric believes
that compliance with the NOx emission reductions required by
Wisconsin's non-attainment rules will substantially mitigate
costs to comply with the Environmental Protection Agency's July
1997 revisions to the ozone National Ambient Air Quality
Standards discussed above.
In January 2000, the PSCW approved Wisconsin Electric's
comprehensive plan to meet the Environmental Protection Agency
regulations, permitting recovery in rates of NOx emission
reduction costs over an accelerated 10-year recovery period and
requiring that these costs be separately itemized on customer
bills.
MANUFACTURED GAS PLANT SITES: Wisconsin Electric and Wisconsin
Gas are voluntarily reviewing and addressing environmental
conditions at a number of former manufactured gas plant sites.
For further information, see "Note N - Commitments and
Contingencies" in the Notes to Financial Statements.
ASH LANDFILL SITES: Wisconsin Electric aggressively seeks
environmentally acceptable, beneficial uses for its combustion
byproducts. However, combustion byproducts have been, and to
some degree continue to be, disposed in company-owned, licensed
landfills. Some early designed and constructed landfills may
allow the release of low levels of constituents resulting in the
need for various levels of remediation. Where Wisconsin Electric
has become aware of these conditions, efforts have been expended
to define the nature and extent of any release, and work has been
performed to address these conditions. The costs of these
efforts are included in the environmental operating and
maintenance costs of Wisconsin Electric.
MANUFACTURING SEGMENT: WICOR Industries, Inc. has provided
reserves sufficient to cover its estimated costs related to known
contamination associated with its manufacturing facilities.
MARKET RISKS
The Company is potentially exposed to market risk due to changes
in interest rates, the return on marketable securities, foreign
currency exchange rates and the market price of electricity as
well as to changes in fuel costs incurred to generate electricity
and in the cost of gas for its gas operations. Exposure to
interest rate changes relates to the Company's short and long-
term debt as well as its preferred equity obligations, while
exposure to fluctuations in the return on marketable securities
relates to debt and equity security investments held in various
trust funds. Purchases or sales of products by the Company's
manufacturing segment exposes the Company to foreign currency
risk. Exposure to electricity market price risk relates to
forward activities taken to manage the supply of and demand for
electric energy. Exposure to fuel and gas cost variations
relates to the supply of and demand for coal, uranium, natural
gas and fuel oil. For additional information concerning risk
factors, including market risks, see "Cautionary Factors" below.
INTEREST RATE RISK: The Company, including its affiliates, have
various short-term borrowing arrangements to provide working
capital and general corporate funds. The level of borrowings
under such arrangements vary from period to period, depending
upon, among other factors, capital investments. Future short-
term interest expense and payments will reflect both future short-
term interest rates and borrowing levels.
As of December 31, 2000, the Company had approximately
$1,386.1 million of short-term debt outstanding with a weighted
average interest rate of 6.67%, representing approximately
$92.5 million of annual pre-tax interest expense. A 1/8 percent
change in effective interest rates would increase or decrease
annual interest expense by approximately $1.7 million.
The table below provides information about the long-term
financial instruments that were held by the Company at
December 31, 2000 and that are sensitive to changes in interest
rates. For long-term debt, the table presents anticipated
principal cash flows by maturity date and the related annualized
average interest rate of the maturing long-term debt. The
annualized average interest rate on the variable rate long-term
debt was estimated based upon a weighted average interest rate at
December 31, 2000.
As part of the financing package used to acquire two fossil-
fueled power plants in the state of Connecticut in April 1999,
Wisvest-Connecticut, LLC entered into an interest rate swap
agreement to exchange fixed rate payment obligations for variable
rate receipt rights without exchanging the underlying notional
amounts. For the interest rate swap, the table presents notional
amounts and weighted average interest rates by expected
(contractual) maturity dates. Notional amounts are used to
calculate the contractual payments to be exchanged under
contract. Weighted average variable rates are based upon implied
forward rates in the yield curve at the reporting date. The fair
value of the interest rate swap is the amount that Wisvest-
Connecticut, LLC would receive if the outstanding contract were
terminated on December 31, 2000.
Expected Maturity Date Fair Value
---------------------------------------------- as of
Wisconsin Energy Corporation 2001 2002 2003 2004 2005 Thereafter Total 12/31/00
- ---------------------------- ---- ---- ---- ---- ---- ---------- ----- ----------
(Millions of Dollars)
Fixed Rate Long-Term Debt $20.4 $165.2 $14.1 $143.2 $79.4 $1,271.6 $1,693.9 $1,639.7
Average Interest Rate 6.64% 6.61% 6.76% 7.25% 6.49% 7.08% 7.01%
Variable Rate Commercial Paper
Classified as Long-Term Debt - $60.0 $449.7 - - - $509.7 $509.7
Average Interest Rate 6.98% 6.59% 6.64%
Other Variable Rate
Long-Term Debt $8.7 $30.5 $14.2 $10.8 $172.3 $167.3 $403.8 $403.8
Average Interest Rate 7.96% 8.17% 8.05% 7.99% 7.99% 4.82% 6.69%
Interest Rate Swaps - Fixed
to Variable (b) $3.2 $3.5 $3.7 $4.0 $58.7 - $73.1 ($0.4)
Average Pay Rate 5.99% 5.99% 5.99% 5.99% 5.99% - 5.99%
Average Receive Rate 5.87% 5.56% 5.82% 5.96% 5.98% - 5.85%
Trust Preferred Securities - - - - - $200.0 $200.0 $185.5
Average Dividend Rate - - - - - 6.85% 6.85%
Preferred Stock Not Subject to
Mandatory Redemption - - - - - - $30.4 $15.4
Average Dividend Rate - - - - - - 4.0%
On March 8, 2001 and March 14, 2001, Wisconsin Energy entered
into several treasury lock agreements in order to mitigate
Wisconsin Energy's interest rate risk associated with the
anticipated issuance of fixed-rate debt. These treasury lock
agreements locked in the underlying Treasury yield for
$800 million of an anticipated $1 billion debt issuance expected
by the end of March 2001. Under a treasury lock agreement,
Wisconsin Energy agrees to pay or receive an amount equal to the
difference between the net present value of the cash flows for
the notional amount of the instrument based on the yield of a
U.S. treasury bond at the date when the agreement is established
and at the yield of a U.S. treasury bond at the date when the
agreement is settled, which typically coincides with the debt
issuance. The treasury rate lock agreements were entered into
with a major financial institution in order to minimize
counterparty credit risk.
At the end of the first quarter of 2001, the treasury rate lock
agreements will be reflected at fair value in Wisconsin Energy's
consolidated balance sheet and the related gain or loss on these
agreements will be deferred in shareholders' equity (as a
component of comprehensive income) as the instruments have been
designated, and qualify for, cash flow hedge accounting
treatment. The deferred gain or loss will then be amortized as
an adjustment to interest expense over the same period in which
the related interest cost on the new debt issuances is recognized
in income.
MARKETABLE SECURITIES RETURN RISK: The Company funds its
pension, other postretirement benefit and nuclear decommissioning
obligations through various trust funds, which in turn invest in
debt and equity securities. Changes in the market price of the
assets in these trust funds can affect pension, other
postretirement benefit and nuclear decommissioning expenses in
future periods. Future annuity payments to these trust funds can
be affected by changes in the market price of the trust fund
assets. Wisconsin Energy expects that the risk of expense and
annuity payment variations as a result of changes in the market
price of trust fund assets would be mitigated in part through
future rate actions by the Company's various utility regulators.
At December 31, 2000, the Company had the following total trust
fund assets at fair value, primarily consisting of publicly
traded debt and equity security investments.
Wisconsin Energy Corporation Millions of Dollars
- ---------------------------- -------------------
Pension trust funds $1,224.8
Nuclear decommissioning trust fund 613.3
Other postretirement benefits trust funds 149.8
FOREIGN CURRENCY EXCHANGE RATE RISK: The Company manages
foreign currency market risks through the use of a variety of
financial and derivative instruments. The Company uses forward
exchange contracts and other activities to hedge the U.S. dollar
value resulting from anticipated foreign currency transactions.
The notional amount of these contracts is not significant to the
Company.
COMMODITY PRICE RISK: In the normal course of business, the
Company's utility and non-utility power generation subsidiaries
utilize contracts of various duration for the forward sale and
purchase of electricity. This is done to effectively manage
utilization of their available generating capacity and energy
during periods when available power resources are expected to
exceed the requirements of their obligations. This practice may
also include forward contracts for the purchase of power during
periods when the anticipated market price of electric energy is
below expected incremental power production costs. The Company
manages its fuel and gas supply costs through a portfolio of
short and long-term procurement contracts with various suppliers.
Wisconsin Electric's retail fuel cost adjustment procedure in
Wisconsin mitigates some of the risk of fuel cost price
fluctuation. On a prospective basis, if cumulative fuel and
purchased power costs for electric utility operations deviate
from a prescribed range when compared to the costs projected in
the most recent retail rate proceeding, retail electric rates may
be adjusted. For its gas utility operations, the gas cost
recovery mechanism in Wisconsin currently mitigates most of
Wisconsin Electric's risk of gas cost variations.
Wisconsin Gas has a commodity risk management program that has
been approved by the PSCW. This program allows Wisconsin Gas 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 this program, Wisconsin Gas
has the ability to hedge up to 50% of its planned gas deliveries
for the heating season. The PSCW has also allowed Wisconsin Gas
to hedge gas purchased for storage during non-heating months.
The cost of the 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 Gas's gas cost recovery mechanism. In
addition, under its Gas Cost Incentive Mechanism, Wisconsin Gas
uses derivative financial instruments to reduce 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.
For additional information concerning the electric utility fuel
cost adjustment procedure and the natural gas utilities' gas cost
recovery mechanisms, see "Rates and Regulatory Matters" above.
ACCOUNTING DEVELOPMENTS
NEW PRONOUNCEMENTS: Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging
Activities ("FAS 133"), is effective for fiscal years beginning
after June 15, 2000. The Company will adopt this statement
effective January 1, 2001, which will have an insignificant
impact on net income and other comprehensive income. For further
information, see "Note A - Summary of Significant Accounting
Policies" in the Notes to Financial Statements.
REGULATORY ACCOUNTING: Wisconsin Energy's utility subsidiaries
operate under rates established by state and federal regulatory
commissions which are designed to recover the cost of service and
provide a reasonable return to investors. Developing competitive
pressures in the utility industry may result in future utility
prices which are based upon factors other than the traditional
original cost of investment. In such a situation, continued
deferral of certain regulatory asset and liability amounts on the
utilities' books, as allowed under Statement of Financial
Accounting Standards No. 71, Accounting for the Effects of
Certain Types of Regulation ("FAS 71"), may no longer be
appropriate and the unamortized regulatory assets net of the
regulatory liabilities would be recorded as an extraordinary
after-tax non-cash charge to earnings. Such a charge could be
material. The Company continually reviews the applicability of
FAS 71 and has determined that it is currently appropriate to
continue following FAS 71. At this time, the Company is unable
to predict whether any adjustments to regulatory assets and
liabilities will occur in the future. See "Note A - Summary of
Significant Accounting Policies" in the Notes to Financial
Statements for additional information.
CAUTIONARY FACTORS
This report and other documents or oral presentations contain or
may contain forward-looking statements made by or on behalf of
Wisconsin Energy. Such statements are based upon management's
current expectations and are subject to risks and uncertainties
that could cause Wisconsin Energy's actual results to differ
materially from those contemplated in the statements. Readers
are cautioned not to place undue reliance on the forward-looking
statements. When used in written documents or oral
presentations, the terms "anticipate," "believe," "estimate,"
"expect," "objective," "plan," "possible," "potential," "project"
and similar expressions are intended to identify forward-looking
statements. In addition to the assumptions and other factors
referred to specifically in connection with such statements,
factors that could cause Wisconsin Energy's actual results to
differ materially from those contemplated in any forward-looking
statements include, among others, the following.
Operating, Financial and Industry Factors
* Factors affecting utility operations such as unusual weather
conditions; catastrophic weather-related damage; availability of
electric generating facilities; unscheduled generation outages,
or unplanned maintenance or repairs; unanticipated changes in
fossil fuel, nuclear fuel, purchased power, gas supply or water
supply costs or availability due to higher demand, shortages,
transportation problems or other developments; nonperformance by
electric energy or natural gas suppliers under existing power
purchase or gas supply contracts; nuclear or environmental
incidents; resolution of used nuclear fuel storage and disposal
issues; electric transmission or gas pipeline system constraints;
unanticipated organizational structure or key personnel changes;
collective bargaining agreements with union employees or work
stoppages; inflation rates; or demographic and economic factors
affecting utility service territories or operating environment.
* Regulatory factors such as unanticipated changes in rate-
setting policies or procedures; unanticipated changes in
regulatory accounting policies and practices; industry
restructuring initiatives; transmission system operation and/or
administration initiatives; recovery of costs of previous
investments made under traditional regulation; required approvals
for new construction; changes in the United States Nuclear
Regulatory Commission's regulations related to Point Beach
Nuclear Plant; changes in the United States Environmental
Protection Agency's regulations as well as regulations from the
Wisconsin or Michigan Departments of Natural Resources or the
state of Connecticut related to emissions from fossil fuel power
plants; or the siting approval process for new generation and
transmission facilities.
* The rapidly changing and increasingly competitive electric
and gas utility environment as market-based forces replace strict
industry regulation and other competitors enter the electric and
gas markets resulting in increased wholesale and retail
competition.
* Consolidation of the industry as a result of the combination
and acquisition of utilities in the midwest, nationally and
globally.
* Restrictions imposed by various financing arrangements and
regulatory requirements on the ability of its subsidiaries to
transfer funds to Wisconsin Energy in the form of cash dividends,
loans or advances.
* Changes in social attitudes regarding the utility and power
industries.
* Customer business conditions including demand for their
products or services and supply of labor and material used in
creating their products and services.
* The cost and other effects of legal and administrative
proceedings, settlements, investigations and claims, and changes
in those matters, including the final outcome of the Giddings &
Lewis, Inc./City of West Allis lawsuit against Wisconsin
Electric.
* Factors affecting the availability or cost of capital such
as: changes in interest rates; the Company's capitalization
structure; market perceptions of the utility industry, the
Company or any of its subsidiaries; or security ratings.
* Federal, state or local legislative factors such as changes
in tax laws or rates; changes in trade, monetary and fiscal
policies, laws and regulations; electric and gas industry
restructuring initiatives; or changes in environmental laws and
regulations.
* Authoritative generally accepted accounting principle or
policy changes from such standard setting bodies as the Financial
Accounting Standards Board and the Securities and Exchange
Commission.
* Unanticipated technological developments that result in
competitive disadvantages and create the potential for impairment
of existing assets.
* Possible risks associated with non-utility diversification,
such as: general economic conditions; competition; operating
risks; dependence upon certain suppliers and customers; the
cyclical nature of property values that could affect real estate
investments; unanticipated changes in environmental or energy
regulations; timely regulatory approval without onerous
conditions of potential acquisitions; risks associated with
minority investments, where there is a limited ability to control
the development, management or operation of the project; and the
risk of higher interest costs associated with potentially reduced
securities ratings by independent rating agencies as a result of
these and other factors.
* Legislative or regulatory restrictions or caps on non-
utility acquisitions, investments or projects, including the
state of Wisconsin's amended public utility holding company law.
* Factors affecting foreign non-utility operations and
investments, including: foreign governmental actions; foreign
economic and currency risks; political instability; and
unanticipated changes in foreign environmental or energy
regulations.
* Factors which impede execution of Wisconsin Energy's "Power
the Future" 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 Energy's Securities and
Exchange Commission filings or in other publicly disseminated
written documents.
Business Combination Factors
* Unanticipated costs or difficulties related to the
integration of the businesses of Wisconsin Energy and WICOR.
* Unanticipated financing or other consequences resulting from
the additional short-term debt issued to fund the acquisition
of WICOR.
* Unexpected difficulties or delays in realizing anticipated
net cost savings or unanticipated effects of the qualified five-
year electric and gas rate freeze ordered by the PSCW as a
condition of approval of the merger.
Wisconsin Energy undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
See "Factors Affecting Results, Liquidity and Capital Resources -
Market Risks" in Management's Discussion and Analysis of
Financial Condition and Results of Operations in this report for
information concerning potential market risks to which Wisconsin
Energy and its subsidiaries are exposed due to changes in
interest rates, the return on marketable equity securities,
foreign currency exchange rates and the price of commodities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN ENERGY CORPORATION
CONSOLIDATED INCOME STATEMENT
Year Ended December 31
2000 1999 1998
----------- ---------- -----------
(Millions of Dollars, Except Per Share Amounts)
Operating Revenues
Utility energy $2,556.7 $2,050.2 $1,980.0
Non-utility energy 372.8 193.2 34.1
Manufacturing 374.2 - -
Other 51.0 29.2 25.3
-------- -------- --------
Total Operating Revenues 3,354.7 2,272.6 2,039.4
Operating Expenses
Fuel and purchased power 682.1 588.1 486.2
Cost of gas sold 594.7 174.0 175.5
Cost of goods sold 271.1 - -
Other operation and maintenance 945.3 708.7 691.5
Depreciation, decommissioning
and amortization 336.3 250.8 232.4
Property and revenue taxes 80.3 74.9 63.1
-------- -------- --------
Total Operating Expenses 2,909.8 1,796.5 1,648.7
-------- -------- --------
Operating Income 444.9 476.1 390.7
Other Income and Deductions
Interest income 20.3 22.3 14.6
Allowance for other funds
used during construction 2.6 3.8 2.9
Gains on asset sales 98.7 6.1 -
Other (41.6) (37.7) (6.7)
-------- -------- --------
Total Other Income and Deductions 80.0 (5.5) 10.8
Financing Costs
Interest expense 243.5 148.3 127.8
Allowance for borrowed funds
used during construction (13.6) (9.5) (7.8)
Distribution on preferred securities
of subsidiary trust 13.7 10.5 -
Preferred dividend requirement
of subsidiary 1.2 1.2 1.2
-------- -------- --------
Total Financing Costs 244.8 150.5 121.2
-------- -------- --------
Income Before Income Taxes 280.1 320.1 280.3
Income Taxes 125.9 111.1 92.2
-------- -------- --------
Net Income $154.2 $209.0 $188.1
======== ======== ========
Earnings Per Share of Common Stock
Basic $1.28 $1.79 $1.65
Diluted $1.27 $1.79 $1.65
Average Outstanding Number of
Shares of Common Stock (Millions) 120.6 117.0 114.3
Diluted Shares (Millions) 121.2 117.0 114.3
The accompanying notes are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31
2000 1999 1998
----------- ----------- -----------
(Millions of Dollars)
Operating Activities
Net income $154.2 $209.0 $188.1
Reconciliation to cash
Depreciation, decommissioning
and amortization 372.8 283.4 264.4
Nuclear fuel expense amortization 27.4 25.8 18.9
Deferred income taxes, net 10.3 33.6 0.6
Investment tax credit, net (4.6) (4.3) (3.4)
Allowance for other funds
used during construction (2.6) (3.8) (2.9)
Gains on asset sales (98.7) (6.1) -
Change in - Accounts receivable and
accrued revenues (188.0) (56.3) (28.8)
Inventories (68.9) (6.8) (0.6)
Other current assets 22.1 (55.4) (6.6)
Accounts payable 163.5 (13.4) 36.0
Other current liabilities 63.7 2.2 (12.3)
Other 9.8 (101.0) (2.0)
-------- ------ ------
Cash Provided by Operating Activities 461.0 306.9 451.4
Investing Activities
Capital expenditures (611.0) (518.1) (399.0)
Acquisitions, net of cash acquired (1,234.7) (276.8) -
Proceeds from asset sales, net 408.4 11.5 -
Allowance for borrowed funds
used during construction (13.6) (9.5) (7.8)
Nuclear fuel (41.6) (18.6) (17.5)
Nuclear decommissioning funding (17.6) (17.7) (15.5)
Other (10.4) (59.6) (29.6)
-------- ------ ------
Cash Used in Investing Activities (1,520.5) (888.8) (469.4)
Financing Activities
Issuance of common stock 89.3 79.1 10.3
Issuance of long-term debt 513.9 443.2 313.6
Issuance of mandatorily redeemable
trust preferred securities - 193.7 -
Repurchase of common stock (100.8) - -
Retirement of long-term debt (137.4) (115.5) (93.0)
Change in short-term debt 826.8 220.6 (38.5)
Dividends paid on common stock (165.3) (182.3) (177.4)
------ ------ ------
Cash Provided by Financing Activities 1,026.5 638.8 15.0
-------- ------ ------
Change in Cash and Cash Equivalents (33.0) 56.9 (3.0)
Cash and Cash Equivalents at
Beginning of Year 73.5 16.6 19.6
-------- ------ ------
Cash and Cash Equivalents at
End of Year $40.5 $73.5 $16.6
======== ====== ======
Supplemental Information - Cash Paid For
Interest (net of amount capitalized) $223.6 $156.1 $133.2
Income taxes 82.4 114.9 103.9
The accompanying notes are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEET
December 31
ASSETS 2000 1999
------ --------- ---------
(Millions of Dollars)
Property, Plant and Equipment
Utility energy $7,327.7 $6,168.7
Non-utility energy 21.7 221.3
Manufacturing 119.5 -
Other 135.3 321.1
Accumulated depreciation (3,912.9) (3,250.0)
-------- --------
3,691.3 3,461.1
Construction work in progress 246.3 174.8
Leased facilities, net 121.7 127.3
Nuclear fuel, net 93.1 83.4
-------- --------
Net Property, Plant and Equipment 4,152.4 3,846.6
Investments
Nuclear decommissioning trust fund 613.3 625.7
Other 166.0 324.6
-------- --------
Total Investments 779.3 950.3
Current Assets
Cash and cash equivalents 40.5 73.5
Accounts receivable, net of allowance for
doubtful accounts $36.0 and $17.6 532.6 242.3
Accrued revenues 269.8 134.6
Materials, supplies and inventories 381.7 231.6
Assets held for sale 464.0 -
Prepayments 81.7 100.9
Deferred income taxes 73.4 37.3
Other 19.9 12.3
-------- --------
Total Current Assets 1,863.6 832.5
Deferred Charges and Other Assets
Deferred regulatory assets 276.8 216.9
Goodwill, net 826.9 57.8
Other 507.1 157.7
-------- --------
Total Deferred Charges and Other Assets 1,610.8 432.4
-------- --------
Total Assets $8,406.1 $6,061.8
======== ========
The accompanying notes are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEET
December 31
CAPITALIZATION AND LIABILITIES 2000 1999
------------------------------ --------- ---------
(Millions of Dollars)
Capitalization
Common equity $2,016.8 $2,007.8
Preferred stock 30.4 30.4
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the Company 200.0 200.0
Long-term debt 2,732.7 2,134.6
-------- --------
Total Capitalization 4,979.9 4,372.8
Current Liabilities
Long-term debt due currently 55.4 69.1
Short-term debt 1,386.1 507.5
Accounts payable 427.0 174.0
Payroll and vacation accrued 68.2 35.6
Taxes accrued - income and other 54.8 31.3
Interest accrued 26.0 22.2
Other 191.2 48.0
-------- --------
Total Current Liabilities 2,208.7 887.7
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 587.1 464.4
Accumulated deferred investment tax credits 80.8 79.9
Deferred regulatory liabilities 321.0 124.8
Other 228.6 132.2
-------- --------
Total Deferred Credits and Other Liabilities 1,217.5 801.3
Commitments and Contingencies (Note N) - -
-------- --------
Total Capitalization and Liabilities $8,406.1 $6,061.8
======== ========
The accompanying notes are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CAPITALIZATION
December 31
2000 1999
-------- --------
(Millions of Dollars)
Common Equity (See Consolidated Statement of Common Equity)
Common stock - $.01 par value; authorized 325,000,000 shares;
outstanding - 118,645,341 and 118,904,210 shares $1.2 $1.2
Other paid in capital 833.3 838.3
Retained earnings 1,159.7 1,170.8
Accumulated other comprehensive income (2.9) -
Unearned compensation - restricted stock award (3.9) (2.5)
Stock options exercisable 29.4 -
------- --------
Total Common Equity 2,016.8 2,007.8
Preferred Stock
Wisconsin Energy
$.01 par value; authorized 15,000,000 shares; none outstanding - -
Wisconsin Electric
Six Per Cent. Preferred Stock - $100 par value;
authorized 45,000 shares; outstanding - 44,498 shares 4.4 4.4
Serial preferred stock -
$100 par value; authorized 2,286,500 shares; 3.60% Series
redeemable at $101 per share; outstanding - 260,000 shares 26.0 26.0
$25 par value; authorized 5,000,000 shares; none outstanding - -
Wisconsin Gas - Cumulative without par value;
authorized 1,500,000 shares; none outstanding - -
------- --------
Total Preferred Stock 30.4 30.4
Company-obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely debentures of the Company 200.0 200.0
Long-Term Debt
First mortgage bonds
Wisconsin Electric - 7-1/4% due 2004 140.0 140.0
7-1/8% due 2016 100.0 100.0
6.85% due 2021 9.0 9.0
7-3/4% due 2023 100.0 100.0
7.05% due 2024 60.0 60.0
9-1/8% due 2024 3.4 3.4
8-3/8% due 2026 100.0 100.0
7.70% due 2027 200.0 200.0
Edison Sault - 7.90% to 10.31% due 2001-2009 - 5.2
Debentures (unsecured)
Wisconsin Electric - 6-5/8% due 2002 150.0 150.0
6-5/8% due 2006 200.0 200.0
9.47% due 2006 4.2 4.9
8-1/4% due 2022 25.0 25.0
6-1/2% due 2028 150.0 150.0
6-7/8% due 2095 100.0 100.0
Wisconsin Gas - 6.60% due 2013 45.0 -
The accompanying notes are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CAPITALIZATION - (Cont'd)
December 31
2000 1999
-------- --------
(Millions of Dollars)
Long-Term Debt (Cont'd)
Notes (secured)
Wisvest - 8.02% variable rate due 2005 (a) $208.0 $205.9
6.36% effective rate due 2006 6.6 7.7
Sta-Rite Industries, Inc. - 5.58% variable rate due 2007 and 2009 (a) 5.0 -
Wispark - 8.26% variable rate due 2002 (a) 21.2 26.3
8.22% variable rate due 2003 (a) 4.2 3.0
Variable rate due 2000-2008 - 25.6
7.2% to 8.67% due 2002-2012 - 15.7
Notes (unsecured)
Wisconsin Electric - 6.36% effective rate due 2006 7.2 8.4
4.75% variable rate due 2006 (a) 1.0 1.0
4.75% variable rate due 2015 (a) 17.4 17.4
4.90% variable rate due 2016 (a) 67.0 67.0
4.75% variable rate due 2030 (a) 80.0 80.0
Wisconsin Gas - 6-3/8% due 2005 65.0 -
5-1/2% due 2009 50.0 -
Edison Sault - 6.55% to 8.00% due 2000-2008 4.8 5.4
Wisconsin Energy
Capital Corporation - 6.22% to 6.49% due 2000 - 27.0
6.40% due 2001 15.0 15.0
6.33% due 2002 12.0 12.0
6.66% due 2003 10.6 10.6
6.85% due 2005 10.0 10.0
6.21% due 2008 20.0 20.0
6.48% due 2008 25.4 25.4
6.51% due 2013 30.0 30.0
6.94% due 2028 50.0 50.0
Commercial paper supported by multiple-year bank lines 509.7 -
Obligations under capital leases 215.5 215.9
Unamortized discount, net and other (34.1) (23.1)
Long-term debt due currently (55.4) (69.1)
-------- --------
Total Long-Term Debt 2,732.7 2,134.6
-------- --------
Total Capitalization $4,979.9 $4,372.8
======== ========
The accompanying notes are an integral part of these financial statements.
(a) Variable interest rate as of December 31, 2000.
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF COMMON EQUITY
Accumulated
Other Stock
Common Other Paid Retained Comprehensive Unearned Options
Stock In Capital Earnings Income Compensation Exercisable Total
------ ---------- -------- ------------- ------------ ----------- -----
(Millions of Dollars)
Balance -
December 31, 1997 $1.1 $729.7 $1,132.2 $ - $ - $ - $1,863.0
Net income 188.1 188.1
Common stock cash
dividends $1.555
per share (177.4) (177.4)
Sale of common stock 10.3 10.3
Acquisition of
ESELCO, Inc. 0.1 19.2 1.2 20.5
Restricted stock
award (1.4) (1.4)
Amortization and
forfeiture of
restricted stock 0.1 0.1
---- ------ -------- ----- ----- ----- --------
Balance -
December 31, 1998 1.2 759.2 1,144.1 - (1.3) - 1,903.2
Net income 209.0 209.0
Common stock cash
dividends $1.56
per share (182.3) (182.3)
Sale of common stock 79.1 79.1
Restricted stock
award (1.4) (1.4)
Amortization and
forfeiture of
restricted stock 0.2 0.2
---- ------ -------- ----- ----- ----- --------
Balance -
December 31, 1999 1.2 838.3 1,170.8 - (2.5) - 2,007.8
Net income 154.2 154.2
Other comprehensive
income
Foreign currency
translation (0.7) (0.7)
Minimum pension
liability (2.2) (2.2)
---- ------ -------- ----- ----- ----- --------
Comprehensive
Income - - 154.2 (2.9) - - 151.3
Common stock cash
dividends $1.37
per share (165.3) (165.3)
Sale of common stock 89.3 89.3
Repurchase of
common stock (100.8) (100.8)
Restricted stock
award (1.4) (1.4)
WICOR restricted
stock awards -
converted (1.2) (1.2)
Amortization and
forfeiture of
restricted stock 1.2 1.2
WICOR stock options
converted 35.9 35.9
Stock options
exercised and
other 6.5 (6.5) -
---- ------ -------- ----- ----- ----- --------
Balance -
December 31, 2000 $1.2 $833.3 $1,159.7 ($2.9) ($3.9) $29.4 $2,016.8
==== ====== ======== ===== ===== ===== ========
The accompanying notes are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL: The consolidated financial statements include the
accounts of Wisconsin Energy Corporation ("Wisconsin Energy" or
the "Company"), a diversified holding company, as well as its
principal subsidiaries in the following operating segments:
* UTILITY ENERGY SEGMENT - Consisting of Wisconsin Electric
Power Company ("Wisconsin Electric"), Wisconsin Gas Company
("Wisconsin Gas") and Edison Sault Electric Company ("Edison
Sault") and engaged primarily in the generation of electricity
and the distribution of electricity and natural gas;
* NON-UTILITY ENERGY SEGMENT - Consisting of Wisvest
Corporation ("Wisvest"), WICOR Energy Services Company,
FieldTech, Inc. and Northern Tree Service, Inc. and engaged
primarily in independent electric power production as well as in
energy marketing, trading and services activities; and
* MANUFACTURING SEGMENT - Consisting of WICOR Industries,
Inc., an intermediary holding company, and its primary
subsidiaries, Sta-Rite Industries, Inc., SHURflo Pump
Manufacturing Co. and Hypro Corporation, and engaged in the
manufacture of pumps as well as fluid processing and pump
filtration equipment.
Other non-utility subsidiaries of Wisconsin Energy include
primarily Minergy Corp., which develops and markets recycling
technology products, and Wispark LLC ("Wispark"), formerly
Wispark Corporation, which develops and invests in real estate,
and other non-utility companies. All significant intercompany
transactions and balances have been eliminated from the financial
statements.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of certain assets and liabilities and disclosure of contingent
assets and liabilities at the date of financial statements and
the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS: Certain prior year financial statement
amounts have been reclassified to conform to their current year
presentation. These reclassifications had no effect on net
income or earnings per share.
REVENUES: Energy revenues are recognized on the accrual basis
and include estimated amounts for service rendered but not
billed. The manufacturing segment recognizes revenue from
product sales upon shipment. Based upon experience, the
manufacturing segment estimates and records provisions for sales
returns, allowances and original warranties in the period the
sale is reported.
Wisconsin Electric's rates include base amounts for estimated
fuel and purchased power costs. It can request recovery of fuel
and purchased power costs prospectively from retail electric
customers in the Wisconsin jurisdiction through its rate review
process with the Public Service Commission of Wisconsin ("PSCW")
and in interim fuel cost hearings when such annualized costs are
more than 3% higher than the forecasted costs used to establish
rates. Wisconsin Electric's and Wisconsin Gas's retail gas rates
include monthly adjustments which permit the recovery or refund
of actual purchased gas costs incurred subject to a partial
sharing mechanism between Wisconsin Gas and its customers.
PROPERTY AND DEPRECIATION: Property is recorded at cost.
Additions to and significant replacements of property are charged
to property, plant and equipment at cost; minor items are charged
to maintenance expense. Cost includes material, labor and
capitalized interest or allowance for funds used during
construction. The cost of depreciable utility property, together
with removal cost less salvage, is charged to accumulated
depreciation when property is retired.
Depreciation expense is accrued at straight line rates over the
estimated useful lives of the assets. For manufacturing
property, depreciation expense is primarily included in cost of
goods sold.
Utility depreciation rates are certified by the state regulatory
commissions and include estimates for salvage and removal costs.
Depreciation as a percent of average depreciable utility plant
was 4.5% in 2000 and 4.1% in 1999 and 1998. Nuclear plant
decommissioning costs are accrued and included in depreciation
expense (see Note F).
Estimated useful lives are 3 to 10 years for manufacturing
equipment, 3 to 15 years for other non-utility equipment and 30
to 40 years for non-utility buildings.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION: Allowance for
funds used during construction is included in Wisconsin
Electric's utility plant accounts and represents the cost of
borrowed funds used during plant construction and a return on
stockholders' capital used for construction purposes. Allowance
for borrowed funds also includes interest capitalized on
qualifying assets of non-utility subsidiaries. On the
Consolidated Income Statement, the cost of borrowed funds (before
income taxes) is a reduction of interest expense and the return
on stockholders' capital is an item of non-cash other income.
As approved by the PSCW, Wisconsin Electric's allowance for funds
used during construction was capitalized during the following
periods on 50% of construction work in progress at the following
rates:
* September 1, 2000 - December 31, 2000 10.18%
* June 1, 1998 - August 31, 2000 10.21%
* January 1, 1998 - May 31, 1998 10.29%
EARNINGS PER COMMON SHARE: Basic earnings per common share have
been computed by dividing net earnings by the weighted average
number of common shares outstanding. Diluted earnings per share
have been computed by dividing net earnings by the weighted
average number of common shares outstanding including the
dilutive effects of stock options.
MATERIALS, SUPPLIES AND INVENTORIES: Inventory at December 31,
2000 and 1999 consists of:
Materials,
Supplies and Inventories 2000 1999
- ------------------------ -------- --------
(Millions of Dollars)
Fossil Fuel $78.2 $113.8
Gas in Storage 92.1 29.8
Materials and Supplies 89.0 88.0
Manufacturing 122.4 -
------ ------
Total $381.7 $231.6
====== ======
Substantially all fossil fuel, materials and supplies and gas in
storage inventories are priced using the weighted average method
of accounting. As a result of the merger with WICOR in April
2000, the Company acquired the manufacturing inventories of WICOR
Industries, Inc. Approximately 83% of the manufacturing
inventories in 2000 are priced using the last-in, first-out
method (not in excess of the market), with the remaining
inventories priced using the first-in, first-out method. If the
first-in, first-out method of accounting had been used
exclusively, manufacturing inventories would have been
$0.4 million higher at December 31, 2000.
GOODWILL AND LONG-LIVED ASSETS: Goodwill represents the excess
of acquisition costs over the fair value of the net assets of
acquired businesses and is amortized on a straight line basis
over its estimated life, which is generally 40 years.
The Company reviews the carrying value of goodwill and long-lived
assets for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An
impairment would be determined based upon a comparison of the
undiscounted future operating cash flows anticipated to be
generated during the remaining life of the goodwill or long-lived
assets to the carrying value. Measurement of any impairment loss
would be based upon discounted operating cash flows.
REGULATORY ACCOUNTING: The utility energy segment accounts for
its regulated operations in accordance with Statement of
Financial Accounting Standards No. 71, Accounting for the Effects
of Certain Types of Regulation. This statement sets forth the
application of generally accepted accounting principles to those
companies whose rates are determined by an independent third-
party regulator. The economic effects of regulation can result
in regulated companies recording costs that have been or are
expected to be allowed in the ratemaking process in a period
different from the period in which the costs would be charged to
expense by an unregulated enterprise. When this occurs, costs
are deferred as assets in the balance sheet (regulatory assets)
and recorded as expenses in the periods when those same amounts
are reflected in rates. Additionally, regulators can impose
liabilities upon a regulated company for amounts previously
collected from customers and for amounts that are expected to be
refunded to customers (regulatory liabilities).
Deferred regulatory assets and liabilities at December 31
consist of:
Deferred Regulatory Assets and Liabilities 2000 1999
- ------------------------------------------ -------- --------
(Millions of Dollars)
Deferred Regulatory Assets
Deferred income taxes $148.7 $155.3
Postretirement benefit costs 31.2 -
Purchase power commitment 30.6 22.1
Lightweight aggregate plant 19.7 -
Department of Energy assessments 18.5 21.1
Deferred nuclear costs 8.3 11.8
Deferred uncollectible expenses 7.8 -
Other 12.0 6.6
------ ------
Total Deferred Regulatory Assets $276.8 $216.9
====== ======
Deferred Regulatory Liabilities
Deferred income taxes $111.0 $117.8
WICOR acquisition purchase adjustments 173.1 -
Tax and interest refunds 24.7 2.3
Other 12.2 4.7
------ ------
Total Deferred Regulatory Liabilities $321.0 $124.8
====== ======
In connection with the WICOR acquisition, the Company recorded
the Wisconsin Gas pension and postretirement medical plans at
fair value. Due to the regulatory treatment of Wisconsin Gas, a
regulatory liability was also recorded and is being amortized
over the average remaining service life of 15 years.
During 2000, Wisconsin Electric discontinued operation of its
lightweight aggregate plant at Oak Creek Power Plant. As
authorized by the PSCW, Wisconsin Electric transferred the
associated remaining undepreciated plant balance of $19.7 million
on December 31, 2000 to a deferred regulatory asset account,
which will be amortized on a straight-line basis over the five-
year period ending December 31, 2005.
Utility operations in the state of Wisconsin are precluded from
discontinuing service to residential customers within their
service areas during the heating season. As a result, Wisconsin
Gas defers any differences between doubtful account provisions
based upon actual experience and provisions allowed for
ratemaking purposes by the PSCW for recovery in future rates.
DERIVATIVE FINANCIAL INSTRUMENTS: The Company has limited
involvement with derivative financial instruments. Wisconsin Gas
uses such instruments to manage commodity risks associated with
the price of natural gas, and the manufacturing segment uses
derivative financial instruments to manage foreign exchange risk.
In addition, Wisvest-Connecticut, LLC, a wholly-owned non-utility
energy affiliate, has entered into an interest rate swap
agreement to manage interest rate risk related to debt (see
Note I) issued in the acquisition of two fossil-fueled power
plants (see Note B).
STATEMENT OF CASH FLOWS: Cash and cash equivalents include
marketable debt securities acquired three months or less from
maturity. During 1998, Wisconsin Energy recorded a $19.3 million
non-cash acquisition of ESELCO, Inc. accounted for as a pooling
of interests (see Note B). In 1999, Wisconsin Electric recorded
a $110 million cash payment, included in Operating Activities -
Other, related to a contested July 1999 jury verdict (see
Note N).
RESTRICTIONS: Various financing arrangements and regulatory
requirements impose certain restrictions on the ability of the
principal utility subsidiaries and various financing arrangements
impose restrictions on the non-utility subsidiaries to transfer
funds to Wisconsin Energy in the form of cash dividends, loans or
advances. Under Wisconsin law, Wisconsin Electric and Wisconsin
Gas are prohibited from loaning funds, either directly or
indirectly, to Wisconsin Energy. The Company does not believe
that such restrictions will affect its operations.
NEW ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"), which has been
amended by FAS 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FAS 133,
an amendment of FAS 133, and by FAS 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an
amendment of FAS 133. FAS 133 requires that every derivative
instrument be recorded on the balance sheet as an asset or
liability measured at its fair value and that changes in the
derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met.
FAS 133, as amended, is effective for fiscal years beginning
after June 15, 2000 and must be applied to: (1) derivative
instruments; and (2) certain derivative instruments embedded in
hybrid contracts that were issued, acquired or substantively
modified after December 31, 1998. Wisconsin Energy has
identified a limited number of both financial and physical
commodity contracts that meet the definition of a derivative
under FAS 133 in its electric and natural gas utility operations
as well as in its non-regulated energy operations. These
contracts are used to manage the Company's exposure to commodity
price and interest rate volatility.
The adoption of FAS 133, as amended, on January 1, 2001, was
insignificant to the income statement and to other comprehensive
income. The Company believes that its electric capacity
contracts qualify for the normal purchase and sale exception
under FAS 133, and therefore are not considered derivative
instruments. The Financial Accounting Standards Board is
currently reviewing a proposal that would allow electric capacity
option contracts to qualify for the normal purchase and sale
exception. The Financial Accounting Standards Board's final
conclusion may impact the Company's ongoing application of
FAS 133 related to its electric capacity contracts.
Following initial adoption of FAS 133, changes in the net value
of the effective portion of derivatives qualifying as cash flow
hedges are recorded, net of tax, in other comprehensive income.
The ineffective portion of the derivative's change in fair value
is required to be recognized in earnings immediately. In the
case of Wisconsin Gas, the ineffective portion is recorded as
regulatory asset or liability as these transactions are part of
the purchased gas cost recovery mechanism.
The fair value of the derivative investments is determined by
reference to quoted market prices of listed contracts, published
quotations or quotations from independent parties. In the
absence thereof, the Company utilizes mathematical models based
on current and historical data.
B - MERGERS AND ACQUISITIONS
Utility Energy Segment
WICOR, INC.: On April 26, 2000, the Company acquired all of the
outstanding common stock of WICOR, Inc., a diversified utility
holding company. The purchase price included the payment of
$1.2 billion of cash, the assumption of options and restricted
shares valued at $37.1 million and the payment of $10.2 million
in transaction costs. The Company also assumed approximately
$267 million of existing WICOR debt. The cash purchase price of
approximately $1.2 billion was funded with commercial paper
borrowings. The acquisition was accounted for as a purchase
under Accounting Principles Board Opinion No. 16, Business
Combinations ("APB 16"), and accordingly, the operating results
have been included in the Company's consolidated results of
operations from the date of acquisition. In accordance with
APB 16, the purchase price has been allocated to assets acquired
and liabilities assumed based upon an estimate of fair value at
the date of acquisition while approximately $818 million was
recorded as goodwill and is being amortized over 40 years.
Portions of the purchase price were identified by independent
appraisers utilizing proven valuation procedures and techniques
and are subject to adjustment as these estimates are refined and
finalized.
The following unaudited pro forma data summarize the results of
recurring operations for the periods indicated as if the WICOR
acquisition had been completed as of the beginning of the periods
presented. The pro forma amounts give effect to actual operating
results prior to the acquisition, adjusted to include the pro
forma effect of interest expense, amortization of intangibles and
income taxes. The pro forma information does not necessarily
reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations of the
combined companies.
Pro Forma
----------------------------------
Wisconsin Energy Corporation 2000 1999
- ---------------------------- -------- --------
(Millions of Dollars, Except Per Share Amounts)
Total Operating Revenues $3,789.9 $3,282.8
Net Income $182.4 $201.3
Earnings Per Share
Basic $1.51 $1.72
Diluted 1.51 1.72
ESELCO, INC.: On May 31, 1998, Wisconsin Energy acquired
ESELCO, Inc. in a tax-free reorganization accounted for as a
pooling of interests. ESELCO was the parent company of Edison
Sault, an electric utility serving customers in Michigan's
eastern Upper Peninsula. In connection with the acquisition,
Wisconsin Energy issued 2.4 million shares of Wisconsin Energy
common stock with a value of $70.9 million for the outstanding
shares of ESELCO common stock. Due to the immaterial nature of
the transaction, Wisconsin Energy has not restated any historical
financial or statistical information. Instead, Wisconsin Energy
combined ESELCO's May 31, 1998 balance sheet with Wisconsin
Energy's, including a $1.2 million credit to retained earnings of
which $0.9 million represented ESELCO's consolidated net income
during the first five months of 1998.
Non-Utility Energy Segment
WISVEST-CONNECTICUT, LLC: In April 1999, Wisvest-Connecticut,
LLC, a wholly owned subsidiary of Wisvest Corporation, acquired
two fossil-fueled power plants in the state of Connecticut for
$276.8 million from The United Illuminating Company, an
unaffiliated investor-owned utility in New Haven, Connecticut.
Pursuant to the agreement, Wisvest-Connecticut, LLC purchased the
Bridgeport Harbor Station, which has an active generating
capacity of 590 megawatts, as well as the New Haven Harbor
Station, which has an active generating capacity of 466
megawatts. Wisconsin Energy accounted for the transaction under
the purchase method of accounting. Related goodwill in the
amount of $55.9 million, which is being amortized over a 30-year
estimated life, remains outstanding at December 31, 2000. Due to
the immaterial nature of the transaction, Wisconsin Energy has
not presented pro forma financial information. As discussed in
Note C, the Company has announced the pending sale of these two
fossil-fueled power plants.
Manufacturing Segment
In August 2000, WICOR Industries, Inc. completed the acquisition
of a privately held manufacturer of fiber-wound pressure tanks
for the water treatment industry. The aggregate purchase price
for this transaction was approximately $33.5 million and was
financed using cash and short-term borrowings. The acquisition
was accounted for as a purchase with the acquired company's
results of operations included in the consolidated financial
statements from the acquisition date. The excess of the purchase
price over the estimated fair value of the net assets of the
acquired company was approximately $22.6 million, which has been
recorded as goodwill and is being amortized over a period of
40 years. Due to the immaterial nature of the transaction,
Wisconsin Energy has not presented pro forma financial
information.
C - ASSET SALES AND DIVESTITURES
During 2000, the Company's management announced a strategy,
which, among other things, identified the divestiture of non-core
investments.
In October 2000, the Company closed on the sale of its interest
in SkyGen Energy Holdings LLC which resulted in cash proceeds
totaling approximately $332 million (including approximately
$112 million for the repayment of certain advances, short-term
notes receivables and interest) and a gain of $54.6 million after
tax or $0.45 per share.
As of December 31, 2000, Wisconsin Energy held additional assets
for sale as follows:
Assets Held For Sale December 31, 2000
- -------------------- -----------------
(Millions of Dollars)
Non-Utility Energy $331.8
Other - Real Estate 132.2
------
Total $464.0
======
In May 2000, Wisconsin Energy announced that it planned to market
and sell approximately 80% of the assets of Wispark. During the
fourth quarter of 2000, the Company completed the sale of
approximately 44% of the Wispark portfolio anticipated to be
sold, receiving approximately $128 million of gross proceeds.
Wisconsin Energy anticipates selling the balance of the assets
identified for sale over the next two years.
In December 2000, the Company signed an agreement to sell Wisvest-
Connecticut, LLC's two fossil-fueled generating stations in the
state of Connecticut for anticipated gross proceeds of
approximately $350 million, including amounts for inventory. The
sale of these plants and associated assets is expected to close
by the end of the second quarter of 2001 subject to various
regulatory approvals and other closing conditions. Concurrent
with the sale of the Connecticut generating stations, Wisvest
expects to retire $208.0 million of variable rate notes which are
secured by the plants.
During the fourth quarter of 2000, the Company signed an
agreement to sell Wisvest's interest in Blythe Energy, LLC, an
independent power production project in the state of California.
Initial proceeds of $42 million for the reimbursement of certain
development costs were received in the fourth quarter of 2000.
Additional proceeds are due in 2001 upon completion of certain
regulatory and contractual matters, which is expected to result
in a gain on the sale.
Proceeds from these sales, and additional sales of real estate by
Wispark, are being used primarily to reduce debt.
In 2000, Wisconsin Electric and Edison Sault agreed to join the
American Transmission Company LLC by transferring their electric
utility transmission assets in exchange for equity interests in
this new company. Transfer of these electric transmission system
assets, with a net book value of approximately $252 million,
became effective on January 1, 2001. During the first half of
2001, the American Transmission Company LLC expects to issue debt
and distribute cash to Wisconsin Electric and Edison Sault in an
amount equal to approximately 50% of the net book value of the
assets transferred.
D - NON-RECURRING CHARGES
During the fourth quarter of 2000, the Company recorded charges
totaling $0.69 per diluted share. Of this, $0.33 per share
related to severance and employee benefits and merger-related
items. In connection with the WICOR merger and the divestiture
of non-core businesses, approximately 300 employees are to
receive severance benefits under severance agreements and
enhanced retirement initiatives. As of December 31, 2000,
approximately $14.0 million of severance benefits remained as an
outstanding liability on the balance sheet. The Company also
recorded charges totaling $0.26 per share during the fourth
quarter of 2000 related to the valuation of non-core investments.
The Company reviewed its non-core businesses and investments and
determined that the expected future cash flows on certain
investments, including real estate, international waste to energy
projects and energy marketing companies would not exceed the
historical costs of those investments. In addition, the Company
made a contribution of $0.10 per share to the Wisconsin Energy
Foundation to assist it in becoming self funding.
During 1999, Wisconsin Electric reached agreement in the
settlement of litigation related to the development of an
electric generating plant in the Philippines at a cost of
$0.09 per diluted share.
E - INCOME TAXES
The Company follows the liability method in accounting for income
taxes as prescribed by Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("FAS 109").
FAS 109 requires the recording of deferred assets and liabilities
to recognize the expected future tax consequences of events that
have been reflected in the Company's financial statements or tax
returns and the adjustment of deferred tax balances to reflect
tax rate changes.
The following table is a summary of income tax expense for each
of the years ended December 31:
Income Tax Expense 2000 1999 1998
------------------ -------- -------- --------
(Millions of Dollars)
Current tax expense $120.2 $81.8 $95.0
Deferred income taxes, net 10.3 33.6 0.6
Investment tax credit, net (4.6) (4.3) (3.4)
------ ------ -----
Total Tax Expense $125.9 $111.1 $92.2
====== ====== =====
The provision for income taxes for each of the years ended
December 31 differs from the amount of income tax determined by
applying the applicable U.S. statutory federal income tax rate to
income before income taxes and preferred dividend as a result of
the following:
2000 1999 1998
--------------------- --------------------- ---------------------
Effective Effective Effective
Income Tax Expense Amount Tax Rate Amount Tax Rate Amount Tax Rate
------------------ ------ --------- ------ --------- ------ ---------
(Millions of Dollars)
Expected tax at
statutory federal
tax rates $98.5 35.0% $112.5 35.0% $98.5 35.0%
State income taxes
net of federal
tax benefit 20.7 7.4% 16.6 5.2% 13.5 4.8%
Unrealized capital loss 7.5 2.7% - - - -
Investment tax
credit restored (4.6) (1.6%) (4.6) (1.4%) (4.7) (1.7%)
Amortization of goodwill 4.2 1.5% - - - -
Flowback of prior
contributions in aid
of construction - - (8.1) (2.5%) (8.0) (2.9%)
Other, net (0.4) (0.1%) (5.3) (1.6%) (7.1) (2.6%)
------ ----- ------ ----- ----- -----
Total Tax Expense $125.9 44.9% $111.1 34.7% $92.2 32.6%
====== ===== ====== ===== ===== =====
The components of FAS 109 deferred income taxes classified as net
current assets and net long-term liabilities at December 31 are
as follows:
Current Assets (Liabilities) Long-Term Liabilities (Assets)
---------------------------- ------------------------------
Deferred Income Taxes 2000 1999 2000 1999
--------------------- ---- ---- ---- ----
(Millions of Dollars)
Property-related $ - $ - $671.9 $568.1
Construction advances - - (66.5) (61.8)
Decommissioning trust - - (52.9) (44.2)
Contested liability payment - - 43.8 43.8
Recoverable gas costs 18.1 (0.4) - -
Uncollectible account expense 18.0 6.6 - -
Employee benefits
and compensation 15.7 8.4 4.1 (34.5)
Asset impairment charge 10.8 12.1 - -
Other 10.8 10.6 (13.3) (7.0)
----- ----- ------ ------
Total Deferred Income Taxes $73.4 $37.3 $587.1 $464.4
===== ===== ====== ======
Wisconsin Electric, Wisconsin Gas and Edison Sault have also
recorded deferred regulatory assets and liabilities representing
the future expected impact of deferred taxes on utility revenues
(see Note A).
F - NUCLEAR OPERATIONS
POINT BEACH NUCLEAR PLANT: Wisconsin Electric owns two 510-
megawatt electric generating units at Point Beach Nuclear Plant
in Two Rivers, Wisconsin. Point Beach Nuclear Plant is operated
by the Nuclear Management Company, a company that, as of
December 31, 2000, manages seven nuclear generating units in the
Midwest owned by four different companies in the region.
Wisconsin Electric currently expects the two units at Point Beach
to operate to the end of their operating licenses, which expire
in October 2010 for Unit 1 and in March 2013 for Unit 2.
In 1997, the PSCW authorized Wisconsin Electric to defer certain
nuclear non-fuel operation and maintenance costs in excess of
those included in 1997 rates. As a result, Wisconsin Electric
deferred $18 million during 1997. During 1998, the PSCW
authorized a five-year recovery in the electric retail
jurisdiction in the state of Wisconsin of the excess 1997 nuclear
non-fuel operation and maintenance costs, and Wisconsin Electric
began amortizing the $18 million of deferred costs on a straight
line basis over the five year recovery period. As of
December 31, 2000, $8.3 million of deferred costs remain on the
Consolidated Balance Sheet in Deferred Charges and Other Assets -
Deferred Regulatory Assets (see Note A).
NUCLEAR INSURANCE: The Price-Anderson Act as amended and
extended to August 1, 2002, currently limits the total public
liability for damages arising from a nuclear incident at a
nuclear power plant to approximately $9.5 billion, of which
$200 million is covered by liability insurance purchased from
private sources. The remaining $9.3 billion is covered by an
industry retrospective loss sharing plan whereby in the event of
a nuclear incident resulting in damages exceeding the private
insurance coverage, each owner of a nuclear plant would be
assessed a deferred premium of up to $88.1 million per reactor
(Wisconsin Electric owns two) with a limit of $10 million per
reactor within one calendar year. As the owner of Point Beach,
Wisconsin Electric would be obligated to pay its proportionate
share of any such assessment.
Wisconsin Electric participated in an industry-wide insurance
program, with an aggregate limit of $200 million which covered
radiation injury claims of nuclear workers first employed after
1987. This program was replaced with a new program (which has no
retrospective assessment provisions) at the end of 1997.
However, the discovery period for claims covered under the former
program remains open until the end of 2007 for those few former
insureds who no longer need to participate in the new,
replacement program. If claims in excess of the funds available
under the old program develop, Wisconsin Electric would be
assessed up to a maximum of approximately $6.3 million.
Wisconsin Electric, through its membership in Nuclear Electric
Insurance Limited ("NEIL"), carries decontamination, property
damage and decommissioning shortfall insurance covering losses of
up to $1.5 billion at Point Beach. Under policies issued by
NEIL, the insured member is liable for a retrospective premium
adjustment in the event of catastrophic losses exceeding the full
financial resources of NEIL. Wisconsin Electric's maximum
retrospective liability under its policies is $7.8 million.
Wisconsin Electric also maintains insurance with NEIL covering
business interruption and extra expenses during any prolonged
accidental outage at Point Beach, where such outage is caused by
accidental property damage from radioactive contamination or
other risks of direct physical loss. Wisconsin Electric's
maximum retrospective liability under this policy is
$3.8 million.
It should not be assumed that, in the event of a major nuclear
incident, any insurance or statutory limitation of liability
would protect Wisconsin Electric from material adverse impact.
NUCLEAR DECOMMISSIONING: Nuclear decommissioning costs are
included in depreciation expense under an external sinking fund
method as these costs are recovered through rates over the
expected service lives of the generating units. Decommissioning
expenses of $17.6 million, $17.7 million and $15.5 million were
accrued during 2000, 1999 and 1998, respectively, under this
method.
Decommissioning costs collected through rates are deposited into
the nuclear decommissioning trust fund and also included in
accumulated depreciation. As a result, these funds do not add to
the cash flows available for general corporate purposes.
Earnings on the fund balance accumulate in the nuclear
decommissioning trust fund and in accumulated depreciation as
part of the decommissioning liability.
It is expected that the annual payments to the nuclear
decommissioning trust fund along with related earnings will
provide sufficient funds at the time of decommissioning.
Wisconsin Electric believes it is probable that any shortfall in
funding would be recoverable in utility rates.
The estimated cost to decommission the plant in 2000 dollars is
$586 million based upon a site specific decommissioning cost
study completed in 1998, and includes additional costs from prior
estimates for work management by an independent decommissioning
general contractor. Assuming plant shutdown at the expiration of
the current operating licenses, prompt dismantlement and annual
escalation of costs at specific inflation factors established by
the PSCW, it is projected that approximately $1.9 billion will be
spent over a thirty-three year period, beginning in 2010, to
decommission the plant.
Following is a summary at December 31 of the Nuclear
Decommissioning Trust Fund balance, stated at fair value, which
is equal to the accrued decommissioning liability balance
included in accumulated depreciation.
Nuclear Decommissioning Trust Fund 2000 1999
- ---------------------------------- ---- ----
(Millions of Dollars)
Total funding and realized net earnings $408.1 $357.7
Unrealized gains, net 205.2 268.0
------ ------
Total $613.3 $625.7
====== ======
As required by Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity
Securities, Wisconsin Electric's debt and equity security
investments in the Nuclear Decommissioning Trust Fund are
classified as available for sale. Gains and losses on the fund
were determined on the basis of specific identification; net
unrealized holding gains on the fund were recorded as part of the
fund and as part of accumulated depreciation.
DECONTAMINATION AND DECOMMISSIONING FUND: The Energy Policy Act
of 1992 established a Uranium Enrichment Decontamination and
Decommissioning Fund ("D&D Fund") for the United States
Department of Energy's nuclear fuel enrichment facilities.
Deposits to the D&D Fund are derived in part from special
assessments on utilities using enrichment services. As of
December 31, 2000, Wisconsin Electric has recorded its remaining
estimated liability equal to projected special assessments of
$16.1 million. A corresponding deferred regulatory asset is
detailed in Note A. The deferred regulatory asset will be
amortized to nuclear fuel expense and included in utility rates
over the next seven years ending in 2007.
G - COMMON EQUITY
During 2000, the board of directors approved a common stock
repurchase plan which authorizes the Company to purchase up to
$400 million of its shares of common stock in the open market
over the following 24 months. Through December 31, 2000
Wisconsin Energy purchased approximately 5.0 million shares of
common stock for $100.8 million. The Company is currently
retiring the stock that is purchased.
Wisconsin Energy issued approximately 4.7 million and 3.3 million
new shares of common stock during 2000 and 1999, respectively,
which were primarily purchased by participants in the Company's
stock plans with cash investments and reinvested dividends
totaling approximately $89.3 million during 2000 and
$79.1 million during 1999.
In September 2000, the board of directors authorized a quarterly
cash dividend on its common stock, payable December 1, 2000, of
$0.20 per share ($0.80 on an annualized basis), which was reduced
from prior quarterly dividends paid during 2000 of $0.39 per
common share (or $1.56 on an annualized basis).
STOCK OPTION PLANS AND RESTRICTED STOCK: The Omnibus Stock
Incentive Plan ("OSIP"), as approved by stockholders in 1994 and
amended by the board of directors in 1998, enables the Company to
provide a long-term incentive, through equity interests in
Wisconsin Energy, to outside directors, selected officers and key
employees. The OSIP provides for the granting of stock options,
stock appreciation rights, stock awards and performance units
during the ten-year term of the plan. Awards may be paid in
common stock, cash or a combination thereof. No stock
appreciation rights have been granted to date. Four million
shares of common stock have been reserved under the OSIP.
In addition, under the terms of the Merger Agreement with WICOR,
each outstanding option to purchase shares of WICOR common stock,
$1.00 par value (with attached common stock purchase rights, a
"WICOR Option") was assumed by Wisconsin Energy and converted
into an option to purchase shares of the Company's common stock
on the same terms and conditions as were applicable under such
WICOR Options. The WICOR Options that were outstanding on
June 27, 1999 became fully vested at the effective time of
WICOR's merger with the Company.
The exercise price of a stock option under the OSIP is to be no
less than 100% of the common stock's fair market value on the
grant date and options may not be exercised within six months of
the grant date except in the event of a change in control. The
following is a summary of the Company's stock options issued
through December 31, 2000.
2000 1999 1998
--------------------- -------------------- -------------------
Weighted- Weighted- Weighted-
Number Average Number Average Number Average
Stock Options of Exercise of Exercise of Exercise
------------------- Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
Outstanding at January 1 1,234,700 $28.11 858,700 $28.53 530,200 $28.00
Granted 1,198,211 $19.95 376,000 $27.14 331,500 $29.37
Conversion of WICOR options 4,571,345 $13.71 - - - -
Exercised (735,948) $12.49 - - (3,000) $27.38
Forfeited (51,473) $25.86 - - - -
--------- --------- -------
Outstanding at December 31 6,216,835 $17.81 1,234,700 $28.11 858,700 $28.53
========= ========= =======
Exercisable at December 31 4,647,406 $16.08 369,763 $28.99 120,500 $27.05
As of December 31, 2000, the 6,216,835 options outstanding are
exercisable at per share prices of between $6.79 and $30.88 with
a weighted-average remaining contractual life of 7.2 years. At
December 31, 2000, 3,824,049 converted WICOR options are vested
and exercisable. An additional 517,700 of the outstanding
options have "cliff vesting" terms and are exercisable four years
after the grant date, while 1,805,086 of the options vest on a
straight-line "graded" basis over a four-year period from the
grant date and 70,000 of the options vest on a straight-line
"graded" basis over a three-year period from the grant date. All
outstanding options, including the converted WICOR options,
expire no later than eleven years from the date of grant. As of
December 31, 2000, the 4,647,406 exercisable options are
exercisable at per share prices of between $6.79 and $30.88 with
a weighted-average remaining contractual life of 6.6 years.
The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") and related
interpretations in accounting for its stock option plans and has
adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("FAS 123"). The Black-Scholes option-pricing model
was used to estimate FAS 123 compensation expense with the
following assumptions for 2000, 1999 and 1998, respectively:
dividend yields of 4.0%, 5.7% and 5.3%; risk free interest rates
of 6.4%, 6.7% and 5.7%; expected volatility of 21.0%, 13.2% and
15.0%; and an expected option life of 10 years for all periods.
The weighted average fair value of options granted in 2000, 1999
and 1998 was $4.73, $3.05 and $3.34 per share, respectively. Had
compensation cost for the Company's 2000, 1999 and 1998 grants
for stock-based compensation plans been determined consistent
with FAS 123, the Company's net income and diluted earnings per
share would have been reduced to the pro forma amounts indicated
below:
Pro Forma Earnings Under FAS 123 2000 1999 1998
- -------------------------------- ---- ---- ----
(Millions of Dollars, Except Per Share Amounts)
Net Income
As reported $154.2 $209.0 $188.1
Pro forma $153.0 $208.6 $187.9
Diluted Earnings Per Common Share
As reported $1.27 $1.79 $1.65
Pro forma $1.26 $1.78 $1.64
The Company has granted restricted shares of common stock to
certain key employees. The following restricted stock activity
occurred during 2000, 1999 and 1998:
2000 1999 1998
-------------------- ------------------- ------------------
Weighted- Weighted- Weighted-
Number Average Number Average Number Average
Restricted Shares of Market of Market of Market
--------------------- Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
Outstanding at January 1 103,250 55,750 6,000
Granted 64,750 $21.12 51,500 $27.41 49,750 $28.62
WICOR restricted
shares converted 57,745 $20.73 - - - -
Released/Forfeited (20,804) $25.01 (4,000) $28.32 - -
------- ------- ------
Outstanding at December 31 204,941 103,250 55,750
======= ======= ======
Recipients of the restricted shares, who have the right to vote
the shares and to receive dividends, are not required to provide
consideration to the Company other than rendering service.
Forfeiture provisions on the restricted stock expire 10 years
after award grant subject to an accelerated expiration schedule
based on the achievement of certain financial performance goals.
Under the provisions of APB 25, the market value of the
restricted stock awards on the date of grant is recorded as a
separate unearned compensation component of common stock equity
and is then charged to expense over the vesting period of the
awards. Adjustments are also made to expense for achievement of
performance goals. Restricted stock compensation charged to
expense during 2000, 1999 and 1998 was immaterial.
H - TRUST PREFERRED SECURITIES
In March 1999, WEC Capital Trust I, a Delaware business trust of
which Wisconsin Energy owns all of the outstanding common
securities, issued $200 million of 6.85% trust preferred
securities to the public. The sole asset of WEC Capital Trust I
is $206 million of 6.85% junior subordinated debentures issued by
Wisconsin Energy and due March 31, 2039. The terms and interest
payments on these debentures correspond to the terms and
distributions on the trust preferred securities. Wisconsin
Energy used the proceeds from the sale of its junior subordinated
debentures to fund a capital contribution of approximately
$105 million to Wisvest-Connecticut, LLC for acquisition in mid-
April 1999 of two fossil-fueled power plants (see Note B) and for
repayment of short-term borrowings. WEC Capital Trust I has been
consolidated into Wisconsin Energy's financial statements.
For tax purposes, Wisconsin Energy is allowed to deduct an amount
equal to the distributions on the trust preferred securities.
Wisconsin Energy may elect to defer interest payments on the
debentures for up to 20 consecutive quarters, causing
corresponding distributions on the trust preferred securities to
also be deferred. In case of a deferral, interest and
distributions will continue to accrue, along with quarterly
compounding interest on the deferred amounts.
Wisconsin Energy may redeem all or a portion of the debentures
after March 25, 2004, requiring an equal amount of trust
preferred securities to be redeemed at face value plus accrued
and unpaid distributions. Wisconsin Energy has entered into a
limited guarantee of payment of distributions, redemption
payments and payments in liquidation with respect to the trust
preferred securities. This guarantee, when considered together
with Wisconsin Energy's obligations under the related debentures
and indenture and the applicable declaration of trust, provide a
full and unconditional guarantee by Wisconsin Energy of amounts
due on the outstanding trust preferred securities.
I - LONG-TERM DEBT
FIRST MORTGAGE BONDS, DEBENTURES AND NOTES: At December 31,
2000, the maturities and sinking fund requirements through 2005
for the aggregate amount of long-term debt outstanding (excluding
obligations under capital leases) were:
(Millions of Dollars)
2001 $29.0
2002 255.8
2003 478.0
2004 154.0
2005 251.6
Thereafter 1,439.0
--------
Total $2,607.4
========
Sinking fund requirements for the years 2001 through 2005,
included in the preceding table, are $18.0 million. Commercial
paper in the amount of $509.7 million, issued under bank back-up
credit facilities that expire between 2001 through 2003, is
included in the preceding table. Substantially all of Wisconsin
Electric's utility plant is subject to a first mortgage lien.
Long-term debt premium or discount and expense of issuance are
amortized by the straight line method over the lives of the debt
issues and included as interest expense.
In connection with the WICOR acquisition, Wisconsin Energy
(1) issued $1.2 billion of commercial paper of which $449 million
is supported by multiple-year back-up credit facilities and
classified as long-term debt which the Company has both the
ability and intent to maintain for more than one year, and
(2) assumed $215 million of existing WICOR long-term debt.
During 1999, Wispark Corporation secured $53 million of bank
financing in the form of adjustable and fixed rate mortgage notes
due 2001-2012 to finance the construction or purchase of various
facilities.
In December 1999, Wisconsin Electric issued $150 million of 6-
5/8% debentures due 2002. Proceeds from the issue were added to
Wisconsin Electric's general funds and were used to reduce short-
term borrowings and for other general corporate purposes.
In April 1999, Wisvest-Connecticut, LLC issued $210 million of
nonrecourse variable rate notes secured by the acquired assets
and due December 31, 2005, the proceeds of which were used to
help finance the acquisition of two fossil-fueled power plants
(see Note B) and for related working capital. Associated with
issuance of this debt, Wisvest-Connecticut, LLC has entered into
an interest rate swap agreement to exchange fixed rate payment
obligations for variable rate receipt rights without exchanging
the underlying notional amounts. This agreement, which expires
on December 31, 2005, serves to convert variable rate debt under
Wisvest-Connecticut, LLC's long-term nonrecourse notes to fixed
rate debt to reduce the impact of interest rate fluctuations.
The variable rate is based upon a three-month LIBOR rate and the
fixed rated is 5.99%. At year-end 2000, three-month LIBOR was
6.44%. The notional amounts parallel a portion of the underlying
debt levels and are used to measure interest to be paid or
received and do not represent an exposure to credit loss. The
notional amount of Wisvest-Connecticut, LLC's interest rate swaps
was $73.1 million at December 31, 2000. This notional amount
decreases on a quarterly basis over the remaining term of the
agreement. The difference between the amounts paid and received
under the interest rate swap is accrued as interest rates change
and is recorded as an adjustment to interest expense over the
life of the hedged agreement. Wisvest-Connecticut, LLC is
exposed to credit loss in the event of nonperformance by the
other party to the interest rate swap. However, it does not
anticipate any losses from this agreement, which is with a major
financial institution.
OBLIGATIONS UNDER CAPITAL LEASES: To meet a portion of its
electric energy supply needs, Wisconsin Electric entered into a
long-term power purchase contract with an unaffiliated
independent power producer. The contract, for 236 megawatts of
firm capacity from a gas-fired cogeneration facility, includes no
minimum energy requirements. When the contract expires in 2022,
Wisconsin Electric may, at its option and with proper notice,
renew for another ten years or purchase the generating facility
at fair value or allow the contract to expire. Wisconsin
Electric treats this contract as a capital lease. The leased
facility and corresponding obligation under capital lease were
recorded at the estimated fair value of the plant's electric
generating facilities. The leased facility is being amortized on
a straight line basis over the original 25-year term of the
contract.
Imputed interest costs on the capitalized purchase power
obligation were $23.9 million, $23.4 million and $22.9 million
during 2000, 1999 and 1998, respectively, and total amortization
costs of the leased facilities were $5.7 million per year during
1998 through 2000. The long-term power purchase contract is
treated as an operating lease for rate-making purposes. As a
result, the difference between the minimum lease payments and the
sum of the imputed interest and amortization costs are recorded
as a deferred regulatory asset (see Note A). Due to the timing
of the minimum lease payments, Wisconsin Electric expects the
regulatory asset to increase to approximately $78.5 million by
the year 2009 and the total obligation under capital lease to
increase to $160.2 million by the year 2005 before each is
reduced over the remaining life of the contract. The minimum
lease payments are classified as purchased power expense on the
Consolidated Income Statement. Interest expense on the purchase
power obligation, included in purchased power expense, was
$21.0 million, $20.4 million and $20.3 million during 2000, 1999
and 1998, respectively.
Wisconsin Electric has a nuclear fuel leasing arrangement with
Wisconsin Electric Fuel Trust ("Trust") which is treated as a
capital lease. The nuclear fuel is leased and amortized to fuel
expense for a period of 60 months or until the removal of the
fuel from the reactor, if earlier. Lease payments include
charges for the cost of fuel burned, financing costs and
management fees. In the event Wisconsin Electric or the Trust
terminates the lease, the Trust would recover its unamortized
cost of nuclear fuel from Wisconsin Electric. Under the lease
terms, Wisconsin Electric is in effect the ultimate guarantor of
the Trust's commercial paper and line of credit borrowings
financing the investment in nuclear fuel. Interest expense on
the nuclear fuel lease, included in fuel expense, was
$3.9 million, $3.5 million and $3.1 million during 2000, 1999 and
1998, respectively.
Following is a summary of Wisconsin Electric's capitalized leased
facilities and nuclear fuel at December 31.
Capital Lease Assets 2000 1999
- ---------------------------------------- ---- ----
(Millions of Dollars)
Leased Facilities
Long-term purchase power commitment $140.3 $140.3
Accumulated amortization (18.6) (13.0)
------ ------
Total Leased Facilities $121.7 $127.3
====== ======
Nuclear Fuel
Under capital lease $121.4 $112.6
Accumulated amortization (63.1) (51.8)
In process/stock 34.8 22.6
------ ------
Total Nuclear Fuel $93.1 $83.4
====== ======
Future minimum lease payments under the capital leases and the
present value of the net minimum lease payments as of
December 31, 2000 are as follows:
Purchase
Power Nuclear
Capital Lease Obligations Commitment Fuel Lease Total
- ------------------------------------------- ---------- ---------- -----
(Millions of Dollars)
2001 $26.0 $29.0 $55.0
2002 26.9 22.5 49.4
2003 28.0 11.4 39.4
2004 29.0 4.3 33.3
2005 30.1 1.9 32.0
Later Years 501.1 - 501.1
------ ----- ------
Total Minimum Lease Payments 641.1 69.1 710.2
Less: Estimated Executory Costs (132.2) - (132.2)
------ ----- ------
Net Minimum Lease Payments 508.9 69.1 578.0
Less: Interest (356.6) (5.9) (362.5)
------ ----- ------
Present Value of Net Minimum Lease Payments 152.3 63.2 215.5
Less: Due Currently - (26.2) (26.2)
------ ----- ------
$152.3 $37.0 $189.3
====== ===== ======
J - SHORT-TERM DEBT
Short-term notes payable balances and their corresponding
weighted-average interest rates at December 31 consist of:
2000 1999
---------------------- ----------------------
Interest Interest
Short-Term Debt Balance Rate Balance Rate
- --------------------------- ------- -------- ------- --------
(Millions of Dollars)
Banks
Domestic subsidiaries $57.9 6.77% $50.9 6.32%
Foreign subsidiaries 10.6 5.39% - -
Commercial paper 1,627.3 6.61% 256.6 6.20%
Medium-term notes due in
less than one year 200.0 6.74% 200.0 6.16%
Commercial paper classified
as long-term debt (Note I) (509.7) 6.64% - -
-------- ------
$1,386.1 6.67% $507.5 6.20%
======== ======
In November 1999, Wisconsin Energy Capital Corporation sold
$200 million aggregate principal amount of nine-month adjustable
medium-term notes due August 16, 2000. The initial interest rate
for the medium-term notes was 6.16%. Proceeds from the 1999 sale
of the notes were used to fund a $150 million capital
contribution by Wisconsin Energy to Wisconsin Electric and to
reduce short-term borrowings and for other general corporate
purposes. In August 2000, these notes matured, and Wisconsin
Energy Capital Corporation issued $200 million of new twelve-
month adjustable medium-term notes due August 16, 2001 to fund
the maturity of the 2000 notes. The initial interest rate on the
new notes, which is reset quarterly based on 3-month LIBOR plus
five basis points, was 6.74%.
At December 31, 2000, Wisconsin Energy had $2.0 billion of
available unused lines of bank credit on a consolidated basis
primarily in support of commercial paper, $1.5 billion of which
was obtained in conjunction with the WICOR acquisition. In
support of various informal lines of credit from banks, Wisconsin
Energy's subsidiaries have agreed to maintain unrestricted
compensating balances or to pay commitment fees; neither the
compensating balances nor the commitment fees are significant.
K - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of certain of
Wisconsin Energy's recorded financial instruments at December 31
are as follows:
2000 1999
--------------------- ---------------------
Carrying Fair Carrying Fair
Financial Instruments Amount Value Amount Value
- ----------------------------- -------- ----- -------- -----
(Millions of Dollars)
Nuclear decommissioning trust fund $613.3 $613.3 $625.7 $625.7
Preferred stock - redemption required 30.4 15.4 30.4 18.0
Trust preferred securities 200.0 185.5 200.0 156.0
Long-term debt including
current portion 2,607.4 2,553.2 2,010.9 1,923.5
The carrying value of cash and cash equivalents, net accounts
receivable, accounts payable and short-term borrowings
approximates fair value due to the short maturities of these
instruments. The nuclear decommissioning trust fund is carried
at fair value as reported by the trustee (see Note F). The fair
values of Wisconsin Energy's preferred stock - redemption
required and trust preferred securities (see Note H) are
estimated based upon the quoted market value for the same or
similar issues. The fair value of Wisconsin Energy's long-term
debt, including the current portion of long-term debt but
excluding capitalized leases, is estimated based upon quoted
market value for the same or similar issues or upon the quoted
market prices of U.S. Treasury issues having a similar term to
maturity, adjusted for the issuing company's bond rating and the
present value of future cash flows.
L - BENEFITS
PENSIONS AND OTHER POSTRETIREMENT BENEFITS: The Company
provides defined benefit pension and other postretirement benefit
plans to employees. The status of these plans, including a
reconciliation of benefit obligations, a reconciliation of plan
assets and the funded status of the plans follows.
Other Postretirement
Pension Benefits Benefits
------------------- --------------------
Status of Benefit Plans 2000 1999 2000 1999
- ----------------------------------- ---- ---- ---- ----
(Millions of Dollars)
Change in Benefit Obligation
Benefit Obligation at January 1 $780.7 $752.4 $195.5 $180.8
Service cost 17.7 16.3 4.7 3.3
Interest cost 67.2 51.1 18.0 12.5
Plan participants' contributions - - 5.3 5.1
Plan amendments 4.6 - (29.7) -
Actuarial (gain) loss 31.5 (8.0) 6.1 7.6
Acquisitions 162.6 17.7 62.8 1.4
Special termination benefits 1.7 - - -
Benefits paid (67.5) (48.8) (18.0) (15.2)
-------- ------ ------- -------
Benefit Obligation at December 31 $998.5 $780.7 $244.7 $195.5
Change in Plan Assets
Fair Value at January 1 $944.9 $839.7 $83.9 $68.9
Actual return on plan assets (6.4) 137.3 (4.4) 13.1
Employer contributions 2.0 2.5 11.1 10.5
Plan participants' contributions - - 5.3 5.1
Acquisitions 351.8 14.2 71.9 1.5
Benefits paid (67.5) (48.8) (18.0) (15.2)
-------- ------ ------- -------
Fair Value at December 31 $1,224.8 $944.9 $149.8 $83.9
-------- ------ ------- -------
Funded Status of Plans
Funded status at December 31 $226.3 $164.1 ($94.9) ($111.8)
Unrecognized
Net actuarial (gain) loss (61.0) (186.9) (42.6) 5.6
Prior service cost 30.0 28.5 0.3 2.4
Net transition obligation (asset) (9.1) (11.4) 27.2 60.3
-------- ------ ------- -------
Net Asset (Accrued Benefit Cost) $186.2 ($5.7) ($110.0) ($43.5)
======== ====== ======= =======
The components of net periodic pension and other postretirement
benefit costs as well as the weighted-average assumptions used in
accounting for the plans include the following:
Other Postretirement
Pension Benefits Benefits
-------------------------------- --------------------------------
Benefit Plan Cost Components 2000 1999 1998 2000 1999 1998
- ---------------------------- ---- ---- ---- ---- ---- ----
(Millions of Dollars)
Net Periodic Benefit Cost
Service cost $17.7 $16.3 $13.1 $4.7 $3.3 $2.7
Interest cost 67.2 51.1 48.7 18.0 12.5 11.8
Expected return on plan assets (89.0) (64.3) (57.8) (11.3) (5.8) (5.0)
Amortization of
Transition obligation (asset) (2.3) (2.2) (2.2) 4.6 4.6 4.6
Prior service cost 3.9 3.1 3.1 0.1 0.2 0.2
Actuarial loss (gain) 0.6 0.7 0.6 (0.2) 0.2 (0.3)
Terminations/curtailment 1.2 - - 8.8 - -
----- ----- ----- ----- ----- -----
Net Periodic Benefit Cost ($0.7) $4.7 $5.5 $24.7 $15.0 $14.0
===== ===== ===== ===== ===== =====
Weighted-Average Assumptions
at December 31 (%)
Discount rate 7.5 7.5 6.75 7.5 7.5 6.75
Expected return on plan assets 9.0 9.0 9.0 9.0 9.0 9.0
Rate of compensation increase 3.0 to 3.0 to 3.0 to 3.0 to 4.75 to 3.0 to
5.0 5.0 5.0 5.0 5.0 5.0
PENSION PLANS: Pension plan assets, the majority of which are
equity securities, are held by pension trusts. Other pension
plan assets include corporate and government bonds and real
estate. In the opinion of the Company, current pension trust
assets and amounts which are expected to be paid to the trusts in
the future will be adequate to meet pension payment obligations
to current and future retirees.
Commencing November 1, 1992, pension costs or credits for
Wisconsin Electric, Wisconsin Gas and Edison Sault have been
calculated in accordance with FAS 87, Employers' Accounting for
Pensions, and are recoverable from utility customers. Prior to
this date, pension costs were recoverable in rates as funded.
Wisconsin Gas has recorded a deferred regulatory liability, which
is being amortized as a reduction of pension expense over an
eight-year period effective November 1, 1994, for the cumulative
difference between the amounts funded and FAS 87 pension expenses
through November 1, 1992.
The values reported for fiscal 1999 now include amounts with
respect to Wisvest-Connecticut postretirement welfare plans. The
1999 valuation of these plans was not completed prior to the
prior year's filing deadline. Open Window benefits were offered
to certain participants in the Wisconsin Electric Retirement
Account Plan and Wisconsin Gas Pension Plan for Non-Union
Employees. This benefit enhancement resulted in a one-time
FAS 88 cost. The measurement date for Wisconsin Gas and WICOR
was changed from September 30 to December 31 to match the
measurement date used for the other reporting entities within
Wisconsin Energy.
OTHER POSTRETIREMENT BENEFITS PLANS: The Company uses
Employees' Benefit Trusts to fund a major portion of other
postretirement benefits for employees of Wisconsin Electric,
Wisconsin Gas and the non-utility affiliates. The majority of
the trusts' assets are mutual funds or commingled indexed funds.
Effective January 1, 1992, postretirement benefit costs have been
calculated in accordance with FAS 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, and are recoverable
from the utility customers of Wisconsin Electric, Wisconsin Gas
and Edison Sault. Wisconsin Gas and Edison Sault have recorded
deferred regulatory assets, which are being amortized over a
twenty-year period effective January 1, 1992, for the cumulative
difference between the amounts funded and FAS 106 postretirement
expenses through January 1, 1992.
In 2000, the benefit attribution period was modified for the
Wisconsin Electric Postretirement medical plans to equal the 10
years of service following the later of age at hire or age 45.
This change resulted in a "negative" plan amendment and a "plan
curtailment". The measurement date for Wisconsin Gas and WICOR
was changed from September 30 to December 31 to match the
measurement date used for the other reporting entities within
Wisconsin Energy.
The assumed health care cost trend rate for 2001 is at 9% for all
plan participants decreasing gradually to 5% in 2005 and
thereafter. Assumed health care cost trend rates have a
significant effect on the amounts reported for health care plans.
A one-percentage-point change in assumed health care cost trend
rates would have the following effects:
1% Increase 1% Decrease
----------- -----------
(Millions of Dollars)
Effect on
Postretirement benefit obligation $19.3 ($16.3)
Total of service and interest cost components 2.6 (2.1)
SAVINGS PLANS: Certain operating subsidiaries of the Company
sponsor savings plans which allow employees to contribute a
portion of their pretax and/or after tax income in accordance
with plan-specified guidelines. Matching contributions under
these plans charged to expense amounted to $11.2 million,
$9.1 million and $7.4 million during 2000, 1999 and 1998,
respectively.
M - SEGMENT REPORTING
Wisconsin Energy Corporation is a diversified holding company
with subsidiaries in utility and non-utility businesses.
Wisconsin Energy's reportable operating segments include a
utility energy segment, a non-utility energy segment and a
manufacturing segment. Wisconsin Energy has organized its
reportable operating segments based in part upon the regulatory
environment in which its utility subsidiaries operate. In
addition, the segments are managed separately because each
business requires different technology and marketing strategies.
The accounting policies of the reportable operating segments are
the same as those described in Note A.
The utility energy segment primarily includes Wisconsin Energy's
electric and natural gas utility operations. The electric
utility operation engages in the generation, transmission,
distribution and sale of electric energy in southeastern
(including Metropolitan Milwaukee), east central and northern
Wisconsin and in the Upper Peninsula of Michigan. The natural
gas utility operation is responsible for the purchase,
distribution and sale of natural gas to retail customers and the
transportation of customer-owned natural gas throughout
Wisconsin. The non-utility energy segment derives its revenues
primarily from energy activities including independent power
production, energy marketing, contract meter reading and related
services. The manufacturing segment is responsible for the
manufacturing of pumps and processing equipment used to pump,
control, transfer, hold and filter water and other fluids.
Summarized financial information concerning Wisconsin Energy's
reportable operating segments for each of the years ended
December 31, 2000, 1999 and 1998 is shown in the following table.
Current year information is not comparable with the prior years
due to the addition of the operating results of the WICOR
subsidiaries subsequent to April 26, 2000 and the allocation of
merger-related costs (principally interest and goodwill
amortization expense) to the operating segments. Substantially
all long-lived assets and operations of the Company are domestic.
Reportable Operating Segments
---------------------------------------- Other (a),
Energy Corporate &
------------------------ Reconciling Total
Year Ended Utility Non-Utility Manufacturing Eliminations Consolidated
------------------- ------- ----------- ------------- ------------ ------------
(Millions of Dollars)
December 31, 2000
-----------------
Operating Revenues (b) $2,556.7 $372.8 $374.2 $51.0 $3,354.7
Depreciation,
Decommissioning
and Amortization 308.5 10.9 5.6 11.3 336.3
Operating Income (Loss) 419.1 1.8 32.5 (8.5) 444.9
Net Income (Loss) 160.0 39.4 7.5 (52.7) 154.2
Capital Expenditures (c) 400.0 107.7 20.3 83.0 611.0
Total Assets 6,526.5 597.9 850.2 431.5 8,406.1
December 31, 1999
-----------------
Operating Revenues (b) $2,050.2 $193.2 $ - $29.2 $2,272.6
Depreciation,
Decommissioning
and Amortization 237.2 7.0 - 6.6 250.8
Operating Income 455.2 19.7 - 1.2 476.1
Net Income (Loss) 216.0 2.7 - (9.7) 209.0
Capital Expenditures (c) 356.7 43.0 - 118.4 518.1
Total Assets 4,975.3 640.9 - 445.6 6,061.8
December 31, 1998
-----------------
Operating Revenues (b) $1,980.0 $34.1 $ - $25.3 $2,039.4
Depreciation,
Decommissioning
and Amortization 227.3 1.2 - 3.9 232.4
Operating Income (Loss) 387.4 (0.9) - 4.2 390.7
Net Income (Loss) 184.7 (2.1) - 5.5 188.1
Capital Expenditures (c) 336.1 0.2 - 62.7 399.0
Total Assets 4,675.5 169.2 - 340.9 5,185.6
(a) Other includes all other non-utility activities, primarily non-utility real
estate investment and development and non-utility investment in recycling
technology as well as interest on corporate debt.
(b) Intersegment revenues are not material.
(c) Excludes acquisitions.
N - COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURES: Certain commitments have been made in
connection with 2001 capital expenditures. During 2001, total
capital expenditures are estimated to be approximately
$715.0 million of which approximately $480.0 million, excluding
the purchase of nuclear fuel, is attributable to the utility
energy segment, $90.0 million is attributable to the non-utility
energy segment, $35.0 million is attributable to the
manufacturing segment, $55.0 million is attributable to
development and investment in recycling technology and
$55.0 million is attributable to other.
GIDDINGS & LEWIS, INC./CITY OF WEST ALLIS LAWSUIT: In July
1999, a jury issued a verdict against Wisconsin Electric awarding
the plaintiffs, Giddings & Lewis, Inc., Kearney & Trecker
Corporation, now a part of Giddings & Lewis, and the City of West
Allis, $4.5 million in compensatory damages and $100 million in
punitive damages in an action alleging that Wisconsin Electric
had deposited cyanide contaminated wood chips in 1959 at two
sites in West Allis, Wisconsin owned by the plaintiffs. Internal
investigations lead Wisconsin Electric to believe that it was not
the source of this waste. Environmental remediation at both
sites was completed several years ago, with the current owners
paying for disposal of materials found on their respective
portions of the sites.
In December 1999, in order to stop the post-judgment accrual of
interest at 12% during the pendency of the appeal, Wisconsin
Electric tendered a contested liability payment of $110 million,
which is part of Deferred Charges and Other Assets - Other on the
Consolidated Balance Sheet, to the Milwaukee County Clerk of
Circuit Court representing the amount of the verdict and accrued
interest. Under Wisconsin law, the plaintiffs are liable to
Wisconsin Electric upon reversal or reduction of the judgment for
the applicable amount of the funds tendered with interest.
In further post-trial proceedings, the plaintiffs filed with the
Circuit Court a motion for sanctions based upon representations
made by Wisconsin Electric during trial that Wisconsin Electric
had no insurance coverage for the punitive damage award. On
April 27, 2000, the Circuit Court Judge issued a ruling on the
matter, imposing the following sanctions against Wisconsin
Electric: (i) "judgment in the alternative" as a sanction,
thereby finding an alternative basis upon which to sustain the
$104.5 million verdict returned by the jury; (ii) a bar against
Wisconsin Electric pursuing insurance coverage for the punitive
damage portion of the verdict; and (iii) a requirement that
Wisconsin Electric pay the plaintiffs' costs relating to the
sanctions matter. In addition to appealing the judgment entered
on the jury's verdict, Wisconsin Electric is appealing the
Judge's ruling on the sanctions matter.
In the opinion of management, based in part on the advice of
legal counsel, the jury verdict was not supported by the evidence
or the law and the unprecedented award of punitive damages of
this magnitude was unwarranted and should therefore be reversed
or substantially reduced on appeal. Management also believes
that the sanctions imposed by the Judge were not supported by the
evidence or the law. As such, Wisconsin Electric has not
established a reserve for potential damages from this suit.
As further developments, two shareholders filed separate
shareholder derivative proceedings in Milwaukee County Circuit
Court in August and September 2000 for alleged injuries to
shareholders resulting from the Giddings & Lewis/City of West
Allis litigation. The two lawsuits have been consolidated for
pre-trial purposes. In accordance with Wisconsin law, a special
committee of independent directors of Wisconsin Energy conducted
an investigation into the allegations contained in the lawsuits
and concluded that the maintenance of the two actions is not in
the best interest of the Company. As a result, Wisconsin Energy
moved to dismiss the actions, which is pending before the court.
ENVIRONMENTAL MATTERS: The Company periodically reviews its
reserves for remediation costs as evidence becomes available
indicating that its remediation liability has changed. Given
current information, including the following, management believes
that future costs in excess of the amounts accrued and/or
disclosed on all presently known and quantifiable environmental
contingencies will not be material to the Company's financial
position or results of operations.
During 2000, the Company expanded a voluntary program of
comprehensive environmental remediation planning for former
manufactured gas plant sites and coal-ash disposal sites.
Wisconsin Electric has performed a preliminary assessment of
twenty-one sites, including eleven manufactured gas plant sites
discussed below, and expects to conduct additional investigations
during 2001 as well as to begin discussions with the Wisconsin
Department of Natural Resources as necessary. At this time, the
Company cannot estimate future remediation costs associated with
these sites beyond those described below.
MANUFACTURED GAS PLANT SITES: Included as part of its voluntary
program noted above, the Company continues to investigate the
remediation of thirteen former manufactured gas plant sites and
currently estimates that future costs for detailed site
investigation and remediation will be $25 million to $40 million
over the next ten years for eleven sites at Wisconsin Electric
and approximately $6 million for two sites at Wisconsin Gas.
Actual costs are uncertain pending the results of further site
specific investigations and the selection of site specific
remediation.
Wisconsin Electric has begun remediation activities at former
manufactured gas plant sites in the Cities of Burlington and
Kenosha, Wisconsin and expects to begin remediation at sites in
Fort Atkinson and Waukesha, Wisconsin in 2001. Remediation of
these sites is anticipated to be accomplished at an aggregate
cost of between $5 million and $6 million. In Wisconsin
Electric's February 13, 1997 Rate Order, the PSCW amplified its
position on the recovery of manufactured gas plant site
remediation costs. It reiterated its position that such costs
should be deferred and amortized and recovered, without carrying
costs, in future rate cases. Since the timing and recovery of
remediation costs will be affected by the biennial rate case
cycle, the timing and magnitude of remediation expenditures, and
their recovery, may be affected.
ASH LANDFILL SITES: Wisconsin Electric aggressively seeks
environmentally acceptable, beneficial uses for its combustion by-
products. However, such coal-ash by-products have been, and to
some degree, continue to be disposed in company-owned, licensed
landfills. Some early designed and constructed landfills may
allow the release of low levels of constituents resulting in the
need for various levels of remediation. Where Wisconsin Electric
has become aware of these conditions, efforts have been expended
to define the nature and extent of any release, and work has been
performed to address these conditions. The costs of these
efforts are included in the environmental operating and
maintenance costs of Wisconsin Electric. During 2000, the
Company incurred $2.9 million in coal-ash remediation expenses
and expects to incur $3.0 million in 2001.
MANUFACTURING SEGMENT: The Company's manufacturing subsidiaries
are involved in various environmental matters, including matters
in which the subsidiaries or alleged predecessors have been named
as potentially responsible parties under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA).
The Company has established reserves for all of these
environmental contingencies of which management is currently
aware.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the
Stockholders of Wisconsin Energy Corporation
In our opinion, the consolidated financial statements listed in
the index appearing under Item 14(a)(1) present fairly, in all
material respects, the financial position of Wisconsin Energy
Corporation and its subsidiaries at December 31, 2000 and 1999,
and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under
Item 14(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements. These financial
statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements and financial
statement schedule based on our audits. We conducted our audits
of these statements in accordance with auditing standards
generally accepted in the United States of America, which require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/PRICEWATERHOUSECOOPERS LLP
- --------------------------------------
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 6, 2001
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Information regarding a change in accountants was previously
reported in a Current Report on Form 8-K dated as of
March 8, 2001.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under "Item 1: Election of Directors - Terms
Expiring in 2004" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in Wisconsin Energy's definitive Proxy
Statement for its Annual Meeting of Stockholders to be held
May 2, 2001 (the "2001 Annual Meeting Proxy Statement") is
incorporated herein by reference. Also see "Executive Officers
of the Registrant" in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information under "Compensation of the Board of Directors,"
"Executive Officers' Compensation," "Employment and Severance
Arrangements" and "Retirement Plans" in the 2001 Annual Meeting
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The security ownership information under "WEC Common Stock
Ownership" in the 2001 Annual Meeting Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under "Certain Related Transactions" in the 2001
Annual Meeting Proxy Statement is incorporated herein by
reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS AND REPORTS OF INDEPENDENT
ACCOUNTANTS INCLUDED IN PART II OF THIS REPORT
Consolidated Income Statement for the three years ended
December 31, 2000.
Consolidated Statement of Cash Flows for the three years
ended December 31, 2000.
Consolidated Balance Sheet at December 31, 2000 and 1999.
Consolidated Statement of Capitalization at December 31,
2000 and 1999.
Consolidated Statement of Common Equity for the three years
ended December 31, 2000.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
2. FINANCIAL STATEMENT SCHEDULES INCLUDED IN PART IV OF
THIS REPORT
Schedule I Condensed Parent Company Financial Statements for
the periods ended December 31, 2000. Other schedules are
omitted because of the absence of conditions under which
they are required or because the required information is
given in the financial statements or notes thereto.
3. EXHIBITS AND EXHIBIT INDEX
See the Exhibit Index included as the last part of this
report, which is incorporated herein by reference. Each
management contract and compensatory plan or arrangement
required to be filed as an exhibit to this report is
identified in the Exhibit Index by two asterisks (**)
following the description of the exhibit.
(b) REPORTS ON FORM 8-K
A Current Report on Form 8-K dated as of December 21, 2000
was filed by Wisconsin Energy on December 27, 2000 to
announce the agreement to sell Wisvest-Connecticut, LLC's two
fossil-fueled power plants in the state of Connecticut to NRG
Energy, Inc.
A Current Report on Form 8-K dated as of March 2, 2001 was
filed by Wisconsin Energy on March 2, 2001 to report its 2000
Annual Financial Statements and Review of Operations.
A Current Report on Form 8-K dated as of March 8, 2001 was
filed by Wisconsin Energy on March 15, 2001 to report a
change in accountants.
WISCONSIN ENERGY CORPORATION
INCOME STATEMENT
(Parent Company Only)
SCHEDULE I - CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS
Year Ended December 31
---------------------------------------------------
2000 1999 1998
---- ---- ----
(Millions of Dollars)
Miscellaneous Income $48.2 $6.9 $1.9
Miscellaneous Expense 16.6 3.8 2.0
Interest Expense 63.0 3.0 3.2
Distributions on Preferred Securities 13.7 10.5 -
Merger Expense 1.1 0.7 0.5
------ ------ ------
(46.2) (11.1) (3.8)
Income Taxes (15.4) (3.9) (1.1)
------ ------ ------
(30.8) (7.2) (2.7)
Equity in Subsidiaries' Earnings 185.0 216.2 190.8
------ ------ ------
Net Income $154.2 $209.0 $188.1
====== ====== ======
See accompanying notes to condensed parent company financial statements.
WISCONSIN ENERGY CORPORATION
STATEMENT OF CASH FLOWS
(Parent Company Only)
SCHEDULE I - CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS - (Cont'd)
Year Ended December 31
-------------------------------------
2000 1999 1998
---- ---- ----
(Millions of Dollars)
Operating Activities
Net Income $154.2 $209.0 $188.1
Reconciliation to cash
Equity in subsidiaries' earnings (185.0) (216.2) (190.8)
Dividends from subsidiaries 181.6 181.6 179.0
Other (15.2) (8.0) (0.6)
-------- ------ ------
Cash Provided by Operating Activities 135.6 166.4 175.7
Investing Activities
Equity investment in subsidiaries, net (600.0) (255.0) (19.0)
Change in notes receivable from
associated companies (773.0) 20.1 (43.1)
Other (11.6) (0.3) 2.7
-------- ------ ------
Cash Used in Investing Activities (1,384.6) (235.2) (59.4)
Financing Activities
Issuance of common stock 89.3 79.1 10.3
Repurchase of common stock (100.8) - -
Issuance of manditorily redeemable
trust preferred securities - 193.7 -
Dividends paid on common stock (165.3) (182.3) (177.4)
Change in notes payable 1,168.1 (24.2) 66.6
Change in notes payable from
associated companies 253.3 6.9 (15.6)
-------- ------ ------
Cash Provided By (Used in) Financing Activities 1,244.6 73.2 (116.1)
-------- ------ ------
Change in Cash and Cash Equivalents (4.4) 4.4 0.2
Cash and Cash Equivalents
at Beginning of Year 4.6 0.2 -
-------- ------ ------
Cash and Cash Equivalents
at End of Year $0.2 $4.6 $0.2
======== ====== ======
Cash Paid (Received) For
Interest $68.8 $2.9 $3.0
Income taxes (4.2) (1.3) (2.2)
See accompanying notes to condensed parent company financial statements.
WISCONSIN ENERGY CORPORATION
BALANCE SHEET
(Parent Company Only)
SCHEDULE I - CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS - (Cont'd)
December 31
------------------------------
2000 1999
---- ----
(Millions of Dollars)
Assets
------
Current Assets
Cash and cash equivalents $0.2 $4.6
Accounts and notes receivable
from associated companies 803.0 23.7
Other 19.5 5.3
-------- --------
Total Current Assets 822.7 33.6
Property and Investments
Investment in subsidiary companies 2,869.3 2,217.4
Other 1.2 1.0
-------- --------
Total Property and Investments 2,870.5 2,218.4
Deferred Charges 33.8 24.5
-------- --------
Total Assets $3,727.0 $2,276.5
======== ========
Liabilities and Equity
----------------------
Current Liabilities
Accounts and notes payable $1,211.4 $42.7
Accounts and notes payable
to associated companies 263.2 7.6
Other 9.1 0.2
-------- --------
Total Current Liabilities 1,483.7 50.5
Deferred Credits 20.8 15.5
Manditorily Redeemable Trust Preferred Securities 200.0 200.0
Stockholders' Equity
Common stock 837.3 842.3
Retained earnings 148.2 134.7
Undistributed subsidiaries' earnings 1,037.0 1,033.5
-------- --------
Total Stockholders' Equity 2,022.5 2,010.5
-------- --------
Total Liabilities and Equity $3,727.0 $2,276.5
======== ========
See accompanying notes to condensed parent company financial statements.
WISCONSIN ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Parent Company Only)
SCHEDULE I - CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS - (Cont'd)
1. The condensed parent company financial statements and notes
should be read in conjunction with the consolidated financial
statements and notes of Wisconsin Energy Corporation appearing in
this Annual Report on Form 10-K.
2. Various financing arrangements and regulatory requirements
impose certain restrictions on the ability of the principal
utility subsidiaries and various financing arrangements impose
restrictions on the non-utility subsidiaries to transfer funds to
Wisconsin Energy in the form of cash dividends, loans or
advances. Under Wisconsin law, Wisconsin Electric Power Company
and Wisconsin Gas Company are prohibited from loaning funds,
either directly or indirectly, to Wisconsin Energy. The Company
does not believe that such restrictions will affect its
operations.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements of Wisconsin Energy Corporation listed
below of our report dated February 6, 2001 relating to the
financial statements, which appears in this Form 10-K:
1. Registration Statement on Form S-3 (Registration No. 333-
34854) - Stock Plus Investment Plan.
2. Registration Statement on Form S-8 (Registration No. 333-
86467) - Employee Retirement Savings Plan.
3. Registration Statements on Form S-8 (Registration Nos. 33-
65225 and 333-41104) - 1993 Omnibus Stock Incentive Plan.
4. Registration Statement on Form S-8 (Registration No. 333-
35800) - Assumed WICOR 401(k) Plans.
5. Registration Statement on Form S-8 (Registration No. 333-
35798) - Assumed WICOR Stock Options.
6. Registration Statement on Form S-3 (Registration No. 333-
73137) - Debt and Trust Preferred Securities.
7. Registration Statement on Form S-3 (Registration No. 333-
56508) - Debt Securities.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
March 22, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, therunto duly authorized.
WISCONSIN ENERGY CORPORATION
By /s/RICHARD A. ABDOO
----------------------------------------
Date: March 22, 2001 Richard A. Abdoo, Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/RICHARD A. ABDOO March 22, 2001
- --------------------------------------------------
Richard A. Abdoo, Chairman of the Board, President
and Chief Executive Officer and Director-
Principal Executive Officer
/s/PAUL DONOVAN March 22, 2001
- --------------------------------------------------
Paul Donovan, Senior Vice President and Chief
Financial Officer - Principal Financial Officer
/s/STEPHEN P. DICKSON March 22, 2001
- --------------------------------------------------
Stephen P. Dickson, Controller -
Principal Accounting Officer
/s/JOHN F. AHEARNE March 22, 2001
- --------------------------------------------------
John F. Ahearne, Director
/s/JOHN F. BERGSTROM March 22, 2001
- --------------------------------------------------
John F. Bergstrom, Director
/s/BARBARA L. BOWLES March 22, 2001
- --------------------------------------------------
Barbara L. Bowles, Director
/s/ROBERT A. CORNOG March 22, 2001
- --------------------------------------------------
Robert A. Cornog, Director
/s/WILLIE D. DAVIS March 22, 2001
- --------------------------------------------------
Willie D. Davis, Director
/s/RICHARD R. GRIGG March 22, 2001
- --------------------------------------------------
Richard R. Grigg, Director
/s/FREDRICK P. STRATTON, JR. March 22, 2001
- --------------------------------------------------
Fredrick P. Stratton, Jr., Director
/s/GEORGE E. WARDEBERG March 22, 2001
- --------------------------------------------------
George E. Wardeberg, Director
WISCONSIN ENERGY CORPORATION
(Commission File No. 001-09057)
EXHIBIT INDEX
to
Annual Report on Form 10-K
For the year ended December 31, 2000
The following exhibits are filed with or incorporated by
reference in the report with respect to Wisconsin Energy. (An
asterisk (*) indicates incorporation by reference pursuant to
Exchange Act Rule 12b-32.)
Number Exhibit
- ------ -------------------------------------------------
2 Plan of acquisition, reorganization, arrangement,
liquidation, or succession
2.1* Agreement and Plan of Merger, dated as of
June 27, 1999, as amended as of
September 9, 1999, by and among Wisconsin
Energy Corporation, WICOR, Inc. and CEW
Acquisition, Inc. (Appendix A to the joint
proxy statement/prospectus dated
September 10, 1999, included in Wisconsin
Energy's Registration on Form S-4 filed on
September 9, 1999 File No. 333-86827 (the
"Form S-4").)
2.2* Amendment to Agreement and Plan of Merger
dated as of September 9, 1999. (Exhibit
2.2 to the Form S-4.)
2.3* Second Amendment to Agreement and Plan of
Merger dated as of April 26, 2000
(Exhibit 2.3 to Wisconsin Energy's Current
Report of Form 8-K dated as of April 26,
2000).
3 Articles of Incorporation and Bylaws
3.1 * Restated Articles of Incorporation of
Wisconsin Energy Corporation, as amended
and restated effective June 12, 1995.
(Exhibit (3)-1 to Wisconsin Energy's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, File No.
1-9057.)
3.2 * Bylaws of Wisconsin Energy, as amended to
May 1, 2000. (Exhibit 3.1 to Wisconsin
Energy's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2000).
4 Instruments defining the rights of security holders,
including indentures
4.1 * Reference is made to Article III of the
Restated Articles of Incorporation.
(Exhibit 3.1 herein.)
Mortgage, Indenture, Supplemental Indenture or
Securities Resolutions:
4.2 * Mortgage and Deed of Trust of Wisconsin
Electric, dated October 28, 1938 (Exhibit B-
1 under File No. 2-4340.)
4.3 * Second Supplemental Indenture of Wisconsin
Electric, dated June 1, 1946 (Exhibit 7-C
under File No. 2-6422.)
4.4 * Third Supplemental Indenture of Wisconsin
Electric, dated March 1, 1949 (Exhibit 7-C
under File No. 2-8456.)
4.5 * Fourth Supplemental Indenture of Wisconsin
Electric, dated June 1, 1950 (Exhibit 7-D
under File No. 2-8456.)
4.6 * Fifth Supplemental Indenture of Wisconsin
Electric, dated May 1, 1952 (Exhibit 4-G
under File No. 2-9588.)
4.7 * Sixth Supplemental Indenture of Wisconsin
Electric, dated May 1, 1954 (Exhibit 4-H
under File No. 2-10846.)
4.8 * Seventh Supplemental Indenture of Wisconsin
Electric, dated April 15, 1956 (Exhibit 4-I
under File No. 2-12400.)
4.9 * Eighth Supplemental Indenture of Wisconsin
Electric, dated April 1, 1958 (Exhibit 2-I
under File No. 2-13937.)
4.10 * Ninth Supplemental Indenture of Wisconsin
Electric, dated November 15, 1960
(Exhibit 2-J under File No. 2-17087.)
4.11 * Tenth Supplemental Indenture of Wisconsin
Electric, dated November 1, 1966 (Exhibit 2-
K under File No. 2-25593.)
4.12 * Eleventh Supplemental Indenture of
Wisconsin Electric, dated November 15, 1967
(Exhibit 2-L under File No. 2-27504.)
4.13 * Twelfth Supplemental Indenture of Wisconsin
Electric, dated May 15, 1968 (Exhibit 2-M
under File No. 2-28799.)
4.14 * Thirteenth Supplemental Indenture of
Wisconsin Electric, dated May 15, 1969
(Exhibit 2-N under File No. 2-32629.)
4.15 * Fourteenth Supplemental Indenture of
Wisconsin Electric, dated November 1, 1969
(Exhibit 2-O under File No. 2-34942.)
4.16 * Fifteenth Supplemental Indenture of
Wisconsin Electric, dated July 15, 1976
(Exhibit 2-P under File No. 2-54211.)
4.17 * Sixteenth Supplemental Indenture of
Wisconsin Electric, dated January 1, 1978
(Exhibit 2-Q under File No. 2-61220.)
4.18 * Seventeenth Supplemental Indenture of
Wisconsin Electric, dated May 1, 1978
(Exhibit 2-R under File No. 2-61220.)
4.19 * Eighteenth Supplemental Indenture of
Wisconsin Electric, dated May 15, 1978
(Exhibit 2-S under File No. 2-61220.)
4.20 * Nineteenth Supplemental Indenture of
Wisconsin Electric, dated August 1, 1979
(Exhibit (a)2(a) under File No. 1-1245,
9/30/79 Wisconsin Electric Form 10-Q.)
4.21 * Twentieth Supplemental Indenture of
Wisconsin Electric, dated November 15, 1979
(Exhibit (a)2(a) under File No. 1-1245,
12/31/79 Wisconsin Electric Form 10-K.)
4.22 * Twenty-First Supplemental Indenture of
Wisconsin Electric, dated April 15, 1980
(Exhibit (4)-21 under File No. 2-69488.)
4.23 * Twenty-Second Supplemental Indenture of
Wisconsin Electric, dated December 1, 1980
(Exhibit (4)-1 under File No. 1-1245,
12/31/80 Wisconsin Electric Form 10-K.)
4.24 * Twenty-Third Supplemental Indenture of
Wisconsin Electric, dated September 15,
1985 (Exhibit (4)-1 under File No. 1-1245,
9/30/85 Wisconsin Electric Form 10-Q.)
4.25 * Twenty-Fourth Supplemental Indenture of
Wisconsin Electric, dated September 15,
1985 (Exhibit (4)-1 under File No. 1-1245,
9/30/85 Wisconsin Electric Form 10-Q.)
4.26 * Twenty-Fifth Supplemental Indenture of
Wisconsin Electric, dated December 15, 1986
(Exhibit (4)-25 under File No. 1-1245,
12/31/86 Wisconsin Electric Form 10-K.)
4.27 * Twenty-Sixth Supplemental Indenture of
Wisconsin Electric, dated January 1, 1988
(Exhibit 4 under File No. 1-1245, 1/26/88
Wisconsin Electric Form 8-K.)
4.28 * Twenty-Seventh Supplemental Indenture of
Wisconsin Electric, dated April 15, 1988
(Exhibit 4 under File No. 1-1245, 3/31/88
Wisconsin Electric Form 10-Q.)
4.29 * Twenty-Eighth Supplemental Indenture of
Wisconsin Electric, dated September 1, 1989
(Exhibit 4 under File No. 1-1245, 9/30/89
Wisconsin Electric Form 10-Q.)
4.30 * Twenty-Ninth Supplemental Indenture of
Wisconsin Electric, dated October 1, 1991
(Exhibit 4-1 under File No. 1-1245,
12/31/91 Wisconsin Electric Form 10-K.)
4.31 * Thirtieth Supplemental Indenture of
Wisconsin Electric, dated December 1, 1991
(Exhibit 4-2 under File No. 1-1245,
12/31/91 Wisconsin Electric Form 10-K.)
4.32 * Thirty-First Supplemental Indenture of
Wisconsin Electric, dated August 1, 1992
(Exhibit 4-1 under File No. 1-1245, 6/30/92
Wisconsin Electric Form 10-Q.)
4.33 * Thirty-Second Supplemental Indenture of
Wisconsin Electric, dated August 1, 1992
(Exhibit 4-2 under File No. 1-1245, 6/30/92
Wisconsin Electric Form 10-Q.)
4.34 * Thirty-Third Supplemental Indenture of
Wisconsin Electric, dated October 1, 1992
(Exhibit 4-1 under File No. 1-1245, 9/30/92
Wisconsin Electric Form 10-Q.)
4.35 * Thirty-Fourth Supplemental Indenture of
Wisconsin Electric, dated November 1, 1992
(Exhibit 4-2 under File No. 1-1245, 9/30/92
Wisconsin Electric Form 10-Q.)
4.36 * Thirty-Fifth Supplemental Indenture of
Wisconsin Electric, dated December 15, 1992
(Exhibit 4-1 under File No. 1-1245,
12/31/92 Wisconsin Electric Form 10-K.)
4.37 * Thirty-Sixth Supplemental Indenture of
Wisconsin Electric, dated January 15, 1993
(Exhibit 4-2 under File No. 1-1245,
12/31/92 Wisconsin Electric Form 10-K.)
4.38 * Thirty-Seventh Supplemental Indenture of
Wisconsin Electric, dated March 15, 1993
(Exhibit 4-3 under File No. 1-1245,
12/31/92 Wisconsin Electric Form 10-K.)
4.39 * Thirty-Eighth Supplemental Indenture of
Wisconsin Electric, dated August 1, 1993
(Exhibit (4)-1 under File No. 1-1245,
6/30/93 Wisconsin Electric Form 10-Q.)
4.40 * Thirty-Ninth Supplemental Indenture of
Wisconsin Electric, dated September 15,
1993 (Exhibit (4)-1 under File No. 1-1245,
9/30/93 Wisconsin Electric Form 10-Q.)
4.41 * Fortieth Supplemental Indenture of
Wisconsin Electric, dated January 1, 1996
(Exhibit (4)-1 under File No. 1-1245,
1/1/96 Wisconsin Electric Form 8-K.)
4.42 * Indenture for Debt Securities of Wisconsin
Electric (the "Wisconsin Electric
Indenture"), dated December 1, 1995
(Exhibit (4)-1 under File No. 1-1245,
12/31/95 Wisconsin Electric Form 10-K.)
4.43 * Securities Resolution No. 1 of Wisconsin
Electric under the Wisconsin Electric
Indenture, dated December 5, 1995 (Exhibit
(4)-2 under File No. 1-1245, 12/31/95
Wisconsin Electric Form 10-K.)
4.44 * Securities Resolution No. 2 of Wisconsin
Electric under the Wisconsin Electric
Indenture, dated November 12, 1996 (Exhibit
4.44 under File No. 1-9057, 12/31/96
Wisconsin Energy Corporation Form 10-K.)
4.45 * Securities Resolution No. 3 of Wisconsin
Electric under the Wisconsin Electric
Indenture, dated May 27, 1998 (Exhibit (4)-
1 under File No. 1-1245, 6/30/98 Wisconsin
Electric Form 10-Q.)
4.46 * Securities Resolution No. 4 of Wisconsin
Electric under the Wisconsin Electric
Indenture, dated November 30, 1999
4.47 * Indenture for Debt Securities of Wisconsin
Energy (the "Wisconsin Energy Indenture"),
dated as of March 15, 1999 (Exhibit 4.46
under File No. 1-9057, 3/25/99 Wisconsin
Energy Form 8-K.)
4.48 * Securities Resolution No. 1 of Wisconsin
Energy under the Wisconsin Energy
Indenture, dated as of March 16, 1999
(Exhibit 4.47 under File No. 1-9057,
3/25/1999 Wisconsin Energy Form 8-K.)
4.49 * Amended and Restated Trust Agreement among
Wisconsin Energy, as Depositor, The First
National Bank of Chicago, as Property
Trustee, First Chicago Delaware Inc, as
Trustee, and the Administrative Trustees
for WEC Capital Trust I, dated as of
March 25, 1999 (Exhibit 4.48 under File No.
1-9057, 3/25/1999 Wisconsin Energy
Form 8-K.)
4.50 * Guarantee Agreement between Wisconsin
Energy, as Guarantor, and The First
National Bank of Chicago, as Trustee, dated
as of March 25, 1999 (Exhibit 4.49 under
File No. 1-9057, 3/25/1999 Wisconsin Energy
Form 8-K.)
Certain agreements and instruments with
respect to long-term debt not exceeding 10
percent of the total assets of the
Registrant and its subsidiaries on a
consolidated basis have been omitted as
permitted by related instructions. The
Registrant agrees pursuant to Item
601(b)(4) of Regulation S-K to furnish to
the Securities and Exchange Commission,
upon request, a copy of all such agreements
and instruments.
10 Material Contracts
10.1 * Supplemental Executive Retirement Plan of
Wisconsin Energy Corporation (as amended
and restated as of June 2, 1999). (Exhibit
(10)-1 to Wisconsin Energy Corporation's
6/30/1999 Form 10-Q.)** See Note.
10.2 Non-Qualified Trust Agreement by and
between Wisconsin Energy Corporation and
The Northern Trust Company dated
December 1, 2000, regarding trust
established to provide a source of funds to
assist in meeting of the liabilities under
various nonqualified deferred compensation
plans made between Wisconsin Energy
Corporation or its subsidiaries and various
plan participants.** See Note.
10.3 Employment arrangement with Charles R.
Cole, effective August 1, 1999.** See Note.
10.4 * Executive Deferred Compensation Plan of
Wisconsin Energy Corporation, effective
January 1, 1989, as amended and restated as
of June 2, 1999. (Exhibit (10)-2 to
Wisconsin Energy Corporation's 6/30/1999
Form 10-Q.)** See Note.
10.5 * Directors' Deferred Compensation Plan of
Wisconsin Energy Corporation, effective
January 1, 1987, and as restated as of
January 1, 1996. (Exhibit (10)-4 to
Wisconsin Energy Corporation's Annual
Report on Form 10-K for the year ended
December 31, 1995, File No. 1 - 9057.)
** See Note.
10.6 * Forms of Stock Option Agreements under 1993
Omnibus Stock Incentive Plan. (Exhibit 10.5
to Wisconsin Energy Corporation's Annual
Report on Form 10-K for the year ended
December 31, 1995, File No. 1-9057.
Updated as Exhibit 10.1(a) and 10.1(b) to
Wisconsin Energy Corporation's 3/31/2000
Form 10-Q.)** See Note.
10.7 Employment arrangement with Larry Salustro,
effective December 12, 1997.** See Note.
10.8 * Supplemental Benefits Agreement between
Wisconsin Energy Corporation and Richard A.
Abdoo dated November 21, 1994, as amended
by an April 26, 1995 letter agreement.
(Exhibit (10)-1 to Wisconsin Energy
Corporation's 6/30/95 Form 10-Q.) ** See
Note.
10.9 * Amended and Restated Wisconsin Energy
Corporation Special Executive Severance
Policy, effective as of April 26, 2000.
(Exhibit 10.3 to Wisconsin Energy
Corporation's 3/31/2000 Form 10-Q.)** See
Note.
10.10* 1993 Omnibus Stock Incentive Plan adopted
by the board of directors on December 15,
1993, approved by shareholders at the
Annual Meeting of Stockholders held on
May 11, 1994, and amended by the board of
directors on May 19, 1998 offering
performance-based incentives and other
equity interests in Wisconsin Energy
Corporation to directors, officers and
other key employees. (Exhibit 10.10 to
Wisconsin Energy Corporation's 12/31/1998
Form 10-K.) ** See Note.
10.11* 1998 Revised forms of award agreements
under 1993 Omnibus Stock Incentive Plan, as
amended, for non-qualified stock option
awards to non-employee directors,
restricted stock awards, incentive stock
option awards and non-qualified stock
option awards. (Exhibit 10.11 to Wisconsin
Energy Corporation's 12/31/1998
Form 10-K.)** See Note.
10.12 Short-Term Performance Plan of Wisconsin
Energy Corporation effective January 1,
1992, as amended and restated as of
August 15, 2000.** See Note.
10.13* Service Agreement dated January 1, 1987,
between Wisconsin Electric, Wisconsin
Energy Corporation and other non-utility
affiliated companies. (Exhibit (10)-(a) to
Wisconsin Electric's Current Report on Form
8-K dated January 2, 1987 in File
No. 1-1245.)
10.14* Senior Officer Change in Control Agreement
between Wisconsin Energy Corporation and
Richard A. Abdoo effective July 18, 2000.
(Exhibit 10.1 to Wisconsin Energy
Corporation's 6/30/00 Form 10-Q.)**
See Note.
10.15* Form of Deferred Compensation Agreement
between Wisconsin Gas Company and certain
of its executive officers (Incorporated by
reference to Exhibit 10.30 to WICOR, Inc.'s
Annual Report on Form 10-K for 1990 (File
No. 001-07951).)** See Note.
10.16* Senior Officer Change in Control,
Severance, Special Pension, and Non-Compete
Agreement between Wisconsin Energy
Corporation and Paul Donovan effective
November 8, 2000. (Exhibit 10.1 to
Wisconsin Energy Corporation's 9/30/00
Form 10-Q.)** See Note.
10.17* Employment agreement with George E.
Wardeberg as Vice Chairman of the Board of
Directors of Wisconsin Energy Corporation,
effective April 26, 2000. (Exhibit 10.2(a)
to Wisconsin Energy Corporation's 3/31/2000
Form 10-Q.)** See Note.
10.18* Non-Qualified Stock Option Agreement with
George E. Wardeberg, dated April 26, 2000,
granted pursuant to the Employment
Agreement. (Exhibit 10.2(b) to Wisconsin
Energy Corporation's 3/31/2000
Form 10-Q.)** See Note.
10.19* Amended and Restated Wisconsin Energy
Corporation Executive Severance Policy,
effective as of April 26, 2000. (Exhibit
10.4 to Wisconsin Energy Corporation's
3/31/2000 Form 10-Q.)** See Note.
10.20 Senior Officer Change in Control, Severance
and Non-Compete Agreement between Wisconsin
Energy Corporation and Richard R. Grigg
effective January 29, 2001.** See Note
10.21* Form of amendment to the Deferred
Compensation Agreement between Wisconsin
Gas Company and Thomas F. Schrader
(Incorporated by reference to Exhibit 10.1
to the WICOR, Inc.'s Quarterly Report on
Form 10-Q dated November 12, 1999 (File
No. 001-07951).)** See Note.
10.22* Service Agreement, dated as of June 1,
1994, among WICOR, Inc., Wisconsin Gas
Company, Sta-Rite Industries, Inc., WEXCO
of Delaware, Inc. and SHURflo Pump
Manufacturing Co. (Incorporated by
reference Exhibit 10.1 to the WICOR, Inc.'s
Annual Report Form 10-K for 1995 (File
No. 001-07951).)** See Note.
10.23* Endorsement of Hypro Corporation, dated as
of July 19, 1995, to Service Agreement
among WICOR, Inc., Wisconsin Gas Company,
Sta-Rite Industries, Inc. and WEXCO of
Delaware, Inc. (Incorporated by reference
to Exhibit 10.2 to the WICOR, Inc.'s Annual
Report Form 10-K for 1995 (File No. 001-
07951).)** See Note.
10.24* WICOR, Inc. 1994 Long-Term Performance
Plan, as amended (Exhibit 10.1 to WICOR,
Inc.'s Form 10-Q for the quarter ended
June 30, 1998 (File No. 001-07951).)** See
Note.
10.25* Form of Nonstatutory Stock Option Agreement
under the WICOR, Inc. 1994 Long-Term
Performance Plan (Exhibit 4.2 to WICOR's
Registration Statement on Form S-8 (Reg.
No. 33-55755).)** See Note.
10.26* Form of Nonstatutory Stock Option Agreement
for February, 2000 Grants of Options under
the WICOR, Inc. 1994 Long-Term Performance
Plan (Exhibit 4.5 to Wisconsin Energy's
Registration Statement on Form S-8 (Reg.
No. 333-35798).)** See Note.
10.27* WICOR, Inc. 1992 Director Stock Option
Plan, as amended (Exhibit 10.3 to WICOR's
Form 10-K for the year ended December 31,
1998 (File No. 001-07951).)** See Note.
10.28* Form of Director Nonstatutory Stock Option
Agreement under the WICOR, Inc. 1992
Director Stock Option Plan (Exhibit 4.2 to
WICOR's Registration Statement on Form S-8
(Reg. No. 33-67132).) **See Note.
10.29* Form of Director Nonstatutory Stock Option
Agreement for February, 2000 Option Grants
under the WICOR, Inc. 1992 Director Stock
Option Plan (Exhibit 4.8 to Wisconsin
Energy's Registration Statement on Form S-8
(Reg. No. 333-35798).)** See Note
10.30* WICOR, Inc. 1987 Stock Option Plan, as
amended (Exhibit 4.1 to WICOR's
Registration Statement on Form S-8 (Reg.
No. 33-67134).) **See Note.
10.31* Form of Nonstatutory Stock Option Agreement
under the WICOR, Inc. 1987 Stock Option
Plan (Exhibit 10.20 to WICOR's Form 10-K
for the year ended December 31, 1991 (File
No. 001-07951).)**See Note.
10.32 Service Agreement, dated April 25, 2000,
between Wisconsin Electric Power Company
and Wisconsin Gas Company.
10.33 Service Agreement, dated December 29, 2000,
between Wisconsin Electric Power Company
and American Transmission Company LLC.
Note: Two asterisks (**) identify management
contracts and executive compensation plans or
arrangements required to be filed as exhibits
pursuant to Item 14(c) of Form 10-K. Certain
compensatory plans in which directors or executive
officers of Wisconsin Electric are eligible to
participate are not filed as Wisconsin Electric
exhibits in reliance on the exclusion in Item
601(b)(10)(iii)(B)(6) of Regulation S-K.
21 Subsidiaries of the registrant
21.1 Subsidiaries of Wisconsin Energy
Corporation
23 Consents of experts and counsel
23.1 PricewaterhouseCoopers LLP - Milwaukee, WI
Consent of Independent Accountants
appearing in this Annual Report on
Form 10-K for the year ended December 31, 2000.